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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PACKETEER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7373 77-0420107
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (INTERNAL REVENUE SERVICE
CLASSIFICATION CODE NUMBER) EMPLOYER IDENTIFICATION NUMBER)
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10495 N. DE ANZA BOULEVARD
CUPERTINO, CALIFORNIA 95014
(408) 873-4400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF THE
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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CRAIG W. ELLIOTT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PACKETEER, INC.
10495 N. DE ANZA BOULEVARD
CUPERTINO, CALIFORNIA 95014
(408) 873-4400
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
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COPIES TO:
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WARREN T. LAZAROW NEIL WOLFF
ARMANDO CASTRO YOICHIRO TAKU
VAHE H. SARRAFIAN JOHN SASAKI
ELIZABETH A. R. YEE WILSON SONSINI GOODRICH & ROSATI
BROBECK, PHLEGER & HARRISON LLP PROFESSIONAL CORPORATION
TWO EMBARCADERO PLACE 650 PAGE MILL ROAD
2200 GENG ROAD PALO ALTO, CALIFORNIA 94304
PALO ALTO, CALIFORNIA 94303 (650) 493-9300
(650) 424-0160
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.001 par value per share.................. $55,200,000 $15,346
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(1) Estimated solely for the purpose of computing the amount of the Registration
fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MAY , 1999
[PACKETEER LOGO]
SHARES
COMMON STOCK
Packeteer, Inc. is offering shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. We have applied for approval for quotation on the Nasdaq National Market
under the symbol "PKTR." We anticipate that the initial public offering price
will be between $ and $ per share.
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INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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PER SHARE TOTAL
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Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Total Proceeds to Packeteer................................. $ $
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Packeteer has granted the underwriters a 30-day option to purchase up to
additional shares of our common stock. BancBoston Robertson Stephens
Inc. expects to deliver the shares of common stock to purchasers on
, 1999.
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BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
The date of this prospectus is , 1999.
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 31
Management.................................................. 48
Certain Transactions........................................ 58
Principal Stockholders...................................... 59
Description of Capital Stock................................ 61
Shares Eligible for Future Sale............................. 65
Underwriting................................................ 67
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find More Information......................... 70
Index to Consolidated Financial Statements.................. F-1
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Packeteer, PacketShaper, PacketWise and our spiral design logo are
trademarks of Packeteer. This prospectus also contains other trade names,
trademarks of Packeteer and of other companies.
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PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
regarding our company and the common stock being sold in this offering and our
consolidated financial statements and related notes thereto appearing elsewhere
in this prospectus. Because this is only a summary, you should read the rest of
the prospectus before you invest in our common stock. Read this entire
prospectus carefully, especially the risks described under "Risk Factors."
Unless otherwise indicated, the information in this prospectus assumes the
automatic conversion of each outstanding share of preferred stock into one share
of common stock and no exercise of the underwriter's option to purchase
additional shares.
THE COMPANY
Packeteer is a leading provider of application-adaptive bandwidth
management solutions that enhance mission-critical application performance over
enterprise wide area networks, or WANs, and the Internet. Our solutions enable
businesses and service providers to manage proactively bandwidth contention at
congested WAN access links, protect important application traffic and increase
network efficiency. We deliver comprehensive application-adaptive bandwidth
management by discovering and classifying network traffic, analyzing application
and network performance, controlling traffic flows and monitoring and reporting
on performance. Our PacketWise software is at the core of our bandwidth
management solutions and is embedded in our PacketShaper family of products or
in the networking products of our OEM partners. Our PacketShaper product family
consists of an Intel architecture-based hardware platform that runs various
configurations of our PacketWise software, providing customers with a
plug-and-play solution.
Today, both the Internet and its underlying protocols have grown to
positions of prominence in enterprise networking. From its origins as a network
connecting academic and government institutions, the Internet has evolved into
an interactive communications and commerce platform supporting businesses' daily
operations. The rapid emergence of Internet computing has created new challenges
for information technology managers. E-commerce and e-business applications
extend the confines of the enterprise network across the Internet, making
application performance difficult to ensure. Enterprise users are accessing web
sites, large files, streaming multimedia content, news and other non-critical
information over the Internet. In enterprise networks that are overwhelmed by
increasing amounts of both non-critical and mission-critical traffic, unmanaged
congestion at the WAN access link undermines application performance and can
result in impaired productivity and lost revenues. Businesses and service
providers require bandwidth management solutions to enhance mission-critical
application performance, increase network efficiency and enable the convergence
of data, voice and video traffic.
Our application-adaptive bandwidth management solutions enable businesses
and service providers to realize the following key benefits:
- Gain Network Performance Visibility and Insight. We provide valuable
historical and real-time information about application performance and
network utilization.
- Ensure Bandwidth to Mission-Critical Applications. Our policy-based
bandwidth allocation protects bandwidth for mission-critical applications
from less critical traffic.
- Simplify Deployment. Our solutions require no changes to the existing
network infrastructure, install easily and automatically start to
discover, classify and analyze network traffic.
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- Enable Interactive Services. We deliver smooth and predictable
performance of delay-sensitive multimedia services that require
guaranteed bandwidth, such as Voice over IP and real-time video.
- Increase Network Efficiency. We improve network efficiency and help delay
expensive capacity upgrades by managing non-critical traffic and
smoothing the variability in bandwidth utilization.
- Facilitate E-Commerce. Our solutions optimize response time for critical
e-commerce sites such as sales and home pages and can redirect users with
slower connections to less data-intensive web pages.
Our objective is to be the leading provider of application-adaptive
bandwidth management solutions to businesses and service providers. We believe
we have established a differentiated market position in terms of our technology
expertise, early market leadership and brand awareness. We intend to continue to
direct our development and sales and marketing efforts toward addressing the
bandwidth management needs of the Internet computing market. We plan to expand
our presence in the service provider market by providing solutions that enable
service providers to offer higher value-added application-based services. We
intend to continue to build our indirect channel and develop additional original
equipment manufacturer, or OEM, relationships to enable the worldwide deployment
of our technology. Finally, we plan to extend our bandwidth management
technology leadership to increase the performance, functionality and modularity
of our existing bandwidth management solutions and to develop new leading-edge
technologies for emerging markets.
We have shipped over 2,500 PacketShapers to date and have established a
network of over 100 value-added resellers, or VARs, distributors and systems
integrators that sell our solutions in over 50 countries. In addition, we have
OEM relationships with partners who license our PacketWise software to
incorporate in their networking products or resell our products under their own
label.
We were incorporated in Delaware on January 25, 1996. Our principal
executive offices are located at 10495 North De Anza Boulevard, Cupertino,
California 95014, and our telephone number at that address is (408) 873-4400.
Information contained on our web site at www.packeteer.com does not constitute
part of this prospectus.
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THE OFFERING
Common stock offered by Packeteer........ shares
Common stock to be outstanding after this
offering................................. shares
Use of proceeds.......................... General corporate purposes
including working capital,
repayment of $2.5 million of
indebtedness and potential
acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol... PKTR
The number of shares of common stock to be outstanding after this offering
is based upon shares outstanding as of March 31, 1999. This number excludes, as
of March 31, 1999, 2,026,083 shares of common stock reserved for issuance under
our equity plans and 2,465,878 shares of common stock issuable upon exercise of
outstanding stock options and warrants.
SUMMARY CONSOLIDATED FINANCIAL DATA
The as adjusted consolidated balance sheets data summarized below reflects
the conversion of our preferred stock into 12,391,001 shares of common stock
upon the completion of this offering and the application of the net proceeds
from the sale of shares of common stock offered hereby at an
assumed offering price of $ per share and after deducting the underwriting
discounts and commissions and our estimated offering expenses. Please see Note 1
of Notes to Consolidated Financial Statements for an explanation of the number
of shares used in computing per share data.
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YEARS ENDED THREE MONTHS
JAN. 25, 1996 DECEMBER 31, ENDED MARCH 31,
(INCEPTION) TO ----------------- -----------------
DEC. 31, 1996 1997 1998 1998 1999
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total net revenues..................................... $ -- $ 1,413 $ 7,230 $ 1,246 $ 3,099
Gross profit........................................... -- 956 4,844 770 2,245
Total operating expenses............................... 1,312 7,076 13,932 2,409 4,782
Net loss from operations............................... (1,312) (6,120) (9,088) (1,639) (2,537)
Net loss............................................... $(1,237) $(5,909) $(8,799) $(1,605) $(2,523)
Basic and diluted net loss per share................... $ (1.28) $ (1.82) $ (1.54) $ (0.34) $ (0.35)
Shares used in computing basic and diluted net loss per
share................................................ 965 3,253 5,709 4,734 7,271
Pro forma basic and diluted net loss per share......... $ (0.49) $ (0.13)
Shares used in computing pro forma basic and diluted
net loss per share................................... 18,100 19,662
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MARCH 31, 1999
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ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEETS DATA:
Cash, cash equivalents and short-term investments........... $ 7,084 $
Working capital............................................. 4,065
Total assets................................................ 10,250
Long-term obligations....................................... 2,658
Total stockholders' equity.................................. 2,377
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially and adversely
affected. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
WE HAVE A LIMITED OPERATING HISTORY AND MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH
STRATEGY
We were incorporated in January 1996 and began shipping our products
commercially in February 1997. Because of our limited operating history and the
uncertain nature of the rapidly changing market that we serve, we believe the
prediction of future results of operations is difficult. Furthermore, our
prospects must be evaluated in light of the risks, uncertainties and challenges
frequently encountered by companies in the early stage of their development.
Successful implementation of our growth strategy depends upon our ability to:
- execute our sales and marketing strategy;
- develop and maintain strong relationships with key VARs, distributors,
systems integrators and OEMs;
- expand our domestic and international sales efforts;
- provide superior customer support;
- build brand awareness;
- continue to develop new products equal or superior to those of our
competitors;
- maintain our gross margins;
- expand our presence in the telecommunications service provider market;
- respond to competitive pressures;
- manage our manufacturing operations; and
- continue to attract, retain and motivate qualified personnel,
particularly in the areas of sales, marketing and engineering.
WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES AND WE CANNOT ASSURE YOU
THAT WE WILL ACHIEVE OR MAINTAIN PROFITABILITY
We have incurred losses since we commenced operations in 1996. We incurred
net losses of $1.2 million in 1996, $5.9 million in 1997, $8.8 million in 1998
and $2.5 million for the three months ended March 31, 1999. As of March 31,
1999, we had an accumulated deficit of $18.5 million. We have not achieved
profitability and although our revenues have grown in recent quarters, we cannot
be certain that we will realize sufficient revenues to achieve profitability.
Even if we achieve profitability, we cannot assure you that we can sustain or
increase profitability on a quarterly or
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<PAGE> 8
annual basis in the future. Furthermore, we currently expect that our operating
expenditures will continue to increase significantly and we may not generate a
sufficient level of revenues to offset these expenditures or be able to adjust
spending in a timely manner to respond to any unanticipated decline in revenues.
If revenues grow slower than we anticipate or if operating expenditures exceed
our expectations or cannot be adjusted accordingly, we may continue to
experience significant losses on a quarterly and annual basis.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY WHICH COULD ADVERSELY AFFECT
OUR STOCK PRICE
Our operating results are likely to fluctuate significantly in the future
on a quarterly and an annual basis due to a number of factors, many of which are
outside our control. Factors that could cause our operating results to fluctuate
include the following:
- the mix of products we sell;
- the mix of channels through which those products are sold;
- the average selling prices of our products;
- variations in the timing and size of orders and shipments of our
products;
- the amount and timing of revenues from OEMs;
- the extent of competition;
- the market acceptance of new and enhanced versions of products offered by
us or our competitors;
- seasonality of international and government sales;
- general economic conditions and economic conditions specific to the
information technology industry;
- the level of capital expenditures and other costs relating to the
expansion of operations;
- manufacturing costs, including prices or availability of limited or
sole-sourced components;
- the level of research and development expenditures related to development
of new products or redesign of our existing products;
- the level of sales and marketing expenditures; and
- the level of inventory maintained by our indirect channel partners.
Because of all of these foregoing factors, we believe that period-to-period
comparisons of our operating results cannot be relied upon as an indicator of
our future performance. Our operating results may be below the expectations of
public market analysts or investors in some future quarter. If this occurs, the
price of our common stock would likely decrease.
The amount and timing of our operating expenses generally will vary from
quarter to quarter depending on the level of actual and anticipated business
activities. In the past, we have experienced fluctuations in operating results.
For example, gross margin decreased from 69.6% for the three months ended
December 31, 1997 to 61.8% for the three months ended March 31, 1998, primarily
due to variations in the mix of products sold and variations in channel mix.
Research and development expenses have fluctuated due to increased prototype
expenses and consulting fees related to the launch of new products, increased
personnel expenses and costs associated with a facilities
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move. Sales and marketing expenses have fluctuated due to increased personnel
expenses, expenditures related to trade shows and the launch of new products.
THE TIMING OF OUR REVENUES IS DIFFICULT TO PREDICT BECAUSE OF OUR INDIRECT SALES
CHANNEL AND THE VARIABILITY OF OUR SALES CYCLES
The timing of our revenues is difficult to predict because of our reliance
on indirect sales channels and the variability of our sales cycle. The length of
our sales cycle for sales from our indirect channel partners to our end users
may vary substantially depending upon the size of the order and the distribution
channel through which our products are sold. Sales from our VARs and systems
integrators to end users typically take three to four months to complete. We
expect to have difficulties in predicting revenues from OEMs because we are
unable to forecast unit sales of their products which incorporate our
technology. If orders for our products forecasted in a particular quarter do not
occur in that quarter, our operating results for that quarter could be adversely
affected. We are dependent on timely and accurate inventory information from our
indirect channel partners because we may establish channel inventory reserves
for certain indirect channel partners if we determine that their inventory
exceeds normal stocking levels. If such information is not timely or accurate,
we could experience increased levels of sales returns or unforecasted
fluctuations in future revenue. Because our expense levels are based on our
expectations as to future revenue and to a large extent are fixed in the short
term, a substantial reduction or delay in sales of our products or the loss of
any significant indirect channel partner could harm our business.
SUCCESS OF OUR BUSINESS DEPENDS ON COMMERCIAL ACCEPTANCE OF OUR PRODUCTS, AND
THE CONTINUED GROWTH OF THE BANDWIDTH MANAGEMENT SOLUTIONS MARKET
Widespread commercial acceptance of our products is critical to our future
success. Factors that may affect the commercial acceptance of our products, many
of which are beyond our control, include the following:
- market acceptance of bandwidth management solutions;
- the success and development of our VARs, distributors, systems
integrators and OEMs;
- availability of inexpensive bandwidth, especially in international
markets;
- growth of wide area networks;
- product performance and features;
- the price and total cost of ownership of our products;
- the actions of our competitors;
- compliance with industry standards; and
- the availability, price and capabilities of competing products and
technologies.
The market for bandwidth management solutions is in an early stage of
development. Therefore, we cannot accurately assess the size of the market and
products to address the market, the optimal distribution strategy and the
competitive environment that will develop. In order for us to be successful, our
potential customers must recognize the value of more sophisticated bandwidth
management solutions, decide to invest in the management of their networks and
the performance of important business software applications and, in particular,
adopt our application-adaptive bandwidth management solutions. Our future
performance will also depend on the successful development,
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introduction and market acceptance of new and enhanced products that address
customer requirements in a cost-effective manner. The introduction of new and
enhanced products may cause certain customers to defer or cancel orders for
existing products. We have in the past experienced delays in product development
and such delays may occur in the future.
WE NEED TO EXPAND OUR SALES AND SUPPORT ORGANIZATIONS TO INCREASE MARKET
ACCEPTANCE OF OUR PRODUCTS
We have recently expanded our sales force and plan to hire additional sales
personnel. Competition for qualified sales personnel is intense, and we may not
be able to hire enough qualified sales personnel. We currently have a small
indirect channel partner and end-user service and support organization and will
need to increase our staff to support new indirect channel partners and end
users and the expanding needs of existing indirect channel partners and end
users. Additionally, we rely on qualified systems engineers and service and
support personnel to provide pre- and post-sales technical support for our
products. Hiring systems engineers and service and support personnel is very
competitive in our industry due to the limited number of people available with
the necessary technical skills and understanding of our products. Our inability
to hire qualified sales and support personnel may harm our business.
WE MUST DEVELOP AND EXPAND OUR INDIRECT DISTRIBUTION CHANNELS TO INCREASE
REVENUE AND IMPROVE OUR OPERATING RESULTS
We rely on an indirect distribution channel consisting of VARs,
distributors, systems integrators and OEMs for all of our revenues. Our success
will depend on our ability to develop and maintain relationships with
significant indirect channel partners, as well as on the sales efforts and
success of those indirect channel partners. Many of our indirect channel
partners also sell competitive products.
In addition, our operating results will likely fluctuate significantly
depending on the timing and size of orders from our indirect channel partners.
We cannot assure you that our indirect channel partners will market our products
effectively or continue to devote the resources necessary to provide us with
effective sales, marketing and technical support. In order to support and
develop leads for our indirect distribution channels, we plan to expand our
field sales and support staff significantly. We cannot assure you that this
internal expansion will be successfully completed, that the cost of this
expansion will not exceed the revenues generated or that our expanded sales and
support staff will be able to compete successfully against the significantly
more extensive and well-funded sales and marketing operations of many of our
current or potential competitors. In addition, our indirect channel agreements
are generally not exclusive and one or more of our channel partners may compete
directly with another channel partner for the sale of our products in a
particular region or market. This may cause such channel partners to stop or
reduce their efforts in marketing our products. Our inability to effectively
establish or manage our distribution channels or manage the expansion of our
sales and support staff would harm our business.
WE INTEND TO RELY INCREASINGLY ON OEMS FOR THE DEPLOYMENT OF OUR TECHNOLOGY AND
PRODUCTS
One aspect of our sales strategy is to develop relationships with OEM
partners that will license our PacketWise software and incorporate it into their
networking products. We recently entered into an OEM relationship with ADC
Telecommunications, Inc., and expect to enter into additional OEM relationships
in the future. Our agreement with ADC is not exclusive and is for an initial
term of five years, with no obligation of ADC to renew its agreement with us.
There are a number of risks involved with our strategy of developing our OEM
channel. The development of OEM relationships generally involves a considerable
amount of management time and company resources as potential
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OEM partners evaluate the viability of integrating our technology. We cannot
assure you that the potential OEM partners will enter into a relationship with
us after we have expended such effort and cost. In addition, even if we are
successful in entering into an OEM relationship, we cannot assure you that our
current or future OEM partners will be able to integrate our technology into
commercially viable products on a timely basis. Furthermore, we cannot assure
you that our OEM partners will give a high priority to the marketing of products
which incorporate our technology or that our OEM partners will not develop
competitive products and decide to terminate or minimize their relationship with
us.
We are also developing relationships with OEMs that sell our PacketShaper
products under their own label. Currently, Memorex-Telex, Inc. and NEC
Corporation sell our products under their own labels. The level and timing of
orders placed by OEM partners who purchase hardware from us may vary due to many
factors including OEM partners' attempts to balance their inventories, changes
in the OEM partners' manufacturing strategies and variation in demand for their
products. Due to product life cycles, competitive and economic conditions, these
OEM partners generally do not commit to firm production schedules in advance.
Our inability to forecast the level of orders from OEM partners may make it
difficult to schedule production and manage our contract manufacturers.
Anticipated orders from our current or future OEM partners may not materialize
or delivery schedules may be deferred as a result of changes in customer's
business needs. Such OEM partner order fluctuations and deferrals will harm our
business. Furthermore, our current or future OEM partners may have pre-existing
relationships with our current or potential competitors which may reduce their
efforts in marketing products that incorporate our technology.
We may also be unable to retain our current or future OEM partners.
Generally, OEM relationships can be terminated with little or no notice. If our
relationship with any current or future OEM partner is terminated by either
party, we may not be successful in replacing such partner on a timely basis or
at all with another suitable OEM partner. Any such change could harm our
business.
THE PACKETSHAPER FAMILY OF PRODUCTS AND PACKETWISE SOFTWARE ARE CURRENTLY OUR
ONLY PRODUCTS, AND ALL OF OUR CURRENT REVENUES AND A SIGNIFICANT PORTION OF OUR
FUTURE GROWTH DEPENDS ON THEIR COMMERCIAL SUCCESS
All of our current revenues and a significant portion of our future growth
depends on the commercial success of our PacketShaper family of products and
PacketWise software, which are the only products that we currently offer. If our
target customers do not widely adopt, purchase and successfully deploy the
PacketShaper family of products or PacketWise software, our revenues will not
grow significantly and our business will be harmed.
WE ARE DEPENDENT ON THE SUCCESS OF OUR INTERNATIONAL SALES EFFORTS
Sales to customers outside of North America accounted for 54.7% of our
total net revenues in 1998 and 55.3% of our total net revenues for the three
months ended March 31, 1999. In particular, sales to customers in our Asia
Pacific region accounted for 31.0% of our total net revenues in 1998 and 33.3%
of our total net revenues for the three months ended March 31, 1999. Our ability
to grow will depend in part on the expansion of international sales, which
depends on the success of our VARs, distributors, systems integrators and OEMs
in marketing our products. The failure of our
8
<PAGE> 12
indirect channel partners to sell our products internationally would harm our
business. In addition, our international business is subject to certain
customary risks, including:
- difficulties in managing sales and support channels across disparate
geographic areas;
- difficulties in staffing and managing foreign operations;
- reduced or limited protection of our intellectual property rights in some
countries;
- unexpected changes in regulatory requirements;
- longer accounts receivable collection cycles;
- difficulties associated with enforcing agreements through foreign legal
systems;
- difficulties in obtaining governmental approvals for products;
- trade protection measures; and
- the burden of complying with a wide variety of complex foreign laws and
treaties.
Our international sales currently are U.S. dollar-denominated. As a result,
an increase in the value of the U.S. dollar relative to foreign currencies could
make our products less competitive in international markets. In the future, we
may elect to invoice some of our international customers in local currency.
Doing so will subject us to fluctuations in exchange rates between the U.S.
dollar and the particular local currency.
We intend to expand operations in our existing international markets and to
enter new international markets, which will demand management attention and
financial commitment. We may not be able to successfully expand our
international operations. In addition, a successful expansion of our
international operations and sales in certain markets will require us to develop
relationships with suitable indirect channel partners that operate abroad. We
may not be able to identify, attract or retain such indirect channel partners.
Furthermore, to increase revenues in international markets, we will need to
continue to establish foreign operations, to hire additional personnel to run
such operations and to maintain good relations with our foreign indirect channel
partners. To the extent that we are unable to successfully do so, our growth in
international sales will be limited.
WE RELY UPON A LIMITED NUMBER OF CUSTOMERS AND ANY DECREASE IN REVENUES FROM
THESE CUSTOMERS COULD HARM OUR BUSINESS
A limited number of indirect channel partners have accounted for a large
part of our revenues to date and we expect that this trend will continue. Sales
to Macnica, Inc. accounted for 11.9% of our total net revenues in 1998. For the
three months ended March 31, 1999, sales to ADC Telecommunications accounted for
12.1% of total net revenues, sales to Nissho Electronics Corporation accounted
for 11.2% of total net revenues and sales to Macnica accounted for 10.7% of
total net revenues. We expect that our largest customers in the future could be
different from our largest customers today due to a variety of factors,
including the availability of new comparable competing products. End users can
stop purchasing and our indirect channel partners can stop marketing our
products at any time. Because our expense levels are based on our expectations
as to future revenue and to a large extent are fixed in the short term, any
significant reduction or delay in sales of our products to any significant
indirect channel partner or unexpected returns from such indirect channel
partners could harm our business. We cannot assure you that we will retain these
indirect channel partners or that we will be able to obtain additional or
replacement partners. The
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<PAGE> 13
loss of one or more of our key indirect channel partners or the failure to
obtain and ship a number of large orders each quarter could harm our business.
WE DEPEND ON EXPERIENCED PERSONNEL AND MUST HIRE ADDITIONAL PERSONNEL TO MANAGE
OUR BUSINESS EFFECTIVELY
Our future success will depend, to a significant extent, on the ability of
our management to operate effectively, both individually and as a group. Given
our early stage of development, we are dependent on our ability to retain and
motivate high caliber personnel, in addition to attracting new personnel.
Competition for qualified personnel in the networking industry is intense, and
we may not be successful in attracting and retaining such personnel. There may
be only a limited number of persons with the requisite skills to serve in those
positions and it may become increasingly difficult to hire such persons. We are
actively searching for systems engineers, research and development engineers and
sales and marketing personnel, who are in short supply. Our business will suffer
if we encounter delays in hiring these additional personnel.
Competitors and others have in the past and may in the future attempt to
recruit our employees. We do not have employment contracts with any of our
personnel. We currently maintain "key person" life insurance on Craig W.
Elliott, our chief executive officer, Robert L. Packer, our chief technology
officer, and Brett D. Galloway, our vice president of engineering and chief
operating officer. The loss of the services of any of our senior management, the
inability to attract or retain qualified personnel in the future or delays in
hiring required personnel, particularly engineers, could negatively impact our
business.
WE FACE INTENSE COMPETITION THAT COULD ADVERSELY AFFECT OUR BUSINESS
We compete in a new, rapidly evolving and highly competitive sector of the
networking technology market. We expect competition to persist and intensify in
the future from a number of different sources. We compete with Cisco Systems,
Inc. and CheckPoint Software Technologies Ltd., which sell products
incorporating competing technologies. We also compete with several small private
companies which utilize competing technologies to provide bandwidth management.
In addition, our products and technology compete for information technology
budget allocations with products that offer monitoring capabilities, such as
probes and related software. Lastly, we face indirect competition from companies
that offer enterprises and service providers increased bandwidth and
infrastructure upgrade that increase the capacity of their networks, and thereby
may lessen or delay the need for bandwidth management solutions.
Many of our competitors are substantially larger than we are and have
significantly greater financial, sales and marketing, technical, manufacturing
and other resources and more established distribution channels. These
competitors may be able to respond more rapidly to new or emerging technologies
and changes in customer requirements or devote greater resources to the
development, promotion and sale of their products than we can. We have
encountered, and expect to encounter, customers who are extremely confident in
and committed to the product offerings of our competitors. Furthermore, some of
our competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties to increase their ability
to rapidly gain market share by addressing the needs of our prospective
customers. These competitors may enter our existing or future markets with
solutions that may be less expensive, provide higher performance or additional
features or be introduced earlier than our solutions. Given the market
opportunity in the bandwidth management solutions market, we also expect that
other companies may enter our market with better products and technologies. If
any technology that is competing with ours is or becomes more reliable,
10
<PAGE> 14
higher performing, less expensive or has other advantages over our technology,
then the demand for our products and services would decrease, which would harm
our business.
Successful new product introductions or enhancements by our competitors
could reduce the sales or market acceptance of our products and services,
perpetuate intense price competition or make our products obsolete. To be
competitive, we must continue to invest significant resources in research and
development, sales and marketing and customer support. We cannot be sure that we
will have sufficient resources to make such investments or that we will be able
to make the technological advances necessary to be competitive. As a result, we
may not be able to compete effectively against our competitors. Our failure to
maintain and enhance our competitive position within the market may seriously
harm our business. Increased competition is likely to result in price
reductions, reduced gross margins, longer sales cycles and loss of market share,
any of which would harm our business.
OUR MARKET IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND WE NEED TO INTRODUCE
NEW PRODUCTS THAT ACHIEVE BROAD MARKET ACCEPTANCE IN ORDER TO MAINTAIN GROWTH
The bandwidth management solutions market is characterized by rapid
technological change, frequent new product introductions, changes in customer
requirements and evolving industry standards. The introduction of new products,
market acceptance of products based on new or alternative technologies, or the
emergence of new industry standards, could render our existing products obsolete
or make it easier for other products to compete with our products. Developments
in router-based queuing schemes could also significantly reduce demand for our
product. Alternative technologies, including packet-queuing technology, could
achieve widespread market acceptance. We cannot assure you that our
technological approach will achieve broad market acceptance or that other
technologies or solutions will not supplant our approach. Our future success
will depend in large part upon our ability to:
- develop and maintain competitive products;
- enhance our products by adding innovative features that differentiate our
products from those of our competitors;
- bring products to market on a timely basis at competitive prices;
- identify and respond to emerging technological trends in the market; and
- respond effectively to new technological changes or new product
announcements by others.
When we announce new products or product enhancements that have the
potential to replace or shorten the life cycle of our existing products,
customers may defer purchasing our existing products. These actions could harm
our operating results by unexpectedly decreasing sales, increasing our inventory
levels of older products and exposing us to greater risk of product
obsolescence.
OUR FAILURE TO MANAGE GROWTH COULD ADVERSELY AFFECT US
We have rapidly and significantly expanded our operations and anticipate
that further significant expansion will be required to address potential growth
in our customer base and market opportunities. To manage the anticipated growth
of our operations, we will be required to:
- effectively manage multiple relationships with our VARs, distributors,
systems integrators, OEMs, contract manufacturers and other third
parties;
- hire, train and manage additional qualified personnel;
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<PAGE> 15
- expand and upgrade our core technologies; and
- improve existing and implement new operational, financial and management
information controls, reporting systems and procedures.
In the future, we may experience difficulties meeting the demand for our
products and services. The installation and use of our products require
training. If we are unable to provide training and support for our products, the
implementation process will be longer and customer satisfaction may be lower. In
addition, our management team may not be able to achieve the rapid execution
necessary to fully exploit the market for our products and services. We cannot
assure you that our systems, procedures or controls will be adequate to support
the anticipated growth in our operations.
We may not be able to install management information and control systems in
an efficient and timely manner, and our current or planned personnel, systems,
procedures and controls may not be adequate to support our future operations.
THE AVERAGE SELLING PRICES OF OUR PRODUCTS COULD DECREASE RAPIDLY WHICH MAY
NEGATIVELY IMPACT GROSS MARGINS AND REVENUES
We may experience substantial period-to-period fluctuations in future
operating results due to the erosion of our average selling prices. The average
selling prices of our products could decrease in the future in response to
competitive pricing pressures, increased sales discounts, new product
introductions by us or our competitors or other factors. Therefore, to maintain
our gross margins, we must develop and introduce on a timely basis new products
and product enhancements and continually reduce our product costs. Our failure
to do so would cause our revenue and gross margins to decline.
WE DEPEND ON THIRD-PARTY MANUFACTURERS FOR SUBSTANTIALLY ALL OF OUR
MANUFACTURING REQUIREMENTS, AND WE MAY BE UNABLE TO SUCCESSFULLY EXPAND OUR
MANUFACTURING OPERATIONS AS WE GROW
We currently contract with Quadrus Manufacturing and Altron, Inc., which
has been acquired by Sanmina Corporation, for the manufacture of all of our
current products. Our future success will depend, in significant part, on our
ability to have others manufacture our products cost-effectively and in
sufficient volumes. We face a number of risks associated with our dependence on
third-party manufacturers including:
- reduced control over delivery schedules;
- the potential lack of adequate capacity during periods of excess demand;
- manufacturing yields and costs;
- quality assurance; and
- increases in prices and the potential misappropriation of our
intellectual property.
Any manufacturing disruption could impair our ability to fulfill orders. We
have no long-term contracts or arrangements with any of our vendors that
guarantee product availability, the continuation of particular payment terms or
the extension of credit limits. We have experienced in the past, and may
experience in the future, problems with our contract manufacturers, such as
inferior quality, insufficient quantities and late delivery of product. We are
dependent on our manufacturers to secure components at favorable prices, but we
may not be able to obtain additional volume purchase or manufacturing
arrangements on terms that we consider acceptable, if at all. If we enter into a
high-volume or long-term supply arrangement and subsequently decide that we
cannot use the products or services provided for in the agreement, our business
will be harmed. We cannot
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<PAGE> 16
assure you that we will effectively manage our contract manufacturers or that
these manufacturers will meet our future requirements for timely delivery of
products of sufficient quality or quantity. Any such difficulties could harm our
relationships with customers and cause us to lose orders.
In the future, we may seek to use additional contract manufacturers. We may
experience difficulty in locating and qualifying suitable manufacturing
candidates capable of satisfying our product specifications or quantity
requirements. Further, new third-party manufacturers may encounter difficulties
in the manufacture of our products resulting in the delay of delivery of our
products.
MOST OF THE COMPONENTS FOR OUR PRODUCTS COME FROM SINGLE OR LIMITED SOURCES, AND
WE COULD LOSE SALES IF THESE SOURCES FAIL TO SATISFY OUR SUPPLY REQUIREMENTS
Almost all of the components used in our products are obtained from single
or limited sources. Our products have been designed to incorporate a particular
set of components. As a result, our desire to change the components of our
products or our inability to obtain suitable components on a timely basis would
require engineering changes to our products before we could incorporate
substitute components.
We do not have any long-term supply contracts to ensure sources of supply.
If our contract manufacturers fail to obtain components in sufficient quantities
when required, our business could be harmed. Our suppliers also sell products to
our competitors. Our suppliers may enter into exclusive arrangements with our
competitors, stop selling their products or components to us at commercially
reasonable prices or refuse to sell their products or components to us at any
price. Our inability to obtain sufficient quantities of sole-sourced or
limited-sourced components, or to develop alternative sources for components or
products would harm our business.
OUR PRODUCTS MAY HAVE ERRORS OR DEFECTS THAT WE FIND AFTER THE PRODUCTS HAVE
BEEN SOLD
Our products are complex and may contain undetected defects, errors or
failures in either the hardware or software. In addition, because our products
plug into our end users' existing networks between the WAN access router and the
enterprise local area network, or LAN, they can directly affect the
functionality of the network. We have in the past encountered errors in our
products, which in a few instances resulted in complete network failures.
Additional errors may occur in our products in the future. The occurrence of
defects, errors or failures could result in the failure of our customer's
network or mission-critical applications, delays in installation, product
returns and other losses to us or to our customers or end users. These
occurrences could also result in the loss of or delay in market acceptance of
our products, which could harm our business. We would have limited experience
with the problems that could arise with any new products that we introduce.
We may also be subject to liability claims for damages related to product
errors. While we carry insurance policies covering this type of liability, these
policies may not provide sufficient protection should a claim be asserted. A
material product liability claim may harm our business.
WE MAY BE SUBJECT TO RISKS ASSOCIATED WITH ACQUISITIONS
We continually evaluate strategic acquisitions of other businesses. If we
were to consummate an acquisition, we would be subject to a number of risks,
including the following:
- difficulty in assimilating the acquired operations and retaining acquired
personnel;
- limits on our ability to retain acquired distribution channels and
customers;
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<PAGE> 17
- disruption of our ongoing business; and
- limits on our ability to successfully incorporate acquired technology and
rights into our service offerings and maintain uniform standards,
controls, procedures, and policies.
We may not successfully overcome problems encountered in connection with
potential acquisitions. In addition, an acquisition could harm our operating
results by diluting our stockholders' equity, causing us to incur additional
debt, or requiring us to amortize acquisition expenses and acquired assets.
In addition, recent and proposed changes by the Financial Accounting
Standards Board (FASB) and the SEC in the rules for merger accounting may affect
our ability to make acquisitions or be acquired. For example, elimination of the
"pooling" method of accounting for mergers increases the amount of goodwill that
we would be required to recognize if we acquire another company, which would
have an adverse financial impact on our future net loss or net income. The
requirement to capitalize in-process research and development costs in
connection with an acquisition could result in goodwill which must be amortized
over several years, increasing our losses or reducing our net income.
OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS MAY ADVERSELY AFFECT US
We rely on a combination of patent, copyright and trademark laws, and on
trade secrets and confidentiality provisions and other contractual provisions to
protect our proprietary rights. These measures afford only limited protection.
We currently have one issued U.S. patent and 10 pending patent applications
including one for which we have received a notice of allowance. Our means of
protecting our proprietary rights in the U.S. or abroad may not be adequate and
competitors may independently develop similar technologies. Our future success
will depend in part on our ability to protect our proprietary rights and the
technologies used in our principal products. Despite our efforts to protect our
proprietary rights, unauthorized parties may attempt to copy aspects of our
products or to obtain and use trade secrets or other information that we regard
as proprietary. Legal proceedings to enforce our intellectual property rights
could be burdensome and expensive and could involve a high degree of
uncertainty. Such legal proceedings may also divert management's attention from
growing our business. In addition, the laws of some foreign countries do not
protect our proprietary rights as fully as do the laws of the U.S. Issued
patents may not preserve our proprietary position. Even if they do, competitors
or others may develop technologies similar to or superior to our own. If we do
not enforce and protect our intellectual property, our business will be harmed.
OTHERS MAY CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS
We may be subject to claims by others that our products infringe on their
intellectual property rights. These claims, whether or not valid, could require
us to spend significant sums in litigation, pay damages, delay product
shipments, reengineer our products or acquire licenses to such third-party
intellectual property. We may not be able to secure any required licenses on
commercially reasonable terms, or at all. We expect that we will increasingly be
subject to infringement claims as the number of products and competitors in the
bandwidth management solutions market grows and the functionality of products
overlaps. Any of these claims or resulting events could harm our business.
IF OUR PRODUCTS DO NOT COMPLY WITH EVOLVING INDUSTRY STANDARDS AND GOVERNMENT
REGULATIONS, OUR BUSINESS COULD BE HARMED
The market for bandwidth management solutions is characterized by the need
to support industry standards as different standards emerge, evolve and achieve
acceptance. To remain competitive we must
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<PAGE> 18
continue to introduce new products and product enhancements that meet these
emerging standards. In the future we may not be able to effectively address the
compatibility and interoperability issues that arise as a result of
technological changes and evolving industry standards. In addition, in the
United States, our products must comply with various regulations and standards
defined by the Federal Communications Commission and Underwriters Laboratories.
Internationally, products that we develop may be required to comply with
standards established by telecommunications authorities in various countries as
well as with recommendations of the International Telecommunication Union.
Failure to comply with existing or evolving industry standards or to obtain
timely domestic or foreign regulatory approvals or certificates could harm our
business.
WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE IN ORDER TO GROW
We currently anticipate that the proceeds of this offering, together with
our existing cash balances and available line of credit will be sufficient to
meet our liquidity needs for at least the next 12 months. However, we may need
to raise additional funds if our estimates of revenues, working capital or
capital expenditure requirements change or prove inaccurate or in order for us
to respond to unforeseen technological or marketing hurdles or to take advantage
of unanticipated opportunities.
In addition, we expect to review potential acquisitions that would
complement our existing product offerings or enhance our technical capabilities.
While we have no current agreements or negotiations underway with respect to any
such acquisition, any future transaction of this nature could require
potentially significant amounts of capital. Such funds may not be available at
the time or times needed, or available on terms acceptable to us. If adequate
funds are not available, or are not available on acceptable terms, we may not be
able to take advantage of market opportunities to develop new products or to
otherwise respond to competitive pressures.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE
Sales of a substantial number of shares of common stock after this offering
could adversely affect the market price of our common stock and could impair our
ability to raise capital through the sale of additional equity securities. After
completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of outstanding options or warrants after
March 31, 1999 and no exercise of the underwriters' over-allotment option. The
shares of common stock sold in this offering, which would be
shares if the underwriters' over-allotment option to purchase
additional shares is exercised in full, will be freely tradable without
restriction or further registration under the federal securities laws unless
purchased by our "affiliates" as that term is defined in Rule 144. The remaining
shares of common stock outstanding upon completion of this offering
will be "restricted securities" as that term is defined in Rule 144.
All of our stockholders, option holders and warrant holders are subject to
agreements that limit their ability so sell their shares of common stock. These
securityholders cannot sell or otherwise dispose of any shares of common stock
for a period of at least 180 days after the date of this prospectus without the
prior written approval of BancBoston Robertson Stephens or us in certain cases.
When these agreements expire, these shares and the shares underlying the options
will become eligible for sale, in some cases only pursuant to the volume, manner
of sale and notice requirements of Rule 144. See "Management -- Employee Benefit
Plans," "Shares Eligible for Future Sale" and "Underwriting."
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL BE ABLE TO CONTROL ALL MATTERS
REQUIRING STOCKHOLDER APPROVAL
After this offering, our executive officers and directors and their
affiliates will together control approximately % of the outstanding common
stock. As a result, these stockholders, if they act together, will be able to
control all matters requiring stockholder approval, including the election of
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<PAGE> 19
directors and approval of significant corporate transactions. This concentration
of ownership may have the effect of delaying, preventing or deterring a change
in control of Packeteer, could deprive our stockholders of an opportunity to
receive a premium for their common stock as part of a sale of Packeteer and
might affect the market price of our common stock.
CERTAIN PROVISIONS OF OUR CHARTER AND OF DELAWARE LAW MAKE A TAKEOVER OF
PACKETEER MORE DIFFICULT
Our corporate documents and Section 203 of the Delaware General Corporation
Law could discourage, delay or prevent a third party or a significant
stockholder from acquiring control of Packeteer. In addition, provisions of our
certificate of incorporation may have the effect of discouraging, delaying or
preventing a merger, tender offer or proxy contest involving Packeteer. Any of
these anti-takeover provisions could lower the market price of the common stock
and could deprive our stockholders of the opportunity to receive a premium for
their common stock that they might otherwise receive from the sale of Packeteer.
YOU WILL INCUR SUBSTANTIAL AND IMMEDIATE DILUTION
You will incur substantial and immediate dilution in the net tangible book
value of $0.24 per share. To the extent that currently outstanding options and
warrants are exercised or converted, there will be further dilution in your
shares. See "Dilution."
WE FACE A NUMBER OF UNKNOWN RISKS ASSOCIATED WITH YEAR 2000 PROBLEMS
Some computers, software, and other equipment include computer code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. As a
result, computer systems and software used by many companies and governmental
agencies may need to be upgraded to comply with year 2000 requirements or risk
system failure or miscalculations causing disruptions of normal business
activities. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches, and are commonly referred to as the "year
2000 problem." We have begun to identify measures to address the issues arising
from the year 2000 problem and therefore the risks associated with being year
2000 compliant are unknown. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Year 2000 readiness
disclosure."
THE ADOPTION OF THE EURO PRESENTS UNCERTAINTIES FOR OUR COMPANY
In January 1999, the new euro currency was introduced in certain European
countries that are part of the European Monetary Union (EMU). During 2002, all
EMU countries are expected to be operating with the euro as their single
currency. A significant amount of uncertainty exists as to the effect the euro
will have on the marketplace generally and, additionally, all of the final rules
and regulations have not yet been defined and finalized by the European
Commission with regard to the euro currency. We are currently assessing the
effect the introduction of the euro will have on our internal accounting systems
and the sales of our products. We are not aware of any material operational
issues or costs associated with preparing our internal systems for the euro.
However, we do utilize third-party vendor equipment and software products that
may or may not be EMU compliant. Although we are currently taking steps to
address the impact, if any, of EMU compliance for such third-party products, the
failure of any critical components to operate properly post-euro may have an
adverse effect on our business or results of operations or may require us to
incur expenses to remedy such problems.
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<PAGE> 20
USE OF PROCEEDS
Our net proceeds from the sale and issuance of shares of
common stock are estimated to be approximately $ million (approximately $
million if the underwriters' over-allotment option is exercised in full), at an
assumed offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and the estimated offering expenses
payable by Packeteer.
We will use $2.5 million of the net proceeds to repay a subordinated loan
which bears interest at a rate of 12.25% per annum. We intend to use a portion
of the net proceeds for general corporate purposes including working capital. We
may also use a portion of the net proceeds to acquire complementary businesses,
products or technologies. From time to time, we evaluate such potential
acquisitions and we anticipate continuing to make such evaluations. We have no
current plans, agreements or commitments with respect to any such acquisitions.
Pending such uses, we intend to invest the net proceeds of this offering in
short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We currently intend to retain future earnings, if any, for
use in our business. Our line of credit arrangement prohibits us to pay
dividends without the lender's prior consent.
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<PAGE> 21
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999:
- on an actual basis;
- on a pro forma basis giving effect to the conversion of all outstanding
shares of preferred stock into common stock upon completion of the
offering; and
- as adjusted to reflect the receipt by Packeteer of the estimated net
proceeds from the sale of the shares of common stock
offered by Packeteer at an assumed offering price of $ per share and
after deducting the estimated underwriting discounts and commissions and
the estimated offering expenses.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term obligations............. $ 774 $ 774
======== ========
Long-term obligations................................ 2,658 2,658
-------- --------
Stockholders' equity:
Preferred stock, $0.001 par value per share;
13,703,287 shares authorized, actual; 5,000,000
shares authorized, pro forma and as adjusted;
12,391,001 shares issued and outstanding, actual;
no shares issued and outstanding, pro forma and as
adjusted........................................... 13 --
Common stock, $0.001 par value per share; 40,000,000
shares authorized, actual and pro forma; 85,000,000
shares authorized, as adjusted; 9,766,467 shares
issued and outstanding, actual; 22,157,468 shares
issued and outstanding, pro forma; and
shares issued and outstanding, as adjusted......... 10 23
Additional paid-in capital........................... 25,293 25,293
Deferred stock-based compensation.................... (3,668) (3,668)
Notes receivable from stockholders................... (803) (803)
Accumulated deficit.................................. (18,468) (18,468)
-------- -------- --------
Total stockholders' equity...................... 2,377 2,377
-------- -------- --------
Total capitalization....................... $ 5,035 $ 5,035
======== ======== ========
</TABLE>
The outstanding shares shown above exclude, as of March 31, 1999:
- 2,310,250 shares of common stock issuable upon exercise of stock options
outstanding under our 1996 Equity Incentive Plan at a weighted average
exercise price of $2.76 per share;
- 155,628 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $2.92 per share;
- 1,526,083 shares of common stock reserved for future issuance under our
1999 Stock Incentive Plan; and
- 500,000 shares of common stock reserved for future issuance under our
1999 Employee Stock Purchase Plan.
See "Management -- Employee Benefit Plans" and Note 5 of Notes to
Consolidated Financial Statements.
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DILUTION
As of March 31, 1999 our net tangible book value was $2.4 million, or $0.24
per share of common stock. Net tangible book value per share represents the
amount of total tangible assets less total liabilities, divided by the number of
shares of common stock then outstanding.
After giving effect to the sale of shares of common stock offered
by Packeteer, at an assumed offering price of $ per share and after
deducting the estimated underwriting discounts and commissions and the estimated
expenses related to this offering, our net tangible book value on March 31, 1999
would have been $ , or approximately $ per share. This represents
an immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share............................ $
Net tangible book value per share as of March 31, 1999...... $ 0.24
Increase per share attributable to the offering.............
--------
Net tangible book value per share after the offering........
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table summarizes, as of March 31, 1999, on the pro forma
basis described above, the difference between the number of shares of common
stock purchased from Packeteer, the total consideration paid and the average
price per share paid by the existing stockholders and by new public investors
purchasing shares from us before deducting underwriting discounts and
commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 22,157,468 % $21,007,000 % $ 0.95
New investors................
---------- ----- ----------- ------
Total.............. 100.0% $ $100.0%
========== ===== =========== ======
</TABLE>
The foregoing computations are based on the number of shares of common
stock outstanding as of March 31, 1999 and exclude:
- 2,310,250 shares of common stock issuable upon exercise of stock options
outstanding under Packeteer's 1996 Equity Incentive Plan at a weighted
average exercise price of $2.76 per share;
- 155,628 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $2.92 per share.
- 1,526,083 shares of common stock reserved for future issuance under
Packeteer's 1999 Stock Incentive Plan; and
- 500,000 shares of common stock reserved for future issuance under our
1999 Employee Stock Purchase Plan.
The issuance of common stock in connection with the exercise of these
options and warrants will result in further dilution to new investors. See
"Capitalization," "Management -- Employee Benefit Plans," "Description of
Capital Stock" and Note 5 of Notes to Consolidated Financial Statements.
19
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus. The consolidated statements of
operations data for the period from January 25, 1996 (inception) to December 31,
1996 and for each of the years in the two-year period ended December 31, 1998,
and the consolidated balance sheets data at December 31, 1997 and 1998, are
derived from the consolidated financial statements of Packeteer which have been
audited by KPMG LLP, independent auditors, and are included in this prospectus.
The consolidated balance sheet data at December 31, 1996 is derived from audited
consolidated financial statements not included in this prospectus. The selected
historical consolidated financial data as of March 31, 1999 and for the three
months ended March 31, 1998 and 1999 have been derived from unaudited
consolidated financial statements included elsewhere in this prospectus, that
include, in the opinion of management, all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for fair presentation
of our financial position and results of operations for those periods. The
historical results are not necessarily indicative of the operating results to be
expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED THREE MONTHS
JAN. 25, 1996 DECEMBER 31, ENDED MARCH 31,
(INCEPTION) TO ----------------- -----------------
DEC. 31, 1996 1997 1998 1998 1999
-------------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues:
Product revenues........................... $ -- $ 1,413 $ 7,105 $ 1,246 $ 2,724
Licensing revenues......................... -- -- 125 -- 375
------- ------- ------- ------- -------
Total net revenues.................... -- 1,413 7,230 1,246 3,099
Cost of revenues............................. -- 457 2,386 476 854
------- ------- ------- ------- -------
Gross profit................................. -- 956 4,844 770 2,245
Operating expenses:
Research and development................... 725 2,932 2,779 566 955
Sales and marketing........................ 349 3,210 8,866 1,551 2,429
General and administrative................. 238 934 1,750 292 533
Amortization of stock-based compensation... -- -- 537 -- 865
------- ------- ------- ------- -------
Total operating expenses.............. 1,312 7,076 13,932 2,409 4,782
------- ------- ------- ------- -------
Net loss from operations..................... (1,312) (6,120) (9,088) (1,639) (2,537)
Other income, net............................ 75 211 289 34 14
------- ------- ------- ------- -------
Net loss..................................... $(1,237) $(5,909) $(8,799) $(1,605) $(2,523)
======= ======= ======= ======= =======
Basic and diluted net loss per share......... $ (1.28) $ (1.82) $ (1.54) $ (0.34) $ (0.35)
======= ======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share......................... 965 3,253 5,709 4,734 7,271
======= ======= ======= ======= =======
Pro forma basic net loss per share........... $ (0.49) $ (0.13)
======= =======
Shares used in computing pro forma basic net
loss per share............................. 18,100 19,662
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998 1999
------ ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash, cash equivalents and short-term investments........ $4,255 $2,416 $4,477 $7,084
Working capital.......................................... 4,077 2,612 3,501 4,065
Total assets............................................. 4,453 4,935 8,570 10,250
Long-term obligations.................................... -- 356 739 2,658
Total stockholders' equity............................... 4,251 2,804 3,759 2,377
</TABLE>
20
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the related notes included elsewhere in
this prospectus.
OVERVIEW
Packeteer is a leading provider of application-adaptive bandwidth
management solutions that ensure mission-critical application performance and
improve network efficiency. We market and distribute our products via a
worldwide network of VARs, distributors, systems integrators and OEM partners.
We have subsidiaries in Hong Kong, Japan and The Netherlands.
We were incorporated in January 1996. From our inception through January
1997, our operating activities related primarily to establishing a research and
development organization, developing and testing prototype designs, establishing
a sales and marketing organization and developing customer, vendor and
manufacturing relationships. We shipped our first product, the PacketShaper 2000
in February 1997. Since then, we have focused on developing additional products
and product enhancements, building our worldwide indirect sales channel and
establishing our sales, marketing and customer support organizations. We began
shipments of the PacketShaper 1000 and 4000 in October 1997. Since inception, we
have incurred significant losses and as of March 31, 1999, had an accumulated
deficit of $18.5 million.
Our revenues consist primarily of product sales and to a lesser extent,
licensing fees from an OEM partner. Our product revenues consist of sales of our
PacketShaper family of products. We recognize product revenues once the customer
issues a noncancelable purchase order and the product has been shipped to the
customer. Maintenance revenue is deferred and amortized over the period of the
contract. We routinely analyze and provide, as necessary, reserves at the time
of shipment for product returns and allowances. We have estimated these reserves
based on our experience since we began shipping. Such amounts have not been
significant to date. Our ability to estimate these reserves is limited to the
short history we have of shipping products. Our licensing revenues currently
consist of licensing fees and may in the future may include royalty payments
from unit sales of OEM products that incorporate our technology. We recognize
OEM license fees, which include post-contract customer support, when the
software has been shipped to the customer, the fees are fixed and determinable
and there is evidence of the fair value of the post-contract customer support.
When evidence of fair value of post-contract customer support does not exist,
revenues are recognized ratably over the support period.
We sell our products worldwide exclusively through VARs, distributors,
systems integrators and OEMs. We use indirect channels to leverage the reach of
our sales force to obtain worldwide coverage. Our sales force and marketing
efforts are used to develop brand awareness and support our indirect channels.
Our cost of revenues consists primarily of the cost of finished products
purchased from our two turnkey manufacturers, documentation and other overhead
costs. We outsource the manufacturing of the PacketShaper 1000 and PacketShaper
2000 to Quadrus and the PacketShaper 4000 to Sanmina.
Research and development expenses consist primarily of salaries and related
personnel expenses, consultant fees and prototype expenses related to the
design, development, testing and enhancement of the PacketShaper family of
products and PacketWise software. As of March 31, 1999, all research and
development costs had been expensed as incurred. We believe that continued
investment in research and development is critical to attaining our strategic
product and cost reduction objectives.
21
<PAGE> 25
We expect these expenses to increase significantly in the future as we continue
to develop new products and enhance existing products.
Sales and marketing expenses consist primarily of salaries, commissions and
related personnel expenses for those engaged in the sales, marketing and support
of the product as well as related trade show, promotional and public relations
expenses. We intend to pursue sales and marketing campaigns aggressively and
therefore expect these expenses to increase in the future.
General and administrative expenses consist primarily of salaries and
related personnel expenses for executive, accounting and administrative
personnel, professional fees and other general corporate expenses. As we add
personnel and incur additional costs related to the growth of our business, we
expect that general and administrative expenses will also increase.
Amortization of stock-based compensation resulted from the granting of
stock options to employees and consultants with exercise prices per share
determined to be below the deemed fair value per share of our common stock on
the dates of grant for financial reporting purposes. The stock-based
compensation is being amortized to expense in accordance with FASB
Interpretation No. 28 over the vesting period of the individual options,
generally four years. We recorded stock-based compensation expense of $537,000
and $865,000 in 1998 and for the three months ended March 31, 1999,
respectively, leaving $3.7 million to be amortized in future periods.
There was no provision for federal or California state income taxes for any
period since we have incurred operating losses since inception. As of December
31, 1998, we had $13.8 million of net loss carryforwards for federal income tax
purposes and $12.1 million of net loss carryforwards for California state income
tax purposes. Utilization of the net operating loss carryforwards may be subject
to annual limitations due to the ownership change limitations contained in the
Internal Revenue Code of 1986 and similar state provisions. Annual limitations
may result in the expiration of the net operating losses before we can utilize
them. The federal net operating loss carryforwards will expire at various dates
beginning in 2010 through 2018 if we do not use them. See Note 6 of Notes to
Consolidated Financial Statements.
22
<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated as a percentage of total net revenues.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
---------------- ---------------
1997 1998 1998 1999
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net revenues:
Product revenues.................................. 100.0% 98.3% 100.0% 87.9%
Licensing revenues................................ -- 1.7 -- 12.1
------ ------ ------ -----
Total net revenues........................... 100.0 100.0 100.0 100.0
Cost of revenues.................................... 32.3 33.0 38.2 27.6
------ ------ ------ -----
Gross margin........................................ 67.7 67.0 61.8 72.4
Operating expenses:
Research and development.......................... 207.5 38.4 45.4 30.8
Sales and marketing............................... 227.2 122.6 124.5 78.4
General and administrative........................ 66.1 24.2 23.4 17.2
Amortization of stock-based compensation.......... -- 7.5 -- 27.9
------ ------ ------ -----
Total operating expenses..................... 500.8 192.7 193.3 154.3
------ ------ ------ -----
Net loss from operations............................ (433.1) (125.7) (131.5) (81.9)
Other income, net................................... 14.9 4.0 2.7 0.5
------ ------ ------ -----
Net loss............................................ (418.2)% (121.7)% (128.8)% (81.4)%
====== ====== ====== =====
</TABLE>
Three months ended March 31, 1998 and 1999
Total net revenues. Our total net revenues increased by $1.9 million from
$1.2 million for the three months ended March 31, 1998 to $3.1 million for the
three months ended March 31, 1999, an increase of 148.7%. This increase was
primarily due to channel development, increased product acceptance and the
additional revenue from the ADC Telecommunications agreement. Product revenues
increased by $1.5 million from $1.2 million for the three months ended March 31,
1998, to $2.7 million for the three months ended March 31, 1999, an increase of
118.6%. Product revenues comprised all of total net revenues for the three
months ended March 31, 1998, and 87.9% of total net revenues for the three
months ended March 31, 1999. Licensing revenues were $375,000, or 12.1%, of
total net revenues for the three months ended March 31, 1999, which consisted of
revenues from the ADC agreement. We recorded no licensing revenues for the three
months ended March 31, 1998.
Cost of revenues. Our cost of revenues increased by $378,000 from $476,000
for the three months ended March 31, 1998 to $854,000 for the three months ended
March 31, 1999, an increase of 79.4%. The cost of revenues was 38.2% of total
net revenues for the three months ended March 31, 1998 as compared to 27.6% of
total net revenues for the three months ended March 31, 1999. The decrease in
cost of revenues as a percentage of total net revenues was primarily due to
reductions in manufacturing costs and increased economies of scale.
Research and development. Research and development expenses increased by
$389,000 from $566,000 for the three months ended March 31, 1998 to $955,000 for
the three months ended March 31, 1999, an increase of 68.7%. The absolute dollar
increase was due primarily to increases in staffing and related personnel costs.
Research and development expenses represented 45.4% of total
23
<PAGE> 27
net revenues for the three months ended March 31, 1998 as compared to 30.8% of
total net revenues for the three months ended March 31, 1999. The decrease in
research and development expenses as a percentage of total net revenues was
primarily due to increased sales.
Sales and marketing. Sales and marketing expenses increased by $878,000
from $1.6 million for the three months ended March 31, 1998 to $2.4 million for
the three months ended March 31, 1999, an increase of 56.6%. The absolute dollar
increase was primarily due to increases in staffing, related personnel costs and
increased marketing activities. Sales and marketing expenses were 124.5% of
total net revenues for the three months ended March 31, 1998 as compared to
78.4% of total net revenues for the three months ended March 31, 1999. The
decrease in sales and marketing expenses as a percentage of total net revenues
was primarily due to increased sales.
General and administrative. General and administrative expenses increased
by $241,000 from $292,000 for the three months ended March 31, 1998 to $533,000
for the three months March 31, 1999, an increase of 82.5%. The absolute dollar
increase was primarily due to increases in staffing and related personnel costs
to support our growth. General and administrative expenses were 23.4% of total
net revenues for the three months ended March 31, 1998 as compared to 17.2% of
total net revenues for the three months ended March 31, 1999. The decrease in
general and administrative expenses as a percentage of total net revenues was
primarily due to increased sales.
Other income, net. Other income, net consisted primarily of interest income
and interest expense. Other income, net decreased by $20,000 from $34,000 for
the three months ended March 31, 1998 to $14,000 for the three months ended
March 31, 1999, a decrease of 58.8%. Interest income earned increased by $53,000
from $41,000 for the three months ended March 31, 1998 to $94,000 for the three
months ended March 31, 1999, an increase of 129.3%. This increase was primarily
due to increased interest earned on higher average levels of cash. Interest
expense increased by $68,000 from $7,000 for the three months ended March 31,
1998 to $75,000 for the three months ended March 31, 1999. This increase was due
primarily to increased interest expense related to our financing activities.
Years ended December 31, 1997 and 1998
Total net revenues. Our total net revenues increased by $5.8 million from
$1.4 million in 1997 to $7.2 million in 1998, an increase of 411.7%. Product
revenues increased by $5.7 million from $1.4 million in 1997 to $7.1 million in
1998. This increase was primarily due to the addition of indirect channel
partners and the sales of the PacketShaper 1000 and 4000 for the full year in
1998, as compared to 1997, in which those models were not introduced until the
fourth quarter. Licensing revenues were $125,000 in 1998, which consisted of
revenues from the OEM licensing agreement with ADC Telecommunications that we
signed in December 1998. We recorded no licensing revenues in 1997.
Cost of revenues. Our cost of revenues increased by $1.9 million from
$457,000 in 1997 to $2.4 million in 1998, an increase of 422.1%. The increase in
cost of revenues in absolute dollars was primarily due to increased sales. The
cost of revenues was 32.3% of total net revenues in 1997 and 33.0% of total net
revenues in 1998.
Research and development. Research and development expenses decreased by
$153,000 from $3.0 million for 1997 to $2.8 million for 1998, a decrease of
5.2%. Research and development expenses represented 207.5% of total net revenues
in 1997 as compared to 38.4% of total net revenues in 1998. The decrease in
research and development expenses as a percentage of total net revenues was
primarily due to relatively unchanged expenses coupled with increased sales.
24
<PAGE> 28
Sales and marketing. Sales and marketing expenses increased by $5.7 million
from $3.2 million in 1997 to $8.9 million in 1998, an increase of 176.2%. This
increase was primarily due to increases in staffing, related personnel costs and
marketing activities. Sales and marketing expenses represented 227.2% of total
net revenues in 1997 as compared to 122.6% of total net revenues in 1998. This
decrease in sales and marketing expenses as a percentage of total net revenues
was primarily due to increased sales.
General and administrative. General and administrative expenses increased
by $816,000 from $934,000 for 1997 to $1.8 million in 1998, an increase of
87.4%. This absolute dollar increase was primarily due to increases in staffing
and related personnel costs. General and administrative expenses represented
66.1% of total net revenues in 1997 as compared to 24.2% of total net revenues
in 1998. This decrease in general and administrative expenses as a percentage of
total net revenues was primarily due to increased sales.
Other income, net. Other income, net increased by $78,000 from $211,000 in
1997 to $289,000 in 1998, an increase of 37.0%. This absolute dollar increase
was primarily due to increased interest earned on higher average levels of cash.
Interest income increased by $129,000 from $238,000 in 1997 to $367,000 in 1998,
an increase of 54.2%. This increase was primarily due to increased interest
earned on higher average levels of cash. Interest expense increased by $51,000
in 1997 to $78,000 in 1998, an increase of 188.9%. This increase was primarily
due to increased financing costs.
Period from inception through December 31, 1996
During the period from January 25, 1996 (inception) through December 31,
1996, our operating activities related primarily to development of the
PacketShaper product, recruitment and training of personnel, raising capital and
development of sales channels. We recognized no revenue and incurred operating
expenses of $1.3 million during the period. Accordingly, we believe a comparison
of operating results for that period with the operating results in 1997 is not
meaningful and have therefore omitted that discussion.
25
<PAGE> 29
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statements of
operations data in dollars and as a percentage of total net revenues for our
nine most recent quarters. In management's opinion, this unaudited information
has been prepared on the same basis as the annual consolidated financial
statements and includes all adjustments necessary (consisting only of normal
recurring adjustments) to present fairly the unaudited quarterly results. This
information should be read in conjunction with the consolidated financial
statements and related notes thereto included elsewhere in this prospectus. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31,
CONSOLIDATED STATEMENTS OF 1997 1997 1997 1997 1998 1998 1998 1998 1999
OPERATIONS DATA: --------- -------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Product revenues........ $ 43 $ 153 $ 424 $ 793 $ 1,246 $ 1,671 $ 1,895 $ 2,293 $ 2,724
Licensing revenues...... -- -- -- -- -- -- -- 125 375
--------- ------- ------- ------- ------- ------- ------- -------- -------
Total net
revenues......... 43 153 424 793 1,246 1,671 1,895 2,418 3,099
Cost of revenues.......... 10 60 146 241 476 594 605 711 854
--------- ------- ------- ------- ------- ------- ------- -------- -------
Gross profit.............. 33 93 278 552 770 1,077 1,290 1,707 2,245
Operating expenses:
Research and
development........... 489 755 827 861 566 602 676 935 955
Sales and marketing..... 339 622 614 1,635 1,551 1,918 2,306 3,091 2,429
General and
administrative........ 174 202 219 339 292 454 453 551 533
Amortization of
stock-based
compensation.......... -- -- -- -- -- 228 172 137 865
--------- ------- ------- ------- ------- ------- ------- -------- -------
Total operating
expenses......... 1,002 1,579 1,660 2,835 2,409 3,202 3,607 4,714 4,782
--------- ------- ------- ------- ------- ------- ------- -------- -------
Net loss from
operations.............. (969) (1,486) (1,382) (2,283) (1,639) (2,125) (2,317) (3,007) (2,537)
--------- ------- ------- ------- ------- ------- ------- -------- -------
Other income, net......... 58 27 74 52 34 101 101 53 14
--------- ------- ------- ------- ------- ------- ------- -------- -------
Net loss.................. $ (911) $(1,459) $(1,308) $(2,231) $(1,605) $(2,024) $(2,216) $ (2,954) $(2,523)
========= ======= ======= ======= ======= ======= ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
AS A PERCENTAGE OF NET REVENUES: --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Product revenues... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Licensing revenues... -- -- -- -- -- -- --
--------- ------- ------- ------- ------- -------- -------
Total net revenues... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues... 23.3 39.2 34.4 30.4 38.2 35.5 31.9
--------- ------- ------- ------- ------- -------- -------
Gross margin... 76.7 60.8 65.6 69.6 61.8 64.5 68.1
Operating expenses:
Research and development... 1,137.2 493.5 195.0 108.6 45.4 36.0 35.7
Sales and marketing... 788.4 406.5 144.8 206.2 124.5 114.8 121.7
General and administrative... 404.6 132.0 51.7 42.7 23.4 27.2 23.9
Amortization of stock-based
compensation... -- -- -- -- -- 13.6 9.0
--------- ------- ------- ------- ------- -------- -------
Total operating
expenses... 2,330.2 1,032.0 391.5 357.5 193.3 191.6 190.3
--------- ------- ------- ------- ------- -------- -------
Net loss from operations... (2,253.5) (971.2) (325.9) (287.9) (131.5) (127.1) (122.2)
--------- ------- ------- ------- ------- -------- -------
Other income, net... 134.9 17.6 17.4 6.6 2.7 6.0 5.3
--------- ------- ------- ------- ------- -------- -------
Net loss...... (2,118.6)% (953.6)% (308.5)% (281.3)% (128.8)% (121.1)% (116.9)%
========= ======= ======= ======= ======= ======== =======
<CAPTION>
THREE MONTHS ENDED
--------------------
DEC. 31, MARCH 31,
1998 1999
AS A PERCENTAGE OF NET REVENUES: -------- ---------
<S> <C> <C>
Net revenues:
Product revenues... 94.8% 87.9%
Licensing revenues... 5.2 12.1
-------- -------
Total net revenues... 100.0 100.0
Cost of revenues... 29.4 27.6
-------- -------
Gross margin... 70.6 72.4
Operating expenses:
Research and development... 38.7 30.8
Sales and marketing... 127.8 78.4
General and administrative... 22.8 17.2
Amortization of stock-based
compensation... 5.7 27.9
-------- -------
Total operating
expenses... 195.0 154.3
-------- -------
Net loss from operations... (124.4) (81.9)
-------- -------
Other income, net... 2.2 0.5
-------- -------
Net loss...... (122.2)% (81.4)%
======== =======
</TABLE>
26
<PAGE> 30
Total net revenues. Total net revenues have increased each quarter since
the three months ended March 31, 1997, primarily due to the development of
indirect sales channels, marketing the PacketShaper and PacketWise brands and
development of new products and feature enhancements to existing products. Our
sales strategy is to continue to develop indirect sales channels, to increase
marketing of the PacketShaper and PacketWise brands and to develop new products
and feature enhancements to existing products.
Cost of revenues. Our cost of revenues has increased in absolute dollars
each quarter since the three months ended March 31, 1997, primarily due to
increased sales. Fluctuations in the cost of revenues as a percentage of total
net revenues have resulted from variations in the mix of products sold and
variations in the channel mix. Gross margin increased from 68.1% for the three
months ended September 30, 1998 to 70.6% for the three months ended December 31,
1998 to 72.4% for the three months ended March 31, 1999. These increases were
partially due to the recognition of licensing revenues from our OEM relationship
with ADC Telecommunications.
Research and development. Our research and development expenses have
fluctuated in absolute dollars since the three months ended March 31, 1997.
Research and development expenses increased in the three months ended June 30,
1997 and September 30, 1997 primarily due to increased prototype expenses and
consulting fees related to the launch of the PacketShaper 1000 and 4000 models.
Research and development expenses increased in the three months ended December
31, 1997 primarily due to increased personnel expenses and costs associated with
a facilities move. Research and development expenses increased in the three
months ended December 31, 1998 primarily due to the hiring of additional
engineers and increasing consulting fees related to new product development
initiatives. Research and development expenses have generally decreased as a
percentage of total net revenues, primarily due to increased sales.
Sales and marketing. Our sales and marketing expenses have generally
increased in absolute dollars since the three months ended March 31, 1997,
primarily due to increased salaries, commissions and related personnel expenses.
Marketing expenses generally increased in the second and fourth quarters of 1997
and 1998 primarily due to increased expenditures related to trade shows. Sales
and marketing expenses increased for the three months ended December 31, 1997,
primarily due to increased expenditures related to the launch of the
PacketShaper 1000 and 4000 models. Sales and marketing expenses have generally
decreased as a percentage of total net revenues, primarily due to increased
sales.
General and administrative. General and administrative expenses have
generally increased in absolute dollars since the three months ended March 31,
1997, primarily due to the addition of finance, information technology and
administrative personnel. General and administrative expenses increased for the
three months ended December 31, 1997, primarily due to the costs associated with
a facilities move. General and administrative expenses have generally decreased
as a percentage of total net revenues, primarily due to increased sales.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily from the sale of preferred stock
and other financing activities such as bank credit against accounts receivable,
subordinated debt offerings and capital equipment leasing. As of March 31, 1999,
we had cash and cash equivalents of $7.1 million which included amounts borrowed
under our credit facilities.
We have a lease to finance the acquisition of computer software and
hardware, and furniture. The lease expires on June 30, 1999. We entered into a
revolving credit facility against accounts receivable on January 19, 1999 which
provides borrowings of up to $3.0 million. Borrowings under this credit facility
bear interest at the prime rate, which was 7.75% as of March 31, 1999, are due
27
<PAGE> 31
upon demand and are secured by substantially all of our assets. As of March 31,
1999, we had an outstanding balance of $980,000. The agreement expires on
January 10, 2000. We also entered in a $2.5 million subordinated loan and
security agreement in January 1999. Borrowings under this loan bear interest at
a rate of 12.25% per annum and are secured by all of our tangible assets.
Net cash used by operating activities was $748,000 for the three months
ended March 31, 1999. Net cash used by operating activities during the three
months ended March 31, 1999 was primarily due to net losses and decreases in
deferred revenues and accounts payable, partially offset by a decrease in
accounts receivable. Net cash used by operating activities was $7.0 million in
1998 and $6.1 million in 1997. During 1997 and 1998, net cash used by operating
activities was primarily due to net losses and increases in accounts receivable,
partially offset by increases in deferred revenue and accrued expenses.
Net cash provided by investing activities was $1.8 million for the three
months ended March 31, 1999. Cash was used during this period to purchase
computer equipment and software for internal use. Net cash used by investing
activities was $605,000 in 1997 and $2.6 million in 1998. Cash was used during
this period to acquire property and equipment and purchase investments. We
currently do not have significant capital spending or purchase commitments, but
expect to continue to engage in capital spending in the ordinary course of
business. During 1998, we expensed as incurred all software development costs.
Net cash provided by financing activities was $3.5 million for the three
months ended March 31, 1999. The net increase was primarily due to a
subordinated debt offering that resulted in proceeds of $2.5 million and a
revolving credit facility against accounts receivables that netted $980,000. Net
cash provided by financing activities in 1997 was $4.9 million and $9.7 million
in 1998. Net cash used by financing activities in 1997 and 1998 primarily
represented repayment of indebtedness. Net cash provided by financing activities
during 1997 and 1998 was primarily due to the issuance of preferred stock.
We expect to experience growth in our working capital needs for the
foreseeable future in order to execute our business plan. We anticipate that
operating activities, as well as planned capital expenditures, will constitute a
material use of our cash resources. In addition, we may utilize cash resources
to fund acquisitions or investments in complementary businesses, technologies or
products. We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, cash generated from operations and available
borrowings under our line of credit, will be sufficient to meet our anticipated
cash requirements for working capital and capital expenditures for at least the
next 12 months.
DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to our cash equivalents and short-term investments. The short-term investments
are available for sale. We do not use derivative financial instruments in our
investment portfolio. As stated in our investment policy, we are averse to
principal loss and ensure the safety and preservation of our invested funds by
limiting default and market risks. We mitigate default risk by investing in only
high credit quality securities. The portfolio includes marketable securities
with active secondary or resale markets to ensure portfolio liquidity. All
short-term investments have a fixed interest rate and are carried at market
value, which approximates cost.
As of December 31, 1998, we had cash equivalents and short-term investments
of $4.3 million with a weighted average interest rate of 5.7%. These investments
mature in 1999.
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A hypothetical increase or decrease in market interest rates of 10% from
the December 31, 1998 rates would cause the fair value of these investments to
decline by an insignificant amount.
Substantially all of our revenues are currently realized in U.S. dollars.
Additionally, amounts of foreign currency in our foreign operations is
insignificant. Therefore, we do not believe that we currently have any
significant direct foreign currency exchange risk.
YEAR 2000 READINESS DISCLOSURE
Some computers, software, and other equipment include computer code in
which calendar year data is abbreviated to only two digits. As a result of this
design decision, some of these systems could fail to operate or fail to produce
correct results if "00" is interpreted to mean 1900, rather than 2000. These
problems are widely expected to increase in frequency and severity as the year
2000 approaches, and are commonly referred to as the "year 2000 problem."
Assessment. The year 2000 problem affects the computers, software and other
equipment that we use, operate or maintain for our operations. Accordingly, we
have organized a project team responsible for monitoring the assessment and
remediation status of our year 2000 projects. This project team is currently
assessing the potential effects and costs of remediating the year 2000 problem
for our internal systems. To date, we have not obtained verification or
validation from any independent third parties of our processes to assess and
correct any of our year 2000 problems or the costs associated with these
activities.
Internal infrastructure. We believe that we have identified
mission-critical computers, servers and applications, and our business systems
and related equipment used in connection with our internal operations that will
need to be evaluated to determine if they must be modified, upgraded or replaced
to minimize the possibility of a material disruption to our business. Upon
completion of such evaluation, which we expect to occur by July 1999, we expect
to commence the process of modifying, upgrading and replacing major systems that
have been assessed as adversely affected, and expect to complete this process
before the occurrence of any material disruption of our business.
Systems other than information technology systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, telephone switches, security systems and other common devices may
be affected by the year 2000 problem. We are currently assessing the potential
effects and costs of remediating the year 2000 problem on our office equipment
and our facilities.
Products. We have tested and intend to continue to test all of our products
for year 2000 problems. To date, we have been able to correct any problems with
our products relating to the year 2000 problem. We currently do not expect any
significant year 2000 problems to arise with our products. We have generally
represented to our indirect channel partners and end users that our products are
year 2000 compliant, and if that turns out to be untrue, these parties may make
claims against us which may result in litigation or contract terminations.
We estimate the total cost to us of completing any required modifications,
upgrades or replacements of our internal systems will not exceed $100,000,
almost all of which we believe will be incurred in 1999. Based on the activities
described above, we do not believe that the year 2000 problem will have a
material adverse effect on our business or operating results. In addition, we
have not deferred any material information technology projects as a result of
our year 2000 problem activities.
Suppliers. We are in the process of assessing the readiness of our
sole-sourced component suppliers. We expect that we will be able to resolve any
significant year 2000 problems with sole-sourced component suppliers; however,
we cannot assure you that these suppliers will resolve any or all year 2000
problems before the occurrence of a material disruption to the operation of our
business.
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<PAGE> 33
Any failure of these third parties to timely resolve year 2000 problems with
their systems could harm our business.
Most likely consequences of year 2000 problems. We expect to identify and
resolve all year 2000 problems that could adversely affect our business
operations. However, we believe that it is not possible to determine with
complete certainty that all year 2000 problems affecting us have been identified
or corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, no one can accurately
predict how many year 2000 problem-related failures will occur or the severity,
duration or financial consequences of these perhaps inevitable failures. As a
result, we believe that the following consequences are possible:
- a significant number of operational inconveniences and inefficiencies for
us, our contract manufacturers and our indirect channel partners and end
users that will divert management's time and attention and financial and
human resources from ordinary business activities;
- business disputes and claims for pricing adjustments or penalties due to
year 2000 problems by our indirect channel partners and end users; and
- a number of serious business disputes alleging that we failed to comply
with the terms of contracts or industry standards of performance, some of
which could result in litigation or contract termination.
Contingency plans. We are currently developing contingency plans to be
implemented if our efforts to identify and correct year 2000 problems affecting
our internal systems are not effective. We expect to complete our contingency
plans by the end of September 1999. Depending on the systems affected, these
plans could include:
- accelerated replacement of affected equipment or software;
- short to medium-term use of backup equipment and software;
- increased work hours for our personnel; and
- use of contract personnel to correct on an accelerated schedule any year
2000 problems that arise or to provide manual workarounds for information
systems.
Our implementation of any of these contingency plans could harm our
business.
The discussion of our efforts and expectations relating to year 2000
compliance are forward-looking statements. Our ability to achieve year 2000
compliance and the level of incremental costs associated therewith, could be
adversely affected by, among other things, availability and cost of programming
and testing resources, third-party suppliers' ability to modify proprietary
software, and unanticipated problems identified in the ongoing compliance
review.
Disclaimer. The discussion of our efforts and expectations relating to year
2000 compliance are forward-looking statements. Our ability to achieve year 2000
compliance and the level of incremental associated cost, could be adversely
affected by, among other things, availability and cost of programming and
testing resources, third-party suppliers' ability to modify proprietary software
and unanticipated problems identified in the ongoing compliance review.
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. We will
adopt SFAS No. 133 for 2000. We believe that this statement will not have a
significant impact on our business.
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<PAGE> 34
BUSINESS
OVERVIEW
Packeteer is a leading provider of application-adaptive bandwidth
management solutions that enhance mission-critical application performance over
enterprise WANs and the Internet. Our solutions enable businesses and service
providers to proactively manage bandwidth contention at congested WAN access
links, protect important application traffic and increase network efficiency. We
deliver comprehensive application-adaptive bandwidth management by discovering
and classifying network traffic, analyzing application and network performance,
controlling traffic flows and monitoring and reporting on performance. Our
PacketWise software is at the core of our bandwidth management solutions and is
embedded in our PacketShaper family of products or in the networking products of
OEM partners. Our PacketShaper product family consists of an Intel
architecture-based hardware platform that runs various configurations of our
PacketWise software, providing customers with a plug-and-play solution.
We have shipped over 2,500 PacketShapers and have established a network of
over 100 VARs, distributors and systems integrators that sell our solutions in
over 50 countries. In addition, we have OEM relationships with partners who
license our PacketWise software to incorporate in their networking products or
resell our products under their own label.
INDUSTRY BACKGROUND
The Emergence of Internet Computing
Today, both the Internet and its underlying protocol infrastructure,
TCP/IP, have grown to positions of prominence in enterprise networking. From its
origins as a network connecting academic and government institutions, the
Internet has evolved into an interactive communications and commerce platform
supporting businesses' daily operations. Originally intended to accommodate non-
interactive traffic such as file transfers and e-mail, the Internet and TCP/IP
were designed with the basic goals of connectivity, versatility and bandwidth
exploitation. With the evolution towards distributed computing, TCP/IP has
become the communications fabric of mission-critical enterprise networks. The
Internet has enabled a new generation of interactive applications to deliver
core business functions, including e-commerce, data access and information
exchange, to a broad range of users. Leveraging the fundamental attributes of
the Internet and TCP/IP, businesses, consumers and suppliers have become better
connected. This rapid development of a vast connected economy has given rise to
a new innovative business model, the Internet computing model.
The rapid emergence of Internet computing has had a significant effect on
today's enterprise networks and has created new challenges for information
technology managers. As more interactive business applications are developed
using web-enabled platforms, such as SAP/R3, Oracle, PeopleSoft and Baan, the
amount of network data is increasing dramatically. E-commerce and e-business
applications extend the confines of the enterprise network across the Internet,
making application performance difficult to ensure. Enterprise users are
accessing web sites, large files, streaming multimedia content, news and other
non-critical information over the Internet. The resulting traffic deluge impacts
network resources that serve point-of-sale, order processing, enterprise
resource planning, supply-chain management and other vital business functions.
Internet computing relies on TCP/IP as the underlying protocol to support
distributed enterprise applications and the delivery of electronic services.
Unlike early non-interactive applications that did not require real-time
responsiveness, today's enterprise and e-commerce applications depend on timely
access to data and real-time transaction responses to ensure productivity and a
high quality of
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<PAGE> 35
experience for end users. The shift toward real-time, delay-sensitive data is
accelerating as corporations begin to converge database transactions and
multimedia traffic onto their enterprise networks. TCP/IP is unable to
differentiate between traffic types and is designed so that each transmission
attempts to consume all available bandwidth. These characteristics, which make
TCP/IP suitable for non-interactive traffic, threaten the performance of today's
mission-critical applications.
The Traffic Bottleneck at the WAN Access Link
In recent years, the adoption of Fast Ethernet and Gigabit Ethernet
technologies has reduced network congestion on the LAN. Simultaneously, the
deployment of fiber infrastructure in the service provider backbone has also
reduced bandwidth contention in that portion of the network. However, the bridge
between the two, the WAN access link, has remained the slow, weak link in the
chain, forming a bandwidth bottleneck. WAN access link capacity is often
constrained, expensive and difficult to upgrade. When faced with bandwidth
contention at the bottleneck, TCP/IP provides neither a means to give
preferential treatment to select applications nor a good mechanism to
effectively control data flows. TCP/IP reacts to network congestion by
discarding data packets and sporadically reducing packet transmissions from the
host computer. In enterprise networks that are overwhelmed by increasing amounts
of both non-critical and mission-critical traffic, unmanaged congestion at the
WAN access link undermines application performance and can result in impaired
productivity and lost revenues.
[INSERT BOTTLENECK FIGURE]
Today's enterprise networks require solutions that ensure mission-critical
application performance, increase network efficiency, and enable the convergence
of data, voice and video traffic. Enterprises are seeking to align their
networks with their business priorities by making them adaptive to the unique
requirements of the growing mix of mission-critical applications. At the same
time, they seek to leverage investments in application software and proactively
control recurring network costs by optimizing bandwidth utilization.
Many existing and newly emerging telecommunications service providers are
also seeking to address the needs of enterprises that are adopting Internet
computing. Service providers have traditionally functioned as WAN bandwidth
suppliers, leasing data lines and selling Internet access to businesses and
consumers. In the face of heightened competition, service providers are seeking
to differentiate themselves by offering tiered services in order to attract and
retain customers and increase profitability. These offerings include web
hosting, application outsourcing and managed network services. To deliver these
services, service providers must be able to ensure network and application
performance and better manage and allocate network resources.
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Limitations of Existing Approaches
Businesses and service providers currently employ several approaches in an
attempt to alleviate network congestion at the WAN access link. These approaches
include the following:
Adding bandwidth and infrastructure to over-provision the network. This
approach requires expensive upgrades to WAN access links and associated network
equipment. Moreover, incremental increases in bandwidth only temporarily
alleviate network congestion, leaving the following problems unresolved:
- Over-provisioning results in under-utilization of the network during
non-peak periods;
- Increases in bandwidth tend to be consumed quickly by latent demand
within LAN and backbone infrastructure;
- Deployment costs and increases in recurring service charges can be
prohibitively expensive, especially for networks with many remote sites
and for international networks; and
- There is no application performance visibility to enable effective
capacity planning.
Implementing queuing-based features. Today's queuing technologies provide
some degree of prioritization and are frequently router-based. These
implementations engage only after queues form, and attempt to provide quality of
service, or QoS, by reordering packets and then discarding packets when the
queues overflow. Router-based approaches typically identify and prioritize
traffic based on rudimentary characteristics such as port number, IP address or
protocol type. While these approaches can alleviate some of the bandwidth
contention problems, they are inadequate to handle an increasingly complex mix
of interactive and real-time mission-critical applications. These limitations
include:
- Queuing-based approaches are reactive in nature and can only address
congestion after the fact, rather than preventing it from occurring;
- Congested queues result in packet loss, retransmissions and delays that
waste bandwidth and undermine application response times;
- Limited traffic classification capabilities inadequately distinguish
between different types of application flows, resulting in sub-optimal
prioritization of traffic;
- Queuing does not directly control end-to-end application performance; and
- Queuing-based approaches do not control inbound traffic flowing from the
WAN to the LAN.
Installing network-management tools. Several vendors provide software that
analyzes and monitors network traffic. While these products enable network
administrators to determine how bandwidth is being utilized, thereby identifying
where bandwidth management is required, they do not comprise a complete solution
for the following reasons:
- These products only monitor and report application performance and
bandwidth utilization, offering no means of fixing or resolving
performance problems; and
- Products that detect problems once they occur are reactive and don't
proactively prevent similar problems in the future.
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The Bandwidth Management Opportunity
As Internet computing is more widely adopted, both businesses and service
providers are seeking ways to cost-effectively manage bandwidth, ensure
application performance and increase network efficiency. As mission-critical
applications compete with bandwidth-hungry non-critical traffic for limited
network resources, enterprises require a solution that not only monitors and
reports on application performance problems, but also provides the means to fix
such problems. As the complexity of their network infrastructures increases,
enterprises seek solutions that integrate easily into the existing network and
are cost-effective to deploy and maintain. In response to growing competition,
service providers are looking to create new revenue streams by offering
differentiated network and application-based services that meet the needs of
enterprise customers. Whether the solution is implemented by the enterprise or
purchased from a service provider, effectively managing the performance of
mission-critical applications is essential to businesses relying on Internet
computing.
THE PACKETEER SOLUTION
Packeteer provides application-adaptive bandwidth management solutions that
enhance the performance of mission-critical applications over enterprise WANs
and the Internet. Addressing the needs of both enterprises and service
providers, our products incorporate innovative technology for discovery,
classification, analysis, control and management of disparate traffic flows on
congestion-prone WAN access links.
PacketWise software is at the core of our bandwidth management solutions
and is embedded in Packeteer-manufactured products and OEM-manufactured
products. Our PacketShaper family of products consists of an Intel
architecture-based hardware platform that runs various configurations of our
PacketWise software. Our PacketShaper products provide customers with a
plug-and-play solution designed to be deployed easily and cost-effectively
without additional investment in or impact to network equipment, software or
infrastructure. In addition, by working with OEM partners to embed PacketWise
technology into their networking products, we are able to address new market
opportunities that are outside of the scope of our PacketShaper family of
products.
As the enterprise network increasingly extends to include the Internet,
network managers are challenged with managing the dynamic growth in critical and
non-critical traffic. Each particular application and type of traffic -- such as
transactions, file transfers, voice or streaming multimedia -- requires a
tailored management strategy to ensure optimal performance. Our solutions are
based on a comprehensive four-step methodology that provides the elements for
effective bandwidth management:
I. Discover and Classify Traffic. Currently, PacketShaper automatically
detects and identifies over 150 types of traffic. Network managers can
refine traffic categories based on application, protocol, web page,
addresses, users and host names. In addition, managers can define
criteria to recognize proprietary applications so that PacketShaper
automatically classifies the associated traffic. Sophisticated traffic
classification enables network managers to understand network
congestion and to precisely target bandwidth-allocation policies.
II. Analyze Performance. PacketShaper provides detailed analysis and
evaluation of network resources and application performance.
PacketShaper tracks traffic levels and trends, measures response times
and calculates network efficiency. Network managers can analyze all
traffic traversing a particular WAN access link or can focus on an
individual application, client, server or traffic type.
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III. Control Traffic. PacketShaper allows network managers to control
application performance and network resources by defining precise
bandwidth-allocation policies. Policies can protect important traffic,
cap bandwidth-intensive traffic and guarantee service levels. Network
managers can tailor management strategies and bandwidth allocation to
suit the requirements of particular applications or traffic, such as
voice, video or data. PacketShaper paces both inbound and outbound
traffic over the WAN access link to optimize performance and control
end-to-end QoS. Our control technology can also prohibit specific
applications, such as web-based entertainment or leisure applications,
from utilizing any enterprise resources.
IV. Report Performance. PacketShaper provides reports describing current
and historical network performance. Comprehensive reports, graphs and
tables enable network managers to refine bandwidth management policies,
evaluate efficiency and plan capacity. PacketShaper automatically
measures per-transaction response times for each application. Managers
can set, enforce and monitor service-level agreements, which quantify
desired QoS for a particular application or customer.
Our dynamic four-step approach to application-adaptive bandwidth management
enables businesses and service providers to realize the following key benefits:
- Gain Network Performance Visibility and Insight. PacketShaper provides
valuable historical and real-time information about application
performance and network utilization through an easy-to-use browser
interface. Network managers gain a better understanding of the nature of
traffic running on their networks and the problems and inefficiencies
associated with that traffic.
- Ensure Bandwidth to Mission-Critical Applications. Policy-based bandwidth
allocation protects bandwidth for mission-critical applications such as
SAP/R3, Oracle and Baan, preventing disruptions from bandwidth-hungry but
less urgent applications such as file transfers or casual web browsing.
- Simplify Deployment. PacketShaper installs easily and automatically
starts to discover, classify and analyze network traffic and suggests
policies to optimize performance. It complements the existing network
infrastructure, requires no router reconfiguration or desktop changes and
is designed not to be a point of failure on the network.
- Enable Interactive Services. Voice over IP, real-time video and other
streaming media require guaranteed bandwidth in order to achieve minimum
quality requirements. By using PacketShaper to set minimum bandwidth
guarantees and explicit delay bounds, network managers and service
providers can deliver smooth and predictable performance of these
delay-sensitive multimedia services.
- Increase Network Efficiency. PacketShaper improves network efficiency and
helps delay expensive capacity upgrades by managing non-critical traffic
to reduce retransmission overhead and smooth the variability in bandwidth
utilization.
- Facilitate E-Commerce. PacketShaper can reserve bandwidth for individual
website customers on a shared WAN connection. PacketShaper can also
optimize response time for certain web pages, such as product order and
home pages, and redirect users with slower connections to less
data-intensive web pages.
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STRATEGY
Our objective is to be the leading provider of application-adaptive
bandwidth management solutions. Key elements of our strategy include:
Focus on Bandwidth Management Needs of Enterprises. We are focused on
providing high performance, easy-to-use and cost-effective bandwidth management
solutions to enterprises whose businesses are based on Internet computing. For
these businesses, managing mission-critical application performance and
optimizing the value of the network will continue to be competitive
requirements. As the Internet proliferates, and new Internet-based applications
and services emerge, we believe businesses will continue to adopt Internet
computing business models at a rapid rate and that effective bandwidth
management will become an increasingly important requirement for maintaining an
efficient enterprise network. We believe we have established a differentiated
market position in terms of our technology expertise, early market leadership
and brand awareness. We intend to continue to direct our development, sales and
marketing efforts toward addressing the bandwidth management needs of the
Internet computing market.
Expand Presence in Service Provider Market. We are actively pursuing
opportunities in the service provider market and currently have several service
provider customers, including: Big Globe, a wholly owned subsidiary of NEC
Corporation; CLEAR Communications Ltd.; NTT Corporation; SONERA Technologies;
Telefonica de Espana; and Verio Inc. We believe service providers are under
increasing pressure to attract new subscribers, reduce subscriber turnover,
improve operating margins and develop new revenue streams. Specifically, service
providers seek to differentiate themselves through value-added service
offerings, such as web hosting, application outsourcing and application
service-level management. We believe our PacketShaper and PacketWise solutions
enable service providers to deliver these higher value services by enhancing
network and application performance and better managing and allocating network
resources. We intend to increase demand for our solutions with service providers
by leveraging our strong enterprise presence.
Continue to Build Indirect Distribution Channels. We believe we have built
a significant worldwide distribution channel. We currently have over 100 VARs,
distributors and systems integrators that sell our products in over 50
countries. These relationships include: Syncordia Solutions, a division of
British Telecommunications PLC; Datacraft Asia Ltd.; Fujitsu Limited; Macnica;
Nissho Electronics Corporation; Persetel, a subsidiary of Comparex Holdings;
Unisys Corp.; and Williams Communications Group Inc. Recently, we entered into
an agreement with Alcatel Business Systems to distribute our products globally.
We intend to continue to develop and support new VAR and distribution
relationships, as well as to establish additional indirect channels with service
providers, systems integrators and OEMs. We believe this strategy will enable us
to increase the worldwide deployment of our products.
Develop OEM Relationships to Broaden PacketWise Deployment. We have
designed our PacketWise software in distinct modules to integrate with network
hardware platforms offered by other vendors. This integration brings Packeteer's
unique capabilities into markets where tightly integrated QoS functions are
required but are beyond the scope of the PacketShaper offering. We currently
have an OEM relationship with ADC Telecommunications, in which they license
portions of our PacketWise software to incorporate in their networking products.
In addition, Memorex-Telex and NEC sell our PacketWise software and our
dedicated hardware platform under their own labels. We intend to pursue
additional OEM relationships in order to drive the proliferation of our
technology in enterprise and service provider networks.
Extend Bandwidth Management Technology Leadership. Our technological
leadership is based on our sophisticated traffic classification, flexible
policy-setting capabilities, TCP rate control expertise
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and ability to measure response time and network performance. We intend to
invest our research and development resources to increase the performance,
functionality and modularity of our existing bandwidth management solutions and
to develop new leading-edge technologies for emerging markets. This includes
extending our bandwidth management solutions to incorporate in-depth
application-management techniques that will improve performance over the
Internet and reduce bandwidth requirements. We plan to extend our current
portfolio by offering PacketWise-defined solutions that target the specific
needs of three primary market opportunities: application service-level
management, enterprise bandwidth management and service provider bandwidth
management.
PRODUCTS
We provide application-adaptive bandwidth management solutions to address
the needs of both businesses and service providers. Our products incorporate
innovative technology for discovery, classification, analysis, control and
management of disparate traffic flows in congestion-prone TCP/IP WAN access
links. Our PacketWise software is at the core of our bandwidth management
solutions and is embedded in our PacketShaper family of products. PacketShaper
products consist of an Intel architecture-based hardware platform running
various configurations of PacketWise. We also license our PacketWise software to
an OEM partner for incorporation in its networking products.
PacketShaper is available in three models to fit a broad range of network
environments, including corporate and service providers' data centers,
enterprise networks, branch offices and remote sites, as well as a wide variety
of additional network environments. Our PacketShaper products support multiple
WAN access link speeds. In addition, our solution supports thousands of
simultaneous sessions involving a wide range of protocols. Each of our
PacketShaper models is described below:
<TABLE>
<S> <C>
PacketShaper 1000 PacketShaper 1000 targets the needs of branch offices and
remote sites. It connects to 10 Mbps Ethernet LANs and
manages WAN access links with speeds up to 384 Kbps.
PacketShaper 2000 PacketShaper 2000 targets the requirements of enterprise
network administrators and Internet service providers. It
connects to 10 Mbps LANs and manages WAN access links with
speeds up to 8 Mbps, or two T1/E1 lines.
PacketShaper 4000 PacketShaper 4000 targets corporate data centers, Fast
Ethernet LAN environments and Internet service providers. It
connects to 10 or 100 Mbps LANs and controls WAN access
links with speeds up to 45 Mbps, or a T3 line. This model
also has redundant power supplies and cooling fans, which
are important features in service provider environments.
</TABLE>
PacketShapers represent a plug-and-play solution designed to be deployed
easily and cost-effectively in an existing network configuration. PacketShaper
does not require any new protocols, standards, router reconfiguration or desktop
changes. Additionally, each PacketShaper features a passive connector so that
the network connectivity is maintained if a PacketShaper is turned off or shuts
down due to a hardware or software failure. PacketShapers are typically deployed
at the WAN access link between the LAN and the WAN access router. The diagram
below depicts examples of how PacketShapers are deployed on customer networks.
[INSERT NETWORK TOPOLOGY DIAGRAM]
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TECHNOLOGY
We differentiate our solution by combining our knowledge of distributed
applications with our expertise in underlying network protocols. We have
invested heavily in developing valuable, proprietary software and related
technologies. In particular, we have developed expertise and technology in these
major areas: sophisticated traffic discovery and classification, flexible policy
definition and enforcement, precise rate control, application-based
response-time measurement, high-performance packet engines and scaleable
configuration. We have tied together these technologies with an easy to use,
graphical user interface in order to insulate the end user from the
sophistication of the underlying technology and to allow them to derive the
benefits of the technology with minimal effort.
Sophisticated Traffic Discovery and Classification
The ability to automatically detect and classify an extensive collection of
applications and protocols differentiates PacketShaper from other bandwidth
management technologies. Sophisticated traffic classification is crucial to
understand network congestion and to target appropriate bandwidth-allocation
policies. Network software or devices that claim QoS features typically offer
rudimentary solutions because they can identify traffic based only on port
numbers or protocol type. This approach limits application-specific QoS
capabilities because these products do not recognize the detailed information
required to make intelligent classification decisions. PacketShaper discovers
and classifies traffic by focusing on content and applications where value to
the end user lies.
Relying only on low-level protocols to classify traffic prevents network
managers from discovering important traffic trends and limits policy-setting.
Sophisticated traffic types such as Voice over IP, Oracle 8, TN3270, Citrix, and
Microsoft DCOM cannot be identified using simple IP-address or static-port
schemes. PacketShaper identifies traffic markers, detects dynamic port
assignments and tracks transactions with migrating port assignments. This
sophisticated traffic classification allows network managers to set policies and
control the traffic related to an individual application, session, client,
server or traffic type. PacketShaper permits a network manager to isolate each
published application running within a Citrix-based environment and can also
differentiate among various applications using the same port. For example, web
browsing, HTTP traffic from mission-critical web sites, PointCast and PeopleSoft
e7.5 all run on the same TCP port, but can be individually classified using
PacketShaper.
PacketShaper needs no assistance from network managers to automatically
detect and identify over 150 traffic types. Without a sophisticated
identification and classification capability, managers are usually unaware of
the diversity of their own network traffic. In addition, managers can define
proprietary applications so that their traffic can be recognized and reported.
Our PacketShaper technology is differentiated by its ability to recognize legacy
enterprise protocols, such as AppleTalk, DECnet, IPX and SNA. We continuously
enhance PacketShaper's classification capability to include new traffic types.
Any traffic category can be made even more specific by adding more detailed
criteria -- for example, Oracle traffic from a specific server to a specific
subnet. Many of the traffic types PacketShaper automatically classifies are
listed below.
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<TABLE>
<S> <C> <C> <C> <C> <C>
CLIENT/SERVER DIRECTORY E-MAIL FILE SERVER INTERNET NETWORK
CORBA SERVICES cc:MAIL Lockd ActiveX MANAGEMENT
FileMaker Pro CRS IMAP NetBIOS-IP FTP PROTOCOL
FIX DHCP MS DCOM NFS Gopher Cisco
LotusNotes DNS (MS HTTP Discovery
MS DCOM DPA Exchange) GAMING SYSTEMS IP ICMP
MS SQL Finger MSSQ Doom IPv6 NTP
Oracle Ident POP3 Kali IRC SNMP
SunRPC Kerberos SMTP Quake NNTP SYSLOG
LDAP Quake II SSH
RADIUS SSL
TACACS TCP
Whois TFTP
UDP
UUCP
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
PRINT ROUTING SESSION STREAMING MEDIA TUNNELING VOICE OVER IP
LPR AURP Citrix MPEG PROTOCOL CUSeeMe
TN3287 BGP RDP NetShow DLS H.323
TN5250p CBT Telnet RealAudio GRE I-Phone
DRP Timbuktu RTSP IPSEC Micom VIP
PUSH EGP TN3270 ST2 L2TP RTCP
Backweb EIGRP TN5250 Streamworks PPTP RTP
Marimba IGMP Xwindows T.120
PointCast OSPF VDOPhone
PIM
RARP
RIP
Spanning Tree
</TABLE>
Flexible Policy Definition and Enforcement
PacketShaper provides network managers flexible tools to tailor solutions
for different applications or traffic types. Unlike queuing-based approaches,
PacketShaper allows network managers to do more than just prioritize one traffic
type over another. Policy features such as per-session rate policies and fixed
and burstable partitions offer the flexibility required to tune bandwidth to
specific applications and dynamically utilize available bandwidth. Our policy
features may be used individually or in conjunction with each other.
PacketShaper policy features include:
- Per-session rate policies. These policies enable network managers to
limit or guarantee bandwidth to each individual session of an
application's traffic. Per-session policies allocate each session an
appropriate amount of bandwidth and prevent one large session from
inappropriately impacting others. Network managers specify a
minimum-guaranteed rate and allow the session scaled access to additional
available bandwidth. For example, a bandwidth cap for HTTP traffic
prevents web browsers from competing for bandwidth required by
mission-critical applications. Likewise, a guaranteed rate for audio or
video streams ensures that they are not interrupted by bursty traffic
types.
- Partitions. Partitions allow the creation of a separate, exclusive
channel within a WAN access link. Partitions represent aggregate
bandwidth minimums or maximums governing how much of the network can be
used by a single application or traffic category. Partitions can be
fixed, creating dedicated virtual circuits, or burstable, creating
virtual circuits whose unused bandwidth can be shared.
- Priority policies. Priorities may be assigned to each application or
traffic category. Eight priority levels are available. Priority policies
are ideal for traffic that does not burst, non-IP traffic and traffic
characterized by small, high-priority flows.
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<PAGE> 43
- Admission-control policies. Admission control determines the response if
a bandwidth guarantee cannot be satisfied. Network managers may choose to
deny access, accommodate an additional user with less than guaranteed
performance, or, for web requests, redirect the request to another
server. For example, if an online streaming-video service suffers a high-
demand period and all available bandwidth is consumed, an
admission-control policy could present a web page explaining that
resources are busy. This allows a maximum number of users to receive a
targeted service quality without degradation as new users seek to access
the service.
- Discard and never-admit policies. These policies intentionally block
traffic. Discard policies toss packets without sending feedback to the
sender. Never-admit policies are similar to discard policies except that
the policy informs the sender that service is blocked.
Precise Rate Control
One of TCP/IP's primary weaknesses is an inability to guarantee QoS. Unlike
SNA and ATM protocols, which have an embedded concept of rate, TCP/IP's attempts
to consume all available bandwidth conflict with the goal of predictable,
consistent, mission-critical application performance. PacketShaper's
standards-based TCP rate control technology overcomes TCP/IP's shortcomings by
proactively preventing congestion on both inbound and outbound flows and
increasing overall network throughput. Rather than discarding packets from a
congested queue, TCP rate control implements just-in-time packet delivery to
prevent congestion. Rate control uses the remote user's access speed and
real-time network latency to calculate the optimal transmission speed. Evenly
paced packet transmissions, instead of packet bursts, yield significant
efficiency gains in the network. TCP rate control is a proactive and precise way
to increase network efficiency by avoiding retransmissions and packet loss and
creates a smooth, even flow rate that maximizes throughput. By employing TCP
rate control, PacketShaper manages the majority of traffic at the access link
before network congestion occurs.
For non-TCP based traffic, such as UDP, alternative rate-based management
techniques must be implemented. Typically UDP does not rely on acknowledgments
to signal successful receipt of data, and it therefore offers no means for flow
control. By directly controlling other TCP flows, PacketShaper effectively makes
bandwidth available for UDP flows. The combination of per flow rate scheduling
and explicit delay bounds removes latency and variability, or jitter, for the
UDP flows traversing the WAN access link.
For example, Voice over IP, or VoIP, is a UDP-based application that is
particularly latency-sensitive, requiring packets to be evenly spaced to
eliminate jitter. PacketShaper enhances VoIP performance in two ways. First,
PacketShaper manages competing traffic by using rate control to constrain bursty
TCP traffic. In addition, a rate policy for VoIP gives a minimum bandwidth
guarantee to each flow, ensuring that each voice stream gets the bandwidth it
needs for predictable performance. When there is a lull in the conversation, any
unused bandwidth is re-allocated to other traffic.
Application-Based Response-Time Measurement
PacketShaper's position in the enterprise network -- monitoring and
controlling all the traffic that passes -- gives it an opportunity to provide
accurate response-time measurements for a relatively low cost. Because it
already handles and classifies every packet, PacketShaper can easily calculate
the time traffic spends traveling between a client and a server and the time
used by the server itself.
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<PAGE> 44
PacketShaper breaks each response-time measurement into network delay, the
time spent in transit, and server delay, the time the server used to process the
request. It can highlight clients and servers with the slowest performance.
PacketShaper allows network managers to set acceptability standards and then
track whether performance adheres to the standards.
High-Performance Packet Engines
Sophisticated classification and control of high-speed traffic must be
accomplished in an efficient manner. Adding significant delay in the process of
managing traffic flows would negate the resulting performance improvements.
Packeteer has developed expertise in the development of high-speed,
software-based packet engines running on real-time operating systems that can
efficiently process thousands of simultaneous high-speed connections with
minimal delay. This core-engine software technology scales to take advantage of
ever-increasing microprocessor performance to manage faster access links.
Scaleable Configuration
Large deployments require tools to ease the process of updating tens or
hundreds of distributed PacketShapers. To address these requirements,
PacketShaper offers its own features, aligns with industry standards and
integrates with third-party tools.
PacketShaper's Group Configuration Service is a web-based tool that network
managers use to define configuration details just once, then publish the changes
to multiple PacketShapers. We have begun development of a complete
directory-based configuration with the inclusion of an LDAP client and support
for a host list schema. Host lists allow network managers to apply one
management strategy to all traffic involving any computer in the list.
PacketShaper is accessible from within HP OpenView and we are working with
Hewlett Packard Company to make PacketShapers configurable from Hewlett
Packard's Policy Based Network Management console.
CUSTOMERS
Our direct customers consist of our indirect channel partners. The
following is a list representative of our indirect channel partners by
geographic region:
<TABLE>
<CAPTION>
EUROPE, AFRICA
NORTH AND SOUTH AMERICA AND THE MIDDLE EAST ASIA
- -------------------------------- -------------------------------- --------------------------------
<S> <C> <C>
AmeriNet, Inc. Activis, Ltd. AsiaSoft HK Ltd.
Bay Data Consultants ADAnet IIS Datacraft Asia Ltd.
Data Transit Antea Consulting Kanematsu USA Inc.
DTM Corporation Data Construction Lan Systems
M-13 Iperformances Macnica, Inc.
MicroVisions Logical Networks Plc Nissho Electronics Corporation
NCA (Network ME Networks AG Teledata SG
Computing Architects, Inc.) MIEL Unitech Computer Systems Limited
NETPLEX Systems, Inc. Persetel
Netsource Telemation AG & Co Netzwerke
Ocean Systems Engineer/ITI Wang Holdings Netherlands B.V.
(OSEC)
SE Technologies, Inc.
Solunet, Inc.
ThinAspe Corp
Trivalent LAN Concepts
Unisys Corp. through LACD
</TABLE>
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<PAGE> 45
The following is a list of end users that have deployed multiple
PacketShapers:
<TABLE>
<CAPTION>
ENTERPRISES SERVICE PROVIDERS
- ------------------------------------------------------------------- --------------------------------
<S> <C> <C>
American Bottling Company Mitchell International, Inc. Big Globe
Autodesk, Inc. Motorola, Inc. British Telecommunications PLC
Borden Chemical Inc. Northwestern Mutual Life CLEAR Communications Ltd.
Boy Scouts of America Insurance Company Cypress Communications
Cytec Industries Inc. Sony Pictures Entertainment NTT Corporation
Domino's Pizza, Inc. Staley/Tate & Lyle North America SONERA Technologies
Grant Thornton International Standard & Poor's Telefonica de Espana
Hoechst Marion Roussel AG Transamerica Corporation Verio Inc.
Hewlett-Packard Company Unilever N.V.
Lucent Technologies Inc.
</TABLE>
In 1998, sales to Macnica accounted for 11.9% of total net revenues. For
the three months ended March 31, 1999, sales to ADC Telecommunications accounted
for 12.1% of total net revenues, sales to Nissho Electronics accounted for 11.2%
of total net revenues and sales to Macnica accounted for 10.7% of total net
revenues. In 1998, sales to the top 10 indirect channel partners accounted for
45.0% of total net revenues and for the three months ended March 31, 1999, sales
to the top 10 indirect channel partners accounted for 56.2% of total net
revenues.
In 1998, sales to customers outside of North America constituted 54.7% of
total net revenues and in the three months ended March 31, 1999, revenues
attributable to sales to customers outside of North America constituted 55.3% of
total net revenues.
The following case studies illustrate how some of our customers have
deployed our products:
Autodesk. Autodesk is a leading supplier of PC design software and
multimedia tools used for a wide range of design, engineering, mapping and
design-visualization purposes. Autodesk sought to reduce spending on expensive
international WAN connections to its worldwide offices, as well as to ensure
predictable performance for mission-critical applications such as SAP, Citrix
WinFrame and Microsoft Outlook. Before installing PacketShaper, Autodesk
required two permanent virtual circuits, or PVCs, for each of its hub locations:
one for mission-critical applications and another for secondary traffic such as
file transfers. Using PacketShaper, Autodesk was able to consolidate its network
traffic, simplify its network management, reduce its PVC requirements by half,
and realize cost savings and efficiency by not maintaining additional network
infrastructure.
Domino's Pizza. Domino's Pizza is a leader in pizza delivery. When Domino's
purchased a new order-processing application from PeopleSoft, it sought to
ensure that appropriate bandwidth would be available on its corporate network
while preserving performance for other important traffic such as IPX, which is
used for access to network directory services. Using PacketShaper, Domino's was
able to identify the different types of traffic on its network, including
traffic types it had not previously known were consuming bandwidth. Network
managers defined bandwidth-allocation policies to enable PeopleSoft performance,
protect other mission-critical applications, and reduce bandwidth for non-
urgent traffic during times of contention.
Hoechst Marion Roussel. Hoechst Marion Roussel (HMR) is a leading
pharmaceutical company with operations worldwide. When HMR began deploying SAP
R/3 in its Latin American operations to support mission-critical financial
management, manufacturing and sales functions, they found SAP R/3 competed for
network bandwidth with Microsoft Exchange. Adding more bandwidth was not an
effective solution because TCP/IP applications, such as Microsoft Exchange,
burst in an attempt to consume all of the available bandwidth on a network. WAN
bandwidth is also very expensive in Latin America. Packeteer's TCP rate control
technology enabled HMR to manage their Microsoft Exchange traffic by setting
appropriate bandwidth policies for several applications and
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<PAGE> 46
enabling SAP R/3 to perform even during heavy network congestion. The
plug-and-play nature and remote management capabilities of Packeteer's solution
enabled HMR to deploy PacketShapers in multiple sites where technical resources
were scarce.
MANUFACTURING
We outsource our manufacturing, including warranty repair, to two contract
manufacturers. Quadrus, located in San Jose, California, manufactures our
PacketShaper 1000 and 2000, and Sanmina, located in San Jose, California,
manufactures our PacketShaper 4000. The manufacturing processes and procedures
for both of these manufacturers are ISO 9002 certified. Outsourcing our
manufacturing enables us to reduce fixed costs and to provide flexibility in
meeting market demand.
We design and develop the key components of our products, including printed
circuit boards and software. In addition, we determine the components that are
incorporated in our products and select the appropriate suppliers of these
components. Product testing and burn-in is performed by our contract
manufacturers using tests and automated testing equipment that we specify. We
also use inspection testing and statistical process controls to assure the
quality and reliability of our products.
We use a rolling seven-month forecast based on anticipated product orders
to determine our material requirements. Lead times for the materials and
components we order vary significantly and depend on factors such as specific
supplier, contract terms and demand for a component at a given time. We submit
purchase orders for quantities requested within 90 days. Quadrus, Sanmina or
Packeteer may terminate the contract without cause at any time. At that time the
terminating party must honor all open purchase orders.
MARKETING AND SALES
We target our marketing and sales efforts at enterprises and service
providers. Direct marketing and sales activities focus on reaching the corporate
application network managers responsible for the performance of mission-critical
applications in the enterprise. They also focus on reaching service providers
that provide bandwidth-optimized services including web hosting and tiered
network connectivity.
Our marketing programs support the sale and distribution of our products
and educate existing and potential enterprise and service provider customers
about the benefits of our application-adaptive bandwidth management solutions.
Our marketing efforts include the following:
- publication of technical and educational articles in industry magazines;
- public speaking opportunities;
- web site-based communication and promotion;
- industry tradeshows, technical conferences and technology seminars; and
- advertising, direct mail and public relations.
We classify our distribution channels in the following three categories:
- Solution Partners. We have established a network of over 100 VARs,
distributors and systems integrators that sell our solutions in over 50
countries. These solution partners sell PacketShapers and other products
that are complementary to our application-adaptive bandwidth management
solution.
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<PAGE> 47
- Technology Partners. Technology partners are OEMs and companies with whom
we have established joint development relationships. For example, we
established a joint development relationship with Hewlett Packard so that
PacketShapers can be viewed and managed through OpenView.
- Alliance Partners. We have developed a marketing alliance program to
establish new marketing relationships, as well as enhance existing
relationships, with hardware, software and systems vendors. We believe
that we can build brand awareness by working with alliance partners to
target the needs of specific customer environments. For example, we
formed an alliance with Citrix to enhance the performance of individual
applications within the Citrix MetaFrame and WinFrame environments and an
alliance with Clarent Corporation to enhance the quality of their VoIP
applications. We work with alliance partners on various joint marketing
initiatives, including product literature, direct mailings and seminars.
As of March 31, 1999, our worldwide sales and marketing organization
consisted of 42 individuals, including managers, sales representatives and
technical and administrative support personnel. We have nine domestic sales
offices located in Bedminster, New Jersey; Chicago, Illinois; Cupertino and San
Diego, California; Dallas and Houston, Texas; Fall River, Massachusetts;
Littleton, Colorado and Tacoma, Washington. In addition, we have four
international sales offices located in Hong Kong; Sydney, Australia; Tokyo,
Japan; and Waddinxveen, The Netherlands.
We believe there is a strong international market for our bandwidth
management solutions. Our international sales are conducted primarily through
our overseas offices. Sales to customers outside of North America accounted for
54.7% of our total net revenues in 1998 and 55.3% of our total net revenues for
the three months ended March 31, 1999. In addition, sales to Asia Pacific
accounted for 31.0% of our total net revenues in 1998 and 33.3% of our total net
revenues for the three months ended March 31, 1999.
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<PAGE> 48
RESEARCH AND DEVELOPMENT
As of March 31, 1999, our research and development organization consisted
of 22 employees, each with expertise in a different area of our software: core
engineering, classification, configuration and reporting management and user
interface and platform engineering. Since inception, we have focused our
research and development efforts on developing and enhancing our
application-adaptive bandwidth management solutions. To date, we have released
the following products and enhancements:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUARTER PRODUCT OR
INTRODUCED ENHANCEMENT DESCRIPTION
- -----------------------------------------------------------------------------------
<C> <S> <C>
Q1 1997 PacketShaper 2000 - First product ship (multi-T1-capacity
PacketWise v1.1 hardware model)
- -----------------------------------------------------------------------------------
Q2 1997 PacketWise v2.0 - Integrated, web-based Policy Console
- Multi-protocol support (non-IP)
- -----------------------------------------------------------------------------------
Q3 1997 PacketWise v2.1 - Policy modules
- -----------------------------------------------------------------------------------
Q4 1997 PacketShaper 4000 - T3-capacity product hardware model
--------------------------------------------------------------------
PacketShaper 1000 - Fractional-T1 capacity hardware model
--------------------------------------------------------------------
PacketWise v3.0 - Integrated measurement engine and reporting
- Traffic discovery and suggested policies
- -----------------------------------------------------------------------------------
Q2 1998 PacketWise v3.1 - Policy-based management
-- Dynamic DNS
-- Fail-over to backup link
-- Group configuration services
- Support for VoIP traffic
- Thin-client bandwidth management
- HP OpenView support
- -----------------------------------------------------------------------------------
Q3 1998 Memorex-Telex - First private-label PacketWise-based
Bandwidth Manager hardware model
- -----------------------------------------------------------------------------------
Q4 1998 PacketWise v3.1-ADC - First commercial OEM software licensing
- -----------------------------------------------------------------------------------
Q1 1999 PacketWise v4.0 - Response-time management
- Deep application classification of Oracle
and Citrix
- Microsoft Exchange classification
- ----------
</TABLE>
CUSTOMER SERVICE AND TECHNICAL SUPPORT
Our customer service and support organization provides both product
maintenance and technical support services. Our technical support staff is
strategically located in four regional service centers: California, Hong Kong,
Japan and The Netherlands. Our indirect channel partners offer similar support
services for all of our products they sell.
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<PAGE> 49
In addition to providing these maintenance and support services, we also
offer two standard maintenance programs:
Packeteer Partner ProSupport. This service is designed for our indirect
channel partners. Our partners purchase this program so that they can offer
support services to their customers. These services include:
- an extended warranty period beyond the standard one-year warranty;
- a software subscription service allowing access to all software upgrades;
and
- web site access to software upgrades, current technical bulletins,
advanced white papers, and other technical support materials.
Packeteer Premium ProSupport. This service is designed for end users who
receive support services directly from us and includes:
- an extended warranty with advance replacement of defective units within
two business days of notification;
- software subscription service allowing access to all software upgrades;
- unlimited telephone and e-mail support; and
- web site access to software upgrades, current technical bulletins,
advanced white papers, and other technical support materials.
COMPETITION
We compete in a new, rapidly evolving and highly competitive sector of the
bandwidth management solutions market. We expect competition to persist and
intensify in the future from a number of different sources. We compete with
Cisco and CheckPoint, which sell products incorporating competing technologies.
We also compete with several small private companies which utilize competing
technologies to provide bandwidth management. In addition, our products and
technology compete for information technology budget allocations with products
that offer monitoring technologies, such as probes and related software. Lastly,
we face indirect competition from companies that offer enterprises and service
providers increased bandwidth and infrastructure upgrades that increase the
capacity of their networks, and thereby may lessen or delay the need for
bandwidth management.
We believe the principal competitive factors in the bandwidth management
solutions market are:
- expertise and in-depth knowledge of applications;
- timeliness of new product introductions;
- ability to integrate in the existing network architecture without
requiring network reconfigurations or desktop changes;
- ability to ensure end-user performance in addition to aggregate
performance of the WAN access link;
- compatibility with industry standards;
- products that do not increase latency and packet loss;
- size and scope of distribution network;
- brand name; and
- access to customers and size of installed customer base.
46
<PAGE> 50
INTELLECTUAL PROPERTY
We rely on a combination of patent, copyright and trademark laws, and on
trade secrets, confidentiality provisions and other contractual provisions to
protect our proprietary rights. These measures afford only limited protection.
We currently have one issued U.S. patent and 10 pending patent applications,
including one for which we have received a notice of allowance. We cannot assure
you that our means of protecting our proprietary rights in the U.S. or abroad
will be adequate or that competitors will not independently develop similar
technologies. Our future success depends in part on our ability to protect our
proprietary rights to the technologies used in our principal products. Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products or to obtain and use trade secrets or other
information that we regard as proprietary. In addition, the laws of some foreign
countries do not protect our proprietary rights as fully as do the laws of the
U.S. We cannot assure you that any issued patent will preserve our proprietary
position, or that competitors or others will not develop technologies similar to
or superior to our technology. Our failure to enforce and protect our
intellectual property rights could harm our business, operating results and
financial condition.
From time to time, third parties, including our competitors, have asserted
patent, copyright and other intellectual property rights to technologies that
are important to us. We expect that we will increasingly be subject to
infringement claims as the number of products and competitors in the
application-adaptive bandwidth management market grows and the functionality of
products overlaps. The results of any litigation matter are inherently
uncertain. In the event of an adverse result in any litigation with third
parties that could arise in the future, we could be required to pay substantial
damages, including treble damages if we are held to have willfully infringed, to
cease the manufacture, use and sale of infringing products, to expend
significant resources to develop non-infringing technology, or to obtain
licenses to the infringing technology. Licenses may not be available from any
third party that asserts intellectual property claims against us on commercially
reasonable terms, or at all. In addition, litigation frequently involves
substantial expenditures and can require significant management attention, even
if we ultimately prevail.
EMPLOYEES
As of March 31, 1999, Packeteer employed a total of 76 full-time employees.
Of the total number of employees, 22 were in research and development, 34 in
sales and customer service, eight in marketing, three in operations and nine in
administration. Our employees are not represented by any collective bargaining
agreement with respect to their employment by Packeteer.
FACILITIES
We lease approximately 27,000 square feet of administrative and research
and development facilities in Cupertino, California. We believe our current
facilities will be sufficient to handle our operations for at least the next 12
months. We believe that future growth can be accommodated by obtaining the
necessary additional space. Packeteer leases sales offices in the following
locations: Bedminster, New Jersey; Dallas, Texas; Tacoma, Washington; Sydney,
Australia; Hong Kong; Tokyo, Japan; and Waddinxveen, The Netherlands.
LEGAL PROCEEDINGS
We have no material legal proceedings threatened or pending.
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<PAGE> 51
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of May 1, 1999 are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Craig W. Elliott........ 38 President, Chief Executive Officer and Director
Brett D. Galloway....... 35 Vice President, Engineering, Chief Operating Officer
and Director
Robert L. Packer........ 39 Chief Technical Officer and Director
William E. Klaus........ 39 Vice President, Business Development
Todd J. Krautkremer..... 38 Vice President, Marketing
Neil A. Sundstrom....... 46 Vice President, Worldwide Sales
David C. Yntema......... 54 Chief Financial Officer and Secretary
Steven J. Campbell(2)... 57 Chairman of the Board of Directors
Joseph A. 55 Director
Graziano(1)(2)........
Peter T. Morris(1)(2)... 43 Director
William R. Stensrud..... 48 Director
</TABLE>
- -------------------------
(1) Member of audit committee
(2) Member of compensation committee
Craig W. Elliott has served as President, Chief Executive Officer and a
Director of Packeteer since April 1996. From January 1991 to March 1996, Mr.
Elliott served as International General Manager of Apple Computer, Inc.'s Online
Internet Division, where he managed Apple's Internet and online business in more
than 80 countries. From November 1987 to May 1994, Mr. Elliott served as Apple's
Product Business Manager in charge of Networking and Communication Products. Mr.
Elliott holds a B.S. in animal science from Iowa State University.
Brett D. Galloway, a co-founder of Packeteer, has served as Chief Operating
Officer, Vice President, Engineering and a Director of Packeteer since its
inception. Mr. Galloway also served as Chief Financial Officer of Packeteer from
its inception in 1996 to January 1999. Prior to founding Packeteer, Mr. Galloway
served as Director of Engineering at Metricom, Inc. from November 1994 through
February 1996 and as Director of Software Engineering at Metricom from October
1990 to November 1994. Mr. Galloway holds a B.S. and an M.S. in electrical
engineering from Stanford University.
Robert L. Packer, a co-founder of Packeteer, has served as Chief Technical
Officer and a Director of Packeteer since its inception. From 1987 to January
1996, Mr. Packer was an independent consultant, developing telecommunications
and networking technologies, including protocols for the Ricochet microcellular
wireless network for Metricom, Inc., a wireless Internet networking company, OSI
protocols for IBM Corporation and a high-performance packet switch for British
Telecom North America, a telecommunications company. Mr. Packer holds a B.A. in
philosophy and political science from Swarthmore College.
William E. Klaus has served as Vice President, Business Development for
Packeteer since June 1998. From October 1996 to May 1998, Mr. Klaus served as
Vice President of Sales and Business Development for Packeteer. From March 1996
to October 1996, Mr. Klaus served as Director of Products and Channels for Eagle
River Interactive, an Internet development company. From October 1988 to March
1996, Mr. Klaus held various positions at Apple Computer, Inc., including Senior
Manager of Business Development. Mr. Klaus was a founding member of KPMG Peat
48
<PAGE> 52
Marwick/ExIS, a joint effort of KPMG and Apple Computer, and also held positions
with Racore, Inc., a networking company, and Motorola, an electronic equipment
manufacturer. Mr. Klaus holds a B.S. in finance from San Jose State University.
Todd J. Krautkremer has served as Vice President, Marketing for Packeteer
since January 1999. From October 1990 through December 1998, Mr. Krautkremer
held various positions at Sync Research, a networking company, with his most
recent position being Vice President of Strategic Marketing. Mr. Krautkremer
holds a B.S. in computer science from St. Cloud State University.
Neil A. Sundstrom has served as Vice President, Sales for Packeteer since
June 1998. From September 1997 to May 1998 Mr. Sundstrom served as Vice
President of International Sales for Packeteer. From October 1994 to September
1997, Mr. Sundstrom served as Vice President of 3Com Corporation's Network
Service Provider Division (known as Primary Access prior to its 1995 acquisition
by 3Com). From January 1990 to September 1994 Mr. Sundstrom served as
Intercontinental Area Manager for SynOptics Communications, Inc., a networking
company. Mr. Sundstrom serves as a Director of Perle Systems, a publicly held
company. Mr. Sundstrom holds a B.A. in psychology from Simon Fraser University,
British Columbia.
David C. Yntema has served as Chief Financial Officer and Secretary of
Packeteer since January 1999. From May 1994 through August 1998, Mr. Yntema
served as Chief Financial Officer and Vice President, Finance and Administration
of VIVUS , Inc., a pharmaceutical company. Prior to joining VIVUS, Mr. Yntema
served as Chief Financial Officer for EO, Inc., a handheld computer company,
Maspar Computer Corporation, a massively parallel computer company, and System
Industries, a storage subsystem company and has held a variety of other
financial management positions. Mr. Yntema also serves as a Director of
Virologic, Inc., a biotechnology company. Mr. Yntema holds a B.A. in economics
and business administration from Hope College and an M.B.A. from the University
of Michigan.
Steven J. Campbell has served as Chairman of the Board of Directors of
Packeteer since its inception and served as Packeteer's Chief Executive Officer
from January 1996 through April 1996. Mr. Campbell was a founder of StrataCom,
Inc., a network switching equipment company which was acquired by Cisco Systems
in July 1996, where he was employed from 1986 through 1991 initially as Chief
Executive Officer and then as Vice President of Engineering and finally as Vice
President of Operations. He headed the PBX development at Rolm Communications,
Inc., a telecommunications company, from 1978 through 1983. He is a Director of
Air Flash, Inc., a wireless portal company. Mr. Campbell holds a B.S. in
electrical engineering from Oregon State University and an M.S. in electrical
engineering from Santa Clara University.
Joseph A. Graziano has served as a Director of Packeteer since February
1996. From June 1989 to December 1995, Mr. Graziano was the Executive Vice
President and Chief Financial Officer of Apple Computer, Inc. and was a member
of the Board of Directors of Apple Computer, Inc. from June 1993 until October
1995. Prior to this, Mr. Graziano held a variety of positions, including Chief
Financial Officer of Sun Microsystems, Inc. and Chief Financial Officer of Apple
Computer, Inc. In addition, he has held accounting positions with Rolm
Communications, Inc., Intel Corporation and various other technology companies
in the Silicon Valley. Mr. Graziano serves as a Director of Carrier Access
Corporation and Pixar, Inc., both publicly held companies. He is also a Director
of Talk City, Inc. Mr. Graziano holds a B.S. in accounting from Merrimack
College and is a certified public accountant.
Peter T. Morris has served as a Director of Packeteer since September 1996.
Mr. Morris is a general partner at New Enterprise Associates where he has been
employed since 1992. Prior to joining New Enterprise Associates, Mr. Morris held
positions at Telebit Corp., a networking
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<PAGE> 53
company, Montgomery Securities and Bain and Company, an international strategy
consulting firm. Mr. Morris serves as a Director of Accelerated Networks, Inc.,
America's Funding Source Corporation, AUNET, Gadzoox Microsystems, Inc., Invox
Technology, LuxN, Mayan Networks Corporation, Packetcom Inc., Tiara Networks,
Inc. and Virata Ltd. Mr. Morris received a B.S. in electrical engineering from
Stanford University and an M.B.A. from the Stanford Graduate School of Business.
William R. Stensrud has served as a Director of Packeteer since July 1997.
Mr. Stensrud has been a general partner at the venture capital investment firm
of Enterprise Partners since January 1997. Previously, from February 1992 to
March 1996, Mr. Stensrud served as President and Chief Executive Officer of
Primary Access Corporation. Mr. Stensrud is a director of several public and
privately held companies, including RhythmsNet Connections, Paradyne, and
Juniper Networks, Inc. Mr. Stensrud holds a B.S. in electrical engineering and
computer science from the Massachusetts Institute of Technology.
We have authorized seven directors. Following this offering, the board will
consist of seven directors divided into three classes, with each class serving
for a term of three years. At each annual meeting of stockholders, directors
will be elected by the holders of common stock to succeed the directors whose
terms are expiring. Messrs. Morris and Packer are Class I directors whose terms
will expire in 2000, Messrs. Galloway and Stensrud are Class II directors whose
terms will expire in 2001, and Messrs. Campbell, Elliott and Graziano are Class
III directors whose terms will expire in 2002. The executive officers serve at
the discretion of the board of directors. There are no family relationships
among any of Packeteer's directors or executive officers.
BOARD COMMITTEES
Compensation committee. The compensation committee is primarily responsible
for reviewing and approving our general compensation policies and setting
compensation levels for our executive officers. The committee also administers
Packeteer's incentive compensation plans. The committee currently consists of
three directors, Mr. Campbell, Mr. Graziano and Mr. Morris.
Audit committee. The audit committee is primarily responsible for approving
the services performed by our independent auditors and reviewing the auditor's
reports regarding our accounting practices and systems of internal accounting
controls. The committee currently consists of two directors, Mr. Graziano and
Mr. Morris.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the compensation committee of our board of directors are Mr.
Campbell, Mr. Graziano and Mr. Morris. None of our executive officers serves on
the board of directors or compensation committee of any entity which has one or
more executive officers serving as a member of Packeteer's board of directors or
compensation committee.
DIRECTOR COMPENSATION
We currently do not compensate any member of our board of directors.
Members of the board of directors are eligible to receive discretionary option
grants and stock issuances under the 1999 Equity Incentive Plan.
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<PAGE> 54
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
compensation received for services rendered to Packeteer by its current Chief
Executive Officer and each of the four other most highly compensated executive
officers of Packeteer for the year ended December 31, 1998, whose total
compensation during such fiscal year exceeded $100,000 (Named Executive
Officers).
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
------------------ OTHER ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION GRANTED(#)
--------------------------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Craig W. Elliott............................. $150,033 $ -- $ -- --
President and Chief Executive Officer
Brett D. Galloway............................ 120,783 -- -- --
Vice President, Engineering, Chief
Operating Officer and Former Chief
Financial Officer(1)
William E. Klaus............................. 143,783 69,912(2) 50,000 50,000
Vice President, Business Development
Robert L. Packer............................. 120,789 -- -- --
Chief Technical Officer
Neil A. Sundstrom............................ 100,058 117,377(2) -- --
Vice President, Worldwide Sales
</TABLE>
- -------------------------
(1) Mr. Galloway resigned as Chief Financial Officer in January 1999.
(2) Represents commissions paid.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION
SHARES GRANTED TO FOR OPTION TERM(3)
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME OPTIONS GRANTED FISCAL YEAR(1) PRICE(2) DATE 5% 10%
---- --------------- -------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Craig W. Elliott........ -- -- -- -- -- --
Brett D. Galloway....... -- -- -- -- -- --
William E. Klaus........ 50,000(4) 3.3% $3.50 8/19/08 $110,000 $278,905
Robert L. Packer........ -- -- -- -- -- --
Neil A. Sundstrom....... -- -- -- -- -- --
</TABLE>
- -------------------------
(1) Based on an aggregate of 1,501,000 options granted to employees, consultants
and directors during the year ended December 31, 1998.
(2) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined by the board of
directors after consideration of a number of factors, including, but not
limited to, Packeteer's financial performance, market conditions, the price
and preferred rights and privileges of shares of equity securities sold to
or purchased by outside investors and third-party appraisals.
51
<PAGE> 55
(3) The potential realizable value is calculated based on the term of the option
at its time of grant, which is ten years. It is calculated assuming that the
fair market value of Packeteer's common stock on the date of grant
appreciates at the indicated annual rate compounded annually for the entire
term of the option and that the option is exercised and sold on the last day
of its term for the appreciated stock price.
(4) Mr. Klaus' 50,000-share option grant vests as follows: 50% vested on
December 17, 1998, and the balance upon the date of achievement of certain
performance milestones or on August 19, 2008, whichever is earlier. The date
of Mr. Klaus' 50,000-share option grant was August 19, 1998. The option has
a maximum term of 10 years, subject to earlier termination in the event of
his cessation of service to Packeteer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND LAST FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
option holdings for the year ended December 31, 1998 with respect to the Named
Executive Officers. Except as set forth below, no options or stock appreciation
rights were exercised by any such individual during such year, and no stock
appreciation rights were outstanding on December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
SHARES YEAR-END AT FISCAL YEAR-END(4)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Craig W. Elliott.............. -- -- -- -- -- --
Brett D. Galloway............. -- -- -- -- -- --
William E. Klaus.............. 40,000(1) $50,000(2) 25,000(3) 25,000(3) -- --
Robert L. Packer.............. -- -- -- -- -- --
Neil A. Sundstrom............. -- -- -- -- -- --
</TABLE>
- -------------------------
(1) As of December 31, 1998, Mr. Klaus was vested in 12,500 of the shares
exercised.
(2) Based on the fair market value of the purchased option shares at the time of
exercise, as determined by the board of directors, less the option exercise
price paid for those shares.
(3) Mr. Klaus' 50,000-share option grant vests as follows: 50% vested on
December 17, 1998, and the balance upon the date of achievement of certain
performance milestones or on August 19, 2008, whichever is earlier. The date
of Mr. Klaus' 50,000-share option grant was August 19, 1998. The option has
a maximum term of 10 years, subject to earlier termination in the event of
his cessation of service to Packeteer.
(4) Based on the fair market value of the option shares on December 31, 1998
($3.50 per share), as determined by the board of directors, less the option
exercise price payable for those shares.
EMPLOYEE BENEFIT PLANS
1999 Stock Incentive Plan. The 1999 Stock Incentive Plan is intended to
serve as the successor program to our 1996 Equity Incentive Plan. The 1999 Stock
Incentive Plan was adopted by the board in May 1999, subject to stockholder
approval. The 1999 Stock Incentive Plan will become effective when the
underwriting agreement for this offering is signed. At that time, all
outstanding options under our existing 1996 Equity Incentive Plan will then be
transferred to the 1999 Stock Incentive Plan, and no further option grants will
be made under the 1996 Equity Incentive plan. The transferred options will
continue to be governed by their existing terms, unless our compensation
committee decides to extend one or more features of the 1999 Stock Incentive
Plan to those options.
52
<PAGE> 56
Except as otherwise noted below, the transferred options have substantially the
same term as will be in effect for grants made under the discretionary option
grant program of our 1999 Stock Incentive Plan.
Share Reserve. 3,845,917 shares of our common stock have been authorized
for issuance under the 1999 Stock Incentive Plan. This share reserve consists of
the number of shares we estimate will be carried over from the 1996 Equity
Incentive Plan plus an additional increase of 900,000 shares. The share reserve
under our 1999 Stock Incentive Plan will automatically increase on the first
trading day in January each year, beginning with calendar year 2000, by an
amount equal to 5% of the total number of shares of our common stock outstanding
on the last trading day of December in the prior year, but in no event will this
annual increase exceed 3,000,000 shares. In addition, no participant in the 1999
Stock Incentive Plan may be granted stock options or direct stock issuances for
more than 1,000,000 shares of common stock in total in any calendar year.
Programs. Our 1999 Stock Incentive Plan has three separate programs:
- the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;
- the stock issuance program, under which eligible individuals may be
issued shares of common stock directly, upon the attainment of
performance milestones or upon the completion of a period of service or
as a bonus for past services; and
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date.
Eligibility. The individuals eligible to participate in our 1999 Stock
Incentive Plan include our officers and other employees, our board members and
any consultants we hire.
Administration. The discretionary option grant and stock issuance programs
will be administered by our compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.
Plan Features. Our 1999 Stock Incentive Plan will include the following
features:
- The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including any
transferred options from our 1996 Equity Incentive Plan, in return for
the grant of new options for the same or for a different number of option
shares with an exercise price per share based upon the fair market value
of our common stock on the new grant date.
53
<PAGE> 57
- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. None of the options under our 1996
Equity Incentive Plan have any stock appreciation rights.
Change in Control. The 1999 Stock Incentive Plan will include the following
change in control provisions which may result in the accelerated vesting of
outstanding option grants and stock issuances:
In the event that we are acquired by merger or asset sale, each outstanding
option under the discretionary option grant program which is not to be assumed
by the successor corporation will immediately become exercisable for all the
option shares, and all outstanding unvested shares will immediately vest, except
to the extent our repurchase rights with respect to those shares are to be
assigned to the successor corporation.
- The compensation committee will have complete discretion to grant one or
more options which will become exercisable for all the option shares in
the event those options are assumed in the acquisition but the optionee's
service with us or the acquiring entity is subsequently terminated. The
vesting of any outstanding shares under our 1999 Stock Incentive Plan may
be accelerated upon similar terms and conditions.
- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections. Such accelerated
vesting may occur either at the time of such transaction or upon the
subsequent termination of the individual's service.
- Most of the options currently outstanding under our 1996 plan will
immediately vest as if they had been held for two times the length of
time they had actually been held in the event of a change of control. In
the event we are acquired, all options which are not exercised will
terminate unless the acquired company assumes the options.
Automatic Option Grant Program. Each individual who is serving as a
non-employee board member when the underwriting agreement for this offering is
signed will automatically be granted an option to purchase 3,000 shares of
common stock. Each individual who first becomes a non-employee board member at
any time after the effective date of this offering will receive an option grant
for 12,000 shares of common stock on the date such individual joins the board.
In addition, on the date of each annual stockholders meeting held after the
effective date of this offering, each non-employee board member who is to
continue to serve as a non-employee board member, including each of our current
non-employee board members, will automatically be granted an option to purchase
3,000 shares of common stock, provided such individual has served on the board
for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each
3,000-share automatic grant will be fully-vested when granted. The shares
subject to each initial 12,000-share automatic option grant will vest in a
54
<PAGE> 58
series of six successive equal semi-annual installments upon the optionee's
completion of each six months of board service over the 36 month period measured
from the grant date. However, the shares will immediately vest in full upon
certain changes in control or ownership or upon the optionee's death or
disability while a board member.
Additional Program Features. Our 1999 Stock Incentive Plan will also have
the following features:
- Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based
upon the highest price per share of our common stock paid in that tender
offer.
- The board may amend or modify the 1999 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 1999 Stock Incentive
Plan will terminate no later than May 18, 2009.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan
was adopted by the board in May 1999, subject to stockholder approval. The plan
will become effective immediately upon the signing of the underwriting agreement
for this offering. The plan is designed to allow our eligible employees and the
eligible employees of our participating subsidiaries to purchase shares of
common stock, at semi-annual intervals, with their accumulated payroll
deductions.
Share Reserve. 500,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each year, beginning in calendar year 2000, by an amount
equal to 2% of the total number of outstanding shares of our common stock on the
last trading day in December in the prior year. In no event will any such annual
increase exceed 1,000,000 shares.
Offering Periods. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months. However, the initial
offering period may have a maximum duration of up to 27 months. The initial
offering period will start on the date the underwriting agreement for the
offering covered is signed and will end on the last business day in July 2001.
The next offering period will start on the first business day in August 2001,
and subsequent offering periods will set by our compensation committee.
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than five calendar months per year may join an offering period on
the start date or any semi-annual entry date within that period. Semi-annual
entry dates will occur on the first business day of August and February each
year. Individuals who become eligible employees after the start date of an
offering period may join the plan on any subsequent semi-annual entry date
within that offering period.
Payroll Deductions. A participant may contribute up to 15% of his or her
base pay through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market
55
<PAGE> 59
value per share on the participant's entry date into the offering period or, if
lower, 85% of the fair market value per share on the semi-annual purchase date.
Semi-annual purchase dates will occur on the last business day of July and
January each year. In no event, however, may any participant purchase more than
1,000 shares on any purchase date, and not more than 200,000 shares may be
purchased in total by all participants on any purchase date.
Reset Feature. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the market value per share on the participant's entry date into the offering
period in which an acquisition occurs or, if lower, 85% of the fair market value
per share immediately prior to the acquisition.
Plan Provisions. The following provisions will also be in effect under the
plan:
- The plan will terminate no later than the last business day of July 2009;
and
- The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.
EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL ARRANGEMENTS
We do not presently have any employment contracts in effect with the Chief
Executive Officer or any other Named Executive Officer. We provide incentives
such as salary, benefits and option grants to attract and retain qualified
employees.
In the event of a change of control, Mr. Yntema, our Chief Financial
Officer, and Mr. Krautkremer, our Vice President, Marketing, will each receive
his base salary and bonus for one year.
In the event that Packeteer is acquired by merger or asset sale, each
outstanding option held by the Chief Executive Officer or any Named Executive
Officer under the 1999 Stock Incentive Plan will automatically accelerate in
full, and all unvested shares held by such individuals under such Plan will
immediately vest in full, except to the extent such options are to be assumed
by, and Packeteer's repurchase rights with respect to those shares are to be
assigned to, the successor corporation. The compensation committee will have the
authority to grant options which will immediately vest upon an acquisition of
Packeteer, whether or not those options are assumed by the successor
corporation. The compensation committee is also authorized under the
Discretionary Option Grant and Stock Issuance Programs to grant options and to
structure repurchase rights so that the shares subject to those options or
repurchase rights will immediately vest in connection with a change in control
of Packeteer (whether by merger or asset sale, or successful tender offer for
more than 50% of the outstanding voting stock or a change in the majority of the
Board by reason of one or more contested elections for Board membership), with
such vesting to occur either at the time of such change in control or upon the
subsequent termination of the individual's service within a designated period
(not to exceed 18 months) following such change in control. The options
incorporated from the Predecessor Plan will immediately vest upon an acquisition
of Packeteer by merger or asset sale, unless those options are assumed by, and
Packeteer's repurchase rights are assigned to, the successor entity. In
addition, certain options granted to executive officers provide that if the
options are assumed in an acquisition
56
<PAGE> 60
and the optionee's service is involuntarily terminated within eighteen months
following such acquisition the option shares will vest in full and Packeteer's
repurchase rights will lapse. The compensation committee will have the
discretion to extend the acceleration provisions of the 1999 Stock Incentive
Plan to options outstanding under the Predecessor Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits our directors' liability for
monetary damages arising from a breach of their fiduciary duty as directors,
except to the extent otherwise required by the Delaware General Corporation Law.
This limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or recission.
Our bylaws provide that we shall indemnify its directors and officers to
the fullest extent permitted by Delaware law, including in circumstances in
which indemnification is otherwise discretionary under Delaware law. We have
entered into indemnification agreements with its officers and directors
containing provisions that may require us, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms.
At present, there is no pending litigation or proceeding involving any of
our directors or officers where indemnification is required or permitted.
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<PAGE> 61
CERTAIN TRANSACTIONS
Certain stock option grants to our directors and executive officers are
described in this prospectus under the caption "Management--Executive
Compensation."
PRIVATE PLACEMENT TRANSACTIONS
Since inception, we have raised capital primarily through the sale of our
convertible preferred stock in private placement transactions. Pursuant to these
private placements, we have issued the following:
<TABLE>
<CAPTION>
PRICE AGGREGATE
DATE OF ISSUANCE SERIES NUMBER OF SHARES PER SHARE CONSIDERATION
---------------- ------------------- ---------------- --------- -------------
<S> <C> <C> <C> <C>
February and April 1996................. Series A Preferred 2,800,000 $0.25 $ 700,000
September and October 1996.............. Series B Preferred 4,821,860 1.00 4,821,860
June and July 1997...................... Series C Preferred 2,216,320 2.00 4,432,640
April and July 1998..................... Series D Preferred 2,552,821 3.94 10,058,115
</TABLE>
The following table summarizes purchases, valued in excess of $60,000, of
shares of common stock and preferred stock purchased by executive officers,
directors, 5% stockholders and persons associated with them since our inception.
All share numbers reflect the number of shares purchased by the respective party
on an as-converted basis.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C SERIES D
INVESTOR PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
-------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
New Enterprise Associates(1)............ 400,000 3,080,000 287,400 --
BG Services Limited..................... -- -- -- 2,538,071
Enterprise Partners(2).................. -- -- 1,618,128 --
Onset Enterprise Associates II, L.P..... -- 1,000,000 112,600 --
Steven Campbell(3)...................... 400,000 212,880 77,168 --
Joseph A. Graziano...................... 300,000 159,660 57,996 --
Peter Morris............................ 100,000 53,200 -- --
</TABLE>
- -------------------------
(1) Represents 75,000 shares held by NEA Presidents Fund, L.P., 5,000 shares
held by NEA Ventures 1996, L.P. and 3,687,400 shares held by New Enterprise
Associates VII, Limited Partnership. Mr. Morris, a director of Packeteer, is
a general partner of each of these entities.
(2) Represents 129,448 shares held by Enterprise Partners III Associates and
1,488,680 shares held by Enterprise Partners III, L.P. Mr. Stensrud, a
director of Packeteer, is a general partner of both of these entities.
(3) Represents 690,048 shares held by the Campbell 1984 Revocable Trust U/A
2/12/84 UTD 10/12/92, of which Mr. Campbell is Trustee.
We have entered into indemnification agreements with each of our directors
and officers. See "Description of Capital Stock -- Limitation of liability and
indemnification matters."
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<PAGE> 62
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock as of May 15, 1999, except as
noted in the footnotes below by:
- all persons who are beneficial owners of 5% or more of our common stock;
- each director;
- our Named Executive Officers; and
- all directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares beneficially owned, subject to
community property laws, where applicable.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED(1)
------------------------
NUMBER BEFORE THE AFTER THE
OF SHARES OFFERING OFFERING
---------------- ---------- -----------
<S> <C> <C> <C>
Peter T. Morris................................... 4,520,620 20.4%
New Enterprise Associates(2)
2490 Sand Hill Road
Menlo Park, CA 94025
BG Services Limited............................... 2,538,071 11.5
6 Minden Place
St. Helier
Channel Islands, JE 24WQ
William R. Stensrud............................... 1,618,128 7.3
Enterprise Partners(3)
7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
Onset Enterprise Associates II, L.P............... 1,312,600 5.9
2490 Sand Hill Road
Menlo Park, CA 94025
Craig W. Elliott(4)............................... 1,250,000 5.6
Brett D. Galloway(5).............................. 2,271,300 10.2
Robert L. Packer(6)............................... 2,071,300 9.3
William E. Klaus(7)............................... 225,000 1.0
Neil A. Sundstrom(8).............................. 262,500 1.2
Steven J. Campbell(9)............................. 1,238,620 5.6
Joseph A. Graziano(10)............................ 617,656 2.8
All directors and officers as a group (11
persons)(11).................................... 14,675,124 63.3
</TABLE>
- -------------------------
* Less than 1%.
Except as otherwise noted below, the address of each person listed on the
table is c/o Packeteer, Inc., 10495 N. DeAnza Boulevard, Cupertino, California
95014.
(1) Number of shares beneficially owned and the percentage of shares
beneficially owned prior to the offering are based on 22,147,884 shares
outstanding as of May 15, 1999. Beneficial ownership is determined in
accordance with the rules of the SEC and includes voting and investment
power with respect to such shares. All shares of common stock subject to
options
59
<PAGE> 63
currently exercisable or exercisable within 60 days after May 15, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding
such options for the purpose of computing the number of shares beneficially
owned and the percentage ownership of such person, but are not deemed to be
outstanding and to be beneficially owned for the purpose of computing the
percentage ownership of any other person. Except as indicated in the
footnotes to the table and subject to applicable community property laws,
based on information provided by the persons named in the table, such
persons have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them.
(2) Includes 75,000 shares held by NEA Presidents Fund, L.P., 5,000 shares held
by NEA Ventures 1996, L.P. and 4,287,400 shares held by New Enterprise
Associates VII, Limited Partnership. Also includes 153,220 shares held by
Mr. Morris. Voting and dispositive power over the shares is held by all of
the general partners of New Enterprise Associates. Mr. Morris is a general
partner at New Enterprise Associates, and as such he may be deemed to share
voting and investment power with respect to such shares. However, Mr.
Morris disclaims beneficial ownership of all such shares.
(3) Represents 129,448 shares held by Enterprise Partners III Associates and
1,488,680 shares held by Enterprise Partners III, L.P. Voting and
dispositive power over the shares is held by all of the general partners of
Enterprise Partners. Mr. Stensrud is a general partner at Enterprise
Partners, and as such he may be deemed to share voting and investment power
with respect to such shares. However, Mr. Stensrud disclaims beneficial
ownership of all such shares.
(4) Includes 250,000 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 208,334 shares of common
stock subject to Packeteer's right of repurchase. Includes 100,000 shares
held by Elliott Children's Trust, of which Mr. Elliott is Trustee.
(5) Includes 62,500 shares of common stock issuable upon exercise of
immediately exercisable options.
(6) Includes 62,500 shares of common stock issuable upon exercise of
immediately exercisable options.
(7) Includes 25,000 shares of common stock issuable upon exercise of vested
options. Also includes 50,834 shares of common stock subject to Packeteer's
right of repurchase.
(8) Includes 46,875 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 123,959 shares of common
stock subject to Packeteer's right of repurchase.
(9) Includes 1,238,620 shares held by the Campbell 1984 Revocable Trust U/A
2/12/84 UT, of which Mr. Campbell is Trustee.
(10) Includes 25,000 shares of common stock subject to Packeteer's right of
repurchase.
(11) Includes 1,046,875 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 383,127 shares of common
stock subject to Packeteer's right of repurchase.
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<PAGE> 64
DESCRIPTION OF CAPITAL STOCK
After this offering, the authorized capital stock of Packeteer consists of
85,000,000 shares of common stock, $0.001 par value per share and 5,000,000
shares of undesignated preferred stock, $0.001 par value per share. As of March
31, 1999, there were an aggregate 22,157,468 shares of common stock outstanding
held of record by 74 stockholders and after giving effect to this offering,
there will be an aggregate of shares of common stock issued and
outstanding and approximately 2,539,249 shares of common stock issuable upon
exercise of outstanding options. There will be no shares of preferred stock
issued or outstanding.
The following description of our capital stock does not purport to be
complete and is subject to and qualified in its entirety by our amended and
restated certificate of incorporation and bylaws and by the provisions of the
applicable Delaware law.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding preferred stock that may come into existence, the
holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the board of directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up, the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
preferred stock, if any, then outstanding. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable, and the shares of common stock
to be outstanding upon completion of this offering will be fully paid and
nonassessable.
PREFERRED STOCK
The board of directors has the authority to issue the preferred stock in
one or more series and to fix the price, rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting a series or the designation of
such series, without any further vote or action by our stockholders. The
issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of delaying, deferring or preventing a change in control without further action
by the stockholders and may adversely affect the market price, and the voting
and other rights, of the holders of common stock. The issuance of preferred
stock with voting and conversion rights may adversely affect the voting power of
the holders of common stock, including the loss of voting control to others. We
have no current plans to issue any shares of preferred stock.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Under the terms of a registration rights agreement, subject to certain
exceptions, if we propose to register any of our shares of common stock under
the Securities Act, either for our own account or the account of any
stockholder, in any public offering, certain investors holding an aggregate of
12,391,001 shares of our preferred stock as of March 31, 1999 are entitled to
notice of such registration and are entitled, upon conversion of their
registrable securities to include those registrable securities. In addition, the
holder or holders of an aggregate of at least 50% of the then outstanding
registrable securities shall have the right to require us to file a registration
statement on a form, other
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<PAGE> 65
than Form S-3 under the Securities Act, in order to register the registrable
securities then held by such holder or holders, provided that:
- at least one year has passed since our initial public offering of shares
of common stock under a registration statement;
- the anticipated aggregate offering price to the public is at least
$3,000,000; and
- we shall not be required to file more than two such registration
statements.
Further, a holder or holders may require us to use all reasonable efforts to
file additional registration statements on Form S-3, provided that:
- the anticipated aggregate offering price to the public is at least
$500,000 and
- we shall not be required to file more than two such registration
statements.
The right to include any of the above described registrable securities in any
registration is subject to certain limitations and conditions, including the
underwriters' right to limit the number of shares being registered by all
holders. We are required to indemnify holders of registrable securities and the
underwriters, if any, for these holders under certain circumstances. In general,
we are required to bear the expenses of two demand and all piggyback
registrations, except for the selling stockholders' pro rata portion of the
underwriting discounts and commissions.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
Certificate of Incorporation and Bylaws. Our certificate of incorporation
and bylaws contain certain provisions that, together with the ownership position
of the officers, directors and their affiliates, could discourage potential
takeover attempts and make more difficult, attempts by stockholders to change
management, which could adversely affect the market price of our common stock.
Furthermore, our board of directors has the authority to impose various
procedural and other requirements that could make it more difficult for
stockholders to effect certain corporate actions. Any vacancy on the board of
directors may be filled only by vote of the majority of directors then in
office.
Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock.
Section 203 of the Delaware General Corporation Law. We are subject to
Section 203 of the Delaware General Corporation Law which imposes restrictions
on business combinations (which include a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder) with
interested stockholders (being any person who acquired 15% or more of our
outstanding voting stock). In general, we are prohibited from engaging in
business combinations with an interested stockholder, unless:
- before such person became an interested stockholder, the board of
directors approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination;
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<PAGE> 66
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced (excluding for purposes of determining the number of shares
outstanding stock held by directors who are also officers and by employee
stock plans that do not provide employees with the rights to determine
confidentiality whether shares held subject to the plan will be tendered
in a tender or exchange offer); or
- at or subsequent to the time which such person became an interested
stockholder, the business combination is approved by the board of
directors and authorized at a meeting of stockholders by the affirmative
vote of the holders of two-thirds of the outstanding voting stock not
owned by the interested stockholder.
Under Section 203, the restrictions described above also do not apply to certain
business combinations proposed by an interested stockholder following the
earlier of the announcement or notification of one of certain extraordinary
transactions involving Packeteer and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of the board of directors, if such extraordinary
transaction is approved or not opposed by a majority of the directors who are
directors prior to any person becoming an interested stockholder during the
previous three years or who were recommended for election or elected to succeed
such directors by a majority of such directors. By restricting our ability to
engage in business combinations with an interested person, the application of
Section 203 to Packeteer may provide a barrier to hostile or unwanted takeovers.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Pursuant to the provisions of the Delaware General Corporation Law, we have
adopted provisions in our amended and restated certificate of incorporation that
provide that our directors shall not be personally liable for monetary damages
to us or our stockholders for a breach of fiduciary duty as a director, except
for liability as a result of:
- a breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- an act related to an unlawful stock repurchase or payment of a dividend
under Section 174 of the Delaware General Corporation Law; or
- transactions from which the director derived an improper personal
benefit.
This limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission. Nevertheless, this charter
provision may have the effect of reducing the likelihood of derivative
litigation being instituted against members of the board. Furthermore, it may
discourage or deter our stockholders or management from bringing a lawsuit
against board members for breaches of fiduciary duty, even though such an
action, if successful, might benefit us and our stockholders.
Our bylaws require us to indemnify our officers and directors and permit us
to indemnify our other agents, by agreement or otherwise, to the fullest extent
permitted under Delaware law. We have entered into separate indemnification
agreements with our directors and officers that may, in some cases, be broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require us, among other
things, to indemnify the officers and directors against certain liabilities,
other than liabilities arising from willful misconduct of a culpable nature,
that may arise by reason of their status or service as directors or officers.
These agreements also may require us to advance the expenses incurred by the
officers and
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<PAGE> 67
directors as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' insurance if available on
reasonable terms.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers or persons controlling the
company, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
WARRANTS
After the offering, there will be warrants to purchase 200,628 shares of
common stock at a weighted average exercise price of $3.67.
LISTING
We have applied to have our common stock approved for quotation on The
Nasdaq National Market under the symbol PKTR.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the common stock is EquiServe.
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<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of shares of our common stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale
(as described below), sales of substantial amounts of common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price.
After this offering, shares of common stock will be outstanding
(based on shares outstanding as of March 31, 1999, and assuming no exercise of
outstanding options or warrants), assuming the issuance of an aggregate of
shares of common stock. An aggregate of shares, including
shares sold in this offering, will be freely tradable without
restriction under the Securities Act. Of the remaining shares outstanding upon
completion of the offering, shares of common stock held by existing
stockholders are restricted securities in that they may be sold in the public
market only if registered or if they qualify for an exemption from registration
under the Securities Act or Rules 144, 144(k) or 701 as promulgated under the
Securities Act. Of such shares, shares are subject to lock-up
agreements as described below.
All of the officers and directors and stockholders, optionholders and
warrantholders of Packeteer holding an aggregate of shares of common
stock have entered into lock-up agreements generally providing that they will
not offer, pledge, sell, offer to sell, contract to sell, sell any option or
contract to purchase, purchase any option to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any of the shares of common stock or any securities convertible
into, or exercisable or exchangeable for, common stock owned by them, or enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the common stock, for a
period of 180 days after the date of this prospectus, without the prior written
consent of BancBoston Robertson Stephens Inc., subject to certain limited
exceptions. BancBoston Robertson Stephens Inc. may, in its sole discretion and
at any time without notice, release all or any portion of the securities subject
to lock-up agreements. BancBoston Robertson Stephens Inc. currently has no plans
to release any portion of the securities subject to lock-up agreements. When
determining whether or not to release shares from the lock-up agreements,
BancBoston Robertson Stephens Inc. will consider, among other factors, the
stockholder's reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time. Following the
expiration of the 180 day lock-up period, additional shares of common stock will
be available for sale in the public market subject to compliance with Rule 144
or Rule 701.
In general, under Rule 144 as currently in effect, an affiliate of
Packeteer or a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least one year, including the
holding period of any prior owner except an affiliate, would be entitled to sell
within any three months ended a number of shares that does not exceed the
greater of 1% of the then outstanding shares of Packeteer common stock or the
average weekly trading volume of Packeteer common stock on the Nasdaq National
Market during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about Packeteer. Any person (or
persons whose shares are aggregated) who is not deemed to have been an affiliate
of Packeteer at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least two years including any period of
ownership of preceding non-affiliated holders, would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements.
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<PAGE> 69
Packeteer has also agreed not to offer, sell, contract to sell or otherwise
dispose of shares of common stock or any securities convertible into common
stock for a period of 180 days after the date of this prospectus, without the
prior written consent of BancBoston Robertson Stephens Inc., subject to certain
limited exceptions.
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<PAGE> 70
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc. and Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, have severally agreed with
us, subject to the terms and conditions set forth in the underwriting agreement,
to purchase from us the number of shares of common stock set forth opposite
their names below. The underwriters are committed to purchase and pay for all
such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Bear, Stearns & Co. Inc. ...................................
Dain Rauscher Wessels.......................................
--------
Total.............................................
========
</TABLE>
We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
such price less a concession of not in excess of $ per share, of which
$ may be reallowed to their dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the representatives. No such reduction shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or in
part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same
price per share as we will receive for the shares that the
underwriters have agreed to purchase. To the extent that the underwriters
exercise this option, each of the underwriters will have a firm commitment to
purchase approximately the same percentage of such additional shares that the
number of shares of common stock to be purchased by it shown in the above table
represents as a percentage of the shares offered hereby. If
purchased, such additional shares will be sold by the underwriters on the same
terms as those on which the shares are being sold. We will be
obligated, pursuant to the option, to sell shares to the extent the option is
exercised. The underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered hereby. If such option is exercised in full, the total public offering
price of the shares we sell to the
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<PAGE> 71
underwriters, underwriting discounts and commissions on such shares and total
proceeds to us from the sale of such shares will be $ , $ and
$ , respectively.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
----------------------
Without With
Over- Over-
Per Share allotment allotment
--------- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable
by us.............................................. $ $ $
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will be
approximately $ .
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including liabilities
under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-up Agreements. With the exception of holders of shares
of outstanding common stock and holders of options and warrants to purchase
shares of common stock, each of our executive officers,
directors, stockholders of record, optionholders and warrantholders has agreed
with the representatives, for a period of 180 days after the date of this
prospectus, subject to certain exceptions, not to offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to any shares of common stock, any options or warrants to purchase any
shares of common stock, or any securities convertible into or exchangeable for
shares of common stock owned as of the date of this prospectus or, with certain
exceptions, thereafter acquired directly by such holders or with respect to
which they have or hereafter acquire the power of disposition, without the prior
written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to the lock-up
agreements. There are no agreements between the representatives and any of our
stockholders providing consent by the representatives to the sale of shares
prior to the expiration of the period of 180 days after this prospectus.
Future Sales. In addition, we have agreed that during the period of 180
days after this prospectus, we will not, subject to certain exceptions, without
the prior written consent of BancBoston Robertson Stephens Inc.
- Consent to the disposition of any shares held by stockholders prior to
the expiration of the period of 180 days after this prospectus; or
- Issue, sell, contract to sell or otherwise dispose of any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock, other than (1) the sale of shares in this
offering, (2) the issuance of common stock upon the exercise or
conversion of outstanding options, warrants or convertible securities,
(3) our issuance of stock options under existing stock option plans and
(4) our issuance of common stock under the Employee Stock Purchase Plan.
See "Shares Eligible for Future Sale."
Listing. We have applied for quotation on the Nasdaq National Market under
the symbol PKTR.
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<PAGE> 72
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered hereby was determined through negotiations between us
and the representatives. Among the factors considered in such negotiations were
prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believed to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, include stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the representatives to reclaim the selling
concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such underwriter or syndicate member. The representatives have advised us that
such transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
Directed Share Program. At our request, the underwriters have reserved up
to shares of common stock to be issued by us and offered hereby for
sale, at the initial public offering price, to directors, officers, employees,
business associates and related persons of Packeteer. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares which
are not so purchased will be offered by the underwriters to the general public
on the same basis as the other shares offered hereby.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for Packeteer by Brobeck, Phleger & Harrison LLP, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements and schedule of Packeteer, Inc. as of
December 31, 1997 and 1998, and for the period from January 25, 1996 (inception)
to December 31, 1996, and for each of the years in the two-year period ended
December 31, 1998 have been included herein and in the registration statement in
reliance upon the reports of KPMG LLP, independent auditors, appearing elsewhere
herein and in the registration statement, and upon authority of said firm as
experts in accounting and auditing.
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<PAGE> 73
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC, Washington, D.C. 20549, under the Securities
Act a registration statement on Form S-1 relating to the common stock offered.
This prospectus does not contain all of the information set forth in the
registration statement and its exhibits and schedules. For further information
with respect to Packeteer and the shares we are offering pursuant to this
prospectus you should refer to the registration statement, including its
exhibits and schedules. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete, and you should refer to the copy of that contract or other
document filed as an exhibit to the registration statement or any other
document. You may inspect a copy of the registration statement without charge at
the Public Reference Section of the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at the SEC's regional offices at 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036. The SEC maintains an
Internet site that contains reports, proxy information statements and other
information regarding registrants that file electronically with the SEC. The
SEC's world wide web address is www.sec.gov.
We intend to furnish holders of our common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
consolidated financial information for the first three quarters of each fiscal
year. We intend to furnish these other reports as we may determine or as may be
required by law.
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PACKETEER, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and March 31, 1999 (unaudited)............................ F-3
Consolidated Statements of Operations for the period from
January 25, 1996 (inception) to December 31, 1996, for the
years ended December 31, 1997 and 1998 and for the three
months ended March 31, 1998 and 1999 (unaudited).......... F-4
Consolidated Statements of Stockholders' Equity for the
period from January 25, 1996 (inception) to December 31,
1996, for the years ended December 31, 1997 and 1998 and
for the three months ended March 31, 1999 (unaudited)..... F-5
Consolidated Statements of Cash Flows for the period from
January 25, 1996 (inception) to December 31, 1996, for the
years ended December 31, 1997 and 1998 and for the three
months ended March 31, 1998 and 1999 (unaudited).......... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 75
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
PACKETEER, INC.:
We have audited the accompanying consolidated balance sheets of Packeteer,
Inc. and subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from January 25, 1996 (inception) to December 31, 1996, and for each
of the years in the two-year period ended December 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Packeteer,
Inc. and subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the period from January 25, 1996 (inception)
to December 31, 1996, and for each of the years in the two-year period ended
December 31, 1998, in conformity with generally accepted accounting principles.
KPMG LLP
Mountain View, California
March 3, 1999, except as to
Note 9, which is as of
May 19, 1999
F-2
<PAGE> 76
PACKETEER, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------ MARCH 31, EQUITY AT
1997 1998 1999 MARCH 31, 1999
------- -------- --------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 2,416 $ 2,550 $ 7,084
Short-term investments................................. -- 1,927 --
Accounts receivable, less allowance for doubtful
accounts of $37, $293, and $211 as of December 31,
1997 and 1998, and March 31, 1999.................... 721 2,745 1,514
Other receivables...................................... 764 39 39
Inventories............................................ 362 188 419
Prepaids and other current assets...................... 124 124 224
------- -------- --------
Total current assets............................... 4,387 7,573 9,280
Property and equipment, net.............................. 404 794 773
Other assets............................................. 144 203 197
------- -------- --------
Total assets....................................... $ 4,935 $ 8,570 $ 10,250
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit......................................... $ -- $ -- $ 980
Current portion of capital lease obligations........... 36 215 255
Current portion of note payable........................ 67 71 519
Accounts payable....................................... 1,334 1,015 870
Accrued compensation................................... 85 253 337
Other accrued liabilities.............................. 211 1,011 1,045
Deferred revenue....................................... 42 1,507 1,209
------- -------- --------
Total current liabilities.......................... 1,775 4,072 5,215
Capital lease obligations, less current portion.......... 116 570 649
Note payable, less current portion....................... 222 151 1,991
Other long-term liabilities.............................. 18 18 18
------- -------- --------
Total liabilities.................................. $ 2,131 $ 4,811 $ 7,873
------- -------- --------
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value; 13,703,287 shares
authorized; actual -- 9,838,180, 12,391,001 and
12,391,001 shares, issued and outstanding as of
December 31, 1997 and 1998 and March 31, 1999;
liquidation preference of $9,955, $20,013 and $20,013
in aggregate as of December 31, 1997 and 1998, and
March 31, 1999; pro forma -- no shares issued and
outstanding.......................................... 10 13 13 $ --
Common stock, $0.001 par value; 40,000,000 shares
authorized; actual -- 8,981,300, 9,722,842 and
9,766,467 shares issued and outstanding as of
December 31, 1997 and 1998, and March 31, 1999,
respectively; pro forma -- 22,157,468 shares issued
and outstanding as of March 31, 1999................. 9 10 10 23
Additional paid-in capital............................... 10,145 20,924 25,293 25,293
Deferred stock-based compensation........................ -- (514) (3,668) (3,668)
Notes receivable from stockholders....................... (214) (729) (803) (803)
Accumulated deficit...................................... (7,146) (15,945) (18,468) (18,468)
------- -------- -------- --------
Total stockholders' equity......................... 2,804 3,759 2,377 $ 2,377
------- -------- -------- ========
Total liabilities and stockholders' equity......... $ 4,935 $ 8,570 $ 10,250
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 77
PACKETEER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
PERIOD FROM YEARS ENDED ENDED
JAN. 25, 1996 DECEMBER 31, MARCH 31,
(INCEPTION) TO ----------------- -----------------
DEC. 31, 1996 1997 1998 1998 1999
-------------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Product revenues........................... $ -- $ 1,413 $ 7,105 $ 1,246 $ 2,724
Licensing revenues......................... -- -- 125 -- 375
------- ------- ------- ------- -------
Total net revenues.................... -- 1,413 7,230 1,246 3,099
Cost of revenues............................. -- 457 2,386 476 854
------- ------- ------- ------- -------
Gross profit................................. -- 956 4,844 770 2,245
Operating expenses:
Research and development................... 725 2,932 2,779 566 955
Sales and marketing........................ 349 3,210 8,866 1,551 2,429
General and administrative................. 238 934 1,750 292 533
Amortization of stock-based compensation... -- -- 537 -- 865
------- ------- ------- ------- -------
Total operating expenses.............. 1,312 7,076 13,932 2,409 4,782
------- ------- ------- ------- -------
Net loss from operations..................... (1,312) (6,120) (9,088) (1,639) (2,537)
Other income, net............................ 75 211 289 34 14
------- ------- ------- ------- -------
Net loss..................................... $(1,237) $(5,909) $(8,799) $(1,605) $(2,523)
======= ======= ======= ======= =======
Basic and diluted net loss per share......... $ (1.28) $ (1.82) $ (1.54) $ (0.34) $ (0.35)
======= ======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share......................... 965 3,253 5,709 4,734 7,271
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 78
PACKETEER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PERIOD FROM JANUARY 25, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998, AND FOR
THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------------------------------------------------------
SERIES A SERIES B SERIES C SERIES D COMMON STOCK
--------------- --------------- --------------- --------------- ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash......... -- $-- -- $-- -- $-- -- $-- 640 $--
Issuance of common stock for personal
property................................ -- -- -- -- -- -- -- -- 5,120 5
Issuance of Series A preferred stock, net
of issuance costs of $7................. 2,800 3 -- -- -- -- -- -- -- --
Issuance of common stock upon exercise of
stock options........................... -- -- -- -- -- -- -- -- 1,759 2
Issuance of Series B preferred stock, net
of issuance costs of $43................ -- -- 4,822 5 -- -- -- -- -- --
Repurchase of common stock................ -- -- -- -- -- -- -- -- (160) --
Net loss.................................. -- -- -- -- -- -- -- -- -- --
----- --- ----- --- ----- --- ----- --- ----- ---
Balances as of December 31, 1996.......... 2,800 3 4,822 5 -- -- -- -- 7,359 7
Issuance of Series C preferred stock, net
of issuance costs of $41................ -- -- -- -- 2,216 2 -- -- -- --
Issuance of common stock upon exercise of
stock options........................... -- -- -- -- -- -- -- -- 1,940 2
Repurchase of common stock................ -- -- -- -- -- -- -- -- (318) --
Issuance of warrants for Series B
preferred stock......................... -- -- -- -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- -- -- -- --
----- --- ----- --- ----- --- ----- --- ----- ---
Balances as of December 31, 1997.......... 2,800 3 4,822 5 2,216 2 -- -- 8,981 9
Issuance of Series D preferred stock, net
of issuance costs of $950............... -- -- -- -- -- -- 2,553 3 -- --
Issuance of common stock upon exercise of
stock options........................... -- -- -- -- -- -- -- -- 1,042 1
Stock-based compensation to
non-employees........................... -- -- -- -- -- -- -- -- -- --
Issuance of common stock upon exercise of
stock purchase rights................... -- -- -- -- -- -- -- -- 6 --
Repurchase of common stock................ -- -- -- -- -- -- -- -- (306) --
Issuance of warrants for Series D
preferred stock......................... -- -- -- -- -- -- -- -- -- --
Repayment of notes receivable from
stockholders............................ -- -- -- -- -- -- -- -- -- --
Deferred compensation related to stock
option grants........................... -- -- -- -- -- -- -- -- -- --
Amortization of stock-based
compensation............................ -- -- -- -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- -- -- -- --
----- --- ----- --- ----- --- ----- --- ----- ---
Balances as of December 31, 1998.......... 2,800 3 4,822 5 2,216 2 2,553 3 9,723 10
Stock-based compensation to
non-employees........................... -- -- -- -- -- -- -- -- -- --
Issuance of common stock upon exercise of
stock options........................... -- -- -- -- -- -- -- -- 46 --
Repurchase of common stock................ -- -- -- -- -- -- -- -- (3) --
Issuance of warrants for Series D
preferred stock......................... -- -- -- -- -- -- -- -- -- --
Repayments of notes receivable from
stockholders............................ -- -- -- -- -- -- -- -- -- --
Deferred compensation related to stock
option grants........................... -- -- -- -- -- -- -- -- -- --
Amortization of stock-based
compensation............................ -- -- -- -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- -- -- -- --
----- --- ----- --- ----- --- ----- --- ----- ---
Balances as of March 31, 1999
(unaudited)............................. 2,800 $ 3 4,822 $ 5 2,216 $ 2 2,553 $ 3 9,766 $10
===== === ===== === ===== === ===== === ===== ===
<CAPTION>
NOTES
ADDITIONAL DEFERRED RECEIVABLE TOTAL
PAID-IN STOCK-BASED FROM ACCUMULATED STOCKHOLDERS'
CAPITAL COMPENSATION STOCKHOLDERS DEFICIT EQUITY
---------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash......... $ -- $ -- $ -- $ -- $ --
Issuance of common stock for personal
property................................ (4) -- -- -- 1
Issuance of Series A preferred stock, net
of issuance costs of $7................. 690 -- -- -- 693
Issuance of common stock upon exercise of
stock options........................... 42 -- (29) -- 15
Issuance of Series B preferred stock, net
of issuance costs of $43................ 4,774 -- -- -- 4,779
Repurchase of common stock................ (4) -- 4 -- --
Net loss.................................. -- -- -- (1,237) (1,237)
------- ------- ----- ------- -------
Balances as of December 31, 1996.......... 5,498 -- (25) (1,237) 4,251
Issuance of Series C preferred stock, net
of issuance costs of $41................ 4,389 -- -- -- 4,391
Issuance of common stock upon exercise of
stock options........................... 242 -- (195) -- 49
Repurchase of common stock................ (10) -- 6 -- (4)
Issuance of warrants for Series B
preferred stock......................... 26 -- -- -- 26
Net loss.................................. -- -- -- (5,909) (5,909)
------- ------- ----- ------- -------
Balances as of December 31, 1997.......... 10,145 -- (214) (7,146) 2,804
Issuance of Series D preferred stock, net
of issuance costs of $950............... 9,105 -- -- -- 9,108
Issuance of common stock upon exercise of
stock options........................... 619 -- (568) -- 52
Stock-based compensation to
non-employees........................... 269 -- -- -- 269
Issuance of common stock upon exercise of
stock purchase rights................... 1 -- -- -- 1
Repurchase of common stock................ (40) -- 52 -- 12
Issuance of warrants for Series D
preferred stock......................... 38 -- -- -- 38
Repayment of notes receivable from
stockholders............................ -- -- 1 -- 1
Deferred compensation related to stock
option grants........................... 787 (787) -- -- --
Amortization of stock-based
compensation............................ -- 273 -- -- 273
Net loss.................................. -- -- -- (8,799) (8,799)
------- ------- ----- ------- -------
Balances as of December 31, 1998.......... 20,924 (514) (729) (15,945) 3,759
Stock-based compensation to
non-employees........................... 276 -- -- -- 276
Issuance of common stock upon exercise of
stock options........................... 148 -- (120) -- 28
Repurchase of common stock................ (9) -- 8 -- (1)
Issuance of warrants for Series D
preferred stock......................... 211 -- -- -- 211
Repayments of notes receivable from
stockholders............................ -- -- 38 -- 38
Deferred compensation related to stock
option grants........................... 3,743 (3,743) -- -- --
Amortization of stock-based
compensation............................ -- 589 -- -- 589
Net loss.................................. -- -- -- (2,523) (2,523)
------- ------- ----- ------- -------
Balances as of March 31, 1999
(unaudited)............................. $25,293 $(3,668) $(803) $(18,468) $ 2,377
======= ======= ===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 79
PACKETEER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED THREE MONTHS ENDED
JANUARY 25, 1996 DECEMBER 31, MARCH 31,
(INCEPTION) TO ----------------- --------------------
DECEMBER 31, 1996 1997 1998 1998 1999
----------------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(1,237) $(5,909) $(8,799) $(1,605) $(2,523)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 68 261 215 39 124
Allowance for doubtful accounts................. -- 37 305 69 (82)
Amortization of deferred stock-based
compensation.................................. -- -- 542 -- 865
Issuance of warrants and stock purchase
rights........................................ -- 26 38 -- 211
Changes in operating assets and liabilities:
Accounts receivable........................... -- (758) (2,329) (300) 1,313
Other receivables............................. -- (764) 724 752 --
Inventories................................... (6) (356) 175 222 (231)
Prepaids and other current assets............. (18) (106) -- 54 (100)
Accounts payable.............................. 149 1,185 (318) (577) (145)
Accrued compensation.......................... 25 60 168 81 84
Other accrued liabilities..................... 28 184 800 107 34
Deferred revenue.............................. -- 42 1,464 24 (298)
------- ------- ------- ------- -------
Net cash used in operating activities....... (991) (6,098) (7,015) (1,134) (748)
------- ------- ------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment............... (241) (492) (605) (122) (103)
Purchase of short-term investments................ -- -- (1,927) -- --
Proceeds from sale of short-term investments...... -- -- -- -- 1,927
Other assets...................................... -- (113) (59) -- 6
------- ------- ------- ------- -------
Net cash used in investing activities....... (241) (605) (2,591) (122) 1,830
------- ------- ------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of preferred stock..... 5,472 4,391 9,108 -- --
Net proceeds from issuance of common stock........ 15 49 53 4 28
Proceeds from stockholders' note receivable....... -- -- 1 -- 38
Repurchase of common stock........................ -- (4) 12 (1) (1)
Borrowings under line of credit................... -- -- -- -- 1,145
Repayments of line of credit...................... -- -- -- -- (165)
Proceeds from note payable........................ -- 287 -- -- 2,500
Payments of note payable.......................... -- (29) (67) (17) (212)
Proceeds from lease financing..................... -- 165 749 223 177
Principal payments of capital lease obligations... -- (13) (116) (19) (58)
Proceeds from other long-term liabilities......... -- 18 -- -- --
------- ------- ------- ------- -------
Net cash provided by financing activities... 5,487 4,864 9,740 190 3,452
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 4,255 (1,839) 134 (1,066) 4,534
Cash and cash equivalents at beginning of year...... -- 4,255 2,416 2,416 2,550
------- ------- ------- ------- -------
Cash and cash equivalents at end of year............ $ 4,255 $ 2,416 $ 2,550 $ 1,350 $ 7,084
======= ======= ======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during year for interest................ $ -- $ -- $ 48 $ 4 $ 51
======= ======= ======= ======= =======
Noncash investing and financing activities:
Issuance of common stock in exchange for
equipment and technology...................... $ 1 $ -- $ -- $ -- $ --
======= ======= ======= ======= =======
Issuance of common stock upon exercise of
options in exchange for notes receivable...... $ 25 $ 195 $ 568 $ 134 $ 120
======= ======= ======= ======= =======
Repurchase of common stock in exchange for
cancellation of notes receivable.............. $ -- $ 6 $ 52 $ 4 $ 8
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 80
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Packeteer, Inc. (the Company) was incorporated on January 25, 1996, to
provide application-adaptive bandwidth management solutions that enhance
mission-critical application performance over enterprise WANs and the Internet.
The Company's solutions enable businesses and service providers to manage
proactively bandwidth contention at WAN access links, protect important
application traffic and increase network efficiency. The Company markets and
distributes its products via a worldwide network of VARs, distributors, systems
integrators and OEMs. The Company commenced principal operations in 1997. The
Company is headquartered in Cupertino, California, and has wholly owned
subsidiaries in Japan and Hong Kong.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the financial
statements of the Company and its two wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
(c) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(d) Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, the accompanying
unaudited consolidated financial statements have been prepared on the same basis
as the audited consolidated financial statements, and including all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
presentation of the Company's financial position as of March 31, 1999 and the
results of its operations and its cash flows for the three months ended March
31, 1998 and 1999.
(e) Revenue Recognition
The Company recognizes product revenues after the following events have
occurred: the customer issues a noncancelable purchase order; a product has been
shipped to the customer; and collection of the sales price is probable.
For software transactions entered into after January 1, 1998, the Company
adopted the American Institute of Certified Public Accountants' (AICPA)
Statement of Position (SOP) 97-2, "Software Revenue Recognition" as modified by
SOP 98-9, "Modification of SOP 97-2, Software Revenue
F-7
<PAGE> 81
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Recognition, with Respect to Certain Transactions." SOP 97-2 generally requires
revenue earned on software arrangements involving multiple-elements to be
allocated to each element based on its relative fair value. The fair value of
the element must be based on objective evidence that is specific to the vendor.
If a vendor does not have objective evidence of the fair value of all elements
in a multiple-element arrangement, all revenue from the arrangement must be
deferred until such evidence exists or until all elements have been delivered,
unless the only undelivered element is post-contract customer support, in which
case, the entire fee is recognized over the support period.
Service revenue is recognized as the services are performed. To date, these
amounts have not been significant.
(f) Cost of Revenues
Cost of revenues consists primarily of costs of product sales. Costs of
licensing revenues, including product packaging, documentation and reproduction
have not been significant. The Company provides reserves for warranty costs
expected to be incurred. To date the Company has not incurred significant
warranty costs.
(g) Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with a maturity from
date of purchase of three months or less to be cash equivalents. Cash and cash
equivalents consist primarily of cash on deposit with banks, money market
instruments, and investments in commercial paper. As of December 31, 1997 and
1998, cash equivalents total approximately $2,141 and $2,389, respectively.
Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. As of December 31, 1997 and 1998, all investment securities
are designated as "available-for-sale." Available-for-sale securities are
carried at fair value based on quoted market prices, which approximates cost.
The cost of securities sold is determined based on the specific identification
method.
(h) Inventories
Inventories are stated at the lower of cost (on a first-in, first-out
basis) or market. Inventory balances represent completed products
available-for-sale.
(i) Property and Equipment
Property and equipment, including leasehold improvements and equipment
acquired under capital lease, are recorded at cost. Depreciation and
amortization are provided using a straight-line method over the shorter of the
estimated useful lives of the assets or the lease terms, generally one to four
years.
F-8
<PAGE> 82
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Company reviews property and equipment for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of property and equipment is measured by
comparison of its carrying amount to future net cash flows the property and
equipment are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property and equipment exceeds its fair market value. To
date, the Company has made no adjustments to the carrying amount of its property
and equipment due to impairment.
(j) Research and Development Costs
Development costs incurred in the research and development of new products
and enhancements to existing products are expensed as incurred until
technological feasibility in the form of a working model has been established.
To date, software developments have been completed concurrent with the
establishment of technological feasibility, and, accordingly, no costs have been
capitalized.
(k) Business and Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents,
short-term investments and accounts receivable. The Company's cash, cash
equivalents and short-term investments are maintained with highly accredited
financial institutions. The Company's cash equivalents are primarily in highly
liquid money market funds. The Company believes no significant concentration of
credit risk exists with respect to these financial instruments. Concentrations
of credit risk with respect to trade receivables are limited as the Company
performs ongoing credit evaluations of its customers. Based on management's
evaluation of potential credit losses, the Company believes its allowances for
doubtful accounts are adequate.
The Company's products, which are sold worldwide, are targeted to
organizations utilizing wide area networks. Accordingly, the Company's future
success depends upon the capital spending patterns of such customers and the
continued demand by such customers for the Company's product. The networking
industry is characterized by rapidly changing technology, evolving industry
standards, changes in end-user requirements and frequent new product
introductions and enhancements.
The Company's continued success will depend upon its ability to enhance
existing products and to develop and introduce, on a timely basis, new products
and features that keep pace with technology developments and emerging industry
standards. Furthermore, as a result of its international sales, the Company's
operations are subject to risks of doing business abroad, including, but not
limited to, export duties, changes to import and export regulations, longer
payment cycles, and greater difficulty in collecting accounts receivable. While,
to date, these factors have not had an adverse material impact on the Company's
consolidated results of operations, there can be no assurance that there will
not be such an impact in the future.
F-9
<PAGE> 83
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(l) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for any
tax benefits of which future realization is uncertain.
(m) Stock-Based Compensation
For employee stock-based compensation plans, the Company uses the intrinsic
value-based method of accounting. Deferred compensation expense associated with
stock-based compensation is being amortized on an accelerated basis over the
vesting period of the individual award consistent with the method described in
Financial Accounting Standards Board (FASB) Interpretation No. 28, Accounting
for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.
For non-employees, the Company computes the fair value of the stock based
compensation in accordance with SFAS 123 "Accounting for Stock Based
Compensation" and Emerging Issues Task Force (EITF) 96-18 "Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."
(n) Foreign Currency Transactions
The Company's sales to international customers are U.S. dollar-denominated.
As a result, there are no foreign currency gains or losses related to these
transactions.
The functional currency for the Company's foreign subsidiaries is the U.S.
dollar. Accordingly, the entities remeasure monetary assets and liabilities at
year-end exchange rates, while nonmonetary items are remeasured at historical
rates. Income and expense accounts are remeasured at the average rates in effect
during the year, except for depreciation which is remeasured at historical
rates. Remeasurement adjustments and transaction gains and losses are recognized
in income in the year of occurrence. To date, the effect of such amounts on net
income has not been material.
(o) Other Comprehensive Income
The Company has no material components of other comprehensive income.
F-10
<PAGE> 84
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(p) Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of
vested outstanding shares of common stock. Diluted net loss per share is
computed using the weighted-average number of shares of vested common stock
outstanding and, when dilutive, potential common shares. Potential common shares
include unvested common stock outstanding and potential common shares from
options and warrants to purchase common stock using the treasury stock method,
and convertible preferred stock on the as-if converted basis. All potential
shares have been excluded from the computation of diluted net loss per share for
all periods presented because the effect would be antidilutive. Pursuant to the
SEC Staff Accounting Bulletin No. 98, common stock and convertible preferred
stock issued for nominal consideration, prior to the anticipated effective date
of the initial public offering, or IPO, are included in the calculation of basic
and diluted net loss per share as if they were outstanding for all periods
presented. To date, the Company has not had any issuances or grants for nominal
consideration. Diluted net loss per share does not include the effects of the
following potential common shares:
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED
JANUARY 25, 1996 DECEMBER 31,
(INCEPTION) TO ---------------
DECEMBER 31, 1996 1997 1998
----------------- ----- ------
<S> <C> <C> <C>
Shares issuable under stock options.................. 704 900 1,073
Shares of unvested stock subject to repurchase....... 5,177 4,571 2,757
Shares issuable pursuant to warrants to purchase
convertible preferred.............................. -- 42 58
Shares issuable related to convertible preferred
stock on an "as-if-converted" basis................ 7,622 9,838 12,391
</TABLE>
The weighted-average exercise price of stock options outstanding was $0.22
and $1.90 as of December 31, 1997 and 1998, respectively. The weighted average
purchase price of unvested stock was $0.10 and $0.34 as of December 31, 1997 and
1998, respectively. The weighted average exercise price of warrants was $1.00
and $1.81 as of December 31, 1997 and 1998, respectively.
(q) Financial Instruments
The carrying value of cash, cash equivalents, short-term investments,
accounts receivable, accounts payable and accrued expenses approximates their
estimated fair value due to the relative short maturity of these instruments.
The carrying value of long-term debt and capital lease obligations approximates
carrying value based on the market interest rates available to the Company for
debt of similar risk and maturities.
F-11
<PAGE> 85
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(r) Recent Accounting Pronouncements
The FASB recently issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. For a derivative not
designated as a hedging instrument, changes in the fair value of the derivative
are recognized in earnings in the period of change. The Company must adopt SFAS
No. 133 by January 1, 2000. Management does not believe the adoption of SFAS No.
133 will have a material effect on the financial position or results of
operations of the Company.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Computers and equipment..................................... $262 $ 262
Equipment under capital lease............................... 415 1,021
Furniture and fixtures...................................... 39 39
Leasehold improvements...................................... 17 17
---- ------
733 1,339
Less accumulated depreciation and amortization.............. 329 545
---- ------
$404 $ 794
==== ======
</TABLE>
Accumulated depreciation and amortization includes amortization of
approximately $31 and $226 on equipment under capital lease as of December 31,
1997 and 1998, respectively.
F-12
<PAGE> 86
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. LEASE COMMITMENTS
The Company leases its facility and certain equipment under noncancelable
lease agreements, which expire at various dates through 2002. As of December 31,
1998, the future minimum rental payments under capital and operating leases are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASE LEASE
------------ -------- ---------
<S> <C> <C>
1999..................................................... $262 $ 699
2000..................................................... 262 734
2001..................................................... 248 770
2002..................................................... 114 773
---- ------
Total future minimum lease payments......................... 886 $2,976
======
Less imputed interest....................................... 101
----
Present value of future minimum lease payments under capital
lease..................................................... 785
Less current portion........................................ 215
----
Long-term portion........................................... $570
====
</TABLE>
Rent expense for the period from January 25, 1996 (inception) to December
31, 1996 and for the years ended December 31, 1997 and 1998, was $32, $138 and
$616, respectively.
4. NOTE PAYABLE
The note payable, which totaled $287 at inception, has a stated interest
rate of 6.75% and is payable in 48 monthly installments of $7 with a final
balloon payment of $34 due on June 1, 2001. The note is secured by the Company's
property and equipment. The note has been discounted for warrants valued at
approximately $26 issued in connection with the note (see Note 5). The Company
estimates the fair value of its fixed rate debt using discounted cash flow
analysis based on the Company's current borrowing rates for similar debt.
F-13
<PAGE> 87
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. STOCKHOLDERS' EQUITY
(a) Preferred Stock
As of December 31, 1998, the Company has 13,703 shares of preferred stock
authorized. As of December 31, 1997 and 1998 and March 31, 1999, the Company had
designated and issued preferred stock as follows:
<TABLE>
<CAPTION>
OUTSTANDING SHARES
--------------------------
DECEMBER 31,
DESIGNATED -------------- MARCH 31, LIQUIDATION
SHARES 1997 1998 1999 PREFERENCE
---------- ----- ------ --------- -----------
<S> <C> <C> <C> <C> <C>
Series A.............................. 2,800 2,800 2,800 2,800 $0.25
Series B.............................. 4,864 4,822 4,822 4,822 1.00
Series C.............................. 2,216 2,216 2,216 2,216 2.00
Series D.............................. 3,823 -- 2,553 2,553 3.94
------ ----- ------ ------
13,703 9,838 12,391 12,391
====== ===== ====== ======
</TABLE>
In February and April 1996, the Company issued 2,800 shares of Series A
preferred stock for cash of $0.25 per share. A total of $693 was raised, net of
issuance costs.
In September and October 1996, the Company raised an additional $4,779, net
of issuance costs, through the issuance of 4,822 shares of Series B preferred
stock for cash of $1.00 per share.
During 1997, the Company issued 2,216 shares of Series C preferred stock
for cash of $2.00 per share. A total of $4,391 was raised, net of issuance
costs.
In 1998, the Company completed another round of private financing. A total
of 2,553 shares of Series D preferred stock were issued for cash of $3.94 per
share. A total of $9,108 was raised, net of issuance costs.
The rights, preferences, and privileges of the holders of Series A, B, C,
and D preferred stock are as follows:
- The holders of Series A, B, C, and D preferred stock are entitled to
receive dividends at the rate of $0.02, $0.08, $0.16, and $0.32 per
share, respectively, per annum, payable when and as declared by the
Company's Board of Directors, in preference and priority to any payments
of dividends to holders of the Company's common stock. The dividend
rights are not cumulative.
- Shares of Series A, B, C, and D preferred stock have a liquidation
preference of $0.25, $1.00, $2.00, and $3.94 per share, respectively,
plus any declared but unpaid dividends.
- Each holder of preferred stock has voting rights equal to common stock on
an "as if converted" basis.
- Each share of preferred stock is convertible at any time into one share
of common stock at the option of the holder, subject to adjustment. Each
share of preferred stock automatically converts upon the closing of the
sale of the Company's common stock in a public offering in
F-14
<PAGE> 88
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. STOCKHOLDERS' EQUITY -- (CONTINUED)
which the gross proceeds exceed $15,000 and the offering price equals or
exceeds $3.75 per share for Series A, B, and C preferred stock, and $7.39
per share for Series D preferred stock.
(b) Common Stock
The Company is authorized to issue 40,000 shares of common stock.
In January 1996, the Company issued 640 shares in exchange for cash. In
January 1996, the Company also issued 5,120 shares of common stock in exchange
for certain personal property, which was recorded at estimated fair value of the
property and is included in property and equipment on the accompanying balance
sheets.
In July and August 1996, the Company issued 1,759 shares of common stock
upon the exercise of stock options granted under the Company's 1996 Equity
Incentive Plan (the Plan). Shares issued under the Plan are subject to
repurchase as described below. Of the 1,759 shares issued upon the exercise of
stock options, 1,280 shares were issued in conjunction with full recourse,
promissory notes secured by the shares. Of the total purchase price, 10% was
paid at the time of purchase. The remaining principal, which bears interest at
6.74%, is due annually in equal installments, plus interest, through 2006.
In December 1996, the Company repurchased 160 shares of common stock at
$0.10 per share from a terminated employee in exchange for cash and forgiveness
of a $4 promissory note.
During 1997, the Company issued 1,940 shares of common stock upon the
exercise of stock options granted under the Company's 1996 Equity Incentive Plan
(the Plan). Shares issued under the Plan are subject to repurchase as described
below under Note (5)(c). Of the 1,940 shares issued upon the exercise of stock
options in 1997, 1,840 shares were issued in conjunction with full recourse,
promissory notes secured by the shares. Of the total purchase price, 10% was
paid at the time of purchase. The remaining principal, which bears interest at
5.6% to 6.8%, is due in annual installments, plus interest, through 2002.
In October 1997, the Company repurchased 278 shares of common stock at
$0.25 per share from two terminated employees in exchange for $4 in cash and
forgiveness of a $3 promissory note.
In December 1997, the Company repurchased 40 shares of common stock at
$0.10 per share from a terminated employee in exchange for cash and forgiveness
of a $3 promissory note.
During 1998, the Company issued 1,048 shares of common stock upon the
exercise of stock options and stock purchase rights. Of the 1,048 shares issued
upon the exercise of stock options, 1,042 shares were issued in conjunction with
full recourse, promissory notes secured by the shares. Of the total purchase
price, 10% was paid at the time of purchase. The remaining principal, which
bears interest at 5.5% to 6.5%, is due in annual installments, plus interest,
through 2003.
During 1998, the Company granted rights to purchase 202 shares of common
stock. These rights, which were not granted under the Plan, have exercise prices
ranging from $0.25 to $3.50 per share.
F-15
<PAGE> 89
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. STOCKHOLDERS' EQUITY -- (CONTINUED)
At the date of grant, the Company estimated the fair value of the rights to be
$5 using the Black-Scholes model with the following assumptions: risk free
interest rate of 4.5%; an expected life of four years; expected volatility of
50%; and no dividend.
During 1998, the Company repurchased 306 shares of common stock at $0.10 to
$0.50 per share from terminated employees in exchange for $12 in cash and
forgiveness of $52 in promissory notes.
(c) Equity Incentive Plan
The Company has adopted the Plan in order to provide selected employees,
directors, and consultants of the Company an opportunity to acquire the
Company's common stock. The Plan provides for granting of incentive stock
options, nonstatutory stock options, stock bonuses, and restricted stock
purchase rights. The Plan is administered by the Board of Directors, which sets
the terms and conditions of the options. Nonstatutory stock options and
incentive stock options are exercisable at prices not less than 85% and 100%,
respectively, of the fair value on the date of grant. The options become vested
in increments over a four-year vesting period and expire at the end of 10 years
from date of grant or sooner if terminated by the Board of Directors. The
options may include a provision whereby the option holder may elect at any time
to exercise the option prior to the full vesting of the option. Unvested shares
so purchased shall be subject to a repurchase right by the Company at the
original purchase price. Such right shall lapse at a rate equivalent to the
vesting period of the original option. As of December 31, 1998, 2,010 shares
were subject to repurchase. During 1997, the Board of Directors reserved 953
shares for issuance under the Plan, and 318 shares were made available through
the repurchase of certain shares. In 1998, the Board of Directors reserved an
additional 2,025 shares for issuance under the Plan, and 306 shares were made
available through the repurchase of certain shares, as noted above.
F-16
<PAGE> 90
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. STOCKHOLDERS' EQUITY -- (CONTINUED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------
AVAILABLE NUMBER OF WEIGHTED-AVERAGE
FOR GRANT SHARES EXERCISE PRICE
--------- --------- ----------------
<S> <C> <C> <C>
Shares made available for grant................. 3,440 -- $ --
Repurchased..................................... 160 -- --
Granted......................................... (2,463) 2,463 0.05
Exercised....................................... -- (1,759) 0.03
------ ------
Balances as of December 31, 1996.................. 1,137 704 0.10
Shares made available for grant................. 953 -- --
Repurchased..................................... 318 -- --
Granted......................................... (2,480) 2,480 0.17
Exercised....................................... -- (1,940) 0.13
Canceled........................................ 344 (344) 0.16
------ ------
Balances as of December 31, 1997.................. 272 900 0.22
Shares made available for grant................. 2,025 -- --
Repurchased..................................... 306 -- --
Granted......................................... (1,300) 1,300 1.96
Exercised....................................... -- (1,042) 0.59
Canceled........................................ 85 (85) 1.02
------ ------
Balances as of December 31, 1998.................. 1,388 1,073 1.90
Shares made available for grant (unaudited)..... 515 -- --
Repurchased (unaudited)......................... 3 -- --
Granted (unaudited)............................. (1,280) 1,280 3.50
Exercised (unaudited)........................... -- (42) 3.35
Cancelled (unaudited)........................... 1 (1) 0.25
------ ------
Balances as of March 31, 1999..................... 627 2,310 $2.76
====== ======
</TABLE>
The per share weighted-average fair value of stock options granted during
1996, 1997 and 1998 was $0.01, $0.04 and $0.90, respectively, on the date of
grant using the minimum value method with the following weighted-average
assumptions: risk free interest rate of 6.8%, 6.5% and 4.5% in 1996, 1997 and
1998, respectively; an expected life of four years; and no dividends.
F-17
<PAGE> 91
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. STOCKHOLDERS' EQUITY -- (CONTINUED)
The following table summarizes information about stock options outstanding
under the Plan as of December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------
WEIGHTED-AVERAGE
REMAINING
RANGE OF EXERCISE CONTRACTUAL
PRICES NUMBER OUTSTANDING LIFE (YEARS) NUMBER VESTED
- ----------------- ------------------ ---------------- -------------
<S> <C> <C> <C>
$0.10...... 128 7.94 57
0.25....... 182 8.73 48
0.50....... 77 9.15 --
1.50....... 148 9.36 --
2.50....... 163 9.54 --
3.50....... 375 9.77 --
----- ---
1,073 105
===== ===
</TABLE>
As of December 31, 1998, 105 options with a weighted-average exercise price
of $0.17 were vested.
The weighted-average fair value of stock options granted during 1996, 1997
and 1998 with an exercise price equal to the fair value of the Company's common
stock on the date of grant was $0.05, $0.17 and $0.73 per share. Stock options
granted during 1998 with an exercise price below the deemed fair value of the
Company's common stock on the date of grant had a weighted-average exercise
price of $2.65 per share and a weighted-average fair value of $3.61 per share.
In connection with options granted in fiscal year 1998 and during the three
months ended March 31, 1999, the Company has recorded deferred stock-based
compensation of $787 and $3,743 (unaudited), respectively, representing the
difference between the exercise price and the fair value of the Company's common
stock at the date of grant. The amount is being amortized over the vesting
period for the individual options. Amortization of stock-based compensation of
$273 was recognized during the year ended December 31, 1998 and was $589
(unaudited) during the three months ended March 31, 1999.
Pursuant to SFAS No. 123, the Company is required to disclose the pro forma
effects on the operating results of the Company as if the Company has elected to
use the fair value approach to account for all its stock-based employee
compensation plans. Had compensation costs for the Company's Plans been
determined consistent with the fair value approach enumerated in SFAS
F-18
<PAGE> 92
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. STOCKHOLDERS' EQUITY -- (CONTINUED)
No. 123, net losses for the period from January 25, 1996 (inception) to December
31, 1996 and for the years ended December 31, 1997 and 1998 would have been as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
PERIOD FROM JANUARY 25, ------------------------
1996 TO DECEMBER 31, 1996 1997 1998
-------------------------- -------- --------
<S> <C> <C> <C>
Net loss applicable to common stock as
reported................................ $(1,237) $(5,909) $(8,799)
Pro forma net loss applicable to common
stock................................... $(1,239) $(5,934) $(8,854)
Basic and diluted net loss per share as
reported................................ $ (1.28) $ (1.82) $ (1.54)
Basic and diluted pro forma net loss per
share................................... $ (1.28) $ (1.82) $ (1.55)
</TABLE>
(d) Warrants
In June 1997, the Company issued a warrant in connection with a leasing
agreement to purchase 42 shares of Series B preferred stock at $1.00 per share.
The warrant is immediately exercisable and expires in June 2005. At the date of
grant, the Company estimated the fair value of the warrant to be $26 using the
Black-Scholes model with the following assumptions: risk free interest rate of
6%; an expected life of eight years; expected volatility of 50%; and no
dividends.
In 1998, the Company issued a warrant in connection with a leasing
agreement to purchase 16 shares of Series D preferred stock at $3.94 per share.
The warrant is immediately exercisable and expires in June 2006. At the date of
grant, the Company estimated the fair value of the warrant to be $38 using the
Black-Scholes model with the following assumptions: risk free interest rate of
5%; an expected life of eight years; expected volatility of 50%; and no
dividends.
6. INCOME TAXES
The difference between recorded income taxes and the "expected" tax benefit
computed by apply the federal statutory income tax rate of 34% to pretax loss is
due to the valuation allowance on
F-19
<PAGE> 93
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. INCOME TAXES -- (CONTINUED)
deferred tax assets. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities as of December
31, 1997 and 1998, are presented below:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Various accruals and reserves not deductible for tax
purposes............................................... $ 59 $ 264
Property and equipment...................................... 90 97
Net operating loss carryover................................ 2,528 5,759
Research credit carryforwards............................... 146 255
Capitalized start-up expenditures........................... 376 315
Deferred stock-based compensation........................... -- 215
------- -------
Total deferred tax assets.............................. 3,199 6,905
Valuation allowance......................................... (3,199) (6,905)
------- -------
Net deferred tax assets................................ $ -- $ --
======= =======
</TABLE>
As of December 31, 1998, the Company has net operating loss carryforwards
for federal and California state income tax purposes of approximately $13,790
and $12,113, respectively. In addition, the Company had federal and state
research credit carryforwards of approximately $142 and $112, respectively. The
Company's federal net operating loss and research credit carryforwards will
expire in the years 2010 through 2018, if not utilized. The Company's state net
operating loss carryforwards will expire in the year 2004. The state research
credit can be carried forward indefinitely.
Federal and state tax laws impose substantial restrictions on the
utilization of net operating loss and tax credit carryforwards in the event of
an "ownership change" as defined in Internal Revenue Code Section 382. The
Company has not yet determined whether an ownership change has occurred.
7. 401(k) PLAN
In 1997, the Company adopted a 401(k) plan (the 401(k)). Participation in
the 401(k) is available to all employees. Entry date to the 401(k) is the first
day of each month. Each participant may elect to contribute an amount up to 20%
of his or her annual base salary plus commission and bonus, but not to exceed
the statutory limit as prescribed by the Internal Revenue Code. The Company may
make discretionary contributions to the 401(k). To date, no contributions have
been made by the Company.
8. SEGMENT REPORTING
The Company has adopted the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." The Company's chief
operating decision maker is considered to be the Company's CEO. The CEO reviews
financial information presented on a consolidated basis substantially similar to
the consolidated financial statements. Therefore, the Company has concluded
F-20
<PAGE> 94
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
8. SEGMENT REPORTING -- (CONTINUED)
that it operates in one segment and accordingly has provided only the required
enterprise-wide disclosures.
The Company operates in the United States and internationally and derives
its revenue from the sale of products and software licenses. In 1997 and 1998,
the Company's sales, marketing, and development efforts have been focused on the
PacketShaper family of products and PacketWise software. Sales outside of North
America accounted for 59.9% and 54.7% of the Company's total revenues in 1997
and 1998, respectively.
Geographic Information
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1998
------- -------
<S> <C> <C>
Total net revenues:
North America................................. $ 566 $3,273
Asia Pacific.................................. 617 2,238
Europe and rest of world...................... 230 1,719
------ ------
Total net revenues......................... $1,413 $7,230
====== ======
</TABLE>
Total net revenues reflects the destination of the product shipped.
In 1997 and 1998, sales to Macnica, accounted for 14.2% and 11.9%,
respectively, of the Company's total revenues. Also in 1997, sales to Nissho
Electronics Corporation accounted for 10.4% of the Company's total revenues. No
other single customer accounted for greater than 10% of the Company's total
revenues in 1997 or 1998.
9. SUBSEQUENT EVENTS
Revolving Loan Agreement
In January 1999, the Company entered into a revolving loan agreement with a
maximum line of $3,000. Advances are limited to the lesser of the maximum line
or the borrowing base which is 80% of eligible receivables. The outstanding
principal balance accrues interest at a per annum rate equal to the prime rate
and is secured by all present and future collateral of the Company.
Subordinated Loan Agreement
Additionally, in January 1999, the Company entered into a subordinated loan
agreement evidenced by a promissory note of $2,500, that is secured by the
assets of the Company. The note has a stated interest rate of 12.25% and is
payable in 36 monthly installments of various amounts with the final installment
due on February 1, 2002. In connection with the note, the Company issued a
warrant to purchase 98 shares of Series D preferred stock at $3.58 per share.
The warrant is immediately exercisable and expires in January 2006. The Company
estimated the fair value of the warrant on the
F-21
<PAGE> 95
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE-MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. SUBSEQUENT EVENTS -- (CONTINUED)
grant date to be $211 using the Black-Scholes model with the following
assumptions: risk-free interest rate of 4.5%; an expected life of seven years;
expected volatility of 50%; and no dividends. The Company will amortize the
value to interest expense over the term of the note.
Initial Public Offering and Unaudited Pro Forma Consolidated Balance Sheet
In May 1999, the Board of Directors authorized the filing of a registration
statement with the SEC, that would permit the Company to sell shares of the
Company's common stock in connection with a proposed IPO. If the offering is
consummated under the terms presently anticipated, all of the outstanding shares
of the Company's convertible preferred stock will automatically convert into
shares of common stock upon closing of the proposed IPO. The conversion of the
convertible preferred stock has been reflected in the accompanying unaudited pro
forma consolidated balance sheet.
1999 Stock Incentive Plan
In May 1999, the Company's Board of Directors approved the 1999 Stock
Incentive Plan under which 900,000 shares have been reserved for issuance. In
addition, any shares not issued under the 1996 Equity Incentive Plan will also
be available for grant. The number of shares reserved under the 1999 Stock
Incentive Plan will automatically increase annually beginning on January 1, 2000
by the lesser of 3,000,000 shares or 5% of the total number of shares of common
stock outstanding. Under the 1999 Stock Incentive Plan, eligible individuals may
be granted options to purchase common shares or may be issued shares of common
stock directly.
1999 Employee Stock Purchase Plan
The Company's Board of Directors adopted the 1999 Employee Stock Purchase
Plan (the "Purchase Plan") in May 1999. The Purchase Plan is pending approval by
the stockholders. A total of 500,000 shares have been reserved for issuance. The
number of shares reserved will automatically increase annually beginning on
January 1, 2000 by the lesser of 1,000,000 or 2% of the total number of common
stock shares outstanding.
F-22
<PAGE> 96
DESCRIPTION OF ARTWORK
INSIDE FRONT COVER
The inside front cover of the prospectus contains five purple boxes on a
background consisting of many lines of multi-colored text overlaid over itself.
The background text is comprised of repeating names of different types of
Internet traffic including Oracle, Voice Over IP, PointCast, Web Browsing,
Lotus Notes, SNA and TN3270.
The boxes are staggered from top to bottom and contain the following
questions from top to bottom: "You count on your network. Is it letting your
applications down?"; "Is your network coping with the flood of Internet
traffic?"; "What's running on your network today? Tomorrow?"; "Are users'
tempers your only measure of response time?"; and "Applications drive your
business. Shouldn't your network adapt to your applications?"
INSIDE GATEFOLD
Along the left side is a purple and black stripe which runs from the top to
the bottom of the page vertically. Embedded in the stripe is a caption which
reads "Case Study." Below such caption are four paragraphs, each following a
separate subcaption, which read as follows: "Domino's Pizza. Domino's Pizza uses
PacketShapers to protect its PeopleSoft supply-chain applications in nationwide
distribution centers." "Hoechst Marion Roussel. When Hoechst Marion Roussel, one
of the world's leading pharmaceutical firms, researched bandwidth-management
solutions to control performance of SAP/R3 and Microsoft Exchange, chose
Packeteer. PacketShaper detects and shelters SAP traffic and balances
Exchange-related traffic for optimum performance." "Big Globe. Big Globe, a
leading Japanese ISP owned by NEC, relies on PacketShaper to keep their
customers up to speed. PacketShaper allocates a minimum rate to each subscriber
to ensure timely response." "ADC Telecommunications. ADC Telecommunications
embeds PacketWise software into their own ServicePoint(TM) products. Through
ServicePoint, PacketWise enables service providers to offer differentiated
managed services."
To the right of the case studies, at the top left of the Gateway, is the
caption "4 Steps to Application-Adoptive Bandwidth Management" followed by
"PacketShaper is an application-adoptive bandwidth-management solution that
ensures mission-critical application performance over enterprise WANs and the
Internet."
In the center of the Gateway is a circle consisting of four large arrows
pointing in a clockwise direction. In the middle of the circle is a set of
PacketShapers. Embedded in the stem of each arrow is one word reading as follows
beginning with the arrow in the lower left section of the circle: "Report",
"Classify", "Analyze" and "Control." Extending out from each arrow runs a line
to a caption and a quotation. From the arrow embedded with the word "Report" is
the caption, "Report on Performance" followed by the quotation, "PacketShaper
told me Oracle's response time was over four seconds -- too slow. I set a
two-second goal, brought performance within target, and track ongoing results."
From the arrow embedded with the word "Classify" is the caption, "Discover &
Classify Traffic" followed by the quotation, "I denied that Real Audio was
running on my network. Then PacketShaper set me straight." From the arrow
embedded with the word, "Analyze" is the caption, "Analyze Network Behavior"
followed by the quotation, "I didn't know that the file transfers and web
browsing took 85 percent of my bandwidth. No wonder PacketShaper says my SAP and
PeopleSoft response times are poor." From the arrow embedded with the word
"Control" is the caption, "Control Bandwidth Allocation" followed by the
quotation, "PacketShaper protects my Oracle and SNA applications from less
urgent traffic. I can also ensure each voice stream gets the bandwidth it needs
for a clear reception."
Below the circle are two cutaway diagrams of bandwidth cable. The left
diagram, entitled "Before PacketShaper," illustrates how the use of bandwidth
for "Web & FTP" traffic causes the performance of "Mission Critical
Applications" to suffer. The right diagram, entitled "After PacketShaper,"
illustrates guaranteed bandwidth for Mission Critical Applications regardless of
how heavy Web and FTP traffic is.
Along the right side of page is a purple and black stripe which runs from
the top to the bottom of the page vertically. Embedded in the stripe is the
caption "Market Opportunities" followed by three paragraphs which read as
follows:
"Enterprise. PacketShaper keeps enterprise network managers informed and in
control. Managers monitor application performance, evaluate network efficiency,
and protect mission-critical applications with policy-based bandwidth
allocation."
"Service Provider. In the face of heightened competition, service providers
are seeking to differentiate themselves by offering such as web hosting,
application outsourcing, and tiered service levels. These services require
control over network and application performance. PacketShaper delivers
control."
"OEM. OEM partners embed PacketWise software into their own products to
deliver the bandwidth-management-intelligent analysis, sheltered application
performance, and increased network efficiency."
<PAGE> 97
BACK INSIDE COVER
The back inside cover has a caption reading "Experience the Dividends of
Predictable Performance." On the remainder of the page are four overlapping
computer screenshots displaying various reports on Internet traffic produced by
the PacketWise software.
BACK COVER
Packeteer logo.
DIAGRAM OF BOTTLENECK FIGURE ON PAGE 32 OF PROSPECTUS
A diagram entitled "Bandwidth Bottleneck" shows an hourglass shape lying
on its side. On the left end of the diagram are wide lines which narrow into
very thin lines through the center of the hourglass and then become wider again
as the hourglass becomes wider to the right. Above the left end of the diagram
is the caption "Enterprise Local Area Network" and below the diagram is the
caption "10/100/1000 Ethernet Growing." Above the middle of the hourglass is the
caption "WAN Access Link" and below is the caption "56K -- 1.5 Mbps." Above the
right of the hourglass is the caption "Service Provider Backbone Network" and
below is the caption "OC-3, OC-12, OC-192 & Growing."
DIAGRAM OF NETWORK TOPOLOGY DIAGRAM ON PAGE 37 OF PROSPECTUS
On the left are three pictures. The first two are computers with the
captions "Web Server" and "File Server", respectively. The third is a cloud-like
shape representing the "Enterprise Local Area Network." Lines from each of the
above converge to a box to the right with the words "PacketShaper 2000" above
it. To the right of the PacketShaper 2000, and connected by a line, is a
circular depiction of a router entitled "Internet Access Router." To the right
of the router and connected to it by a line is a cloud-shaped representation of
the Internet. Running from the top of the Internet is a line connecting to
another "Internet Access Router." Such line continues above the router to a box
representing a "PacketShaper 4000." Splitting off from the PacketShaper 4000 are
two lines, each running to a graphic depiction of a computer next to the caption
"ISP Web Server Farm." Running from the cloud-like depiction of the Internet are
four lines, each connected to a graphic depiction of a computer labeled, from
top to bottom, as follows: "28.8 Modem Low-Speed User", "T-1 High-Speed User",
"ISDN/xDSL Mid-Speed User" and "14.4 Modem Low-Speed User."
<PAGE> 98
(LOGO)
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Packeteer in connection with
the sale of Common Stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 15,346
NASD Filing Fee............................................. 6,020
Nasdaq National Market Listing Fee.......................... 66,710
Printing and Engraving Expenses............................. 175,000
Legal Fees and Expenses of Packeteer........................ 400,000
Accounting Fees and Expenses................................ 350,000
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent Fees......................................... 8,000
Miscellaneous............................................... 23,924
----------
Total..................................................... $1,050,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Packeteer's Bylaws provide for mandatory
indemnification of its directors and officers and permissible indemnification of
employees and other agents to the maximum extent permitted by the Delaware
General Corporation Law. Packeteer's Certificate of Incorporation provides that,
subject to Delaware law, its directors shall not be personally liable for
monetary damages for breach of the directors' fiduciary duty as directors to
Packeteer and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to Packeteer or its stockholders for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws. Packeteer has entered
into indemnification agreements with its officers and directors, a form of which
is filed as Exhibit 10 to this Registration Statement (the "Indemnification
Agreements"). The Indemnification Agreements provide Packeteer's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law. Reference is also made to Section 6 of the
Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers
and directors of Packeteer against certain liabilities, and Section 3.7 of the
Amended and Restated Investors' Rights Agreement contained in Exhibit 4.2
hereto, indemnifying certain of Packeteer's stockholders, including controlling
stockholders, against certain liabilities.
II-1
<PAGE> 100
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since January 25, 1996, Packeteer has issued and sold the following
securities:
1. Packeteer issued and sold 4,788,050 shares of its Common Stock to
employees and consultants for an aggregate purchase price of $1,064,820
pursuant to the exercise of options under its 1996 Equity Incentive Plan
(Exhibit 10.8).
2. On February 14, 1996 and April 26, 1996, Packeteer issued 2,800,000
shares of its Series A Preferred Stock, for an aggregate purchase price
of $700,000 to several investors.
3. On September 12, 1996 and October 4, 1996, Packeteer issued and sold an
aggregate of 4,821,860 shares of its Series B Preferred Stock for an
aggregate purchase price of $4,821,860 to several investors.
4. On June 19, 1997 and July 18, 1997, Packeteer issued and sold an
aggregate of 2,216,320 shares of its Series C Preferred Stock for an
aggregate purchase price of $4,432,640 to several investors.
5. On April 16, 1998 and July 15, 1998, Packeteer issued and sold an
aggregate of 2,552,821 shares of its Series D Preferred Stock for an
aggregate purchase price of $10,058,115 to several investors.
6. On June 3, 1997, Packeteer issued warrants to purchase 42,000 shares of
its Series B Preferred Stock, at an exercise price of $1.00 per share
and on June 16, 1998 Packeteer issued warrants to purchase 15,863 shares
of its Series D Preferred Stock, at an exercise price of $3.94 per
share, to Comdisco Inc. in connection with an equipment leasing
transaction.
7. On January 21, 1999, in connection with a subordinated loan and security
agreement, Packeteer issued warrants to purchase 97,765 shares of its
Series D Preferred Stock, at an exercise price of $3.58 per share, to
Comdisco Inc.
8. Upon completion of initial public offering, Packeteer will issue
warrants to purchase 45,000 shares of Series D Preferred Stock at an
exercise price of $6.25 per share, to Meier Mitchell.
The issuances described in paragraph 1 were deemed exempt from registration
under the Securities Act in reliance upon Rule 701 promulgated under the
Securities Act. The issuances of the securities described in paragraphs 2
through 7 were deemed to be exempt from registration under the Act in reliance
on Section 4(2) of the Act as transactions by an issuer not involving any public
offering. In addition, the recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with Packeteer, to information about Packeteer.
II-2
<PAGE> 101
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and schedule listed in the Exhibit Index and Schedule are
filed as part of this Registration Statement.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
1.1 Form of Underwriting Agreement by and among the Registrant,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc.
and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated.
3.1 Registrant's Amended and Restated Certificate of
Incorporation.
3.2 Registrant's Amended and Restated Bylaws.
4.1* Form of Registrant's Specimen Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement, among the
Registrant and the investors and founders named therein,
dated as of April 16, 1998.
5.1* Legal Opinion of Brobeck, Phleger & Harrison LLP, counsel
for the Registrant.
10.1 Lease Agreement between Packeteer and Eldon R. Hoffman dated
August 25, 1997.
10.2+ OEM Agreement between Packeteer and ADC Telecommunications,
Inc., dated December 17, 1999
10.3+ Reseller Agreement between Packeteer and Alcatel Business
Systems, dated May 7, 1999.
10.4 Loan and Security Agreement between Packeteer and Silicon
Valley Bank, dated January 1, 1999.
10.5 Export-Import Bank Loan and Security Agreement between
Packeteer and Silicon Valley Bank, dated January 19, 1999.
10.6 Subordinated Loan and Security Agreement between Packeteer
and Comdisco, Inc., dated January 21, 1999.
10.7 Master Lease Agreement between Packeteer and Comdisco, Inc.,
dated June 3, 1997.
10.8 Registrant's 1996 Equity Incentive Plan.
10.9 Registrant's 1999 Stock Incentive Plan.
10.10 Registrant's 1999 Employee Stock Purchase Plan.
10.11 Form of Indemnity Agreement entered into by Registrant with
each of its executive officers and directors.
21.1 Subsidiaries.
23.1 Independent Auditors' Consent and Report on Schedule.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment has been requested as to portions of this exhibit.
(b) SCHEDULES
Schedule II -- Valuation and Qualifying Accounts and Reserves
ITEM 17. UNDERTAKINGS
Packeteer hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
II-3
<PAGE> 102
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Packeteer
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of Packeteer, Indemnification Agreements entered
into between Packeteer and its officers and directors, the Underwriting
Agreement, or otherwise, Packeteer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by Packeteer of expenses incurred or paid by a director, officer, or
controlling person of Packeteer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, Packeteer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by Packeteer pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 103
PACKETEER, INC.
AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
PERIOD FROM JANUARY 25, 1996 (INCEPTION) TO DECEMBER 31, 1996 AND
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
Accounts Receivable Allowances........... $-- $ -- $ -- $ --
Warranty Reserve......................... -- -- -- --
1997
Accounts Receivable Allowances........... -- 37 -- 37
Warranty Reserve......................... -- 32 -- 32
1998
Accounts Receivable Allowances........... 37 305 (49) 293
Warranty Reserve......................... 32 85 (41) 76
</TABLE>
II-5
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cupertino, State of California, on this 21st day of
May, 1999.
PACKETEER, INC.
By: /s/ CRAIG ELLIOTT
---------------------------------------
Craig Elliott
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Craig Elliott and
David Yntema, and each one of them, his true and lawful attorneys-in-fact and
agents, each with full power of substitution for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming that each of said attorneys-in-fact and agents or any of them, or his
or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the persons whose signatures
appear below, which persons have signed such Registration Statement in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CRAIG ELLIOTT President and Chief Executive May 21, 1999
- ---------------------------------- Officer (Principal Executive
Craig Elliott Officer and Director)
/s/ DAVID YNTEMA Chief Financial Officer and May 21, 1999
- ---------------------------------- Secretary (Principal Financial and
David Yntema Accounting Officer)
/s/ ROBERT PACKER Chief Technical Officer, Vice May 21, 1999
- ---------------------------------- President, Engineering and
Robert Packer Director
</TABLE>
II-6
<PAGE> 105
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BRETT GALLOWAY Chief Operating Officer May 21, 1999
- ---------------------------------- and Director
Brett Galloway
/s/ STEVEN CAMPBELL Director May 21, 1999
- ----------------------------------
Steven Campbell
/s/ JOSEPH GRAZIANO Director May 21, 1999
- ----------------------------------
Joseph Graziano
/s/ PETER MORRIS Director May 21, 1999
- ----------------------------------
Peter Morris
/s/ WILLIAM STENSRUD Director May 21, 1999
- ----------------------------------
William Stensrud
</TABLE>
II-7
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C> <C>
1.1 Form of Underwriting Agreement by and among the Registrant,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc.
and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated.
3.1 Registrant's Amended and Restated Certificate of
Incorporation.
3.2 Registrant's Amended and Restated Bylaws.
4.1* Form of Registrant's Specimen Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement, among the
Registrant and the investors and founders named therein,
dated July 15, 1998.
5.1* Legal Opinion of Brobeck, Phleger & Harrison LLP, counsel
for the Registrant.
10.1 Lease Agreement between Packeteer and Eldon R. Hoffman dated
August 25, 1997.
10.2+ OEM Agreement between Packeteer and ADC Telecommunications,
Inc., dated December 17, 1998.
10.3+ Reseller Agreement between Packeteer and Alcatel Business
Systems, dated May 7, 1999.
10.4 Loan and Security Agreement between Packeteer and Silicon
Valley Bank, dated January 1, 1999.
10.5 Export-Import Bank Loan and Security Agreement between
Packeteer and Silicon Valley Bank, dated January 19, 1999.
10.6 Subordinated Loan and Security Agreement between Packeteer
and Comdisco, Inc., dated January 21, 1999.
10.7 Master Lease Agreement between Packeteer and Comdisco, Inc.,
dated June 3, 1997.
10.8 Registrant's 1996 Equity Incentive Plan.
10.9 Registrant's 1999 Stock Incentive Plan.
10.10 Registrant's 1999 Employee Stock Purchase Plan.
10.11 Form of Indemnification Agreement entered into by Registrant
with each of its executive officers and directors.
21.1 Subsidiaries.
23.1 Independent Auditors' Consent and Report on Schedule.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment has been requested as to portions of this exhibit.
<PAGE> 1
Exhibit 1.1
Draft of 5/__/99
PACKETEER, INC.
UNDERWRITING AGREEMENT
May __, 1999
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
Dain Rauscher Wessels
As Representatives of the several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
INTRODUCTORY. Packeteer, Inc., a Delaware corporation (the "Company),
proposes to issue and sell to the several underwriters named in Schedule A (the
"Underwriters") an aggregate of [NUMBER OF FIRM SHARES BEING OFFERED] shares
(the "Firm Shares") of its Common Stock, par value $0.001 per share (the "Common
Shares"). In addition, the Company has granted to the Underwriters an option to
purchase up to an additional [NUMBER OF OPTION SHARES BEING OFFERED] Common
Shares (the "Option Shares") as provided in Section 2. The Firm Shares and, if
and to the extent such option is exercised, the Option Shares are collectively
called the "Shares". BancBoston Robertson Stephens Inc., Bear, Stearns & Co.
Inc. and Dain Rauscher Wessels have agreed to act as representatives of the
several Underwriters (in such capacity, the "Representatives") in connection
with the offering and sale of the Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[REGISTRATION STATEMENT NUMBER]), which contains a form of prospectus to be
used in connection with the public offering and sale of the Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), including any
information deemed to be a part thereof at the time of effectiveness pursuant to
Rule 430A or Rule 434 under the Securities Act, is called the "Registration
Statement". Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement", and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration
<PAGE> 2
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however, if
the Company has, with the consent of BancBoston Robertson Stephens Inc., elected
to rely upon Rule 434 under the Securities Act, the term "Prospectus" shall mean
the Company's prospectus subject to completion (each, a "preliminary
prospectus") dated [DATE OF PRELIMINARY PROSPECTUS] (such preliminary prospectus
is called the "Rule 434 preliminary prospectus"), together with the applicable
term sheet (the "Term Sheet") prepared and filed by the Company with the
Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its respective agreements with the
Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Shares. Each of the Registration Statement, any Rule 462(b) Registration
Statement and any post-effective amendment thereto, at the time it became
effective and at all subsequent times, complied and will comply in all material
respects with the Securities Act and did not and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus, as amended or supplemented, as of its date and at all subsequent
times, did not and will not contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives
2
<PAGE> 3
expressly for use therein. There are no contracts or other documents required to
be described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three (3) complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital
3
<PAGE> 4
stock or repurchase or redemption by the Company or any of its subsidiaries of
any class of capital stock.
(h) Independent Accountants. KPMG LLP, who have expressed their opinion
with respect to the financial statements (which term as used in this Agreement
includes the related notes thereto) [and supporting schedules] filed with the
Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants as required
by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. [The supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein.] Such financial statements [and supporting
schedules] have been prepared in conformity with generally accepted accounting
principles as applied in the United States applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Summary--Summary Financial Data",
"Selected Consolidated Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement.
(j) Company's Accounting System. The Company and each of its
subsidiaries maintain a system of accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21 to the Registration Statement.
(l) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly organized and is validly
existing as a corporation or limited liability company, as the case may be, in
good standing under the laws of the jurisdiction in which it is organized with
full corporate power and authority to own its properties and conduct its
business as described in the prospectus, and is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification.
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(m) Capitalization of the Subsidiaries. All the outstanding shares of
capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned subsidiaries
free and clear of any security interests, claims, liens or encumbrances.
(n) No Prohibition on Subsidiaries from Paying Dividends or Making Other
Distributions. No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus.
(o) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Shares (including the Shares) conform in all material
respects to the description thereof contained in the Prospectus. All of the
issued and outstanding Common Shares have been duly authorized and validly
issued, are fully paid and nonassessable and have been issued in compliance with
federal and state securities laws. None of the outstanding Common Shares were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company or any of its subsidiaries other than those accurately described in the
Prospectus. The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(p) Stock Exchange Listing. The Shares have been approved for listing on
the Nasdaq National Market, subject only to official notice of issuance.
(q) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, Inc. and (iii) by the federal
and provincial laws of Canada.
(r) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions
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herein contemplated nor the fulfillment of the terms hereof will conflict with,
result in a breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries pursuant
to, (i) the charter or by-laws of the Company or any of its subsidiaries, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or any of its subsidiaries is a party or bound
or to which its or their property is subject or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any of its
subsidiaries of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company or any
of its subsidiaries or any of its or their properties.
(s) No Defaults or Violations. Neither the Company nor any subsidiary is
in violation or default of (i) any provision of its charter or by-laws, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or such subsidiary or any
of its properties, as applicable, except any such violation or default which
would not, singly or in the aggregate, result in a Material Adverse Change
except as otherwise disclosed in the Prospectus.
(t) No Actions, Suits or Proceedings. No action, suit or proceeding by
or before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries or its or their property is
pending or, to the best knowledge of the Company, threatened that (i) could
reasonably be expected to have a Material Adverse Effect on the performance of
this Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to result in a Material Adverse
Effect.
(u) All Necessary Permits, Etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct their respective businesses, and neither the Company nor any subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(v) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned in
the financial statements referred to in Section 1(i) above (or elsewhere in the
Prospectus), in each case free and clear of any security interests, mortgages,
liens, encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not materially
interfere with the use made or proposed to be made of such property by the
Company or such subsidiary. The real property, improvements, equipment and
personal property held under lease by the Company or any subsidiary are held
under valid and enforceable leases, with such exceptions as are
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<PAGE> 7
not material and do not materially interfere with the use made or proposed to be
made of such real property, improvements, equipment or personal property by the
Company or such subsidiary.
(w) Tax Law Compliance. The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes required to be paid by any of them and, if due and payable, any
related or similar assessment, fine or penalty levied against any of them. The
Company has made adequate charges, accruals and reserves in the applicable
financial statements referred to in Section 1(i) above in respect of all
federal, state and foreign income and franchise taxes for all periods as to
which the tax liability of the Company or any of its subsidiaries has not been
finally determined. The Company is not aware of any tax deficiency that has been
or might be asserted or threatened against the Company that could result in a
Material Adverse Change.
(x) Intellectual Property Rights. Each of the Company and its
subsidiaries owns or possesses adequate rights to use all patents, patent rights
or licenses, inventions, collaborative research agreements, trade secrets,
know-how, trademarks, service marks, trade names and copyrights which are
necessary to conduct its businesses as described in the Registration Statement
and Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not result in a
Material Adverse Change that is not otherwise disclosed in the Prospectus; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a Material Adverse Change. There is no
claim being made against the Company regarding patents, patent rights or
licenses, inventions, collaborative research, trade secrets, know-how,
trademarks, service marks, trade names or copyrights. The Company and its
subsidiaries do not in the conduct of their business as now or proposed to be
conducted as described in the Prospectus infringe or conflict with any right or
patent of any third party, or any discovery, invention, product or process which
is the subject of a patent application filed by any third party, known to the
Company or any of its subsidiaries, which such infringement or conflict is
reasonably likely to result in a Material Adverse Change.
(y) Year 2000 Preparedness. There are no issues related to the
Company's, or any of its subsidiaries', preparedness for the Year 2000 that (i)
are of a character required to be described or referred to in the Registration
Statement or Prospectus by the Securities Act which have not been accurately
described in the Registration Statement or Prospectus or (ii) might reasonably
be expected to result in any Material Adverse Change or that might materially
affect their properties, assets or rights. All internal computer systems and
each Constituent Component (as defined below) of those systems and all
computer-related products and each Constituent Component (as defined below) of
those products of the Company and each of its subsidiaries fully
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comply with Year 2000 Qualification Requirements. "Year 2000 Qualifications
Requirements" means that the internal computer systems and each Constituent
Component (as defined below) of those systems and all computer-related products
and each Constituent Component (as defined below) of those products of the
Company and each of its subsidiaries (i) have been reviewed to confirm that they
store, process (including sorting and performing mathematical operations,
calculations and computations), input and output data containing date and
information correctly regardless of whether the date contains dates and times
before, on or after January 1, 2000, (ii) have been designated to ensure date
and time entry recognition and calculations, and date data interface values that
reflect the century, (iii) accurately manage and manipulate data involving dates
and times, including single century formulas and multi-century formulas, and
will not cause an abnormal ending scenario within the application or generate
incorrect values or invalid results involving such dates, (iv) accurately
process any date rollover, and (v) accept and respond to two-digit year date
input in a manner that resolves any ambiguities as to the century. "Constituent
Component" means all software (including operating systems, programs, packages
and utilities), firmware, hardware, networking components, and peripherals
provided as part of the configuration. The Company has inquired of material
vendors as to their preparedness for the Year 2000 and has disclosed in the
Registration Statement or Prospectus any issues that might reasonably be
expected to result in any Material Adverse Change.
(z) No Transfer Taxes or Other Fees. There are no transfer taxes or
other similar fees or charges under federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the Shares.
(aa) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after receipt of
payment for the Shares will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the Investment
Company Act and will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(bb) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes, general liability and directors and officers liability. The Company
has no reason to believe that it or any subsidiary will not be able (i) to renew
its existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company nor any
subsidiary has been denied any insurance coverage which it has sought or for
which it has applied.
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(cc) Labor Matters. To the Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers, value added resellers,
subcontractors, original equipment manufacturers, authorized dealers or
international distributors that might be expected to result in a Material
Adverse Change.
(dd) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
(ee) Lock-Up Agreements. Each officer and director of the company and
each beneficial owner of one or more percent of the outstanding issued share
capital of the Company has agreed to sign an agreement substantially in the form
attached hereto as Exhibit A (the "Lock-up Agreements"). The Company has
provided to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company hereby represents and warrants that it
will not release any of its officers, directors or other stockholders from any
Lock-up Agreements currently existing or hereafter effected without the prior
written consent of BancBoston Robertson Stephens Inc.
(ff) Lock-Up Notice to Optionholders. The Company (i) has notified each
holder of a currently outstanding option issued under the 1996 Incentive Stock
Option Plan (the "Option Plan") and each person who has acquired shares of
Common Stock pursuant to the exercise of any option granted under the Option
Plan that pursuant to the terms of the Option Plan, that none of such options or
shares may be sold or otherwise transferred or disposed of for a period of 180
days after the date of the Prospectus and (ii) has imposed a stop-transfer
instruction with the Company's transfer agent in order to enforce the foregoing
lock-up provision imposed pursuant to the Option Plan.
(gg) Lock-Up Notice to Preferred Stockholders. The Company has notified
each stockholder who is party to the Amended and Restated Investors' Rights
Agreement dated April 16, 1998, (the "Investors' Rights Agreement"), that
pursuant to the terms of the Investors' Rights Agreement, none of the shares of
the Company's capital stock held by such stockholder may be sold or otherwise
transferred or disposed of for a period of 180 days after the date of the
Prospectus and (ii) has imposed a stop-transfer instruction with the Company's
transfer agent in order to enforce the foregoing lock-up provision imposed
pursuant to the Investors' Rights Agreement.
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(hh) Lock-Up Notice to Common Stockholders. The Company (i) has notified
Robert Packer, Brett Galloway, Robert Luxenberg and Jay Steven Campbell [ADD
OTHER COMMON STOCKHOLDERS] that pursuant to the terms of their respective stock
purchase agreements, none of the shares of the Company's capital stock held by
each such stockholder may be sold or otherwise transferred or disposed of for a
period of 180 days after the date of the Prospectus and (ii) has imposed a
stop-transfer instruction with the Company's transfer agent in order to enforce
the foregoing lock-up provision imposed pursuant to the stock purchase
agreements.
(ii) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any of its subsidiaries or
any other person required to be described in the Prospectus which have not been
described as required.
Any certificate signed by an officer of the Company and delivered
to the Representatives or to counsel for the Underwriters shall be deemed to be
a representation and warranty by the Company to each Underwriter as to the
matters set forth therein.
(jj) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
(kk) Environmental Laws. (i) The Company is in compliance with all
rules, laws and regulations relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, except where the failure to comply
would not result in a Material Adverse Change, (ii) the Company has received no
notice from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) the Company will not be required to make
future material capital expenditures to comply with Environmental Laws and (iv)
no property which is owned, leased or occupied by the Company has been
designated as a Superfund site pursuant to the Comprehensive Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
(ll) Periodic Review of Costs of Environmental Compliance. In the
ordinary course of its business, the Company conducts a periodic review of the
effect of Environmental Laws on the business, operations and properties of the
Company and its subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review and the amount of its established
reserves, the Company has reasonably concluded that such associated costs and
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liabilities would not, individually or in the aggregate, result in a Material
Adverse Change.
(mm) ERISA Compliance. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means, with
respect to the Company or a subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No "reportable
event" (as defined under ERISA) has occurred or is reasonably expected to occur
with respect to any "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates. No "employee benefit
plan" established or maintained by the Company, its subsidiaries or any of their
ERISA Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfounded benefit liabilities" (as defined under ERISA). Neither
the Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "employee benefit plan" or
(ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates that is intended to be qualified under Section 401(a) of the Code is
so qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Shares set forth opposite their names on Schedule A. The purchase price per
Firm Share to be paid by the several Underwriters to the Company shall be
$[OFFERING PRICE] per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased
by the Underwriters and payment therefor shall be made by the Company and the
Representative at 6:00 a.m. San Francisco time, at the offices of Brobeck
Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, CA
94303 (or at such other place as may be agreed upon among the Representatives
and the Company), (i) on the third (3rd) full business day following the first
day that Shares are traded, (ii) if this Agreement is executed and delivered
after 1:30 P.M., San Francisco time, the fourth (4th) full business day
following the day that this Agreement is executed and delivered or (iii) at such
other time and date not later that seven (7) full business days following the
first day that Shares are traded as the Representatives and the
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Company may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section 8 hereof), such time and date of
payment and delivery being herein called the "Closing Date;" provided, however,
that if the Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 4(d) hereof, the Representatives
may, in their sole discretion, postpone the Closing Date until no later that two
(2) full business days following delivery of copies of the Prospectus to the
Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [NUMBER OF OPTION SHARES] Option Shares from
the Company at the purchase price per share to be paid by the Underwriters for
the Firm Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Shares. The option granted hereunder may be exercised
at any time upon notice by the Representatives to the Company, which notice may
be given at any time within 30 days from the date of this Agreement. The time
and date of delivery of the Option Shares, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representative and shall not be earlier than three (3) nor later than five (5)
full business days after delivery of such notice of exercise. If any Option
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Option Shares (subject to such adjustments to
eliminate fractional shares as the Representative may determine) that bears the
same proportion to the total number of Option Shares to be purchased as the
number of Firm Shares set forth on Schedule A opposite the name of such
Underwriter bears to the total number of Firm Shares. The Representatives may
cancel the option at any time prior to its expiration by giving written notice
of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized,
for their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
BancBoston Robertson Stephens Inc., individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of
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such Underwriter, but any such payment shall not relieve such Underwriter from
any of its obligations under this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered, a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00
noon on the second business day following the date the Shares are released by
the Underwriters for sale to the public, the Company shall deliver or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representative
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representative shall not previously have been advised
and furnished with a copy or to which the Representative shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the
Representative promptly (i) when the Registration Statement or any
post-effective amendment thereto shall have become effective, (ii) of receipt of
any comments from the Commission, (iii) of any request of the Commission for
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information and (iv) of the issuance
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by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the use of the Prospectus or of the institution of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any such stop order preventing or suspending the use of the
Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. The Company will comply with the Securities Act and the Exchange
Act, and the rules and regulations of the Commission thereunder, so as to permit
the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Representatives or counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances existing at the time the Prospectus
is delivered to a purchaser, not misleading, or, if it is necessary at any time
to amend or supplement the Prospectus to comply with any law, the Company
promptly will prepare and file with the Commission, and furnish at its own
expense to the Underwriters and to dealers, an appropriate amendment to the
Registration Statement or supplement to the Prospectus so that the Prospectus as
so amended or supplemented will not, in the light of the circumstances when it
is so delivered, be misleading, or so that the Prospectus will comply with the
law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
(f) Insurance. The Company shall (i) obtain directors and officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby and (ii) shall cause BancBoston Robertson
Stephens Inc. to be added as an additional insured to such policy in respect of
the offering contemplated hereby.
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(g) Notice of Subsequent Events. If at any time during the ninety (90)
day period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Shares has been or is
likely to be materially affected (regardless of whether such rumor, publication
or event necessitates a supplement to or amendment of the Prospectus), the
Company will, after written notice from you advising the Company to the effect
set forth above, forthwith prepare, consult with you concerning the substance of
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication or
event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representative an
earnings statement (which need not be audited) covering the twelve-month period
ending [DATE OF END OF EARNINGS STATEMENT PERIOD] that satisfies the
provisions of Section 11(a) of the Securities Act.
(k) Periodic Reporting Obligations. During the required prospectus
delivery period the Company shall file, on a timely basis, with the Commission
and the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company
will not, without the prior written consent of BancBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
during the period of 180 days from the date that the Registration Statement is
declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Shares and (ii) the Company may issue
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<PAGE> 16
Common Shares issuable upon the conversion of securities or the exercise of
warrants outstanding at the date of the Prospectus and described in the
Prospectus.
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers,
Inc. or any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of its
capital stock.
SECTION 4. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No
Objection from the National Association of Securities Dealers, Inc. The
Registration Statement shall have become effective prior to the execution of
this Agreement, or at such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Company or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of Underwriters' counsel; and the National Association
of Securities Dealers, Inc. shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in
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<PAGE> 17
the Registration Statement or Prospectus, which, in the Representatives' sole
judgment, is material and adverse and that makes it, in the Representatives'
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus.
(d) Opinion of Counsel for the Company. The Underwriters shall have
received on the First Closing Date, or the Second Closing Date, as the case may
be, an opinion of Brobeck Phleger & Harrison LLP, counsel for the Company,
substantially in the form of Exhibit B attached hereto, dated the First Closing
Date, or the Second Closing Date, addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters.
Counsel rendering the opinion contained in Exhibit B may rely as
to questions of law not involving the laws of the United States or the State of
California and the State of Delaware upon opinions of local counsel, and as to
questions of fact upon representations or certificates of officers of the
Company and of government officials, in which case their opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
counsel.
(e) Opinion of Patent Counsel for the Company. The Underwriters shall
have received on the First Closing Date, or the Second Closing Date, as the case
may be, an opinion of Townsend and Townsend and Crew LLP, patent counsel for the
Company substantially in the form of Exhibit C attached hereto.
(f) Opinion of Counsel for the Underwriters. The Underwriters shall have
received on the First Closing Date or the Second Closing Date, as the case may
be, an opinion of Wilson Sonsini Goodrich & Rosati, P.C., substantially in the
form of Exhibit D hereto. The Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(g) Accountants' Comfort Letter. The Underwriters shall have received on
the First Closing Date and on the Second Closing Date, as the case may be, a
letter from KPMG LLP addressed to the Underwriters, dated the First Closing Date
or the Second Closing Date, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within the
meaning of the Securities Act and the applicable published rules and regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the "Original
Letter"), but carried out to a date not more than four (4) business days prior
to the First Closing Date or the Second Closing Date, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the First Closing Date or the Second
Closing Date, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in the
Original Letter since the date of such letter, or to reflect the availability of
more recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and
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<PAGE> 18
its subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in the Representatives' sole
judgment, is material and adverse and that makes it, in the Representatives'
sole judgment, impracticable or inadvisable to proceed with the public offering
of the Shares as contemplated by the Prospectus. The Original Letter from KPMG
LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with respect
to the Company within the meaning of the Securities Act and the applicable
published rules and regulations, (ii) set forth their opinion with respect to
their examination of the consolidated balance sheet of the Company as of
December 31, 1998 and related consolidated statements of operations,
shareholders' equity, and cash flows for the twelve (12) months ended December
31, 1998, (iii) state that KPMG LLP has performed the procedures set out in
Statement on Auditing Standards No. 71 ("SAS 71") for a review of interim
financial information and providing the report of KPMG LLP as described in SAS
71 on the financial statements for each of the quarters in the two-quarter
period ended June 30, 1999 (the "Quarterly Financial Statements"), (iv) state
that in the course of such review, nothing came to their attention that leads
them to believe that any material modifications need to be made to any of the
Quarterly Financial Statements in order for them to be in compliance with
generally accepted accounting principles consistently applied across the periods
presented, and address other matters agreed upon by KPMG LLP and you. In
addition, you shall have received from KPMG LLP a letter addressed to the
Company and made available to you for the use of the Underwriters stating that
their review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of their examination of
the Company's consolidated financial statements as of December 31, 1998, did not
disclose any weaknesses in internal controls that they considered to be material
weaknesses.
(h) Officers' Certificate. The Underwriters shall have received on the
First Closing Date and the Second Closing Date, as the case may be, a
certificate of the Company, dated the First Closing Date or the Second Closing
Date, as the case may be, signed by the Chief Executive Officer and Chief
Financial Officer of the Company, to the effect that, and the Underwriters shall
be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or the
Second Closing Date, as the case may be, and the Company has complied with all
the agreements and satisfied all the conditions on its part to be performed or
satisfied at or prior to the First Closing Date or the Second Closing Date, as
the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Securities Act;
(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Securities Act and in all material respects conformed to the requirements of
the Securities Act, the Registration
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<PAGE> 19
Statement and the Prospectus, and any amendments or supplements thereto, did not
and does not include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, there has not been (a)
any material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (b) any transaction that is material to the
Company and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any obligation, direct or
contingent, that is material to the Company and its subsidiaries considered as
one enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (d) any change in the capital stock
or outstanding indebtedness of the Company or any of its subsidiaries that is
material to the Company and its subsidiaries considered as one enterprise, (e)
any dividend or distribution of any kind declared, paid or made on the capital
stock of the Company or any of its subsidiaries, or (f) any loss or damage
(whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.
(i) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
Company and each beneficial owner of one or more percent of the outstanding
issued share capital of the Company.
(j) Stock Exchange Listing. The Shares shall have been approved for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(k) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of prospectuses.
(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representative and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the
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Option Shares, at any time prior to the Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 5 (Payment of Expenses), Section 6 (Reimbursement of Underwriters'
Expenses), Section 7 (Indemnification and Contribution) and Section 10
(Representations and Indemnities to Survive Delivery) shall at all times be
effective and shall survive such termination.
SECTION 5. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares, (viii) the fees and expenses associated with
listing the Common Stock on the Nasdaq National Market, (ix) all costs and
expenses incident to the preparation and undertaking of "road show" preparations
to be made to prospective investors, and (x) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 5, Section 6, and Section 7 hereof, the Underwriters
shall pay their own expenses, including the fees and disbursements of their
counsel.
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SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 7, Section 8 or
Section 9, or if the sale to the Underwriters of the Shares on the First Closing
Date is not consummated because of any refusal, inability or failure on the part
of the Company to perform any agreement herein or to comply with any provision
hereof, the Company agrees to reimburse the Representatives and the other
Underwriters (or such Underwriters as have terminated this Agreement with
respect to themselves), severally, upon demand for all out-of-pocket expenses
that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, facsimile and telephone charges.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification of the Underwriters. The Company agree to indemnify
and hold harmless each Underwriter, its officers and employees, and each person,
if any, who controls any Underwriter within the meaning of the Securities Act
and the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld),
insofar as such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereto, including any information
deemed to be a part thereof pursuant to Rule 430A or Rule 434 under the
Securities Act, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading; or (ii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; or (iii)
in whole or in part upon any inaccuracy in the representations and warranties of
the Company contained herein; or (iv) in whole or in part upon any failure of
the Company to perform its obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter in
connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any matter
covered by clause (i), (ii), (iii) or (iv) above, provided that the Company
shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by BancBoston Robertson Stephens Inc.) as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending,
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settling, compromising or paying any such loss, claim, damage, liability,
expense or action; provided, however, that the foregoing indemnity agreement
shall not apply to any loss, claim, damage, liability or expense to the extent,
but only to the extent, arising out of or based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by the
Representative expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
provided, further, that with respect to any preliminary prospectus, the
foregoing indemnity agreement shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage, liability or expense
purchased Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2 and a
copy of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Shares to such person, and if the Prospectus (as so amended or supplemented)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. The indemnity agreement set forth in this Section 7(a) shall be in
addition to any liabilities that the Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The indemnity
agreement set forth in this Section 7(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the
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Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and the third paragraph
under the caption "Underwriting" in the Prospectus; and the Underwriters confirm
that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (BancBoston Robertson Stephens Inc. in the case of Section
7(b) and Section 8), representing the indemnified parties who are parties to
such action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the
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indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by Section 7(d) hereof, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law then each indemnifying party shall contribute to such amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bears to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7(f) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount paid
or payable by an
24
<PAGE> 25
indemnified party as a result of the losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to above in this Section
7(f) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (f), (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 7(f) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
SECTION 8. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Shares that
it or they have agreed to purchase hereunder on such date, and the aggregate
number of Common Shares which such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase does not exceed 10% of the aggregate number of
the Shares to be purchased on such date, the other Underwriters shall be
obligated, severally, in the proportions that the number of Firm Common Shares
set forth opposite their respective names on Schedule A bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may
25
<PAGE> 26
be specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Shares and the
aggregate number of Shares with respect to which such default occurs exceeds 10%
of the aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to the Representatives and the Company for the purchase of such
Shares are not made within 48 hours after such default, this Agreement shall
terminate without liability of any party to any other party except that the
provisions of Section 4, and Section 7 shall at all times be effective and shall
survive such termination. In any such case either the Representatives or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 9. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date, this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representative is material and adverse and makes it impracticable or inadvisable
to market the Common Shares in the manner and on the terms described in the
Prospectus or to enforce contracts for the sale of securities; (iv) in the
judgment of the Representative there shall have occurred any Material Adverse
Change; or (v) the Company shall have sustained a loss by strike, fire, flood,
earthquake, accident or other calamity of such character as in the judgment of
the Representatives may interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured. Any termination pursuant to this Section 9 shall be without
liability on the part of (a) the Company to any Underwriter, except that the
Company shall be obligated to reimburse the expenses of the Representatives and
the Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to the
Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
26
<PAGE> 27
SECTION 10. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Shares sold hereunder and any termination of this Agreement.
SECTION 11. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
BANCBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
Packeteer, Inc.
10495 N. De Anza Blvd.
Cupertino, CA 95014
Facsimile: (408) 873-4410
Attention: [PACKETEER CONTACT NAME]
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 12. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 9 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 7, and to their
respective successors, [and personal representatives], and no other person will
have any right or obligation hereunder. The term "successors" shall not include
any purchaser of the Shares as such from any of the Underwriters merely by
reason of such purchase.
SECTION 13. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
SECTION 14. GOVERNING LAW PROVISIONS.
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<PAGE> 28
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the "Specified Courts"), and each party irrevocably
submits to the exclusive jurisdiction (except for proceedings instituted in
regard to the enforcement of a judgment of any such court (a "Related
Judgment"), as to which such jurisdiction is non-exclusive) of such courts in
any such suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be effective
service of process for any suit, action or other proceeding brought in any such
court. The parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the Specified Courts
and irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum.
(c) Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment.
SECTION 15. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
[The remainder of this page has been intentionally left blank.]
28
<PAGE> 29
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company [and the Custodian] the
enclosed copies hereof, whereupon this instrument, along with all counterparts
hereof, shall become a binding agreement in accordance with its terms.
Very truly yours,
PACKETEER, INC.
By:__________________________
[Title]
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives as of the date first above written.
BANCBOSTON ROBERTSON STEPHENS INC.
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
On their behalf and on behalf of each of the several underwriters named in
Schedule A hereto.
BY BANCBOSTON ROBERTSON STEPHENS INC.
By:_________________________________
Authorized Signatory
29
<PAGE> 30
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Common Shares
Underwriters To be Purchased
<S> <C>
BANCBOSTON ROBERTSON STEPHENS INC............... [NUMBER OF FIRM BBRS
SHARES]
BEAR, STEARNS & CO. INC......................... [NUMBER OF FIRM BS&CO
SHARES]
DAIN RAUSCHER WESSELS........................... [NUMBER OF FIRM DRW
SHARES]
Total................................... [TOTAL NUMBER OF FIRM
REPRESENTATIVE SHARES]
</TABLE>
S-A
<PAGE> 31
EXHIBIT A
LOCK-UP AGREEMENT
BancBoston Robertson Stephens Inc.
Bear, Stearns & Co. Inc.
Dain Rauscher Wessels
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, California 94104
RE: Packeteer, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares
of Common Stock of the Company ("Common Stock") or securities convertible into
or exchangeable or exercisable for Common Stock. The Company proposes to carry
out a public offering of Common Stock (the "Offering") for which you will act as
the representatives (the "Representatives") of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not offer to sell, contract to sell, or otherwise sell,
dispose of, loan, pledge or grant any rights with respect to (collectively, a
"Disposition") any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exchangeable
for shares of Common Stock (collectively, "Securities") now owned or hereafter
acquired directly by such person or with respect to which such person has or
hereafter acquires the power of disposition, otherwise than (i) as a bona fide
gift or gifts, provided the donee or donees thereof agree in writing to be bound
by this restriction, (ii) as a distribution to partners or shareholders of such
person, provided that the distributees thereof agree in writing to be bound by
the terms of this restriction, (iii) with respect to dispositions of Common
Shares acquired on the open market, or (iv) with the prior written consent
of BancBoston Robertson Stephens Inc., for a period commencing on the date
hereof and continuing to a date 180 days after the Registration Statement is
declared effective by the Securities and Exchange Commission (the "Lock-up
Period"). The foregoing restriction has been
A-1
<PAGE> 32
expressly agreed to preclude the holder of the Securities from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition of Securities during the Lock-up Period, even if
such Securities would be disposed of by someone other than such holder. Such
prohibited hedging or other transactions would include, without limitation, any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including, without limitation, any put or call option) with respect
to any Securities or with respect to any security (other than a broad-based
market basket or index) that included, relates to or derives any significant
part of its value from Securities. The undersigned also agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent and
registrar against the transfer of shares of Common Stock or Securities held by
the undersigned except in compliance with the foregoing restrictions.
This agreement is irrevocable and will be binding on the undersigned and
the respective successors, heirs, personal representatives, and assigns of the
undersigned.
Dated:___________________________________
_________________________________________
Printed Name of Holder
By:______________________________________
Signature
_________________________________________
Printed Name of
Person Signing (and indicate
capacity of person signing if
signing as custodian,
trustee, or on behalf
of an entity)
A-2
<PAGE> 33
EXHIBIT B
MATTERS TO BE COVERED IN THE OPINION OF COMPANY COUNSEL
(i) The Company and each Significant Subsidiary (as that term is defined
in Regulation S-X of the Act) has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Company and each Significant Subsidiary has the corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus;
(iii) The Company and each Significant Subsidiary is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to
be so qualified or be in good standing would not have a Material Adverse Effect.
To such counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than Packeteer
Asia Pacific, Packeteer KK and Packeteer Europe B.V.;
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus under the caption "Capitalization" as of the
dates stated therein, the issued and outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and nonassessable,
and, to such counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right;
(v) All issued and outstanding shares of capital stock of each
Significant Subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and, to such counsel's knowledge,
have not been issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar right and are
owned by the Company free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest;
(vi) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable, and will not have been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first refusal
or other similar right.
B-1
<PAGE> 34
(vii) The Company has the corporate power and authority to enter into
this Agreement and to issue, sell and deliver to the Underwriters the Shares to
be issued and sold by it hereunder;
(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company and, assuming due authorization, execution and
delivery, is a valid and binding agreement of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally or by general equitable principles;
(ix) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or threatened under the Securities Act;
(x) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares or
the Option Shares have been validly registered under the Securities Act and the
Rules and Regulations of the Exchange Act and the applicable rules and
regulations of the Commission thereunder;
(xi) The Registration Statement and the Prospectus, and each amendment
or supplement thereto (other than the financial statements (including supporting
schedules) and financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration Statement,
complied as to form in all material respects with the requirements of the
Securities Act and the applicable rules and regulations;
(xii) The information in the Prospectus under the caption "Description
of Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with Delaware
law;
(xiii) The description in the Registration Statement and the Prospectus
of the charter and bylaws of the Company and of statutes are accurate and fairly
present the information required to be presented by the Securities Act;
(xiv) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character required to
be described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
B-2
<PAGE> 35
(xv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default under,
any bond, debenture, note or other evidence of indebtedness, or any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument known to such counsel to which the Company is a
party or by which its properties are bound, or any applicable statute, rule or
regulation known to such counsel or, to such counsel's knowledge, any order,
writ or decree of any court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over any of their
properties or operations;
(xvi) No consent, approval, authorization or order of or qualification
with any court, government or governmental agency or body having jurisdiction
over the Company or any of its subsidiaries, or over any of their properties or
operations is necessary in connection with the consummation by the Company of
the transactions herein contemplated, except (i) such as have been obtained
under the Securities Act, (ii) such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the distribution
of the Shares by the Underwriters, (iii) such as may be required by the National
Association of Securities Dealers, LLC and (iv) such as may be required under
the federal or provincial laws of Canada;
(xvii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company or any of its subsidiaries
of a character required to be disclosed in the Registration Statement or the
Prospectus by the Securities Act, other than those described therein;
(xviii) To such counsel's knowledge, neither the Company nor any of its
subsidiaries is presently (a) in material violation of its respective charter or
bylaws, or (b) in material breach of any applicable statute, rule or regulation
known to such counsel or, to such counsel's knowledge, any order, writ or decree
of any court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries, or over any of their properties or operations; and
(xix) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Company Shares or other
securities of the Company have registration rights with respect to securities of
the Company and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having rights known to such
counsel to registration of such shares of Company Shares or other securities,
because of the filing of the Registration Statement by the Company have, with
respect to the offering contemplated thereby, waived such rights or such rights
have expired by reason of lapse of time following notification of the Company's
intent to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full satisfaction of
such rights.
B-3
<PAGE> 36
(xx) The Company is not and, after giving effect to the offering and the
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
B-4
<PAGE> 37
EXHIBIT C
MATTERS TO BE COVERED IN THE OPINION OF
PATENT COUNSEL FOR THE COMPANY
Such counsel are familiar with the technology used by the Company in its
business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and:
(i) The Company is listed in the records of the United States Patent and
Trademark Office as the holder of record of the patents listed on a schedule to
such opinion (the "Patents") and each of the applications listed on a schedule
to such opinion (the "Applications"). To the knowledge of such counsel, there
are no claims of third parties to any ownership interest or lien with respect to
any of the Patents or Applications. Such counsel is not aware of any material
defect in form in the preparation or filing of the Applications on behalf of the
Company. To the knowledge of such counsel, the Applications are being pursued by
the Company. To the knowledge of such counsel, the Company owns as its sole
property the Patents and pending Applications;
(ii) The Company is listed in the records of the appropriate foreign
offices as the sole holder of record of the foreign patents listed on a schedule
to such opinion (the "Foreign Patents") and each of the applications listed on a
schedule to such opinion (the "Foreign Applications"). Such counsel knows of no
claims of third parties to any ownership interest or lien with respect to the
Foreign Patents or Foreign Applications. Such counsel is not aware of any
material defect of form in the preparation or filing of the Foreign Applications
on behalf of the Company. To the knowledge of such counsel, the Foreign
Applications are being pursued by the Company. To the knowledge of such counsel,
the Company owns as its sole property the Foreign Patents and pending Foreign
Applications;
(iii) Such counsel knows of no reason why the Patents or Foreign Patents
are not valid as issued. Such counsel has no knowledge of any reason why any
patent to be issued as a result of any Application or Foreign Application would
not be valid or would not afford the Company useful patent protection with
respect thereto;
(iv) As to the statements under the captions "Risk Factors - Our Failure
to Adequately Protect Our Proprietary Rights May Adversely Affect Us" and
"Business - Intellectual Property," nothing has come to the attention of such
counsel which caused them to believe that the above-mentioned sections of the
Registration Statement, at the time the Registration Statement became effective
and at all times subsequent thereto up to and on the Closing Date and on any
later date on which Option Stock are to be purchased the Registration Statement
and any amendment or supplement thereto made available and reviewed by such
counsel contained any untrue statement of a material
C-1
<PAGE> 38
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the Closing Date
or any later date on which the Option Stock are to be purchased, as the case may
be, the above-mentioned sections of the Registration Statement, Prospectus and
any amendment or supplement thereto made available and reviewed by such counsel
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; and
(v) Such counsel knows of no material action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark rights,
copyrights, collaborative research, licenses or royalty arrangements or
agreements or trade secrets, know-how or proprietary techniques, including
processes and substances, owned by or affecting the business or operations of
the Company which are pending or threatened against the Company or any of its
officers or directors.
C-2
<PAGE> 39
EXHIBIT D
MATTERS TO BE COVERED IN THE OPINION OF UNDERWRITERS' COUNSEL
(i) The Shares to be issued by the Company have been duly authorized
and, upon issuance and delivery and payment therefor in accordance with the
terms of the Underwriting Agreement, will be validly issued, fully paid and
non-assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Securities Act; the Registration Statement
has become effective under the Securities Act and, to such counsel's knowledge,
no stop order proceedings with respect thereto have been instituted or
threatened or are pending under the Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares or
the Option Shares have been validly registered under the Securities Act and the
Exchange Act and the applicable rules and regulations of the Commission
thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives from [list each set of counsel that has
provided an opinion], each dated the date hereof, and furnished to you in
accordance with the provisions of the Underwriting Agreement. Such opinions
appear on their face to be appropriately responsive to the requirements of the
Underwriting Agreement.
In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state
<PAGE> 40
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
<PAGE> 1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PACKETEER, INC.
Packeteer, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the general Corporation Law of the State of
Delaware, hereby certifies as follows:
FIRST: The name of the corporation is Packeteer, Inc. and that
corporation was originally incorporated on January 25, 1996 pursuant to the
General Corporation Law.
SECOND:This Amended and Restated Certificate of Incorporation
has been duly adopted in accordance with the provisions of Sections 245 and 242
of the General Corporation Law of the State of Delaware by the directors and
stockholders of the Corporation and is set forth in its entirety as follows:
ARTICLE I
The name of the corporation is Packeteer, Inc.
ARTICLE II
The address of the Corporation's registered office in the State
of Delaware is 1013 Centre Road, Wilimington, County of New Castle, Delaware
19805. The name of its registered agent at such address is Corporation Service
Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "GCL").
ARTICLE IV
A. Classes of Stock. The Corporation is authorized to issue two
classes of stock, to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that the Corporation is authorized to issue
is Ninety Million (90,000,000) shares. Eighty Five Million (85,000,000) shares
shall be Common Stock, par value $0.001 per share and Five Million (5,000,000)
shares shall be Preferred Stock, par value $0.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock.
Without further stockholder approval, the Preferred Stock authorized by this
Amended and Restated Certificate of Incorporation may be issued from time to
time in one or more series. The Board of Directors is hereby authorized to fix
or alter the powers, preferences, rights and restrictions granted to or imposed
upon each series of Preferred Stock, and the number of shares constituting any
such
<PAGE> 2
series and the designation thereof, or of any of them. The powers, preferences,
rights and restrictions of any such additional series may be subordinated to,
pari passu with (including, without limitation, inclusion in provisions with
respect to liquidation and acquisition preferences, redemption and/or approval
of matters by vote), or senior to any of those of any present or future class or
series of Preferred Stock or Common Stock. The Board of Directors is also
authorized to increase or decrease the number of shares of any series prior or
subsequent to the issue of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of
holders of all classes of stock at the time outstanding having prior rights as
to dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, after
distribution of the preferential amounts to be distributed to the holders of
shares of the Preferred Stock, the holders of shares of the Common Stock shall
be entitled to receive all of the remaining assets of the Corporation available
for distribution to its stockholders, ratably in proportion to the number of
shares of the Common Stock held by them.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common
Stock shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of this Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, repeal, alter, amend and
rescind any or all of the Bylaws of the Corporation. In addition, the Bylaws may
be amended by the affirmative vote of holders of at least sixty-six and
two-thirds percent (66 2/3%) of the outstanding shares of voting stock of the
Corporation entitled to vote at an election of directors.
ARTICLE VI
The number of directors of the Corporation shall be determined by
resolution of the Board of Directors.
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide. Advance notice of stockholder nominations
for the election of
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<PAGE> 3
directors and of any other business to be brought before any meeting of the
stockholders shall be given in the manner provided in the Bylaws of this
Corporation.
At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of the term for
which they are elected, or until their successors have been duly elected and
qualified; except that if any such election shall not be so held, such election
shall take place at a stockholders' meeting called and held in accordance with
the GCL.
The directors of the Corporation shall be divided into three (3)
classes as nearly equal in size as is practicable, hereby designated Class I,
Class II and Class III. For the purposes hereof, the initial Class I, Class II
and Class III directors shall be those directors so designated by a resolution
of the Board of Directors. At the first annual meeting of stockholders following
the closing of the initial public offering of the Corporation's Common Stock,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three (3) years. At the second annual
meeting of stockholders following the closing of the initial public offering of
the Corporation's Common Stock, the term of office of the Class II directors
shall expire and Class II directors shall be elected for a full term of three
(3) years. At the third annual meeting of stockholders following the initial
public offering of the Corporation's Common Stock, the term of office of the
Class III directors shall expire and Class III directors shall be elected for a
full term of three (3) years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three (3) years to succeed the
directors of the class whose terms expire at such annual meeting. If the number
of directors is hereafter changed, each director then serving as such shall
nevertheless continue as a director of the Class of which he is a member until
the expiration of his current term and any newly created directorships or
decrease in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in number as is practicable.
Vacancies occurring on the Board of Directors for any reason may
be filled by vote of a majority of the remaining members of the Board of
Directors, even if less than a quorum, at any meeting of the Board of Directors.
A person so elected by the Board of Directors to fill a vacancy shall hold
office for the remainder of the full term of the director for which the vacancy
was created or occurred and until such director's successor shall have been duly
elected and qualified. A director may be removed from office by the affirmative
vote of the holders of 66 2/3% of the outstanding shares of voting stock of the
Corporation entitled to vote at an election of directors, provided that such
removal is for cause.
ARTICLE VII
Stockholders of the Corporation shall take action by meetings
held pursuant to this Amended and Restated Certificate of Incorporation and the
Bylaws and shall have no right to take any action by written consent without a
meeting. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. Special meetings of the stockholders, for
any purpose or purposes, may be called only by the Board of Directors of the
Corporation. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
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<PAGE> 4
ARTICLE VIII
A director of this Corporation, to the full extent permitted by
the GCL as it now exists or as it may hereafter be amended, shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. Neither any amendment nor repeal of
this Article VIII, nor the adoption of any provision of this Amended and
Restated Certificate of Incorporation inconsistent with this Article VIII, shall
eliminate or reduce the effect of this Article VIII in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article
VIII, would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision. If the GCL is amended after approval by the stockholders
of this Article VIII to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the GCL as so amended.
Any repeal or modification of the foregoing provisions of this
Article VIII by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation existing at the time of
such repeal or modification.
ARTICLE IX
To the full extent permitted by the GCL and any other applicable
law, this Corporation is also authorized to provide indemnification of, and
advancement of expenses to, such directors, officers, employees and agents
through Bylaw provisions, agreements with such persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the GCL, subject only to
limits created by applicable Delaware law (statutory or non-statutory), with
respect to actions for breach of duty to this Corporation, its stockholders, and
others.
Any repeal or modification of any of the foregoing provisions of
this Article IX shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of this Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
ARTICLE X
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in Articles
V, VI, VII, VIII, IX and this Article X of this Amended and Restated Certificate
of Incorporation may not be repealed or amended in any respect without the
affirmative vote of holders at least sixty-six and two-thirds percent (66 2/3%)
of the outstanding voting stock of the Corporation entitled to vote at election
of directors.
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<PAGE> 5
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by Craig Elliott, its
President and Chief Executive Officer, and attested to by David Yntema, its
Chief Financial Officer and Secretary, on this 19th day of May 1999.
PACKETEER, INC.
By: /s/ CRAIG ELLIOTT
---------------------------------
Craig Elliott
President and Chief Executive
Officer
ATTEST:
/s/ DAVID YNTEMA
- -------------------------------------
David Yntema
Chief Financial Officer and Secretary
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
PACKETEER, INC.
(As Amended May 19, 1999)
A Delaware Corporation
Article 1.
OFFICES
Section 1.01 Registered Office. The registered office of Packeteer, Inc. (the
"Corporation") in the State of Delaware shall be at 1013 Centre Road,
Wilmington, County of New Castle, 19805. The name of the Corporation's
registered agent at such address shall be Corporation Service Company.
Section 1.02 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the Company's Board of
Directors may from time to time determine or the business of the Corporation may
require.
Article 2.
MEETING OF STOCKHOLDERS
Section 2.01 Place and Time of Meetings. An annual meeting of the stockholders
shall be held for the purpose of electing directors and conducting such other
business as may come before the meeting. The date, time and place of the annual
meeting shall be determined by resolution of the Board of Directors. Special
meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof. Special meetings
of the stockholders may be called by the President for any purpose and shall be
called by the President or Secretary at the request in writing of a majority of
the Board of Directors. Such request shall state the purpose or purposes of the
proposed meeting.
Section 2.02 Notice. Written or printed notice of every annual or special
meeting of the stockholders, stating the place, date, time, and, in the case of
special meetings, the purpose or purposes of such meeting, shall be given to
each stockholder entitled to vote at such meeting not less than 10 nor more than
60 days before the date of the meeting.
<PAGE> 2
Section 2.03 All such notices shall be delivered, either personally or by mail,
by or at the direction of the Board of Directors, the Chairman of the Board or
the Secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the stockholder at his or her
address as it appears on the records of the Corporation, with postage prepaid.
Business transacted at any special meeting of stockholders shall be limited to
the purpose stated in the notice.
Section 2.04 Stockholders List. The officer having charge of the stock ledger of
the Corporation shall make, at least 10 days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, specifying the address of and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 2.05 Quorum. The holders of a majority of the stock issued and
outstanding, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business,
except as otherwise provided by statute or by the certificate of incorporation.
If a quorum is not present, the holders of the shares present in person or
represented by proxy at the meeting and entitled to vote thereat, shall have the
power, by the affirmative vote of the holders of a majority of such shares, to
adjourn the meeting to another time and/or place. Unless the adjournment is for
more than thirty days or unless a new record date is set for the adjourned
meeting, no notice of the adjourned meeting need be given to any stockholder,
provided that the time and place of the adjourned meeting were announced at the
meeting at which the adjournment was taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting.
Section 2.06 Vote Required. When a quorum is present or represented by proxy at
a meeting, the vote of the holders of a majority of the shares present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provisions of an applicable
statute or of the certificate of incorporation, a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
Section 2.07 Voting Rights. Except as otherwise provided in the certificate of
incorporation and subject to Section 3 of Article VI hereof, every stockholder
shall, at every meeting of the stockholders, be entitled to one vote in person
or by proxy for each share of capital stock held by such stockholder, except
that no proxy shall be voted after three years from its date, unless such proxy
provides for a longer period.
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<PAGE> 3
Section 2.08 Nomination of Directors. Nominations for election to the Board of
Directors must be made by the Board of Directors or by any stockholder of any
outstanding class of capital stock of the Corporation entitled to vote for the
election of directors. Nominations, other than those made by the Board of
Directors of the Corporation, must be preceded by notification in writing
received by the Secretary of the Corporation not less than twenty (20) days nor
more than sixty (60) days prior to any meeting of stockholders called for the
election of directors. Such notification shall contain the written consent of
each proposed nominee to serve as a director if so elected and the following
information as to each proposed nominee and as to each person, acting alone or
in conjunction with one or more other persons as a partnership, limited
partnership, syndicate or other group, who participates or is expected to
participate in making such nomination or in organizing, directing or financing
such nomination or solicitation of proxies to vote for the nominee:
(a) the name, age, residence, address, and business address of each
proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of business
and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such
person;
(c) the amount of stock of the Corporation owned beneficially, either
directly or indirectly, by each proposed nominee and each such person;
and
(d) a description of any arrangement or understanding of each proposed
nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the
Corporation will or may be a party.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 2.09 At any meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
For business to be properly brought before any meeting by a stockholder
pursuant to clause (c) of this Section 8, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than twenty (20) days
nor more than sixty (60) days prior to the date of the meeting. A stockholder's
notice to the Secretary shall set forth as to each matter the
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<PAGE> 4
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, and the name
and address of the beneficial owner, if any, on whose behalf the proposal is
made, (c) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder of record and by the beneficial
owner, if any, on whose behalf of the proposal is made and (d) any material
interest of such stockholder of record and the beneficial owner, if any, on
whose behalf the proposal is made in such business.
Notwithstanding anything in these bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 8. The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by this Section 8, and if such person should so determine, such
person shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 8, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder with respect to the matters set forth in
this Section 8.
Section 2.10 Effective upon the closing of the Corporation's initial public
offering of securities pursuant to a registration statement filed under the
Securities Act of 1933, as amended, the stockholders of the Corporation may not
take action by written consent without a meeting but must take any such actions
at a duly called annual or special meeting in accordance with these bylaws and
the certificate of incorporation.
Article 3.
DIRECTORS
Section 3.01 Number, Election and Term of Office. The Board of Directors shall
be seven (7) in number. The number of directors may be fixed at any time by the
affirmative vote of a majority of the stockholders or by the affirmative vote of
a majority of the directors at a regular or special meeting called for that
purpose, provided, however, that no vote to decrease the number of the directors
of the Corporation shall shorten the term of any incumbent director.
The directors shall be elected at the annual meeting of stockholders,
except as provided in Section 3 of this Article III, and each director elected
shall hold office until the next annual meeting of stockholders and until a
successor is duly elected and qualified or until his or her death, resignation
or removal as hereinafter provided. Directors need not be stockholders.
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<PAGE> 5
Section 3.02 Removal. Any director or the entire Board of Directors may be
removed at any time, with or without cause, by the holders of a majority of the
shares of stock of the Corporation then entitled to vote at an election of
directors, except as otherwise provided by statute.
Section 3.03 Vacancies. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, and each director so
chosen shall hold office until the next annual meeting of stockholders and until
a successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided. If there are no directors in
office, then an election of directors may be held in the manner provided by
statute.
Section 3.04 Place of Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware.
Section 3.05 Annual Meeting. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 3.06 Other Meetings and Notice. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board. Special meetings of the Board of
Directors may be called by or at the request of the President or the Chairman of
the Board on at least 12 hours notice to each director either personally, or by
telephone, telegram or facsimile. In like manner and on like notice, the
President or Secretary must call a special meeting upon the written request of a
majority of directors unless the Board consists of only one director, in which
case special meetings shall be called by the President or Secretary in like
manner and on like notice on the written request of the sole director. A written
waiver of notice, signed by the person entitled thereto, whether before or after
the time of the meeting stated therein, shall be deemed equivalent to notice.
Section 3.07 Quorum. A majority of the total number of directors shall
constitute a quorum for the transaction of business. The vote of a majority of
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. If a quorum is not present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
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<PAGE> 6
Section 3.08 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees. Each committee
shall consist of one or more of the directors of the Corporation, which, to the
extent provided in such resolution and not otherwise limited by statute, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the bylaws of the Corporation; and, unless the resolution or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. The Board of Directors may designate one or more directors as alternate
members of any committee who may replace any absent or disqualified member at
any meeting of the committee. Such committee or committees shall have such name
or names as may be determined from time to tine by resolution adopted by the
Board of Directors. Each committee shall keep regular minutes of its meetings
and shall report the same to the directors when required.
Section 3.09 Informal Action. Any action required or permitted to be taken at
any meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
Section 3.10 Participation in Meetings. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 3.11 Compensation of Directors. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
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<PAGE> 7
Article 4.
OFFICERS
Section 4.01 Number. The officers of the Corporation shall be elected by the
Board of Directors and shall consist of a President, a Secretary, a Treasurer,
and such other Vice Presidents, Assistant Secretaries and Assistant Treasurers
as may be deemed necessary or desirable by the Board of Directors. Any number of
offices may be held by the same person. The Board of Directors may elect from
among its members a Chairman of the Board and a Vice Chairman of the Board. The
Board of Directors may also appoint such other officers and agents as it shall
deem necessary who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined by the Board.
Section 4.02 Election and Term of Office. The officers of the Corporation shall
be elected annually by the Board of Directors at the first meeting of the Board
of Directors held after each annual meeting of stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Vacancies may be filled or new offices created
and filled at any meeting of the Board of Directors. Each officer shall hold
office until the next annual meeting of the Board of Directors and until a
successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.
Section 4.03 Removal. Any officer or agent elected by the Board of Directors may
be removed by the affirmative vote of a majority of the Board of Directors
whenever, in its judgment, the best interests of the Corporation would be served
thereby, but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
Section 4.04 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or otherwise, may be filled by the Board of Directors
for the unexpired portion of the term by the Board of Directors then in office.
Section 4.05 Compensation. Compensation of all officers shall be fixed by the
Board of Directors, and no officer shall be prevented from receiving such
compensation by virtue of the fact that he or she is also a director of the
Corporation. The salaries of agents of the Corporation shall, unless fixed by
the Board, be fixed by the President or any Vice President of the Corporation.
Section 4.06 Chairman of the Board. The Chairman of the Board, if any, shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present. He or she shall have and may exercise such powers as
are, from time to time, assigned to him by the Board and as may be provided by
law. In the absence of the Chairman of the Board, the Vice Chairman of the
Board, if any, shall preside at all meetings of the Board of Directors and of
the stockholders at which he shall be present. He shall have and may exercise
such powers as are, from time to time, assigned to him by the Board and as may
be provided by law.
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Section 4.07 The President. The President shall be the chief executive officer
of the Corporation. In the absence of the Chairman and Vice Chairman of the
Board, the President shall preside at all meetings of the Board of Directors and
all meetings of the stockholders and shall have such other powers and perform
such duties as are specified in these bylaws and as may from time to time be
assigned to him or her by the Board of Directors. In the event there is a
deadlock among directors, the President shall be empowered to cast the deciding
vote.
The President shall have general and active management of the business
of the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. The President shall execute bonds, mortgages
and other contracts requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the Corporation. The
President shall have general powers of supervision and shall be the final
arbitrator of all differences between officers of the Corporation, subject only
to the Board of Directors.
Section 4.08 Vice Presidents. The Vice President, if any (or in the event there
be more than one Vice President, the Vice Presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election), shall, in the absence or upon the disability of the President,
perform the duties and exercise the powers of the President and shall perform
such other duties and have such other powers as the Board of Directors may, from
time to time, determine or these bylaws may prescribe.
Section 4.09 The Secretary and Assistant Secretaries. The Secretary shall attend
all meetings of the Board of Directors and all meetings of the stockholders and
record all the proceedings of the meetings of the Corporation and the Board of
Directors in a book to be kept for that purpose and shall perform like duties
for the standing committees when required. The Secretary shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board of Directors; shall perform such other duties as may be prescribed by the
Board of Directors or President, under whose supervision he or she shall be;
shall have custody of the corporate seal of the Corporation, if any there be;
and the Secretary, or an Assistant Secretary, if any (or in the event there be
more than one, the Assistant Secretaries in the order designated by the
directors or in the absence of any designation, then in the order of their
election), shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such Assistant Secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his or her signature. The Assistant Secretary, if any (or
in the event there be more than one, the Assistant Secretaries in the order
designated by the directors, or in the absence of any designation, then in the
order of their election), shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
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<PAGE> 9
Section 4.10 The Treasurer and Assistant Treasurer. The Treasurer shall be the
chief financial officer of the Corporation; shall have the custody of the
corporate funds and securities; shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation; shall deposit
all monies and other valuable effects in the name and to the credit of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements; and shall render to the President and the Board of
Directors, at its regular meeting or when the Board of Directors so requires, an
account of the Corporation. If required by the Board of Directors, the Treasurer
shall give the Corporation a bond (which shall be rendered every six years) in
such sums and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of the office of
Treasurer and for the restoration to the Corporation, in case of death,
resignation, retirement, or removal from office, of all books, papers, vouchers,
money, and other property of whatever kind in the possession or under the
control of the Treasurer belonging to the Corporation. The Assistant Treasurer,
if any (or in the event there be more than one, the Assistant Treasurers in the
order designated by the directors, or in the absence of any designation, then in
the order of their election), shall, in the absence of disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 4.11 Other Officers, Assistant Officers and Agents. Officers, assistant
officers and agents, if any, other than those whose duties are provided for in
these bylaws, shall have such authority and perform such duties as may from time
to time be prescribed by resolution of the Board of Directors.
Article 5.
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 5.01 The Corporation shall indemnify its officers and directors to the
full extent and in the manner permitted by the General Corporation Law of
Delaware against expenses (including attorneys' fees), judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact such person is or was an
officer or director of the Corporation. Reasonable expenses incurred by a
director or officer of the Corporation in defending a civil or criminal action,
suit or proceeding by reason of the fact that he or she is or was a director or
officer of the Corporation (or was serving at the Corporation's request as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise) shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of a statement from
such director or officer requesting such advance and an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
Corporation as authorized by relevant sections of the General Corporation Law of
Delaware.
The Corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and
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agents (in addition to directors and officers) against expenses (including
attorneys' fees), judgments, fines, settlements, and other amounts actually and
reasonably incurred in connection with any proceeding, arising by reason of the
fact that such person is or was an employee or agent of the Corporation. For
purposes of this Section, an "employee" or "agent" of the Corporation includes
any person (i) who is or was an employee or agent of the Corporation, or (ii)
who is or was serving at the request of the Corporation as an employee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is hereafter amended
to authorize, with the approval of a corporation's stockholders, further
reductions in the liability of the corporation's directors for breach of
fiduciary duty, then a director of the Corporation shall not be liable for any
such breach to the fullest extent permitted by the Delaware General Corporation
Law as so amended. Any repeal or modification of the foregoing provisions of
this Article V, Section 1 by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
The foregoing rights of indemnification shall not be deemed exclusive of
any other rights to which any director or officer may be entitled apart from the
provisions of this Article V.
Section 5.02 The indemnification and advancement of expenses provided by, or
granted pursuant to this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
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Article 6.
CERTIFICATES OF STOCK
Section 6.01 Form. Every holder of stock in the Corporation shall be entitled to
have a certificate signed by or in the name of the Corporation by, the Chairman
of the Board or by the President or a Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by him or her in the
Corporation. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent other than the Corporation or its employee or (2) by a
registrar, other than the Corporation or its employee, the signature of any such
chairman of the Board, Chief Executive Officer, President, Vice President,
Secretary, or Assistant Secretary may be facsimile. In case any officer who has
signed, or whose facsimile signature has been used on, any such certificate
shall cease to be such officer of the Corporation, whether because of death,
resignation or otherwise, before such certificate has been delivered by the
Corporation, such certificate may nevertheless be issued and delivered as though
the person who signed such certificate or whose facsimile signature has been
used on any such certificate had not ceased to be such officer of the
Corporation. All certificates for shares shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered in the books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificate shall be
issued in replacement until the former certificate for a like number of shares
shall have been surrendered or canceled, except as otherwise provided in Section
2 with respect to lost, stolen or destroyed certificates.
If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designation, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 6.02 Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen, or destroyed
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<PAGE> 12
certificate, or his or her legal representative, to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 6.03 Fixing a Record Date. The Board of Directors may fix in advance a
date, not more than sixty nor less than ten days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection with
obtaining any consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, and any
adjournment thereof, or entitled to receive payment of any such dividends or to
any such allotment to rights, or to exercise the rights in respect to any such
change, conversion, or exchange of capital stock, or to give such consent, and
in such case such stockholders and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or to receive payment
of such dividends or to receive such allotment of rights, or to exercise such
rights, or to give such consent, as the case may be notwithstanding any transfer
of any stock on the books of the Corporation after any such record date fixed as
aforesaid. If no record date is fixed, the time for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given, or
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held. The time for determining stockholders for stock of
the Corporation, subject to the provisions of the certificate of incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock subject to the provisions of the certificate of
incorporation. Before payment of any dividend there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think in the best interests of the Corporation,
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 6.04 Securities Owned by Corporation. Voting securities in any other
corporation or other enterprise held by the Corporation shall be voted by the
President, unless the Board of Directors specifically confers authority to vote
with respect thereto, which may be general or confined to specific instances,
upon some other person or officer. Any person authorized to vote securities
shall have the power to appoint proxies, with general power of substitution.
Section 6.05 Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on the books as the owner of
shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other
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person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
Article 7.
MISCELLANEOUS
Section 7.01 Dividends. Subject to the provisions of the certificate of
incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Before declaring any
dividend, there may be set apart out of any funds of the Corporation available
for dividends such sum as the directors from time to time in their discretion
deem proper for working capital or as a reserve fund to meet other contingencies
or for equalizing dividends or for such other purposes as the directors shall
deem conducive to the interests of the Corporation.
Section 7.02 Fiscal Year. The fiscal year of the Corporation shall be determined
by the Board of Directors.
Section 7.03 Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or such other person as the Board of
Directors may from time to time designate.
Section 7.04 Notice and Waiver of Notice. Whenever any notice is required to be
given, personal notice shall not be necessary unless expressly so stated, and
any notice so required shall be deemed to be sufficient if given by depositing
the same in the United States mail, first class mail (air-mail to an address
outside of the United States), postage prepaid, addressed to the person entitled
thereto at his or her address as it appears on the records of the Corporation,
in which case such notice shall be deemed given on the day of such mailing,
unless it is notice of a director's meeting, in which case such notice shall be
deemed given three days after the date of such mailing. Notice may also be given
personally, against receipt, or by telegram, telex or similar communication and
notice so given shall be deemed given when so delivered personally or when
delivered for transmission.
Whenever any notice whatsoever is required or permitted to be given
under the provisions of any law, or under the provisions of the certificate of
incorporation or these bylaws, a waiver thereof in writing, signed by the person
or persons entitled to such notice, whether before or after the time such notice
is required to be given, shall be deemed equivalent thereto. A telegram, telex
or similar communication waiving any such notice sent by a person entitled to
notice shall be deemed equivalent to a waiver in writing signed by such person.
Neither the business nor the purpose of any meeting need be specified in any
waiver.
Section 7.05 Seal. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the Corporation, the year of its organization and
the words
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"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Article 8.
AMENDMENTS
These bylaws may be altered, amended or repealed or new bylaws may be
adopted by the affirmative vote of holders of at least sixty-six and two thirds
percent (66 2/3%) vote of the outstanding voting stock of the corporation. These
bylaws may also be altered, amended or repealed or new bylaws may be adopted by
the Board of Directors, when such power is conferred upon the Board of Directors
by the Certificate of Incorporation. The foregoing may occur at any regular
meeting of the stockholders or of the Board of Directors or at any special
meeting of the stockholders or of the Board of Directors if notice of such
alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws is
conferred upon the Board of Directors by the Certificate of Incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
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CERTIFICATE OF ADOPTION BY THE
SECRETARY OF
PACKETEER, INC.
The undersigned, David Yntema, hereby certifies that he is the duly
elected and acting Secretary of Packeteer, Inc., a Delaware corporation (the
"Corporation"), and that the Bylaws attached hereto constitute the Bylaws of
said Corporation as duly adopted by the Board of Directors on May 19, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this 19th day of May, 1999.
/s/ David Yntema
---------------------------------------
David Yntema
Secretary
<PAGE> 1
PACKETEER, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
July 15, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. CERTAIN DEFINITIONS..................................................................1
2. TRANSFERABILITY......................................................................2
2.1 RESTRICTIONS ON TRANSFERABILITY...............................................2
2.2 RESTRICTIVE LEGEND............................................................2
2.3 NOTICE OF PROPOSED TRANSFERS..................................................3
3. REGISTRATION RIGHTS..................................................................4
3.1 DEMAND REGISTRATION...........................................................4
3.2 COMPANY REGISTRATION..........................................................5
3.3 REPORTS UNDER EXCHANGE ACT....................................................6
3.4 FORM S-3 REGISTRATION.........................................................6
3.5 EXPENSES OF REGISTRATION......................................................7
3.6 REGISTRATION PROCEDURES.......................................................7
3.7 INDEMNIFICATION...............................................................8
3.8 INFORMATION BY HOLDER........................................................10
3.9 "MARKET STAND-OFF" AGREEMENT.................................................10
3.10 TRANSFER OF REGISTRATION RIGHTS..............................................10
3.11 TERMINATION OF REGISTRATION RIGHTS...........................................10
4. RIGHT OF FIRST REFUSAL ON COMPANY ISSUANCES.........................................10
4.1 RIGHT OF FIRST REFUSAL.......................................................11
5. COVENANTS OF THE COMPANY............................................................12
5.1 FINANCIAL INFORMATION AND REPORTING..........................................12
5.2 QUARTERLY STATEMENTS.........................................................12
5.3 MONTHLY STATEMENTS...........................................................12
5.4 INSPECTION RIGHTS............................................................13
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5.5 TERMINATION OF COVENANTS.....................................................13
6. MISCELLANEOUS.......................................................................13
6.1 GOVERNING LAW................................................................13
6.2 SUCCESSORS AND ASSIGNS.......................................................13
6.3 ENTIRE AGREEMENT.............................................................13
6.4 NOTICES, ETC.................................................................13
6.5 DELAYS OR OMISSIONS..........................................................13
6.6 COUNTERPARTS.................................................................14
6.7 SEVERABILITY.................................................................14
6.8 AMENDMENTS...................................................................14
6.9 TERMINATION OF PRIOR RIGHTS AGREEMENTS.......................................14
EXHIBIT A...................................................................................29
SCHEDULE OF INVESTORS.......................................................................29
</TABLE>
<PAGE> 4
PACKETEER, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is entered into as of April 16, 1998 by and between PACKETEER,
INC., a Delaware corporation (the "Company"), and the parties listed on Exhibit
A attached hereto.
WHEREAS, the Company is issuing shares of its Series D Preferred
Stock pursuant to that certain Series D Preferred Stock Agreement dated as of
the date hereof (the "Series D Agreement") and desires to grant to the
purchasers of the Series D Preferred Stock and the parties to the Amended and
Restated Investors' Rights Agreement dated June 19, 1997 (the "Prior Rights
Agreement") hereto the rights herein set forth.
NOW THEREFORE, in consideration of the mutual agreements,
covenants and considerations and releases contained herein, the parties hereby
agree as follows:
AGREEMENT:
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.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"HOLDER" shall mean any holder of outstanding Registrable
Securities.
"INITIAL OFFERING" shall mean the Company's first firm
commitment underwritten public offering of its Common Stock registered under the
Securities Act.
"INVESTORS" shall mean the parties listed on Exhibit A attached
hereto and such other holders of the Company's Preferred Stock that may be added
as parties to this Agreement pursuant to paragraph 6.8 below.
"REGISTRABLE SECURITIES" means (i) shares of Common Stock issued
or issuable pursuant to the conversion of the Shares and (ii) shares of Common
Stock issued as a dividend or other distribution with respect to, or in exchange
or in replacement of, the Shares. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person in a transaction
(a) pursuant to Rule 144, (b) pursuant to a registration statement on file with
the Commission or (c) in a transaction in which such person's rights under this
Agreement are not transferred.
<PAGE> 5
The terms "REGISTER," "REGISTERED" and "REGISTRATION" 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 by the Commission.
"REGISTRATION EXPENSES" shall mean all expenses incurred in
connection with any registration pursuant to Sections 3.1 and 3.2 hereof,
including, without limitation, the reasonable legal fees of a single legal
counsel to the Investors, (excluding underwriters' discounts and commissions)
and shall mean all expenses incurred by the Company in connection with any
registration pursuant to Section 3.3 hereof (excluding underwriters' discounts
and commissions), 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 (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 the legend set forth in Section 2.2 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"SHARES" shall mean the Preferred Stock of the Company held by
the Investors.
2. TRANSFERABILITY.
2.1 RESTRICTIONS ON TRANSFERABILITY. The Shares and any securities
into which the Shares may be convertible shall not be transferable except upon
the conditions specified in this Agreement, which conditions are intended to
ensure compliance with the provisions of the Securities Act or, in the case of
Section 3.7 hereof, to assist in an orderly distribution. As long as Shares held
by an Investor constitute Restricted Securities, each Investor will cause any
proposed transferee of the Shares (or of the securities into which the Shares
may be convertible) held by an Investor to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Agreement.
2.2 RESTRICTIVE LEGEND. Each certificate representing (i) the
Shares, (ii) shares of the Company's Common Stock issued upon conversion of the
Shares and (iii) any securities issued in respect of the Shares or such Common
Stock, shall (unless otherwise permitted by the provisions of Section 2.3 below)
be stamped or otherwise imprinted with a legend in substantially the following
form (in addition to any legend required under applicable state securities
laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE
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<PAGE> 6
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
2.3 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 2.3. Prior to any proposed transfer
of any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, 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 by either
(i) an unqualified written opinion of legal counsel 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, (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 or (iii) such other showing that may be reasonably satisfactory
to legal counsel to the Company, 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 the holder to the Company.
Notwithstanding the foregoing, a transfer of Restricted Securities to a person
or entity associated with such holder shall be presumed to be in compliance with
this Section 2.3, subject to the transferor's agreement to be bound by all of
the terms and conditions hereof and satisfaction of the requirements of Section
3.10 hereof. (For purposes of this Agreement, a person or entity is deemed to be
"associated" with a holder if that person or entity, directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under
common control with a holder). Each certificate evidencing the Restricted
Securities transferred as above provided shall bear the appropriate restrictive
legend set forth in Section 2.2 above, except that such certificate shall not
bear such restrictive legend if in the opinion of counsel for the Company such
legend is not required in order to establish compliance with any provisions of
the Securities Act. All Restricted Securities transferred as above that continue
to bear the restrictive legend set forth in Section 2.2 shall continue to be
subject to the provisions of this Section 2.3 in the same manner as before such
transfer.
3
<PAGE> 7
3. REGISTRATION RIGHTS.
3.1 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 3.1, if the
Company shall receive a written request from the Holders of more than fifty
percent (50%) of the Registrable Securities then outstanding (the "Initiating
Holders") that the Company file a registration statement under the Securities
Act covering the registration of Registrable Securities having an aggregate
offering price to the public in excess of Three Million Dollars ($3,000,000),
then the Company shall, within thirty (30) days of the receipt thereof, give
written notice of such request to all Holders, and subject to the limitations of
this Section 3.1, effect, as soon as practicable, the registration under the
Securities Act of all Registrable Securities that the Holders request to be
registered.
(b) 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
this Section 3.1 and the Company shall include such information in the written
notice referred to in Section 3.1(a). In such event, the right of any Holder to
include its Registrable Securities in such registration 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. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 3.1, if the underwriter
advises the Company that marketing factors require a limitation of the number of
securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities that would
otherwise be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be required to effect a
registration pursuant to this Section 3. 1:
(i) prior to the first anniversary of the Company's
Initial Offering; or
(ii) after the Company has effected two (2)
registrations pursuant to this Section 3. 1, and such registrations have been
declared or ordered effective;
(iii) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 3.1, a certificate
signed by the Chairman of the Board 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 stockholders for such registration statement to be effected at
such time, the Company shall have the right to defer such filing for a period of
not more than
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ninety (90) days after receipt of the request of the Initiating Holders;
provided that such right to delay a request shall be exercised by the Company no
more than once in any one-year period; or
(iv) during the period starting with the date of
filing of, and ending on the date one hundred twenty (120) days following the
effective date of, a registration statement pertaining to an offering of the
Company's Common Stock other than the Initial Offering.
3.2 COMPANY REGISTRATION.
(a) If at any time the Company shall determine to file a
registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans and corporate reorganizations), the Company will:
(i) promptly give to each Holder written notice
thereof (which 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 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.
(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 3.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 3.2 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. Each
Holder proposing to distribute its securities through such underwriting shall
(together with the Company and the other holders 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 Agreement, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the number of shares that may be included in the
underwriting shall be allocated, first, to the Company; second, to the Holders
on a pro rata basis based on the total number of Registrable Securities held by
the Holders; and third, to any stockholder of the Company (other than a Holder)
on a pro rata basis. In no event shall the amount of securities of the selling
Holders included in the registration be reduced below twenty-five percent (25%)
of the total amount of securities included in such registration, unless such
offering is the Initial Offering, in which event any or all of the Registrable
Securities of the Holders may be excluded in accordance with the immediately
preceding sentence. The Company shall so advise all Holders (except with respect
to each of those Holders who has indicated to the Company its decision not to
distribute any of its Registrable Securities through such underwriting), and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated in
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proportion, as nearly as practicable, to the respective amounts of Registrable
Securities owned by the Holders at the time of filing the registration
statement.
No Registrable Securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any Holder disapproves of the terms of any such underwriting,
such person may elect to withdraw therefrom by written notice to the Company and
the underwriter. The securities so withdrawn from such underwriting shall also
be withdrawn from such registration; provided, however, that, if by the
withdrawal of such securities a greater number of Registrable Securities held by
other Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion used above
in determining the underwriter limitation.
3.3 REPORTS UNDER EXCHANGE ACT. With view to making available to the
Holders the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the Commission that may at any time permit a Holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Commission Rule 144, at all times after
ninety (90) days after the effective date of the first registration statement
filed by the Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration
of its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their Registrable
Securities, such action to be taken as soon as practicable after the end of the
fiscal year in which the first registration statement filed by the Company for
the offering of its securities to the general public is declared effective;
(c) file with the Commission in a timely manner all reports
and other documents required of the Company under the Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon receipt (i) a written statement by the
Company that it has complied with the reporting requirements of Commission Rule
144 (at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the Exchange Act (at
any time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the Commission that permits the
selling of any such securities without registration or pursuant to such form.
3.4 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of Registrable Securities a written request or requests
that the Company effect a
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registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 3.4 in the
event of any of the following: (i) if Form S-3 is not available for such
offering by the Holders; (ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than $500,000; (iii) if the Company shall
furnish to the 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 stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 3.4; (iv) if the Company has
already effected two (2) registrations on Form S-3 for the Holders pursuant to
this Section 3.4; or (v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
3.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Section 3.1, 3.2 or 3.4 herein shall be borne by the Company. In the case of a
registration on Form S-3 pursuant to Section 3.4 herein, the Company shall bear
all the reasonable fees and disbursements, not to exceed $5,000, of one counsel
for the Selling Holders. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered.
3.6 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 3,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Keep such registration, qualification or compliance
effective for a period of one hundred twenty (120) days or until the Holder or
Holders have completed the distribution described in the registration statement
relating thereto, whichever first occurs; and
(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
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(c) Prepare and file with the Commission 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.
(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 will be reasonably requested by the
Holders, provided that the Company will 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(s) of such offering. Each Holder
participating in such underwriting will 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 of 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 light of the circumstances then existing,
and promptly file such amendments and supplements as may be necessary to cause
such prospectus to be current and to include such information.
(g) Use its reasonable best efforts in facilitating its
service providers to furnish, at the request of any Holder requesting
registration of Registrable Securities on the date that such Registrable
Securities are delivered to the underwriters for sale (i) an opinion of the
counsel representing the Company for the purposes of such registration in form
and substance as is customarily rendered to the underwriters in an underwritten
public offering and (ii) a "comfort" letter from the independent certified
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.
3.7 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers, directors, partners and legal counsel, and each person controlling
such Holder, with respect to which registration, qualification or compliance has
been effected pursuant to this Section 3, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on (i)
any untrue statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other similar document (including any
related registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made or (ii) any violation by the Company of
any federal, state or common law rule or regulation applicable to the Company in
connection with any such registration,
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qualification or compliance, and will reimburse each such Holder, each of its
officers, directors, partners and legal counsel, and each person controlling
such Holder, for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, as incurred, provided that the Company will not be liable
in any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission based upon
written information furnished to the Company by an instrument duly executed by
such Holder and stated to be specifically for use therein or furnished by the
Holder to the Company in response to a request by the Company stating
specifically that such information will be used by the Company therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each legal counsel and independent accountant of the
Company, each person who controls the Company within the meaning of the
Securities Act, and each other such Holder, each of its officers, directors,
partners and legal counsel and each person controlling such Holder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other similar document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made, and will reimburse the Company, such Holders, such
directors, officers, legal counsel and independent accountants, or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, as incurred, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein or furnished by the Holder to the
Company in response to a request by the Company stating specifically that such
information will be used by the Company therein.
(c) Each party entitled to indemnification under this
Section 3.7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has received written notice of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld). The Indemnified Party may participate in such defense
at such party's expense; provided, however, that the Indemnifying Party shall
bear the expense of such defense of the Indemnified Party if the Indemnified
Party has been advised by its counsel that representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure of any Indemnified Party to give notice
as provided herein shall relieve the Indemnifying Party of its obligations under
this Section 3.6 only to the extent that such failure to give notice shall
materially adversely prejudice the Indemnifying Party in the defense of any such
claim or
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any such litigation. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnifying Party, consent
to entry of any judgment or enter into any settlement that does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
3.8 INFORMATION BY HOLDER. Each Holder including securities of the
Company in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 3.
3.9 "MARKET STAND-OFF" AGREEMENT. Each Holder agrees not to sell or
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by it for a period not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Securities Act if so requested by the Company and underwriter of
Common Stock (or other securities) of the Company, provided that:
(a) such agreement shall apply only to the first
underwritten registered public offering of the Company; and
(b) all officers and directors of the Company and holders of
at least one percent (1%) of the Company's voting securities are bound by and
have entered into similar agreements.
3.10 TRANSFER OF REGISTRATION RIGHTS. Except as otherwise provided
herein, the rights contained in this Section 3 may be assigned or otherwise
conveyed to a transferee or assignee of Registrable Securities, who shall be
considered a "Holder" for purposes of this Section 3, provided that (i) such
transfer is effected in accordance with applicable federal and state securities
laws, (ii) such transferee or assignee becomes a party to this Agreement or
agrees in writing to be subject to the terms hereof to the same extent as if he
were an original party hereunder and (iii) such transferee or assignee acquires
at least two hundred thousand (200,000) shares of Registrable Securities (as
adjusted for any stock splits, recapitalizations and the like) or if the
transferor holds less than two hundred thousand (200,000) shares, then such
transferee or assignee acquires all of the transferor's Registrable Securities,
and, provided further, that the Company is given written notice at the time of
or within a reasonable time after said transfer, stating the name and address of
said transferee or assignee and identifying the securities with respect to which
such registration rights are being assigned.
3.11 TERMINATION OF REGISTRATION RIGHTS. All rights and duties
provided for in this Section 3 shall terminate for each Holder upon the earlier
of (i) five (5) years from the date of the Company's first underwritten
registered public offering; or (ii) upon such date on which all Registrable
Securities held by such Holder may immediately be sold during any 90-day period
under Commission Rule 144 provided that the Company is subject to the reporting
requirements of the Exchange Act.
4. RIGHT OF FIRST REFUSAL ON COMPANY ISSUANCES.
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4.1 RIGHT OF FIRST REFUSAL. The Company hereby grants to each
Investor who holds at least one hundred thousand (100,000) shares of the
Company's Preferred Stock ("Major Investor") a right of first refusal to
purchase its pro rata share of New Securities (as defined in this Section 4.1)
that the Company may from time to time propose to sell and issue. Each Major
Investor's pro rata share, for purposes of this right of first refusal, is the
ratio, the numerator of which is the number of shares of Common Stock then owned
by such Investor (assuming full conversion of the Preferred Stock of the Company
then owned by such Investor), and the denominator of which is the total number
of shares of Common Stock outstanding immediately prior to the issuance of the
New Securities, assuming full conversion of all outstanding shares of Preferred
Stock of the Company and exercise of all outstanding options and warrants of the
Company. This right of first refusal shall be subject to the following
provisions:
(a) "NEW SECURITIES" shall mean any capital stock of the
Company, whether now authorized or not, and rights, options, or warrants to
purchase said capital stock, and securities of any type whatsoever that are, or
may become, convertible into said capital stock; provided, however, that "New
Securities" does not include (i) securities issuable upon conversion of or with
respect to any series of Preferred Stock or upon exercise of any currently
outstanding rights, options or warrants to purchase Common Stock or Preferred
Stock; (ii) securities issued pursuant to the acquisition of another corporation
by the Company by merger, purchase of substantially all of the assets, or other
reorganization whereby the Company owns more than fifty percent (50%) of the
voting power of such corporation; (iii) shares of the Company's Common Stock (or
related options) issued to employees, officers, consultants, board members or
other service providers of the Company pursuant to any stock offering, plan or
arrangement approved by the Board of Directors and subsequently approved by the
Company's stockholders; (iv) shares of the Company's Common Stock or Preferred
Stock issued in connection with any stock split, stock dividend or similar
recapitalization by the Company; (v) securities issued pursuant to equipment
leases or nonconvertible debt financings that are approved by the Company's
Board of Directors so long as the primary purpose of such transaction is not the
issuance of capital stock of the Company; or (vi) securities issued in
connection with strategic transactions involving the Company and other entities,
including (A) joint ventures, manufacturing, marketing or distribution
arrangements and (B) technology transfer or development arrangements, so long as
the primary purpose of such strategic transaction is not to provide financing
for the Company.
(b) In the event that the Company proposes to undertake an
issuance of New Securities, it shall give each Major Investor written notice of
its intention, describing the type of New Securities, the price and the general
terms upon which the Company proposes to issue the same. Each Major Investor
shall have fifteen (15) days from the date of mailing of any such notice to
agree to purchase up to its full pro rata share of such New Securities for the
price and upon the general terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased.
(c) The Company may sell or enter into an agreement
providing for the sale of the New Securities, at a price and upon general terms
no more favorable to the purchasers thereon than specified in the Company's
notice, at any time on or prior to the sixtieth (60th) day after the mailing of
the notice described above. In the event the Company has not sold or entered
into an agreement providing for the sale of the New Securities within such sixty
(60) day period,
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the Company shall not thereafter issue or sell any New Securities without
offering the appropriate portion of such securities to the Major Investors in
the manner provided above.
(d) The right of first refusal granted under this Agreement
(i) shall not apply to and shall expire upon the first public offering of Common
Stock of the Company in connection with which all of the Company's outstanding
Preferred Stock is converted into the Company's Common Stock and that is
pursuant to a registration statement filed with, and declared effective by, the
Commission under the Securities Act and (ii) shall not apply to and shall expire
upon the closing of the Company's sale of all or substantially all of its assets
or the acquisition of the Company (other than relating to a reincorporation of
the Company) by another entity by means of merger or consolidation resulting in
the exchange of the outstanding shares of the Company's capital stock for
securities or consideration issued, or caused to be issued, by the acquiring
entity or its subsidiary.
(e) Notwithstanding the foregoing, in no event shall London
Pacific Life & Annuity Company and its affiliates and related entities have a
right to purchase more than an aggregate of 2,538,071 shares of Series D
Preferred Stock.
5. COVENANTS OF THE COMPANY.
5.1 FINANCIAL INFORMATION AND REPORTING. As soon as practicable
after the end of each fiscal year of the Company, and in any event within 90
days thereafter, the Company will furnish each Investor who holds at least one
hundred thousand (100,000) shares of the Company's Preferred Stock or the
Company's Common Stock issued upon conversion of the Company's Preferred Stock a
consolidated balance sheet of the Company, as at the end of such fiscal year,
and a consolidated statement of income and a consolidated statement of cash
flows of the Company, for such year, all prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail. Such
financial statements shall be accompanied by a report and opinion thereon by
independent public accountants of national standing selected by the Company's
Board of Directors.
5.2 QUARTERLY STATEMENTS. As soon as practicable after the end of
the first, second and third quarterly accounting periods in each fiscal year of
the Company, and in any event within 45 days thereafter, the Company will
furnish each Major Investor a consolidated balance sheet of the Company as of
the end of each such quarterly period, and a consolidated statement of income
and a consolidated statement of cash flows of the Company for such period and
for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.
5.3 MONTHLY STATEMENTS. As soon as practicable after the end of each
month, and in any event within thirty (30) days thereafter, the Company will
furnish each Major Investor such monthly financial information as is furnished
to the Board of Directors, provided that such information was prepared for the
Board of Directors.
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5.4 INSPECTION RIGHTS. Each Major Investor shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the Company
or any of its subsidiaries with its officers, all at such reasonable times and
as often as may be reasonably requested; provided, however, that the Company
shall not be obligated under this Section 5.4 with respect to a competitor of
the Company or with respect to information which the Board of Directors
determines in good faith is confidential and should not, therefore, be
disclosed.
5.5 TERMINATION OF COVENANTS. The covenants provided in this Section
5 shall terminate upon the first date that the Company shall become subject to
the reporting requirements of the Exchange Act as long as the Company's
Preferred Stock held by the Investors has been converted to shares of the
Company's Common Stock.
6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California applicable to contracts
between California residents entered into and to be performed entirely within
the State of California.
6.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
6.3 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof.
6.4 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery, or three (3) days after deposit with the United States
mail, by registered or certified mail, return receipt requested, postage
prepaid, addressed: (a) if to a Holder, at such Holder's address as set forth on
the Company's records, or at such other address as such Holder shall have
furnished to the Company in writing or (b) if to the Company, at its address as
set forth at the end of this Agreement, or at such other address as the Company
shall have furnished to the Holders in writing.
6.5 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party, upon any breach or default of any other
party under this Agreement, shall impair any such right, power or remedy of such
party nor shall it be construed to be a waiver of any such breach or default, or
an acquiescence therein, or of or in any similar breach or default thereunder
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
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6.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the Investors,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
6.7 SEVERABILITY. In the case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.8 AMENDMENTS. Except as otherwise provided herein, the provisions
of this Agreement may be amended at any time and from time to time, and
particular provisions of this Agreement may be waived, with and only with an
agreement or consent in writing signed by the Company and by the holders of (i)
not less than a majority of the number of shares of Registrable Securities
outstanding as of the date of such amendment or waiver and (ii) (only with
respect to any amendment or waiver that disproportionately affects the rights
hereunder of the holders of the Company's Series C Preferred Stock or Series D
Preferred Stock) not less than a majority of the shares of the Company's Series
C Preferred Stock or Series D Preferred Stock, as applicable, outstanding as of
the date of such amendment or waiver. Subject to the foregoing qualification,
each Investor acknowledges that by the operation of this Section 6.8 the holders
of a majority of the outstanding Registrable Securities may have the right and
power to diminish or eliminate all rights of such Investor under this Agreement.
This Agreement may be amended with no further action on the part of the
Investors to include as Investors hereunder other holders of the Company's
Preferred Stock.
6.9 TERMINATION OF PRIOR RIGHTS AGREEMENTS. All the parties to the
Prior Rights Agreement hereby agree that all rights and obligations of the
parties thereunder shall be superseded, rendered void and replaced in their
entirety by this Agreement.
14
<PAGE> 18
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR:
PACKETEER, INC. By: /s/ SUSAN Y. GRESSEL
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: V.P. & Treasurer
------------------------------------
By: /s/ CRAIG ELLIOTT Name: Susan Y. Gressel
--------------------------------- -----------------------------------
Craig Elliott
President
15
<PAGE> 19
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: CAMPBELL 1984 REV. TRUST
U/A 2/13/84 UTD 10/21/92
PACKETEER, INC. By: /s/ STEVEN CAMPBELL
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: Trustee
------------------------------------
By: /s/ CRAIG ELLIOTT Name: Steven Campbell
---------------------------------- -----------------------------------
Craig Elliott
President
16
<PAGE> 20
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: CC&H INVESTORS
PACKETEER, INC. By: /s/ JOHN CARDOZA
10495 N. De Anza Blvd. ------------------------------------
Cupertino, CA 95014
Its: Executive Partner
------------------------------------
By: /s/ CRAIG ELLIOTT Name: John Cardoza
--------------------------------- ------------------------------------
Craig Elliott
President
17
<PAGE> 21
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: JEFFREY M. DRAZEN
PACKETEER, INC. By: /s/ JEFFREY M. DRAZEN
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: General Partner
------------------------------------
By: /s/ CRAIG ELLIOTT Name: Jeffrey M. Drazen
--------------------------------- -----------------------------------
Craig Elliott
President
18
<PAGE> 22
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: ENTERPRISE PARTNERS III
ASSOCIATES, L.L.P.
PACKETEER, INC. By: /s/ WILLIAM R. STENSRUD
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: General Partner
------------------------------------
By: /s/ CRAIG ELLIOTT Name: William R. Stensrud
--------------------------------- -----------------------------------
Craig Elliott
President
19
<PAGE> 23
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR:
PACKETEER, INC. By: /s/ Peter Morris
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its:
------------------------------------
By: /s/ Craig Elliott Name: Peter Morris
--------------------------------- -----------------------------------
Craig Elliott
President
20
<PAGE> 24
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: NEA PRESIDENT'S FUND, L.P.
PACKETEER, INC. By: /s/ Mark W. Perry
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: General Partner
------------------------------------
By: /s/ Craig Elliott Name: Mark W. Perry
---------------------------------- -----------------------------------
Craig Elliott
President
21
<PAGE> 25
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: NEA VENTURES 1996, L.P.
PACKETEER, INC. By: /s/ Karie Epstein
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: Vice President
------------------------------------
By: /s/ Craig Elliott Name: Karie Epstein
---------------------------------- -----------------------------------
Craig Elliott
President
22
<PAGE> 26
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: NEW ENTERPRISE ASSOCIATES VII,
LIMITED PARTNERSHIP
PACKETEER, INC. By: /s/ Peter Morris
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: General Partner
-------------------------------------
By: /s/ Craig Elliott Name: Peter Morris
---------------------------------- -----------------------------------
Craig Elliott
President
23
<PAGE> 27
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR:
PACKETEER, INC. By: /s/ Joseph Graziano
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its:
-------------------------------------
By: /s/ Craig Elliott Name: Joseph Graziano
---------------------------------- -----------------------------------
Craig Elliott
President
24
<PAGE> 28
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR:
PACKETEER, INC. By: /s/ Peter Morris
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: General Partner
-------------------------------------
By: /s/ Craig Elliott Name: Peter Morris
---------------------------------- -----------------------------------
Craig Elliott
President
<PAGE> 29
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: NEW ENTERPRISE ASSOCIATES VII,
LIMITED PARTNERSHIP
PACKETEER, INC. By: /s/ Peter Morris
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: General Partner
-------------------------------------
By: /s/ Craig Elliott Name: Peter Morris
---------------------------------- -----------------------------------
Craig Elliott
President
25
<PAGE> 30
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: NEA PRESIDENTS FUND, L.P.
PACKETEER, INC. By: /s/ Peter Morris
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: General Partner
-------------------------------------
By: /s/ Craig Elliott Name: Peter Morris
---------------------------------- -----------------------------------
Craig Elliott
President
26
<PAGE> 31
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: NEW VENTURES 1996, L.P.
PACKETEER, INC. By: /s/ Ronald Kase
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: Vice President
-------------------------------------
By: /s/ Craig Elliott Name: Ronald Kase
---------------------------------- -----------------------------------
Craig Elliott
President
27
<PAGE> 32
The foregoing Investors Rights' Agreement is hereby executed as
of the date first above written.
COMPANY: INVESTOR: NEW VENTURES 1996, L.P.
PACKETEER, INC. By: /s/ Karie Epstein
10495 N. De Anza Blvd. -------------------------------------
Cupertino, CA 95014
Its: Vice President
------------------------------------
By: /s/ Craig Elliott Name: Karie Epstein
---------------------------------- -----------------------------------
Craig Elliott
President
28
<PAGE> 33
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Name Shares Security
- ---- ------ --------
<S> <C> <C>
Campbell 1984 Rev. Trust 400,000 Series A Preferred Stock
U/A 2/13/84 UTD 10/21/92 212,880 Series B Preferred Stock
Attn: Steven Campbell 77,168 Series C Preferred Stock
17020 Los Cerritos Drive
Los Gatos, CA 95032
Jeffrey M. Drazen 100,000 Series A Preferred Stock
Sierra Ventures 53,220 Series B Preferred Stock
3000 Sand Hill Road 2,500 Series D Preferred Stock
Building 4, Suite 210
Menlo Park, CA 94025
GC&H Investments 200,000 Series A Preferred Stock
Attn: John Cardoza 50,000 Series B Preferred Stock
One Maritime Plaza, 20th Floor 12,250 Series D Preferred Stock
San Francisco, CA 94111
Joseph A. Graziano 300,000 Series A Preferred Stock
14055 Chester Avenue 159,660 Series B Preferred Stock
Saratoga, CA 95070 57,996 Series C Preferred Stock
London Pacific Life & Annuity Company 2,538,071 Series D Preferred Stock
3109 Poplarwood Court
Suite 108
Raleigh, NC 27604
Attn: Ms. Susan Gressel
Catherine P. Lego (Goodrich) 100,000 Series A Preferred Stock
3787 Woodside Road
Woodside, CA 94062
Metricom, Inc. 300,000 Series A Preferred Stock
Attn: William D. Swain
980 University Avenue
Los Gatos, CA 95030
</TABLE>
29
<PAGE> 34
<TABLE>
<CAPTION>
Name Shares Security
- ---- ------ --------
<S> <C> <C>
Peter T. Morris 100,000 Series A Preferred Stock
New Enterprise Associates 53,220 Series B Preferred Stock
2490 Sand Hill Road
Menlo Park, CA 94025
Paul Baran or Evelyn Baran, as trustees 400,000 Series A Preferred Stock
of the Paul and Evelyn Baran Trust 212,880 Series B Preferred Stock
Agreement
of 23 May 1984
83 James Avenue
Atherton, CA 94027
Sterling Payot Capital, L.P. 500,000 Series A Preferred Stock
Attn: Robert Smelick 63,028 Series C Preferred Stock
222 Sutter Street
8th Floor
San Francisco, CA 94108
New Enterprise Associates VII, 400,000 Series A Preferred Stock
Limited Partnership 3,000,000 Series B Preferred Stock
Attn: Peter Morris 287,400 Series C Preferred Stock
2490 Sand Hill Road
Menlo Park, CA 94025
NEA President's Fund, L.P. 5,000 Series B Preferred Stock
Attn: Peter Morris
2490 Sand Hill Road
Menlo Park, CA 94025
NEA Ventures 1996, L.P. 75,000 Series B Preferred Stock
Attn: Peter Morris
2490 Sand Hill Road
Menlo Park, CA 94025
ONSET Enterprise Associates II, L.P. 1,000,000 Series B Preferred Stock
Attn: Alexis Lakes 112,600 Series C Preferred Stock
2490 Sand Hill Road
Menlo Park, CA 94025
Enterprise Partners III, L.P. 1,488,680 Series C Preferred Stock
Attn: William R. Stensrud
7979 Ivanhoe Avenue
Suite 550
LaJolla, CA 92037
</TABLE>
30
<PAGE> 35
<TABLE>
<CAPTION>
Name Shares Security
- ---- ------ --------
<S> <C> <C>
Enterprise Partners III Associates, L.P. 129,448 Series C Preferred Stock
Attn: William R. Stensrud
7979 Ivanhoe Avenue
Suite 550
LaJolla, CA 92037
</TABLE>
31
<PAGE> 1
[AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION LOGO]
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
August 25, 1997, is made by and between Eldon R. Hoffman, a single man
("LESSOR") and Packeteer, Inc., a Delaware corporation ("LESSEE"), collectively
the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 10495 De Anza Boulevard, Cupertino located in the
County of Santa Clara, State of California and generally described as (describe
briefly the nature of the property) an office building of approximately 27,000
rentable square feet situated on a parcel of approximately 1.66 net acres and
further described in Exhibit A attached and made part hereto. ("PREMISES") (See
Paragraph 2 for further provisions.)
1.3 TERM: Five (5) years and no months ("ORIGINAL TERM") commencing
December 1, 1997 ("COMMENCEMENT DATE") and ending November 2002 ("EXPIRATION
DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: September 4, 1997 ("EARLY POSSESSION DATE"). (See
paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $ Refer to Addendum per month ("BASE RENT"), payable on
the First day of each month commencing on the Commencement Date (See Paragraph
4 for further provisions.)
/ / If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ See Addendum as Base Rent for the
period _____________________________________________________________________
____________________________________________________________________________.
1.7 SECURITY DEPOSIT: $67,279.00 ("SECURITY DEPOSIT"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: General office and related legal uses (See Paragraph 8
for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): MacMillan, Moore &
Buchanan, Inc. represents
/X/ Lessor exclusively ("LESSOR'S BROKER"): / / both Lessor and Lessee, and
CPS, The Commercial Property Services Company represents
/X/ Lessee exclusively ("LESSEE'S BROKER"); / / both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by None ("GUARANTOR"). (See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 76 and Exhibits A all of which constitute a part of this
Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole costs and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
six (6) months following the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
PAGE 1
<PAGE> 2
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed hereby by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease,
or the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to
pay rent or perform any other obligation of Lessee under the terms of this
Lease until Lessor delivers possession of the Premises to Lessee. If possession
of the Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10)
day period, Lessee's right to cancel this Lease shall terminate and be of no
further force or effect. Except as may be otherwise provided, and regardless of
when the term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the terms of this Lease. Base Rent and
all other rent and charges for any period during the term hereof which is for
less than one (1) full calendar month shall be prorated based upon the actual
number of days of the calendar month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or
retain all or any portion of said Security Deposit for the payment of any
amount due Lessor or to reimburse or compensate Lessor for any liability, cost,
expense, loss or damage (including attorneys' fees) which Lessor may suffer or
incur by reason thereof. If Lessor uses or applies all or any portion of said
Security Deposit, Lessee shall within ten (10) days after written request
therefor deposit moneys with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. Any time the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor sufficient to maintain the same ratio
between the Security Deposit and the Base Rent as those amounts are specified
in the Basic Provisions. Lessor shall not be required to keep all or any part
of the Security Deposit separate from its general accounts. Lessor shall, at
the expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessee's assignees or subtenants, and by prospective
assignees and subtenants of the Lessee, its assignees and subtenants, for a
modification of said permitted purpose for which the premises may be used or
occupied, so long as the same will not impair the structural integrity of the
improvements on the Premises, the mechanical or electrical systems therein, is
not significantly more burdensome to the Premises and the improvements thereon,
and is otherwise permissible pursuant to the Paragraph 6. If Lessor elects to
withhold such consent, Lessor shall within five (5) business days give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safely or welfare,
the environment or the Premises, (ii) regulated or monitored by any
governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in, on or about the Premises
which constitutes a Reportable Use (as hereinafter defined) of Hazardous
Substances without the express prior written consent of Lessor and compliance
in a timely manner (at Lessee's sole cost and expense) with all Applicable Law
(as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation
or use of any above or below ground storage tank, (ii) the generation,
possession, storage, use, transportation, or disposal of a Hazardous Substance
that requires permit from, or with respect to which a report, notice,
registration or business plan is required to be filed with, any governmental
authority. Reportable Use shall also include Lessee's being responsible for the
presence in, on or about the Premises of a Hazardous Substance with respect to
which any Application Law requires that a notice be given to persons entering
or occupying the Premises or neighboring properties. Notwithstanding the
foregoing, Lessee may without Lessor's prior consent, but in compliance with all
Applicable Law, use any ordinary and customary materials reasonably required to
be used by Lessee in the normal course of Lessee's business permitted on the
Premises, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to the use or presence of
any Hazardous Substance, activity or storage tank by Lessee upon Lessee's
giving Lessor such additional assurances as Lessor, in its reasonable
discretion, deems necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or liability therefrom
or therefor, including, but not limited to, the installation (and removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give
written notice of such fact to Lessor. Lessee shall also immediately give
Lessor a copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action or proceeding given to, or
received from, any governmental authority or private party, or persons entering
or occupying the Premises, concerning the presence, spill, release, discharge
of, or exposure to, any Hazardous Substance or contamination in, on, or about
the Premises, including but not limited to all such documents as may be
involved in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include,
but not be limited to, the effects of any contamination or injury to personal
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any
manner to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises caused by Lessee, including soil and groundwater conditions, and (iii)
Lessee use, generation, manufacture, production, installation,
maintenance, removal, transportation, storage, spill or release of any
Hazardous Substance or storage tank), now in effect or which may hereafter come
into effect, and whether or not reflecting a change in policy from any
previously existing policy. Lessee shall, within five days after receipt of
Lessor's written request, provide Lessor with copies of all documents and
information, including, but not limited to, permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with any
Applicable Law specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint report pertaining to or
involving failure by Lessee or the Premises to comply with Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and to advise Lessor
with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of Hazardous
Substance or storage tank on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease, violation of Applicable Law, or a contamination, caused or
materially contributed to by Lessee is found to exist or be imminent, or unless
the inspection is requested or ordered by a governmental authority as the result
of any such existing or imminent violation or contamination caused by Lessee. In
any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as
the case may be, for the costs and expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants,
<PAGE> 3
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all times
keep the Premises and every part thereof in good order, condition and repair,
structural and non-structural (whether or not such portion of the Premises
requiring repairs, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as a
result of Lessee's use, any prior use, the elements or the age of such portion
of the Premises), including, without limiting the generality of the foregoing,
all equipment or facilities serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired or
unfired pressure vessels, fire sprinkler and/or standpipe and hose or other
automatic fire extinguishing system, including fire alarm and/or smoke detection
systems and equipment, fire hydrants, fixtures, walls (interior and exterior),
foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks
and parkways located in, on, about, or adjacent to the Premises. Lessee shall
not cause or permit any Hazardous Substance to be spilled or released in, on,
under or about the Premises (including through the plumbing or sanitary sewer
system) and shall promptly, at Lessee's expense, take all investigatory and/or
remedial action reasonably recommended, whether or not formally ordered or
required, for the cleanup of any contamination of, and for the maintenance,
security and/or monitoring of the Premises, the elements surrounding same, or
neighboring properties, that was caused or materially contributed to by Lessee,
or pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee or under its control. Lessee, in
keeping the Premises in good order, condition and repair shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all Improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance to and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) drain maintenance
and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
nonstructural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the Improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation and/or upon Lessee posting an additional
Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of
any work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition Lessor may
require Lessee to pay Lessor's reasonable attorney's fees and costs in
participating in such action if Lessor shall reasonably decide it is to its best
interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4 all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligations of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of Insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "Insured
Contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease as carried by Lessee
shall not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance to be carried by Lessee shall be primary to
and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
<PAGE> 4
8.3 PROPERTY INSURANCE -- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or
damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender), including coverage for any additional
costs resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or
replacement of any undamaged sections of the Premises required to be demolished
or removed by reason of the enforcement of any building, zoning, safety or land
use laws as the result of a covered cause of loss. Said policy or policies
shall also contain an agreed valuation provision in lieu of any coinsurance
clause, waiver of subrogation, and initiation guard protection causing an
increase in the annual property insurance coverage amount by a factor of not
less than the adjusted U.S. Department of Labor Consumer Price Index for All
Urban Consumers for the city nearest to where the Premises are located. If such
insurance coverage has a deductible clause, the deductible amount shall not
exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the
full rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event the
Lease is terminated by reason of an insured loss, the period of indemnity for
such coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be
liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned
Alterations and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such Insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide
Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a Lender
having a lien on the Premises, as set forth in the most current issue of
"Best's Insurance Guide." Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in this Paragraph 8.
If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of such insurance with the insureds and loss payable
clauses as required by this Lease. No such policy shall be cancellable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "Insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand. If the Insuring Party shall fail to procure and maintain the insurance
required to be carried by the Insuring Party under this Paragraph 8, the other
Party may, but shall not be required to, procure and maintain the same, but at
Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured
against under Paragraph 8. The effect of such releases and waivers of the right
to recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties on other provisions of this Lease, Lessee shall indemnify, protect,
defend and hold harmless the Premises, Lessor and its agents, Lessor's master or
ground lessor, partners and Lenders, from and against any and all claims, loss
of rents and/or damages, costs, liens, judgments, penalties, permits, reasonable
attorney's and consultant's fees, expenses and/or liabilities arising out of,
involving, or in dealing with, the occupancy of the Premises by Lessee, the
conduct of Lessee's business, any act, omission or neglect of Lessee, its
agents, contractors, employees or invitees, and out of any Default or Breach by
Lessee in the performance in a timely manner of any obligation on Lessee's part
to be performed under this Lease. The foregoing shall include, but not be
limited to, the defense or pursuit of any claim or any action or proceeding
involved therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Lessor by reason of any of the
foregoing matters, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit thereon.
9. DAMAGE OR DESTRUCTION
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE -- INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the
insurance proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or
the insurance proceeds are not sufficient to effect such repair, the Insuring
Party shall promptly contribute the shortage in proceeds (except as to the
deductible which is Lessee's responsibility) as and when required to complete
said repairs. In the event, however, the shortage in proceeds was due to the
fact that, by reason of the unique nature of the improvements, full replacement
cost insurance coverage was not commercially reasonable and available, Lessor
shall have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless Lessee provides Lessor
with the funds to cover same, or adequate assurance thereof, within ten (10)
days following receipt of written notice of such shortage and request therefor.
If Lessor receives said funds or adequate assurance thereof within said ten
(10) day period, the party responsible for making the repairs shall complete
them as soon as reasonably possible and this Lease shall remain in full force
and effect. If Lessor does not receive such funds or assurance within said
period, Lessor may nevertheless elect by written notice to Lessee within ten
(10) days thereafter to make such restoration and repair as is commercially
reasonable with Lessor paying any shortage in proceeds in which case this Lease
shall remain in full force and effect. If in such case Lessor does not so
elect, then this Lease shall terminate sixty (60) days following the occurrence
of the damage or destruction. Unless otherwise agreed, Lessee shall in no event
have any right to reimbursement from Lessor to
<PAGE> 5
any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible as Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following Lessee's
said commitment. In such event this Lease shall continue in full force and
effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice
of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the
damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of the Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within thirty (30) days after the date of occurrence
of such damage. Provided, however, if Lessee at that time has an exercisable
option to extent this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, within twenty (20) days following the occurrence of the
damage, or before the expiration of the time provided in such option for its
exercise, whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option
and (ii) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs. If Lessee duly exercises such
option during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall,
at Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term of provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (PARTIAL
DAMAGE -- INSURED), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "COMMENCE" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee has caused it (in which case Lessee shall make the
investigation and remediation thereof required by Applicable Law and this Lease
shall continue in full force and effect, but subject to Lessor's rights under
Paragraph 13), Lessor may at Lessor's option either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to investigate and remediate
such condition exceeds twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater, give written notice to Lessee within thirty (30) days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition of Lessor's desire to terminate this Lease as of the date
sixty (60) days following the giving of such notice. In the event Lessor elects
to give such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to give
written notice to Lessor of Lessee's commitment to pay for the investigation and
remediation of such Hazardous Substance Condition totally at Lessee's expense
except to the extent of an amount equal to twelve (12) times the then monthly
Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with
the funds required of Lessee or satisfactory assurance thereof within thirty
(30) days following Lessee's said commitment. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
investigation and remediation as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the
required funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination. If a
Hazardous Substance Condition occurs for which Lessee is not legally
responsible, there shall be abatement of Lessee's obligations under this Lease
to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed
twelve (12) months.
9.8 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been, or is not then required to be, used by Lessor under
the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid be Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration if
Lessee shall fail to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In order to incur payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
Installment due, prior to the applicable delinquency date, or (ii) only after a
default monthly in advance with the payment of the Base Rent. If Lessor elects
to require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment taxes to be paid. When the actual amount
of the applicable tax bill is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to
Lessor under the provisions of this Paragraph may, subject to proration as
provided in Paragraph 10.1(a) at the option of Lessor, be treated as an
additional Security Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY
TAXES" shall also include any tax, fee, levy, assessment or charge, or any
increase thereon imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but not
limited to a change in the ownership of the Premises or in the improvements
thereon, the execution of this Lease, or any modification, amendment or
transfer thereof, and whether or not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
on all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuation
<PAGE> 6
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all taxes
assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause its Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor,
if any of Lessee's said personal property shall be assessed with Lessor's real
property. Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms on Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results of will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "NET WORTH OF
LESSEE" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment of subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Any assignment or subletting to which Lessor's consent is
required, shall not: (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of a
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignment of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantor or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessee's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended and/or required
modification of the Premises, if any. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and incoming arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under the Lease
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublessee, be deemed liable to the sublessee for
any failure of Lessee to perform and comply with any of Lessee's obligations to
such sublessee under such sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon such statement and request from Lessor
and shall pay such rents and other charges to Lessor without any obligation or
right to inquire as to whether such Breach exists and notwithstanding any notice
from or claim from Lessee to the contrary. Lessee shall have no right or claim
against said sublessee or, until the Breach has been cured, against Lessor, for
any such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any other prior Defaults or
Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as herein
defined), $350.00 is a reasonable minimum sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said Default. A "DEFAULT" is defined as a failure
by the Lessee to observe, comply with or perform any of the terms, covenants,
conditions or rules applicable to Lessee under this Lease. A "Breach
<PAGE> 7
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 8.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recision of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the execution of any document requested under Paragraph 42 (easements), or
(viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice by or on
behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than
those described in subparagraphs (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or
on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this Lease
by Lessee if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided,
however, in the event that any provision of this subparagraph (a) is contrary
to any applicable law, such provision shall be of no force or effect, and not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a Breach of
this Lease by Lessee, as defined in Paragraph 13.1, with or without further
notice or demand, and without limiting Lessor in the exercise of any right or
remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b) (c) or (d) was not
previously given, a notice to pay rent or quit, or to perform or quit, as the
case may be, given to Lessee under any statute authorizing the forfeiture of
leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by subparagraphs 13.1(b), (c) or (d). In such
case, the applicable grace period under subparagraphs 13.1(b), (c) or (d) and
under the unlawful detainer statute shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations. Sub-
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver
to protect the Lessor's interest under the Lease, shall not constitute
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or the giving
or paying by Lessor to or for Lessee of any cash or other bonus, inducement or
consideration for Lessee's entering into this Lease, all of which concessions
are hereinafter referred to as "Inducement Provisions," shall be deemed
conditioned upon Lessee's full and faithful performance of all of the terms,
covenants and conditions of this Lease to be performed or observed by Lessee
during the term hereof as the same may be extended. Upon occurrence of a Breach
of this Lease by Lessee, as defined in Paragraph 13.1, any such inducement
Provision shall automatically be deemed deleted from this Lease and of no
further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessee under such an
inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. This acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by the Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by
the terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to five percent (5%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph ?? or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor not to exceed thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee in
writing for such purposes, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that the nature of Lessor's
obligation is such that more than thirty (30) days after such notice are
reasonably required for its performance, then Lessor shall be in breach of this
Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of ?? power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes
<PAGE> 8
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall in the
extent of the net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damage required to
complete such repair.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute acknowledge
and deliver to the Requesting Party a statement in writing in form similar to
the then most current "TENANCY STATEMENT" form published by the American
Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purpose herein
set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if there
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Broker that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to the Lease and as to
the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default breach hereof
by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addressee noted adjacent to a Party's signature on this Lease will be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notifying purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt or
if no delivery date is shown, the postmark thereon. If sent by regular mail the
notice shall be deemed given forty-eight (48) hours after the same is addressed
as required herein and mailed with postage prepaid. Notices delivered by United
States Express Mail or overnight courier that guarantees next-day delivery shall
be deemed given twenty-four (24) hours after delivery of the same to the United
States Postal Service or courier. If any notice is transferred by facsimile
transmission or similar means, the same shall be deemed served or delivered upon
telephone confirmation of receipt of the transmission thereof, provided a copy
is also delivered via delivery or mail. If notice is received on a Sunday or
legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition of Lessor's consent to,
or approval of, any act shall not be deemed to render unnecessary the obtaining
of Lessor's consent to, or approval of, any subsequent or similar act by Lessee,
or be construed as the basis of an estoppel to enforce the provision or
provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any previous Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum Lease for
recording purposes. The Party requesting recordation shall be responsible for
payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
<PAGE> 9
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duly, liability or obligation to perform any of the obligations of Lessor under
this Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the
cure of said default before invoking any remedies Lessee may have by reason
thereof. If any Lender shall elect to have this Lease and/or any Option granted
hereby superior to the lien of its Security Device and shall give written
notice thereof to Lessee, this Lease and such Options shall be deemed prior to
such Security Device, notwithstanding the relative dates of the documentation
or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from
the Lender that Lessee's possession and this Lease, including any options to
extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fees award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal
action is subsequently commenced in connection with such Default or resulting
Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times upon reasonable prior notice for
the purpose of showing the same to prospective purchasers, lenders, or lessees,
and making such alterations, repairs, improvements or additions to the Premises
or to the building of which they are a part, as Lessor may reasonably deem
necessary. Lessor may at any time place on or about the Premises or building
any ordinary "For Sale" signs and Lessor may at any time during the last one
hundred twenty (120) days of the term hereof place on or about the Premises any
ordinary "For Lease" signs. All such activities of Lessor shall be without
abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate ?? the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or more of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld,
conditioned or delayed. Lessor's actual reasonable costs and expenses (including
but not limited to architects', attorneys', engineers' or other consultants'
fees) incurred in the consideration of, or response to, a request by Lessee for
any Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation thereto. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot, except in connection with a permitted transfer, be voluntarily or
involuntarily assigned or exercised by any person or entity other than said
original Lessee while the original Lessee is in full and actual possession of
the Premises and without the intention of thereafter assigning or subletting.
The Options, if any, herein granted to Lessee are not assignable, either as a
part of an assignment of this Lease or separately or apart therefrom, except in
connection with a permitted transfer, and no Option may be separated from this
Lease in any manner, by reservation or otherwise.
<PAGE> 10
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of Default under Paragraph
13.1, whether or not the Defaults are cured, during the twelve (12) month
period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the term
of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of Default under Paragraph
13.1 during any twelve (12) month period, whether or not the Defaults are
cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for
the management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred
in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such assessments, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of his Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease
is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
ON BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
<TABLE>
<S> <C>
Executed at Any Mountain LTD Executed at ______________________
on Sept. 4 '97 by LESSOR: on _______________________________
by LESSOR: by LESSEE:
Packeteer, Inc.
Eldon R. Hoffman, a single man a Delaware corporation
By /s/ ELDON R. HOFFMAN By /s/ CRAIG ELLIOTT
--------------------------------- --------------------------------
Name Printed: ELDON R. HOFFMAN Name Printed: Craig Elliott
----------------------- --------------------
Title: INDIVIDUAL Title: CEO
------------------------------ ---------------------------
By _________________________________ By /s/ Brett D. Galloway
-------------------------------
Name Printed: ______________________ Name Printed: Brett D. Galloway
---------------------
Title: _____________________________ Title: COO/CFO
---------------------------
Address: ___________________________ Address: _________________________
____________________________________ __________________________________
Tel. No. (__) _____ Fax No. (__)____ Tel. No. (__)____ Fax No. (__)____
</TABLE>
PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing
the most current form: American Industrial Real Estate Association,
345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071.
Fax. No. (213) 687-8616.
<PAGE> 11
ADDENDUM TO
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
BETWEEN
ELDON R. HOFFMAN, LESSOR
AND
PACKETEER, INC., LESSEE
This addendum is attached to and made a part of the Lease dated August 25,
1997 between Eldon R. Hoffman, Lessor, and Packeteer, Inc., Lessee for the real
property commonly known as 10495 De Anza Boulevard, Cupertino, CA.
49. The "Commencement Date" shall be the date that a certificate of
occupancy is issued with respect to Tenant Improvements, but not later than
December 1, 1997, unless Lessee's delay in completion of Tenant Improvements is
due to any act or omission of Landlord which causes Landlord to deliver the
Premises to Lessee later than September 4, 1997, or unreasonably interferes with
Lessee's ability to construct Tenant Improvements. Lessor's reasonable
demolition will not be deemed an interference. Any change in Commencement Date
will not affect, advance nor delay the Expiration Date of the Original Term. For
purposes of calculating rents and all time periods, December 1997 shall be
considered to be the first month and November 2002 shall be considered to be the
sixtieth month, and a Lease Year shall be deemed to commence on December 1, of
each year and to terminate on November 30 of the following calendar year,
regardless of when the Commencement Date actually occurs.
If Lessee believes that Lessor is interfering with Lessee's ability to
construct Tenant Improvements, Lessee shall notify Lessor immediately so that
Lessor can take reasonable measures to reduce or eliminate the interference.
50. Notwithstanding paragraph 1.5 of the Lease to the Contrary, the Base
Rent shall be as follows:
<PAGE> 12
The Base Rent for each full calendar month of this lease shall be as
follows:
<TABLE>
<CAPTION>
Months Monthly Rent
<S> <C>
1-12 $55,350.00
13-24 $58,117.50
25-36 $61,022.70
37-48 $64,073.70
49-60 $67,278.50
</TABLE>
51. Notwithstanding paragraphs 1.6 and 1.7 of the Lease to the contrary,
Lessee shall pay the security deposit referenced in paragraph 1.7 and shall
prepay a portion of the first month's rent in the amount of $27,223 upon
execution of this lease, but shall not prepay rent upon execution in any
greater amount than specified herein.
In the event that the Commencement Date is not on the first day of a
calendar month, rent for the partial month i which the Commencement Date occurs
shall be paid by Lessee to Lessor within five days after the Commencement Date.
52. Notwithstanding any provision of the lease to the contrary, Lessor
does not warrant the operating condition of the outside artificial creeks in
accordance with paragraphs 2.2 and 2.3 of the Lease. The artificial creek beds,
plumbing and pumps are currently not operational. Lessor will, at Lessor's
cost, reconfigure and repair the parking lot before the Commencement Date*.
Lessor will, at Lessor's cost, be responsible for replacing, prior to the
Commencement Date, all broken glass in existence before the execution of this
Lease. (Lessee and Lessor may agree that Lessee will replace the glass on
behalf of Lessor.) Lessor also warrants that the roof, roofing, building
foundations, and structural elements of the building and exterior walls shall
be in good operating condition on the Commencement Date, although Lessee shall
not be required to give Lessor written notice of non-compliance within 30 days
after the Commencement Date to preserve this warranty as to these items as long
as Lessee gives Lessor written notice of non-compliance within a reasonable
time after Lessee becomes aware of such non-compliance. In the event that there
is non-compliance with the Lessor's warranties as set forth in paragraph 2.3 of
the Lease, Lessee shall give written notice of a non-compliance within 6 months
following the Commencement Date only if the non-compliance was ascertainable
upon a reasonable inspection during such six month period, otherwise within 30
days after Lessee
* Any parking changes required by the Cupertino Planning Commission in the
future will be made at lessor's cost.
<PAGE> 13
becomes aware of such non-compliance.
HVAC Warranty: Notwithstanding any provision of the Lease of this Addendum
to the contrary, Lessor warrants the operating condition of all existing HVAC
units for a period of 120 days from the Commencement Date. Lessor also warrants
the single 15 ton HVAC unit for the term of this lease, as follows: Landlord
will be responsible for 75% of the replacement cost of a 15 ton HVAC unit if the
current 15 ton unit has to be replaced, either because of mechanical breakdown
or if a larger unit is needed by tenant before the Commencement Date. After the
Commencement Date, Lessor will be responsible for 75% of the replacement cost
of a 15 ton HVAC unit if the current 15 ton unit has to be replaced because of
mechanical breakdown. The percentage of Lessor's responsibility shall increase
by 1% upon the passage of each quarter of a Lease Year.
53. Notwithstanding any provision of the Lease to the contrary, the rent
abatement specified in paragraph 3.2 of the Lease shall terminate on the date
that Lessee commences the operation of business in the Premises. The monthly
rent for the period of such early possession shall be equal to the monthly rent
for the first month and shall be prorated on a daily basis.
54. Notwithstanding the provisions of paragraph 6.2(a) of the lease, a
hazardous substance "Reportable Use" shall not include the presence in, on or
about the Premises of a Hazardous Substance which was not caused by Lessee
unless Lessee has actual knowledge about the presence of the Hazardous
Substance and that Applicable Law requires that notice be given.
55. Landlord shall have the duty to inform the Lessee of any condition to
the same extent that Lessee would have an obligation to inform Landlord under
paragraph 6.2(b).
56. In addition to Lessee's obligation to indemnify Landlord pursuant to
paragraph 6.2(c), Lessor defends, indemnifies and holds Lessee harmless from
and against any and all liability, damages, loss, suits, claims, actions, costs
and expenses, including without limitation reasonable attorney's fees, arising
from any contamination of the Premises by Hazardous Substances, where such
contamination was caused by Landlord. Lessor further warrants that as of the
execution date of this lease Landlord is not aware of any contamination by and
Hazardous Substance. The provisions of this paragraph shall survive the
termination of this lease.
57. Notwithstanding any provision of paragraph 6.3, Lessee shall not be
responsible for compliance with any laws, codes, ordinances or other
governmental directives where such compliance is not related to Lessee's use
and occupancy of the Premises. For example, if any governmental authority
should require the building which is a part of the Premises to be structurally
strengthened against earthquake, or should
3
<PAGE> 14
require the removal of asbestos from the Premises which predated the execution
of this Lease and such measures are imposed as a general requirement applicable
to properties generally in the geographic region where the Premises are located
rather than as a condition to Lessee's specific use or occupancy of the
Premises, Tenant is not obligated to comply with such laws.
58. Notwithstanding any provision of the Lease to the contrary, Lessee's
obligation to maintain the Premises as set forth in Lease paragraph 7.1 shall
not include the roof, roofing, building foundations, and structural elements of
the building and exterior walls, provided that Lessee shall keep the roof and
roof damage free from dirt, leaves and other obstructions and that Lessee shall
maintain the non-structural aspects of the exterior walls.
59. Notwithstanding any provision of the Lease to the contrary, Lessor's
obligation to maintain the Premises as set forth in Lease paragraph 7.2 is
hereby modified: Lessor shall be responsible for maintaining the roof, roofing,
building foundations, and structural elements of the building and exterior
walls of the Premises. Lessor will remove the pine tree that is extending over
the roof.
60. Notwithstanding the provisions of section 7.3(a) of the Lease to the
contrary, the dollar threshold for Alterations and/or Utility Installations
shall be $50,000 per Alteration or Utility Installation and $200,000 cumulative
during the term of the lease as extended.
61. Notwithstanding the provisions of section 7.4(b) of the Lease to the
contrary, if Lessor's consent to an Alteration or Utility Installation is
required, Lessor may require that Lessee remove any Alterations or Utility
Installations at the expiration or termination of the Lease only if Lessor
notified Lessee in writing at the time that Lessor consented to the
installation, by way of condition or otherwise, that removal would be required.
Lessor conditioning Lessor's consent upon removal shall not be construed as an
unreasonable condition or withholding of consent.
62. Notwithstanding any provision of the Lease to the contrary, the
minimum amount of liability insurance specified in paragraph 8.2 shall be
$5,000,000.
63. A new paragraph 9.10 is hereby added, as follows:
9.10 Lessee's right to terminate. Notwithstanding anything to the
contrary contained here, if Lessee's use of the Premises is substantially
impaired by a casualty which is Lessor's obligation to restore for a period of
more than 180 days after the date of the casualty, Lessee shall have the right
to terminate this Lease by written notice to Lessor at any time thereafter
until Lessee's use of the Premises is substantially restored.
4
<PAGE> 15
64. Notwithstanding the provisions of section 10.2 of the Lease to the
contrary, Lessee shall not be responsible for any increase in real property
taxes to the extent caused by a change in ownership during the initial term of
the lease.
65. Notwithstanding the provisions of section 12.1 of the Lease to the
contrary, Lessor's consent shall not be required for any Permitted Transfer and
Lessor shall not be entitled to any sums or other economic benefit to Lessee
from any Permitted Transfer. A Permitted Transfer shall mean the assignment of
the Lease to any entity which controls, is controlled by, or is under common
control with Lessee, to any entity which results from a tax deferred merger,
reorganization or consolidation with Lessee, or to any entity which acquires
substantially all of the stock or assets of Lessee in a tax deferred
acquisition, as a going concern, with respect to the business that is being
conducted in the Premises. In addition, the hypothecation or issuance of any
stock of Lessee in connection with debt financing or the capitalization of
Lessee (including a public offering) for the benefit of Lessee shall be a
Permitted Transfer.
66. This paragraph shall replace section 12.2(h) of the Lease. If Lessee
subleases any part of the Premises at any time during the first or second Lease
Year, Lessee shall be entitled to 100% of the sublease rents. If any part of
the Premises is being sublet at any time after the Second Lease Year except for
a Permitted transfer, then the amount of rent payable by the sublessee, to the
extent it exceeds the amount of rent payable by Lessee, shall be divided
equally between Lessee and Lessor. For the purpose of calculating the excess of
the sublease rents over the amount of rent payable by the Lessee, the amount
payable by the sublessee shall first be reduced by the actual amount expended
by Lessee to third parties for the reasonable cost of leasing commissions,
advertising and legal fees, and the amount of rent payable by Lessee
attributable to the subleased space shall be calculated on the basis of the
premises containing 27,000 square feet.
67. Paragraph 13.1(a) which states "The Vacating or the Premises without
the intention to reoccupy same, or the abandonment of the Premises" is deleted
in its entirety. However, Lessee shall have the obligation to maintain and
protect the Premises and to prevent the rates of insurance from being increased
or of insurance being canceled, and to otherwise comply with the terms of this
lease in all respects.
68. Paragraph 15 is deleted in its entirety. Lessor has entered into a
written listing agreement with MacMillan, Moore & Buchanan, Inc. and will pay a
commission in accordance with that agreement. Neither Lessor nor Lessee has
entered into any agreement with CPS. The Commercial Property Services Company,
and CPS shall receive compensation in accordance with its agreement with
MacMillan, Moore & Buchanan, Inc. Each party agrees to indemnify the other
against any other broker's commissions incurred by the indemnifying party.
5
<PAGE> 16
69. Notwithstanding any provision of the Lease to the contrary, the rate
of interest on past-due obligations specified in paragraph 19 shall not exceed
10% per annum.
70. "Non-monetary modifications" to the lease as used in Paragraph 47
shall refer only to notice and address provisions and the addition of notice
and address provisions to include new lenders.
71. OPTION TO EXTEND
a. GRANT OF OPTION. Lessor hereby grants to Lessee one (1) option
(the "Option") to extend the term of the Lease for an additional term of
three (3) years (the "Extended Term") commencing upon expiration of the
Original Term upon the terms and conditions set forth in the Lease and in
this Addendum, as the same may be amended from time to time by the parties
in accordance with the provisions of the Lease. For purposes of the Option
to Extend, the Expiration Date of the Original Term is November 30, 2002,
and the first, second and third Lease Years of the Extended Term will
commence on December 1, 2002, 2003 and 2004 respectively.
b. EXERCISE OF OPTION. Lessee may exercise the Option by giving
Lessor written notice of its election to exercise the Option not more than
one year nor less than one hundred eighty (180) days prior to the
expiration of the Original Term. The exercise of the option shall not be
valid if Lessee is in default at the time Lessee exercises the option or at
the time the Extended Term is to commence.
c. EXTENDED TERM RENT. If the Option is exercised, the Base Rent for
each month of the first Lease Year of the Extended Term shall be the
greater of the then fair market rental value of the Premises or the Base
Rent for each month of the last year of the Original Term. The fair market
rental value of the premises shall be determined by the agreement of the
parties, or if the parties cannot agree at least 90 days prior to the
commencement of the Extended Term, then by appraisal in accordance with the
procedures set forth in paragraph 74. Base Rent for each Lease Year of the
Extended Term after the first shall be the Base Rent for the prior Lease
Year, increased by 5%.
72. LESSOR'S DEMOLITION. Lessor shall accomplish non-structural
demolition of the interior of the building within the Premises on or before
September 15, 1997, or alternately Lessor and Lessee may agree that Lessee will
perform the remaining demolition at Lessor's cost based upon a budget or other
mechanism for determining
6
<PAGE> 17
the cost. The demolition will be performed in accordance a demolition plan which
will be submitted to Lessor for review, a preliminary copy of which has been
discussed between Lessor and Lessee. A final copy of Lessee's demolition plan
will be presented to Lessor by August 27, 1997 and shall be subject to Lessor's
reasonable review. All demolition shall be in performed pursuant to applicable
government permits and in compliance with law. In the event that Lessor has not
completed Lessor's demolition by September 15, 1997, Lessee shall perform the
remaining demolition at Lessor's cost. The cost of Lessor's demolition work will
not be deducted from the Tenant Improvement Allowance set forth in paragraph 73.
Prior to the Commencement Date, Lessor shall also construct an additional
square footage of approximately 800 square foot in an area currently occupied
by a temporary floor. The figures of the total square footage of the Premises,
rent, security deposit and tenant improvement allowance are based on an agreed
square footage of 27,000 which includes the additional 800 square feet. If
Landlord does not or cannot construct the additional space, the square footage
of the Premises, rent, security deposit and tenant improvement allowance shall
all be reduced proportionately to compensate for the reduction of square
footage of the Premises from 27,000 to 26,200.
<PAGE> 18
73. TENANT IMPROVEMENTS BY LESSEE. Lessee shall be granted Early
Possession on September 4, 1997 in accordance with Paragraphs 1.4 and 3.2 of
this Lease to make improvements to the Premises to fit Lessee's requirements.
The detailed plans submitted to Lessor for work to be performed by Lessee after
Early Possession Date and before Commencement Date shall include a schedule
showing the total anticipated cost of all of Lessee's improvements. All Tenant
Improvements shall be accomplished in accordance with Lease Paragraph 7.3 and
other applicable provisions of the Lease.
Lessor shall provide Lessee with a cash allowance of Five Hundred Forty
Thousand and no/111 dollars ($540,000.00) (the "Tenant Improvement Allowance")
to be used by Lessee for the construction of Lessee's improvements (Tenant
Improvements) prior to Commencement Date. Lessor shall disburse said funds to
Lessee on or before the 15th calendar day of the month following the month in
which improvements have been actually constructed, upon presentation of approved
invoices. Lessor's payment shall be a percentage of the actual cost of
construction, in proportion to Lessor's contribution to the total anticipated
total cost of Lessee's improvements. For example: $540,000.00 (Lessor
Contribution) divided by $600,000.00 (Estimated Total Cost) = 9/10. The actual
cost of construction shall be documented by receipts and the actual construction
shall be subject to verification by Lessor or Lessor's representative.
Should Lessee be unable to complete all of the Tenant Improvements prior
to the commencement date specified in paragraph 1.5 of the Lease (December 1,
1997), then the Commencement Date shall be deferred until Lessee opens for
business up to a maximum of 15 days, and in no event will the Commencement Date
be later than December 15, 1997 unless extended in accordance with paragraph 49.
Lessee shall be totally responsible for the construction of Lessee's
improvements and Lessor shall have no other responsibility other than to
provide Lessor's Tenant Improvement Allowance. The Lessor's contribution toward
the Tenant Improvements shall be only for permanent improvements to the
Premises reasonably approved by Lessor and shall exclude Lessee's equipment,
furniture, furnishings, fixtures, data and communication cabling and removable
partitions. Included shall be the necessary design work, third party
construction and general management fees, and required permits and other
governmental fees. Architectural fees for the design and preparation of working
drawings are included, as stated above, however, their cost shall be limited to
Thirty Thousand and zero dollars ($30,000.00). Costs over and above this amount
shall be the responsibility of Lessee.
At any time after the lease has been executed and before Tenant
Improvements have been completed, Lessor can request that Lessee place money
into escrow for the remaining cost of the Tenant Improvement Allowance and
other items to be paid for by
8
<PAGE> 19
Lessor prior to the Commencement Date. These funds will be disbursed by the
escrow holder pursuant to escrow instructions from Lessee and Lessor as Lessor
becomes obligated to pay for these items. Lessee shall receive a credit against
future rent discounted at a rate equivalent to 7.5% per annum, provided however
that the credit can be claimed only to an amount each month equivalent to the
excess of the then current rent over the amount of the payment required from
Lessor to Wells Fargo Bank on the loan secured by the Premises. Lessee shall
pay the amount required to be paid by Lessor to Wells Fargo Bank, up to the
maximum amount of rent, directly to Wells Fargo Bank if requested by Wells
Fargo Bank.
As security for the prepayment of the tenant improvement allowance by
Lessee as provided in this section, Lessor shall grant to Lessee a lien secured
by a deed of trust in the Premises. The deed of trust shall be reconveyed when
the amount of the advance of the Tenant Improvement Allowance has been repaid
to Lessee or has been recovered through rent credits. Lessee agrees to
subordinate the lien of the deed of trust to Lessor's lenders as long as the
then fair market value of the Premises exceeds the amount of third party
financing secured by the Premises, plus 150% of the amount of the obligation
secured. Lessee waives any rights it may have to approve changes to any deed of
trust securing the loan from Wells Fargo Bank to Lessor and agrees that it will
execute any further documents requested by Wells Fargo Bank in connection with
its deed of trust on the Premises.
Lessor shall repay to Lessee the amount of the unused rent credit if the
Premises are sold or refinanced, or if Lessor's undeveloped property located in
Olympic Valley, California, is sold.
74. APPRAISAL. The appraised fair market rental value shall be determined
as set forth in this paragraph.
If it becomes necessary to determine the fair market rental value for the
Premises by appraisal, real estate appraiser(s), all of whom shall be members
of the American Institute of Real Estate Appraisers and who have at least five
(5) years experience appraising commercial and industrial real property located
in the vicinity of the Premises shall be appointed and shall act in accordance
with the following procedures:
(1) If the parties are unable to agree on the fair market rental
value within the allowed time, either party may demand an appraisal by
giving written notice to the other party, which demand to be effective must
state the name, address and qualifications of an appraiser selected by the
party demanding an appraisal (the "Notifying Party"). Within ten (10) days
following the Notifying Party's appraisal demand, the other party (the
"Non-Notifying Party") shall either approve the appraiser selected by the
<PAGE> 20
Notifying Party or select a second properly qualified appraiser by giving
written notice of the name, address and qualification of said appraiser to the
Notifying Party. If the Non-Notifying Party fails to select an appraiser within
the ten (10) day period, the appraiser selected by the Notifying Party shall be
deemed selected by both parties and no other appraiser shall be selected. If two
appraisers are selected, they shall select a third appropriately qualified
appraiser. If the two appraisers fail to select a third qualified appraiser, the
third appraiser shall be appointed by the then presiding judge of the county
where the Premises are located upon application by either party.
(2) If only one appraiser is selected, that appraiser shall notify the
parties in simple letter form of its determination of the fair market rental
value of the Premises within fifteen (15) days following his selection, which
appraisal shall be conclusively determinative and binding on the parties as the
appraised fair market rental value.
(3) If multiple appraisers are selected, the appraisers shall meet not
later than ten (10) days following the selection of the last appraiser. At such
meeting the appraisers shall attempt to determine the fair market rental value
of the Premises as of the commencement date of the Extended Term by the
agreement of at least two (2) of the appraisers.
(4) If two (2) or more of the appraisers agree on the fair market rental
value of the Premises at the initial meeting, such agreement shall be
determinative and binding upon the parties hereto and the agreeing appraisers
shall, in simple letter form executed by the agreeing appraisers, forthwith
notify both Lessor and Lessee of the amount set by such agreement. If multiple
appraisers are selected and at least two (2) appraisers are unable to agree on
the fair market rental value of the Premises, all appraisers shall submit to
Lessor and Lessee an independent appraisal of the fair market rental value of
the Premises in simple letter form within twenty (20) days following
appointment of the final appraiser. The parties shall then determine the fair
market rental value of the Premises by averaging the appraisals, provided that
any high or low appraisal, differing from the middle appraisal by more than ten
percent (10%) of the middle appraisal, shall be disregarded in calculating the
average.
<PAGE> 21
(5) Any determination of fair market rental value of the Premises
made pursuant to any provision of this Lease, whether by agreement of the
parties or by appraisal pursuant to this paragraph, shall be based upon
the following: (1) that the Premises would be leased for three years at a
fixed monthly rent subject to such periodic adjustments as are then
prevailing in the relevant market for comparable space to a third party
Lessee as financially strong as Lessee as of the date the option is
exercised on the same terms as contained in this Lease, particularly with
regard to Lessee's obligation to pay additional rent and its obligations
to repair and maintain; and (2) the fair market rental value of the
Premises shall not include any part of value added by improvements made by
Lessee to the extent that the cost of such improvements exceeded the
Tenant Improvement Allowance or were made by Lessee at its expense.
(6) If only one appraiser is selected, then each party shall pay
one-half of the fees and expenses of that appraiser. If three appraisers
are selected, each party shall bear the fees and expenses of the appraiser
it selects and one-half of the fees and expenses of the third appraiser.
75. APPROVAL OF USE BY THE CITY OF CUPERTINO. It is understood by both
parties to this Lease that a Conditional Use Permit (CUP) changing the status of
the Premises from Retail to R&D/Office, and confirming that adequate parking has
been approved to comply with applicable laws and requirements, must be obtained
by August 30, 1997 from the City of Cupertino. Should Lessor not be able to
secure said CUP this Lease shall be null and void and all Rent and Deposits made
at Lease execution shall be returned to Lessee with the exception of
Architectural Fees expended by Lessor to date which will be split 50/50 between
Lessor and Lessee.
76. APPROVAL OF LEASE BY WELLS FARGO BANK. It is understood by both
parties to this lease that Lessor's lender, Wells Fargo Bank, must approve of
this lease and agree to a non-disturbance agreement in a form reasonably
acceptable to Lessee on or before September 4, 1997. Should Wells Fargo Bank
not approve by that date, this Lease shall be null and void and all Rent and
Deposits made at Lease execution shall be returned to Lessee with the exception
of Architectural Fees expended by Lessor to date which will be split 50/50
between Lessor and Lessee.
77. SIGNAGE RIGHTS FOR ANY MOUNTAIN, LTD. The current tenant in the
Premises, Any Mountain, Ltd. shall have the right to place a 4' x 8' sign on
the lawn facing De Anza Blvd until January 1, 1998 and a six square foot sign
to the left of the main entrance until July 1, 1998 which announce the
relocation of Any Mountain's store. Notwithstanding the provisions of paragraph
34 to the contrary, Lessor shall have no right to place any signs on the
Premises except for signs announcing the availability
11
<PAGE> 22
of the Premises for rent during the last six months of the Initial term and any
Extended Term.
Should any conflict exist between this Addendum and the Lease, then this
Addendum shall prevail.
<TABLE>
<S> <C>
LESSOR LESSEE
Eldon R. Hoffman Packeteer, Inc.
a single man a Delaware corporation
/s/ ELDON R. HOFFMAN By: /s/ Craig Elliott
- ------------------------------ ------------------------------
Eldon R. Hoffman Its: CEO
Date: September 4, 1997 Date: 9/4/97
By: /s/ Brett D. Galloway
------------------------------
Its: CFO/COO
Date: 9/4/97
</TABLE>
12
<PAGE> 1
PACKETEER, INC.
OEM AGREEMENT
AGREEMENT NO. 2080
THIS OEM AGREEMENT (the "Agreement") is entered into as of this 17 day of
December, 1998 (the "Effective Date"), by and between PACKETEER, INC., a
Delaware corporation having its principal place of business at 10495 N. De Anza
Blvd., Cupertino, CA 95014 (together with any Affiliates, "Packeteer"), and ADC
TELECOMMUNICATIONS, INC., a Minnesota corporation having its principal place of
business at 12501 Whitewater Drive, Minnetonka, MN 55343 (together with any
Affiliates, "ADC").
RECITALS
Packeteer is engaged in the design and manufacture of certain products,
incorporating both hardware and software elements, which products are utilized
in the allocation of bandwidth on wide area network access lines, and related
products.
ADC is engaged in the design and manufacture of certain products,
incorporating both hardware and software elements, which products are utilized
in networks.
ADC desires to port Packeteer's software to ADC's platform, and to
incorporate additional ADC software and hardware elements to create an enhanced
WAN access product and to distribute such product.
Accordingly, the parties agree as follows:
1. DEFINITIONS
1.1 "AFFILIATE" means an entity controlling, controlled by, or under
common control with a party, such control being exercised through ownership or
control, directly or indirectly, of 50% or more of the voting power of the
shares.
1.2 "ADC PRODUCT" means ADC's product that incorporates the Ported
Software, and which provides all the functionality detailed in ATTACHMENT F
("Specifications for ADC Product"), and no greater or lesser functionality than
that detailed therein. In addition to the Ported Software, the ADC Product
includes the following components:
1.2.1 "ADC SOFTWARE" means the software portion of the ADC Product
(other than the Ported Software) developed by or for ADC. The ADC Software has
been partially developed as of the Effective Date. The ADC Software will be
integrated with Packeteer Software only through the Packeteer API.
1.2.2. "ADC HARDWARE" means the hardware portion of the ADC Product
developed by or for ADC.
1.
<PAGE> 2
1.3 PACKAGES. The Packeteer Software comprises a single OEM software
component that includes the following packaging options:
1.3.1 "APPLICATION DISCOVERY SOFTWARE PACKAGE" (SHAPING OFF MODE)
means the Packeteer Software as enabled only for analyzing network traffic flow
and usage and for measuring information related to the network traffic flow, as
described in the PacketShaper/ADC OEM Deliverables document referenced in
ATTACHMENT A ("Packeteer Software").
1.3.1 "RATE CONTROL SOFTWARE PACKAGE" (SHAPING ON/OFF MODE) means the
Packeteer Software as enabled for analyzing network traffic flow and usage and
for prioritizing packets and limiting/controlling partitions that specify
minimum and maximum levels for aggregate traffic classes, as described in the
PacketShaper/ADC OEM Deliverables document referenced in ATTACHMENT A
("Packeteer Software").
1.4 "PACKETEER DOCUMENTATION" means the training manuals and end user
manuals supplied to ADC by Packeteer relating to the Packeteer Software.
1.5 "PACKETEER SOFTWARE" means that software listed as "Packeteer
Software" in ATTACHMENT A ("Packeteer Software), and any Updates thereto
provided under this Agreement. The Packeteer Software includes the following
components:
1.5.1 "PACKETEER SOFTWARE SOURCE" means the human-readable source
code for the Packeteer Software. The Packeteer Software Source does not include
any third party software or materials which Packeteer is unable to sublicense
in source code form.
1.5.2 "PACKETEER SOFTWARE INFORMATION" means supporting information
provided by Packeteer to enable a programmer reasonably skilled in the art to
make use of the Packeteer Software source.
1.5.3 "PACKETEER API" means an application programming interface
developed by Packeteer to permit third party software (such as the ADC
Software) to call certain documented functions in the Packeteer Software. The
Packeteer API is described in detail in ATTACHMENT B ("PacketShaper: OEM
Software Porting Guide"), (the "PACKETSHAPER PORTING GUIDE document, Revision
1.10, dated 11/9/98.
1.6 "PORTED SOFTWARE" means the software, in object code form only,
resulting from ADC's porting and compilation of the Packeteer Software Source
and the Packeteer API to the ADC platform.
1.7 "SOURCE CODE SITES" means those geographic locations at which ADC may
access, store and use the Packeteer Software Source and that are specified in
ATTACHMENT H ("Source Code Sites"). The Source Code Sites may be changed, or
other sites added, upon mutual written agreement of the parties, where
Packeteer's approval will remain in its sole discretion.
1.8 "UPDATES" means those additions, modifications, error corrections,
bug fixes, enhancements, updates, upgrades, future versions and any derivative
works made by Packeteer (or by a third party on Packeteer's behalf) to the
Packeteer Software (or any component thereof)
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and made generally commercially available by Packeteer. Updates is not meant to
include other modules or plug-ins which have unique characteristics for
specific markets and that are designed to be used in connection with the
feature set (and no more than the feature set) of the Packeteer Software
provided to ADC in accordance with ATTACHMENT A ("Packeteer Software").
2. LICENSE GRANTS
2.1 LIMITED SOURCE CODE LICENSE. Subject to the terms and conditions of
this Agreement, Packeteer hereby grants to ADC a non-exclusive,
non-transferable license to use the Packeteer Software Source at a Source Code
Site for the sole purpose of porting and compiling the Packeteer Software
Source and Packeteer API to ADC's platform to create the Ported Software for
inclusion in the ADC Product.
2.2 DISTRIBUTION LICENSE. Subject to the terms and conditions of this
Agreement, Packeteer hereby grants to ADC a non-exclusive, non-transferable,
royalty-bearing license to reproduce the Ported Software and sublicense and
distribute (through multiple tiers of distribution) the Ported Software solely
as integrated with the ADC Product, by way of licenses to end user customers
("End User Licenses" and "End Users," respectively). Notwithstanding the
foregoing, ADC will be permitted to distribute Updates to existing End Users on
an unbundled basis.
2.3 EXCLUSIONS.
2.3.1 THIRD PARTY TOOLS. No license is granted hereunder to any third
party development tools or other software required to replicate the Packeteer
Software development environment ("Third Party Tools").
2.3.2 OTHER EXCLUDED COMPONENTS. The materials delivered may contain
certain third party software excluded from the definition of Packeteer Software
("Excluded Components"). Such Excluded Components and any additional or
different terms applicable thereto are described in ATTACHMENT A.
2.3.3 NO ADDITIONAL RIGHTS. ADC specifically acknowledges that, other
than as expressly set forth above, no rights to the Packeteer Software are
granted to ADC hereunder and there are no implied licenses under this
Agreement. Without limiting the generality of the foregoing, ADC acknowledges
that it has no right to modify the Packeteer Software Source or Packeteer API,
and that any modification will be deemed a material breach of the Agreement. In
addition to any remedies available to Packeteer for such breach, Packeteer will
have no obligations to support the modified Packeteer Software or the resulting
ADC Product, and ADC shall assign all rights, title and interest in any created
unpermitted modifications to Packeteer. Further, ADC agrees that the ADC
Software and ADC Hardware will only access the Ported Software by means of the
Packeteer API (i.e., no calls will be made to the Ported Software except
through the Packeteer API); breach of the foregoing will also be deemed a
material breach of this Agreement. Except as expressly set forth above, ADC
will have no right to sublicense or transfer the rights granted herein to any
third party.
2.4 DOCUMENTATION. Subject to the terms and conditions hereof, Packeteer
grants to ADC a royalty-free non-exclusive, non-transferable, sub-licensable
license to localize,
3.
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reproduce, distribute, reformat, modify and sublicense the Packeteer
Documentation so as to apply to the ADC Product. ADC recognizes that its
ownership of any derivative works of the Packeteer Documentation is subject to
Packeteer's underlying ownership of the Packeteer Documentation. ADC agrees
that it will not modify or delete any copyright notices or other proprietary
notices included in the Packeteer Documentation without written approval of
Packeteer. Packeteer will have the right to inspect the modified Packeteer
Documentation to ensure that it meets Packeteer's quality standards.
2.5 TRADEMARK LICENSE. Subject to compliance with the terms of this
Agreement (including, but not limited to, PARAGRAPH 11 ("Trademarks")) and
ATTACHMENT D ("Packeteer Trademarks"), Packeteer hereby grants to ADC a
non-exclusive, non-transferable, limited license to use the trademarks set
forth in ATTACHMENT D ("Packeteer Trademarks") in connection with the marketing
and distribution of the ADC Products.
2.6 END USER LICENSE. ADC will take all steps necessary to protect
Packeteer's proprietary rights in the Packeteer Software and to ensure that
each ADC Product will be accompanied by a localized copy of ADC's standard
software license agreement applicable to such software which will include terms
and conditions no less protective of Packeteer's interests as those set forth
in ATTACHMENT C ("Packeteer End User License Agreement").
3. DELIVERY
3.1 INITIAL DELIVERY; ACCEPTANCE. Upon receipt of the Initial Delivery
Fee, Packeteer will deliver the Packeteer Software to ADC, including the
Packeteer Software Source, the Packeteer Software Information, the Packeteer
API, and the Packeteer Documentation, all in electronic form, and where
suitable, also in paper form. The Packeteer Software will be deemed accepted
upon delivery.
3.2 MAINTENANCE DELIVERIES. So long as ADC has paid the applicable
maintenance fees and Packeteer is still offering maintenance releases for the
Packeteer Software, Packeteer will deliver applicable Updates to the Packeteer
Software as such Updates are made generally available to Packeteer's customers.
Such deliveries will be deemed accepted upon delivery.
3.3 INCORPORATING UPDATES. ADC will have the opinion to incorporate such
Updates into the ADC Product, provided that if ADC fails to successfully
incorporated such Updates within one (1) year after such Update is made
available to ADC, (a) the trademark license set forth in PARAGRAPH 2.5
("Trademark License") will terminate and ADC will cease to use the Trademarks
in connection with such ADC Product, and (b) Packeteer will bear no obligation
to continue to provide technical support (but will continue to provide Updates
during the Maintenance Period) for such out-of-date ADC Product.
4. SUPPORT AND MAINTENANCE
4.1 DEMONSTRATION. Packeteer will provided a "walk-through" demonstration
(not to exceed one day) for the Packeteer Software, and periodically for each
Update it delivers.
4.2 MODIFICATIONS TO PACKETEER SOFTWARE. In the course of developing the
ADC Product, ADC may from time to time request that Packeteer make changes to
the Packeteer
4.
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* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Software in order to provide additional functionality. During the period in
which ADC is paying Packeteer for maintenance and is in compliance with its
maintenance obligations (a "Maintenance Period"), Packeteer agrees to consider
such requested changes promptly, and if it finds, in its sole discretion, such
requested changes to be reasonable to the future development of the Packeteer
Software, to implement such changes promptly as an Update, all without
additional charge to ADC.
4.3 END USER SUPPORT. ADC will be solely responsible for providing all
support and maintenance for End Users of the ADC Product. ADC will provide its
End Users with reasonable documentation, warranty service, and e-mail or
telephone support for the use of the ADC Product consistent with good industry
practice and the terms of this Agreement.
4.4 TECHNICAL SUPPORT. During the Maintenance Period, Packeteer will
provide ADC (but not ADC's End Users, distributors or resellers) with
development support (including access to technical, engineering and management
staff) in the form of telephone and e-mail responses to questions that ADC may
have with respect to the current version of the Packeteer Software and any
previous versions released by Packeteer within the past twelve (12) months.
Packeteer will provide support solely for questions related to the unmodified
Packeteer Software. In the event that such technical support requests become
unduly burdensome, the parties shall confer to discuss whether the number of
hours per month which Packeteer spends providing support should be reduced, or
if the fee for such support should be increased.
4.5 COMPATIBILITY. Updates provided hereunder for functionality that
has previously been implemented by ADC will be "backwards compatible" (so that
there will be no substantial loss of functionality) with the previously
released version and any versions released in the preceding twelve (12) months.
5. PAYMENTS
5.1 INITIAL DELIVERY. On the Effective Date, ADC will pay Packeteer a
fee (the "Initial Delivery Fee") of [*]. This Initial Delivery Fee shall include
maintenance and support for a one (1) year period following the Effective Date.
Packeteer will make the initial delivery of the Packeteer Software to ADC within
five (5) business days of the Effective Date.
5.2 ANNUAL MAINTENANCE. For each additional year (commencing on the
anniversary of the Effective Date) for which ADC desires to receive Updates and
technical support, it will pay Packeteer an annual maintenance fee (the
"Maintenance Fee") as set forth on SCHEDULE 1 ("Fees"). Any decision by ADC not
to pay an annual Maintenance Fee shall terminate those obligations by Packeteer
to provide Updates under PARAGRAPH 3.2 ("Maintenance Deliveries") and technical
support under PARAGRAPHS 4.2 ("Modifications to Packeteer Software") and 4.4
("Technical Support") but shall not otherwise terminate the licenses granted in
PARAGRAPHS 2.1 ("Limited Source Code License") and 2.2 ("Distribution License")
or other obligations of the Parties to this Agreement. Any decision by ADC not
to pay an annual Maintenance Fee shall not relieve ADC from any of its
obligations under this Agreement including the payment of the Royalties under
PARAGRAPH 5.3 ("Royalties"). Upon a failure by ADC to successfully incorporate
any Update as contemplated in PARAGRAPH 3.3 ("Incorporating Updates") within
one (1) year after it is delivered to ADC, (a) ADC will cease to use the
Trademarks (as described
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in PARAGRAPH 3.3 ("Incorporating Updates")), and (b) Packeteer shall have the
option not to accept any further Maintenance Fee from ADC and to terminate its
obligations to provide Updates under PARAGRAPH 3.2 ("Maintenance Deliveries")
after the current Maintenance Period.
5.3 ROYALTIES. The royalties and other fees payable will be as set
forth on SCHEDULE 1 ("Fees").
5.4 TAXES. ADC agrees to pay, and to indemnify and hold Packeteer
harmless from, any sales, use, excise, import or export, value added or similar
tax, not based on Packeteer's net income, as well as the collection or
withholding thereof, including penalties and interest, as well as any costs
associated with the collection or withholding thereof, and all government
permit or license fees and all customs, duty, tariff and similar fees levied
upon the delivery of the Packeteer Software, the ADC Product or related
products, as well as any costs associated with the collection of any of the
foregoing items. ADC will be responsible for obtaining, at its expense, all
required import licenses, permits or other governmental orders. If a resale
certificate or other certificate, document or other evidence of exemption or
payment or withholding of taxes by ADC is required in order to exempt the
distribution or licensing of the Packeteer Software, ADC Product or other
related product from any such liability or to enable Packeteer to claim any tax
exemption, credit, or other benefit, ADC will promptly furnish such certificate
or document to Packeteer.
5.5 REPORTING. On a quarterly basis, ADC will, within thirty (30) days
following the end of such quarter, provide Packeteer a report including the
following: (a) the number of units of the ADC Product sold during that quarter,
broken down by units in which the Rate Control Software Package is and is not
enabled; (b) geographic information related to the units of ADC Product sold
during that quarter, including, at least, by the country of the sale and, if in
the United States, also by the State and zip code of the sale; (c) the number
of previously sold units of the ADC Product for which the Rate Control Software
Package was enabled during that quarter; and (d) the royalty payments due
during that quarter.
5.6 AUDIT. Each party will keep and maintain, for a period of three (3)
years, proper records and books of account relating to licenses of the ADC
Product to customers and End Users. Upon reasonable notice to the other party,
a party may have a reputable independent auditor inspect, at the requesting
party's expense, such records to verify the other party's payments hereunder no
more than once every six (6) months; however, if the audit reveals a
discrepancy of more than 5%, then the recordkeeper will pay for the cost of the
audit and the auditing party will have the right to conduct another audit
within the six (6) month period.
5.7 MANNER OF PAYMENT. All payments due hereunder are in U.S. Dollars.
ADC shall include royalty payments with each report.
5.8 OVERDUE PAYMENTS. Overdue payments will be subject to a finance
charge of the lesser of one and one-half percent (1-1/2%) per month or the
highest interest rate allowed by law, for each month or fraction thereof that
such amounts are past due.
6. DEVELOPMENT AND TESTING
6.
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6.1 ADC DEVELOPMENT RESPONSIBILITIES. ADC will be responsible for
creating the Ported Software, the ADC Product, and incorporating Updates in the
ADC Product in compliance with the terms of the Agreement. In addition, ADC
will be responsible for creating and delivering to Packeteer a list of errors
found prior to Packeteer's certification or testing of the ADC Product pursuant
to ATTACHMENT G ("Test Certification Procedures").
6.2 TESTING AND CERTIFICATION OF ADC PRODUCTS. ADC will test each
version of the ADC Product. Once yearly, Packeteer will certify ADC's test
results or perform independent testing in accordance with the procedures in
ATTACHMENT G ("Test Certification Procedures"). If the ADC Product passes
Packeteer's Test Certification Procedures, then ADC shall be entitled to market
and distribute the ADC Product under the Trademarks under the terms of this
Agreement and advise End Users that the ADC Product has passed the Test
Certification Procedures. ADC will provide Packeteer with reasonable access to
the ADC Software and Ported Software, including, but not limited to, exposing
command line interfaces for the ADC Software in the testing versions of the ADC
Product in order to permit Packeteer to perform regression testing and to
confirm that no unpermitted modifications have been made to the Packeteer
Software. Such regression testing will not be designed to permit Packeteer to
analyze the ADC Software (its source or object code) to determine the manner
and methods utilized in supporting its functionality without the prior written
permission of ADC.
6.3 LOANED EQUIPMENT. ADC will loan Packeteer all necessary equipment
for such certification testing. All equipment loaned by ADC to Packeteer will
remain the property of ADC, will be fully insured by Packeteer, and will be
returned to ADC at its request after termination of Packeteer's testing
activities hereunder. ADC will pay all shipping and other costs (including,
without limitation, custom fees and duties) resulting from delivery of such
loaned equipment to Packeteer. Any loaned equipment will be returned to ADC by
Packeteer, shipping, insurance and any other applicable costs prepaid by ADC.
While in the possession of Packeteer, the loaned equipment will be maintained
by ADC in good working order.
7. MARKETING
7.1 PROMOTIONAL EFFORTS. Without limiting ADC's ability to develop
Competitive Products (as defined in PARAGRAPH 10.8 ("Access")) in compliance
with the terms of this Agreement, ADC agrees to use its reasonable commercial
efforts to market and distribute the ADC Product to End Users. ADC may
advertise the ADC Product in advertising media of ADC's choice. ADC will use
the Trademarks in accordance with the terms of this Agreement in conducting
such marketing efforts.
7.2 PRESS RELEASE. The parties will create a mutually agreeable press
release to announce the execution of this Agreement. Neither party will
disclose any terms of the Agreement, except pursuant to a mutually agreeable
press release or as otherwise required by law.
8. WARRANTY
8.1 PACKETEER WARRANTY. Packeteer warrants for a period of ninety (90)
days from delivery (the "Warranty Period") that the unmodified Packeteer
Software Source will compile in
7.
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the development environment specified by Packeteer to yield the corresponding
object code version of such source code (excluding any Excluded Components). If
ADC reports to Packeteer a failure of the Packeteer Software Source to conform
to the foregoing warranty during the Warranty Period, and provides such detail
as Packeteer may require to permit Packeteer to reproduce such failure,
Packeteer, at its expense, shall use reasonable commercial efforts to modify or
replace the Packeteer Software Source to correct such failure. ADC acknowledges
that the Packeteer Software Source delivered by Packeteer to ADC will require
adaptation by ADC or Packeteer for compatibility with ADC platforms and
configurations, which platforms and configurations will generally be different
from the development environment and platform used by Packeteer. ADC
acknowledges that the Packeteer Software is of such complexity that it may have
inherent defects, and agrees that Packeteer makes no other warranty, either
express or implied, as to any matter whatsoever. The foregoing states
Packeteer's sole and exclusive warranty to ADC concerning the Packeteer
Software Source and ADC's sole and exclusive remedy for breach of warranty.
8.2 DISCLAIMER. EXCEPT AS SET FORTH IN PARAGRAPH 8.1 ("PACKETEER
WARRANTY"), THE PACKETEER SOFTWARE IS PROVIDED TO ADC "AS-IS" AND WITHOUT ANY
WARRANTY OF ANY KIND, EXPRESS, IMPLIED, OR STATUTORY. PACKETEER EXPRESSLY
DISCLAIMS ANY IMPLIED WARRANTIES OF NON-INFRINGEMENT, FITNESS FOR A PARTICULAR
PURPOSE OR MERCHANTABILITY.
9. INDEMNITY
9.1 BY PACKETEER. Packeteer agrees to defend and otherwise hold ADC
harmless from any costs, damages and reasonable attorneys' fees resulting from
any claim that the uses permitted hereunder of the Packeteer Software infringe
any U.S. patents or U.S. copyrights, or misappropriate the trade secrets of any
third party, provided that ADC gives Packeteer prompt written notice of any
such claim, tenders to Packeteer the defense or settlement of such a claim at
Packeteer's expense, and cooperates with Packeteer, at Packeteer's expense, in
defending or settling such claim. If Packeteer receives notice of an alleged
infringement or if ADC's use of the Packeteer Software is prevented by
permanent injunction, Packeteer may, at its sole option and expense, procure
for ADC the right to continue use of the Packeteer Software, modify the
Packeteer Software such that it is no longer infringing, or replace the
Packeteer Software with software of similar functional capability (in either of
the latter two options, the revised or replacement software must be backwards
compatible as that term is defined in PARAGRAPH 4.5 ("Compatibility")), or
terminate the license and return to ADC the Initial Delivery Fee. PACKETEER'S
OBLIGATIONS UNDER THIS SECTION WILL BE ADC'S SOLE AND EXCLUSIVE REMEDY FOR ANY
ALLEGED INFRINGEMENT OR MISAPPROPRIATION OF ANY PROPRIETARY RIGHT. PACKETEER
WILL HAVE NO LIABILITY TO ADC IF ANY ALLEGED INFRINGEMENT OR CLAIM THEREOF IS
BASED UPON THE USE OF THE PACKETEER SOFTWARE IN CONNECTION OR IN COMBINATION
WITH EQUIPMENT, DEVICES OR SOFTWARE NOT DELIVERED BY PACKETEER (IF SUCH
INFRINGEMENT OR CLAIM COULD HAVE BEEN AVOIDED BY THE USE OF THE UNMODIFIED
PACKETEER SOFTWARE WITH OTHER EQUIPMENT, DEVICES OR SOFTWARE), OR THE USE OF
THE PACKETEER SOFTWARE OTHER THAN AS PERMITTED UNDER THIS AGREEMENT OR IN A
MANNER FOR WHICH IT WAS NOT INTENDED, OR, AFTER THE TRANSITION PERIOD (AS
DEFINED IN PARAGRAPH
8.
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9.1.1) USE OF OTHER THAN THE MOST CURRENT RELEASE OF THE PACKETEER SOFTWARE (IF
SUCH CLAIM WOULD HAVE BEEN PREVENTED BY THE USE OF SUCH RELEASE).
9.1.1 UPDATES. IF PACKETEER GIVES ADC NOTICE THAT A SPECIFIC UPDATE IS
REQUIRED IN ORDER TO AVOID INFRINGING THE INTELLECTUAL PROPERTY RIGHTS OF A
THIRD PARTY, AND IF WITHIN SIXTY (6) DAYS ("THE TRANSITION PERIOD") ADC FAILS
TO USE SUCH UPDATE AND TO DISTRIBUTE SUCH UPDATE TO ITS END USERS, THEN
PACKETEER WILL HAVE NO LIABILITY TO ADC UNDER PARAGRAPH 9.1 FOR INFRINGING SUCH
INTELLECTUAL PROPERTY RIGHTS IF THE INFRINGEMENT WOULD BE AVOIDED IF ADC
ADOPTED SUCH UPDATE.
9.2 BY ADC. ADC agrees to defend and otherwise hold Packeteer harmless
from any costs, damages and reasonable attorneys' fees resulting from any claim
that the uses permitted hereunder of the ADC Product infringe any U.S. patents
or U.S. copyrights, or misappropriate the trade secrets of any third party,
provided that Packeteer gives ADC prompt written notice of any such claim,
tenders to ADC the defense or settlement of such a claim at ADC's expense, and
cooperates with ADC, at ADC's expense, in defending or settling such claim.
ADC'S OBLIGATIONS UNDER THIS SECTION WILL BE PACKETEER'S SOLE AND EXCLUSIVE
REMEDY FOR ANY ALLEGED INFRINGEMENT OR MISAPPROPRIATION OF ANY PROPRIETARY
RIGHTS.
10. PROTECTION OF PROPRIETARY RIGHTS
10.1 PACKETEER OWNERSHIP. Packeteer and its suppliers are the sole and
exclusive owners of all rights, title and interest, including all Trademarks,
copyrights, patents, trade names, trade secrets, and other intellectual
property rights to the Packeteer Software, and in any modifications made to the
Packeteer Software at ADC's request or suggestion under PARAGRAPH 4.2
("Modifications to Packeteer Software"). Except for the rights expressly
enumerated herein, ADC is not granted any rights to patents, copyrights, trade
secrets, trade names, trademarks (whether or not registered), or any other
rights, franchises or licenses with respect to the Packeteer Software. ADC
agrees to protect the Packeteer Software in accordance with PARAGRAPH 10
("Protection of Proprietary Rights") and ATTACHMENT E ("Secure Procedures").
Failure to protect the proprietary rights of Packeteer and its suppliers in the
Packeteer Software, as required by this Agreement, will be considered a
material breach of this Agreement.
10.2 ADC OWNERSHIP. ADC and its suppliers are the sole and exclusive
owners of all rights, title and interest, including all trademarks, copyrights,
patents, trade names, trade secrets, mask works, and other intellectual
property rights to the ADC Product (excluding the Ported Software). Except for
the rights expressly enumerated herein (e.g., the right to perform certain
regression testing), Packeteer is not granted any rights to patents,
copyrights, trade secrets, mask works, trade names, trademarks (whether or not
registered), or any other rights, franchises or licenses with respect to the
ADC Product. Packeteer agrees to protect the ADC Product in accordance with
PARAGRAPH 12 ("Confidentiality").
9.
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10.3 COOPERATION. The parties agree to cooperate and execute documents
reasonably requested to confirm such ownership or to obtain protection under
any intellectual property law.
10.4 PROPRIETARY NOTICES. ADC agrees that as a condition of its rights
hereunder, it shall not alter the proprietary notices included in the materials
delivered by Packeteer, and that each copy of the Ported Software will contain
the same proprietary notices which appear on or in the materials provided by
Packeteer to ADC. More specifically, ADC agrees that a valid Packeteer
copyright notice will appear on the media or will be displayed on any screen
visible to a user when any ADC proprietary notices are visible, in the
following format or such other format as Packeteer specifies by written notice
to ADC: the name of the program, the word "Copyright" and the "(C)" symbol, the
year 1996 (the date of first creation of the Packeteer Software), followed by a
hyphen and the year of the most recent version of the Packeteer Software, and
the name of the copyright owner and the words "All Rights Reserved." Presence
of a copyright notice does not constitute an acknowledgment of publication. ADC
will ensure that the trademark notices are displayed in the ADC Product as set
forth in PARAGRAPH 11 ("Trademarks").
10.5 UNAUTHORIZED DISTRIBUTION OR COPYING. ADC agrees that (except as
expressly permitted by this Agreement): (a) distributing, copying, duplicating
or otherwise reproducing all or any part of the Packeteer Software, (b)
distributing or using copies of all or any portion of the Packeteer Software
other than as embedded in a royalty-bearing ADC Product, or (c) failing to
ensure that each End User receives a license agreement as required by PARAGRAPH
2.6 ("End User License") will constitute a material breach of this Agreement.
10.6 GOVERNMENT AGREEMENTS. ADC will take all reasonable steps in making
proposals to and agreements with governments that involve the ADC Product and
related documentation to ensure that Packeteer's proprietary rights receive the
maximum protection available from such governments for commercial computer
software and related documentation developed at private expense.
10.7 PACKETEER TRADE SECRETS. Packeteer represents that the Packeteer
Software and those techniques, algorithms, and processes contained in the
Packeteer Software which have been developed, acquired or licensed by
Packeteer, or any modification or extraction thereof, constitute trade secrets
of Packeteer and/or its suppliers, and ADC agrees they will be used by ADC only
in accordance with the terms of this Agreement. ADC will take all measures
reasonably required to protect the proprietary rights of Packeteer and its
suppliers in the Packeteer Software Information.
10.8 ACCESS. In consideration of the licenses and access to proprietary
information and technology of Packeteer granted under this Agreement, ADC
hereby agrees: (a) not to use the Packeteer Software to develop, manufacture or
distribute goods which compete with the Packeteer products ("Competitive
Products"); and (b) to obtain the Packeteer Software only from Packeteer.
Subject to the terms of restrictions on use of proprietary information
(including, but not limited to this PARAGRAPH 10 ("Protection of Proprietary
Rights"), ATTACHMENT D ("Packeteer Trademarks"), and ATTACHMENT E ("Secure
Procedures") provided under this Agreement, this Agreement does not preclude
ADC from independently developing similar technologies or products, where ADC
can demonstrate by competent proof that such independent
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development has been created without reference to the Packeteer Software
Source, Packeteer Software Information, or Packeteer Documentation.
11. TRADEMARKS
11.1 PROPER USE. Unless ADC or Packeteer opt to terminate the following
requirement of trademark usage and the trademark license of PARAGRAPH 2.5
("Trademark License") under the conditions set out below, ADC will make use of
the Packeteer Trademarks in accordance with the guidelines and requirements set
forth in ATTACHMENT D ("Packeteer Trademarks") and the standard guidelines and
usage requirements as promulgated by Packeteer from time to time regarding the
Trademarks. If Packeteer promulgates any changes to the standard guidelines and
usage requirements, then ADC: (a) shall have six (6) months to continue
operating under the old guidelines; (b) shall have six (6) months to continue
operating under the old guidelines for existing inventory. Either Packeteer or
ADC shall have the right to terminate the trademark usage requirement of this
PARAGRAPH 11.1 ("Proper Use") if ADC does not pay an annual Maintenance Fee as
set out in PARAGRAPH 5.2 ("Annual Maintenance") when such Maintenance Fee is
due. Furthermore, Packeteer shall, under the same instance, additionally be
able to prohibit ADC from using any Packeteer Trademark.
11.2 RIGHT OF REVIEW. In order to assure the Packeteer Trademarks are
associated only with products and services of Packeteer's high quality
standards, Packeteer will have the right to inspect and review all such
products and services. In the event that any use of the Packeteer Trademark
does not comport with the quality standards set by Packeteer, Packeteer will
advise ADC, and ADC will improve the quality within thirty (30) days so as to
comport with Packeteer's standards or cease use of the Packeteer Trademarks
immediately.
11.3 NO COMPETITIVE EXPLOITATION OF TRADEMARKS. With respect to any
Competitive Products which ADC develops or markets, ADC agrees that ADC will
not exploit its access to the Packeteer Software, its relationship with
Packeteer, or the existence of the Ported Software to promote Competitive
Products. Furthermore, so long as ADC is marketing the ADC Product under the
Trademarks, ADC agrees to use all reasonable efforts to distinguish the ADC
Product from any Competitive Product when displaying or referring to the ADC
Product in advertisements, catalogs, brochures and at trade shows by (a)
identifying the ADC Product prominently and exclusively with the Trademarks in
such proximity that the viewer is unlikely to associate the ADC Product with the
Competitive Product, and (b) not associating the Trademarks with any
Competitive Product in advertising, press releases, and other promotional and
marketing materials.
12. CONFIDENTIALITY
12.1 RESTRICTION ON USE. Except as expressly permitted by this
Agreement, each party ("Recipient"), its employees, and its contractors will
not use in any way for its own account or the account of any third party, nor
disclose to any third party, any Confidential Information revealed to it by the
other party ("Disclosing Party") without the Disclosing Party's prior written
consent; provided, however, that if any Confidential Information of the other
party is required to be disclosed pursuant to any statute, regulation, order,
subpoena or document discovery request, then the Recipient shall provide
written notice thereof to the Disclosing Party as soon as
11.
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practicable in order to afford the Disclosing Party an opportunity to seek a
protective order (it being agreed that if the Disclosing Party is unable to
obtain or does not seek a protective order and the Recipient is legally
compelled to disclose such information, disclosure of such information may be
made without liability).
12.2 DEFINITION OF CONFIDENTIAL INFORMATION. For purposes of this
Agreement, "Confidential Information" consists of (a) any information
designated by the Disclosing party in writing as confidential, (b) the
Packeteer Software Source and the Packeteer Software Information, (c) the
source code and technical documentation for the ADC Product, and (d) the terms
and conditions of this Agreement. Information in oral form will be considered
Confidential Information only to the extent it is (x) identified as
confidential prior to disclosure and (y) summarized in writing and transmitted
to the Recipient, identified as proprietary, within thirty (30) days after the
oral disclosure.
12.3 EXCLUSIONS FROM DEFINITION OF CONFIDENTIAL INFORMATION.
Confidential Information will not include, and this PARAGRAPH 12
("Confidentiality") will not apply to information that (a) was known to the
Recipient prior to its receipt from the Disclosing Party; (b) is or becomes
public knowledge without fault of Recipient; (c) is acquired by Recipient from
a third party with the right to disclose same and without binder of secrecy;
(d) is independently developed by a party without using the other party's
Confidential Information; or (e) has been approved for release by written
authorization of the Disclosing Party.
12.4 STANDARD OF CARE. Each party will use the same standard of care
that it applies to its own Confidential Information, but in no event less than
reasonable care. Each party agrees to notify the other promptly in the event of
any breach of confidentiality or security under conditions in which it would
appear that any Confidential Information was prejudiced or exposed to loss, and
will, upon request of the other, take all reasonable steps necessary to recover
any compromised trade secrets disclosed to it or placed in its possession by
virtue of this Agreement. Without limiting the generality of the foregoing, ADC
agrees to comply with the terms of ATTACHMENT E ("Secure Procedures") regarding
the handling of the Packeteer Software.
13. LIMITATION OF LIABILITY
EXCEPT IN THE CASE OF WILLFULNESS OR GROSS NEGLIGENCE, NEITHER PACKETEER NOR
ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AFFILIATES, OR AGENTS WILL BE LIABLE
TO ADC OR TO ANY THIRD PARTY FOR ANY LOSS OF USE, INTERRUPTION OF BUSINESS, OR
FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS OR REVENUES) OR SIMILAR DAMAGES, WHETHER BASED ON TORT (INCLUDING
WITHOUT LIMITATION, NEGLIGENCE OR STRICT LIABILITY), CONTRACT, OR OTHER LEGAL
OR EQUITABLE GROUNDS, EVEN IF PACKETEER HAS BEEN ADVISED OR HAD REASON TO KNOW
OF THE POSSIBILITY OF SUCH DAMAGES AND EVEN IN THE EVENT OF FAILURE OF
EXCLUSIVE REMEDIES. In no event will Packeteer's liability under this
Agreement, including claims for contribution or indemnity, exceed the greater
of US $100,000 (One Hundred Thousand Dollars) and all fees paid pursuant to
this Agreement in the twelve (12) months preceding the claim giving rise to
such liability.
12.
<PAGE> 13
14. TERM AND TERMINATION
14.1 TERM. The initial term of this Agreement will be [*] years from
the Effective Date. At the conclusion of such term (or any subsequent renewal
term), the Agreement will automatically renew for another [*] year term
unless either party has given written notice to the other at least sixty (60)
days prior to the renewal date of such party's intention not to renew the
Agreement.
14.2 TERMINATION FOR MATERIAL BREACH. Either party may terminate this
Agreement if the other party has breached any material term of this Agreement
and such breach remains uncured for forty five (45) days after written notice
of such breach (which notice will, in reasonable detail, specify the nature of
such breach).
14.3 BANKRUPTCY. A party may terminate this Agreement upon written notice
to the other in the event the other (a) becomes insolvent or admits in writing
its inability to pay its debts as they mature, or makes an assignment for the
benefit of creditors; (b) files a petition under any foreign, state, or United
States bankruptcy act, receivership statute, or the like, as they now exist, or
as they may be amended; (c) any third party files against it such a petition,
or an application for a receiver of either party is made by anyone and such
petition or application is not resolved favorably within sixty (60) days; or
(d) discontinues its business.
14.4 LIMITED DISTRIBUTION RIGHT UPON NONRENEWAL. In the event that
Packeteer elects to renew this Agreement under the terms of PARAGRAPH 14.1
("Term"), ADC will be permitted, for a period of [*] years from such
election (the "Extension Term"), to continue to sell the ADC Product in the from
in which such ADC Product exists at the time of such election (the "Latest ADC
Product"), subject to ADC's continued compliance with the terms of this
Agreement. During the Extension Term, ADC may sell the Latest ADC Product only
to those End Users who were bound by End User Licenses as of the Date of
Packeteer's election not to renew, and not to new customers. During the
Extension Term (a) ADC's royalty obligations with respect to distributions of
the Latest ADC Product will persist, (b) Packeteer will have no obligation to
provide any maintenance or technical support to ADC, and (c) ADC may not
distribute the Latest ADC Product under the Packeteer Trademarks. The following
sections will be of effect during the Extension Term, and all other sections
will terminate: PARAGRAPHS 1 ("Definitions"), 2.2 ("Distribution License")(but
only the first sentence), 2.3 ("Exclusions"), 2.6 ("End User License"), 4.3
("End User Support"), 5 ("Payments")(excluding PARAGRAPH 5.2 ("Annual
Maintenance")), 9 ("Indemnity"), 10 ("Protection of Proprietary Rights"), 12
("Confidentiality"), 13 ("Limitation of Liability"), 14 ("Term and
Termination"), 15 ("No Patent License."), and 16 ("General").
14.5 OBLIGATIONS ON CANCELLATION, TERMINATION OR EXPIRATION. Upon
cancellation, termination, or expiration of this Agreement:
14.5.1 LICENSES TERMINATED. The licenses granted pursuant to
PARAGRAPH 2 ("License Grants") will terminate immediately; provided, however,
that ADC will be permitted to sell (for a period of ninety (90) days from
termination) any finished inventory of ADC Product then in stock.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
13.
<PAGE> 14
14.5.2 SAFEGUARDING OF PROPRIETARY RIGHTS. ADC will continue to be
responsible for safeguarding the proprietary rights of Packeteer and
Packeteer's suppliers in accordance with this Agreement, including PARAGRAPHS
10 ("Protection of Proprietary Rights"), 11 ("Trademarks"), and ATTACHMENT E
("Secure Procedures") after such cancellation, termination, or expiration.
14.5.3 RETURN OR DESTRUCTION OF PACKETEER INFORMATION. Except for the
limited exemption set forth in PARAGRAPH 14.5.1 ("Licenses Terminated")
permitting ADC to sell out existing inventory, ADC will immediately discontinue
use and distribution of the Packeteer Software, and return or destroy all
copies of the Packeteer Software and any Packeteer deliverables in its
possession (including copies placed in any storage device under ADC's control);
provided, however, that ADC may keep a reasonable number of copies for
supporting existing End Users. Upon Packeteer's request, ADC will warrant in
writing to Packeteer compliance with this PARAGRAPH 14.5.3.
14.5.4 PAYMENT. The payment date of all monies due Packeteer will
automatically be accelerated so that they will become due and payable on the
effective date of termination, even if longer terms had been provided
previously.
14.5.5 CONTINUED USE BY END USERS. End Users will be permitted the
continued and uninterrupted use of the ADC Products for the balance of the term
of their End User agreements, as specified in such agreements, provided that
and so long as the End Users are not in default of their End User agreements.
14.5.6 SURVIVAL. The following sections will survive the termination of
expiration of this Agreement: PARAGRAPHS 1 ("Definitions"), 2.3 ("Exclusions"),
2.6 ("End User License"), 8 ("Warranty"), 9 ("Indemnity"), 10 ("Protection of
Proprietary Rights"), 12 ("Confidentiality"), 13 ("Limitation of Liability"),
14 ("Term and Termination"), 15 ("No Patent License."), and 16 ("General").
15. NO PATENT LICENSE.
15.1 PACKETEER PATENTS. As used herein, "Packeteer Patent Right" means any
right arising under any United States or foreign patent now owned by, or later
issued or assigned to Packeteer, applicable to the Packeteer Software.
Packeteer covenants that, to the extent that ADC, ADC's sublicensees as
authorized in this Agreement, ADC's End Users, and ADC's other direct and
indirect customers of Packeteer Software (collectively "Customers") exercise
the rights expressly granted in PARAGRAPH 2 ("License Grants") to ADC, or which
ADC is authorized to grant to Customers herein, Packeteer will not (a) assert
any Packeteer Patent Right against ADC, (b) assert any Packeteer Patent Right
against Customers, or (c) require any additional fee or royalty from ADC or
Customers based upon any Packeteer Patent Right. Except to the extent of such
covenant not to assert any Packeteer Patent Right, nothing contained herein
will be construed as conferring, by implication, estoppel, or otherwise, any
license or right with respect to any Packeteer Patent Right.
15.2 ADC PATENTS. As used herein, "ADC Patent Right" means any patent
right arising under any United States or foreign patent issued or assigned to
ADC and having a filing
14.
<PAGE> 15
date after the inventor had access to the Packeteer Software in which (a) an
inventor is (1) an employee of ADC who has had access to the Packeteer Software
or (2) an independent contractor who has had access to the Packeteer Software
and has assigned patent rights in the claimed invention to ADC and (b) the
Packeteer Software contributed to the claimed invention. ADC Patent Right will
not include any patent applications filed three (3) years after termination or
expiration of this Agreement. ADC covenants that it will not (a) assert any ADC
Patent Right against Packeteer or against its sublicensees or customers for
products of a similar nature to that distributed by ADC, or (b) require any fee
or royalty from Packeteer or such sublicensees or customers for the sale of
such products based upon ADC Patent Rights. Except to the extent expressed
above, nothing contained herein will be construed as conferring, by
implication, estoppel, or otherwise any license or right with respect to any
ADC Patent Right.
16. GENERAL
16.1 GOVERNING LAW. This Agreement will be governed in all respects by the
laws of the United States of America and the State of California as such laws
are applied to agreements entered into and to be performed entirely within
California between California residents. The parties agree that the United
Nations convention on Contracts for the International Sale of Goods is
specifically excluded from application to this Agreement.
16.2 GOVERNING LANGUAGE. This governing language and any interpretation or
construction of this Agreement will be English.
16.3 FORUM. All disputes arising under this Agreement may be brought in
the state and federal courts located in San Jose, California, or Minneapolis,
Minnesota as permitted by law. ADC and Packeteer consent to the personal
jurisdiction of the above courts.
16.4 NOTICES. All notices or reports permitted or required under this
Agreement will be in writing and will be delivered by personal delivery,
telegram, telex, telecopier, facsimile transmission, or by certified or
registered mail, return receipt requested, and will be deemed given upon
personal delivery, five (5) days after deposit in the mail, or upon
acknowledgment of receipt of electronic transmission. Notices will be sent to
the addresses set forth in the introductory paragraph of this Agreement and
shall be sent to the attention of the Chief Financial Officer, or to such other
address or person as may be designated in writing.
16.5 INJUNCTIVE RELIEF. It is understood and agreed that, notwithstanding
any other provisions of this Agreement, breach of the provisions of this
Agreement relating to the protection of intellectual property rights
(including, but not limited to, PARAGRAPHS 2 ("License Grants"), 10
("Protection of Proprietary Rights"), 11 ("Trademarks"), 12
("Confidentiality"), ATTACHMENT D ("Packeteer Trademarks"), and ATTACHMENT E
("Secure Procedures") may cause the other party irreparable damage for which
recovery of money damages would be inadequate, and that a party will therefore
be entitled to obtain timely injunctive relief (whether by arbitral or judicial
authority) to protect its rights under this Agreement in addition to any and
all remedies available at law.
16.6 NO AGENCY. Nothing contained herein will be construed as creating any
agency, partnership, or other form of joint enterprise between the parties.
15.
<PAGE> 16
16.7 FORCE MAJEURE. Neither party will be liable hereunder by reason of
any failure or delay in the performance of its obligations hereunder (except for
the payment of money) on account of strikes, shortages, riots, insurrection,
fires, flood, storm, explosions, acts of God, war, governmental action, labor
conditions, earthquakes, material shortages or any other cause which is beyond
the reasonable control of such party.
16.8 WAIVER. The failure of either party to require performance by the
other party of any provision hereof will not affect the full right to require
such performance at any time thereafter; nor will the waiver by either party of
a breach of any provision hereof be taken or held to be a waiver of the
provision itself.
16.9 SEVERABILITY. In the event that any provision of this Agreement will
be unenforceable or invalid under any applicable law or be so held by applicable
court decision, such unenforceability or invalidity will not render this
Agreement unenforceable or invalid as a whole, and, in such event, such
provision will be changed and interpreted so as to best accomplish the
objectives of such unenforceable or invalid provision within the limits of
applicable law or applicable decisions.
16.10 HEADINGS. The Paragraph headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe,
or describe the scope or extent of such Paragraph or in any way affect this
Agreement.
16.11 ASSIGNMENT. Neither this Agreement nor any rights or obligations of
ADC hereunder may be assigned or transferred by ADC in whole or in part, whether
by operation of law or otherwise, without the prior written approval of
Packeteer which shall not unreasonably be withheld. For the purposes of this
Paragraph, a change in ownership or sale of substantially all of the assets of
ADC or the business division of ADC primarily involved in this Agreement shall
not be considered an assignment or transfer of ADC's rights. Packeteer may
exercise full transfer and assignment rights in any manner at Packeteer's
discretion and specifically may sell, pledge, or otherwise transfer its right to
receive royalties under this Agreement.
16.12 EXPORT. ADC acknowledges that the laws and regulations of the United
States restrict the export and re-export of commodities and technical data of
United States origin, including the Packeteer Software licensed hereunder. ADC
agrees that it will not export or re-export the Packeteer Software or ADC
Product in any form, without the appropriate United States and foreign
governmental licenses, if legally required. ADC agrees that its obligations
pursuant to this Paragraph will survive and continue after any termination or
expiration of rights under this Agreement.
16.13 FULL POWER. Each party warrants that it has full power to enter into
and perform this Agreement, and the person signing this Agreement on each
party's behalf has been duly authorized and empowered to enter into this
Agreement. Each party further acknowledges that it has read this Agreement,
understands it and agrees to be bound by it.
16.14 ENTIRE AGREEMENT. This Agreement together with the Attachments and
appendices completely and exclusively states the agreement of the parties
regarding its subject matter. If supersedes, and its terms govern, all prior
proposals, agreements, or other
16.
<PAGE> 17
communications between the parties, oral or written, regarding such subject
matter. This Agreement will not be modified except by a subsequently dated
written amendment signed on behalf of all parties by their duly authorized
representative and any provision of a purchase order purporting to supplement
or vary the provisions hereof will be void.
16.15 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which will be considered an original, but all of
which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereof have caused this OEM Agreement to
be executed by their duly authorized representatives as of the Effective Date.
PACKETEER, INC. ADC TELECOMMUNICATIONS, INC.
/s/ CRAIG ELLIOTT /s/ WILLIAM L. MARTIN
- ----------------------------------- ---------------------------------
By: Craig Elliott By: William L. Martin
------------------------------ ----------------------------
Its: President & CEO Its: President ADC/BBG
------------------------------ ----------------------------
17.
<PAGE> 18
ATTACHMENT A
PACKETEER SOFTWARE
PACKETEER SOFTWARE
The document entitled "PACKETSHAPER/ADC OEM DELIVERABLES is fully incorporated
within this Attachment A and is directly attached hereto. The Packeteer
Software is limited to the specific modules identified in Section 6.1 of that
document, and to the functionality set forth in Section 6.2 of that document.
EXCLUDED COMPONENTS
None. This list may be modified by Packeteer upon written notice to ADC.
A-1.
<PAGE> 19
ATTACHMENT B
PACKETSHAPER: OEM SOFTWARE PORTING GUIDE
THE DOCUMENT ENTITLED "PACKETSHAPER PORTING GUIDE," REVISION 1.10, DATED
11/9/98 IS FULLY INCORPORATED WITHIN THIS ATTACHMENT B AND IS DIRECTLY ATTACHED
HERETO.
B-1.
<PAGE> 20
ATTACHMENT C
PACKETEER END USER LICENSE AGREEMENT
The following is a sample form of the Packeteer End User Agreement as of the
Effective Date:
"THIS AGREEMENT IS PROOF OF YOUR RIGHT TO USE THE SOFTWARE CONTAINED IN
THE PACKETEER PACKETSHAPER PRODUCT AND CONTAINS ADDITIONAL INFORMATION
CONCERNING PACKETEER'S PRODUCT WARRANTY AND LIMITATIONS OF LIABILITY.
PLEASE READ IT CAREFULLY.
This Agreement is between you (either an individual or an entity) and
PACKETEER, INC. ("Packeteer"). Packeteer is willing to grant you the following
rights to use the software incorporated in or supplied with the Packeteer
PacketShaper product and its accompanying documentation (collectively, the
"Packeteer Software") only if you agree to be bound by all of the terms of this
Agreement. By installing the product (the "Equipment") or using the Packeteer
Software, you agree to be bound by all the terms of this Agreement. If you do
not agree to be bound by any of the terms of this Agreement, Packeteer is
unwilling to grant you any rights to use the Packeteer Software and you must
not use the Packeteer Software or the Equipment; instead you must promptly
return the Equipment and Packeteer Software for a full refund to Packeteer or
to the authorized Packeteer reseller that provided you with the product.
1. OWNERSHIP: The Packeteer Software is and shall remain a proprietary
product of Packeteer. Packeteer and Packeteer's suppliers shall retain
ownership of all patents, copyrights, trademarks, trade names, trade secrets
and other proprietary rights relating to or residing in the Packeteer Software
and Equipment. Except for the license grant provided in Paragraph 2, you shall
have no right, title or interest in or to the Packeteer Software. The Packeteer
Software is licensed, not sold, to you for use only under the terms of this
Agreement.
2. GRANT OF LICENSE: Packeteer grants you a non-transferable (except as set
forth in this Paragraph) non-exclusive, restricted right to use the Packeteer
Software as incorporated in or supplied with the Equipment and solely in
connection with the operation of the Equipment for your own internal business
purposes. You understand that Packeteer may update the Packeteer Software at
any time and in doing so incurs no obligation to furnish such updates to you
pursuant to this Agreement. You may transfer the license to use the Packeteer
Software only in connection with a sale or transfer of the Equipment and as
included with the Equipment and not on a standalone basis, provided the buyer
or transferee agrees to be bound by the terms and conditions of this Agreement.
3. RESTRICTIONS: Packeteer reserves all rights in the Packeteer Software not
expressly granted to you. Except as permitted in Paragraph 2, you may not use,
copy, modify, create derivative works of, distribute, sell, assign, pledge,
sublicense, lease, loan, rent, timeshare, deliver or otherwise transfer the
Packeteer Software, nor permit any other party to do any of the foregoing. You
may not remove from the Packeteer Software, or alter, any of the trademarks,
trade names, logos, patent or copyright notices or markings, or add any other
notices or markings to the Packeteer Software. To the extent permissible by
applicable law, you may not derive or attempt to derive the source code of the
Packeteer Software by any means, nor permit any other party to derive or
attempt to derive such source code. To the extent permissible by applicable
law, you may not reverse engineer, decompile, disassemble, or translate the
Packeteer Software or any part thereof.
4. LIMITED WARRANTY: Packeteer does not warrant that the functions contained
in the Packeteer Software and Equipment will meet your requirements or that the
operation of your Packeteer Software or Equipment will be uninterrupted or
error free. Packeteer warrants that for a period of ninety (90) days from your
date of receipt of the Equipment and Packeteer Software, (a) the Equipment will
be free of any defects in materials and workmanship and (b) the Packeteer
Software will perform substantially in accordance with the accompanying
documentation. This limited warranty is void if failure of the Equipment or
Packeteer Software to conform with the warranty has resulted from improper
installation, testing, misuse, neglect, accident, fire or other hazard, or any
breach of this Agreement.
5. LIMITED REMEDIES: In the event of a breach of the foregoing limited
warranty, you must return the Equipment and Packeteer Software to Packeteer or
the Packeteer authorized reseller that provided you with the Packeteer
Software, postage prepaid, before the expiration of the warranty period, with a
copy of the invoice for the unit. Packeteer's sole and exclusive obligation and
your sole and exclusive remedy shall be, at Packeteer's sole discretion, to
either (a) repair the Packeteer Software or Equipment; (b) provide a
replacement unit or a replacement copy of the Packeteer Software or (c) refund
the amount you paid for the unit and terminate this Agreement. Any replacement
copy of the Packeteer Software or replacement Equipment unit will be warranted
for the remainder of the original warranty period or thirty (30) days,
whichever is longer.
6. NO OTHER WARRANTIES: OTHER THAN THE FOREGOING LIMITED WARRANTY, PACKETEER
HEREBY EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT, FITNESS
FOR A PARTICULAR PURPOSE AND MERCHANTABILITY. SOME JURISDICTIONS DO NOT ALLOW
THE DISCLAIMER OF IMPLIED WARRANTIES, SO THE ABOVE DISCLAIMER MAY NOT APPLY TO
YOU. IN WHICH CASE THE DURATION OF ANY SUCH IMPLIED WARRANTIES IS LIMITED TO
SIXTY (60) DAYS FROM THE DATE THE EQUIPMENT AND PACKETEER SOFTWARE ARE RECEIVED
BY YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY HAVE OTHER LEGAL
RIGHTS WHICH VARY FROM JURISDICTION TO JURISDICTION.
7. LIMITATION OF LIABILITY: PACKETEER'S AGGREGATE LIABILITY IN CONNECTION
WITH THIS AGREEMENT, THE PACKETEER SOFTWARE AND THE EQUIPMENT, REGARDLESS OF
THE FORM OF THE ACTION GIVING RISE TO SUCH LIABILITY (WHETHER IN CONTRACT, TORT
OR OTHERWISE), SHALL NOT EXCEED THE AMOUNT PAID BY YOU TO
C-1
<PAGE> 21
PACKETEER. PACKETEER SHALL NOT BE LIABLE TO YOU FOR ANY INDIRECT, EXEMPLARY,
SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES OF ANY KIND (INCLUDING WITHOUT
LIMITATION LOSS OF DATA, EQUIPMENT DOWNTIME OR LOST PROFITS), EVEN IF PACKETEER
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME JURISDICTIONS DO NOT
ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL
DAMAGES SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU. THE LIMITED
WARRANTY, LIMITED REMEDIES AND LIMITED LIABILITY PROVISIONS CONTAINED IN THIS
AGREEMENT ARE FUNDAMENTAL PARTS OF THE BASIS OF PACKETEER'S BARGAIN HEREUNDER,
AND PACKETEER WOULD NOT BE ABLE TO PROVIDE THE PACKETSHAPER TO YOU ABSENT SUCH
LIMITATIONS.
9. GOVERNMENT END USERS. The Packeteer Software is comprised of "commercial
computer software" and "commercial computer software documentation" as such
terms are used in 48 C.F.R. 12.212 (SEPT 1995) and is provided to the
Government (a) for acquisition by or on behalf of civilian agencies, consistent
with the policy set forth in 48 C.F.R. 12.212; or (b) for acquisition by or on
behalf of units of the Department of Defense, consistent with the policies set
forth in 48 C.F.R. 227-7202-1 (JUN 1995) and 227-7202-3 (JUN 1995).
10. EXPORT CONTROL. Since the Packeteer Software is subject to the export
control laws of the United States, you may not export or reexport the
Packeteer Software without the appropriate United States and foreign government
licenses. You shall otherwise comply with all applicable export control laws
and shall defend, indemnify and hold Packeteer and all Packeteer suppliers
harmless from any claims arising out of your violation of such export control
laws.
11. GENERAL. The United Nations Convention on Contracts for the International
Sale of Goods is specifically disclaimed. If any provision of this Agreement is
held by a court of competent jurisdiction to be unenforceable for any reason,
the remaining provisions hereof shall be unaffected and remain in full force
and effect. This Agreement is the final, complete and exclusive agreement
between the parties relating to the subject matter hereof, and supersedes all
prior or contemporaneous understandings and agreements relating to such subject
matter, whether oral or written. Should you have any questions regarding this
Agreement, or if you desire to contact Packeteer for any reason, please write
to: Packeteer, Inc., 10495 N. De Anza Blvd., Cupertino, California 95014,
U.S.A."
C-2.
<PAGE> 22
ATTACHMENT D
PACKETEER TRADEMARKS
Packeteer may adopt certain trademarks, trade names, marks, and logos
("Trademarks") from time to time in its sole discretion. The following
Packeteer Trademarks are licensed to ADC pursuant to this Agreement:
[PACKETEER INC. LOGO]
The above trademark is designated to be included on the front panel of the
ServicePoint product(s). Pending platform(s) design, this trademark use will be
in the lower right hand corner of the front panel.
The Trademarks may be modified at any time by Packeteer.
USE OF PACKETEER TRADEMARKS
1. OWNERSHIP OF TRADEMARKS. ADC acknowledges the ownership of the Packeteer
Trademarks in Packeteer. ADC agrees that it will do nothing inconsistent with
such ownership and that all use of the Trademarks by ADC will inure to the
benefit of and be on behalf of Packeteer. ADC acknowledges that Trademarks are
valid under applicable law and that ADC's utilization of the Trademarks will
not create any right, title or interest in or to such Trademarks. ADC
acknowledges Packeteer's exclusive right to use of the Trademarks and agrees
not to do anything contesting or impairing the trademark rights of the
Packeteer. Any use of the Trademarks must identify Packeteer as the owner of
such Trademarks.
2. QUALITY STANDARDS. Packeteer hereby appoints ADC as its representative for
the limited purpose of controlling the quality of the ADC Products and any
other products or services it supplies in connection with the use of the
Trademarks. ADC agrees that (a) the nature and quality of the ADC Products and
any other products or services it supplies in connection with use of the
Trademarks will conform to the standards set by Packeteer, and (b) it will
cooperate with Packeteer in facilitating Packeteer's monitoring and control of
the nature and quality of such products and services. Such assistance will
include supplying Packeteer, upon its request, with specimens of its use of the
Trademarks, including supplying samples of reprinted documentation,
translations, product packaging and promotional materials that use the
Trademarks in conjunction with ADC's marketing of ADC Products. Upon reasonable
notice to ADC and at Packeteer's sole expense, Packeteer may conduct an
inspection of such specimens at facilities of its choosing to determine
conformance with the standards. ADC will, at Packeteer's request and expense,
assist Packeteer in conducting such inspection and testing including, but not
limited to, providing Packeteer with applicable hardware. If, at any time,
Packeteer determines that ADC has not met the Packeteer quality standards,
Packeteer will so advise ADC and, upon ADC's receipt of such notice by any
means, ADC will have thirty (30) days to improve the quality to the standard
previously approved by Packeteer, or to cease the use of all Trademarks.
D-1.
<PAGE> 23
ADC will comply with all applicable laws and regulations pertaining to the use
of the Trademarks and to the distribution and advertising of the ADC Products;
however, Packeteer shall obtain all appropriate government approvals pertaining
to the use of the Trademarks.
3. INFRINGEMENT PROCEEDINGS. ADC agrees to notify Packeteer of any
unauthorized use of the Trademarks by others promptly as it comes to ADC's
attention. Packeteer will have the sole right and discretion to bring
infringement or unfair competition proceedings involving the Trademarks.
4. ADC'S USE OF TRADEMARKS. Except as set forth otherwise in the Agreement,
ADC agrees that it will (a) prominently and permanently include the Packeteer
Trademarks on all copies of the Packeteer Software and on any ADC Products
distributed to End Users (b) use the Packeteer Trademarks, including the
Packeteer logo, in any advertising or printed materials concerning the ADC
Products, (c) use all applicable Trademarks on all copies, advertisements,
brochures, manuals, packaging and other appropriate uses made in the promotion,
sale or use of the ADC Products, and (d) ensure that the logo set forth above
will appear prominently on the logon screen, splash screen, or other first
display created by the Packeteer Software when End Users initialize the
Packeteer Software.
5. TRADEMARK REGISTRATIONS. ADC, at Packeteer's request and expense, will (a)
promptly provide Packeteer with any specimens, (b) execute all applications for
trademark registrations, assignments or other applicable documents, and (c)
perform any other act reasonably necessary for Packeteer to secure or maintain
any and all trademark rights in any country in which ADC is marketing the ADC
Products in association with a Trademark. ADC's responsibilities will include
complying with the formalities of local law, including, but not limited to,
executing any application for registration as a registered user, executing
additional license agreements suitable for recording with the appropriate
authorities or providing proof of use of the trademarks in any other applicable
documents.
6. NO UNITARY OR COMPOSITE TRADEMARKS. ADC agrees not to use any other
trademark or service mark in close proximity to any of the Packeteer Trademarks
or combine the marks so as to effectively create a unitary composite mark
without the prior written approval of Packeteer.
D-2.
<PAGE> 24
ATTACHMENT E
SECURE PROCEDURES
1. AUTHORIZED EMPLOYEES AND CONTRACTORS. ADC agrees that it will not
disclose all or any portion of the Packeteer Software to third parties, with the
exception of authorized employees ("Authorized Employees") and authorized
contractors ("Authorized Contractors") (subject to ADC's having obtained
authorization for use of such contractors in accordance with PARAGRAPH 2 of this
ATTACHMENT E, below) who (a) require access thereto for a purpose authorized by
this Agreement, (b) have signed an employee or contractor agreement in which
such employee or contractor agrees to protect third party confidential
information and (c) in the case of disclosure of Packeteer Software Source or
Packeteer Software Information ("Source Information"), have received a notice of
confidentiality prior to access to such Source Information, and again upon any
termination of such access, that contains, at a minimum provisions substantially
in accordance with the following:
"Recipient has previously signed an agreement with ADC pursuant to which
Recipient has agreed to maintain the confidentiality of confidential
information of ADC and its suppliers (the "Confidential Information") and
to use the Confidential Information solely for ADC's benefit. The purpose
of this notice is to apprise Recipient that Recipient will be receiving
certain proprietary information of Packeteer, including internal source
code, interface specifications and related documentation for the Packeteer
product and related Packeteer information, all of which is of a
confidential nature and which contains valuable trade secrets, known-how,
and proprietary information of Packeteer (the "Packeteer Information") and
which constitutes Confidential Information under Recipient's agreement with
ADC.
This is to inform Recipient that the Packeteer Information cannot be used
for any purpose except for the specific purposes which ADC or Packeteer
authorize in writing and that Recipient is not authorized to disclose the
Packeteer Information to any person at any time except to employees of
Packeteer and to those Authorized Employees and Authorized Contractors
which ADC informs Recipient are authorized to receive such Packeteer
Information.
All materials including, without limitation, programs, recorded
information, documents, drawings, models, apparatus, sketches, designs, and
lists furnished to Recipient by ADC or Packeteer which are designated in
writing to be the property of Packeteer remain the property of Packeteer
and must be returned to Packeteer promptly at its request, together with
any copies or modifications thereof."
ADC guarantees the compliance of all such Authorized Employees and Authorized
Contractors with their obligations under such confidentiality agreements.
2. PRIOR APPROVAL OF CONTRACTORS. Notwithstanding the provisions in this
ATTACHMENT E permitting Authorized Contractors to have access to Source
Information, ADC may not permit a contractor to come into contact with Source
Information, or engage in the
E-1.
<PAGE> 25
development of the Ported Software hereunder unless ADC has first obtained such
authorization in writing from Packeteer. Packeteer, in its sole discretion, may
withhold such approval in the event that a contractor (or contractor's
employer) to whom ADC intends to disclose Source Information is engaged in
Competitive Product development, either for its own benefit or for the benefit
of a third party, or if Packeteer believes that the contractor may be engaged
in similar product development, and ADC cannot assure Packeteer to its
satisfaction that contractor, while engaged in supporting such development
activities, will be able to refrain from commingling or sharing any portion of
the Source Information with any such Competitive Product development.
3. PACKETEER SUPPORT INFORMATION.
3.1 ADC will ensure that all Source Information received from
Packeteer, and copies made thereof, will be properly marked or otherwise
appropriately identified as Packeteer Information before being made available
to Authorized Employees and Authorized Contractors hereunder.
3.2 ADC will ensure that the same degree of care is used to prevent
the unauthorized use, dissemination, or publication of the Source Information
as ADC uses to protect its own confidential information of a like nature, but
in no event will the safeguards for protecting such Packeteer Support
Information be less than a reasonably prudent business would exercise under
similar circumstances. ADC will take prompt and appropriate action to prevent
unauthorized use or disclosure of Source Information.
3.3 ADC will instruct Authorized Employees and Authorized
contractors not to copy Source Information on their own, and not to disclose
Source Information to any one not authorized to receive it.
3.4 Source Information will be handled, used, and stored solely at
the Development Site. The Source Information will not be stored on any computer
or network which is accessible from outside of the Development Site or by
people other than Authorized Employees or Authorized Contractors.
3.5 ADC will provide Packeteer with a log of all Authorized
Employees and Authorized Contractors who have access to the Source Information
and who have had access in the preceding five (5) years.
4. TRADE SECRETS. The Packeteer Software, including the techniques,
algorithms, and processes contained in the Packeteer Software which have been
developed, acquired, or licensed by Packeteer, or any modification or
extraction thereof, constitute trade secrets of Packeteer and/or its suppliers,
and will be used by ADC only in accordance with the terms of this Agreement. ADC
will take all measures reasonably required to protect the proprietary rights of
Packeteer and its suppliers in the Packeteer Software and will promptly notify
Packeteer of any lost or missing items and take all reasonable steps to recover
such items. ADC agrees that it will not attempt to reverse engineer any portion
of the Packeteer Software which is provided to ADC solely in object code form.
5. NO COMMINGLING OF TECHNOLOGY. If ADC engages in development of
products (other than the Ported Software) that are comparable to the Packeteer
Software
E-2.
<PAGE> 26
("Comparable Products") during the term of this Agreement, it will ensure that
there is no sharing with such Comparable Products development any of the
following: (a) design documents of schematics supplied by Packeteer; (b) Source
Information or other information based upon or derived from the Source
Information; or (c) any computing resources (including, but not limited to,
computer systems and network storage devices), or (d) personnel with access to
any of (a)-(c) above. ADC will ensure that all Authorized Employees and
Authorized Contractors who have had previous access to the Packeteer Software
will be precluded for a period of twenty-four (24) months after their latest
access to such Packeteer Software from being employed in any Comparable Product
development (either internally or externally) by or for ADC or any Competitive
Product (as defined in PARAGRAPH 10.8 ("Access") of this Agreement) or
Comparable Product development for any third parties. "Employment in any
Competitive (or Comparable) Product development" will be defined as having
direct access to, or producing any specifications, documentation, or source
code, for components of a Competitive (or Comparable) Product.
6. PROPRIETARY RIGHTS AUDIT. During the term of the Agreement and for a
period of twenty-four (24) months thereafter, an independent auditor selected
by Packeteer will have access to such portion of ADC's records and premises to
allow Packeteer to determine whether ADC is substantially in compliance with
this ATTACHMENT E and PARAGRAPH 10 ("Protection of Proprietary Rights") of the
Agreement. In no event will audits be made hereunder more frequently than twice
per year. Such access will be (a) during ADC's regular business hours, (b)
arranged so that, to the extent possible, ADC's regular business activities are
minimally disrupted and (c) under the terms of an appropriate confidentiality
agreement executed by the individual(s) conducting such audit. ADC will
immediately correct any deficiencies discovered in the course of the audit.
E-3.
<PAGE> 27
ATTACHMENT F
SPECIFICATIONS FOR ADC PRODUCT
A ServicePoint device is a WAN access termination hardware device.
ServicePoint MAS (Modular Access Solutions) is a software base capable of
running on ADC's ServicePoint line of WAN access termination hardware devices
or its partners WAN access termination hardware devices.
ServicePoint MAS software will, after the Effective Date of the Agreement to
which this Attachment F is attached, always include the [*].
Some configurations of the ServicePoint MAS software may also enable the [*].
The ServicePoint MAS software otherwise includes at least one of the following
capabilities in any combination:
[*].
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
F-1.
<PAGE> 28
ATTACHMENT H
SOURCE CODE SITES
ADC Kentrox facility in Portland, Oregon.
14375 Northwest Science Park Drive
Portland, OR 97229
ADC Kentrox facility in the San Francisco bay area (Silicon Valley).
(As of 12/98)
2755 Campus Drive, Suite 165
San Mateo, CA 94403
(As of 1/99)
800 El Camino Real, Suite 100
Mountain View, CA
H-1.
<PAGE> 29
SCHEDULE I
FEES
I. PRODUCT DISTRIBUTION. ADC will pay Packeteer:
A. APPLICATION DISCOVERY SOFTWARE PACKAGE:
$[*] for each ADC Product distributed by or on behalf of ADC in which
the Application Discovery Software Package is included. ADC will make
minimum royalty payments (on a quarterly basis) for Application
Discovery for the first two years from the FCS Date (as defined in
Section III below) as set forth below.
<TABLE>
<CAPTION>
Application Discovery
royalties Annual Minimum
Year ADC Prepaid Units Royalty amount
<S> <C> <C>
1 [*] [*]
2 [*] [*]
</TABLE>
The minimum quarterly payments due for Application Discovery Software
Package units:
<TABLE>
<CAPTION>
Year Quarter 1 Quarter 2 Quarter 3 Quarter 4
<S> <C> <C> <C> <C> <C>
1 Total = [*] [*] [*] [*] [*]
2 Total = [*] [*] [*] [*] [*]
</TABLE>
B. RATE CONTROL SOFTWARE PACKAGE:
ADC will pay Packeteer the following for each unit distributed with
Rate Control functionality and for each unit upgrade to include Rate
Control functionality
<TABLE>
<S> <C> <C>
First [*] units Per T1 port or equivalent [*]
in the United States, and
per E1 port or equivalent
in International markets
Units [*] to [*] Per T1 port or equivalent [*]
in the United States, and
per E1 port or equivalent
in International markets
Units [*] to [*] Per T1 port or equivalent [*]
in the United States, and
per E1 port or equivalent
in International markets
For all units over [*] Per T1 port or equivalent [*]
in the United States, and
</TABLE>
SCHEDULE-1.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 30
per E1 port or equivalent
in International markets
ADC will make minimum royalty payments (on a quarterly basis) for units which
include (or are upgraded to) Rate Control Software Package for the first two
years of the Agreement as set forth below:
<TABLE>
<CAPTION>
Rate Control royalties
Year ADC Prepaid Annual Minimum
Units Royalty amount
<S> <C> <C>
1 [*] [*]
2 [*] [*]
</TABLE>
The minimum quarterly payments due for Rate Control Software Package units:
<TABLE>
<CAPTION>
Year Quarter 1 Quarter 2 Quarter 3 Quarter 4
<S> <C> <C> <C> <C> <C>
1 Total = [*] [*] [*] [*] [*]
2 Total = [*] [*] [*] [*] [*]
</TABLE>
ADC will make payments for the prepaid royalty commitments for both the
Application Discovery and Rate Control packages on a quarterly basis for the
first two years. After the first two years (and not during such two-year
period), if the royalty commitments previously paid exceed the amounts due for
the units already shipped, ADC may apply such balance to future units shipped
in accordance with the royalty schedule set forth above.
II. MAINTENANCE RELEASES. There is no further royalty due to Packeteer for any
copies of any Updates distributed to End Users.
The Maintenance Fee will be [*] annually and paid at the beginning of
the period. This fee will commence at the beginning of the second year of
the Agreement.
III. TIMING OF PAYMENTS. The initial obligation to pay the royalties set forth
above shall commence upon the earlier of (i) the first commercial shipment of
an ADC Product unit to the distribution channel (the "FCS Date") and (ii) July
1, 1999, and shall continue for two years thereafter. The quarterly payments
due shall accompany the reports furnished under PARAGRAPH 5.5 ("Reporting"). In
the event that ADC's royalty obligations for units shipped during any quarter
exceeds the minimum quarterly royalty obligation payable for such quarter, ADC
shall remit the additional royalties due along with the other quarterly
payments for such quarter.
References to calendar quarters and year periods for the royalty obligations
(but not the maintenance payments) set forth in Section I above are measured
from the FCS Date.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
G-2.
<PAGE> 1
Exhibit 10.3
PACKETEER, INC.
RESELLER AGREEMENT
ALCATEL BUSINESS SYSTEMS
- --------------------------------------- ------------- ------------------
Company Name Agreement # Effective Date
12, rue de la Baume
- ------------------------------------------------------------------------------
Address
Paris FRANCE 75008
- --------------------------------------------------------- ------------------
City State/Province/Country Postal Code Telephone
1. APPOINTMENT
A. Packeteer appoints the reseller named above (hereafter "Alcatel
Business Systems") and each Authorized Units, as defined in Article 4.A
(hereafter collectively "Reseller") as an authorized, non-exclusive
reseller in the Territory specified in Addendum A for a period of [*]
and Reseller accepts such appointment. In connection with such
appointment, and subject to the terms of this Reseller Agreement (the
"Agreement"), Packeteer grants to Reseller, and Reseller accepts a
non-transferable, non-exclusive right 1) to resell the products set
forth in Addendum A ("Products") solely to persons or entities in the
Territory that obtain the Products either for personal or internal
business use or for the provisioning of services and not for resale,
license or distribution to third parties subject to the provisions of
Addendum C, and that are subject to the terms of the end user agreement
which accompanies the Product ("End Users"), and 2) to use the Products
for the purposes set forth in this Agreement. All rights not expressly
granted to Reseller herein are reserved by Packeteer. This Agreement
will automatically renew for successive one-year terms unless
terminated earlier in accordance with the terms of this Agreement.
2. LICENSE; LIMITATIONS
A. Subject to the terms and conditions of this Agreement, Packeteer grants
to Reseller a non-transferable, non-exclusive limited license to
distribute the object code of both 1) Packeteer's proprietary software
and 2) software that Packeteer has obtained pursuant to rights granted
from third parties ("Software") incorporated in the Products or
otherwise provided with the Products solely to End Users. The Software
is protected under copyright laws. The licenses granted in this section
by Packeteer do not constitute a sale of the Software. All copyright
and proprietary rights notices included in the Software must be
reproduced and included with any copy of any portion of the Software.
Reseller will not translate any portion of the Software or associated
documentation into any other format or language without the prior
written consent of Packeteer, which shall not be unreasonably withheld.
Except as specifically provided in this Agreement, Reseller may not
transfer the Software or the licenses granted herein to any third
party.
B. The Products are a "commercial item" and Reseller will provide the
Products to U.S. Government End Users with only those rights as are
granted to all other End Users pursuant to the terms and conditions
herein.
C. Subject to the provisions of the License Agreement which may be entered
between Packeteer and any of (i) Alcatel Business Systems or (ii)
Alcatel as defined in Article 4.A or (iii) any Authorized Unit ,
Reseller may not alter, modify, reproduce or create derivative works
from the Products, the Software or any part thereof. Reseller will not,
directly or indirectly, 1) solicit or consummate sales of the Product
outside the Territory without the prior written consent of Packeteer,
2) resell or otherwise distribute the Products to customers other than
End Users, 3) engage any third party distributors to distribute the
Products, or 4) sell the Products to customers whom Reseller knows or
has reason to know intend to resell the Products. Reseller agrees not
to reverse engineer, decompile, or disassemble the Products or
otherwise reduce the Software to human-perceivable form, or to
encourage or assist third parties in doing so.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 2
3. PRICES
A. Addendum A references the worldwide list price for Products as of the
Effective Date. Packeteer reserves the right to change list prices upon
at least [*] prior written notice to Reseller.
B. The Net Reseller Price for Products purchased under this Agreement will
be the list price at the time of Reseller's orders, less the discounts
as specified in Addendum A.
C. Net Reseller Price does not include transportation.
D. The Net Reseller Price is exclusive of all applicable taxes associated
with the marketing, distribution and delivery of the Products,
including but not limited to sales, use, withholding, excise,
value-added and similar taxes and all customs, duties or other
governmental impositions, but excluding taxes calculated on Packeteer's
net income ("Taxes"). Reseller will pay all Taxes associated with the
sale and delivery of all Products. If claiming tax exemption, Reseller
will provide Packeteer with a valid tax exemption certificate.
E. [*]
F. Packeteer agrees to consider in good faith the granting to Reseller of
additional discounts on a case-by-case basis.
4. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
A. Authorized Units may place orders directly with Packeteer once the Unit
Approval Addendum attached as Addendum D hereto has been executed by
such Authorized Unit.
For the Purpose hereof, an Authorized Unit shall be defined as any
company of which the capital is controlled by 50 % or more by Alcatel,
a French Company with a registered address 12 rue de la Baume, 75008
Paris, France.
B. Reseller and Packeteer will agree upon non binding quarterly Purchase
Objectives. The initial quarterly Purchase Objectives are stated in the
Addendum A.
Each of Alcatel Business Systems and the Authorized Units will provide
a non binding three month rolling forecast.
C. Purchase orders may be sent by fax, email or letter and will include
the fax number or email address to be used for orders acknowledgement
purposes (the "Acknowledgement References"). Packeteer will acknowledge
in writing written purchase orders received from Reseller within a week
of their receipt provided however that such purchase orders include the
appropriate Acknowledgement References. At the time of acknowledgement,
Packeteer will provide scheduled delivery dates which delivery date
shall not be later than 4 weeks from the date Packeteer receives the
order. Sales of Product to Reseller will be governed by this Agreement,
and any additional or different terms on Reseller's purchase order form
that conflict with this Agreement will have no force or effect.
D. Reseller may request shipment up to [*] after order date.
E. Reseller may cancel shipment or request changes in a scheduled shipment
date at no charge up to 10 business days before scheduled shipment. Any
later cancellation or change will be subject to a charge of 10% of the
shipment's list price value and applicable freight charges if Product
is in transit.
F. Packeteer will use reasonable efforts to meet any scheduled shipment
date.
Title to Packeteer Products (hardware only) and risk of loss or damage
will pass to Reseller at the time of delivery by Packeteer to the
carrier ("FCA" Cupertino as defined by the ICC Incoterms 1990). All
shipments will be deemed accepted upon receipt provided however that
Packeteer will be entitled to reschedule orders with a maximum
additional delay of [*] to the original delivery date when Reseller has
not met [*] of the cumulated forecasts for two successive quarters.
G. For each Product ordered by Reseller pursuant to this Agreement,
Packeteer will perform its standard factory production test applicable
to such Product. Packeteer will ship a Product to Reseller only after
it passes the
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 3
factory production test. Reseller shall have the opportunity to review
Packeteer's standard factory production test procedures as it considers
necessary during normal business hours on reasonable prior written
request. Upon request by Reseller, respective Quality Managers of
Packeteer and Reseller will meet to review quality procedures,
standards and testing requirements.
5. PAYMENT
A. Reseller will use best efforts pay invoices within 45 days and will pay
all invoices in full within a maximum of 60 days after the date of
invoice unless Packeteer agrees to other terms.
B. Claims for adjustment of any invoice will be waived if Reseller fails
to present claim within 90 days from date of Packeteer invoice. Claims,
credits or offsets may be deducted from any invoice as agreed by both
parties in writing prior to deduction.
6. PRICE ADJUSTMENTS; PRICE PROTECTION
A. If Packeteer raises list prices, Packeteer will invoice based on the
old, lower price for orders placed by the Reseller (with delivery)
within one month after the effective date of the list price increase..
Protection of prices will be provided by Packeteer for the period of
time between the submission of a tender by Reseller and the award of a
contract to Reseller further to such tender provided, however, that (i)
such protection will be limited to tenders submitted to carriers,
unless otherwise agreed upon in writing between Reseller and Packeteer
and (ii) Reseller shall have notified in advance Packeteer of the
submission of such tender.
B. If Packeteer reduces list prices, Reseller will be billed based on the
new, lower price for Packeteer Products shipped on or after the
effective date of the reduction.
C. If Packeteer reduces list prices, Reseller may apply for a price
protection credit equal to the total reduction in Net Reseller Price
for eligible products remaining unsold that were shipped within two
months before the effective date of the reduction. In order to receive
a credit, Reseller must submit to Packeteer a report of inventory
eligible for the price credit within 20 days of the effective date of
the list price decrease.
7. STOCK ADJUSTMENTS
A. Packeteer Products eligible for stock adjustment are products that
Packeteer is still selling and that are still in their unopened,
original packaging, marketable as new merchandise. Reseller will return
items at Reseller's expense.
B. Products returned for stock adjustment are subject to a restocking
charge of 10%. Packeteer will bear transportation costs associated with
such returned Products.
C. Eligible Products may be returned for stock adjustment once each
calendar quarter during the first two weeks of the quarter. Reseller
must purchase new Products of equal or greater value for immediate
shipment at the time of return.
D. Reseller must obtain a Returned Material Authorization (RMA) number for
each shipment returned for stock adjustment. If an RMA number does not
appear on the outside of all boxes returned to Packeteer, the shipment
may be returned to Reseller at Reseller's expense.
E. Reseller will receive a credit for eligible Products returned for stock
adjustment at the Net Reseller Price in effect when Packeteer receives
them, less the return charges indicated above and any promotional
discounts.
8. DEFECTIVE UNITS
A. Reseller and Packeteer agree that the procedure provided below for
return and repair or replacement will be Reseller's exclusive remedy
for any claim relating to any alleged defect or nonconformity in the
Products, subject to the provisions of article 13 hereafter.
B. Packeteer will repair or replace any Packeteer Product found defective
by Reseller within 15 days of its shipment to Reseller and prior to its
sale to the End User.
1) Unless Packeteer gives other instructions, the defective unit
will be returned to Packeteer freight collect. Reseller must
notify Packeteer that the unit is being returned and must
obtain an RMA number. If an RMA number does not appear on the
outside of all boxes returned to Packeteer, the shipment may
be returned to Reseller at Reseller's expense.
2) Packeteer may inspect the unit to verify that it is eligible
for repair or replacement. Such eligibility will be based
solely on whether the unit is in fact defective and whether
the claim is timely. Packeteer's approval will not be
unreasonably withheld.
<PAGE> 4
3) Packeteer will be entitled to determine at its discretion
whether to repair or replace for the defective unit.
4) Packeteer will not repair or replace for units damaged from
abuse or misuse (including improper storage), attempted repair
by an unauthorized individual, or repossession. Reseller will
reimburse Packeteer for freight for such units, or where no
defects are found.
9. RESELLER RESPONSIBILITIES
A. Reseller will provide first line technical support for the products to
its End Users, responding to End Users' inquiries within a reasonable
time.
B. Subject to the provisions of article 10 A hereafter, Reseller will
train and maintain a sufficient number of capable technical and sales
personnel to serve the demands of End Users for the Products, to
service and support the Products, to call on End Users with reasonable
frequency and to answer promptly all End User inquiries or requests for
information regarding the Products.
C. List prices are suggested prices for resale to Reseller's customers and
a basis for calculating Net Reseller Price. Reseller has the right to
determine its own resale prices, and no Packeteer representative will
require that any particular price be charged by Reseller or withhold
any treatment to Reseller based on Reseller's pricing policies.
Reseller agrees that it will promptly report any effort by Packeteer
personnel to interfere with its pricing policies directly to a
Packeteer officer or manager.
D. Reseller agrees that high end user satisfaction is a condition of value
added reseller authorization by Packeteer. The distribution channels
established by Packeteer and the obligations placed on value added
resellers exist to ensure high end user satisfaction.
E. Reseller will use best efforts to have Reseller's sales force
participate in all Packeteer sponsored training sessions.
10. PACKETEER RESPONSIBILITIES
A. Packeteer will provide, free of charge, initial training on the
Products for a reasonable number of technical and sales personnel.
After the initial training Packeteer will make available at a
reasonable charge scheduled classes for sales training programs and for
product maintenance and installation in places and at times to be
mutually agreed upon by both parties.
B. Packeteer will furnish at no charge one master reproduction copy, in
the English language, of all sales literature, drawings, functional
descriptions, customer training manuals and other standard materials
necessary to promote the sale, installation and maintenance of Products
and to enable Reseller to perform its obligations under this Agreement.
C. Packeteer will keep Reseller regularly informed of its policies
regarding Product launching and will provide a 12-month rolling product
plan, updated quarterly, with Products assigned to calendar quarters.
Packeteer will provide Reseller with at least three (3) months prior
notice of changes in Product evaluations and Product launches.
D. Packeteer will provide Reseller one of each of the Products together
with their updates or new releases for the purposes of beta or
evaluation testing which shall be free of charge.
11. RESELLER REPORTING AND RECORD-KEEPING
A. For purposes of contract compliance verification, product safety
information, corrections for operational problems and the like,
Reseller is required to maintain records of customer purchases of
Products for one year. Records must include serial number and date of
sale of the Products and for the USA, the state in which it is sold.
B. At Packeteer's discretion, and upon reasonable notice to Reseller,
Packeteer or Packeteer's designate will be given on-site access to
Reseller's customer records, inventory records and other books and
records of account as necessary to verify and audit Reseller's
compliance with the terms of this Agreement. Packeteer undertakes to
keep the information accessed during such on site visit strictly
confidential and to use such information only for compliance audit
purposes. Packeteer shall not provide such information to another
Reseller and shall not use such information to directly approach or
deal with in any manner any Reseller's customer.
C. Any of Alcatel Business Systems or the concerned Authorized Units will
provide quarterly a point of sale (POS) report for the US Sales only.
The POS report will detail shipments by state. These reports are to be
sent to Packeteer's Sales Department.
<PAGE> 5
12. USER WARRANTY
A. Packeteer Products are covered by a user warranty, a copy of which is
included with each Product. The user warranty runs in favor of the End
User. The user warranty period begins on the End User's date of
purchase. Packeteer may require that Reseller provide proof of purchase
by the End User. The user warranty is the only warranty covering a
Product sold under this Agreement.
B. NO OTHER WARRANTY IS EXPRESSED OR IMPLIED. PACKETEER SPECIFICALLY
DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY, AND FITNESS FOR A
PARTICULAR PURPOSE.
13. LIMITATION OF REMEDIES AND LIABILITY
A. THE REMEDIES PROVIDED IN THIS AGREEMENT, INCLUDING THE PROCEDURE FOR
RETURN OF DEFECTIVE UNITS, ARE RESELLER'S SOLE AND EXCLUSIVE REMEDIES.
NO PARTY TO THIS AGREEMENT WILL BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER LEGAL THEORY.
B. If any Product sold hereunder is defective and as a result thereof has
directly caused direct damages or is determined by a court of competent
jurisdiction to be defective and to have directly caused bodily injury,
death or property damage in no event will Packeteer's liability to
Reseller in connection with this Agreement exceed the amounts actually
paid by Reseller under this Agreement during the preceding twelve (12)
months.
14. RELATIONSHIP
A. Reseller's relationship to Packeteer will be that of an independent
contractor engaged in purchasing Products for resale to End Users.
Reseller and its employees are not agents or legal representatives of
Packeteer for any purpose and have no authority to act for, bind or
commit Packeteer. Reseller and Packeteer agree that this Agreement does
not establish a franchise, joint venture or partnership.
B. Any commitment made by Reseller to its customers with respect to
quantities, delivery, modifications, interfacing capability or
suitability will be Reseller's sole responsibility unless prior written
approval is obtained from Packeteer. Reseller has no authority to
modify the user warranty or to make any commitment on Packeteer's
behalf and Reseller will indemnify Packeteer from liability for any
such modified warranty or other commitment by Reseller.
15. TRADEMARK
A. From time to time, Packeteer may designate one or more Packeteer
trademarks as available for Reseller's use and will provide standards
for that use. Packeteer authorizes Reseller to use these designated
trademarks.
1) Reseller will use the designated trademarks in accordance with
these standards solely in advertising and promoting Packeteer
products, in good taste and in a manner that preserves their
value and Packeteer's rights in them.
2) Reseller will not use any Packeteer trademark or trade name in
a way that implies Reseller is an agency or branch of
Packeteer. Reseller will immediately change or discontinue any
use as requested by Packeteer.
3) Reseller has no right, title or interest in any Packeteer
trademark or trade name and is not authorized to use any
Packeteer trademark or trade name other than the designated
trademarks. Any rights in any Packeteer trademark or trade
name acquired through Reseller's use belong solely to
Packeteer.
4) Reseller will not at any time during or after this Agreement
do anything that may adversely affect Packeteer's ownership
of, the validity or enforceability of, or infringe or
contribute to the infringement of any Packeteer trademark or
trade name.
16. PROPRIETARY INFORMATION
A. The Reseller and Packeteer acknowledge that, in the course of
performing duties under this Agreement, each party may obtain
proprietary or confidential information from the other party
("Proprietary Information"). Proprietary Information may be disclosed
to a party in writing, in other tangible form, orally or visually. When
disclosed in writing or other tangible form, the Proprietary
Information will be identified and labeled as confidential and
belonging to the disclosing party. When disclosed orally or visually,
such Proprietary Information will first be identified as confidential
at the time of the oral or visual disclosure, with subsequent
confirmation in writing within 15 days after disclosure.
<PAGE> 6
B. Neither party will at any time, either during or after the term of this
Agreement, or for a period of 3 years after its expiration 1) publish,
disclose or otherwise divulge any of the other party's Proprietary
Information to any person, except its officers and employees under a
confidentiality of such information consistent with the obligations
imposed hereunder, or 2) permit its officers or employees to divulge
any of the other party's Proprietary Information without the prior
written consent of the other party. Neither party will use the other
party's Proprietary Information except in the course of its duties
under this Agreement. Upon termination of this Agreement for any
reason, each party further agrees to immediately destroy with evidence
thereof or return to the other party all of the other party's
Proprietary Information in its possession, custody or control.
C. The Proprietary Information restrictions will not apply to information
which 1) is already known to the other party, 2) is or becomes publicly
known through no wrongful act of the receiving party, 3) is
independently developed by the receiving party without benefit of the
disclosing party's Proprietary Information or 4) is received from a
third party without similar restriction and without breach of this
Agreement.
17. INDEMNITY
A. Packeteer will, except as otherwise provided below, defend or settle
any claim made or suit or proceeding brought against Reseller and/or
its customers to the extent it is based on an allegation that any
unmodified Product sold under this Agreement infringes any patent,
trademark or copyright, provided Packeteer is notified promptly in
writing and given information, assistance (so long as Packeteer pays
the out-of-pocket expenses) and sole authority to defend or settle same
at Packeteer's expense; and Packeteer will pay all damages and costs
finally awarded therein against Reseller and/or Reseller's customer,
notwithstanding the provisions of article 13 hereof. If any such
Packeteer product is held to infringe and its use is enjoined, or in
case of a settlement, Packeteer will have the option at Packeteer's
expense to replace same with a non-infringing product; or modify same
so it becomes non-infringing.
B. The foregoing states Packeteer's entire liability for intellectual
property infringement by products furnished under this Agreement.
18. TERMINATION
A. This Agreement may be terminated without cause by either party upon
written notice to the other party given no fewer than sixty (60) days
prior to the end of the then-current term. Either party may terminate
this Agreement for material breach of this Agreement by the other party
("Cause") by giving written notice to the defaulting party and allowing
a thirty (30) day period to cure the breach. Either party may terminate
this Agreement immediately upon written notice if the other party
ceases to do business for any reason or becomes subject to any
bankruptcy, insolvency, reorganization, liquidation or other similar
proceedings are not dismissed within fifteen (15) days thereafter.
Packeteer may terminate the Agreement with any Authorized Unit for
material breach by such unit provided, however, that such termination
shall not entail the termination of this Agreement nor of any other
Agreement with other Authorized Unit.
B. Any Authorized Unit may terminate the Agreement with respect to itself
only by giving at least 60 days prior written notice to Packeteer and
Reseller .
C. Upon termination or expiration of this Agreement for any reason,
Reseller will immediately cease to be an authorized Packeteer reseller
and will refrain from representing itself as such and from using any
Packeteer trademark or trade name.
D. Upon termination or expiration, either party may require that Packeteer
purchase any Products sold to Reseller by Packeteer under this
Agreement that Packeteer is still selling, in their unopened, original
packaging and marketable as new merchandise. Packeteer will pay
Reseller Packeteer's then current Net Reseller Price or Reseller's
original purchase price for such products, whichever is lower. Reseller
should contact its sales representative for information about the items
eligible for repurchase and instructions for their return at
Packeteer's expense.
E. Neither party will be liable to the other for damages in any form by
reason of the termination or cancellation of this Agreement in
accordance with the provisions set forth in this Agreement.
F. The indemnities and record-keeping provisions set forth in this
Agreement will survive termination or expiration hereof.
19. AMENDMENT
A. Packeteer may, from time to time, (i) add products to its current
product list, (ii) change list prices subject to the provisions of
article 3.A or (iii) implement special
<PAGE> 7
promotional programs, at Packeteer's discretion, after reasonable
notice to Reseller.
B. Packeteer may, from time to time delete Products from its current
product list upon ninety (90) days written notification prior to such
deletion (the "Notice Period"). Reseller may then make a last-time
order of such Products within the Notice Period, which order Packeteer
shall accept and deliver.
C. Each party acknowledges that the other has made no commitments
regarding duration or renewal of this Agreement beyond those expressly
stated herein.
20. GENERAL CONDITIONS
A. Reseller may not assign or transfer this Agreement, except to any other
company of the Alcatel Group. Any attempted assignment or transfer by
Reseller will be void.
B. The failure of either party to require performance by the other party
of any provision of this Agreement will not affect the full right to
require such performance at any time thereafter; nor will the waiver by
either party of a breach of any provision be taken or held to be a
waiver of the provision itself.
C. This Agreement and the attached Addenda contain the entire and only
understanding between the parties relating to the subject matter
hereof. No modification of this Agreement will be binding on either
party unless made in writing and signed by both parties.
D. No U.S. government procurement regulations will be deemed included
hereunder or binding on either party unless specifically accepted in
writing and signed by both parties.
E. This Agreement will be governed by the laws of the State of California.
The United Nations Convention on Contracts for the International Sale
of Goods is specifically excluded from application to this Agreement.
21. THE ADDENDA LISTED BELOW ARE ATTACHED TO AND MADE A PART OF THIS AGREEMENT.
X ADDENDUM A (Territory, Products, Discounts, Volume and Purchase
- ---------- Objectives)
X ADDENDUM B (End User License)
- ----------
X ADDENDUM C (Limited Distribution Agreement for Reseller)
- ----------
X ADDENDUM D (Authorized Unit Approval Addendum)
- ----------
X ADDENDUM E (Year 2000 Readiness Disclosure)
- ----------
22. AUTHORIZED SIGNATURES
A. RESELLER B. PACKETEER
/s/ Oliver Basada
-------------------------------- --------------------------------
Authorized Signature Authorized Signature
-------------------------------- --------------------------------
Typed or Printed Name Typed or Printed Name
-------------------------------- --------------------------------
Title Title
<PAGE> 8
ADDENDUM A
1. TERRITORY
The World.
- --------------------------------------------------------------------------------
2. PRODUCT AND PRICES
<TABLE>
<CAPTION>
Product ID Product Description List Prices
- ---------- ------------------- -------------
<S> <C> <C>
PS1000 PacketShaper 1000 Branch Office Bandwidth Management [*]
PS2000 PacketShaper 2000 Business Critical Bandwidth Management
PS4000 PacketShaper 4000 Broadband Bandwidth Management
PM1000 ProSupport1000 Premium Maintenance Agreement
PM2000 ProSupport2000 Premium Maintenance Agreement
PM4000 ProSupport4000 Premium Maintenance Agreement
BM1000 ProSupport1000 Partner Maintenance Agreement
BM2000 ProSupport2000 Partner Maintenance Agreement
BM4000 ProSupport4000 Partner Maintenance Agreement
</TABLE>
3. DISCOUNT
A maximum discount of [*] will apply to the worldwide list prices of products
listed above, as amended from time to time.
This discount will be implemented as follows:
- - A discount of [*] off list prices of Products will be applied to all
orders placed by Reseller.
- - If the cumulative amount of orders placed by Reseller is below the US$
[*] non binding Purchase Objective as defined below, then, Packeteer
will pay Alcatel Business Systems a [*] pay-back so that the total
discount reaches [*]. Such pay-back will be payable quarterly within
sixty days of the close of the quarter.
- - If the cumulative amount of orders placed by Reseller exceeds the US$
[*] threshold then Packeteer will pay Alcatel Business Systems an
additional [*] pay-back so that the maximum [*] discount level be
reached. Such additional pay-back will be payable on an annual basis
within 60 days of the close of the fiscal year.
The same pay-back mechanism and identical payment terms will be applied
to orders placed during the 2000 fiscal year with respect to the US$
[*] non binding Purchase Objective.
4. NON BINDING PURCHASE OBJECTIVES
Non binding quarterly Purchase Objectives will be provided by Alcatel. The
overall non binding Purchase Objective cumulated for the 1999 fiscal year and
the 2000 fiscal year is US$ [*]. It is expected that US$ [*] will be made in
fiscal year 1999 and US$ [*] will be made in fiscal year 2000.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 9
ADDENDUM B
PACKETEER END USER AGREEMENT
THE FOLLOWING IS A SAMPLE FORM OF THE PACKETEER END USER AGREEMENT AS OF THE
EFFECTIVE DATE:
"THIS AGREEMENT IS PROOF OF YOUR RIGHT TO USE THE SOFTWARE CONTAINED IN THE
PACKETEER PACKETSHAPER PRODUCT AND CONTAINS ADDITIONAL INFORMATION CONCERNING
PACKETEER'S PRODUCT WARRANTY AND LIMITATIONS OF LIABILITY. PLEASE READ IT
CAREFULLY.
THIS AGREEMENT IS BETWEEN YOU (EITHER AN INDIVIDUAL OR AN ENTITY) AND PACKETEER,
INC. ("PACKETEER"). PACKETEER IS WILLING TO GRANT YOU THE FOLLOWING RIGHTS TO
USE THE SOFTWARE INCORPORATED IN OR SUPPLIED WITH THE PACKETEER PACKETSHAPER
PRODUCT AND ITS ACCOMPANYING DOCUMENTATION (COLLECTIVELY, THE "PACKETEER
SOFTWARE") ONLY IF YOU AGREE TO BE BOUND BY ALL OF THE TERMS OF THIS AGREEMENT.
BY INSTALLING THE PRODUCT (THE "EQUIPMENT") OR USING THE PACKETEER SOFTWARE, YOU
AGREE TO BE BOUND BY ALL THE TERMS OF THIS AGREEMENT. IF YOU DO NOT AGREE TO BE
BOUND BY ANY OF THE TERMS OF THIS AGREEMENT, PACKETEER IS UNWILLING TO GRANT YOU
ANY RIGHTS TO USE THE PACKETEER SOFTWARE AND YOU MUST NOT USE THE PACKETEER
SOFTWARE OR THE EQUIPMENT; INSTEAD YOU MUST PROMPTLY RETURN THE EQUIPMENT AND
PACKETEER SOFTWARE FOR A FULL REFUND TO PACKETEER OR TO THE AUTHORIZED PACKETEER
RESELLER THAT PROVIDED YOU WITH THE PRODUCT.
1. OWNERSHIP: The Packeteer Software is and shall remain a proprietary product
of Packeteer. Packeteer and Packeteer's suppliers shall retain ownership of all
patents, copyrights, trademarks, trade names, trade secrets and other
proprietary rights relating to or residing in the Packeteer Software and
Equipment. Except for the license grant provided in Section 2, you shall have no
right, title or interest in or to the Packeteer Software. The Packeteer Software
is licensed, not sold, to you for use only under the terms of this Agreement.
2. GRANT OF LICENSE: Packeteer grants you a non-transferable (except as set
forth in this Section) non-exclusive, restricted right to use the Packeteer
Software as incorporated in or supplied with the Equipment and solely in
connection with the operation of the Equipment for your own internal business
purposes. You understand that Packeteer may update the Packeteer Software at any
time and in doing so incurs no obligation to furnish such updates to you
pursuant to this Agreement. You may transfer the license to use the Packeteer
Software only in connection with a sale or transfer of the Equipment and as
included with the Equipment and not on a standalone basis, provided the buyer or
transferee agrees to be bound by the terms and conditions of this Agreement.
3. RESTRICTIONS: Packeteer reserves all rights in the Packeteer Software not
expressly granted to you. Except as permitted in Section 2, you may not use,
copy, modify, create derivative works of, distribute, sell, assign, pledge,
sublicense, lease, loan, rent, timeshare, deliver or otherwise transfer the
Packeteer Software, nor permit any other party to do any of the foregoing. You
may not remove from the Packeteer Software, or alter, any of the trademarks,
trade names, logos, patent or copyright notices or markings, or add any other
notices or markings to the Packeteer Software. To the extent permissible by
applicable law, you may not derive or attempt to derive the source code of the
Packeteer Software by any means, nor permit any other party to derive or attempt
to derive such source code. To the extent permissible by applicable law, you may
not reverse engineer, decompile, disassemble, or translate the Packeteer
Software or any part thereof.
4. LIMITED WARRANTY: Packeteer does not warrant that the functions contained in
the Packeteer Software and Equipment will meet your requirements or that the
operation of your Packeteer Software or Equipment will be uninterrupted or error
free. Packeteer warrants that for a period of one year from your date of receipt
of the Equipment and Packeteer Software, (i) the Equipment will be free of any
defects in materials and workmanship and (ii) the Packeteer Software will
perform substantially in accordance with the accompanying documentation. This
limited warranty is void if failure of the Equipment or Packeteer Software to
conform with the warranty has resulted from improper installation, testing,
misuse, neglect, accident, fire or other hazard, or any breach of this
Agreement.
5. LIMITED REMEDIES: In the event of a breach of the foregoing limited warranty,
you must return the Equipment and Packeteer Software to Packeteer or the
Packeteer authorized reseller that provided you with the Packeteer Software,
postage prepaid, before the expiration of the warranty period, with a copy of
the invoice for the unit. Packeteer's sole and exclusive obligation and your
sole and exclusive remedy shall be, at Packeteer's sole discretion, to either
(i) repair the Packeteer Software or Equipment; (ii) provide a replacement
Equipment unit or a replacement copy of the Packeteer Software or (iii) refund
the amount you paid for the unit and terminate this Agreement. Any replacement
copy of the Packeteer Software or replacement Equipment unit will be warranted
for the remainder of the original warranty period or thirty (30) days, whichever
is longer.
6. NO OTHER WARRANTIES: OTHER THAN THE FOREGOING LIMITED WARRANTY, PACKETEER
HEREBY EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION THE IMPLIED WARRANTIES OF TITLE, NON-INFRINGEMENT, FITNESS
FOR A PARTICULAR PURPOSE AND MERCHANTABILITY. SOME JURISDICTIONS DO NOT ALLOW
THE DISCLAIMER OF IMPLIED WARRANTIES, SO THE ABOVE DISCLAIMER MAY NOT APPLY TO
YOU, IN WHICH CASE THE DURATION OF ANY SUCH IMPLIED WARRANTIES IS LIMITED TO
SIXTY (60) DAYS FROM THE DATE THE EQUIPMENT AND PACKETEER SOFTWARE ARE RECEIVED
BY YOU. THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS. YOU MAY HAVE OTHER LEGAL
RIGHTS WHICH VARY FROM JURISDICTION TO JURISDICTION.
7. LIMITATION OF LIABILITY: PACKETEER'S AGGREGATE LIABILITY IN CONNECTION WITH
THIS AGREEMENT, THE PACKETEER SOFTWARE AND THE EQUIPMENT, REGARDLESS OF THE FORM
OF THE ACTION GIVING RISE TO SUCH LIABILITY (WHETHER IN CONTRACT, TORT OR
OTHERWISE), SHALL NOT EXCEED THE AMOUNT PAID BY YOU DIRECTLY TO PACKETEER OR
PAID BY YOU TO PACKETEER THROUGH AN AUTHORIZED RESELLER. PACKETEER SHALL NOT BE
LIABLE TO YOU FOR ANY INDIRECT, EXEMPLARY, SPECIAL, CONSEQUENTIAL OR INCIDENTAL
DAMAGES OF ANY KIND (INCLUDING WITHOUT LIMITATION LOSS OF DATA, EQUIPMENT
DOWNTIME OR LOST PROFITS), EVEN IF PACKETEER HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. SOME JURISDICTIONS DO NOT ALLOW THE LIMITATION OR EXCLUSION OF
LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES SO THE ABOVE
<PAGE> 10
LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU. THE LIMITED WARRANTY, LIMITED
REMEDIES AND LIMITED LIABILITY PROVISIONS CONTAINED IN THIS AGREEMENT ARE
FUNDAMENTAL PARTS OF THE BASIS OF PACKETEER'S BARGAIN HEREUNDER, AND PACKETEER
WOULD NOT BE ABLE TO PROVIDE THE PACKETSHAPER TO YOU ABSENT SUCH LIMITATIONS.
8. GOVERNMENT END USERS: The Packeteer Software is comprised of "commercial
computer software" and "commercial computer software documentation" as such
terms are used in 48 C.F.R. 12.212 (SEPT 1995) and is provided to the Government
(i) for acquisition by or on behalf of civilian agencies, consistent with the
policy set forth in 48 C.F.R. 12.212; or (ii) for acquisition by or on behalf of
units of the Department of Defense, consistent with the policies set forth in 48
C.F.R. 227-7202-1 (JUN 1995) and 227.7202-3 (JUN 1995).
9. EXPORT CONTROL: Since the Packeteer Software is subject to the export control
laws of the United States, you may not export or re-export the Packeteer
Software without the appropriate United States and foreign government licenses.
You shall otherwise comply with all applicable export control laws and shall
defend, indemnify and hold Packeteer and all Packeteer suppliers harmless from
any claims arising out of your violation of such export control laws.
10. GENERAL: This Agreement shall for all purposes be governed by and
interpreted in accordance with the laws of the State of California, USA, as
those laws are applied to contracts entered into and to be performed entirely in
California by California residents. The United Nations Convention on Contracts
for the International Sale of Goods is specifically disclaimed. If any provision
of this Agreement is held by a court of competent jurisdiction to be
unenforceable for any reason, the remaining provisions hereof shall be
unaffected and remain in full force and effect. This Agreement is the final,
complete and exclusive agreement between the parties relating to the subject
matter hereof, and supersedes all prior or contemporaneous understandings and
agreements relating to such subject matter, whether oral or written. Should you
have any questions regarding this Agreement, or if you desire to contact
Packeteer for any reason, please write to: Packeteer, Inc., 10495 N. De Anza
Blvd., Cupertino, California 95014, U.S.A."
<PAGE> 11
ADDENDUM C
LIMITED DISTRIBUTION AGREEMENT FOR RESELLER
As outlined in this addendum, Packeteer grants Reseller a non-transferable,
non-exclusive right to act as a Distributor by supplying product to, training
and supporting VARs engaged in the resale of Products to end users.
Territory in which Reseller can act as a Distributor: The World
---------------
When selling to eligible VARs in the Territory in which Reseller can act as a
Distributor, the following terms apply:
1. DISTRIBUTOR PRICING: Reseller is eligible for an additional discount of
[*] percentage points beyond the stated Reseller discount in Addendum
A for products sold to VARs who resell to End Users. To obtain the
additional discount, Reseller must either supply VAR information on
relevant purchase orders or, if selling product from inventory, request
a credit when submitting monthly POS reports.
2. DEFECTIVE UNITS: Packeteer will repair, replace or provide credit to
Reseller for any Packeteer Product found defective by Reseller's VAR
within 45 days of Product shipment from Reseller to Reseller's VAR and
prior to its sale to the End User.
3. DISTRIBUTOR RESPONSIBILITIES: Reseller will provide first line
technical support and sales support for the Products sold to its VARs.
4. RECORD KEEPING: Reseller must indicate in monthly POS reports the
customers that are VARs,.
5. LIMITATION OF REMEDIES AND LIABILITY: The limitations stated in the
Reseller Agreement about commitments made by Reseller to its End Users
also apply to commitments made by Reseller to its VARs and commitments
made by Reseller's VARs to their End Users.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 12
ADDENDUM D
Authorized Unit Approval Addendum
This Agreement is made this .... Day of .... 1999, between (i) Alcatel Business
Systems, a French Company with its registered office located in 12, rue de la
Baume, 75008 Paris - France ("Alcatel") and (ii) Packeteer Inc., a company
incorporated in ......... ("Packeteer") and (iii).............................
............... (the "Unit")
PREAMBLE
Whereas Alcatel and Packeteer entered into a Reseller Agreement (the "Reseller
Agreement") dated ....., 1999 for the distribution of certain Packeteer Products
further described in Addendum A thereto.
Whereas the Reseller Agreement provides that Authorized Units may place orders
directly with Packeteer for the Products if such companies agree in writing to
be bound by the terms of the Reseller Agreement.
Whereas the Unit desires to be authorized to purchase Products under the terms
of the Reseller Agreement; and
Whereas, to that effect, this Agreement shall serve to bind the Unit to the
terms and conditions of the Reseller Agreement.
AGREEMENT:
1. Defined terms in this Agreement shall have the same meaning as in the
Reseller Agreement.
2. The Unit agrees to be bound in all regards under the terms and
conditions of the Reseller Agreement.
3. The Unit understands that it is solely responsible for payment for any
Products that are acquired from Packeteer under the Reseller Agreement.
All invoices to the Unit should be sent to:
.............................
.............................
Attn: .......................
4. All notices required to be given under this Agreement will be in
writing, by fax or through electronic transmission and sent to the
address set above (or to such other address as the Unit shall designate
by written notice to Packeteer).
<PAGE> 13
5. Subject to the foregoing under the terms of the Reseller Agreement, the
Unit is hereby authorized to purchase Products from Packeteer as an
Authorized Unit under the Reseller Agreement.
------------------------------ ----------------------------
Packeteer, Alcatel Business Systems,
-------------------------------
"Unit",
<PAGE> 14
ADDENDUM E
PACKETEER, INC. YEAR 2000 READINESS DISCLOSURE
Last Updated: November 26, 1998
Packeteer, Inc. is pleased to provide its Year 2000 Readiness Disclosure, which
is intended to assist you in assessing your Year 2000 needs.
Packeteer, Inc. considers a product Year 2000 ready if the product's performance
and functionality are unaffected by processing of dates just prior to, during,
and just after the Year 2000, provided that all hardware, firmware, software and
databases used in combination with the product properly exchange accurate and
correctly formatted date data with the product.
Packeteer, Inc. products that are Year 2000 ready:
PacketShaper Model 1000 v3.00
PacketShaper Model 2000 v3.00
PacketShaper Model 4000 v3.00
Based on testing to date, users of these products in the designated versions (or
later) will not need any additional upgrades for Year 2000 readiness.
This statement CONSTITUTES WARRANTY, for year 2000 compliance purposes only.
Packeteer, Inc.'s obligations and responsibilities regarding Packeteer products
are governed solely by the agreements under which they are sold or licensed.
LIMITATION OF LIABILITY: PACKETEER'S AGGREGATE LIABILITY IN CONNECTION WITH THIS
STATEMENT, THE PACKETEER SOFTWARE AND THE EQUIPMENT, REGARDLESS OF THE FORM OF
THE ACTION GIVING RISE TO SUCH LIABILITY (WHETHER IN CONTRACT, TORT OR
OTHERWISE), SHALL NOT EXCEED THE AMOUNT PAID BY YOU TO PACKETEER. PACKETEER
SHALL NOT BE LIABLE TO YOU FOR ANY INDIRECT, EXEMPLARY, SPECIAL, CONSEQUENTIAL
OR INCIDENTAL DAMAGES OF ANY KIND (INCLUDING WITHOUT LIMITATION LOSS OF DATA,
EQUIPMENT DOWNTIME OR LOST PROFITS), EVEN IF PACKETEER HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. SOME JURISDICTIONS DO NOT ALLOW THE LIMITATION OR
EXCLUSION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES SO THE ABOVE
LIMITATION OR EXCLUSION MAY NOT APPLY TO YOU. THE LIMITED WARRANTY, LIMITED
REMEDIES AND LIMITED LIABILITY PROVISIONS CONTAINED IN THIS AGREEMENT ARE
FUNDAMENTAL PARTS OF THE BASIS OF PACKETEER'S BARGAIN HEREUNDER, AND PACKETEER
WOULD NOT BE ABLE TO PROVIDE THE PACKETSHAPER TO YOU ABSENT SUCH LIMITATIONS. If
you are aware of any problems with our products which we have described as Year
2000 ready, or if you have any questions, please bring them to our attention
immediately by contacting your customer by contacting Packeteer, Inc. directly
as set forth below.
By Mail: Packeteer, Inc.
Director of Customer Operations
10495 N. De Anza Blvd.
Cupertino, CA 95014
By Phone: (408) 873-4400
By Email: [email protected]
<PAGE> 1
LOAN AND SECURITY AGREEMENT
PACKETEER, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1 ACCOUNTING AND OTHER TERMS................................................................ 4
2 LOAN AND TERMS OF PAYMENT................................................................. 4
2.1 Credit Extensions............................................................... 4
2.2 Overadvances.................................................................... 4
2.3 Interest Rate, Payments......................................................... 4
2.4 Fees............................................................................ 5
3 CONDITIONS OF LOANS....................................................................... 5
3.1 Conditions Precedent to Initial Credit Extension................................ 5
3.2 Conditions Precedent to all Credit Extensions................................... 5
4 CREATION OF SECURITY INTEREST............................................................. 5
4.1 Grant of Security Interest...................................................... 5
5 REPRESENTATIONS AND WARRANTIES............................................................ 5
5.1 Due Organization and Authorization.............................................. 5
5.2 Collateral...................................................................... 6
5.3 Litigation...................................................................... 6
5.4 No Material Adverse Change in Financial Statements.............................. 6
5.5 Solvency........................................................................ 6
5.6 Regulatory Compliance........................................................... 6
5.7 Subsidiaries.................................................................... 6
5.8 Full Disclosure................................................................. 7
6 AFFIRMATIVE COVENANTS..................................................................... 7
6.1 Government Compliance........................................................... 7
6.2 Financial Statements, Reports, Certificates..................................... 7
6.3 Inventory; Returns.............................................................. 7
6.4 Taxes........................................................................... 8
6.5 Insurance....................................................................... 8
6.6 Primary Accounts................................................................ 8
6.7 Financial Covenants............................................................. 8
6.8 Registration of Intellectual Property Rights.................................... 8
6.9 Further Assurances.............................................................. 8
7 NEGATIVE COVENANTS........................................................................ 8
7.1 Dispositions.................................................................... 8
7.2 Changes in Business, Ownership, Management or Business Locations................ 9
7.3 Mergers or Acquisitions......................................................... 9
7.4 Indebtedness.................................................................... 9
7.5 Encumbrance..................................................................... 9
7.6 Distributions; Investments...................................................... 9
7.7 Transactions with Affiliates.................................................... 9
7.8 Subordinated Debt............................................................... 9
7.9 Compliance...................................................................... 9
8 EVENTS OF DEFAULT.........................................................................10
8.1 Payment Default.................................................................10
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.2 Covenant Default................................................................10
8.3 Material Adverse Change.........................................................10
8.4 Attachment......................................................................10
8.5 Insolvency......................................................................11
8.6 Other Agreements................................................................11
8.7 Judgments.......................................................................11
8.8 Misrepresentations..............................................................11
9 BANK'S RIGHTS AND REMEDIES................................................................11
9.1 Rights and Remedies.............................................................11
9.2 Power of Attorney...............................................................12
9.3 Accounts Collection.............................................................12
9.4 Bank Expenses...................................................................12
9.5 Bank's Liability for Collateral.................................................12
9.6 Remedies Cumulative.............................................................12
9.7 Demand Waiver...................................................................13
10 NOTICES..................................................................................13
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER...............................................13
12 GENERAL PROVISIONS.......................................................................13
12.1 Successors and Assigns.........................................................13
12.2 Indemnification................................................................13
12.3 Time of Essence................................................................13
12.4 Severability of Provision......................................................14
12.5 Amendments in Writing, Integration.............................................14
12.6 Counterparts...................................................................14
12.7 Survival.......................................................................14
12.8 Confidentiality................................................................14
12.9 Attorneys' Fees, Costs and Expenses............................................14
13 DEFINITIONS..............................................................................14
13.1 Definitions....................................................................14
</TABLE>
3
<PAGE> 4
THIS LOAN AND SECURITY AGREEMENT dated January 11, 1999, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 and PACKETEER, INC. ("Borrower"), whose address is 10495 N. De
Anza Boulevard, Cupertino, California 95014 provides the terms on which Bank
will lend to Borrower and Borrower will repay Bank. The parties agree as
follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding the lesser of (A) the
Committed Revolving Line or (B) the Borrowing Base. Amounts borrowed under this
Section may be repaid and reborrowed during the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances and other amounts due under this Agreement are
immediately payable.
2.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1.1 exceed the lesser of
either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower
must immediately pay Bank the excess.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate equal to the Prime Rate. After an Event of Default,
Obligations accrue interest at 5 percent above the rate effective immediately
before the Event of Default. The interest rate increases or decreases when the
Prime Rate changes. Interest is computed on a 360 day year for the actual number
of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable on
the 19th of each month. Bank may debit any of Borrower's deposit accounts
including Account Number _____________________________ for principal and
interest payments or any amounts Borrower owes
4
<PAGE> 5
Bank. Bank will notify Borrower when it debits Borrower's accounts. These debits
are not a set-off. Payments received after 12:00 noon Pacific time are
considered received at the opening of business on the next Business Day. When a
payment is due on a day that is not a Business Day, the payment is due the next
Business Day and additional fees or interest accrue.
2.4 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of $3,750
due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents (specifically,
without limitation, this Agreement and UCC-1 financing statements, fully
executed) and fees it requires,
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Advance and no Event of Default may have occurred and be continuing, or result
from the Advance. Each Advance is Borrower's representation and warranty on that
date that the representations and warranties of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens and investment property or deposit accounts of Borrower held in accounts
maintained by securities intermediaries or depository institutions, as
applicable, any security interest will be a first priority security interest in
the Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its
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business or its ownership of property requires that it be qualified except where
the failure to be so qualified could not, with reasonable likelihood, cause a
Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could, with reasonable likelihood, cause a Material
Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. The Accounts are bona fide, existing obligations, and the
service or property has been performed or delivered to the account debtor or its
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor whose accounts are an Eligible Account in any Borrowing
Base Certificate. All Inventory is in all material respects of good and
marketable quality, free from material defects. Borrower is the sole owner of
the Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business. Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could, with reasonable likelihood, cause
a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could, with reasonable
likelihood, cause a Material Adverse Change. None of Borrower's or any
Subsidiary's properties or assets has been used by Borrower or any Subsidiary
or, to the best of Borrower's knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other than
legally. Borrower and each Subsidiary has timely filed all required tax returns
and paid, or made adequate provision to pay, all taxes, except those being
contested in good faith with adequate reserves under GAAP. Borrower and each
Subsidiary has obtained all consents, approvals and authorizations of, made all
declarations or
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filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could, with reasonable
likelihood, have a material adverse effect on Borrower's business or operations.
Borrower will comply, and have each Subsidiary comply, with all laws, ordinances
and regulations to which it is subject, noncompliance with which could, with
reasonable likelihood, have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible Officer
acceptable to Bank; (ii) as soon as available, but no later than 120 days after
the last day of Borrower's fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm of national recognition or otherwise acceptable to Bank;
(iii) a prompt report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of $100,000 or more; (iv) budgets, sales projections, operating
plans or other financial information Bank requests; and (v) prompt notice of any
material change in the composition of the Intellectual Property, including any
subsequent ownership right of Borrower in or to any Copyright, Patent or
Trademark not shown in any intellectual property security agreement between
Borrower and Bank or knowledge of an event that materially adversely affects the
value of the Intellectual Property.
(b) Within 20 days after the last day of each month, Borrower will
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
the form of Exhibit C, with aged listings of accounts receivable and accounts
payable.
(c) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrower's Collateral at Borrower's
expense, but the audits will be conducted no more often than every 6 months
unless an Event of Default has occurred and is
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continuing. The initial audit of Borrower's Collateral shall be completed no
later than 90 days from the Closing Date.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition
(except for ordinary wear and tear), free from material defects. Returns and
allowances between Borrower and its account debtors will follow Borrower's
customary practices as they exist at execution of this Agreement. Borrower must
promptly notify Bank of all returns, recoveries, disputes and claims, that
involve more than $100,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 PRIMARY ACCOUNTS.
Borrower will maintain its primary operating accounts with Bank.
6.7 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month:
(i) QUICK RATIO [ADJUSTED]. A ratio of Quick Assets to Current
Liabilities minus Deferred Maintenance Revenue of at least 1.35 to 1.00.
(ii) MAXIMUM QUARTERLY LOSS. Borrower may suffer quarterly
losses, provided, such losses do not exceed: $3,200,000 for the quarter ending
12/31/98; $2,200,000 for the quarter ending 3/31/99; $1,600,000 for the quarter
ending 6/30/99; and $600,000 for the quarter ending 9/30/99.
6.8 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
Borrower will file applications to register with the United States
Patent and Trademark Office or the United States Copyright Office Intellectual
Property rights on Exhibits A, B, C, and D to the Intellectual Property Security
Agreement within 30 days of the date of this Agreement, and additional
Intellectual Property rights developed or acquired including revisions or
additions with any product before the sale or licensing of the product to any
third party.
Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property to be
abandoned, forfeited or dedicated to the public without Bank's written consent.
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6.9 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower and its Subsidiaries
taken as a whole and business related or ancillary thereto; or permit there to
occur a change in ownership of an aggregate of more than 25% of any equity
interests of Borrower having voting rights for the election of directors in any
transaction or series of transactions (other than in connection with any
offering of equity securities by Borrower); or change its chief executive office
or move any Collateral to jurisdictions other than jurisdictions in which
Collateral presently exists without giving Bank prior written notice thereof.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person except where (i) no Event of Default has occurred and
is continuing or would result from such action during the term of this Agreement
or result in a decrease of more than 25% of Tangible Net Worth or (ii) merge or
consolidate a Subsidiary into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any cash dividends or make any distribution or
payment or redeem, retire or purchase any capital stock.
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7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter into any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms not less favorable to Borrower than would be obtained in an
arm's length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could have a material adverse effect on Borrower's business or operations or
cause a Material Adverse Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6.7 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there (i) occurs a material adverse change in the business,
operations, or condition (financial or otherwise) of the Borrower, or (ii) is a
material impairment of the prospect of repayment of any portion of the
Obligations or (iii) is a material impairment of the value or priority of Bank's
security interests in the Collateral;
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 20 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a
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notice of lien, levy, or assessment is filed against any of Borrower's assets by
any government agency and not paid within 20 days after Borrower receives
notice. These are not Events of Default if stayed or if a bond is posted pending
contest by Borrower (but no Credit Extensions will be made during the cure
period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 45 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $350,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $150,000 is rendered
against Borrower and is unsatisfied and unstayed for 30 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Responsible Officer acting for Borrower makes any
material misrepresentation or material misstatement now or later in any warranty
or representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that is commercially reasonable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
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(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Advances terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, as required under the terms of this Agreement or any
related document Bank may make all or part of the payment or obtain insurance
policies required in Section 6.5, and take any action under the policies Bank
deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due
and payable, bearing interest at the then applicable rate and secured by the
Collateral. No payments by Bank are deemed an agreement to make similar payments
in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's
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exercise of one right or remedy is not an election, and Bank's waiver of any
Event of Default is not a continuing waiver. Bank's delay is not a waiver,
election, or acquiescence. No waiver is effective unless signed by Bank and then
is only effective for the specific instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
Unless otherwise provided in this Agreement, notices or demands by any
party about this Agreement or any other related agreement must be in writing and
be personally delivered or sent by an overnight delivery service, by certified
mail, postage prepaid, return receipt requested, or by telefacsimile to the
addresses set forth at the beginning of this Agreement. A Party may change its
notice address by giving the other Party written notice.
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
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12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents.
12.6 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.7 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
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"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BORROWING BASE" is 80% of Eligible Accounts as determined by Bank from
Borrower's most recent Borrowing Base Certificate.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
"COMDISCO LOAN DOCUMENTS" are the Subordinated Loan and Security
Agreement dated as of __________, by and between Borrower and Comdisco, Inc.,
any notes, documents or any other present or future agreements in connection
with such Subordinated Loan and Security Agreement, all as amended, extended or
restated.
"COMMITTED REVOLVING LINE" is an Advance of up to $1,500,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"COPYRIGHTS" are all of Borrower's copyright rights, applications or
registrations and like protections in each work or authorship or derivative
work, whether published or not (whether or not it is a trade secret) now or
later existing, created, acquired or held.
"CREDIT EXTENSION" is each Advance, or any other extension of credit by
Bank for Borrower's benefit.
15
<PAGE> 16
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"DEFERRED MAINTENANCE REVENUE" is all amounts received in advance of
performance under maintenance contracts and not yet recognized as revenue.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have
not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts that
exceed that percentage, unless the Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if account debtor's payment may be
conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to
an Insolvency Proceeding, or becomes insolvent, or goes out of business;
and
(k) Accounts which Bank reasonably determines collection to be doubtful.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"EXIM LOAN DOCUMENTS" are the Exim Loan and Security Agreement, any
notes or documents executed by Borrower or any other agreement entered into in
connection with the Exim Loan and Security Agreement, pursuant to which Exim
Bank guarantees Borrower's obligations under the Exim Loan and Security
Agreement.
"GAAP" is generally accepted accounting principles.
16
<PAGE> 17
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
exchange contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
17
<PAGE> 18
"PATENTS" are Borrower's patents, patent applications and like
protections, including improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) Indebtedness secured by Permitted Liens;
(f) Indebtedness of Borrower created pursuant to the Exim Loan
Documents;
(g) Indebtedness of Borrower created pursuant to the Comdisco Loan
Documents;
(h) Indebtedness secured by a Lien described in subsection (c) of the
definition of "Permitted Liens" below provided the principal amount of such
Indebtedness does not exceed the lesser of the cost or fair market value of the
property financed;
(i) Indebtedness to trade creditors incurred in the ordinary course of
business;
(j) Indebtedness with respect to capital leases;
(k) prepaid royalties and deferred revenue in connection with prepaid
support services; and
(l) extensions, renewals, refundings, refinancings, modifications,
amendments, and restatements of any of the items of Permitted Indebtedness (a)
through (k) above, provided that the principal amount thereof is not increased
or the terms thereof are not modified to impose more burdensome terms upon
Borrower.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
(b) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business;
(c) Investments (including debt obligations) received in connection with
the bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;
(d) Investments consisting of (1) compensation of employees, officers
and directors of Borrower (2) travel advances, employee relocation loans and
other employee loans and advances in the ordinary course of business, (3) loans
to employees, officers or directors relating to the purchase of equity
securities of Borrower, and (4) other loans to officers and employees approved
by Borrower's board of directors; and
(e) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more
18
<PAGE> 19
than 1 year after its creation and having the highest rating from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
Bank's certificates of deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens on property leased by Borrower or any of its Subsidiaries
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such equipment;
(f) Liens from judgements, decrees or attachments in circumstances not
constituting an Event of Default under this Agreement;
(g) easements, reservations, rights-of-way, restrictions, minor defects
or irregularities in title and other similar charges or encumbrances affecting
real property which do not result in a Material Adverse Change;
(h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payments of customs duties in connection with the
importation of goods;
(i) Liens that are not prior to the lien of Bank which constitute rights
of set-off of a customary nature or bankers' or securities intermediaries' liens
with respect to amounts on deposit or investment property, as applicable,
whether arising by operation of law or by contract, in connection with
arrangements entered into with banks or securities intermediaries in the
ordinary course of business;
(j) Liens securing Indebtedness incurred pursuant to the Exim Loan
Documents;
(k) Liens securing Indebtedness incurred pursuant to the Comdisco Loan
Documents; and
(l) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (k), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
19
<PAGE> 20
"QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is January 10, 2000.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
"TRADEMARKS" are Borrower's trademark and servicemark rights, registered
or not, applications to register and registrations and like protections, and the
entire goodwill of the business of Borrower connected with the trademarks.
BORROWER:
PACKETEER, INC.
By: /s/ Craig Elliot /s/ Brett D. Galloway
-------------------- ----------------------
Title: Chief Executive Chief Operating
Officer Officer
-------------------- -------------------
BANK:
SILICON VALLEY BANK
By: /s/ Timothy M. Walsh
------------------------------------------
Title: Vice President
---------------------------------------
20
<PAGE> 21
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
Notwithstanding anything to the contrary, the grant of a security interest as
provided in this Exhibit shall not extend to, and the term "Collateral" shall
not include, any accounts, general intangibles, instruments or chattel paper of
Borrower (whether owned or held as licensee or lessee, or otherwise), to the
extent that (i) such accounts, general intangibles, instruments, or chattel
paper are not assignable as a matter of law or under the terms of the license,
lease or other agreement applicable thereto (but solely to the extent that any
such restriction shall be effective under applicable law), without the consent
of the Person to whose benefit such restrictions exist and (ii) such consent has
not been obtained; provided, that the foregoing grant of security interest shall
extend to, and the term "Collateral" shall include, (A) any and all proceeds of
any general intangibles, accounts, instruments or chattel paper which are
otherwise excluded to the extent that the assignment or encumbrance of such
proceeds is not so restricted, including under Section that the assignment or
encumbrance of such proceeds is not so restricted, including under Section 9318
of the Code, and (B) upon obtaining the consent of any such licensor, lessor or
other applicable party's consent with respect to any such otherwise excluded
from general intangibles, accounts, instruments or chattel paper, as well as any
and all Proceeds thereof that might have been excluded from such grant of a
security interest and the term "Collateral".
<PAGE> 22
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
-----------------
FAX#: (408) 496-2426 TIME:
-----------------
FROM: PACKETEER, INC.
---------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-----------------------------------------------------------
PHONE NUMBER:
-------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
------------------------------- ---------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
-------------------------------------
PRINCIPAL PAYMENT (ONLY) $
-------------------------------------
INTEREST PAYMENT (ONLY) $
-------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
-------------------------------------
OTHER INSTRUCTIONS:
-------------------------------------------------------------
- --------------------------------------------------------------------------------
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- ------------------------------- -------------------------------
Authorized Requester Phone #
- ------------------------------- -------------------------------
Received By (Bank) Phone #
-------------------------------
Authorized Signature (Bank)
<PAGE> 23
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: PACKETEER, INC. Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Commitment Amount: $1,500,000
<TABLE>
<S> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ____ $
-----------------------
2. Additions (please explain on reverse)
$
-----------------------
3. TOTAL ACCOUNTS RECEIVABLE
$
-----------------------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
----------------------
5. Balance of 50% over 90 day accounts $
----------------------
6. Credit balances $
----------------------
7. Concentration Limits $
----------------------
8. Foreign Accounts $
----------------------
9. Governmental Accounts $
----------------------
10. Contra Accounts $
11. Promotion or Demo Accounts $
----------------------
12. Intercompany/Employee Accounts $
----------------------
13. Other (please explain on reverse) $
----------------------
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
$
-----------------------
15. Eligible Accounts (#0 minus #0)
$
-----------------------
16. LOAN VALUE OF ACCOUNTS (80% of #0)
$
-----------------------
BALANCES
17. Maximum Loan Amount $
----------------------
18. Total Funds Available [Lesser of #0 or #0]
$
-----------------------
19. Present balance owing on Line of Credit $
----------------------
20. Outstanding under Sublimits ( ) $
----------------------
21. RESERVE POSITION (#0 minus #0 and #0)
$
-----------------------
</TABLE>
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
COMMENTS: BANK USE ONLY
Rec'd By:
-----------------
Auth. Signer
PACKETEER, INC. Date:
---------------------
By: Verified:
------------------------------- ------------------
Authorized Signer Auth. Signer
Date:
---------------------
--------------------------
<PAGE> 24
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: PACKETEER, INC.
The undersigned authorized officer of PACKETEER, INC. ("Borrower")
certifies that under the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _______________ with all required covenants
except as noted below and (ii) all representations and warranties in the
Agreement are true and correct in all material respects on this date. Attached
are the required documents supporting the certification. The Officer certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Officer acknowledges that
no borrowings may be requested at any time or date of determination that
Borrower is not in compliance with any of the terms of the Agreement, and that
compliance is determined not just at the date this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
+Comp. Cert
Annual (Audited) FYE within 120 days Yes No
A/R & A/P Agings + BBC Monthly within 20 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Adjusted Quick Ratio 1.35 : 1.00 _______; 1.00 Yes No
Max. Loss: Quarterly $_________ Yes No
Losses not to exceed: $3,200,000 for the quarter ending Yes No
12/31/98; $2,200,000 for the quarter
ending 3/31/99; $1,600,000 for the
quarter ending 6/30/99; and $600,000 for
the quarter ending 9/30/99
</TABLE>
<PAGE> 25
COMMENTS REGARDING EXCEPTIONS: BANK USE ONLY
See Attached.
Received by:
-----------------------
Sincerely, AUTHORIZED SIGNER
Date:
PACKETEER, INC. ------------------------------
- ------------------------------- Verified:
SIGNATURE --------------------------
AUTHORIZED SIGNER
- -------------------------------
TITLE Date:
------------------------------
- -------------------------------
DATE Compliance Status: Yes No
2
<PAGE> 26
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is entered into as of
January 11, 1999 by and between SILICON VALLEY BANK ("Bank") and PACKETEER, INC.
("Grantor").
RECITALS
A. Bank has agreed to make certain advances of money and to extend
certain financial accommodation to Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement by and between Bank
and Grantor dated January 11, 1999 (as the same may be amended, modified or
supplemented from time to time, the "Loan Agreement"; capitalized terms used
herein are used as defined in the Loan Agreement). Bank is willing to make the
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Bank a security interest in certain Copyrights, Trademarks, Patents,
and Mask Works to secure the obligations of Grantor under the Loan Agreement.
Capitalized terms used but not otherwise defined herein shall have the same
meaning as in the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right, title and interest, whether
presently existing or hereafter acquired, in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, and intending to be legally bound, as collateral security
for the prompt and complete payment when due of its obligations under the Loan
Agreement, Grantor hereby represents, warrants, covenants and agrees as follows:
AGREEMENT
To secure its obligations under the Loan Agreement, Grantor grants and
pledges to Bank a security interest in all of Grantor's right, title and
interest in, to and under its Intellectual Property (including without
limitation those Copyrights, Patents, Trademarks and Mask Works listed on
Schedules A, B, C, and D hereto), and including without limitation all proceeds
thereof (such as, by way of example but not by way of limitation, license
royalties and proceeds of infringement suits), the right to sue for past,
present and future infringements, all rights corresponding thereto throughout
the world and all re-issues, divisions continuations, renewals, extensions and
continuations-in-part thereof.
Notwithstanding anything to the contrary, the grant of a security interest as
provided in the Agreement shall not extend to, and the term "Collateral" shall
not include, any accounts, general intangibles, instruments or chattel paper of
Borrower (whether owned or held as licensee or lessee, or otherwise), to the
extent that (i) such accounts, general intangibles, instruments, or chattel
paper are not assignable as a metter of law or under the terms of the license,
lease or other agreement applicable thereto (but solely to the extent that any
such restriction shall be effective under applicable law), without the consent
of the Person to whose benefit such restrictions exist and (ii) such consent has
not been obtained; provided, that the foregoing grant of security interest shall
extend to, and the term "Collateral" shall include, (A) any and all proceeds of
any general intangibles, accounts, instruments or chattel paper which are
otherwise excluded to the extent that the assignment or encumbrance of such
proceeds is not so restricted, including under Section that the assignment or
encumbrance of such proceeds is not so restricted, including under Section 9318
of the Code, and (B) upon obtaining the consent of any such licensor, lessor or
other applicable party's consent with respect to any such otherwise excluded
from general intangibles, accounts, instruments or chattel paper, as well as any
and all Proceeds thereof that might have been excluded from such grant of a
security interest and the term "Collateral".
This security interest is granted in conjunction with the security
interest granted to Bank under the Loan Agreement. The rights and remedies of
Bank with respect to the security interest granted hereby are in addition to
those set forth in the Loan Agreement and the other Loan Documents, and those
which
<PAGE> 27
are now or hereafter available to Bank as a matter of law or equity. Each right,
power and remedy of Bank provided for herein or in the Loan Agreement or any of
the Loan Documents, or now or hereafter existing at law or in equity shall be
cumulative and concurrent and shall be in addition to every right, power or
remedy provided for herein and the exercise by Bank of any one or more of the
rights, powers or remedies provided for in this Intellectual Property Security
Agreement, the Loan Agreement or any of the other Loan Documents, or now or
hereafter existing at law or in equity, shall not preclude the simultaneous or
later exercise by any person, including Bank, of any or all other rights, powers
or remedies.
IN WITNESS WHEREOF, the parties have cause this Intellectual Property
Security Agreement to be duly executed by its officers thereunto duly authorized
as of the first date written above.
GRANTOR:
Address of Grantor: PACKETEER, INC.
10495 N. De Anza Boulevard By: /s/ CRAIG ELLIOTT
- ------------------------------- -------------------------------
Cupertino, CA 95014
- -------------------------------
Title: Chief Executive Officer
----------------------------
Attn: Craig Elliott
--------------------------
BANK:
Address of Bank: SILICON VALLEY BANK
3003 Tasman Drive By: /s/ TIMOTHY M. WALSH
Santa Clara, CA 95054-1191 -------------------------------
Title: Vice President
----------------------------
Attn: Timothy M. Walsh
--------------------------
2
<PAGE> 1
EXPORT-IMPORT BANK
LOAN AND SECURITY AGREEMENT
PACKETEER, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1 ACCOUNTING AND OTHER TERMS................................................................ 4
2 LOAN AND TERMS OF PAYMENT................................................................. 4
2.1 Credit Extensions............................................................... 4
2.2 Overadvances.................................................................... 4
2.3 Interest Rate, Payments......................................................... 4
2.4 Fees............................................................................ 5
2.5 Use of Proceeds................................................................. 5
3 CONDITIONS OF LOANS....................................................................... 5
3.1 Conditions Precedent to Initial Credit Extension................................ 5
3.2 Conditions Precedent to all Credit Extensions................................... 5
4 CREATION OF SECURITY INTEREST............................................................. 6
4.1 Grant of Security Interest...................................................... 6
5 REPRESENTATIONS AND WARRANTIES............................................................ 6
5.1 Due Organization and Authorization.............................................. 6
5.2 Collateral...................................................................... 6
5.3 Litigation...................................................................... 6
5.4 No Material Adverse Change in Financial Statements.............................. 6
5.5 Solvency........................................................................ 7
5.6 Regulatory Compliance........................................................... 7
5.7 Subsidiaries.................................................................... 7
5.8 Full Disclosure................................................................. 7
6 AFFIRMATIVE COVENANTS..................................................................... 7
6.1 Government Compliance........................................................... 7
6.2 Financial Statements, Reports, Certificates..................................... 7
6.3 Inventory; Returns.............................................................. 8
6.4 Taxes........................................................................... 8
6.5 Insurance....................................................................... 8
6.6 EXIM Insurance.................................................................. 8
6.7 Borrower Agreement.............................................................. 9
6.8 Primary Accounts................................................................ 9
6.9 Terms of Sale................................................................... 9
6.10 Financial Covenants............................................................ 9
6.11 Registration of Intellectual Property Rights................................... 9
6.12 Further Assurances............................................................. 9
7 NEGATIVE COVENANTS........................................................................10
7.1 Dispositions....................................................................10
7.2 Changes in Business, Ownership, Management or Business Locations................10
7.3 Mergers or Acquisitions.........................................................10
7.4 Indebtedness....................................................................10
7.5 Encumbrance.....................................................................10
7.6 Distributions; Investments......................................................10
7.7 Transactions with Affiliates....................................................10
7.8 Subordinated Debt...............................................................11
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
7.9 Compliance......................................................................11
7.10 Borrower Agreement.............................................................11
7.11 Exim Guarantee.................................................................11
8 EVENTS OF DEFAULT.........................................................................11
8.1 Payment Default.................................................................11
8.2 Covenant Default................................................................11
8.3 Material Adverse Change.........................................................11
8.4 Attachment......................................................................12
8.5 Insolvency......................................................................12
8.6 Other Agreements................................................................12
8.7 Judgments.......................................................................12
8.8 Misrepresentations..............................................................12
9 BANK'S RIGHTS AND REMEDIES................................................................12
9.1 Rights and Remedies.............................................................12
9.2 Power of Attorney...............................................................13
9.3 Accounts Collection.............................................................13
9.4 Bank Expenses...................................................................13
9.5 Bank's Liability for Collateral.................................................13
9.6 Remedies Cumulative.............................................................14
9.7 Demand Waiver...................................................................14
9.8 Exim Notification...............................................................14
10 NOTICES..................................................................................14
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER..............................................14
12 GENERAL PROVISIONS.......................................................................15
12.1 Successors and Assigns.........................................................15
12.2 Indemnification................................................................15
12.3 Time of Essence................................................................15
12.4 Severability of Provision......................................................15
12.5 Amendments in Writing, Integration.............................................15
12.6 Counterparts...................................................................15
12.7 Survival.......................................................................15
12.8 Confidentiality................................................................15
12.9 Attorneys' Fees, Costs and Expenses............................................16
13 DEFINITIONS..............................................................................16
13.1 Definitions....................................................................16
</TABLE>
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THIS EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT dated January 19,
1999, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and PACKETEER, INC. ("Borrower"), whose address is
10495 N. De Anza Boulevard, Cupertino, California 95014 provides the terms on
which Bank will lend to Borrower and Borrower will repay Bank. The parties agree
as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Exim Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation" in this or any Loan Document. This Exim Agreement shall be construed
to impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding (i) the Exim Committed Line or
(ii) the Borrowing Base, whichever is less. For purposes of this Agreement,
Borrowing Base means an amount equal to the sum of (i) ninety percent (90%) of
Exim Eligible Foreign Accounts plus (ii) fifty percent (50%) of the Exim
Eligible Foreign Inventory. Amounts borrowed under this Section may be repaid
and reborrowed during the term of this Exim Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Credit Extensions under this Exim
Agreement based on instructions from a Responsible Officer or his or her
designee or without instructions if the Credit Extensions are necessary to meet
Obligations which have become due. Bank may rely on any telephone notice given
by a person whom Bank believes is a Responsible Officer or designee. Borrower
will indemnify Bank for any loss suffered by Bank from that reliance.
(c) The Exim Committed Line terminates on the Exim Maturity Date, when
all Advances and other amounts due under this Exim Agreement are immediately
payable.
2.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1.1 exceed the lesser of
either (i) the Exim Committed Line or (ii) the Borrowing Base, Borrower must
immediately pay Bank the excess.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate equal to the Prime Rate. After an Event of Default,
Obligations accrue interest at 5 percent above the rate effective immediately
before the Event of Default. The interest rate increases or decreases when the
Prime Rate changes. Interest is computed on a 360 day year for the actual number
of days elapsed.
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(b) Payments. Interest due on the Exim Committed Line is payable on the
19th of each month. Bank may debit any of Borrower's deposit accounts including
Account Number _____________________________ for principal and interest payments
or any amounts Borrower owes Bank. Bank will notify Borrower when it debits
Borrower's accounts. These debits are not a set-off. Payments received after
12:00 noon Pacific time are considered received at the opening of business on
the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
2.4 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of $3,750
due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses incurred through and after the date
of this Exim Agreement, (including reasonable attorneys' fees and expenses)
payable when due.
(c) Exim Fee. A facility fee equal to $3,750 will be due on the Closing
Date.
(d) Exim Bank Expenses. On the Closing Date, Exim Bank Expenses incurred
through the date hereof.
2.5 USE OF PROCEEDS.
Borrower will use the proceeds of the Credit Extensions only for the
purposes specified in the Borrower Agreement. Borrower will not use the proceeds
of the Credit Extensions for any purpose prohibited by the Borrower Agreement.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents (specifically,
without limitation, this Agreement and UCC-1 financing statements, fully
executed) and fees it requires.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any export purchase order and a Borrowing Base
Certificate relating to the request;
(b) receipt of a Payment/Advance Form;
(c) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Advance and no Event of Default may have occurred and be continuing, or result
from the Advance. Each Advance is Borrower's representation and warranty on that
date that the representations and warranties of Section 5 remain true; and
(d) the Exim Guarantee will be in full force and effect.
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4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, and investment property or deposit accounts of Borrower held in accounts
maintained by securities intermediaries or depository institutions, as
applicable, any security interest will be a first priority security interest in
the Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified except where the failure to be so
qualified could not, with reasonable likelihood, cause a Material Adverse
Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could, with reasonable likelihood, cause a Material
Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. The Exim Eligible Foreign Accounts are bona fide, existing
obligations, and the service or property has been performed or delivered to the
account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrower has no notice of any actual or
imminent Insolvency Proceeding of any account debtor whose accounts are an Exim
Eligible Foreign Account in any Borrowing Base Certificate. All Exim Eligible
Foreign Inventory is in all material respects of good and marketable quality,
free from material defects. Borrower is the sole owner of the Intellectual
Property, except for non-exclusive licenses granted to its customers in the
ordinary course of business. Each Patent is valid and enforceable and no part of
the Intellectual Property has been judged invalid or unenforceable, in whole or
in part, and no claim has been made that any part of the Intellectual Property
violates the rights of any third party.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could, with reasonable likelihood, cause
a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
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5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this Exim
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors) . Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could, with reasonable
likelihood, cause a Material Adverse Change. None of Borrower's or any
Subsidiary's properties or assets has been used by Borrower or any Subsidiary
or, to the best of Borrower's knowledge, by previous persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other than
legally. Borrower and each Subsidiary has timely filed all required tax returns
and paid, or made adequate provision to pay, all taxes. Borrower and each
Subsidiary has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all government
authorities that are necessary to continue its business as currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' corporate existence and
good standing in its jurisdiction of incorporation and maintain qualification in
each jurisdiction in which the failure to so qualify could, with reasonable
likelihood, have a material adverse effect on Borrower's business or operations.
Borrower will comply, and have each Subsidiary comply, with all laws, ordinances
and regulations to which it is subject, noncompliance with which could, with
reasonable likelihood, have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change.
6.2 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible Officer
acceptable to Bank; (ii) as soon as available, but no later than 120 days after
the last day of Borrower's fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm with national recognition or otherwise acceptable to
Bank; (iii) a prompt report of any legal actions pending
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or threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $100,000 or more; (iv) budgets, sales
projections, operating plans or other financial information Bank requests; and
(v) prompt notice of any material change in the composition of the Intellectual
Property, including any subsequent ownership right of Borrower in or to any
Copyright, Patent or Trademark not shown in any intellectual property security
agreement between Borrower and Bank or knowledge of an event that materially
adversely affects the value of the Intellectual Property.
(b) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit D.
(c) Within 20 days after the last day of each month, Borrower will
deliver to Bank a Borrowing Base Certificate and a copy of the Export Order(s)
against which the Borrower is requesting a disbursement, together with aged
listings of accounts receivable and accounts payable and an eligible foreign
inventory report. Borrower shall also deliver promptly to Bank copies of any
Export Orders requested by Bank. Additionally, the Borrower shall deliver to the
Bank at least once every thirty (30) calendar days a Borrowing Base Certificate
current within the past five (5) Business Days, which requirement may be
satisfied by submission of a Borrowing Base Certificate when requesting a
disbursement.
(d) Bank has the right to audit Borrower's Collateral at Borrower's
expense, but the audits will be conducted no more often than every 6 months
unless an Event of Default has occurred and is continuing. The initial audit of
Borrower's Collateral shall be completed no later than 90 days from the Closing
Date.
6.3 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition
(except for ordinary wear and tear), free from material defects. Returns and
allowances between Borrower and its account debtors will follow Borrower's
customary practices as they exist at execution of this Exim Agreement. Borrower
must promptly notify Bank of all returns, recoveries, disputes and claims, that
involve more than $100,000.
6.4 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.5 INSURANCE.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 EXIM INSURANCE.
If required by Bank, Borrower will obtain, and pay when due all premiums
with respect to, and maintain uninterrupted foreign credit insurance. In
addition, Borrower will execute in favor of Bank an assignment of proceeds of
any insurance policy obtained by Borrower and issued by Exim Bank insuring
against comprehensive commercial and political risk (the "EXIM Bank Policy").
The insurance proceeds from
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<PAGE> 9
the EXIM Bank Policy assigned or paid to Bank will be applied to the balance
outstanding under this Exim Agreement. Borrower will immediately notify Bank and
Exim Bank in writing upon submission of any claim under the Exim Bank Policy.
Then Bank will not be obligated to make any further Credit Extensions to
Borrower without prior approval from Exim Bank.
6.7 BORROWER AGREEMENT.
Borrower will comply with all terms of the Borrower Agreement. If any
provision of the Borrower Agreement conflicts with any provision contained in
this Exim Agreement, the more strict provision, with respect to the Borrower,
will control.
6.8 PRIMARY ACCOUNTS.
Borrower will maintain its primary operating accounts with Bank.
6.9 TERMS OF SALE.
Borrower will cause all sales of products on which the Credit Extensions
are based to be (i) supported by one or more irrevocable letters of credit in an
amount and of matter, naming a beneficiary and issued by a financial institution
acceptable to Bank or (ii) on open account to creditworthy buyers that have
written preapproval from Bank and Exim Bank.
6.10 FINANCIAL COVENANTS.
Borrower will maintain as of the last day of each month:
(i) QUICK RATIO [ADJUSTED]. A ratio of Quick Assets to Current
Liabilities minus Deferred Maintenance Revenue of at least 1.35 to 1.00.
(ii) MAXIMUM QUARTERLY LOSS. Borrower may suffer quarterly
losses, provided, such losses do not exceed: $3,200,000 for the quarter ending
12/31/98; $2,200,000 for the quarter ending 3/31/99; $1,600,000 for the quarter
ending 6/30/99; and $600,000 for the quarter ending 9/30/99.
6.11 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
Borrower will file applications to register with the United States
Patent and Trademark Office or the United States Copyright Office Intellectual
Property rights on Exhibits A, B, C, and D to the Intellectual Property Security
Agreement within 30 days of the date of this Exim Agreement, and additional
Intellectual Property rights developed or acquired including revisions or
additions with any product before the sale or licensing of the product to any
third party.
Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property to be
abandoned, forfeited or dedicated to the public without Bank's written consent.
6.12 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action as
Bank requests to perfect or continue Bank's security interest in the Collateral
or to effect the purposes of this Exim Agreement.
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7 NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower and its Subsidiaries
taken as a whole and business related or ancillary thereto; or permit there to
occur a change in ownership of an aggregate of more than 25% of any equity
interests of Borrower having voting rights for the election of directors in any
transaction or series of transactions (other than in connection with any
offering of equity securities by Borrower); or change its chief executive office
or move any Collateral to jurisdictions other than jurisdictions in which
Collateral presently exists without giving Bank prior written notice thereof.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any of its Subsidiaries to merge
or consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person except where (i) no Event of Default has occurred and
is continuing or would result from such action during the term of this Agreement
or result in a decrease of more than 25% of Tangible Net Worth or (ii) merge or
consolidate a Subsidiary into another Subsidiary or into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any cash dividends or make any distribution or
payment or redeem, retire or purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter into any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms not less favorable to Borrower than would be obtained in an
arm's length transaction with a non-affiliated Person.
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7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could have a material adverse effect on Borrower's business or operations or
cause a Material Adverse Change, or permit any of its Subsidiaries to do so.
7.10 BORROWER AGREEMENT.
Violate or fail to comply with any provision of the Borrower Agreement.
7.11 EXIM GUARANTEE.
Take an action, or permit any action to be taken, that causes, or could
be expected to cause, the Exim Guarantee to not be in full force and effect.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6.7 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Exim Agreement, any Loan Documents, or in
any agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
If there (i) occurs a material adverse change in the business,
operations, or condition (financial or otherwise) of the Borrower, or (ii) is a
material impairment of the prospect of repayment of any portion of the
Obligations or (iii) is a material impairment of the value or priority of Bank's
security interests in the Collateral;
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8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 20 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 20 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 45 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $350,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $150,000 is rendered
against Borrower and is unsatisfied and unstayed for 30 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Responsible Officer acting for Borrower makes any
material misrepresentation or material misstatement now or later in any warranty
or representation in this Exim Agreement or in any writing delivered to Bank or
to induce Bank to enter this Exim Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an Event
of Default described in Section 8.5 occurs all Obligations are immediately due
and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Exim Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that is commercially reasonable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
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maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, as required under the terms of this Agreement or any
related documents, Bank may make all or part of the payment or obtain insurance
policies required in Section 6.5, and take any action under the policies Bank
deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due
and payable, bearing interest at the then applicable rate and secured by the
Collateral. No payments by Bank are deemed an agreement to make similar payments
in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.
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9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Exim Agreement, the Loan
Documents, and all other agreements are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank's exercise of one
right or remedy is not an election, and Bank's waiver of any Event of Default is
not a continuing waiver. Bank's delay is not a waiver, election, or
acquiescence. No waiver is effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
9.8 EXIM NOTIFICATION.
Bank has the right to immediately notify Exim Bank in writing if it has
knowledge of any of the following events: (1) any failure to pay any amount due
under this Exim Agreement; (2) the Borrowing Base is less than the sum of the
outstanding Credit Extensions; (3) any failure to pay when due any amount
payable to Bank under any Loan owing by Borrower to Bank; (4) the filing of an
action for debtor's relief by, against or on behalf of Borrower; (5) any
threatened or pending material litigation against Borrower, or any dispute
involving Borrower.
If Bank sends a notice to Exim Bank, Bank has the right to send Exim
Bank a written report on the status of events covered by the notice every 30
days after the date of the original notification, until Bank files a claim with
Exim Bank or the defaults have been cured (but no Credit Extensions may be
requested during the cure period unless Exim Bank gives its written approval).
If directed by Exim Bank, Bank will have the right to exercise any rights it may
have against the Borrower to demand the immediate repayment of all amount
outstandings under the Exim Loan Documents.
10 NOTICES
Unless otherwise provided in this Agreement, notices or demands by any
party about this Exim Agreement or any other related agreement must be in
writing and be personally delivered or sent by an overnight delivery service, by
certified mail, postage prepaid, return receipt requested, or by telefacsimile
to the addresses first written above. A Party may change its notice address by
giving the other Party written notice.
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California. Any
references in the Borrower Agreement to the laws of the State of New York, shall
be deemed a reference to the laws of the State of California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS EXIM
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
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12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Exim Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Exim Agreement or
any rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Exim Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Exim Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Exim Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Exim Agreement must be in writing. This Exim
Agreement represents the entire agreement about this subject matter, and
supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Exim Agreement merge into this Exim
Agreement and the Loan Documents.
12.6 COUNTERPARTS.
This Exim Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Exim
Agreement continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate
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exercising remedies under this Exim Agreement. Confidential information does not
include information that either: (a) is in the public domain or in Bank's
possession when disclosed to Bank, or becomes part of the public domain after
disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank does
not know that the third party is prohibited from disclosing the information.
12.9 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out
of the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other costs and expenses incurred, in addition to
any other relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
Except as otherwise defined, terms that are capitalized in this Exim
Agreement will have the same meaning assigned in the Domestic Loan Documents. In
this Exim Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the Exim
Committed Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER AGREEMENT" is the Export-Import Bank of the United States
Working Capital Guarantee Program Borrower Agreement between Borrower and Bank.
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"BORROWING BASE" is defined in Section 2.1.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CLOSING DATE" is the date of this Exim Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
"COMDISCO LOAN DOCUMENTS" are the Subordinated Loan and Security
Agreement dated as of __________, by and between Borrower and Comdisco, Inc.,
any notes, documents or any other present
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or future agreements in connection with such Subordinated Loan and Security
Agreement, all as amended, extended or restated.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"COPYRIGHTS" are all of Borrower's copyright rights, applications or
registrations and like protections in each work or authorship or derivative
work, whether published or not (whether or not it is a trade secret) now or
later existing, created, acquired or held.
"CREDIT EXTENSION" is each Advance, letter of credit, or any other
extension of credit by Bank for Borrower's benefit.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"DOMESTIC LOAN DOCUMENTS" are the Loan and Security Agreement exected by
Borrower for the purpose of domestic working capital use and any other agreement
entered into in connection with the Loan and Security Agreement.
"DEFERRED MAINTENANCE REVENUE" is all amounts received in advance of
performance under maintenance contracts and not yet recognized as revenue.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"EXIM BANK" is the Export-Import Bank of the United States.
"EXIM BANK EXPENSES" are all audit fees and expenses; reasonable costs
or expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Exim Loan Documents
(including appeals or Insolvency Proceedings) and the fees that the Bank pays to
the Exim Bank in consideration of the issuance of the Exim Guarantee.
"EXIM COMMITTED LINE" is an Advance of up to $1,500,000.
"EXIM ELIGIBLE FOREIGN ACCOUNTS" are Accounts payable in United States
Dollars that arise in the ordinary course of Borrower's business from Borrower's
sale of Exim Eligible Foreign Inventory (i) that the account debtor does not
have its principal place of business in the United States and (ii) that have
been assigned and comply with all of Borrower's representations and warranties
in; but Bank may change eligibility standards by giving Borrower 30 days prior
written notice. Unless Bank agrees otherwise in writing, Exim Eligible Foreign
Accounts will not include:
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(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts which are more than sixty (60) calendar days past the
original due date, unless it is insured through Exim Bank export credit
insurance for comprehensive commercial and political risk, or through
Exim Bank approved private insurers for a comparable coverage, in which
case ninety (90) calendar days shall apply;
(c) Credit balances over 90 days from invoice date;
(d) Accounts evidenced by a letter of credit until the date of shipment
of the items covered by the subject letter of credit;
(e) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(f) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(g) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if account debtor's payment may be
conditional;
(h) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(i) Accounts in which the account debtor disputes liability or makes any
claim and Bank believes there may be a basis for dispute (but only up to
the disputed or claimed amount), or if the Account Debtor is subject to
an Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts generated by the sale of products purchased for military
purposes;
(l) Accounts generated by the sales of Inventory which constitute
defense articles or defense services;
(m) Accounts excluded from the Borrowing Base under the Borrower
Agreement; and
(n) Accounts for which Bank or Exim Bank determines collection to be
doubtful.
"EXIM ELIGIBLE FOREIGN INVENTORY" is Borrower's Inventory purchased or
manufactured for resale located in the United States, other than Inventory that
is excluded under the Borrower Agreement and this Exim Agreement. Exim Eligible
Foreign Inventory will not include the following:
(a) Inventory not located in the United States;
(b) Any demonstration Inventory or Inventory sold on consignment;
(c) Inventory consisting of proprietary software;
(d) Inventory previously exported from the United States;
(e) Inventory which constitutes defense articles or defense services;
(f) Inventory destined for shipment to prohibited countries in which
Exim Bank is legally prohibited from doing business;
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(g) Inventory destined for shipment to a county in which Exim coverage
is not available;
(h) Inventory which is to be incorporated into items whose sale would
result in ineligible accounts receivable;
(i) Inventory with offsetting claims;
(j) Inventory that is damaged, defective, obsolete, returned, recalled
or unfit for further processing; and
(k) Inventory which is to be incorporated into items whose sale would
result in an ineligible Account Receivable.
"EXIM GUARANTEE" is that certain Master Guarantee Agreement or other
agreement, as amended from time to time, the terms of which are incorporated
into this Exim Agreement.
"EXIM LOAN DOCUMENTS" is the Exim Agreement, the Domestic Loan
Documents, any notes or documents executed by Borrower or any other agreement
entered into in connection with this Exim Loan Agreement, pursuant to which Exim
Bank guarantees Borrower's obligations under this Exim Agreement.
"EXIM MATURITY DATE" is January 10, 2000.
"EXPORT ORDER" is a written export order or contract for the purchase by
the buyer from the Borrower of any finished goods or services which are intended
for export.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INTELLECTUAL PROPERTY" is:
(a) Copyrights, Trademarks, Patents, and Mask Works including
amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use;
(b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;
(c) All design rights which may be available to Borrower now or later
created, acquired or held;
(d) Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;
All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.
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"INVENTORY" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Exim Agreement, any note, or
notes or guaranties executed by Borrower or guarantor, and any other present or
future agreement between Borrower and/or for the benefit of Bank in connection
with this Exim Agreement, all as amended, extended or restated.
"MASK WORKS" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
exchange contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"PATENTS" are Borrower's patents, patent applications and like
protections, including improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Exim Agreement or any
other Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business;
(e) Indebtedness secured by Permitted Liens;
(f) Indebtedness of Borrower created pursuant to the Loan Documents;
(g) Indebtedness of Borrower created pursuant to the Comdisco Loan
Documents;
(h) Indebtedness secured by a Lien described in subsection (c) of the
definition of "Permitted Liens" below provided the principal amount of such
Indebtedness does not exceed the lesser of the cost or fair market value of the
property financed;
(i) Indebtedness to trade creditors incurred in the ordinary course of
business;
(j) Indebtedness with respect to capital leases;
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(k) prepaid royalties and deferred revenue in connection with prepaid
support services; and
(l) extensions, renewals, refundings, refinancings, modifications,
amendments, and restatements of any of the items of Permitted Indebtedness (a)
through (k) above, provided that the principal amount thereof is not increased
or the terms thereof are not modified to impose more burdensome terms upon
Borrower.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
and
(b) extensions of credit in the nature of accounts receivable or notes
receivable arising from the sale or lease of goods or services in the ordinary
course of business;
(c) Investments (including debt obligations) received in connection with
the bankruptcy or reorganization of customers or suppliers and in settlement of
delinquent obligations of, and other disputes with, customers or suppliers
arising in the ordinary course of business;
(d) Investments consisting of (1) compensation of employees, officers
and directors of Borrower (2) travel advances, employee relocation loans and
other employee loans and advances in the ordinary course of business, (3) loans
to employees, officers or directors relating to the purchase of equity
securities of Borrower, and (4) other loans to officers and employees approved
by Borrower's board of directors; and
(e) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Exim Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens on property leased by Borrower or any of its Subsidiaries
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such equipment;
(f) Liens from judgements, decrees or attachments in circumstances not
constituting an Event of Default under this Agreement;
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(g) easements, reservations, rights-of-way, restrictions, minor defects
or irregularities in title and other similar charges or encumbrances affecting
real property which do not result in a Material Adverse Change;
(h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payments of customs duties in connection with the
importation of goods;
(i) Liens that are not prior to the lien of Bank which constitute rights
of set-off of a customary nature or bankers' or securities intermediaries' liens
with respect to amounts on deposit or investment property, as applicable,
whether arising by operation of law or by contract, in connection with
arrangements entered into with banks or securities intermediaries in the
ordinary course of business;
(j) Liens securing Indebtedness incurred pursuant to the Loan Documents;
(k) Liens securing Indebtedness incurred pursuant to the Comdisco Loan
Documents; and
(l) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (k), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
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"TRADEMARKS" are Borrower's trademark and servicemark rights, registered
or not, applications to register and registrations and like protections, and the
entire goodwill of the business of Borrower connected with the trademarks.
BORROWER:
PACKETEER, INC.
By: /s/ CRAIG ELLIOTT
----------------------------------------
Title: Chief Executive Officer
-------------------------------------
BANK:
SILICON VALLEY BANK
By: /s/ TIMOTHY M. WALSH
----------------------------------------
Title: Vice President
-------------------------------------
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EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, letters of credit,
certificates of deposit, instruments and chattel paper now owned or hereafter
acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
Notwithstanding anything to the contrary, the grant of a security interest as
provided in this Exhibit shall not extend to, and the term "Collateral" shall
not include, any accounts, general intangibles, instruments or chattel paper of
Borrower (whether owned or held as licensee or lessee, or otherwise), to the
extent that (i) such accounts, general intangibles, instruments, or chattel
paper are not assignable as a matter of law or under the terms of the license,
lease or other agreement applicable thereto (but solely to the extent that any
such restriction shall be effective under applicable law), without the consent
of the Person to whose benefit such restrictions exist and (ii) such consent has
not been obtained; provided, that the foregoing grant of security interest shall
extend to, and the term "Collateral" shall include, (A) any and all proceeds of
any general intangibles, accounts, instruments or chattel paper which are
otherwise excluded to the extent that the assignment or encumbrance of such
proceeds is not so restricted, including under Section that the assignment or
encumbrance of such proceeds is not so restricted, including under Section 9318
of the Code, and (B) upon obtaining the consent of any such licensor, lessor or
other applicable party's consent with respect to any such otherwise excluded
from general intangibles, accounts, instruments or chattel paper, as well as any
and all Proceeds thereof that might have been excluded from such grant of a
security interest and the term "Collateral".
<PAGE> 25
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
-----------------
FAX#: (408) 496-2426 TIME:
-----------------
FROM: PACKETEER, INC.
---------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-----------------------------------------------------------
PHONE NUMBER:
-------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
------------------------------- ---------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $
-------------------------------------
PRINCIPAL PAYMENT (ONLY) $
-------------------------------------
INTEREST PAYMENT (ONLY) $
-------------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
-------------------------------------
OTHER INSTRUCTIONS:
-------------------------------------------------------------
- --------------------------------------------------------------------------------
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- ------------------------------- -------------------------------
Authorized Requester Phone #
- ------------------------------- -------------------------------
Received By (Bank) Phone #
-------------------------------
Authorized Signature (Bank)
<PAGE> 26
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: PACKETEER, INC. Bank: Silicon Valley Bank
<TABLE>
<S> <C> <C>
Commitment Amount: $1,500,000.00
FOREIGN ACCOUNTS RECEIVABLE FROM EXPORT ACTIVITIES
1. Foreign Accounts Receivable Book Value as of ____________ $______________
2. Additions (please explain on reverse) $______________
3. TOTAL FOREIGN ACCOUNTS RECEIVABLE $______________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Accounts over 90 days $____________
5. Amounts over 90 days (unless insured, then 90 days) $____________
6. Balance of 50% over 90 day accounts $____________
7. Credit Balances over 90 days $____________
8. Accounts not payable in the U.S. Dollars or payable in other than
U.S. Dollars $____________
9. Governmental and Military Accounts $____________
10. Contra Accounts $____________
11. Promotion, Demo or Consignment Accounts $____________
12. Intercompany/Employee and affiliate Accounts $____________
13. Accounts in the form of L/Cs, if subject items have not yet been
shipped by Borrower $____________
14. Accounts arising from Inventory not originally located in and
shipped from the U.S. $____________
15. Accounts arising from the sale of defense articles or items $____________
16. Accounts of buyers located in or from countries in which shipment is
prohibited $____________
17. Other exclusions $____________
18. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $____________
19. Eligible Accounts (No. 3 - No. 18) $____________
20. Loan Value of Accounts (90%-Advance) $____________
INVENTORY
21. Inventory Book Value as of _________________ $____________
22. Additions (please explain on reverse) $____________
23. TOTAL INVENTORY $____________
INVENTORY DEDUCTIONS
24. Obsolete Inventory $____________
25. Inventory not located in the U.S. $____________
26. Any Demo Inventory or Inventory sold on consignment $____________
27. Inventory consisting of proprietary software. $____________
28. Inventory previously exported from the United States $____________
29. Inventory which constitutes defense articles or defense services. $____________
30. Inventory destined for shipment to
</TABLE>
<PAGE> 27
<TABLE>
<S> <C> <C>
prohibited countries $____________
31. Inventory destined for shipment to a county in which
Exim coverage is not available $____________
32. Inventory which is to be incorporated into items whose sale would
result in ineligible accounts receivable $____________
33. Inventory with offsetting claims $____________
34. Work in process $____________
35. Damaged/Defective $____________
36. Other (please explain on reverse) $____________
37. TOTAL INVENTORY DEDUCTIONS $____________
38. Eligible Inventory (No. 23 - No.37) $____________
39. LOAN VALUE OF INVENTORY (THE LESSER OF 50% OF NO. 38) $____________
40. TOTAL AVAILABLE BASE $____________
BALANCES
41. Maximum Loan Amount ($1,500,000) $____________
42. Total Available (Lesser of No.41 or No. 20 + No. 39) $____________
43. Present balance owing on Line of Credit $____________
44. Outstanding under Sublimi $____________
45. RESERVE POSITION (NO.42 - NO.43 - NO. 44) $____________
</TABLE>
The undersigned represents and warrants that as of the date hereof the foregoing
is true, complete and correct, that the information reflected in this Collateral
Schedule complies with the representations and warranties set forth in the
Export-Import Bank Loan and Security Agreement, between Borrower and Bank, and
executed by Borrower and acknowledged by Bank, dated _____________________, as
may be amended from time to time, as if all representations and warranties were
made as of the date hereof, and that Borrower is, and shall remain, in full
compliance with its agreements, covenants, and obligations under such
agreements. Such representations and warranties include, without limitation, the
following: Borrower is using disbursements only for the purpose of enabling
Borrower to finance the cost of manufacturing, purchasing or selling items
intended for export. Borrower is not using disbursements for the purpose of: (a)
servicing any of Borrower's unrelated pre-existing or future indebtedness; (b)
acquiring fixed assets or capital goods for the use of Borrower's business; (c)
acquiring, equipping, or renting commercial space outside the United States; or
(d) paying salaries of non-U.S. citizens or non-U.S. permanent residents who are
located in the offices of the United States. Additionally, disbursements are not
being used to finance the manufacture, purchase or sale of all of the following:
(a) Items to be sold to a buyer located in a country in which the Export Import
Bank of the United States is legally prohibited from doing business; (b) that
part of the cost of the items which is not U.S. Content unless such part is not
greater than fifty percent (50%) of the cost of the items and is incorporated
into the items in the United States; (c) defense articles or defense services or
items directly or indirectly destined for use by military organizations designed
primarily for military use (regardless of the nature or actual use of the
items); or (d) any items to be used in the construction, alteration, operation
or maintenance of nuclear power, enrichment, reprocessing, research or heavy
water production facilities.
2
<PAGE> 28
Sincerely,
PACKETEER, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
BANK USE ONLY
RECEIVED BY:
----------------------
DATE:
-----------------------------
REVIEWED BY:
----------------------
3
<PAGE> 29
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: PACKETEER, INC.
The undersigned authorized officer of PACKETEER, INC. ("Borrower")
certifies that under the terms and conditions of the Export-Import Bank Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending _______________ with all required
covenants except as noted below and (ii) all representations and warranties in
the Agreement are true and correct in all material respects on this date.
Attached are the required documents supporting the certification. The
Responsible Officer certifies that these are prepared in accordance with
Generally Accepted Accounting Principles (GAAP) consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
The Responsible Officer acknowledges that no borrowings may be requested at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date
this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER
"COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
+Comp. Cert
Annual (Audited) FYE within 120 days Yes No
A/R & A/P Agings + BBC Monthly within 20 days Yes No
Inventory Schedules Monthly within 20 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Adjusted Quick Ratio 1.35 : 1.00 ______: 1.00 Yes No
Max. losses Quarterly $_________ Yes No
Losses not to exceed: $3,200,000 for the quarter Yes No
ending 12/31/98;
$2,200,000 for the quarter
ending 3/31/99;
$1,600,000 for the quarter
ending 6/30/99; and $600,000
for the quarter ending 9/30/99
</TABLE>
<PAGE> 30
COMMENTS REGARDING EXCEPTIONS: BANK USE ONLY
See Attached.
Received by:
-----------------------
Sincerely, AUTHORIZED SIGNER
Date:
PACKETEER, INC. ------------------------------
- ------------------------------- Verified:
SIGNATURE --------------------------
AUTHORIZED SIGNER
- -------------------------------
TITLE Date:
------------------------------
- -------------------------------
DATE Compliance Status: Yes No
2
<PAGE> 31
ANNEX B
EXPORT-IMPORT BANK OF THE UNITED STATES
WORKING CAPITAL GUARANTEE PROGRAM
BORROWER AGREEMENT
THIS BORROWER AGREEMENT (this "Agreement") is made and entered into by
the entity identified as the Borrower on the signature page hereof (the
"Borrower") and is acknowledged by the institution identified as the Lender on
the signature page hereof (the "Lender").
RECITALS
A. The Lender shall make a loan (the "Loan") to the Borrower for the
purpose of providing the Borrower with pre-export working capital to finance the
manufacture, production or purchase and subsequent export sale of the Items (as
hereinafter defined).
B. The Loan shall be in a principal amount (the "Loan Amount") not to
exceed at any time outstanding the amount specified in Section (5)(A) of the
Loan Authorization Agreement between the Lender and the Export-Import Bank of
the United States ("Eximbank") which is attached hereto as Annex A1 or Annex A2
and incorporated herein as a part of this Agreement. If the Loan is being made
pursuant to the Lender's Delegated Authority from Eximbank, all references
herein to the Loan Authorization Agreement shall be deemed to be to the Loan
Authorization Notice provided to Eximbank and the Borrower by the Lender.
C. The Loan shall be evidenced by a valid and enforceable promissory
note payable by the Borrower to the order of the Lender (the "Note") and shall
be made pursuant to a written agreement related solely thereto between the
Borrower and the Lender (the "Loan Agreement").
D. A condition precedent to the making of the Loan by the Lender is that
Eximbank guarantee the payment of ninety percent (90%) of the Loan Amount and
all interest accrued thereon, subject to the terms and conditions of a master
guarantee agreement (the "Master Guarantee Agreement") between Eximbank and the
Lender.
E. In consideration for and as a condition precedent to the Lender's
making the Loan and Eximbank's entering into the Master Guarantee Agreement, the
Borrower shall execute this Agreement for the benefit of the Lender and
Eximbank.
NOW, THEREFORE, the Borrower hereby agrees as follows:
-1-
<PAGE> 32
ARTICLE I
DEFINITIONS
"Accounts Receivable" shall mean those trade accounts from the sale of
the Items due and payable to the Borrower in the United States and any notes,
drafts, letters of credit or insurance proceeds supporting payment thereof.
"Availability Date" shall mean the last date on which the Lender may
make a Disbursement as set forth in Section (10) of the Loan Authorization
Agreement or, if such date is not a Business Day, the next Business Day
thereafter.
"Borrowing Base" shall mean the Collateral Value as discounted by the
applicable Disbursement Rate(s).
"Borrowing Base Certificate" shall mean the certificate in form provided
by the Lender and executed by the Borrower setting forth the Borrowing Base
supporting one or more Disbursements.
"Business Day" shall mean any day on which the Federal Reserve Bank of
New York is open for business.
"Buyer" shall mean an entity which has entered into one or more Export
Orders with the Borrower.
"Closing Date" shall mean the date on which the Loan Documents are
executed by the Borrower.
"Collateral" shall mean the property of the Borrower in which the
Borrower has granted to the Lender a valid and enforceable security interest as
security for the payment of all principal and interest due under the Loan, and
which is identified in Section (6) of the Loan Authorization Agreement,
including all proceeds (cash and non-cash) thereof.
"Collateral Value" shall mean at any given time the value of all
Collateral against which Disbursements may be made as set forth in Section
(5)(C) of the Loan Authorization Agreement, valued according to GAAP.
"Country Limitation Schedule" shall mean the most recent schedule
published by Eximbank and provided to the Borrower by the Lender which sets
forth on a country by country basis whether and under what conditions Eximbank
will provide coverage for the financing of export transactions to countries
listed therein.
-2-
<PAGE> 33
"Debarment Regulations" shall have the meaning set forth in Section
2.16.
"Disbursed Amount" shall mean the aggregate outstanding amount of the
Disbursements.
"Disbursement" shall mean an advance of the Loan from the Lender to the
Borrower under the Loan Agreement.
"Disbursement Rate" shall mean the rate specified in Section (5)(C) of
the Loan Authorization Agreement for each category of Collateral.
"Dollars" or "$" shall mean the lawful money of the United States of
America.
"Export Order" shall mean a written export order or contract for the
purchase by the Buyer from the Borrower of any of the Items.
"GAAP" shall mean the generally accepted accounting principles issued by
the American Institute of Certified Public Accountants.
"Guarantor" shall mean each person or entity, if any, identified in
Section (3) of the Loan Authorization Agreement who shall guarantee (jointly and
severally if more than one) the Borrower's obligation to repay all amounts
outstanding under the Note.
"Inventory" shall mean the raw materials, work-in-process and finished
goods purchased or manufactured by the Borrower for resale and located in the
United States.
"Items" shall mean the finished goods or services which are intended for
export, as specified in Section (4)(A) of the Loan Authorization Agreement.
"Letter of Credit" shall mean an irrevocable letter of credit subject to
UCP 500, payable in the United States or at the issuing bank and issued for the
benefit of the Borrower on behalf of a Buyer in connection with the purchase of
the Items.
"Loan Documents" shall mean the Note, the Loan Agreement, this Agreement
and any other instrument, agreement or document previously, simultaneously or
hereafter executed by the Borrower or any Guarantors evidencing, securing,
guaranteeing or in connection with the Loan.
"Principals" shall have the meaning set forth in Section 2.16.
"Revolving Loan" shall mean a Loan under which amounts disbursed and
repaid may be disbursed on a continuous basis during the term of the Loan.
"Transaction Specific Loan" shall mean a Loan under which amounts
disbursed and repaid may not be disbursed again.
-3-
<PAGE> 34
"U.S." or "United States" shall mean the United States of America and
its territorial possessions.
"U.S. Content" shall mean with respect to any Item all the labor,
materials and services which are of U.S. origin or manufacture, and which are
incorporated into an Item in the United States.
ARTICLE II
OBLIGATIONS OF THE BORROWER
Until payment in full of the Loan, the Borrower agrees to the following:
Section 2.1 Use of Disbursements. The Borrower shall use Disbursements
only for the purpose of enabling the Borrower to finance the cost of
manufacturing, producing, purchasing or selling the Items. The Borrower may not
use Disbursements for the purpose of: (a) servicing any of the Borrower's
pre-existing or future indebtedness unrelated to the Loan; (b) acquiring fixed
assets or capital goods for use in the Borrower's business; (c) acquiring,
equipping or renting commercial space outside of the United States; (d) paying
the salaries of non-U.S. citizens or non-U.S. permanent residents who are
located in offices outside the United States; or (e) serving as a retainage or
warranty bond.
In addition, Disbursements may not be used to finance the manufacture,
purchase or sale of any of the following:
(a) Items to be sold to a Buyer located in a country in which Eximbank
is legally prohibited from doing business as designated in the Country
Limitation Schedule;
(b) that part of the cost of the Items which is not U.S. Content unless
such part is not greater than fifty percent (50%) of the cost of the Items and
is incorporated into the Items in the United States;
(c) defense articles or defense services; or
(d) without Eximbank's prior written consent, any Items to be used in
the construction, alteration, operation or maintenance of nuclear power,
enrichment, reprocessing, research or heavy water production facilities.
Section 2.2 Borrowing Base Certificates and Export Orders. In order to
receive a Disbursement under the Loan, the Borrower shall deliver to the Lender
a Borrowing Base Certificate current within the past five (5) Business Days and
a copy of the Export Order(s) (or, for Revolving Loans, if permitted by the
Lender, a written summary of the Export Orders) against which the Borrower is
requesting a Disbursement. If the Lender permits summaries of Export Orders, the
Borrower shall also deliver promptly to the Lender copies of any Export Orders
requested by the Lender. Additionally, the Borrower shall deliver to the Lender
at
-4-
<PAGE> 35
least once every thirty (30) calendar days a Borrowing Base Certificate current
within the past five (5) Business Days, which requirement may be satisfied by
submission of a Borrowing Base Certificate when requesting a Disbursement.
Section 2.3 Exclusions from the Borrowing Base. In determining the
amount of a requested Disbursement, the Borrower shall exclude from the
Borrowing Base the following:
(a) any Inventory which is not located in the United States;
(b) any demonstration Inventory or Inventory sold on
consignment;
(c) any Inventory consisting of proprietary software;
(d) any Inventory which is damaged, obsolete, returned,
defective, recalled or unfit for further processing;
(e) any Inventory which has been previously exported from the
United States;
(f) any Inventory which constitutes defense articles or defense
services or any Accounts Receivable generated by sales of such Inventory;
(g) any Inventory which is to be incorporated into Items
destined for shipment to, and any Account Receivable in the name of a Buyer
located in, a country in which Eximbank is legally prohibited from doing
business as designated in the Country Limitation Schedule;
(h) any Inventory which is to be incorporated into Items
destined for shipment to, and any Account Receivable in the name of a Buyer
located in, a country in which Eximbank coverage is not available for commercial
reasons as designated in the Country Limitation Schedule, unless and only to the
extent that such Items are to be sold to such country on terms of a Letter of
Credit confirmed by a bank acceptable to Eximbank;
(i) any Inventory which is to be incorporated into Items whose
sale would result in an ineligible Account Receivable;
(j) any Account Receivable with a term in excess of net one
hundred eighty (180) days;
(k) any Account Receivable which is more than sixty (60)
calendar days past the original due date, unless it is insured through Eximbank
export credit insurance for comprehensive commercial and political risk, or
through Eximbank approved private insurers for comparable coverage, in which
case ninety (90) calendar days shall apply;
(l) any intra-company Account Receivable or any Account
Receivable from a subsidiary of the Borrower, from a person or entity with a
controlling interest in the Borrower or from an entity which shares common
controlling ownership with the Borrower;
-5-
<PAGE> 36
(m) any Account Receivable evidenced by a Letter of Credit,
until the date of shipment of the Items covered by the subject Letter of Credit;
(n) any Account Receivable which the Lender or Eximbank, in its
reasonable judgment, deems uncollectible for any reason;
(o) any Account Receivable payable in a currency other than
Dollars, except as may be approved in writing by Eximbank;
(p) any Account Receivable from a military Buyer, except as may
be approved in writing by Eximbank; and
(q) any Account Receivable due and collectible outside the
United States, except as may be approved in writing by Eximbank.
Section 2.4 Schedules, Reports and Other Statements. The Borrower shall
submit to the Lender in writing each month (a) an Inventory schedule for the
preceding month and (b) an Accounts Receivable aging report for the preceding
month detailing the terms of the amounts due from each Buyer. The Borrower shall
also furnish to the Lender promptly upon request such information, reports,
contracts, invoices and other data concerning the Collateral as the Lender may
from time to time specify.
Section 2.5 Additional Security or Payment. The Borrower shall at all
times ensure that the Borrowing Base exceeds the Disbursed Amount. If informed
by the Lender or if the Borrower otherwise has actual knowledge that the
Borrowing Base is at any time less than the Disbursed Amount, the Borrower
shall, within five (5) Business Days, either (a) furnish additional security to
the Lender, in form and amount satisfactory to the Lender and Eximbank, or (b)
pay to the Lender an amount equal to the difference between the Disbursed Amount
and the Borrowing Base.
Section 2.6 Continued Security Interest. The Borrower shall notify the
Lender in writing within five (5) Business Days if (a) the Borrower changes its
name or identity in any manner, (b) the Borrower changes the location of its
principal place of business, (c) the nature of any of the Collateral is changed
or any of the Collateral is transferred to another location or (d) any of the
books or records related to the Collateral are transferred to another location.
The Borrower shall execute such additional financing statements or other
documents as the Lender may reasonably request in order to maintain its
perfected security interest in the Collateral.
Section 2.7 Inspection of Collateral. The Borrower shall permit the
representatives of the Lender and Eximbank to make at any time during normal
business hours reasonable inspections of the Collateral and of the Borrower's
facilities, activities, and books and records, and shall cause its officers and
employees to give full cooperation and assistance in connection therewith.
-6-
<PAGE> 37
Section 2.8 Notice of Debtor's Relief, Dissolution and Litigation. The
Borrower shall notify the Lender in writing within five (5) Business Days of the
occurrence of any of the following:
(a) a proceeding in bankruptcy or an action for debtor's relief
is filed by, against, or on behalf of the Borrower;
(b) the Borrower fails to obtain the dismissal or termination
within thirty (30) calendar days of the commencement of any proceeding or action
referred to in (a) above;
(c) the Borrower begins any procedure for its dissolution or
liquidation, or a procedure therefore has been commenced against it; or
(d) any material litigation is filed against the Borrower.
Section 2.9 Insurance. The Borrower shall maintain insurance coverage in
the manner and to the extent customary in businesses of similar character.
Section 2.10 Merger or Consolidation. Without the prior written consent
of Eximbank and the Lender, the Borrower shall not (a) merge or consolidate with
any other entity, (b) sell, lease, transfer or otherwise dispose of any
substantial part of its assets, or any part of its assets which are essential to
the conduct of its business or operations, (c) make any material change in its
organizational structure or identity, or (d) enter into any agreement to do any
of the foregoing.
Section 2.11 Reborrowings and Repayment Terms. (a) If the Loan is a
Revolving Loan, provided that the Borrower is not in default under any of the
Loan Documents, the Borrower may borrow, repay and reborrow amounts under the
Loan until the close of business on the Availability Date. Unless the Revolving
Loan is renewed or extended by the Lender, the Borrower shall pay in full the
outstanding Loan Amount and all accrued and unpaid interest thereon no later
than the first Business Day after the Availability Date.
(b) If the Loan is a Transaction Specific Loan, the Borrower shall,
within two (2) Business Days of the receipt thereof, pay to the Lender (for
application against the outstanding Loan Amount and accrued and unpaid interest
thereon) all checks, drafts, cash and other remittances it may receive in
payment or on account of the Accounts Receivable or any other Collateral, in
precisely the form received (except for the endorsement of the Borrower where
necessary). Pending such deposit, the Borrower shall not commingle any such
items of payment with any of its other funds or property, but will hold them
separate and apart.
Section 2.12 Cross Default. The Borrower shall be deemed in default
under the Loan if the Borrower fails to pay when due any amount payable to the
Lender under any loan to the Borrower not guaranteed by Eximbank.
-7-
<PAGE> 38
Section 2.13 Financial Statements. The Borrower shall provide quarterly
financial statements to the Lender no later than forty-five (45) days after the
end of each quarter. This is in addition to any other financial statements that
may be required by the Lender under the Loan Agreement.
Section 2.14 Taxes, Judgments and Liens. The Borrower shall remain
current on all of its federal, state and local tax obligations. In addition, the
Borrower shall notify the Lender in the event (i) any judgment is rendered
against the Borrower, or (ii) any lien is filed against any of the assets of the
Borrower.
Section 2.15 Munitions List. If any of the Items are articles, services,
or related technical data that are listed on the United States Munitions List
(part 121 of title 22 of the Code of Federal Regulations), the Borrower shall
send a written notice promptly to the Lender describing the Item(s) and the
corresponding invoice amount.
Section 2.16 Suspension and Debarment, etc. On the date of this
Agreement neither the Borrower nor its Principals (as defined below) are (A)
debarred, suspended, proposed for debarment with a final determination still
pending, declared ineligible or voluntarily excluded (as such terms are defined
under any of the Debarment Regulations referred to below) from participating in
procurement or nonprocurement transactions with any United States federal
government department or agency pursuant to any of the Debarment Regulations (as
defined below) or (B) indicted, convicted or had a civil judgment rendered
against the Borrower or any of its Principals for any of the offenses listed in
any of the Debarment Regulations. Unless authorized by Eximbank, the Borrower
will not knowingly enter into any transactions in connection with the Items with
any person who is debarred, suspended, declared ineligible or voluntarily
excluded from participation in procurement or nonprocurement transactions with
any United States federal government department or agency pursuant to any of the
Debarment Regulations. The Borrower will provide immediate written notice to the
Lender if at any time it learns that the certification set forth in this Section
2.16 was erroneous when made or has become erroneous by reason of changed
circumstances. For the purposes hereof, (1) "Principals" shall mean any officer,
director, owner, partner, key employee, or other person with primary management
or supervisory responsibilities with respect to the Borrower; or any other
person (whether or not an employee) who has critical influence on or substantive
control over the transaction covered by this Agreement and (2) the Debarment
Regulations shall mean (x) the Governmentwide Debarment and Suspension
(Nonprocurement) regulations (Common Rule), 53 Fed. Reg. 19204 (May 26, 1988),
(y) Subpart 9.4 (Debarment, Suspension, and Ineligibility) of the Federal
Acquisition Regulations, 48 C.F.R. 9.400-9.409 and (z) the revised
Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common
Rule), 60 Fed. Reg. 33037 (June 26, 1995).
-8-
<PAGE> 39
Section 2.17 Special Conditions. The Borrower shall comply with all
Special Conditions, if any, referenced in Section (11) of the Loan Authorization
Agreement or the Loan Authorization Notice.
ARTICLE III
RIGHTS AND REMEDIES
Section 3.1 Indemnification. Upon Eximbank's payment of a claim to the
Lender in connection with the Loan pursuant to the Master Guarantee Agreement,
Eximbank shall assume all rights and remedies of the Lender under the Loan
Documents and may enforce any such rights or remedies against the Borrower, the
Collateral and any Guarantors. Additionally, the Borrower shall hold Eximbank
and the Lender harmless from and indemnify them against any and all liabilities,
damages, claims, costs and losses incurred or suffered by either of them
resulting from (a) any materially incorrect certification or statement knowingly
made by the Borrower or its agent to Eximbank or the Lender in connection with
the Loan, this Agreement or any of the other Loan Documents or (b) any material
breach by the Borrower of the terms and conditions of this Agreement or any of
the other Loan Documents. The Borrower also acknowledges that any statement,
certification or representation made by the Borrower in connection with the Loan
is subject to the penalties provided in Article 18 U.S.C. Section 1001.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York, United States of
America.
Section 4.2 Notification. All notifications required by this Agreement
shall be given in the manner provided in the Loan Agreement.
Section 4.3 Partial Invalidity. If at any time any of the provisions of
this Agreement becomes illegal, invalid or unenforceable in any respect under
the law of any jurisdiction, neither the legality, the validity nor the
enforceability of the remaining provisions hereof shall in any way be affected
or impaired.
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<PAGE> 40
IN WITNESS WHEREOF, the Borrower has caused this Agreement to be duly
executed as of the _____ day of ________________, 199__.
Packeteer, Inc.
- --------------------------
(Name of Borrower)
By /s/ CRAIG ELLIOTT /s/ BRETT D. GALLOWAY
------------------------------------------------------
(Signature)
Name Craig Elliott Brett D. Galloway
----------------------------------------------------
(Print or Type)
Title Chief Executive Officer Chief Operating Officer
---------------------------------------------------
(Print or Type)
ACKNOWLEDGED:
Silicon Valley Bank
- --------------------------
(Name of Lender)
By /s/ TIMOTHY M. WALSH
------------------------
(Signature)
Name Timothy M. Walsh
----------------------
(Print or Type)
Title Vice President
---------------------
(Print or Type)
Guaranteed Loan No.__________________
ANNEXES:
A1 - Loan Authorization Agreement or
A2 - Loan Authorization Notice
(Revised April 1, 1996)
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<PAGE> 1
SUBORDINATED LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of January 21, 1999, is entered
into by and between Packeteer, Inc., a Delaware corporation, with its chief
executive office, and principal place of business located at 10495 North De Anza
Boulevard, Cupertino, California 95014 (the "Borrower") and Comdisco, Inc., a
Delaware corporation, with its principal place of business located at 6111 North
River Road, Rosemont, Illinois 60018 (the "Lender" or sometimes, "Comdisco"). In
consideration of the mutual agreements contained herein, the parties hereto
agree as follows:
RECITALS
WHEREAS, Borrower has requested Lender to make available to Borrower a
loan in the aggregate principal amount of TWO MILLION FIVE HUNDRED THOUSAND and
00/100 DOLLARS ($2,500,000.00) in minimum installments of FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00) each (as the same may from time to time be amended,
modified, supplemented or revised, the "Loan"), which would be evidenced by
Subordinated Promissory Note(s) executed by Borrower substantially in the form
of Exhibit A hereto (as the same may from time to time be amended, modified,
supplemented or restated the "Note(s)").
WHEREAS, Lender is willing to make the Loan on the terms and conditions
set forth in this Agreement, and
WHEREAS, Lender and Borrower agree any Loan hereunder shall be subordinate
to Senior Debt (as defined herein) to the extent set forth in the Subordination
Agreement (as defined herein).
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall
have the following meanings (such meanings being equally applicable to both the
singular and plural form of the terms defined);
1.1 "ACCOUNT" means any "account," as such term is defined in Section 9106
of the UCC, now owned or hereafter acquired by Borrower or in which Borrower now
holds or hereafter acquires any interest and, in any event, shall include,
without limitation, all accounts receivable, book debts and other forms of
obligations (other than forms of obligations evidenced by Chattel Paper,
Documents or Instruments) now owned or hereafter received or acquired by or
belonging or owing to Borrower (including, without limitation, under any trade
name, style or division thereof) whether arising out of goods sold or services
rendered by Borrower or from any other transaction, whether or not the same
involves the sale of goods or services by Borrower (including, without
limitation, any such obligation which may be characterized as an account or
contract right under the UCC) and all of Borrower's rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods or
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services, and all of Borrower's rights to any goods represented by any of the
foregoing (including, without limitation, unpaid seller's rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed
or repossessed goods), and all monies due or to become due to Borrower under all
purchase orders and contracts for the sale of goods or the performance of
services or both by Borrower (whether or not yet earned by performance on the
part of Borrower or in connection with any other transaction), now in existence
or hereafter occurring, including, without limitation, the right to receive the
proceeds of said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any Person with respect to any of the foregoing.
1.2 "ACCOUNT DEBTOR" means any "account debtor," as such term is defined
in Section 9105(1)(a) of the UCC.
1.3 "ADVANCE" means each installment made by the Lender to Borrower
pursuant to the Loan to be evidenced by the Note(s) secured by the Collateral.
1.4 "ADVANCE DATE" means the funding date of any Advance of the Loan.
1.5. "ADVANCE REQUEST" means the request by Borrower for an Advance under
the Loan, each to be substantially in the form of Exhibit C attached hereto, as
submitted by Borrower to Lender from time to time.
1.6 "CHATTEL PAPER" means any "chattel paper," as such term is defined in
Section 9105(1)(b) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.7 "CLOSING DATE" means the date hereof.
1.8 "COLLATERAL" shall have the meaning assigned to such term in Section 3
of this Agreement.
1.9 "CONTRACTS" means all contracts, undertakings, franchise agreements or
other agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
1.10 "COPYRIGHTS" means all of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant
to the laws of the United States, any State thereof or of any other country;
(ii) registrations, applications and recordings in the United States Copyright
Office or in any similar office or agency of the United States, any state
thereof or any other country; (iii) any continuations, renewals or extensions
thereof; and (iv) any registrations to be issued in any pending applications.
1.11 "COPYRIGHT LICENSE" means any written agreement granting any right to
use any Copyright or Copyright registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
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1.12 "DOCUMENTS" means any "documents," as such term is defined in Section
9105(1)(f) of the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.
1.13 "EQUIPMENT" means any "equipment," as such term is defined in Section
9109(2) of the UCC, now or hereafter owned or acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and any and all additions,
substitutions and replacements of any of the foregoing, wherever located,
together with all attachments, components, parts, equipment and accessories
installed thereon or affixed thereto.
1.14 "EXCLUDED AGREEMENTS" means (i) any Warrant Agreement(s) executed
hereunder, and any other warrants (including without limitation, the warrant
agreements dated as of June 3, 1997 and June 16, 1998) to acquire, or agreements
governing the rights of the holders of, any equity security of Borrower, (ii)
any stock of the Borrower issued or purchased pursuant to the Warrant Agreement,
and (iii) the Master Lease Agreement dated as of June 3, 1997 between Borrower,
as lessee, and Lender, as lessor, including, without limitation, any Equipment
Schedules and Summary Equipment Schedules to the Master Lease Agreement executed
or delivered by Borrower pursuant thereto and any other modifications or
amendments thereof, whereby Borrower (as lessee) leases equipment, software, or
goods from Lender (as lessor) to Borrower (as lessee).
1.15 "FACILITY FEE" means one percent (1.0%) of the principal amount of
the Loan due at the Closing Date (plus Three Thousand Dollars ($3,000.00)
transaction costs and less Ten Thousand Dollar ($10,000.00) deposit paid)
($18,000.00).
1.16 "FIXTURES" means any "fixtures," as such term is defined in Section
9313(1)(a) of the UCC, now or hereafter owned or acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest and, now or
hereafter attached or affixed to or constituting a part of, or located in or
upon, real property wherever located, together with all right, title and
interest of Borrower in and to all extensions, improvements, betterments,
renewals, substitutes, and replacements of, and all additions and appurtenances
to any of the foregoing property, and all conversions of the security
constituted thereby, immediately upon any acquisition or release thereof or any
such conversion, as the case may be.
1.17 "GENERAL INTANGIBLES" means any "general intangibles," as such term
is defined in Section 9106 of the UCC, now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest and,
in any event, shall include, without limitation, all right, title and interest
which Borrower may now or hereafter have in or under any contract, all customer
lists, Copyrights, Trademarks, Patents, rights to Intellectual Property,
interests in partnerships, joint ventures and other business associations,
Licenses, permits, trade secrets, proprietary or confidential information,
inventions (whether or not patented or patentable), technical information,
procedures, designs, knowledge, know-how, software, data bases, data, skill,
expertise, recipes, experience, processes, models, drawings, materials and
records, goodwill (including, without limitation, the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License), claims in or under insurance policies, including unearned premiums,
uncertificated securities, cash and other forms of money or currency, deposit
accounts (including as defined in Section 9105(e) of the UCC), rights to sue for
past, present and future infringement of Copyrights, Trademarks and Patents,
rights to receive tax refunds and other payments and rights of indemnification.
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<PAGE> 4
1.18 "INSTRUMENTS" means any "instrument," as such term is defined in
Section 9105(1)(i) of the UCC, now owned or hereafter acquired by Borrower or in
which Borrower now holds or hereafter acquires any interest.
1.19 "INTELLECTUAL PROPERTY" means all Copyrights, Trademarks, Patents,
trade secrets, source codes, customer lists, proprietary or confidential
information, inventions (whether or not patented or patentable), technical
information, procedures, designs, knowledge, know-how, software, data bases,
skill, expertise, experience, processes, models, drawings, materials and
records.
1.20 "INVENTORY" means any "inventory," as such term is defined in
Section 9109(4) of the UCC, wherever located, now or hereafter owned or acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest,
and, in any event, shall include, without limitation, all inventory, goods and
other personal property which are held by or on behalf of Borrower for sale or
lease or are furnished or are to be furnished under a contract of service or
which constitute raw materials, work in process or materials used or consumed or
to be used or consumed in Borrower's business, or the processing, packaging,
promotion, delivery or shipping of the same, and all furnished goods whether or
not such inventory is listed on any schedules, assignments or reports furnished
to Lender from time to time and whether or not the same is in transit or in the
constructive, actual or exclusive occupancy or possession of Borrower or is held
by Borrower or by others for Borrower's account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all inventory which may be located on premises
of Borrower or of any carriers, forwarding agents, truckers, warehousemen,
vendors, selling agents or other persons.
1.21 "LICENSE" means any Copyright License, Patent License, Trademark
License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest
and any renewals or extensions thereof.
1.22 "LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment for security, security interest, encumbrance, levy, lien or charge of
any kind, whether voluntarily incurred or arising by operation of law or
otherwise, against any property, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the filing of any
financing statement (other than a precautionary financing statement with respect
to a lease that is not in the nature of a security interest) under the UCC or
comparable law of any jurisdiction.
1.23 "LOAN DOCUMENTS" shall mean and include this Agreement, the Note(s),
and any other documents executed in connection with the Secured Obligations or
the transactions contemplated hereby, as the same may from time to time be
amended, modified, supplemented or restated, provided, that the Loan Documents
shall not include any of the Excluded Agreements.
1.24 "MATERIAL ADVERSE EFFECT" means a material adverse effect upon: (i)
the business, operations, properties, assets or conditions (financial or
otherwise) of Borrower; or (ii) the ability of Borrower to perform, or of Lender
to enforce, the Secured Obligations.
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<PAGE> 5
1.25 "MATURITY DATE" means the date earlier to occur of (i) thirty-six
(36) months from the Advance Date of each installment of the Loan or (ii) sixty
(60) days after the effective date of an initial public offering of Borrower's
equity securities.
1.26 "PATENT LICENSE" means any written agreement granting any right with
respect to any invention on which a Patent is in existence now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter
acquires any interest.
1.27 "PATENTS" means all of the following now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest:
(a) letters patent of, or rights corresponding thereto in, the United States or
any other county, all registrations and recordings thereof, and all applications
for letters patent of, or rights corresponding thereto in the United States or
any other country, including, without limitation, registrations, recordings and
applications in the United States Patent and Trademark Office or in any similar
office or agency of the United States, any State thereof or any other country;
(b) all reissues, continuations, continuations-in-part or extensions thereof;
(c) all petty patents, divisionals, and patents of addition; and (d) all patents
to issue in any such applications.
1.28 "PERMITTED LIENS" means any and all of the following: (i) liens in
favor of Lender, (ii) liens related to, or arising in connection with, Senior
Debt, (iii) liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no priority over any of Lender's security
interest; (iv) liens (I) upon or in any assets acquired or held by Borrower or
any of its subsidiaries to secure the purchase price of such assets or
indebtedness incurred solely for the purpose of financing the acquisition of
such assets, or (II) existing on such assets at the time of its acquisition
(including liens on assets of any corporation that existed at the time it became
or becomes a subsidiary of Borrower), provided that the lien is confined solely
to the property so acquired and improvements thereon, an the proceeds of such
equipment; (v) leases or subleases and licenses and sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its subsidiaries taken as a
whole, and any interest or title of lessor, licensor under any lease or license;
(vi) liens on Equipment or software leased by Borrower or any of its
subsidiaries pursuant to an operating or capital lease in the ordinary course of
business (including proceeds thereof or accession thereto) incurred solely for
the purpose of financing the lease of such Equipment or software, other than
sale-leaseback transaction; (vii) liens arising from judgements, decrees or
attachments in circumstances not constituting an Event of Default under Section
8; (viii) liens in favor of customs and revenue authorities arising as a matter
of law to secure payments of customs duties in connection with the importation
of goods; and (ix) liens that are not prior to the liens of Lender which
constitute rights of set-off of a customary nature or bankers' or securities
intermediaries' liens with respect to amounts on deposit or investment property,
as applicable, whether arising by operation of law or by contract, in connection
with arrangements entered into with banks or securities intermediaries in the
ordinary course of business.
1.29 "PROCEEDS" means "proceeds," as such term is defined in Section
9306(1) of the UCC and, in any event, shall include, without limitation, (a) any
and all Accounts, Chattel Paper, Instruments, cash or other forms of money or
currency or other proceeds payable to Borrower from time to time in respect of
the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to Borrower from time to time with respect
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<PAGE> 6
to any of the Collateral, (c) any and all payments (in any form whatsoever) made
or due and payable to Borrower from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental authority (or any Person acting under
color of governmental authority), (d) any claim of Borrower against third
parties (i) for past, present or future infringement of any Copyright, Patent or
Patent License or (ii) for past, present or future infringement or dilution of
any Trademark or Trademark License or for injury to the goodwill associated with
any Trademark, Trademark registration or Trademark licensed under any Trademark
License and (e) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral.
1.30 "RECEIVABLES" shall mean and include all of the Borrower's accounts,
instruments, documents, chattel paper and general intangibles whether secured or
unsecured, whether now existing or hereafter created or arising, and whether or
not specifically sold or assigned to Lender hereunder.
1.31 "SECURED OBLIGATIONS" shall mean and include all principal, interest,
fees, costs, or other liabilities or obligations for monetary amounts owed by
Borrower to Lender, whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent, and all covenants and
duties regarding such amounts, of any kind of nature, present or future, arising
under this Agreement, the Note(s), or any of the other Loan Documents, whether
or not evidenced by any Note(s), Agreement or other instrument, as the same may
from time to time be amended, modified, supplemented or restated, provided, that
the Secured Obligations shall not include any indebtedness or obligations of
Borrower arising under or in connection with the Excluded Agreements.
1.32 "SENIOR CREDITOR" means a bank, insurance company, pension fund, or
other institutional lender to be determined, or a syndication of such
institutional lenders that provides Senior Debt financing to Borrower; provided,
that Senior Creditor shall not include any officer, director, shareholder,
venture capital investor, or insider of Borrower, or any affiliate of the
foregoing persons, except upon the express written consent of Lender.
1.33 "SENIOR DEBT" means any and all indebtedness and obligations for
borrowed money (including, without limitation, principal, premium (if any),
interest, fees charges, expenses, costs, professional fees and expenses, and
reimbursement obligations) at any time owing by Borrower to Senior Creditor
under the Senior Loan Documents, including, but not limited to such amounts as
may accrue or be incurred before or after default or workout or the commencement
of any liquidation, dissolution, bankruptcy, receivership or reorganization by
or against Borrower provided, that Senior Debt shall not include the following
indebtedness or obligations:
(a) obligations incurred after default or workout or the commencement of
any liquidation, dissolution, bankruptcy, receivership, or reorganization case
by or against Borrower, and
(b) debt exceeding Three Million Dollars ($3,000,000.00) outstanding at
any one time.
1.34 "SENIOR LOAN DOCUMENTS" means the loan agreement between Borrower and
Senior Creditor and any other agreement, security agreement, document,
promissory note,
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UCC financing statement, or instrument executed by Borrower in favor of Senior
Creditor pursuant to or in connection with the Senior Debt or the loan
agreement, as the same may from time to time be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.35 "SUBORDINATION AGREEMENT" means the Subordination Agreement of even
date herewith, entered into between Borrower and Lender for the benefit of
Senior Creditor.
1.36 "TRADEMARK LICENSE" means any written agreement granting any right to
use any Trademark or Trademark registration now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
1.37 "TRADEMARKS" means any of the following now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (a) any and all trademarks, tradenames, corporate names, business
names, trade styles, service marks, logos, other source or business identifiers,
prints and labels on which any of the foregoing have appeared or appear, designs
and general intangibles of like nature, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and any applications in
connection therewith, including, without limitation, registrations, recordings
and applications in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof and (b) any reissues, extensions or
renewals thereof.
1.38 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
1.39 "WARRANT AGREEMENT(S)" shall mean those agreements entered into in
connection with the Loan, substantially in the form attached hereto as Exhibit I
pursuant to which Borrower granted Lender the right to purchase that number of
shares of Series D Preferred Stock of Borrower as more particularly set forth
therein.
SECTION 2. THE LOAN
2.1 The outstanding principal amount of the Loan, together with interest
thereon precomputed at the rate of twelve and one quarter (12.25%) percent per
annum, shall be due and payable in six (6) equal monthly installments of
interest only, payable on the first day of each month, followed by thirty (30)
equal monthly installments of principal and interest, payable on the first day
of each month, to and including the Maturity Date (each, a "Payment Date"). If
any payment under the Note(s) shall be payable on a day other than a business
day, then such payment shall be due and payable on the next succeeding business
day.
2.2 Borrower shall have the option to prepay the Loan, in whole or in
part, as of any Payment Date after the Closing Date by paying to Lender such
principal amount being prepaid together with all accrued and unpaid interest
with respect to such principal amount, as of the date of such prepayment.
Notwithstanding the foregoing, in the event on an initial public offering of
Borrower's equity securities, Borrower shall repay the Loan within sixty (60)
days of the effective date thereof.
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2.3 (a) Notwithstanding any provision in this Agreement, the Note(s), or
any other Loan Document, it is not the parties' intent to contract for, charge
or receive interest at a rate that is greater than the maximum rate permissible
by law which a court of competent jurisdiction shall deem applicable hereto
(which under the laws of the State of Illinois shall be deemed to be the laws
relating to permissible rates of interest on commercial loans) (the "Maximum
Rate"). If the Borrower actually pays Lender an amount of interest, chargeable
on the total aggregate principal Secured Obligations of Borrower under this
Agreement and the Note(s) (as said rate is calculated over a period of time from
the date of this Agreement through the end of time that any principal is
outstanding on the Note(s)), which amount of interest exceeds interest
calculated at the Maximum Rate on said principal chargeable over said period of
time, then such excess interest actually paid by Borrower shall be applied
first, to the payment of principal outstanding on the Note(s); second, after all
principal is repaid, to the payment of Lender's out of pocket costs, expenses,
and professional fees which are owed by Borrower to Lender under this Agreement
or the Loan Documents; and third, after all principal, costs, expenses, and
professional fees owed by Borrower to Lender are repaid, the excess (if any)
shall be refunded to Borrower, and the effective rate of interest will be
automatically reduced to the Maximum Rate.
(b) In the event any interest is not paid when due hereunder,
delinquent interest shall be added to principal and shall bear interest on
interest, compounded at the rate set forth in Section 2.1.
(c) Upon and during the continuation of an Event of Default
hereunder, all Secured Obligations, including principal, interest, compounded
interest, and professional fees, shall bear interest at a rate per annum equal
to the rate set forth in Section 2.1 plus five percent (5%) per annum ("Default
Rate").
2.4 If the Borrower has not repaid the outstanding principal amount under
the Loan in its entirety by the Maturity Date (as defined in the applicable
Note(s)), then for each additional month, or portion thereof, thereafter that
the outstanding principal is not paid, Lender shall have the right to purchase
from the Borrower, at the Exercise Price (adjusted, as set forth and defined in
the Warrant Agreement), an additional number of shares of Preferred Stock which
number shall be determined by (i) multiplying the outstanding principal amount
which is due but unpaid by 1% and (ii) dividing the product thereof by the
Exercise Price.
SECTION 3. SECURITY INTEREST
As security for the prompt, complete and indefeasible payment when due
(whether at stated payment dates or otherwise) of all the Secured Obligations
and in order to induce Lender to make the Loan upon the terms and subject to the
conditions of the Note(s), Borrower hereby assigns, conveys, mortgages, pledges,
hypothecates and transfers to Lender for security purposes only, and hereby
grants to Lender a security interest in, all of Borrower's right, title and
interest in, to and under each of the following (all of which being hereinafter
collectively called the "Collateral"):
(a) All Receivables;
(b) All Equipment;
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(c) All Fixtures;
(d) All General Intangibles;
(e) All Inventory;
(f) All other goods and personal property of Borrower whether tangible
or intangible and whether now or hereafter owned or existing,
leased, consigned by or to, or acquired by, Borrower and wherever
located; and
(g) To the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for,
and rents, profits and products of each of the foregoing.
Notwithstanding the foregoing, the term "Collateral" shall not include any
licenses or similar contracts which Borrower holds as licensee, the assignment
of which is prohibited by the terms thereof.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that;
4.1 Borrower owns all right title and interest in and to the Collateral,
free of all liens, security interests, encumbrances and claims whatsoever,
except for Permitted Liens.
4.2 Borrower has the full power and authority to, and does hereby grant
and convey to the Lender, a valid security interest in the Collateral as
security for the Secured Obligations, free of all liens, security interests,
encumbrances and claims, other than Permitted Liens and shall execute such
Uniform Commercial Code financing statements in connection herewith as the
Lender may reasonably request. Except for Permitted Liens and as set forth
herein, no other lien, security interest, adverse claim or encumbrance has been
created by Borrower or is known by Borrower to exist with respect to any
Collateral.
4.3 Borrower is a corporation duly organized, legally existing and in good
standing under the laws of the State of Delaware, and is duly qualified as a
foreign corporation in all jurisdictions in which the nature of its business or
location of its properties require such qualifications and where the failure to
be qualified would have a material adverse effect.
4.4 Borrower's execution, delivery and performance of the Note(s), this
Agreement, all financing statements, all other Loan Documents required to be
delivered or executed in connection herewith, and the Warrant Agreement(s) have
been duly authorized by all necessary corporate action of Borrower, the
individual or individuals executing the Loan Documents and the Warrant
Agreement(s) were duly authorized to do so; and the Loan Documents and the
Warrant Agreement(s) constitute legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization or other similar laws
generally affecting the enforcement of the rights of creditors and general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
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4.5 This Agreement, the other Loan Documents and the Warrant Agreement(s)
do not and will not violate any provisions of Borrower's Certificate of
Incorporation, bylaws or any contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which the Borrower is subject, or result
in the creation or imposition of any lien, security interest or other
encumbrance upon the Collateral, other than those created by this Agreement.
4.6 The execution, delivery and performance of this Agreement, the other
Loan Documents and the Warrant Agreement(s) do not require the consent or
approval of any other person or entity including, without limitation, any
regulatory authority or governmental body of the United States or any state
thereof or any political subdivision of the United States or any state thereof.
4.7 No event which has had or could reasonably be expected to have a
Material Adverse Effect has occurred and is continuing.
4.8 No fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute a default under the Loan
Agreement between Borrower and Senior Creditor.
4.9 Borrower has filed and will file all tax returns, federal, state and
local, which it is required to file and has duly paid or fully reserved for all
taxes or installments thereof (including any interest or penalties) as and when
due, which have or may become due pursuant to such returns or pursuant to any
assessment received by Borrower for the three (3) years preceding the Closing
Date, if any (including any taxes being contested in good faith and by
appropriate proceedings).
SECTION 5. INSURANCE
5.1 So long as there are any Secured Obligations outstanding, Borrower
shall cause to be carried and maintained comprehensive general liability
insurance against risks customarily insured against in Borrower's line of
business. Such risks shall include, without limitation, the risks of death,
bodily injury and property damage. So long as there are any Secured Obligations
outstanding, Borrower shall also cause to be carried and maintained insurance
upon the Collateral and Borrower's business, covering casualty, hazard and such
other property risks customarily insured against in Borrower's line of business.
Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU
438 or equivalent) naming Lender as loss payee or additional insured, as
appropriate. Borrower shall use commercially reasonable efforts to cause all
policies evidencing such insurance to provide for at least thirty (30) days
prior written notice by the underwriter or insurance company to Lender in the
event of cancellation or expiration. Such policies shall be issued by such
insurers and in such amounts as are reasonably acceptable to Lender.
5.2 Borrower shall and does hereby indemnify and hold Lender, its agents
and shareholders harmless from and against any and all claims, costs, expenses,
damages and liabilities (including, without limitation, such claims, costs,
expenses, damages and liabilities based on liability in tort, including without
limitation, strict liability in tort), including reasonable attorneys' fees,
arising out of the disposition or utilization of the Collateral, other than
claims arising at or caused by Lender's gross negligence or willful misconduct.
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SECTION 6. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Secured Obligations remain outstanding:
6.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within thirty (30)
days) after the end of each month, unaudited interim financial statements
as of the end of such month (prepared on a consolidated and consolidating
basis, if applicable), including balance sheet and related statements of
income and cash flows accompanied by a report detailing any material
contingencies (including the commencement of any material litigation by or
against Borrower) or any other occurrence that could reasonably be
expected to have a Material Adverse Effect, all certified by Borrower's
Chief Executive Officer or Chief Financial Officer to be true and correct;
(b) as soon as practicable (and in any event within ninety (90)
days) after the end of each fiscal year, unqualified audited financial
statements as of the end of such year (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and related
statements of income and cash flows, and setting forth in comparative form
the corresponding figures for the preceding fiscal year, certified by a
firm of independent certified public accountants selected by Borrower and
reasonably acceptable to Lender, accompanied by any management report from
such accountants;
(c) promptly after the sending or filing thereof, as the case may
be, copies of any proxy statements, financial statements or reports which
Borrower has made available to its shareholders and copies of any regular,
periodic and special reports or registration statements which Borrower
files with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national securities
exchange; and
(d) promptly, any additional information, financial or otherwise
(including, but not limited, to tax returns and names of principal
creditors) as Lender reasonably believes necessary to evaluate Borrower's
continuing ability to meet its financial obligations.
6.2 Borrower shall permit any authorized representative of Lender and its
attorneys and accountants on reasonable notice during normal business hours to
inspect, examine and make copies and abstracts of the books of account and
records of Borrower at reasonable times during normal business hours. In
addition, such representative of Lender and its attorneys and accountants shall
have the right on reasonable notice during normal business hours to meet with
management and officers of the Company to discuss such books of account and
records.
6.3 Borrower will from time to time execute, deliver and file, alone or
with Lender, any financing statements, security agreements or other documents;
procure any instruments or documents as may be requested by Lender; and take all
further action that may be necessary
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or desirable, or that Lender may request, to confirm, perfect, preserve and
protect the security interests intended to be granted hereby, and in addition,
and for such purposes only, Borrower hereby authorizes Lender to execute and
deliver on behalf of Borrower and to file such financing statements, security
agreement and other documents without the signature of Borrower either in
Lender's name or in the name of Borrower as agent and attorney-in-fact for
Borrower. The parties agree that a carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof.
6.4 Borrower shall protect and defend Borrower's title as well as the
interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any legal process, liens or encumbrances whatsoever (except any placed
thereon by Lender and except for Permitted Liens) and shall give Lender
immediate written notice thereof.
6.5 Without Lender's prior written consent, Borrower shall not (a) grant
any material extension of the time of payment of any of the Receivables, (b) to
any material extent, compromise, compound or settle the same for less than the
full amount thereof, (c) release, wholly or partly, any Person liable for the
payment thereof, or allow any credit or discount whatsoever thereon other than
trade discounts granted in the ordinary course of business of Borrower.
6.6 Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its Equipment and Fixtures, in good
order and working repair and condition (taking into consideration ordinary wear
and tear) and from time to time make or cause to be made all necessary and
proper repairs, renewals and replacements thereto and shall competently manage
and care for its property in accordance with prudent industry practices.
6.7 Borrower shall not merge with and into any other entity; or sell or
convey all or substantially all of its assets or stock to any other person or
entity without notifying Lender a minimum of thirty (30) days prior to the
closing date and requesting Lender's consent to the assignment of all of
Borrower's Secured Obligations hereunder to the successor entity in form and
substance satisfactory to Lender. In the event Lender does not consent to such
assignment the parties agree Borrower shall prepay the Loan in accordance with
Section 2.2 hereof.
6.8 Borrower shall not, without the prior written consent of Lender, such
consent not to be unreasonably withheld, declare or pay any cash dividend or
make a cash distribution on any class of stock, other than pursuant to employee
repurchase plans upon an employee's death or termination of employment or
transfer, sell, lease, lend or in any other manner convey any equitable,
beneficial or legal interest in any material portion of the assets of Borrower
(except inventory sold in the normal course of business), and except for (i)
sales, leases or conveyances of assets which have become worn out, obsolete and
are no longer useful in Borrower's business and (ii) no-exclusive licenses and
similar arrangements for the use of the property of Borrower in the ordinary
course of business. In the event Lender does not consent to such assignment the
parties agree Borrower shall prepay the Loan in accordance with Section 2.2
hereof.
6.9 Upon the request of Lender, Borrower shall, during business hours,
make the Inventory and Equipment available to Lender for inspection at the place
where it is normally
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located and shall make Borrower's log and maintenance records pertaining to the
Inventory and Equipment available to Lender for inspection. Borrower shall take
all action necessary to maintain such logs and maintenance records in a correct
and complete fashion.
6.10 Borrower covenants and agrees to pay when due, all taxes, fees or
other charges of any nature whatsoever (together with any related interest or
penalties) now or hereafter imposed or assessed against Borrower, Lender or the
Collateral or upon Borrower's ownership, possession, use, operation or
disposition thereof or upon Borrower's rents, receipts or earnings arising
therefrom. Borrower shall file on or before the due date therefor all personal
property tax returns in respect of the Collateral. Notwithstanding the
foregoing, Borrower may contest, in good faith and by appropriate proceedings,
taxes for which Borrower maintains adequate reserves therefor.
6.11 Borrower shall not relocate from existing jurisdictions any item of
the Collateral (other than sale of inventory in the ordinary course of business)
except: (i) with the prior written consent of the Lender not to be unreasonably
withheld; and (ii) if such relocation shall be within the continental United
States. If permitted to relocate Collateral pursuant to the foregoing sentence,
unless otherwise agreed in writing by Lender, Borrower shall first (a) cause to
be filed and/or delivered to the Lender all Uniform Commercial Code financing
statements, certificates or other documents or instruments necessary to continue
in effect the perfected security interest of the Lender in the Collateral, and
(b) have given the Lender no less than thirty (30) days prior written notice of
such relocation.
SECTION 7. CONDITIONS PRECEDENT TO LOAN
The obligation of Lender to fund the Loan on each Advance Date shall be
subject to Lender's satisfactory completion of its due diligence and approval
process, and satisfaction by Borrower or waiver by Lender, in Lender's sole
discretion, of the following conditions:
7.1 (a) The Advance Date for any installment shall occur on or before
June 21, 1999.
7.2 DOCUMENT DELIVERY. Borrower, on or prior to the Closing Date, shall
have delivered to Lender the following:
(a) executed originals of the Agreement, the Warrant Agreement and
any documents reasonably required by Lender to effectuate the liens of
Lender, with respect to all Collateral;
(b) certified copy of resolutions of Borrower's board of directors
evidencing approval of the borrowing and other transactions evidenced by
the Loan Documents and the Warrant Agreement(s);
(c) certified copies of the Certificate of Incorporation and the
Bylaws, as amended through the Closing Date, of Borrower;
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in
which it does business and where the failure to be qualified would have a
Material Adverse Effect;
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(e) payment of the Facility Fee;
(f) such other documents as Lender may reasonably request.
7.3 ADVANCE REQUEST. Borrower shall:
(a) deliver to Lender, at least five (5) business day prior to the
Advance Date, written notice in the form of an Advance Request, or as
otherwise specified by Lender from time to time, specifying the date and
amount of such Advance.
(b) deliver executed original Note(s) as set forth in Section 2, as
applicable.
(c) At the time of the request, Borrower shall have achieved at
least seventy-five (75%) or more of its cumulative net income/loss
projections as set forth in its business Plan with respect to fiscal year
1998/1999 dated October 21, 1998 for the prior six (6) month period,
attached hereto as Exhibit D.
(d) such other documents as Lender may reasonably request.
7.4 PERFECTION OF SECURITY INTERESTS. Borrower shall have taken or caused
to be taken such actions requested by Lender to grant Lender a first priority
perfected security interest in the Collateral, subject only to Permitted Liens.
Such actions shall include, without limitation, the delivery to Lender of all
appropriate financing statements, executed by Borrower, as to the Collateral
granted by Borrower for all jurisdictions as may be necessary or desirable to
perfect the security interest of Lender in such Collateral
7.5 ABSENCE OF EVENTS OF DEFAULTS. As of the Closing Date or the Advance
Date, no fact or condition exists that would (or would, with the passage of
time, the giving of notice, or both) constitute an Event of Default under this
Agreement or any of the Loan Documents and no fact or condition exists that
would (or would, with the passage of time, the giving of notice, or both)
constitute a default under the Senior Loan Documents between Borrower and Senior
Creditor.
7.6 MATERIAL ADVERSE EFFECT. As of the Closing Date or the Advance Date,
no event which has had or could reasonably be expected to have a Material
Adverse Effect has occurred and is continuing.
SECTION 8. DEFAULT
The occurrence of any one or more of the following events (herein called
"Events of Default") shall constitute a default hereunder and under the Note(s)
and other Loan Documents:
8.1 Borrower defaults in the payment of any principal, interest or other
Secured Obligation involving the payment of money under this Agreement, the
Note(s) or any of the other Loan Documents, and such default continues for more
than five (5) days after the due date thereof; or
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8.2 Borrower defaults in the performance of any other covenant or Secured
Obligation of Borrower hereunder or under the Note(s) or any of the other Loan
Documents, and such default continues for more than thirty (30) days after
Lender has given notice of such default to Borrower.
8.3 Any representation or warranty made herein by Borrower shall prove to
have been false or misleading in any material respect; or
8.4 Borrower shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances, or shall seek
or consent to or acquiesce in the appointment of any trustee, receiver, or
liquidator of Borrower or of all or any substantial part (33-1/3% or more) of
the properties of Borrower; or Borrower or its directors or majority
shareholders shall take any action initiating the dissolution or liquidation of
Borrower; or
8.5 Sixty (60) days shall have expired after the commencement of an action
by or against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such action being dismissed or all
orders or proceedings thereunder affecting the operations or the business of
Borrower being stayed; or a stay of any such order or proceedings shall
thereafter be set aside and the action setting it aside shall not be timely
appealed; or Borrower shall file any answer admitting or not contesting the
material allegations of a petition filed against Borrower in any such
proceedings; or the court in which such proceedings are pending shall enter a
decree or order granting the relief sought in any such proceedings; or
8.6 Sixty (60) days shall have expired after the appointment, without the
consent or acquiescence of Borrower, of any trustee, receiver or liquidator of
Borrower or of all or any substantial part of the properties of Borrower without
such appointment being vacated; or
8.7 The default by Borrower under any Excluded Agreement(s), any other
promissory note or agreement for borrowed money, or any other agreement between
Borrower and Lender; or
8.8 The occurrence of any default under any lease or other agreement or
obligation of Borrower involving an amount in excess of $250,000.00 or having a
Material Adverse Effect; or the entry of any judgment against Borrower involving
an award in excess of $250,000.00 that would have a Material Adverse Effect,
that has not been bonded or stayed on appeal within thirty (30) days; or
8.9 The occurrence of any material default under the Senior Loan
Documents.
SECTION 9. REMEDIES
Upon the occurrence of any one or more Events of Default, Lender, at its
option, may declare the Note and all of the other Secured Obligations to be
accelerated and immediately due and payable (provided, that upon the occurrence
of an Event of Default of the type
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described in Sections 8.4 or 8.5, the Note(s) and all of the other Secured
Obligations shall automatically be accelerated and made due and payable without
any further act), whereupon the unpaid principal of and accrued interest on such
Note(s) and all other outstanding Secured Obligations shall become immediately
due and payable, and shall thereafter bear interest at the Default Rate set
forth in, and calculated according to, Section 2.3 (c) of this Agreement. Lender
may exercise all rights and remedies with respect to the Collateral under the
Loan Documents or otherwise available to it under applicable law, including the
right to release, hold or otherwise dispose of all or any part of the Collateral
and the right to occupy, utilize, process and commingle the Collateral.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere. Borrower agrees that any such public or private sale may occur upon
five (5) calendar days' prior written notice to Borrower. Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
designated by Lender which is reasonably convenient to Lender and Borrower. The
proceeds of any sale, disposition or other realization upon all or any part of
the Collateral shall, subject to the Subordination Agreement, be distributed by
Lender in the following order of priorities:
First, to Lender in an amount sufficient to pay in full Lender's costs and
professionals' and advisors' fees and expenses;
Second, to Lender in an amount equal to the then unpaid amount of the
Secured Obligations in such order and priority as Lender may choose in its
sole discretion; and
Finally, upon payment in full of all of the Secured Obligations, to
Borrower or its representatives or as a court of competent jurisdiction
may direct.
Lender shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it complies with the
obligations of a secured party under Section 9207 of the UCC.
Lender's rights and remedies hereunder are subject to the terms of the
Subordination Agreement.
SECTION 10. MISCELLANEOUS
10.1 CONTINUATION OF SECURITY INTEREST. This is a continuing Agreement and
the grant of a security interest hereunder shall remain in full force and effect
and all the rights, powers and remedies of Lender hereunder shall continue to
exist until the Secured Obligations are paid in full. Lender shall promptly
execute appropriate UCC terminations statements after full payment of the
Secured Obligations hereunder), and shall promptly return possession of the
Collateral to Borrower. The rights, powers and remedies of Lender hereunder
shall be in addition to all rights, powers and remedies given by statute or rule
of law and are cumulative. The exercise of any one or more of the rights, powers
and remedies provided herein shall not
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be construed as a waiver of or election of remedies with respect to any other
rights, powers and remedies of Lender.
10.2 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
10.3 NOTICE. Except as otherwise provided herein, all notices and service
of process required, contemplated, or permitted hereunder or with respect to the
subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given or delivered upon the earlier of: (i) the first business
day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the third
calendar day after deposit in the United States mails, with proper first class
postage prepaid, and shall be addressed to the party to be notified as follows:
(a) IF TO LENDER:
COMDISCO, INC.
Legal Department
Attention: General Counsel
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5088
WITH A COPY TO:
COMDISCO, INC./COMDISCO VENTURES
6111 North River Road
Rosemont, IL 60018
Facsimile: (847) 518-5465
(b) IF TO BORROWER:
PACKETEER, INC.
Attention: Jeff A. Harmon
10495 North De Anza Boulevard
Cupertino, CA 95014
Facsimile: (408) 873-4410
Phone: (408) 873-4400
or to such other address as each party may designate for itself by like notice.
10.4 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Note(s), and the
other Loan Documents, and the Warrant Agreement(s) constitute the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof and thereof, and supersede and replace in their entirety any prior
proposals, term sheets, letters, negotiations or other documents or agreements,
whether written or oral, with respect to the subject matter hereof or thereof
(including, without limitation, Lender's proposal letter dated October 26, 1998,
all of which are merged herein and therein). None of the terms of this
Agreement, the
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Note(s), any of the other Loan Documents or Warrant Agreement(s) may be amended
except by an instrument executed by each of the parties hereto.
10.5 HEADINGS. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
10.6 NO WAIVER. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy reserved to it, or to require performance of
any of the terms, covenants or provisions hereof by Borrower at any time
designated, shall be a waiver of any such right or remedy to which Lender is
entitled, nor shall it in any way affect the right of Lender to enforce such
provisions thereafter.
10.7 SURVIVAL. All agreements, representations and warranties contained in
this Agreement, the Note(s), the other Loan Documents and the Warrant
Agreement(s) or in any document delivered pursuant hereto or thereto shall be
for the benefit of Lender and shall survive the execution and delivery of this
Agreement and the expiration or other termination of this Agreement.
10.8 SUCCESSOR AND ASSIGNS. The provisions of this Agreement, the other
Loan Documents and the Warrant Agreement(s) shall inure to the benefit of and be
binding on Borrower and its permitted assigns (if any). Borrower shall not
assign its obligations under this Agreement, the Note(s), any of the other Loan
Documents or the Warrant Agreement(s), without Lender's express written consent,
and any such attempted assignment shall be void and of no effect. Lender may
assign, transfer, or endorse its rights hereunder and under the other Loan
Documents or Warrant Agreement(s) without prior notice to Borrower, and all of
such rights shall inure to the benefit of Lender's successors and assigns.
10.9 FURTHER INDEMNIFICATION. Borrower agrees to pay, and to save Lender
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement.
10.10 GOVERNING LAW. This Agreement, the Note(s), the other Loan Documents
and the Warrant Agreement(s) have been negotiated and delivered to Lender in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. Payment to Lender by Borrower of the Secured Obligations
is due in the State of Illinois. This Agreement, the Note(s), the other Loan
Documents and the Warrant Agreement(s) shall be governed by, and construed and
enforced in accordance with, the laws of the State of Illinois, excluding
conflict of laws principles that would cause the application of laws of any
other jurisdiction.
10.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings arising
in or under or related to this Agreement, the Note(s), any of the other Loan
Documents or Warrant Agreement(s) may be brought in any state or federal court
of competent jurisdiction located in the State of Illinois. By execution and
delivery of this Agreement, each party hereto generally
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and unconditionally: (a) consents to personal jurisdiction in Cook County, State
of Illinois; (b) waives any objection as to jurisdiction or venue in Cook
County, State of Illinois; (c) agrees not to assert any defense based on lack of
jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement, the
Note(s), the other Loan Documents or Warrant Agreement(s). Service of process on
any party hereto in any action arising out of or relating to this agreement
shall be effective if given in accordance with the requirements for notice set
forth in Section 10.3, above and shall be deemed effective and received as set
forth in Section 10.3, above. Nothing herein shall affect the right to serve
process in any other manner permitted by law or shall limit the right of either
party to bring proceedings in the courts of any other jurisdiction.
10.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in connection
with complex financial transactions are most quickly and economically resolved
by an experienced and expert person and the parties wish applicable state and
federal laws to apply (rather than arbitration rules), the parties desire that
their disputes be resolved by a judge applying such applicable laws. EACH OF
BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY
OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR
ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR
ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver
extends to all such Claims, including, without limitation, Claims which involve
persons or entities other than Borrower and Lender; Claims which arise out of or
are in any way connected to the relationship between Borrower and Lender; and
any Claims for damages, breach of contract arising out of this Agreement, any
other Loan Document or any of the Excluded Agreements, specific performance, or
any equitable or legal relief of any kind.
10.13 CONFIDENTIALITY. Lender acknowledges that certain items of
Collateral, including, but not limited to trade secrets, source codes, customer
lists and certain other items of Intellectual Property, and any Financial
Statements provided pursuant to Section 6 hereof, constitute proprietary and
confidential information of the Borrower (the "Confidential Information").
Accordingly, Lender agrees that any Confidential Information it may obtain in
the course of acquiring, perfecting or foreclosing on the Collateral or
otherwise provided under this Agreement, provided such Confidential Information
is marked as confidential by Borrower at the time of disclosure, shall be
received in the strictest confidence and will not be disclosed to any other
person or entity in any manner whatsoever, in whole or in part, without the
prior written consent of the Borrower, unless and until Lender has acquired
indefeasible title thereto.
10.14 COUNTERPARTS. This Agreement and any amendments, waivers, consents
or supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and delivered
this Agreement as of the day and year first above written.
BORROWER: PACKETEER, INC.
Signature:_________________________
19
<PAGE> 20
Print Name: Craig Elliott
________________________
Title: Chief Executive Officer
_____________________________
ACCEPTED IN ROSEMONT, ILLINOIS:
LENDER: COMDISCO, INC.
Signature: /s/ JILL C. HANSES
_________________________
Print Name: Jill C. Hanses
_______________________
Title: Senior Vice President
____________________________
20
<PAGE> 21
SUBORDINATION AGREEMENT
This Subordination Agreement is made as of this 21st day of January,
1999, by and between Comdisco, Inc. ("Creditor"), a Delaware corporation having
its principal place of business at 6111 North River Road, Rosemont, IL 60018,
and Silicon Valley Bank, a California-chartered bank with its principal place of
business at 3003 Tasman Drive, Santa Clara, CA 95054 ("Bank").
Recitals
A. Packeteer, Inc. ("Borrower") has requested and/or obtained certain
loans or other credit accommodations from Bank to Borrower which are or may be
from time to time secured by assets and property of Borrower.
B. Creditor has extended a loan in the aggregate original principal
amount of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00)
as evidenced by Subordinated Promissory Notes (as the same may from time to time
be amended, modified, supplemented, extended, renewed, restated or replaced, the
"Subordinated Notes") made by Borrower in favor of Creditor. The Borrower's
obligations to Creditor evidenced by the Subordinated Notes are secured by the
personal property collateral granted by the Borrower to Creditor pursuant to a
Subordinated Loan and Security Agreement dated as of January 21, 1999 (as the
same may from time to time be amended, modified, supplemented or restated, the
"Subordinated Security Agreement").
C. In order to induce Bank to extend credit to Borrower and, at any time
or from time to time, at Bank's option, to make such further loans, extensions
of credit, or other accommodations to or for the account of Borrower, or to
purchase or extend credit upon any instrument or writing in respect of which
Borrower may be liable in any capacity, or to grant such renewals or extension
of any such loan, extension of credit, purchase, or other accommodation as Bank
may deem advisable, Creditor is willing to subordinate: (i) all of Borrower's
indebtedness and obligations to Creditor, whether presently existing or arising
in the future under or relating to the Subordinated Security Agreement and
Subordinated Note (collectively, the "Subordinated Debt") to Borrower's
indebtedness and obligations to Bank up to $3,000,000.00 plus cost of collecting
such obligations (including attorneys' fees), including, without limitations,
all interest accruing after the commencement by or against Borrower of an
bankruptcy, reorganization or similar proceeding; and (ii) all of Creditor's
security interests, if any, to all of Bank's security interests in the
Borrower's property up to $3,000,000.00 plus cost of collecting such obligations
(including attorneys' fees), including, without limitations, all interest
accruing after the commencement by or against Borrower of an bankruptcy,
reorganization or similar proceeding. Notwithstanding anything to the contrary
contained in this definition of "Subordinated Debt", there shall be expressly
excluded from such definition (1) Warrant Agreement(s) between Borrower and the
Creditor pursuant to which Borrower granted Creditor the right to purchase
shares of its Preferred Stock ("Warrant Agreement"); and (2) all amounts due or
to become due relating to the Warrant Agreement(s), including, without
limitation, all interest and all fees, expenses and costs (including attorneys'
fees), including costs of enforcement, amounts reimbursable and other
liabilities (including interest, fees, professional fees and costs which would
become due but for the operation of the Bankruptcy Code) (collectively, the
"Excluded Agreements").
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Creditor subordinates to Bank any security interest or lien, subject
to the limit set forth herein, that Creditor may have in any property of
Borrower, other than with respect to the Excluded Agreements. Notwithstanding
the respective dates of attachment or perfection of the security interest of
Creditor and the security interest of Bank, the security interest of Bank in the
Collateral, as defined in the Loan and Security Agreement, dated as of, between
Borrower and Bank (the "Loan Agreement"), shall at all times be prior to the
security interest of Creditor.
2. On the terms and conditions set forth below, all Subordinated Debt is
subordinated in right of payment to all obligations of Borrower to Bank now
existing or hereafter arising, together with all
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<PAGE> 22
costs of collecting such obligations (including attorneys' fees), including,
without limitation, all interest accruing after the commencement by or against
Borrower of any bankruptcy, reorganization or similar proceeding, and all
obligations under the Loan Agreement not to exceed Three Million Dollars
($3,000,000.00) (the "Senior Debt") provided, that Senior Debt shall not include
obligations pursuant to agreements other than (i) Loan and Security Agreement
dated January __, 1999 between Borrower and the Bank and (ii) the Export-Import
Bank Loan and Security Agreement dated January __, 1999 between Borrower and the
Bank, incurred after acceleration of debt or the commencement of any
liquidation, dissolution, bankruptcy, receivership, or reorganization case by or
against Borrower.
Nothing herein shall be deemed to subordinate, waive or restrict the payment or
performance of the obligations arising under the Excluded Agreements or
subordinate the priority of any lien or interest in property securing or
evidenced by the Excluded Agreements, provided, however, such exclusion shall be
limited to the property securing such Excluded Agreements.
3. Subject to and except as set forth in Section 4 below, Creditor will
not demand or receive from Borrower (and Borrower will not pay to Creditor) all
or any part of the Subordinated Debt, by way of payment, prepayment, setoff,
lawsuit or otherwise, nor will Creditor exercise any remedy with respect to the
Collateral, nor will Creditor commence, or cause to commence, prosecute or
participate in any administrative, legal or equitable action against Borrower,
for so long as any portion of the Senior Debt remains outstanding.
4. (a) Notwithstanding anything to the contrary contained in Sections 2
and 3 above, but expressly subject to (b) below, Borrower shall be permitted to
make, and Creditor shall be permitted to accept or receive the following
permitted payments ("Permitted Payments"): (i) scheduled repayments of principal
when due under the Subordinated Note and Subordinated Security Agreement, (ii)
scheduled payments of accrued interest when due under the Subordinated Note and
Subordinated Security Agreement, (iii) payments of reimbursable expenses, costs
and professional fees and expenses as and when due under the Subordinated Note
and the Subordinated Security Agreement, (iv) cancellation of Subordinated Debt
in consideration of the exercise price for stock purchased by Creditor under the
Warrant Agreement, and (v) other payments consented to in writing by the Bank.
(b) Notwithstanding anything to the contrary contained in this
Section 4 or elsewhere in this Agreement, if the Bank delivers to Creditor
written notice (a "Blockage Notice") which states that either:
(i) a specific default by Borrower involving the payment of the
Senior Debt (a "Payment Default") has occurred under the Loan Agreement
and continues to exist after the giving of any required notice and the
expiration of any applicable grace or cure period, or
(ii) a specific default by Borrower not involving the payment of
Senior Debt (a "Non-Payment Default") has occurred under the Loan
Agreement and continues to exist after the giving of any required notice
and the expiration of any applicable grace or cure period, such notice
to include all such defaults in existence at the time,
then from and after the date of delivery of any such Blockage Notice, (i)
Creditor shall not accept or receive any payment of any kind of or on account of
the Subordinated Debt (including any Permitted Payment), unless and until the
earlier of (A) the time such Payment Default or Non-Payment Default shall have
been cured by Borrower or waived in writing by Bank, or (B) the expiration of
the Blockage Period (as defined below) for such Blockage Notice, and (ii)
Creditor shall disgorge any Permitted Payments received, for a period not to
exceed two (2) months during the time commencing upon the occurrence of a
Payment Default or Non-Payment Default until the date of receipt by Creditor of
such Blockage Notice.
As used herein, "Blockage Period" means a period of time beginning on
the date a Blockage Notice is delivered to Creditor and termination on the
earlier to occur of:
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<PAGE> 23
(1) 180 days following such date; provided that if, prior to the
expiration of such 180-day period, Bank has commenced a judicial
proceeding or non-judicial actions to collect or enforce the Senior Debt
or the collateral for the Senior Debt, or a case or proceeding by or
against Borrower is commenced under the federal Bankruptcy Code or any
other insolvency law, then such period shall be extended during the
continuation of such proceedings and actions under the payment in cash
or other property or securities in the full amount of the allowed claim
of the Senior Debt; or
(2) Bank's written consent to such termination.
With respect to Non-Payment Defaults, in no event shall the Blockage
Period during any period of 365 consecutive days exceed 180 days in the
aggregate, whether pursuant to one (1) Blockage Notice or multiple Blockage
Notices; provided, however, the foregoing limitation shall not apply in the
event that prior to the expiration of such 180 day period Bank has commenced a
judicial proceeding or non-judicial actions to collect or enforce the Senior
Debt or a case of proceeding by or against Borrower is commenced under the
federal Bankruptcy Code or any other insolvency law, then such period shall be
extended during the continuation of such proceedings and actions until the
payment in cash or other property or securities in the full amount of the
allowed claim of the Senior Debt. After the satisfaction of the applicable
conditions specified in (1) or (2) above, Creditor shall be entitled to receive
all Permitted Payments until Creditor's receipt of a subsequent Blockage Notice
from Bank.
5. Creditor shall promptly deliver to Bank in the form received (except
for endorsement or assignment by Creditor where required by Bank) for
application to the Senior Debt any payment, distribution, security or proceeds
received by Creditor with respect to the Subordinated Debt other than in
accordance with this Agreement.
6. In the event of Borrower's insolvency, reorganization or any case or
proceeding under any bankruptcy or insolvency law or laws relating to the relief
of debtors, these provisions shall remain in full force and effect, and Bank's
claims against Borrower and the estate of Borrower shall be paid in full before
any payment is made to Creditor.
7. For so long as any of the Senior Debt remains unpaid, Creditor
irrevocably appoints Bank as Creditor's attorney-in-fact, and grants to Bank a
power of attorney with full power of substitution, in the name of Creditor or in
the name of Bank, for the use and benefit of Bank, without notice to Creditor,
in any bankruptcy, insolvency or similar proceeding involving Borrower to (i)
file the appropriate claim or claims in respect of the Subordinated Debt on
behalf of Creditor if (a) Creditor does not do so prior to 30 days before the
expiration of the time to file claims in such proceeding, and (b) if Bank
elects, in its sole discretion, to file such claim or claims and (ii) accept or
reject any plan or reorganization or arrangement on behalf of Creditor and to
otherwise vote Creditor's claims in respect of any Subordinated Debt in any
manner that Bank deems appropriate for the enforcement of its rights hereunder
if Creditor does not accept, reject or otherwise vote its claims within fifteen
(15) days of receipt of written notice from Bank of its intent to do so on
behalf of Creditor.
8. Creditor shall immediately affix a legend to the instruments
evidencing the Subordinated Debt stating that the instruments are subject to the
terms of this Agreement. No amendment of the documents evidencing or relating to
the Subordinated Debt shall directly or indirectly modify the provisions of this
Agreement in any manner which might terminate or impair the subordination of the
Subordinated Debt or the subordination of the security interest or lien that
Creditor may have in any property of Borrower. By way of example, such
instruments shall not be amended to (i) increase the rate of interest with
respect to the Subordinated Debt, or (ii) accelerate the payment of the
principal or interest or any other portion of the Subordinated Debt.
9. This Agreement shall remain effective for so long as Borrower owes
any amounts to Bank under the Loan Agreement or otherwise in an amount not to
exceed the Senior Debt. If, at any time after payment in full of the Senior Debt
any payments of the Senior Debt must be disgorged by Bank for any reason
(including, without limitation, the bankruptcy of Borrower), this Agreement and
the relative rights and priorities set forth herein shall be reinstated as to
all such disgorged payments as
-3-
<PAGE> 24
though such payments had not been made and Creditor shall immediately pay over
to Bank all payments received with respect to the Subordinated Debt to the
extent that such payments would have been prohibited hereunder. At any time and
from time to time, without notice to Creditor, Bank may take such actions with
respect to the Senior Debt as Bank, in its sole discretion, may deem
appropriate, including, without limitation, terminating advances to Borrower,
increasing the principal amount in an amount not to exceed $3,000,000.00,
extending the time of payment, increasing applicable interest rates, renewing,
compromising or otherwise amending the terms of any documents affecting the
Senior Debt and any collateral securing the Senior Debt, and enforcing or
failing to enforce any rights against Borrower or any other person. Creditor
waives the benefits, if any, of any statutory or common law rule that may permit
a subordinating creditor to assert any defenses of a surety or guarantor, or
that may give the subordinating creditor the right to require a senior creditor
to marshal assets, and Creditor agrees that it shall not assert any such
defenses or rights.
10. This Agreement shall bind any successors or assignees of Creditor
and shall benefit any successors or assigns of Bank. This Agreement is solely
for the benefit of Creditor and Bank and not for the benefit of Borrower or any
other party. Creditor further agrees that if Borrower is in the process of
refinancing a portion of the Senior Debt with a new lender, and if Bank makes a
request of Creditor, Creditor shall agree to enter into a new subordination
agreement with the new lender on substantially the terms and conditions of this
Agreement.
11. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one
instrument. This Agreement shall become effective only when it shall have been
executed by Creditor and Bank (provided, however, in no event shall this
Agreement become effective until signed by an officer of Bank in California).
12. This Agreement shall be governed by and construed in accordance with
the laws of the State of California without giving effect to conflicts of law
principles. Creditor and Bank submit to the exclusive jurisdiction of the state
and federal courts located in Santa Clara County, California. CREDITOR AND BANK
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN.
13. This Agreement represents the entire agreement with respect to the
subject matter hereof, and supersedes all prior negotiations, agreements and
commitments. Creditor is not relying on any representations by Bank or Borrower
in entering into this Agreement, and Creditor has kept and will continue to keep
itself fully apprised of the financial and other condition of Borrower. This
Agreement may be amended only by written instrument signed by Creditor and Bank.
14. In the event of any legal action to enforce the rights of a party
under this Agreement, the party prevailing in such action shall be entitled, in
addition to such other relief as may be granted, all reasonable costs and
expenses, including reasonable attorneys' fees, incurred in such action.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
"CREDITOR" "BANK"
COMDISCO, INC. SILICON VALLEY BANK,
By: /s/ JILL C. HANSES By: /s/ TIMOTHY M. WALSH
------------------------------- -------------------------------
Title: Senior Vice President Title: Vice President
---------------------------- ----------------------------
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<PAGE> 25
THE UNDERSIGNED APPROVES OF THE TERMS OF THIS AGREEMENT.
"BORROWER"
PACKETEER, INC.
By: /s/ Brett D. Galloway
-------------------------------
Title: Chief Operating Officer
----------------------------
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<PAGE> 26
SUBORDINATED PROMISSORY NOTE
$2,500,000 DATE: JANUARY 29, 1999
DUE: the earlier of (i) February
1, 2002 or (ii) sixty (60) days
after the effective date of
Borrower's initial public offering.
FOR VALUE RECEIVED, Packeteer, Inc., a Delaware corporation (the "Borrower"),
hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation
(the "Lender"), at P.O. Box 91744, Chicago, IL 60693 or such other place of
payment as the holder of this Secured Promissory Note (this "Note") may specify
from time to time in writing, in lawful money of the United States of America,
the principal amount of Two Million Five Hundred Thousand and 00/100 Dollars
($2,500,000.00) together with interest at twelve and one quarter percent
(12.25%) per annum from the date of this Note to maturity of each installment on
the principal hereof remaining from time to time unpaid, such principal and
interest to be paid in 1 monthly installment of interest only of $27,222.22,
commencing March 1, 1999, followed by 5 monthly installments of interest only of
$25,520.83 each, commencing April 1, 1999 and on the same day of each month
thereafter to and including August 1, 1999, followed by thirty (30) equal
monthly installments of $97,165.39 each, commencing September 1, 1999 and on the
same day of each month thereafter to and including February 1, 2002, such
installments to be applied first to accrued and unpaid interest and the balance
to unpaid principal or sixty (60) days after the effective date of Borrower's
initial public offering. Interest shall be computed on the basis of a year
consisting of twelve months of thirty days each.
This Note is the Note referred to in, and is executed and delivered in
connection with, that certain Subordinated Loan and Security Agreement dated as
of January 21, 1999 by and between Borrower and Lender (as the same may from
time to time be amended, modified or supplemented in accordance with its terms,
the "Loan Agreement"), and is entitled to the benefit and security of the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement), to
which reference is made for a statement of all of the terms and conditions
thereof. All terms defined in the Loan Agreement shall have the same definitions
when used herein, unless otherwise defined herein.
THIS NOTE IS EXPRESSLY SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION
AGREEMENT BY AND BETWEEN LENDER AND BORROWER FOR THE BENEFIT OF SENIOR CREDITOR.
IN THE EVENT OF ANY CONTRADICTION OR INCONSISTENCY BETWEEN THIS NOTE AND THE
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<PAGE> 27
SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL.
The Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest and any other notice as permitted under the UCC or
any applicable law.
This Note has been negotiated and delivered to Lender and is payable in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. This Note shall be governed by and construed and enforced
in accordance with, the laws of the State of Illinois, excluding any conflicts
of law rules or principles that would cause the application of the laws of any
other jurisdiction.
BORROWER: PACKETEER, INC.
10495 N. De Anza Blvd.
Cupertino, CA 95014
Signature: /s/ BRETT D. GALLOWAY
-------------------------
Print Name: Brett D. Galloway
------------------------
Title: Chief Operating Officer
-----------------------------
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<PAGE> 28
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY
THIS WARRANT ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF
PACKETEER, INC. AND/OR STOCKHOLDERS, AS PROVIDED IN THE BYLAWS OF THE
CORPORATION.
WARRANT AGREEMENT
To Purchase Shares of the Series D Preferred Stock of
PACKETEER, INC.
Dated as of January 21, 1999 (the "Effective Date")
WHEREAS, Packeteer, Inc., a Delaware corporation (the "Company") has
entered into a Subordinated Loan and Security Agreement dated as of January 21,
1999, and related Subordinated Promissory Note(s) (collectively, the "Loans")
with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Loans, the right to purchase shares of its Series D Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loans and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 97,765 fully paid and
non-assessable shares of the Company's Series D Preferred Stock ("Preferred
Stock") at a purchase price of $3.58 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i)
seven (7) years or (ii) three (3) years from the effective date of the Company's
initial public offering, whichever is shorter.
(b) Notwithstanding the term of this Warrant fixed pursuant to Section
2(a) hereof, the right to purchase Preferred Stock as granted herein shall
expire, if not previously exercised, immediately upon the closing of either the
sale of all or substantially all of the assets of the Company or a merger or
consolidation or reorganization of the Company as set forth in article IV
C.3.(b) of the Company's Amended and Restated Certificate of Incorporation (the
"Accelerating Transaction"). The Company shall provide written notice to
Warrantholder at least ten (10) days prior to the closing of the Accelerating
Transaction. If Warrantholder exercises the Warrant after notice of the
Accelerating Transaction and such Accelerating Transaction does not occur.
Warrantholder may rescind any exercise of the purchase rights within five (5)
days after notice of termination of the Accelerating Transaction.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part (no more than 2 parts), at any time,
or from time to time, prior to the expiration of the term set forth in
- 1 -
<PAGE> 29
Section 2 above, by tendering to the Company at its principal office a notice of
exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"),
duly completed and executed. Promptly upon receipt of the Notice of Exercise and
the payment of the purchase price in accordance with the terms set forth below,
and in no event later than twenty-one (21) days thereafter, the Company shall
issue to the Warrantholder a certificate for the number of shares of Preferred
Stock purchased and shall execute the acknowledgment of exercise in the form
attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the
number of shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued
to the Warrantholder.
Y = the number of shares of Preferred Stock requested
to be exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred
Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's
Registration Statement relating to such public offering has been
declared effective by the SEC, then the fair market value per share
shall be the product of (x) the initial "Price to Public" specified in
the final prospectus with respect to the offering and (y) the number of
shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection
with the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market
value shall be deemed to be the product of (x) the average of
the closing prices over a twenty-one (21) day period ending
three days before the day the current fair market value of the
securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise; or
(b) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the average of
the closing bid and asked prices quoted on the NASDAQ National
Market system (or similar system) over the twenty-one (21) day
period ending three days before the day the current fair market
value of the securities is being determined and (y) the number
of shares of Common Stock into which each share of Preferred
Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted on the NASDAQ National Market System or
the over-the-counter market, the current fair market value of Preferred
Stock shall be the product of (x) the highest price per share which the
Company could obtain from a willing buyer (not a current employee or
director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board
of Directors and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such
exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not
the surviving party, in which case the fair market value of Preferred
Stock shall be deemed to be the value received by the holders of the
Company's Preferred Stock on a common equivalent basis pursuant to such
merger or acquisition.
- 2 -
<PAGE> 30
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
Authorization and Reservation of Shares. During the term of this Warrant
Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant with respect to the rights and interest of the
Warrantholder after the Merger Event to the end that the provisions of this
Warrant (including adjustments of the Exercise Price and number of shares of
Preferred Stock purchasable) shall be applicable to the greatest extent
possible. Notwithstanding this subparagraph 8(a), the term of this Warrant shall
be limited as described in subparagraph 2(b) hereof.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, this Warrant shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities which were subject to the purchase
rights under this Warrant Agreement immediately prior to such combination,
reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the
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<PAGE> 31
Company's stock, then the Exercise Price shall be adjusted, from and after the
record date of such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction (i) the numerator of which shall be the total number of all shares
of the Company's stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of all
shares of the Company's stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Preferred
Stock (calculated to the nearest whole share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Preferred Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Right to Purchase Additional Stock. If the Company has not paid any
Subordinated Promissory Note(s) entered into pursuant to the Loan(s) in its
entirety by the Maturity Date (as defined in the applicable Subordinated
Promissory Note(s)), then for each additional month, or portion thereof,
thereafter that the outstanding principal is not paid, Warrantholder shall have
the right to purchase from the Company, at the Exercise Price (adjusted as set
forth herein), an additional number of shares of Preferred Stock which number
shall be determined by (i) multiplying the outstanding principal amount which
due but unpaid by 1% and (ii) dividing the product thereof by the Exercise
Price.
(f) Antidilution Rights. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit ___ (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with the same notice provided to holders of the Series D Preferred
Stock as set forth in the Charter, if any, written notice of any issuance of its
stock or other equity security to occur after the Effective Date of this
Warrant, which notice shall be in the form of a Certificate of Adjustment to be
delivered pursuant to Article IV Section 4(k) of the Charter.
(g) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder the
same notice provided to holders of the Series D Preferred Stock as set forth in
the Charter, if any.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant, will be validly
issued, fully paid and non-assessable, and will be free of any taxes, liens,
charges or encumbrances of any nature whatsoever; provided, however, that the
Preferred Stock issuable pursuant to this Warrant may be subject to restrictions
on transfer under the Company's By Laws, state and/or Federal securities laws.
The Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of this Warrant shall be made without
charge to the Warrantholder for any issuance tax in respect thereof, or other
cost incurred by the Company in connection with such exercise and the related
issuance of shares of Preferred Stock. The Company shall not be required to pay
any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant and the performance of all obligations of the Company hereunder,
including the issuance to Warrantholder of the right to acquire the shares of
Preferred Stock, have been duly authorized by all necessary corporate action on
the part of the Company, and the Loans and this Warrant Agreement do not violate
the Company's Charter or Bylaws, do not contravene any law or governmental rule,
regulation or order applicable to it, do not and will not contravene any
provision of, or constitute a default under, any material indenture, mortgage,
contract or other instrument to which it is a party or by which it is bound, and
the Loans and this Warrant Agreement constitute legal, valid and binding
agreements of the Company, enforceable in accordance with their respective terms
Subject to applicable bankruptcy and insolvency and other similar laws affecting
the rights of creditors generally and, rules of law concerning equitable
remedies and public policy concerns.
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<PAGE> 32
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant, except for the filing of notices pursuant to Regulation D under
the 1933 Act and any filing required by applicable state securities law, which
filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
(i) The authorized capital of the Company consists of (A)
40,000,000 shares of Common Stock, of which 9,722,842 shares are issued
and outstanding, (B) 13,703,287 shares of Preferred Stock, of which
12,391,001 shares are issued and are as of the date hereof outstanding
and are convertible into 12,391,001 shares of Common Stock.
(ii) The Company has reserved 6,418,300 shares of Common Stock
for issuance under its 1996 Equity Incentive Plan (the "Plan"), of which
options to purchase 6,152,300 shares have been granted with 4,740,425 of
such options having been exercised. The Company has repurchased 783,583
shares of its Common Stock issued under the Plan. There are 265,500
options granted outside the plan, 6,000 of these options have been
exercised. A warrant to purchase 42,000 shares of Series B preferred
stock has been issued to Comdisco, and a warrant to purchase 15,863
shares of Series D preferred stock has been issued to Comdisco. There
are no other options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any authorized
but unissued shares of the Company's capital stock or other securities
of the Company.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof.
(g) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule if the Company is in compliance with such
Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. This Warrant or the Preferred Stock issuable
upon exercise of the Warrantholder's rights contained herein will be acquired
for investment and not with a view to the sale or distribution of any part
thereof and the Warrantholder has no present intention of selling or engaging in
any public distribution of the same except pursuant to a registration or
exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of this Warrant or the Preferred Stock issuable
upon exercise of the Warrantholder's rights contained herein unless and until
(i) it shall have notified the Company of the proposed disposition and obtained
the Company's prior written consent to such transfer, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion
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<PAGE> 33
of counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of this Warrant or Preferred Stock issuable on the exercise of
the Warrantholder's rights contained herein do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof and
the Company's Charter and Bylaws, this Warrant and all rights hereunder are
transferable in whole or in part by the Warrantholder and any successor
transferee, provided, however, in no event shall the number of transfers of the
rights and interests in all of the Warrants exceed one (1) transfer. The
transfer shall be recorded on the books of the Company upon receipt by the
Company of a notice of transfer in the form attached hereto as Exhibit III (the
"Transfer Notice"), at its principal offices and the payment to the Company of
all transfer taxes and other governmental charges imposed on such transfer. The
Company shall have the right to refuse to transfer any portion of this Warrant
to any person who is a competitor of the Company or who is not an accredited
investor under the 1933 Act.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant shall be construed
and shall be given effect in all respects as if it had been executed and
delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant.
(c) Governing Law. This Warrant shall be governed by and construed for
all purposes under and in accordance with the laws of the State of California.
(d) Counterparts. This Warrant may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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<PAGE> 34
(e) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission with receipt of confirmation (provided that the original
is sent by personal delivery or mail as hereinafter set forth) or seven (7) days
after deposit in the United States mail, by registered or certified mail,
addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois
60018, attention: James Labe, Venture Group, cc: Legal Department, attn: General
Counsel, (and/or, if by facsimile, (847) 518-5465 and (847) 518-5088) and (ii)
to the Company at 10495 N. De Anza Blvd., Cupertino, CA 95014, attention: CFO
(and/or if by facsimile, (408) 873-4410, cc: Cooley Godward, 1 Maritime Plaza,
San Francisco, CA 94111, Attn: Karyn Smith, or if by facsimile (415) 951-3699 or
at such other address as any such party may subsequently designate by written
notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this Warrant shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
valid, legal and enforceable provision, which comes closest to the intention of
the parties underlying the invalid, illegal or unenforceable provision.
(j) Amendments. Any provision of this Warrant may be amended by a
written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
COMPANY: PACKETEER, INC.
By: /s/ Brett D. Galloway
-------------------------------
Title: Chief Operating Officer
----------------------------
WARRANTHOLDER: COMDISCO, INC.
By: /s/ Jill C. Hanses
-------------------------------
Title: Senior Vice President
----------------------------
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<PAGE> 35
EXHIBIT I
NOTICE OF EXERCISE
TO: _______________________
(1) The undersigned Warrantholder hereby elects to purchase _________ shares
of the Series _______ Preferred Stock of _________, pursuant to the
terms of the Warrant Agreement dated the ____ day of ______ , 19__ (the
"Warrant Agreement") between __________________ and the Warrantholder,
and tenders herewith payment of the purchase price for such shares in
full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series _________ Preferred
Stock of ____________, the undersigned hereby confirms and acknowledges
the investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series _______ Preferred Stock in the name of the undersigned or in such
other name as is specified below.
______________________________
(Name)
______________________________
(Address)
WARRANTHOLDER: COMDISCO, INC.
By:___________________________
Title:________________________
Date:_________________________
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<PAGE> 36
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ____________________, hereby acknowledge receipt of the
"Notice of Exercise" from Comdisco, Inc., to purchase _______ shares of the
Series _______ Preferred Stock of ____________________, pursuant to the terms of
the Warrant Agreement, and further acknowledges that _______ shares remain
subject to purchase under the terms of the Warrant Agreement.
COMPANY:
By:___________________________
Title:________________________
Date:_________________________
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<PAGE> 37
EXHIBIT III
TRANSFER NOTICE
(TO TRANSFER OR ASSIGN THE FOREGOING WARRANT AGREEMENT EXECUTE THIS FORM AND
SUPPLY REQUIRED INFORMATION. DO NOT USE THIS FORM TO PURCHASE SHARES.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
________________________________________________________________
(Please Print)
whose address is________________________________________________
________________________________________________________________
Dated:_________________________________
Holder's Signature:____________________
Holder's Address:______________________
Signature Guaranteed: _______________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing Warrant Agreement.
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<PAGE> 1
M A S T E R L E A S E A G R E E M E N T
MASTER LEASE AGREEMENT (the "Master Lease") dated June 3, 1997 by and between
COMDISCO, INC. ("Lessor") and PACKETEER, INC. Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear from
any liens or encumbrances of any kind (except any caused by Lessor) and will
indemnify and hold the Owner, Lessor, any Assignee and Secured Party harmless
from and against any loss caused by Lessee's failure to do so, except where such
is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the Assignee
and any Secured Party. However, any assignment, sale, or other transfer by
Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The Secured
Party will not disturb Lessee's quiet and peaceful possession and unrestricted
use of the Equipment so long as Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured Party,
despite any defense or claim which it has against Lessor. Lessee reserves its
right to have recourse directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts due hereunder is absolute and
unconditional and is not subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all such property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided
re-certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not contravene any law or governmental rule, regulation or order
applicable to it, do not and will not contravene any provision of, or constitute
a default under, any indenture, mortgage, contract or other instrument to which
it is a party or by which it is bound, and the Master Lease and each Schedule
constitute legal, valid and binding agreements of the Lessee, enforceable in
accordance with their terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and rules of law
concerning equitable remedies.
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<PAGE> 2
(c) There are no actions, suits, proceedings or patent claims pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee in any court
or before any governmental commission, board or authority which, if adversely
determined, will have a material adverse effect on the ability of the Lessee to
perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the Lessee
will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is a
party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the Equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if
that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule or
the material inaccuracy of any representation or warranty made by the Lessee in
the Schedule or in any document or certificate furnished to the Lessor hereunder
if that failure or inaccuracy continues for ten (10) business days after written
notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee
or the filing against Lessee of any petition under any bankruptcy or insolvency
law or for the appointment of a trustee or other officer with similar powers,
the adjudication of Lessee as insolvent, the liquidation of Lessee, or the
taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary Equipment
Schedule or other agreement between Lessee and Lessor or its Assignee or Secured
Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and recover the
present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE
OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF
LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise
dispose of all or any part of the Equipment at a public or private sale for cash
or credit with the privilege of purchasing the Equipment. The proceeds from any
sale, lease or other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the Default
Costs; or
(b) if leased, the present value (discounted at 3 percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting. Lessee will provide Lessor with a certified copy of the
minutes of each Board of
-2-
<PAGE> 3
Directors meeting within thirty (30) days following the date of such meeting
held during the term of this Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to constitute
a waiver of compliance with any representation, warranty or covenant contained
in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach
of any provision of this Master Lease or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit of
Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (2) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease or
any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master Lease,
provide Lessor with a secretary's certificate of incumbency and authority. Upon
the execution of each Schedule with a purchase price in excess of $1,000,000,
Lessee will provide Lessor with an opinion from Lessee's counsel in a form
acceptable to Lessor regarding the representations and warranties in Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby agrees that
Lessor shall not, by virtue of its entering into this Master Lease, be required
to remit any payments to any manufacturer or other third party until Lessee
accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is located.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
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<PAGE> 4
MERGER - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
RENT - means the rent Lessee will pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor summarizing
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
PACKETEER, INC., COMDISCO, INC.,
as Lessee as Lessor
By: /s/ BRETT D. GALLOWAY By: /s/ JAMES P. LABE
------------------------------- ---------------------------------
Title: Chief Operating Officer Title: President
---------------------------- ------------------------------
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<PAGE> 5
EQUIPMENT SCHEDULE VL-1
DATED AS OF JUNE 3, 1997
TO MASTER LEASE AGREEMENT
DATED AS OF JUNE 3, 1997 THE "MASTER LEASE")
LESSEE: PACKETEER, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
Brett Galloway 6111 North River Road
408/364-0197 Rosemont, Illinois 60018
408-364-0193 Attn.: Venture Group
Address for Notices:
307 Orchard City Drive
Suite 305
Campbell, CA 95008
Central Billing Location: Rent Interval: Monthly
same as above
Attn.:
Lessee Reference No.:__________________
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
same as above (Number of Rent Intervals)
Lease Rate Factor: 2.370%
Attn.:
EQUIPMENT (as defined below): Advance: $21,631.66
Equipment (including $96,520 of software) specifically approved by Lessor, which
shall be delivered to and accepted by Lessee during the period June 3, 1997,
through March 31, 1998 ("Equipment Delivery Period"), for which Lessor receives
vendor invoices approved for payment, up to an aggregate purchase price of
$912,728.55 ("Commitment Amount"); excluding custom use equipment, leasehold
improvements, installation costs and delivery costs, rolling stock, special
tooling, hand held items, molds and fungible items.
<PAGE> 6
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in an aggregate value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii), (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgment at the time Lessor acquires the Equipment that Lessee has either
received or approved the relevant purchase documentation between vendor and
Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
obtained from a vendor by Lessee for its use subject to Lessor's
prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than July 3, 1997
(*). Lessor will not perform a Sale-Leaseback Transaction for any
request or accompanying Equipment ownership documents which arrive
after the date marked above by an asterisk (*). Further, any sale-
leaseback Equipment will be placed on lease subject to: (1) Lessor
prior approval of the Equipment; and (2) if approved, at 100% of
Lessor's actual net Equipment cost.
Lessee represents that it has paid all California sales tax due on the cost of
that portion of Equipment to be installed in California and agrees to provide
evidence of such payment to Lessor, if specifically requested. As a result of
the election, Lessor agrees that it will not invoice Lessee for use tax on the
monthly rental rate. Lessee understands that this is an irrevocable election to
measure the tax by the Equipment cost and cannot be changed except prior to
installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct
Service, Lessor will purchase new or used Equipment from a third
party or Lessor will supply new or used Equipment from its
inventory for use by Lessee at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute an
original document. The Commencement Date for sale-leaseback Equipment shall be
the date Lessor tenders the purchase price to Lessee. The Commencement Date for
800 Number Equipment shall be fifteen (15) days from the ship date (provided
Lessee has not notified Lessor that the 800 Number Equipment has been delivered
and is inoperable), such ship date to be set forth on the vendor invoice or if
unavailable on the vendor invoice the ship date will be determined by Lessor
upon other supporting shipping documentation. Lessor will summarize all approved
invoices, purchase documentation and evidence of delivery and acceptance, as
applicable, received in the same calendar month into a Summary Equipment
Schedule in the form attached to this Schedule as Exhibit 1, and the Initial
Term will begin the first day of the calendar month thereafter. Each Summary
Equipment Schedule will contain the Equipment location, description, serial
number(s) and cost and will incorporate the terms and conditions of the Master
Lease and this Schedule and will constitute a separate lease.
<PAGE> 7
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
sixty (60) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Summary Equipment Schedule shall
continue in full force and effect pursuant to the existing terms and conditions
until terminated in accordance with its terms. The Summary Equipment Schedule
will continue in effect following said extended period until terminated by
either party upon not less than sixty (60) days prior written notice, which
notice shall be effective as of the date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed 12% of the Equipment Cost hereunder and upon terms
and conditions to be mutually agreed upon by the parties following Lessee's
written notice, plus any taxes applicable at time of purchase. Said purchase
price shall be paid to Lessor at least thirty (30) days before the expiration
date of the Initial Term or extended term. Title to the Equipment shall
automatically pass to Lessee upon payment in full of the purchase price but, in
no event, earlier than the expiration of the fixed Initial Term or extended
term, if applicable. If the parties are unable to agree on the purchase price or
the terms and conditions with respect to said purchase, then the Summary
Equipment Schedule with respect to this Equipment shall remain in full force and
effect. Notwithstanding the exercise by Lessee of this option and payment of the
purchase price, until all payment obligations under the applicable Summary
Equipment Schedule have been fulfilled, it is agreed and understood that Lessor
shall retain a purchase money security interest in the Equipment listed therein
and the Summary Equipment Schedule shall constitute a Security Agreement under
the Uniform Commercial Code of the state in which the Equipment is located.
5. TECHNOLOGY EXCHANGE OPTION
If Lessee is not in default, and there is no material adverse change in
Lessee's credit, on or after the expiration of the 12th month of any Summary
Equipment Schedule, Lessee shall have the option to replace any of the Equipment
subject to such summary Equipment Schedule with new technology equipment ("New
Technology Equipment") utilizing the following guidelines:
1. Equipment being replaced with New Technology Equipment shall have an original
cost equal to or greater than $20,000 and be comprised of full configurations of
equipment.
2. This technology Exchange Option shall be limited to a maximum in the
aggregate of fifty percent (50%) of the original equipment cost and shall not
apply to software.
3. The cost of the New Technology Equipment must be equal to or greater than the
original equipment cost of the replaced equipment, but in no event shall exceed
150% of the original equipment cost.
4. The remaining lease payments applicable to the equipment being replaced by
the New Technology Equipment will be discounted to present value at 6%.
The wholesale market value of the equipment being replaced will be established
by Lessor based upon then current market conditions. Upon request of Lessee,
Lessor will consider permitting Lessee to sell the equipment. Upon the return of
the replaced equipment, the wholesale price will be deducted from the present
value of the remaining rentals and the differential will be added to the cost of
the New Technology Equipment in calculating the new rental. The lease for the
New Technology Equipment will contain terms and conditions substantially similar
to those for the replaced equipment and will have an Initial Term not less than
the balance of the remaining Initial Term for the replaced equipment.
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<PAGE> 8
6. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
PACKETEER, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ BRETT D. GALLOWAY By: /s/ JAMES P. LABE
------------------------------- --------------------------------
Title: Chief Operating Officer Title: President
---------------------------- -----------------------------
Date: 6-5-97 Date: 6-10-97
----------------------------- ------------------------------
<PAGE> 9
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
<PAGE> 10
EQUIPMENT SCHEDULE VL-2
DATED AS OF JUNE 16, 1998
TO MASTER LEASE AGREEMENT
DATED AS OF JUNE 3, 1997 THE ("MASTER LEASE")
LESSEE: PACKETEER, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
Brett Galloway 6111 North River Road
408/873-4400 Rosemont, Illinois 60018
408-873-4410 Attn.: Venture Group
Address for Notices:
10495 N. De Anza Blvd.
Cupertino, CA 95014
Central Billing Location: Rent Interval: Monthly
same as above
Attn.:
Lessee Reference No.:_____________
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
same as above (Number of Rent Intervals)
Lease Rate Factor: 2.370%
Attn.:
EQUIPMENT (as defined below): Advance: $23,700.00
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the 12 month period beginning on the later of (i) July
1, 1998 or (ii) the closing date of the Series D Preferred Stock Financing of
$6,000,000 or greater (the "Financing") ("Equipment Delivery Period"), for which
Lessor receives vendor invoices approved for payment, up to an aggregate
purchase price of $1,00,000.00 ("Commitment Amount") made available upon the
closing of the Financing and upon issuance of a Warrant in the form attached
hereto as Exhibit 2 for that number of shares equal to $62,500 divided by the
Exercise Price which shall equal the price per share paid by investors in the
Financing ; excluding custom use equipment, leasehold improvements, installation
costs and delivery costs, rolling stock, special tooling"standalone software,
application software bundled into computer hardware, hand held items, molds and
fungible items.
<PAGE> 11
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in an aggregate value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii), (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgment at the time Lessor acquires the Equipment that Lessee has either
received or approved the relevant purchase documentation between vendor and
Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which
is obtained from a vendor by Lessee for its use subject to
Lessor's prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership
may be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than 30 days from
the Equipment Delivery Period commencement date (*). Lessor will
not perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after the
date marked above by an asterisk (*). Further, any sale-leaseback
Equipment will be placed on lease subject to: (1) Lessor prior
approval of the Equipment; and (2) if approved, at 100 % of
Lessor's actual net Equipment cost.
Lessee represents that it has paid all California sales tax due on the cost of
that portion of Equipment to be installed in California and agrees to provide
evidence of such payment to Lessor, if specifically requested. As a result of
the election, Lessor agrees that it will not invoice Lessee for use tax on the
monthly rental rate. Lessee understands that this is an irrevocable election to
measure the tax by the Equipment cost and cannot be changed except prior to
installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct
Service, Lessor will purchase new or used Equipment from a third
party or Lessor will supply new or used Equipment from its
inventory for use by Lessee at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute an
original document. The Commencement Date for sale-leaseback Equipment shall be
the date Lessor tenders the purchase price to Lessee. The Commencement Date for
800 Number Equipment shall be fifteen (15) days from the ship date (provided
Lessee has not notified Lessor that the 800 Number Equipment has been delivered
and is inoperable), such ship date to be set forth on the vendor invoice or if
unavailable on the vendor invoice the ship date will be determined by Lessor
upon other supporting shipping documentation. Lessor will summarize all approved
invoices, purchase documentation and evidence of delivery and acceptance, as
applicable, received in the same calendar month into a Summary Equipment
Schedule in the form attached to this Schedule as Exhibit 1, and the Initial
Term will begin the first day of the calendar month thereafter. Each Summary
Equipment Schedule will contain the Equipment location, description, serial
number(s) and cost and will incorporate the terms and conditions of the Master
Lease and this Schedule and will constitute a separate lease.
<PAGE> 12
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
sixty (60) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event, the
rent to be paid during said extended period shall be mutually agreed upon and if
the parties cannot mutually agree, then the Summary Equipment Schedule shall
continue in full force and effect pursuant to the existing terms and conditions
until terminated in accordance with its terms. The Summary Equipment Schedule
will continue in effect following said extended period until terminated by
either party upon not less than sixty (60) days prior written notice, which
notice shall be effective as of the date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed 15% of the Equipment Cost hereunder and upon terms
and conditions to be mutually agreed upon by the parties following Lessee's
written notice, plus any taxes applicable at time of purchase. Said purchase
price shall be paid to Lessor at least thirty (30) days before the expiration
date of the Initial Term or extended term. Title to the Equipment shall
automatically pass to Lessee upon payment in full of the purchase price but, in
no event, earlier than the expiration of the fixed Initial Term or extended
term, if applicable. If the parties are unable to agree on the purchase price or
the terms and conditions with respect to said purchase, then the Summary
Equipment Schedule with respect to this Equipment shall remain in full force and
effect. Notwithstanding the exercise by Lessee of this option and payment of the
purchase price, until all payment obligations under the applicable Summary
Equipment Schedule have been fulfilled, it is agreed and understood that Lessor
shall retain a purchase money security interest in the Equipment listed therein
and the Summary Equipment Schedule shall constitute a Security Agreement under
the Uniform Commercial Code of the state in which the Equipment is located.
5. TECHNOLOGY EXCHANGE OPTION
If Lessee is not in default, and there is no material adverse change in
Lessee's credit, on or after the expiration of the 12th month of any Summary
Equipment Schedule, Lessee shall have the option to replace any of the Equipment
subject to such summary Equipment Schedule with new technology equipment ("New
Technology Equipment") utilizing the following guidelines:
1. Equipment being replaced with New Technology Equipment shall have an original
cost equal to or greater than $20,000 and be comprised of full configurations of
equipment.
2. This technology Exchange Option shall be limited to a maximum in the
aggregate of fifty percent (50%) of the original equipment cost and shall not
apply to software.
3. The cost of the New Technology Equipment must be equal to or greater than the
original equipment cost of the replaced equipment, but in no event shall exceed
150% of the original equipment cost.
4. The remaining lease payments applicable to the equipment being replaced by
the New Technology Equipment will be discounted to present value at 6%.
The wholesale market value of the equipment being replaced will be established
by Lessor based upon then current market conditions. Upon request of Lessee,
Lessor will consider permitting Lessee to sell the equipment. Upon the return of
the replaced equipment, the wholesale price will be deducted from the present
value of the remaining rentals and the differential will be added to the cost of
the New Technology Equipment in calculating the new rental. The lease for the
New Technology Equipment will contain terms and conditions substantially similar
to those for the replaced equipment and will have an Initial Term not less than
the balance of the remaining Initial Term for the replaced equipment.
<PAGE> 13
6. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
PACKETEER, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ BRETT D. GALLOWAY By: /s/ JAMES P. LABE
------------------------------- --------------------------------
Title: Chief Operating Officer Title: President
---------------------------- -----------------------------
Date: 6-30-98 Date: 7-2-98
----------------------------- ------------------------------
<PAGE> 14
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
<PAGE> 15
EQUIPMENT SCHEDULE VL-3
DATED AS OF JUNE 16, 1998
TO MASTER LEASE AGREEMENT
DATED AS OF JUNE 3, 1997 (THE "MASTER LEASE")
LESSEE: PACKETEER, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
Brett Galloway 6111 North River Road
Phone: 408-873-4400 Rosemont, Illinois 60018
Fax: 408-873-4410 Attn.: Venture Group
Address for Notices:
10495 N. De Anza Blvd.
Cupertino, CA 95014
Central Billing Location: Rent Interval: Monthly
same as above
Attn.:
Lessee Reference No.:_____________
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
(Number of Rent Intervals)
Lease Rate Factor: 2.370%
Attn.:
EQUIPMENT (as defined below): Advance: $5,925.00
Software specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the 12 month period beginning on the later of (i) July
1, 1998 or (ii) the closing date of the Series D Preferred Stock Financing of
$6,000,000 or greater (the "Financing") ("Equipment Delivery Period"), for which
Lessor receives vendor invoices approved for payment, up to an aggregate
purchase price of $250,000.00 ("Commitment Amount") made available upon the
closing of the Financing; excluding custom use equipment, installation costs and
delivery costs, rolling stock, special tooling, hand held items, molds and
fungible items.
-1-
<PAGE> 16
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in an aggregate value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii), (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgment at the time Lessor acquires the Equipment that Lessee has either
received or approved the relevant purchase documentation between vendor and
Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which
is obtained from a vendor by Lessee for its use subject to
Lessor's prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership
may be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than 30 days from
the Equipment Delivery Date commencement period (*). Lessor will
not perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after the
date marked above by an asterisk (*). Further, any sale-leaseback
Equipment will be placed on lease subject to: (1) Lessor prior
approval of the Equipment; and (2) if approved, at 100 % of
Lessor's actual net Equipment cost.
Lessee represents that it has paid all California sales tax due on the cost of
that portion of Equipment to be installed in California and agrees to provide
evidence of such payment to Lessor, if specifically requested. As a result of
the election, Lessor agrees that it will not invoice Lessee for use tax on the
monthly rental rate. Lessee understands that this is an irrevocable election to
measure the tax by the Equipment cost and cannot be changed except prior to
installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800 Direct
Service, Lessor will purchase new or used Equipment from a third
party or Lessor will supply new or used Equipment from its
inventory for use by Lessee at rates provided by Lessor.
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute an
original document. The Commencement Date for sale-leaseback Equipment shall be
the date Lessor tenders the purchase price to Lessee. The Commencement Date for
800 Number Equipment shall be fifteen (15) days from the ship date (provided
Lessee has not notified Lessor that the 800 Number Equipment has been delivered
and is inoperable), such ship date to be set forth on the vendor invoice or if
unavailable on the vendor invoice the ship date will be determined by Lessor
upon other supporting shipping documentation. Lessor will summarize all approved
invoices, purchase documentation and evidence of delivery and acceptance, as
applicable, received in the same calendar month into a Summary Equipment
Schedule in the form attached to this Schedule as Exhibit 1, and the Initial
Term will begin the first day of the calendar month thereafter. Each Summary
Equipment Schedule will contain the Equipment location, description, serial
number(s) and cost and will incorporate the terms and conditions of the Master
Lease and this Schedule and will constitute a separate lease.
3. MISCELLANEOUS
In consideration of Lessor financing software hereunder, Lessee agrees in
addition to its last Monthly Rent Payment to remit to Lessor an amount equal to
15% of Lessor's aggregate cost of software provided hereunder.
4. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
(a) Section 9, Delivery and Return of Equipment
-2-
<PAGE> 17
Delete second, third and fourth sentences in their entirety.
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as if they were expressly set forth in this
Schedule. The parties hereby reaffirm all of the terms and conditions of the
Lease (including, without limitation, the representations and warranties set
forth in Section 8) except as modified herein by this Schedule. This Schedule
may not be amended or rescinded except by a writing signed by both parties.
PACKETEER, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Brett D. Galloway By: /s/ James P. Labe
---------------------- ---------------------
Title: Chief Operating Officer Title: President
Date: 6-30-98 Date: 7-2-98
-3-
<PAGE> 18
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
2. Initial Term Starts on: Initial Term:
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
4. Lease Rate Factor:
5. Rent:
6. Acceptance Doc Type:
-4-
<PAGE> 19
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement"), dated as of June 3, 1997 is entered into
by and between Packeteer, Inc., a Delaware corporation having a principal place
of business at 307 Orchard City Drive, Suite 305, Campbell, CA 95008(the
"Borrower") and Comdisco, Inc., a Delaware corporation having a principal place
of business at 6111 North River Road, Rosemont, Illinois 60018 (the "Lender" ).
In consideration of the mutual agreements contained herein, the parties hereto
agree as follows:
WHEREAS, Borrower desires to borrow from the Lender hereunder the amount
of Two Hundred Eighty Seven Thousand Two Hundred Seventy-One and 45/100 DOLLARS
($287,271.45) and Lender is willing to lend said amount to Borrower on June 6,
1997 (the "Funding Date");
NOW, THEREFORE, it is agreed:
SECTION 1. THE LOAN
1.1 Subject to the terms and conditions set forth herein, Lender shall
lend to Borrower the aggregate original principal amount of Two Hundred Eighty
Seven Thousand Two Hundred Seventy-One and 45/100 DOLLARS ($287,271.45) (the
"Loan") with interest at the rate of six point seven five percent (6.75%) per
annum payable in monthly installments as set forth in the promissory note (the
"Note" ) in the form attached hereto and made a part hereof as Exhibit A, dated
June 3, 1997.
1.2 Upon the occurrence of and during an Event of Default (as defined
herein), interest shall thereafter be calculated at a rate of five percent (5%)
in excess of the rate that would otherwise be applicable ("Default Rate"). All
such interest shall be due and payable in arrears, on the first day of the
following month.
1.3 Notwithstanding any provision in this Agreement, the Note, or any
other "Loan Document" (as defined herein), it is not the parties' intent to
contract for, charge or receive interest at a rate that is greater than the
maximum rate permissible by law which a court of competent jurisdiction shall
deem applicable hereto (which under the laws of the State of Illinois shall be
deemed to be the laws relating to permissible rates of interest on commercial
loans) (the "Maximum Rate"). If the Borrower actually pays Lender an amount of
interest, chargeable on the total aggregate principal Obligations of Borrower
under this Agreement and the Note (as said rate is calculated over a period of
time that is the longer of (i) the time from the date of this Agreement through
the maturity time as set forth on the Note, or (ii) the entire period of time
that any principal is outstanding on the Note), which amount of interest exceeds
interest calculated at the Maximum Rate on said principal chargeable over said
period of time, then such excess interest actually paid by Borrower shall be
applied first, to the payment of principal outstanding on the Note; second,
after all principal is repaid, to the payment of Lender's out of pocket costs,
expenses, and professional fees which are owed by Borrower to Lender under the
Agreement or the Loan Documents; and third, after all principal, costs,
expenses, and professional fees owed by Borrower to Lender are repaid, the
excess (if any) shall be refunded to Borrower.
<PAGE> 20
1.4 In the event any interest is not paid within 10 days of the date when
due hereunder, delinquent interest shall be added to principal and shall bear
interest on interest, compounded at the rate set forth in section 1.1.
1.5 Upon and during the continuation of an Event of Default hereunder (as
defined herein), all Obligations, including principal, interest, compounded
interest, and reasonable professional fees, shall bear interest at a rate per
annum equal to the Default Rate.
1.6 Borrower shall have the option to prepay the Note, in whole or in
part, at any time after the date hereof by paying the principal amount together
with all accrued and unpaid interest with respect to such principal amount, as
of the date of such prepayment and the Balloon Payment as described in the Note
together with a prepayment premium equal to the difference, if any, between (x)
the amount being prepaid and (y) the present value, discounted at the Treasury
Rate plus 1.5%, of each installment of principal and interest being prepaid
discounted to the date of prepayment. If the amount in (x) is greater than the
amount in (y), no prepayment premium shall be due. The "Treasury Rate" shall
mean the then prevailing yield on US Treasury Constant Maturities for the most
recent business day, as quoted in the Federal Reserve Statistical Release H15,
as of the date of prepayment for an obligation of comparable maturity to the
maturity date of the Note.
SECTION 2. SECURITY INTEREST
As security for the payment of all indebtedness ("Indebtedness") of
the Borrower to the Lender hereunder and under the Note, as the same may be
renewed, extended for any period or rearranged, and the performance by the
Borrower of its other obligations hereunder (the Indebtedness and such other
obligations being hereinafter sometimes collectively referred to as the
"Obligations"), the Borrower hereby assigns to the Lender, and grants to the
Lender a first priority security interest in, all the Borrower's right, title,
and interest in and to the following property ("Collateral"): (i) the equipment
and other property (the "Equipment") described in Exhibit B attached hereto; and
(ii) all proceeds, products, replacements, additions to, substitutions for and
accessions to any and all Equipment including, without limitation, the proceeds
applicable to the insurance referred to in Section 4 hereof.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF BORROWER
The Borrower represents, warrants and agrees that:
3.1 it has good title in and to the Equipment, free of all liens, security
interests, encumbrances and claims whatsoever, except for the interest of the
Lender therein;
3.2 it has the full power and authority to, and does hereby grant and
convey to the Lender, a valid first priority security interest, to be perfected
by filing, in the Equipment as security for the Obligations, free of all liens,
security interests, encumbrances and claims, and shall execute such Uniform
Commercial Code ("UCC") financing statements in connection herewith as the
Lender may reasonably request. No other lien, security interest, adverse claim
or encumbrance has been created by Borrower or is known by Borrower to exist
with respect to any Collateral;
2
<PAGE> 21
3.3 it is a corporation duly organized, legally existing and in good
standing under the laws of the State of Delaware, and is duly qualified as a
foreign corporation in all jurisdictions where the failure to so qualify would
have a material adverse effect on the Collateral or the business of the Borrower
taken as a whole;
3.4 the execution, delivery and performance of the Note, this Agreement,
the Warrant Agreement dated June 3, 1997 pursuant to which Borrower granted to
Lender the right to purchase the number of shares of preferred stock as set
forth therein ("Warrant Agreement"), and all financing statements, certificates
and other documents required to be delivered or executed in connection herewith
(collectively, the "Loan Documents") have been duly authorized by all necessary
corporate action of Borrower, the individual or individuals executing the
Documents were duly authorized to do so, the Equipment is personal property and
as used by the Borrower will not be or become fixtures under applicable law, and
the Loan Documents constitute legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization or other similar laws
generally affecting the enforcement of the rights of creditors and rules of law
concerning equitable remedies and public policy concerns;
3.5 it shall only relocate any item of the Equipment provided that: (a) it
shall have caused to be filed and/or delivered to the Lender all UCC financing
statements, certificates or other documents or instruments necessary to continue
in effect the first prior perfected security interest of the Lender in the
Collateral, and (b) it shall have given the Lender no less than fifteen (15)
days prior written notice of such relocation;
3.6 the Loan Documents do not and will not violate any provisions of its
articles or certificate of incorporation, bylaws or any material contract,
agreement, law, regulation, order, injunction, judgment, decree or writ to which
the Borrower is subject, or result in the creation or imposition of any lien,
security interest or other encumbrance upon the Collateral, other than those
created by this Agreement;
3.7 the execution, delivery and performance of the Loan Documents do not
require the consent or approval of any other person or entity including, without
limitation, any regulatory authority or governmental body of the United States
or any state thereof or any political subdivision of the United States or any
state thereof.
SECTION 4. INSURANCE AND RISK OF LOSS
4.1 Risk of loss of, damage to or destruction of the Equipment shall be
borne by the Borrower and effective upon the Funding Date under the Note and
until the payment and performance in full of all Obligations, Borrower shall at
its own expense cause to be carried and maintained all risk casualty insurance
(covering risk of fire, theft and other such risks as the Lender may reasonably
require and as is standard in Borrower's industry, including standard and
extended coverage) with respect to each item of Equipment in an amount no less
than the replacement costs applicable to such item of Equipment during the term
of this
3
<PAGE> 22
Agreement. All policies evidencing such casualty insurance shall contain a
standard mortgagee's endorsement and shall provide for at least thirty days
prior written notice by the underwriter or insurance company to the Lender in
the event of cancellation or expiration. Borrower shall provide Lender with
insurance certificates evidencing the foregoing at time of closing.
4.2 If any item of Equipment is lost or rendered unusable as a result of
any physical damage to or destruction of such item of Equipment during the
period from the Funding Date to and including July 1, 2001 or the date all
Obligations hereunder have been fully satisfied, whichever is later, Borrower
shall give to Lender prompt notice thereof. Borrower shall determine, within
fifteen (15) days after the date of occurrence of such loss, damage or
destruction, whether such item of Equipment can be repaired and restored to the
condition in which such item of Equipment was required to be maintained as of
the date immediately preceding such damage. If Borrower determines that such
item of Equipment can be repaired, Borrower, at its expense and from any
insurance proceeds payable, whether to Borrower or Lender, on or in relation to
such Casualty Loss, shall cause such item of Equipment to be promptly repaired.
If Borrower determines that such item of Collateral is lost or cannot be
repaired, Borrower shall promptly notify the Lender and such item of Equipment
shall be deemed to have suffered a "Casualty Loss" for purposes of this Section
as of the date of the occurrence of such loss. Within fifteen (15) days
following the occurrence of any such loss, damage or destruction, Borrower shall
notify the Lender of the item(s) of Equipment which has suffered such Casualty
Loss ("Loss Item"), and within thirty (30) days thereafter (the "Settlement
Date"), Borrower shall either (a) replace such item(s) of Equipment with
reasonably similar equipment , in an operating condition and repair no less than
that required hereunder of the damaged or lost equipment immediately prior to
the date of such damage or loss, and having a fair market value no less than the
Casualty Value applicable to such Equipment as of the date immediately prior to
such damage, in which case such replacement equipment shall for all purposes
hereunder become part of the Collateral and (without limiting the preceding
provisions) Borrower shall grant to Lender a first lien and security interest in
respect of such replacement equipment pursuant to the terms of this Agreement,
and Borrower shall provide the Lender evidence satisfactory to the Lender of
Borrower's good and marketable title to such replacement equipment (free of any
liens, security interests or encumbrances other than those created by this
Agreement and Borrower shall be entitled to receive the amount of any and all
insurance or other recovery received by Lender and Borrower and Lender agree
that all insurance proceeds and other recoveries less than or equal to $250,000
shall be paid directly to Borrower for application in accordance with this
paragraph; or (b) so long as no Event of Default or event which with the giving
of notice or passage of time, or both, would constitute an Event of Default, has
occurred and is continuing, Borrower may provide substitute equipment
satisfactory to Lender to become part of the Collateral and Borrower shall grant
to Lender a first lien and security interest in respect of such substitute
equipment pursuant to the terms of this Agreement, and Borrower shall provide
the Lender evidence satisfactory to Lender of Borrower's good and marketable
title to such substitute equipment (free of any liens, security interests or
encumbrances other than created by this Agreement and Lender shall provide any
required endorsements in connection with any insurance proceeds received by
Borrower pursuant to such insurance policies; or (c) Borrower shall pay Lender
the insurance proceeds payable pursuant to such insurance policies ("Insurance
Proceeds")with respect to such Loss Item(s) and the principal amount of
4
<PAGE> 23
the Note (and interest accrued on the principal amount so prepayable) shall
become due and payable on the Settlement Date to the extent of the replacement
cost for all such Loss Item(s). Moneys so received shall be applied, on the date
of such receipt, as follows: first, to pay any accrued interest on the
outstanding principal amount of the Note on such date; second, to prepay, the
outstanding principal amount of the Note (to the extent of the fair market value
attributable to such Loss Item(s)). At the option of Borrower, the remaining
proceeds may either (i) be used to pay any other Indebtedness of amounts then
due and owing to the Lender hereunder; or (2) be paid promptly to the Borrower.
4.3 Effective upon the Funding Date under the Note and while there are any
Obligations outstanding, Borrower shall cause to be carried and maintained
comprehensive general liability insurance with regard to the Collateral against
risks customarily insured against in the Borrower's business. Such risks shall
include, without limitation, the risks of death, bodily injury and property
damage associated with the Collateral. All policies evidencing such insurance
shall provide for at least thirty (30) days prior written notice by the
underwriter or insurance company to the Lender in the event of cancellation or
expiration.
4.4 Borrower shall and does hereby indemnify and hold Lender, its agents
and shareholders harmless from and against any and all claims, costs, expenses,
damages and liabilities (including without limitation such claims, costs,
expenses, damages and liabilities based on liability in tort including without
limitation strict liability in tort) including reasonable attorneys' fees,
arising out of Borrower's ownership, possession, operation, control, use,
maintenance, delivery, or other disposition of the Collateral. Notwithstanding
the foregoing, Borrower shall not be responsible under the terms of this Section
4.4 to a party indemnified hereunder for any claims, costs, expenses, damages
and liabilities occasioned by the negligence or willful misconduct of such
indemnified party.
SECTION 5. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Obligations remain outstanding:
5.1 Borrower shall maintain the Equipment in good operating order, repair,
condition and appearance and protect the Equipment from deterioration, other
than normal wear and tear. Borrower shall not use each of the Equipment or
permit its use for any purpose other than for which it was designed. Borrower's
obligation regarding the maintenance of the Equipment shall include, without
limitation, all maintenance, repair, refurbishment and replacement recommended
or advised either by the manufacturer, or that are commonly performed by prudent
business and/or professional practice. Any exceptions or qualifications
expressed in this Agreement relating to normal or ordinary wear and tear shall
not be deemed to limit Borrower's obligations pursuant to the preceding
sentence.
5.2 In the event Borrower adds or installs any Upgrade (as hereinafter
defined) on the Equipment, at the request of Lender, Borrower shall, upon the
occurrence of an Event of Default, remove any such Upgrade and restore the
Equipment to the condition in which such Equipment is required to be maintained
hereunder as if such Upgrade had never been attached thereto. Borrower will not,
without the prior written consent of Lender and subject to
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<PAGE> 24
such conditions as Lender may impose for its protection, affix the Equipment to
any real property if, as a result thereof, the Equipment could become a fixture
under applicable law.
For purposes hereof and all Loan Documents relating hereto, the term
"Upgrade" shall mean: (i) any accessory, equipment or device manufactured or
sold by the manufacturer of the Equipment for installation on the Equipment and
installed in compliance with said manufacturer's installation procedures (other
than those added by the manufacturer in order to maintain the Equipment at
current engineering levels), or (ii) any other accessory, equipment or device
installed on the Equipment so long as such item does not impair the original
function or use of the Equipment, capable of being removed without causing
material damage to the Equipment and does not decrease the fair market value of
the Equipment. An Upgrade shall not become an accession to the Equipment. For
purposes hereof and of all Loan Documents relating hereto, the term "Equipment"
shall not be deemed to include any such Upgrade.
5.3 Upon the request of Lender on reasonable notice, Borrower shall,
during business hours, make the Equipment available to Lender for inspection at
the place where it is normally located and shall make Borrower's log and
maintenance records pertaining to the Equipment available to to Lender for
inspection. Borrower shall use its standard procedures to maintain such logs and
maintenance records in a correct and complete fashion.
5.4 Upon the request of Lender, Borrower shall cause the Equipment to be
plainly, permanently and conspicuously marked, by stenciling or by metal tag or
plate affixed thereto, indicating Lender's security interest in the Equipment.
Borrower shall replace any such stenciling, tag or plate which may be removed or
destroyed or become illegible. Borrower shall keep all Equipment free from any
marking or labeling which might be interpreted as a claim of ownership adverse
to Borrower's.
5.5 Borrower covenants and agrees to pay when due or before a penalty is
assessed thereon, all taxes, fees or other charges of any nature whatsoever
(together with any related interest or penalties) now or hereafter imposed or
assessed against Borrower, Lender in relation to the Equipment and excluding all
taxes on the capital or income of Lender or the Equipment or upon Borrower's
ownership, possession, use, operation or disposition thereof or upon Borrower's
rents, receipts or earnings arising therefrom. Borrower shall file on or before
the due date or before a penalty is assessed thereon therefor all personal
property tax returns in respect of the Equipment. Borrower shall not be liable
for any taxes, fees or charges to the extent the same result from any sale or
assignment or grant of security interest by Lender, or to the extent any such
action increases the taxes, fees or charges that would otherwise be payable.
Borrower shall have the right to contest by proper legal proceeding any taxes
levied, as agent for or in the name of Lender. Lender will cooperate in any
legal proceedings being prosecuted by Borrower with regard to any taxes, but
Borrower will pay the expenses in such litigation. Borrower shall have the right
to contest in good faith and by appropriate proceeding the validity or the
amount of taxes unless such contest would subject to collateral to forfeiture or
sale. Borrower shall have the rights to any refund received as a result of any
such contest or proceeding to the extent Borrower has previously reimbursed
Lender for such taxes
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<PAGE> 25
5.6 Borrower shall furnish to Lender the financial statements listed
hereinafter, prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
(a) as soon as practicable (and in any event within thirty (30) days)
after the end of each month: an internally prepared income statement, balance
sheet, and cash flow statement, (including the commencement of any material
litigation by or against Borrower);
(b) as soon as practicable (and in any event within ninety (90) days)
after the end of each fiscal year, audited Financial Statements, setting forth
in comparative form the corresponding figures for the preceding fiscal year, and
accompanied by any audit report and opinion of the independent certified public
accountants selected by Borrower; and
(c) promptly any additional information (including but not limited to
income statements, balance sheets, and names of principal creditors but
excluding tax returns) as Lender reasonably believes necessary to evaluate
Borrower's continuing ability to meet financial obligations.
5.7 Notwithstanding the foregoing, after the effective date of the initial
registration statement covering a public offering of Borrower's securities, the
term "Financial Statements" shall be deemed to refer to only those statements
required by the Securities and Exchange Commission, to be provided no less
frequently than quarterly. Borrower will from time to time execute, deliver and
file, alone or with Lender, any financing statements, security agreements or
other documents; and take all further action that may be necessary, or that
Lender may reasonably request, to confirm, perfect, preserve and protect the
security interests intended to be granted hereby, and in addition, and for such
purposes only, Borrower hereby authorizes Lender to execute and deliver on
behalf of Borrower and to file such financing statements, security agreement and
other documents without the signature of Borrower either in Lender's name or in
the name of Borrower as agent and attorney-in-fact for Borrower which power may
be exercised by Lender only after the occurrence and during the continuance of
an Event of Default.
5.8 Borrower shall protect and defend Borrower's title as well as the
interest of the Lender against all persons claiming any interest adverse to
Borrower or Lender and shall at all times keep the Collateral free and clear
from any material attachment or levy, liens or encumbrances whatsoever (except
any placed thereon by Lender, or any liens arising by operation of law with
respect to any obligations not yet overdue or which arise in the ordinary course
of Borrower's business or any other liens consented to in writing by Lender) and
shall give Lender immediate written notice thereof.
5.9 Upon the occurrence of an Event of Default, if Lender seeks to
foreclose on the Equipment, Borrower shall be liable for the full expense of
transportation and in-transit insurance to Lender's premises or, in the event
that Lender has immediately available warehouse space in the San Francisco bay
area, Borrower's liability for expense of transportation of the Equipment shall
be limited to the costs of transportation to such warehouse space, Borrower will
arrange for the deinstallation and audit of the Equipment, and
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<PAGE> 26
will pack; ship and send the Equipment to Lender in good operating order,
repair, condition and appearance, and in a condition required pursuant to
Section 5 hereof.
SECTION 6. CONDITIONS PRECEDENT TO LOAN
On or prior to the Funding Date, Borrower will provide to Lender the
following, in form and substance satisfactory to Lender:
6.1 Such documentation, including without limitation, a Bill of Sale, and
other documents as shall reasonably evidence Borrower's right, title and
interest in and to the Equipment;
6.2 A certified resolution or other certificate of corporate authority for
the execution and the delivery of, and the performance of all Obligations under
the Loan Documents and all related documentation;
6.3 Incumbency certificate evidencing the authority and facsimile
signatures of the individuals executing the Loan Documents;
6.4 UCC financing statements as deemed appropriate by Lender to perfect
its security interest in the Collateral;
6.5 Certified copies of the certificate of incorporation of Borrower;
6.6 Certificate of good standing for Borrower from its state of
incorporation and similar certificates from all jurisdictions in which it does
business and where the failure to be qualified would have a material adverse
effect on Borrower's business; and
6.7 Insurance certificates as required by Section 4 hereof.
SECTION 7. ASSIGNMENT BY LENDER
7.1 Borrower acknowledges and understands that Lender may sell and assign
all or a part of its interest hereunder and under the Note and Loan Documents to
any person or entity (an "Assignee"). After such assignment the term Lender
shall mean such Assignee, and such Assignee shall be vested with all rights,
powers and remedies of Lender hereunder with respect to the interest so
assigned; but with respect to any such interest not so transferred, the Lender
shall retain all rights, powers and remedies hereby given. No such assignment by
Lender shall relieve Borrower of any of its obligations hereunder. Borrower
shall acknowledge such assignment or assignments as shall be designated by
written notice given by Lender to Borrower. The Lender agrees that in the event
of any transfer by it of the Note, it will endorse thereon a notation as to the
portion of the principal of the Note which shall have been paid at the time of
such transfer and as to the date to which interest shall have been last paid
thereon.
SECTION 8. DEFAULT
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The occurrence of any one or more of the following events (herein called
"Events of Default") shall constitute a default hereunder and under the Note:
8.1 The Borrower defaults in the payment of any principal or interest
payable under the Note for more than five (5) days after the receipt of notice
of such an Event of Default from Lender;
8.2 The Borrower defaults in the payment or performance of any other
covenant or obligation of the Borrower hereunder or under the Note or any other
Loan Documents for more than thirty (30) days after the Lender has given notice
of such default to the Borrower;
8.3 Any representation or warranty made herein by the Borrower shall prove
to have been false or misleading in any material respect when made;
8.4 The making of an assignment by Borrower for the benefit of its
creditors or the admission by Borrower in writing of its inability to pay its
debts as they become due, or the insolvency of Borrower, or the filing by
Borrower of a voluntary petition in bankruptcy, or the adjudication of Borrower
as a bankrupt, or the filing by Borrower of any petition or answer seeking for
itself any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future statute, law or
regulation, or the filing of any answer by Borrower admitting, or the failure by
Borrower to deny, the material allegations of a petition filed against it for
any such relief, or the seeking or consenting by Borrower to, or acquiescence by
Borrower in, the appointment of any trustee, receiver or liquidator of Borrower
or of all or any substantial part of the properties of Borrower, or the
inability of Borrower to pay its debts when due, or the commission by Borrower
of any act of bankruptcy as defined in the Federal Bankruptcy Act, as amended;
8.5 The failure by Borrower, within sixty (60) days after the commencement
of any proceeding against Borrower seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, to obtain the dismissal of or stay
such proceeding or, within sixty (60) days after the appointment, without the
written consent or acquiescence of Borrower, of any trustee, receiver or
liquidator of Borrower or of all or any substantial part of the properties of
Borrower, to vacate such appointment; or Lender.
8.6 The material default by Borrower under any other notes or other
agreement for borrowed money, lease if the result of such default is
acceleration of the balance thereof or other agreement between Borrower and
Lender.
SECTION 9. REMEDIES
Upon the occurrence hereof of any one or more Events of Default, Lender,
at its option, may declare the Note to be accelerated and immediately due and
payable, (provided, that upon the occurrence of an Event of Default of the type
described in 8.4 or 8.5, the Note and all other Obligations shall automatically
be accelerated and made due and payable without any further act) whereupon the
unpaid principal of and accrued interest on such Note shall become immediately
due and payable, and shall thereafter bear interest at the Default Rate and
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<PAGE> 28
calculated in accordance with section 1.2. Lender may exercise all rights and
remedies with respect to the Collateral granted pursuant hereto for such Note,
or otherwise available to it under applicable law, including the right to
release, hold or otherwise dispose of all or any part of the Collateral and the
right to utilize, process and commingle the Collateral provided that the
proceeds, products rent and other sums realized on the Collateral shall be
applied to reduce the Indebtedness.
Upon the happening and during the continuance of any Event of Default,
Lender may then, or at any time thereafter and from time to time, apply,
collect, sell in one or more sales, lease or otherwise dispose of, any or all of
the Collateral, in its then condition or following any commercially reasonably
preparation or processing, in such order as Lender may elect, and any such sale
may be made either at public or private sale at its place of business or
elsewhere. Borrower agrees that any such public or private sale may occur upon
ten (10) calendar days notice to Borrower. Lender may require Borrower to
assemble the Collateral and make it available to Lender at a place designated by
Lender which is reasonably convenient to Lender and Borrower. The proceeds of
any sale, disposition or other realization upon all or any part of the
collateral shall be distributed by Lender in the following order of priorities:
First, to Lender in an amount sufficient to pay in full Lender's
reasonable costs and professionals' and advisors' fees and expenses;
Second, to Lender in an amount equal to the then unpaid amount of the
Obligations in such order and priority as Lender may choose in its sole
discretion; and
Finally, upon payment in full of all of the Obligations, to Borrower or
its representatives or as a court of competent jurisdiction may direct.
The Lender shall return to the Borrower any surplus Collateral remaining after
payment of all Obligations.
SECTION 10. MISCELLANEOUS
10.1 Borrower shall remain liable to Lender for any unpaid Obligations,
advances, costs, charges and expenses, together with interest thereon and shall
pay the same immediately to Lender at Lender's offices after 10 days notice by
Lender to Borrower.
10.2 The powers conferred upon Lender by this Agreement are solely to
protect its interest in the Collateral and shall not impose any duty upon Lender
to exercise any such powers.
10.3 This is a continuing Agreement and the grant of a security interest
hereunder shall remain in full force and effect and all the rights, powers and
remedies of Lender hereunder shall continue to exist until the Obligations are
paid in full as the same become due and payable. When Borrower has paid in full
all Obligations, Lender will execute a written termination statement,
reassigning to Borrower, without recourse, the Collateral and all rights
conveyed hereby and return possession (if Lender has possession) of the
Collateral to Borrower. The rights, powers and remedies of Lender hereunder
shall be in addition to all
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rights, powers and remedies given by statute or rule of law and are cumulative.
The exercise of any one or more of the rights, powers and remedies provided
herein shall not be construed as a waiver of any other rights, powers and
remedies of Lender. Furthermore, regardless of whether or not the UCC is in
effect in the jurisdiction where such rights, powers and remedies are asserted,
Lender shall have the rights, powers and remedies of a secured party under the
UCC.
10.4 Upon payment in full of all Obligations, the Lender shall cancel the
Note, this Agreement and all UCC financing statements, if any, and shall
promptly deliver all such canceled documents to the Borrower.
10.5 GOVERNING LAW. This Agreement, the Note and the other Loan Documents
have been negotiated and delivered to Lender in the State of Illinois and shall
not become effective until accepted by Lender in the State of Illinois. Payment
to Lender by Borrower of the Obligations is due in the State of Illinois. This
Agreement shall be governed by, and construed and enforced in accordance with
the laws of the State of Illinois excluding conflict of laws principles that
would cause the application of laws of any other jurisdiction.
10.6 CONSENT TO JURISDICTION AND VENUE All judicial proceedings arising in
or under or related to this Agreement, the Note or any of the other Loan
Documents may be brought in any state or federal court of competent jurisdiction
located in the State of Illinois. By execution and delivery of this Agreement,
each party hereto generally and unconditionally: (a) consents to personal
jurisdiction in Cook County, State of Illinois; (b) waives any objection as to
jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement, the
Note an the other Loan Documents. Service of process on any party hereto in any
action arising out of or relating to this agreement shall be effective if given
in accordance with the requirements for notice set forth in subsection 10.8
below and shall be deemed effective and received as set forth in subsection 10.8
below. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of either party to bring
proceedings in the courts of any other jurisdiction.
10.7 Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective only to the extent and duration of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
10.8 Any notice required or given hereunder shall be deemed properly given
upon the earlier of: (i) the first business day after transmission by facsimile
or hand delivery or deposit with an overnight express service or overnight mail
delivery service; or (ii) or three (3) days after mailed, postage prepaid, in
each case, addressed to the designated recipient at its address set forth herein
or such other address as such party may advise the other party by notice given
in accordance with this provision.
10.9 Lender and Borrower acknowledge that there are no agreements or
understandings, written or oral, between Lender and Borrower with respect to the
Loan, other
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<PAGE> 30
than as set forth herein, in the Note and the other Loan Documents and that this
Agreement, the Note and the other Loan Documents contain the entire agreement
between Lender and Borrower with respect thereto. None of the terms of this
Agreement, the Note and the other Loan Documents may be amended except by an
instrument executed by each of the parties hereto.
10.10 No omission, or delay, by Lender at any time to enforce any right or
remedy reserved to it, or to require performance of any of the terms, covenants
or provisions hereof by Borrower at any time designated, shall be a waiver of
any such right or remedy to which Lender is entitled, nor shall it in any way
affect the right of Lender to enforce such provisions thereafter.
10.11 All agreements, representations and warranties contained in this
Agreement or the Note, or in any Loan Documents delivered pursuant hereto or in
connection herewith shall be for the benefit of Lender and any Assignee and
shall survive the execution and delivery of this Agreement or the Note and the
expiration or other termination of this Agreement or the Note.
10.12 This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original, but all such counterparts together shall
constitute but one and the same instrument.
10.13 This Agreement shall be binding upon, and shall inure to the benefit
of, Borrower and its permitted assigns (if any). Borrower shall not assign its
obligations under this Agreement, the Note or any of the other Loan Documents
without Lender's express written consent and any such attempted assignment shall
be void and of no effect. Any assignment by Borrower in connection with a
"Merger" (as defined below) shall be subject to Lender's prior consent. Any
consent granted by Lender shall be conditioned upon such surviving entity or
transferee assuming Borrower's Obligations hereunder pursuant to assignment
documents reasonably acceptable to Lender. If Lender reasonably withholds its
consent to such assignment in connection with a Merger, the outstanding
principal and accrued and unpaid interest shall be prepaid in whole.
For purposes of this Agreement, a "Merger" shall mean any
consolidation or merger of the Borrower with or into any other corporation or
entity, any sale or conveyance of an or substantially all of the assets or stock
of the Borrower by or to any other person or entity in which Borrower is not the
surviving entity. Notwithstanding the foregoing, Lender hereby consents to any
Merger in which the surviving entity has a net worth equal to or greater than
five (5) times the present value of the remaining monthly installments,
discounted at U.S. Treasury rate(s) of comparable maturity to the remaining term
and such entity or transferree has a net worth of at least $5,000,000.
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<PAGE> 31
IN WITNESS WHEREOF, the Borrower and the Lender have duly executed and
delivered this Agreement as of the day and year first above written.
BORROWER:PACKETEER, INC.
By: /s/ BRETT D. GALLOWAY
-----------------------------------------
Title: Chief Operating Officer
--------------------------------------
Date: 6-5-97
---------------------------------------
ACCEPTED IN ROSEMONT, ILLINOIS
LENDER: COMDISCO, INC.
By: /s/ JAMES P. LABE
-----------------------------------------
Title: President
--------------------------------------
Date: 6-10-97
---------------------------------------
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<PAGE> 32
SECURED PROMISSORY NOTE
$287,271.45 Date: June 3, 1997
Due: June 1, 2001
For value received, Packeteer , Inc. a Delaware corporation (the "Borrower")
hereby promises to pay to the order of Comdisco, Inc., a Delaware corporation
(the "Lender") at P.O. Box 91744, Chicago, IL 60693 or such other place of
payment as the holder of this Secured Promissory Note (this "Note") may specify
from time to time in writing, in lawful money of the United States of America,
the principal amount of Two Hundred Eighty Seven Thousand Two Hundred Seventy
One and 45/100 Dollars ($287,271.45) together with interest at six point seven
five percent (6.75%) per annum from the date of this Note to maturity of each
installment on the principal hereof remaining from time to time unpaid, such
principal and interest to be paid in 48 equal monthly installments of $6,807.50
each, commencing July 1, 1997 and on the same day of each month thereafter to
and including June 1, 2001 and an additional final installment of $34,472.57
("Balloon Payment") to be paid on June 1, 2001, such installments to be applied
first to accrued and unpaid interest and the balance to unpaid principal.
Interest shall be computed on the basis of a year consisting of twelve months of
thirty days each.
This Note is the Note referred to in, and is executed and delivered in
connection with, that certain Loan and Security Agreement of even date herewith
by and between Borrower and Lender (as the same may from time to time be
amended, modified or supplemented in accordance with its terms, the "Loan
Agreement"), and is entitled to the benefit and security of the Loan Agreement
and the other Loan Documents (as defined in the Loan Agreement), to which
reference is made for a statement of all of the terms and conditions thereof.
All terms defined in the Loan Agreement shall have the same definitions when
used herein, unless otherwise defined herein.
The Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest.
This Note has been negotiated and delivered to Lender and is payable in the
State of Illinois, and shall not become effective until accepted by Lender in
the State of Illinois. This Note shall be governed by and construed and enforced
in accordance with, the laws of the State of Illinois, excluding any conflicts
of law rules or principles that would cause the application of the laws of any
other jurisdiction.
BORROWER: PACKETEER, INC.
Signature: /s/ BRETT D. GALLOWAY
--------------------------
Print Name: Brett D. Galloway
-------------------------
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<PAGE> 33
Title: Chief Operating Officer
____________________________
Accepted in Rosemont, Illinois:
LENDER: COMDISCO, INC.
Signature: /s/ JAMES P. LABE
________________________
Print Name: James P. Labe
________________________
Title: President
_____________________________
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<PAGE> 34
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY
THIS WARRANT ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF
PACKETEER, INC. AND/OR STOCKHOLDERS, AS PROVIDED IN THE BYLAWS OF THE
CORPORATION.
WARRANT AGREEMENT
To Purchase Shares of the Series B Preferred Stock of
PACKETEER, INC.
Dated as of June 3, 1997 (the "Effective Date")
WHEREAS, PACKETEER, INC., a Delaware corporation (the "Company") has
entered into a Master Lease Agreement dated as of June 3, 1997, Equipment
Schedule No. VL-1 dated as of June 3, 1997, and related Summary Equipment
Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series B Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, Ten Thousand Five Hundred (10,500)
fully paid and non-assessable shares of the Company's Series B Preferred Stock
("Preferred Stock") at a purchase price of Four Dollars $4.00 per share (the
"Exercise Price"). The number and purchase price of such shares are subject to
adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i)
eight (8) years or (ii) three (3) years from the effective date of the Company's
initial public offering, whichever is shorter.
(b) Notwithstanding the term of this Warrant fixed pursuant to Section
2(a) hereof, the right to purchase Preferred Stock as granted herein shall
expire, if not previously exercised, immediately upon the closing of either the
sale of all or substantially all of the assets of the Company or a merger or
consolidation or reorganization of the Company as seta forth in article IV
C.3.(c) of the Company's Amended and Restated Certificate of Incorporation (the
"Accelerating Transaction"). The Company shall provide written notice to
Warrantholder at least ten (10) days prior to the closing of the Accelerating
Transaction. If Warrantholder exercises the Warrant after notice of the
Accelerating Transaction and such Accelerating Transaction does not occur.
Warrantholder may rescind any exercise of the purchase rights within five (5)
days after notice of termination of the Accelerating Transaction.
3. EXERCISE OF THE PURCHASE RIGHTS.
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<PAGE> 35
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part (no more than 2 parts), at any time,
or from time to time, prior to the expiration of the term set forth in Section 2
above, by tendering to the Company at its principal office a notice of exercise
in the form attached hereto as Exhibit I (the "Notice of Exercise"), duly
completed and executed. Promptly upon receipt of the Notice of Exercise and the
payment of the purchase price in accordance with the terms set forth below, and
in no event later than twenty-one (21) days thereafter, the Company shall issue
to the Warrantholder a certificate for the number of shares of Preferred Stock
purchased and shall execute the acknowledgment of exercise in the form attached
hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of
shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be
issued to the Warrantholder.
Y = the number of shares of Preferred Stock
requested to be exercised under this Warrant
Agreement.
A = the fair market value of one (1) share of
Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's
Registration Statement relating to such public offering has been
declared effective by the SEC, then the fair market value per share
shall be the product of (x) the initial "Price to Public" specified in
the final prospectus with respect to the offering and (y) the number of
shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection
with the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market
value shall be deemed to be the product of (x) the average of
the closing prices over a twenty-one (21) day period ending
three days before the day the current fair market value of the
securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise; or
(b) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the average of
the closing bid and asked prices quoted on the NASDAQ National
Market system (or similar system) over the twenty-one (21) day
period ending three days before the day the current fair market
value of the securities is being determined and (y) the number
of shares of Common Stock into which each share of Preferred
Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted on the NASDAQ National Market System or
the over-the-counter market, the current fair market value of Preferred
Stock shall be the product of (x) the highest price per share which the
Company could obtain from a willing buyer (not a current employee or
director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board
of Directors and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such
exercise, unless the Company shall become subject to a merger,
acquisition or other consolidation pursuant to which the Company is not
the surviving party, in which case the fair market value of Preferred
Stock shall be deemed to be the value received by the holders of the
Company's Preferred Stock on a common equivalent basis pursuant to such
merger or acquisition.
- 2 -
<PAGE> 36
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant with respect to the rights and interest of the
Warrantholder after the Merger Event to the end that the provisions of this
Warrant (including adjustments of the Exercise Price and number of shares of
Preferred Stock purchasable) shall be applicable to the greatest extent
possible. Notwithstanding this subparagraph 8(a), the term of this Warrant shall
be limited as described in subparagraph 2(b) hereof.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, this Warrant shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities which were subject to the purchase
rights under this Warrant Agreement immediately prior to such combination,
reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
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<PAGE> 37
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit ___ (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with the same notice provided to holders of the Series B Preferred
Stock as set forth in the Charter, if any, written notice of any issuance of its
stock or other equity security to occur after the Effective Date of this
Warrant, which notice shall be in the form of a Certificate of Adjustment to be
delivered pursuant to Section 4 (R) of the Charter.
(f) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder the
same notice provided to holders of the Series B Preferred Stock as set forth in
the Charter, if any. 9.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant, will be validly
issued, fully paid and non-assessable, and will be free of any taxes, liens,
charges or encumbrances of any nature whatsoever; provided, however, that the
Preferred Stock issuable pursuant to this Warrant may be subject to restrictions
on transfer under the Company's By Laws, state and/or Federal securities laws.
The Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of this Warrant shall be made without
charge to the Warrantholder for any issuance tax in respect thereof, or other
cost incurred by the Company in connection with such exercise and the related
issuance of shares of Preferred Stock. The Company shall not be required to pay
any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant and the performance of all obligations of the Company hereunder,
including the issuance to Warrantholder of the right to acquire the shares of
Preferred Stock, have been duly authorized by all necessary corporate action on
the part of the Company, and the Leases and this Warrant Agreement do not
violate the Company's Charter or Bylaws, do not contravene any law or
governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any material
indenture, mortgage, contract or other instrument to which it is a party or by
which it is bound, and the Leases and this Warrant Agreement constitute legal,
valid and binding agreements of the Company, enforceable in accordance with
their respective terms Subject to applicable bankruptcy and insolvency and other
similar laws affecting the rights of creditors generally and, rules of law
concerning equitable remedies and public policy concerns.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant, except for the filing of notices pursuant to Regulation D under
the 1933 Act and any filing required by applicable state securities law, which
filings will be effective by the time required thereby.
- 4 -
<PAGE> 38
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
(i) The authorized capital of the Company consists of (A)
10,000,000 shares of Common Stock, of which 2,216,200 shares are issued
and outstanding, and (B) 1,925,465 shares of Preferred Stock, of which
1,905,465 shares are issued and are as of the date hereof outstanding
and are convertible into 1,905,465 shares of Common Stock.
(ii) The Company has reserved 1,098,300 shares of Common Stock
for issuance under its 1996 Equity Incentive Plan (the "Plan"), of which
options to purchase 905,200 shares have been granted with 816,200 of
such options having been exercised. The Company has repurchased 40,000
shares of its Common Stock issued under the Plan. There are no other
options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued
shares of the Company's capital stock or other securities of the
Company.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof.
(g) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule if the Company is in compliance with such
Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. This Warrant or the Preferred Stock issuable
upon exercise of the Warrantholder's rights contained herein will be acquired
for investment and not with a view to the sale or distribution of any part
thereof and the Warrantholder has no present intention of selling or engaging in
any public distribution of the same except pursuant to a registration or
exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of this Warrant or the Preferred Stock issuable
upon exercise of the Warrantholder's rights contained herein unless and until
(i) it shall have notified the Company of the proposed disposition and obtained
the Company's prior written consent to such transfer, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
(which counsel may either be inside or outside counsel to the Warrantholder)
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the 1933 Act has been taken, or (B) an
exemption from the registration requirements of the 1933 Act is available.
Notwithstanding the foregoing, the restrictions imposed upon the transferability
of this Warrant or Preferred Stock issuable on the exercise of the
Warrantholder's rights contained herein do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the
- 5 -
<PAGE> 39
Warrantholder at its request by the staff of the Securities and Exchange
Commission or a ruling shall have been issued to the Warrantholder at its
request by such Commission stating that no action shall be recommended by such
staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof and
the Company's Charter and Bylaws, this Warrant and all rights hereunder are
transferable in whole or in part by the Warrantholder and any successor
transferee, provided, however, in no event shall the number of transfers of the
rights and interests in all of the Warrants exceed one (1) transfer. The
transfer shall be recorded on the books of the Company upon receipt by the
Company of a notice of transfer in the form attached hereto as Exhibit III (the
"Transfer Notice"), at its principal offices and the payment to the Company of
all transfer taxes and other governmental charges imposed on such transfer. The
Company shall have the right to refuse to transfer any portion of this Warrant
to any person who is a competitor of the Company or who is not an accredited
investor under the 1933 Act.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant shall be construed
and shall be given effect in all respects as if it had been executed and
delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant.
(c) Governing Law. This Warrant shall be governed by and construed for
all purposes under and in accordance with the laws of the State of California.
(d) Counterparts. This Warrant may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
Venture Group, cc: Legal Department, attn: General Counsel, (and/or, if by
facsimile, (847) 518-5465 and (847) 518-5088) and (ii) to the Company at 307
Orchard City Drive, Ste. 305, Campbell, CA 95008, attention: CFO (and/or if by
facsimile, (415+) 364-0193, cc: Cooley Godward, 1 Maritime Plaza, San Francisco,
CA 94111,
- 6 -
<PAGE> 40
Attn: Kirk Hobbs, or if by facsimile (415) 951-3699 or at such other address as
any such party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this Warrant shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
valid, legal and enforceable provision, which comes closest to the intention of
the parties underlying the invalid, illegal or unenforceable provision.
(j) Amendments. Any provision of this Warrant may be amended by a
written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be
executed by its officers thereunto duly authorized as of the Effective Date.
COMPANY: PACKETEER, INC.
By: /s/ BRETT D. GALLOWAY
_____________________________________
Title: Chief Operating Officer
__________________________________
WARRANTHOLDER: COMDISCO, INC.
By: /s/ JILL C. HANSES
_____________________________________
Title: Senior Vice President
__________________________________
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<PAGE> 41
EXHIBIT I
NOTICE OF EXERCISE
To:___________________
(1) The undersigned Warrantholder hereby elects to purchase ________ shares
of the Series __ Preferred Stock of ________________, pursuant to the
terms of the Warrant dated the ________ day of ________________, 19__
(the "Warrant") between ________________ and the Warrantholder, and
tenders herewith payment of the purchase price for such shares in full,
together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series ________ Preferred Stock
of ________________________, the undersigned hereby confirms and
acknowledges the investment representations and warranties made in
Section 10 of the Warrant.
(3) Please issue a certificate or certificates representing said shares of
Series ________ Preferred Stock in the name of the undersigned or in
such other name as is specified below.
_______________________________
(Name)
_______________________________
(Address)
WARRANTHOLDER: COMDISCO, INC.
By:____________________________
Title:_________________________
Date:__________________________
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<PAGE> 42
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ____________________, hereby acknowledge receipt of the
"Notice of Exercise" from Comdisco, Inc., to purchase _______ shares of the
Series _______ Preferred Stock of ____________________, pursuant to the terms of
the Warrant, and further acknowledges that _______ shares remain subject to
purchase under the terms of the Warrant.
PACKETEER, INC.:
By:_______________________________
Title:____________________________
Date:_____________________________
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<PAGE> 43
EXHIBIT III
TRANSFER NOTICE
(TO TRANSFER OR ASSIGN THE FOREGOING WARRANT EXECUTE THIS FORM AND SUPPLY
REQUIRED INFORMATION. DO NOT USE THIS FORM TO PURCHASE SHARES.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby transferred and assigned to
- -----------------------------------------------------------
(Please Print)
whose address is
-------------------------------------------
- -----------------------------------------------------------
Dated:
-------------------------------
Holder's Signature:
------------------
Holder's Address:
--------------------
-------------------------------------
Signature Guaranteed:
-------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name as
it appears on the face of the Warrant, without alteration or enlargement
or any change whatever. Officers of corporations and those acting in a
fiduciary or other representative capacity should file proper evidence
of authority to assign the foregoing Warrant.
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<PAGE> 44
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THE SECURITIES REPRESENTED BY
THIS WARRANT ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION IN FAVOR OF
PACKETEER, INC. AND/OR STOCKHOLDERS, AS PROVIDED IN THE BYLAWS OF THE
CORPORATION.
WARRANT AGREEMENT
To Purchase Shares of the Series D Preferred Stock of
PACKETEER, INC.
Dated as of June 16, 1998 (the "Effective Date")
WHEREAS, PACKETEER, INC., a Delaware corporation (the "Company") has
entered into a Master Lease Agreement dated as of June 3, 1997, Equipment
Schedule No. VL-2 and 3 dated as of June 16, 1998, and related Summary Equipment
Schedules (collectively, the "Leases") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series D Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 15,863 fully paid and
non-assessable shares of the Company's Series D Preferred Stock ("Preferred
Stock") at a purchase price of $3.94 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i)
eight (8) years or (ii) three (3) years from the effective date of the Company's
initial public offering, whichever is shorter.
(b) Notwithstanding the term of this Warrant fixed pursuant to Section
2(a) hereof, the right to purchase Preferred Stock as granted herein shall
expire, if not previously exercised, immediately upon the closing of either the
sale of all or substantially all of the assets of the Company or a merger or
consolidation or reorganization of the Company as set forth in article IV
C.3.(b) of the Company's Amended and Restated Certificate of Incorporation (the
"Accelerating Transaction"). The Company shall provide written notice to
Warrantholder at least ten (10) days prior to the closing of the Accelerating
Transaction. If Warrantholder exercises the Warrant after notice of the
Accelerating Transaction and such Accelerating Transaction does not occur.
Warrantholder may rescind any exercise of the purchase rights within five (5)
days after notice of termination of the Accelerating Transaction.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part (no more than 2 parts), at any time,
or from time to time, prior to the expiration of the term set forth in
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<PAGE> 45
Section 2 above, by tendering to the Company at its principal office a notice of
exercise in the form attached hereto as Exhibit I (the "Notice of Exercise"),
duly completed and executed. Promptly upon receipt of the Notice of Exercise and
the payment of the purchase price in accordance with the terms set forth below,
and in no event later than twenty-one (21) days thereafter, the Company shall
issue to the Warrantholder a certificate for the number of shares of Preferred
Stock purchased and shall execute the acknowledgment of exercise in the form
attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the
number of shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued
to the Warrantholder.
Y = the number of shares of Preferred Stock requested
to be exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred
Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial public
offering of the Company's Common Stock, and if the Company's Registration
Statement relating to such public offering has been declared effective by
the SEC, then the fair market value per share shall be the product of (x)
the initial "Price to Public" specified in the final prospectus with
respect to the offering and (y) the number of shares of Common Stock into
which each share of Preferred Stock is convertible at the time of such
exercise;
(ii) if this Warrant is exercised after, and not in connection
with the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market
value shall be deemed to be the product of (x) the average of the
closing prices over a twenty-one (21) day period ending three
days before the day the current fair market value of the
securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise; or
(b) if actively traded over-the-counter, the fair market
value shall be deemed to be the product of (x) the average of the
closing bid and asked prices quoted on the NASDAQ National Market
system (or similar system) over the twenty-one (21) day period
ending three days before the day the current fair market value of
the securities is being determined and (y) the number of shares
of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted on the NASDAQ National Market System or the
over-the-counter market, the current fair market value of Preferred Stock
shall be the product of (x) the highest price per share which the Company
could obtain from a willing buyer (not a current employee or director)
for shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by its Board of Directors
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise, unless the
Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party,
in which case the fair market value of Preferred Stock shall be deemed to
be the value received by the holders of the Company's Preferred Stock on
a common equivalent basis pursuant to such merger or acquisition.
- 2 -
<PAGE> 46
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant with respect to the rights and interest of the
Warrantholder after the Merger Event to the end that the provisions of this
Warrant (including adjustments of the Exercise Price and number of shares of
Preferred Stock purchasable) shall be applicable to the greatest extent
possible. Notwithstanding this subparagraph 8(a), the term of this Warrant shall
be limited as described in subparagraph 2(b) hereof.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, this Warrant shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities which were subject to the purchase
rights under this Warrant Agreement immediately prior to such combination,
reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the
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<PAGE> 47
Company's stock, then the Exercise Price shall be adjusted, from and after the
record date of such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction (i) the numerator of which shall be the total number of all shares
of the Company's stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of all
shares of the Company's stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Preferred
Stock (calculated to the nearest whole share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Preferred Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit ___ (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with the same notice provided to holders of the Series D Preferred
Stock as set forth in the Charter, if any, written notice of any issuance of its
stock or other equity security to occur after the Effective Date of this
Warrant, which notice shall be in the form of a Certificate of Adjustment to be
delivered pursuant to Article IV Section 4(k) of the Charter.
(f) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event;
(iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder the
same notice provided to holders of the Series D Preferred Stock as set forth in
the Charter, if any.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant, will be validly
issued, fully paid and non-assessable, and will be free of any taxes, liens,
charges or encumbrances of any nature whatsoever; provided, however, that the
Preferred Stock issuable pursuant to this Warrant may be subject to restrictions
on transfer under the Company's By Laws, state and/or Federal securities laws.
The Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of this Warrant shall be made without
charge to the Warrantholder for any issuance tax in respect thereof, or other
cost incurred by the Company in connection with such exercise and the related
issuance of shares of Preferred Stock. The Company shall not be required to pay
any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant and the performance of all obligations of the Company hereunder,
including the issuance to Warrantholder of the right to acquire the shares of
Preferred Stock, have been duly authorized by all necessary corporate action on
the part of the Company, and the Leases and this Warrant Agreement do not
violate the Company's Charter or Bylaws, do not contravene any law or
governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any material
indenture, mortgage, contract or other instrument to which it is a party or by
which it is bound, and the Leases and this Warrant Agreement constitute legal,
valid and binding agreements of the Company, enforceable in accordance with
their respective terms Subject to applicable bankruptcy and insolvency and other
similar laws affecting the rights of creditors generally and, rules of law
concerning equitable remedies and public policy concerns.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant, except for the filing of notices pursuant to Regulation D under
the 1933 Act and any filing required by applicable state securities law, which
filings will be effective by the time required thereby.
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<PAGE> 48
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable.
(i) The authorized capital of the Company consists of (A)
40,000,000 shares of Common Stock, of which 9,942,550 shares are issued
and outstanding, (B) 13,703,287 shares of Preferred Stock, of which
12,376,251 shares are issued and are as of the date hereof outstanding
and are convertible into 12,376,251 shares of Common Stock.
(ii) The Company has reserved 6,418,300 shares of Common Stock
for issuance under its 1996 Equity Incentive Plan (the "Plan"), of which
options to purchase 5,627,800 shares have been granted with 4,683,800 of
such options having been exercised. The Company has repurchased 505,250
shares of its Common Stock issued under the Plan. There are 189,000
options granted outside the plan, 4,000 of these options have been
exercised. 42,000 warrants for Series B preferred stock have been issued
to Comdisco. There are no other options, warrants, conversion privileges
or other rights presently outstanding to purchase or otherwise acquire
any authorized but unissued shares of the Company's capital stock or
other securities of the Company.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof.
(g) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule if the Company is in compliance with such
Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. This Warrant or the Preferred Stock issuable upon
exercise of the Warrantholder's rights contained herein will be acquired for
investment and not with a view to the sale or distribution of any part thereof
and the Warrantholder has no present intention of selling or engaging in any
public distribution of the same except pursuant to a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of this Warrant or the Preferred Stock issuable
upon exercise of the Warrantholder's rights contained herein unless and until
(i) it shall have notified the Company of the proposed disposition and obtained
the Company's prior written consent to such transfer, and (ii) if requested by
the Company, it shall have furnished the Company with an opinion of counsel
(which counsel may either be inside or outside counsel to the Warrantholder)
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the 1933 Act has been taken, or (B) an
exemption from the registration requirements of the 1933 Act is available.
Notwithstanding the foregoing, the restrictions imposed upon the transferability
of this Warrant or Preferred Stock issuable on the exercise of the
Warrantholder's rights contained herein do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933
- 5 -
<PAGE> 49
Act and sold by the holder thereof in accordance with such registration or (2)
such security shall have been sold without registration in compliance with Rule
144 under the 1933 Act, or (3) a letter shall have been issued to the
Warrantholder at its request by the staff of the Securities and Exchange
Commission or a ruling shall have been issued to the Warrantholder at its
request by such Commission stating that no action shall be recommended by such
staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. TRANSFERS.
Subject to the terms and conditions contained in Section 10 hereof and
the Company's Charter and Bylaws, this Warrant and all rights hereunder are
transferable in whole or in part by the Warrantholder and any successor
transferee, provided, however, in no event shall the number of transfers of the
rights and interests in all of the Warrants exceed one (1) transfer. The
transfer shall be recorded on the books of the Company upon receipt by the
Company of a notice of transfer in the form attached hereto as Exhibit III (the
"Transfer Notice"), at its principal offices and the payment to the Company of
all transfer taxes and other governmental charges imposed on such transfer. The
Company shall have the right to refuse to transfer any portion of this Warrant
to any person who is a competitor of the Company or who is not an accredited
investor under the 1933 Act.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant shall be construed
and shall be given effect in all respects as if it had been executed and
delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant.
(c) Governing Law. This Warrant shall be governed by and construed for
all purposes under and in accordance with the laws of the State of California.
(d) Counterparts. This Warrant may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Group, cc: Legal Department, attn: General Counsel, (and/or, if by facsimile,
(847) 518-5465 and (847) 518-5088) and (ii) to the Company at 10495 N. De Anza
Blvd., Cupertino, CA 95014, attention:
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<PAGE> 50
CFO (and/or if by facsimile, (408) 873-4410, cc: Cooley Godward, 1 Maritime
Plaza, San Francisco, CA 94111, Attn: Karyn Smith, or if by facsimile (415)
951-3699 or at such other address as any such party may subsequently designate
by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant shall for any reason be held invalid, illegal or unenforceable, the
remaining provisions of this Warrant shall be unimpaired, and the invalid,
illegal or unenforceable provision shall be replaced by a mutually acceptable
valid, legal and enforceable provision, which comes closest to the intention of
the parties underlying the invalid, illegal or unenforceable provision.
(j) Amendments. Any provision of this Warrant may be amended by a written
instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be
executed by its officers thereunto duly authorized as of the Effective Date.
COMPANY: PACKETEER, INC.
By: /s/ BRETT D. GALLOWAY
---------------------------------
Title: Chief Operating Officer
------------------------------
WARRANTHOLDER: COMDISCO, INC.
By: /s/ JILL C. HANSES
---------------------------------
Title: Senior Vice President
------------------------------
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<PAGE> 51
EXHIBIT I
NOTICE OF EXERCISE
To: ________________________
(1) The undersigned Warrantholder hereby elects to purchase _____ shares of
the Series _____ Preferred Stock of __________ , pursuant to the terms of
the Warrant dated the _____ day of , 19__ (the "Warrant") between
____________________ and the Warrantholder, and tenders herewith payment
of the purchase price for such shares in full, together with all
applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series _____ Preferred Stock of
__________________________________ , the undersigned hereby confirms and
acknowledges the investment representations and warranties made in
Section 10 of the Warrant.
(3) Please issue a certificate or certificates representing said shares of
Series _____ Preferred Stock in the name of the undersigned or in such
other name as is specified below.
__________________________________
(Name)
__________________________________
(Address)
WARRANTHOLDER: COMDISCO, INC.
By: ______________________________
Title:____________________________
Date:_____________________________
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<PAGE> 52
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ____________________, hereby acknowledge receipt of the
"Notice of Exercise" from Comdisco, Inc., to purchase _______ shares of the
Series _______ Preferred Stock of ____________________, pursuant to the terms of
the Warrant, and further acknowledges that _______ shares remain subject to
purchase under the terms of the Warrant.
PACKETEER, INC.:
By:_________________________________
Title:______________________________
Date:_______________________________
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<PAGE> 53
EXHIBIT III
TRANSFER NOTICE
(TO TRANSFER OR ASSIGN THE FOREGOING WARRANT EXECUTE THIS FORM AND SUPPLY
REQUIRED INFORMATION. DO NOT USE THIS FORM TO PURCHASE SHARES.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby transferred and assigned to
___________________________________________________________
(Please Print)
whose address is___________________________________________
___________________________________________________________
Dated:_______________________________
Holder's Signature:__________________
Holder's Address:____________________
_____________________________________
Signature Guaranteed: _____________________________________
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or
any change whatever. Officers of corporations and those acting in a
fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant.
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<PAGE> 54
ADDENDUM TO THE MASTER LEASE AGREEMENT
DATED AS OF JUNE 3, 1997
BETWEEN COMDISCO, INC., AS LESSOR, AND
PACKETEER, INC., AS LESSEE
The undersigned hereby agree that the terms and conditions of the
above-referenced Master Lease Agreement are amended and modified as follows:
1. SECTION 3, "RENT AND PAYMENT"
Delete the second sentence in its entirety.
In line 3 after the words "is not made" insert "within five (5) days of
the date..."
2. SECTION 5, "TITLE: RELOCATION OR SUBLEASE: AND ASSIGNMENT"
Subsection 5.2, second paragraph, line 8, add the word "reasonably" after
the word "documents."
Subsection 5.3, paragraph (b), first sentence, line 1, add the phrase
"After receipt of written notice of assignment from Lessor" before the word
"Lessee".
3. SECTION 6, "NET LEASE: TAXES AND FEES"
Subsection 6.2, line 1, add the words "or before a penalty is assessed
thereon" after the word "due".
Subsection 6.2, add the following paragraph at the end of this subsection:
"Lessee shall not be liable for any taxes, fees or charges to the extent
the same result from any sale or assignment or grant of security interest
by Lessor, or to the extent any such action increases the taxes, fees or
charges that would otherwise be payable. Lessee shall have the right to
contest by proper legal proceedings any taxes levied, as agent for or in
the name of Lessor. Lessor will cooperate in any legal proceedings being
prosecuted by Lessee with regard to any taxes, but Lessee will pay the
expenses in such litigation. Lessee shall have the right to contest in good
faith and by appropriate proceeding the validity or the amount of taxes
unless such contest would adversely affect the title of the Lessor to the
Equipment or would subject it to forfeiture or sale. Lessee shall have the
rights to any refund received as a result of any such contest or proceeding
to the extent Lessee has previously reimbursed Lessor for such taxes."
1.
<PAGE> 55
4. SECTION 7, "CARE, USE AND MAINTENANCE: ATTACHMENTS AND RECONFIGURATIONS;
AND INSPECTION BY LESSOR"
Subsection 7.1, second sentence, line 4, insert "at commercially
reasonable prices" after "commercially available"; line 7, after the words
"another party acceptable to Lessor", add the words "including self-maintenance
by Lessee"; line 7, after the words "copy of that contract", add the words
"after request from Lessor"; last sentence, insert the following at the end
thereof: "or Lessee has exercised its option to purchase such Equipment."
5. SECTION 8, "REPRESENTATIONS AND WARRANTIES OF LESSEE"
Introductory paragraph, line 3, after the words "executed hereunder",
insert the words "unless otherwise disclosed on the "Disclosure Schedule"
attached hereto".
Paragraph (b), line 3, delete the word "Articles" and substitute
"Certificate"; line 6, insert "material" after the words "under, any"; line 11,
insert "and public policy concerns" after the words "equitable remedies".
Paragraph (g), last line, insert "and public policy concerns" after the
words "equitable remedies".
6. SECTION 9
Second sentence, insert "and provided that the Equipment is not purchased
or the term extended as permitted by the applicable Schedule" after "Schedule".
7. SECTION 11, "INDEMNITY"
First sentence, line 6, after the word "Equipment", delete the words
"during the term of this Master Lease or until Lessee's obligations under the
Master Lease terminate" and insert "arising from acts or events during the
period from the Commencement Date of each Summary Equipment Schedule until
re-delivery of the Equipment to Lessor in accordance with the terms of this
Master Lease." Second sentence, line 3, insert "or wilful misconduct" after the
words "negligent acts".
8. SECTION 12, "RISK OF LOSS"
First paragraph, tenth line, insert "reasonably" after the word
"insurance".
9. SECTION 13, "DEFAULT, REMEDIES AND MITIGATION"
Subsection 13.1:
Paragraph (b), line 1, insert "the applicable" before the word
"Schedule"
2.
<PAGE> 56
Paragraph (c), line , insert the following after "foregoing":
"which petition, appointment, proceeding or action is not dismissed, stayed or
vacated within sixty (60) days in the case of a proceeding or action commenced
against Borrower."
Subsection 13.2, introduction, insert "and during the continuance" after
the word "occurrence."
Subsection 13.2, paragraph (c), line 5, substitute "6.75% for "6%"
Subsection 13.2, paragraph (d), line 5, insert "or wilful misconduct"
after "negligence"
Subsection 13.3, second sentence, line 1, insert "AND TO THE EXTENT
PERMITTED BY LAW" after the words "IN THIS SECTION"; third sentence, line 8,
insert "After notice to Lessee," before the words "Lessor may".
Subsection 13.3(a), line 2, insert "discounted to the time of sale at the
rate set forth in Paragraph 13.2(c)" after the words "initial Term".
10. SECTION 14, "ADDITIONAL PROVISIONS"
Subsection 14.1, "Board Attendance." Delete this section in its entirety.
Subsection 14.2, "Financial Statements." Delete the first sentence in its
entirety and replace it with the following:
"As soon as practicable at the end of each month (and in any event within
thirty (30) days), Lessee will provide to Lessor a monthly income
statement and balance sheet prepared in accordance with generally
accepted accounting principles, consistently applied (except that such
financial will not include footnotes required by generally accepted
accounting principles) (the "Financial Statements")."
Subsection 14.2, line 11, delete the words "tax returns" and insert in
line 12, after the words "principal creditors" the words, "but excluding tax
returns".
Subsection 14.3, clause (i), delete the words "Lessee is in default" and
substitute the words "an Event of Default has occurred and is continuing";
clause (iii) is deleted, and (iv) is re-numbered accordingly.
Subsection 14.4, "Merger and Sale Provisions." In line 2, delete "sixty
(60)" and replace with "ten (10)". In line 2, after the words "in its"
add the word "reasonable". In line 8, delete "6%" and replace with
"6.75%". In line 10 after the words "with Section 9" add "or purchase the
Equipment for an amount equal to the present value (discounted at 6.75%)
of the purchase option price set forth in the Schedule, at Lessee's
option." To the end of this Section, add the following:
3.
<PAGE> 57
"Notwithstanding the foregoing, Lessor hereby consents to any Merger
in which the surviving entity has a net worth equal to or greater than
five (5) times the present value of the remaining monthly
installments, discounted at U.S. Treasury rate(s) of comparable
maturity to the remaining term and such entity or transferee has a net
worth of at least $5,000,000.
Subsection 14.7, second sentence, add the following at the end thereof:
"except any permitted assignment in accordance with the terms of Subsection
14.4 of this Master Lease."
Subsection 14.9, line 5, insert "applicable" before "Schedule".
Subsection 14.10, change "Illinois" to "California" in lines 2 and 4.
Subsection 14.13, insert at the end of the first sentence, line 2, the
following "until purchase of the related Equipment pursuant to the terms of
this Master Lease".
Subsection 14.14, line 4, insert "reasonably" before "acceptable" and in
line 5, insert "(a), (b) and (c)" after "8".
Subsection 14.16 is hereby deleted in its entirety.
Subsection 14.18, "Definitions":
"Casualty Value", line 1, insert "present value of the" after the words
"greater of the" and line 2, insert "discounted at a rate of 6.75% per
annum" after the word "term".
Delete the definition of "Interim Rent," in its entirety.
In line 4 of the definition "Merger" following the word "entity", add the
words ",provided that no such transactions shall constitute a Merger unless
the Lessee's stockholders, as constituted, immediately before any such
transaction, hold less than fifty percent (50%) of the outstanding voting
securities of the Lessee immediately following such transaction".
4.
<PAGE> 58
In line 4 of the definition of "Summary Equipment Schedule", delete the
word "quarter" and replace it with "month."
PACKETEER, INC. COMDISCO, INC.
By: /s/ BRETT GALLOWAY By: /s/ JAMES P. LABE
------------------------------ -------------------------------------
JAMES P. LABE,
Title: COO/CFO Title: PRESIDENT COMDISCO VENTURES
DIVISION
Date: 6/5/97 Date: 6/10/97
5.
<PAGE> 1
EXHIBIT 10.8
PACKETEER, INC.
1996 EQUITY INCENTIVE PLAN
ADOPTED MARCH 14, 1996
APPROVED BY THE STOCKHOLDERS ON APRIL 29, 1996
AMENDED BY THE BOARD ON JUNE 13, 1996
AMENDED BY THE BOARD ON OCTOBER 23, 1996
APPROVED BY THE STOCKHOLDERS ON DECEMBER 12, 1996
AMENDED BY THE BOARD ON FEBRUARY 19, 1997
AMENDED BY THE BOARD ON AUGUST 26, 1997
AMENDED BY THE BOARD ON JANUARY 14, 1998
APPROVED BY THE STOCKHOLDERS ON FEBRUARY 18, 1998
AMENDED BY THE BOARD ON FEBRUARY 24, 1999
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees, Directors of and Consultants to the Company, and its Affiliates, may
be given an opportunity to benefit from increases in value of the stock of the
Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory
Stock Options, (iii) stock bonuses, and (iv) rights to purchase restricted
stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
<PAGE> 2
(e) "COMPANY" means Packeteer, Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "DISINTERESTED PERSON" means a Director: who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any Affiliate entitling the participants therein to acquire equity securities
of the Company or any Affiliate except as permitted by Rule 16b-3(c)(2)(i); or
(ii) is otherwise considered to be a "disinterested person" in accordance with
Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or
interpretations of the Securities and Exchange Commission.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows and in each case in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations:
(1) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(2) If the common stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean between the bid and asked prices for
the common stock on the last market trading day prior
2
<PAGE> 3
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(3) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(o) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(r) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(s) "PLAN" means this Packeteer, Inc. 1996 Equity Incentive Plan.
(t) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(u) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.
(v) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a
3
<PAGE> 4
right to purchase restricted stock, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; and the number of shares with respect to which a Stock Award
shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"). All of the members
of the Committee shall be Disinterested Persons and may also be, in the
discretion of the Board, Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Additionally,
prior to the date of the first registration of an equity security of the Company
under Section 12 of the Exchange Act, and notwithstanding anything to the
contrary contained herein, the Board may delegate administration of the Plan to
a committee of one or more members of the Board and the term "Committee" shall
apply to any person or persons to whom such authority has been delegated.
Notwithstanding anything in this Section 3 to the contrary, the Board or the
Committee may delegate to a committee of one or more members of the Board the
authority to grant Stock Awards to eligible persons who are not then subject to
Section 16 of the Exchange Act.
(d) Any requirement that an administrator of the Plan be a Disinterested
Person shall not apply (i) prior to the date of the first registration of an
equity security of the Company under Section 12 of the Exchange Act, or (ii) if
the Board or the Committee expressly declares that such requirement shall not
apply. Any Disinterested Person shall otherwise comply with the requirements of
Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate Six Million Nine Hundred Thirty-Three Thousand Three
Hundred (6,933,300) shares of the Company's common stock. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Stock Award
shall revert to and again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4
<PAGE> 5
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.
(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall
not apply (i) prior to the date of the first registration of an equity security
of the Company under Section 12 of the Exchange Act, or (ii) if the Board or
Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Option or an award
to purchase restricted stock if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such Option
is at least one hundred ten percent (110%) of the Fair Market Value of such
stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant, or in the case of a
restricted stock purchase award, the purchase price is at least one hundred
percent (100%) of the Fair Market Value of such stock at the date of grant.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of
5
<PAGE> 6
the grant of the Option, (A) by delivery to the Company of other common stock of
the Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option shall not be
transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order satisfying the requirements of
Rule 16b-3 and any administrative interpretations or pronouncements thereunder
(a "QDRO"), and shall be exercisable during the lifetime of the person to whom
the Option is granted only by such person or any transferee pursuant to a QDRO.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary but in each case will provide for vesting of at
least twenty percent (20%) per year of the total number of shares subject to the
Option. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period, which in no event shall be less
than thirty (30) days, specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
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<PAGE> 7
An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period of three (3) months after the termination of
the Optionee's Continuous Status as an Employee, Director or Consultant during
which the exercise of the Option would not be in violation of such registration
requirements.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period, which in no
event shall be less than six (6) months, specified in the Option Agreement), or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period, which in
no event shall be less than six (6) months, specified in the Option Agreement),
or (ii) the expiration of the term of such Option as set forth in the Option
Agreement. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the Plan.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company,
7
<PAGE> 8
with the repurchase price to be equal to the original purchase price of the
stock, or to any other restriction the Board determines to be appropriate;
provided, however, that (i) the right to repurchase at the original purchase
price shall lapse at a minimum rate of twenty percent (20%) per year over five
(5) years from the date the Option was granted, and (ii) such right shall be
exercisable only within (A) the ninety (90) day period following the termination
of employment or the relationship as a Director or Consultant, or (B) such
longer period as may be agreed to by the Company and the Optionee (for example,
for purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for the
shares. Should the right of repurchase be assigned by the Company, the assignee
shall pay the Company cash equal to the difference between the original purchase
price and the stock's Fair Market Value if the original purchase price is less
than the stock's Fair Market Value.
(j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is granted to a 10% stockholder (as
described in subsection 5(c)), shall have an exercise price which is equal to
one hundred ten percent (110%) of the Fair Market Value of the stock subject to
the Re-Load Option on the date of exercise of the original Option and shall have
a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(e) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
8
<PAGE> 9
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution, or pursuant to a qualified domestic relations order satisfying
the requirements of Rule 16b-3 and any administrative interpretations or
pronouncements thereunder, so long as stock awarded under such agreement remains
subject to the terms of the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee; provided, however, that (i) the right to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
over five (5) years from the date the Stock Award was granted, and (ii) such
right shall be exercisable only (A) within the ninety (90) day period following
the termination of employment or the relationship as a Director or Consultant,
or (B) such longer period as may be agreed to by the Company and the holder of
the Stock Award (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code (regarding "qualified small business stock")),
and (iii) such right shall be exercisable only for cash or cancellation of
purchase money indebtedness for the shares. Should the right of repurchase be
assigned by the Company, the assignee shall pay the Company cash equal to the
difference between the original purchase price and the stock's Fair Market Value
if the original purchase price is less than the stock's Fair Market Value.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), any or all
of the shares of stock held by that person which have not vested as of the date
of termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person.
9
<PAGE> 10
8. CANCELLATION AND RE-GRANT OF OPTIONS.
The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options under
the Plan and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than eighty-five percent (85%) of the Fair Market Value (one hundred
percent (100%) of the Fair Market Value in the case of an Incentive Stock
Option) or, in the case of a 10% stockholder (as described in subsection 5(c)),
not less than one hundred ten percent (110%) of the Fair Market Value) per share
of stock on the new grant date. Notwithstanding the foregoing, the Board or the
Committee may grant an Option with an exercise price lower than that set forth
above if such Option is granted as part of a transaction to which section 424(a)
of the Code applies.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1993, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
11. MISCELLANEOUS.
(a) Neither an Employee, Director or Consultant nor any person to whom a
Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(b) Throughout the term of any Stock Award, the Company shall deliver to
the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income
10
<PAGE> 11
statement. This section shall not apply when issuance is limited to key
employees whose duties in connection with the Company assure them access to
equivalent information.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall (i) confer upon any Employee, Director,
Consultant or other holder of Stock Awards any right to continue in the employ
of the Company or any Affiliate (or to continue acting as a Director or
Consultant), (ii) affect the right of the Company or any Affiliate to terminate
the employment of any Employee with or without cause, (iii) affect the right of
the Company's Board of Directors and/or the Company's shareholders to remove any
Director pursuant to the terms of the Company's By-Laws and the provisions of
the Delaware General Corporation Law, or (iv) affect the right of the Company's
Board of Directors and/or the Company's Stockholders to terminate the
relationship of any Consultant pursuant to the terms of such Consultant's
agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred pursuant to subsection 6(d)
or 7(b), as a condition of exercising or acquiring stock under any Stock Award:
(i) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if: (iii) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement or (iv) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (i) tendering a cash payment; (ii) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(iii)
11
<PAGE> 12
delivering to the Company owned and unencumbered shares of the common stock of
the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a), and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company".)
(b) In the event of (1) a merger or consolidation in which the Company
is not the surviving corporation or (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then all Stock Awards outstanding under the Plan shall vest as if the
holder of each Stock Award had held such Stock Award for a period of two (2)
times the length of time he, she, or it actually held such Stock Award, except
as otherwise provided in the document evidencing such Stock Award. Any Stock
Award not exercised prior to the closing of an event described above shall be
terminated upon such closing, unless the surviving corporation assumes the
outstanding Stock Awards. In the event of a dissolution or liquidation of the
Company, any Stock Awards outstanding under the Plan shall terminate if not
exercised prior to such event.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(i) Increase the number of shares reserved for Stock Awards under
the Plan;
(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
12
<PAGE> 13
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Stock Award was granted
and (ii) such person consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on March 13, 2006, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Awards granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board,
and, if required, an appropriate permit has been issued by the Commissioner of
Corporations of the State of California.
13
<PAGE> 1
EXHIBIT 10.9
PACKETEER, INC.
1999 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the
interests of Packeteer, Inc., a Delaware corporation, by providing eligible
persons in the Corporation's service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms
in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,
- the Stock Issuance Program under which eligible
persons may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares or
as a bonus for services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which
eligible non-employee Board members shall automatically receive option grants at
designated intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which
non-employee Board members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special stock option grant.
<PAGE> 2
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee shall be made by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee
shall serve for such period of time as the Board may determine and may be
removed by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
C. The Primary Committee shall have the sole and exclusive
authority to determine which Section 16 Insiders and other highly compensated
Employees shall be eligible for participation in the Salary Investment Option
Grant Program for one or more calendar years. However, all option grants under
the Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
D. Service on the Primary Committee or the Secondary Committee
shall constitute service as a Board member, and members of each such committee
shall accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
E. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
2.
<PAGE> 3
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or
Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
D. The Plan Administrator shall have the absolute discretion
either to grant options in accordance with the Discretionary Option Grant
Program or to effect stock issuances in accordance with the Stock Issuance
Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals who
first become non-employee Board members on or after the Underwriting Date,
whether through appointment by the Board or election by the Corporation's
stockholders, and (ii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after the
Underwriting Date. A non-employee Board member who has previously been in the
employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to
receive an option grant under the Automatic Option Grant Program at the time he
or she first becomes a non-employee Board member, but shall be eligible to
receive periodic option grants under the Automatic Option Grant Program while he
or she continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to
participate in the Director Fee Option Grant Program.
3.
<PAGE> 4
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares repurchased
by the Corporation on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
3,845,917 shares. Such reserve shall consist of (i) the number of shares
estimated to remain available for issuance, as of the Plan Effective Date, under
the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to outstanding options under that Predecessor Plan,
(ii) plus an additional increase of 900,000 shares to be approved by the
Corporation's stockholders prior to the Underwriting Date.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of January
each calendar year during the term of the Plan, beginning with calendar year
2000, by an amount equal to five percent (5 %) of the total number of shares of
Common Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
3,000,000 shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 750,000 shares of Common Stock in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options
(including options incorporated into this Plan from the Predecessor Plan) shall
be available for subsequent issuance under the Plan to the extent (i) those
options expire or terminate for any reason prior to exercise in full or (ii) the
options are cancelled in accordance with the cancellation-regrant provisions of
Article Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section II of Article Five or Section III of Article Six of the Plan shall NOT
be available for subsequent issuance under the Plan.
4.
<PAGE> 5
E. If any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made by the Plan Administrator to (i) the maximum number and/or class
of securities issuable under the Plan, (ii) the number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iii) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan from
the Predecessor Plan and (vi) the maximum number and/or class of securities by
which the share reserve is to increase automatically each calendar year pursuant
to the provisions of Section V.B of this Article One. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5.
<PAGE> 6
ARTICLE TWO
0
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the
Plan Administrator but shall not be less than one hundred percent (100%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Seven and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for
vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall
concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all
applicable Federal, state and local income and
employment taxes required to be withheld by the
Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in
order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
6.
<PAGE> 7
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be
determined by the Plan Administrator and set forth in the
documents evidencing the option, but no such option shall be
exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time
of death and exercisable in whole or in part at that time may be
subsequently exercised by the personal representative of the
Optionee's estate or by the person or persons to whom the option
is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution or by the Optionee's
designated beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated
for Misconduct, then all outstanding options held by the Optionee
shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more
than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service.
Upon the expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested shares for
which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding to the extent the option is
not otherwise at that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option
is to remain exercisable following the Optionee's cessation of
Service from the limited exercise period otherwise in effect for
that option to such greater period of time as the Plan
Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to
the number of vested shares of Common Stock for which such option
is exercisable at the time of the Optionee's cessation of Service
but also with respect to one or more additional installments in
which the Optionee would have vested had the Optionee continued
in Service.
7.
<PAGE> 8
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to
Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the
shares of Common Stock (determined as of the respective date or dates of grant)
for which one or more options granted to any Employee under the Plan (or any
other option plan of the Corporation or any Parent or Subsidiary) may for the
first time become exercisable as Incentive Options during any one calendar year
shall not exceed the sum of One Hundred Thousand Dollars ($100,000).
8.
<PAGE> 9
To the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. However, an outstanding option shall NOT
become exercisable on such an accelerated basis if and to the extent: (i) such
option is, in connection with the Corporate Transaction, to be assumed by the
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Corporate Transaction on any shares for which
the option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and
9.
<PAGE> 10
(iii) the maximum number and/or class of securities for which any one person may
be granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year and (iv) the maximum
number and/or class of securities by which the share reserve is to increase
automatically each calendar year.
E. The Plan Administrator shall have the discretionary authority
to structure one or more outstanding options under the Discretionary Option
Grant Program so that those options shall, immediately prior to the effect date
of such Corporate Transaction, become fully exercisable for the total number of
shares of Common Stock at the time subject to those options and may be exercised
for any or all of those shares as fully vested shares of Common Stock, whether
or not those options are to be assumed in the Corporate Transaction. In
addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall not be assignable
in connection with such Corporate Transaction and shall accordingly terminate
upon the consummation of such Corporate Transaction, and the shares subject to
those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become fully exercisable for the total
number of shares of Common Stock at the time subject to those options in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may structure one or more of the Corporation's repurchase
rights so that those rights shall immediately terminate with respect to any
shares held by the Optionee at the time of his or her Involuntary Termination,
and the shares subject to those terminated repurchase rights shall accordingly
vest in full at that time.
G. The Plan Administrator shall have the discretionary authority
to structure one or more outstanding options under the Discretionary Option
Grant Program so that those options shall, immediately prior to the effect date
of a Change in Control, become fully exercisable for the total number of shares
of Common Stock at the time subject to those options and may be exercised for
any or all of those shares as fully vested shares of Common Stock. In addition,
the Plan Administrator shall have the discretionary authority to structure one
or more of the Corporation's repurchase rights under the Discretionary Option
Grant Program so that those rights shall terminate automatically upon the
consummation of such Change in Control, and the shares subject to those
terminated rights shall thereupon vest in full. Alternatively, the Plan
Administrator may condition the automatic acceleration of one or more
outstanding options under the Discretionary Option Grant Program and the
termination of one or more of the Corporation's outstanding repurchase rights
under such program upon the subsequent termination of the Optionee's Service by
reason of an Involuntary Termination within a
10.
<PAGE> 11
designated period (not to exceed eighteen (18) months) following the effective
date of such Change in Control. Each option so accelerated shall remain
exercisable for fully vested shares until the earlier of (i) the expiration of
the option term or (ii) the expiration of the one (1) year period measured from
the effective date of Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of
tandem stock appreciation rights:
(i) One or more Optionees may be granted the
right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option
for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount
equal to the excess of (a) the Fair Market Value (on the option
surrender date) of the number of shares in which the Optionee is
at the time vested under the surrendered option (or surrendered
portion thereof) over (b) the aggregate exercise price payable
for such shares.
(ii) No such option surrender shall be effective
unless it is approved by the Plan Administrator, either at the
time of the actual option surrender or at any earlier time. If
the surrender is so approved, then the distribution to which the
Optionee shall be entitled may be made in shares of Common Stock
valued at Fair Market Value on the option surrender date, in
cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
11.
<PAGE> 12
(iii) If the surrender of an option is not
approved by the Plan Administrator, then the Optionee shall
retain whatever rights the Optionee had under the surrendered
option (or surrendered portion thereof) on the option surrender
date and may exercise such rights at any time prior to the later
of (a) five (5) business days after the receipt of the rejection
notice or (b) the last day on which the option is otherwise
exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be
exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted
limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over,
each individual holding one or more options with such a limited
stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation. In
return for the surrendered option, the Optionee shall receive a
cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock
at the time subject to such option (whether or not the Optionee
is otherwise vested in those shares) over (B) the aggregate
exercise price payable for those shares. Such cash distribution
shall be paid within five (5) days following the option surrender
date.
(iii) At the time such limited stock appreciation
right is granted, the Plan Administrator shall pre-approve any
subsequent exercise of that right in accordance with the terms of
this Paragraph C. Accordingly, no further approval of the Plan
Administrator or the Board shall be required at the time of the
actual option surrender and cash distribution.
12.
<PAGE> 13
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority
to determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or
more documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the Optionee's base
salary for the calendar year to be in effect pursuant to this
program, and
13.
<PAGE> 14
B is the Fair Market Value per share of Common Stock on
the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) successive equal monthly installments
upon the Optionee's completion of each calendar month of Service in the calendar
year for which the salary reduction is in effect. Each option shall have a
maximum term of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution
or by the designated beneficiary or beneficiaries of such option. Such right of
exercise shall lapse, and the option shall terminate, upon the earlier of (i)
the expiration of the ten (10)-year option term or (ii) the three (3)-year
period measured from the date of the Optionee's cessation of Service. However,
the option shall, immediately upon the Optionee's cessation of Service for any
reason, terminate and cease to remain outstanding with respect to any and all
shares of Common Stock for which the option is not otherwise at that time
exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains
in Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable for the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock.
14.
<PAGE> 15
The option shall remain so exercisable until the earliest to occur of (i) the
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Service,
(iii) the termination of the option in connection with a Corporate Transaction
or (iv) the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
15.
<PAGE> 16
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article
Seven, shares of Common Stock may be issued under the Stock Issuance Program for
any of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation,
or
(ii) past services rendered to the Corporation (or
any Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
16.
<PAGE> 17
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under
the Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
17.
<PAGE> 18
B. The Plan Administrator shall have the discretionary authority
to structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be
held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
18.
<PAGE> 19
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates
specified below:
1. Each individual who is serving as a non-employee
Board member on the Underwriting Date shall automatically be granted, on the
Underwriting Date, a Non-Statutory Option to purchase 3,000 shares of Common
Stock.
2. Each individual who is first elected or appointed as
a non-employee Board member at any time on or after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 12,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting held
after the Underwriting Date, each individual who is to continue to serve as an
Eligible Director, whether or not that individual is standing for re-election to
the Board at that particular Annual Meeting, shall automatically be granted a
Non-Statutory Option to purchase 3,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 3,000 share option grants
any one Eligible Director may receive over his or her period of Board service,
and non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have otherwise received one or
more stock option grants from the Corporation prior to the Underwriting Date
shall be eligible to receive one or more such annual option grants over their
period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one
hundred percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall be payable in one or more of
the alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be
immediately exercisable for any or all of the option shares. However, any shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the
19.
<PAGE> 20
Optionee's cessation of Board service prior to vesting in those shares. Each
initial 12,000 share grant shall vest, and the Corporation's repurchase right
shall lapse, in a series of six (6) successive equal semi-annual installments
upon the Optionee's completion of each six (6)-month period of service as a
Board member over the thirty-six (36)-month period measured from the option
grant date. Each 3,000 share automatic option shall be vested on grant.
E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Five may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Three, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
F. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's
death, the personal representative of the Optionee's estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of descent and
distribution or by the designated beneficiary or beneficiaries of such
option) shall have a twelve (12)-month period following the date of such
cessation of Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period,
the option may not be exercised in the aggregate for more than the
number of vested shares of Common Stock for which the option is
exercisable at the time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at
the time subject to the option shall immediately vest so that such
option may, during the twelve (12)-month exercise period following such
cessation of Board service, be exercised for all or any portion of those
shares as fully-vested shares of Common Stock.
20.
<PAGE> 21
(iv) In no event shall the option remain
exercisable after the expiration of the option term. Upon the expiration
of the twelve (12)-month exercise period or (if earlier) upon the
expiration of the option term, the option shall terminate and cease to
be outstanding for any vested shares for which the option has not been
exercised. However, the option shall, immediately upon the Optionee's
cessation of Board service for any reason other than death or Permanent
Disability, terminate and cease to be outstanding to the extent the
option is not otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of
Common Stock at the time subject to each outstanding option but not otherwise
vested shall automatically vest in full so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. All outstanding repurchase rights shall automatically
terminate, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction or
Change in Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Stockholder approval
of the Plan shall constitute pre-approval of the grant of each such limited
cash-out right and the subsequent exercise of that right in accordance with the
terms of this Paragraph D. Accordingly, no approval or consent of the Board or
any Plan Administrator shall be required at the time of the actual option
surrender and cash distribution.
21.
<PAGE> 22
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
The grant of options under the Automatic Option Grant Program shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
22.
<PAGE> 23
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority
to determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board for that year to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
A
X = ------------ where
(B x 66-2/3%),
X is the number of option shares,
A is the portion of the annual retainer fee subject to the
non-employee Board member's election, and
23.
<PAGE> 24
B is the Fair Market Value per share of Common Stock on
the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become
exercisable in a series of twelve (12) equal monthly installments upon the
Optionee's completion of each month of Board service over the twelve (12)-month
period measured from the grant date. Each option shall have a maximum term of
ten (10) years measured from the option grant date.
D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Six may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Three, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service
as a Board member cease by reason of death or Permanent Disability, then each
option held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service.
24.
<PAGE> 25
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution or by the designated
beneficiary or beneficiaries of such option. Such right of exercise shall lapse,
and the option shall terminate, upon the earlier of (i) the expiration of the
ten (10)-year option term or (ii) the three (3)-year period measured from the
date of the Optionee's cessation of Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains
in Service, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable for the total number of shares of
Common Stock at the time subject to such option and may be exercised for any or
all of those shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the earliest to occur of (i) the expiration of the
ten (10)-year option term, (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service, (iii) the
termination of the option in connection with a Corporate Transaction or (iv) the
surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the Optionee is otherwise at the time vested in those shares)
over (ii) the aggregate exercise price payable for such shares. Such cash
distribution shall be paid within five
25.
<PAGE> 26
(5) days following the surrender of the option to the Corporation. Stockholder
approval of the Plan shall constitute pre-approval of the grant of each such
limited cash-out right and the subsequent exercise of that right in accordance
with the terms of this Paragraph C. Accordingly, no approval or consent of the
Board or any Plan Administrator shall be required at the time of the actual
option surrender and cash distribution.
D. The grant of options under the Director Fee Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
26.
<PAGE> 27
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or
all holders of Non-Statutory Options or unvested shares of Common Stock under
the Plan (other than the options granted or the shares issued under the
Automatic Option Grant or Director Fee Option Grant Program) with the right to
use shares of Common Stock in satisfaction of all or part of the Withholding
Taxes to which such holders may become subject in connection with the exercise
of their options or the vesting of their shares. Such right may be provided to
any such holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Withholding
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
27.
<PAGE> 28
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan
Effective Date. However, the Salary Investment Option Grant Program and the
Director Fee Option Grant Program shall not be implemented until such time as
the Primary Committee may deem appropriate. Options may be granted under the
Discretionary Option Grant at any time on or after the Plan Effective Date.
However, no options granted under the Plan may be exercised, and no shares shall
be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan,
and no further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding under
the Predecessor Plan on the Plan Effective Date shall be incorporated into the
Plan at that time and shall be treated as outstanding options under the Plan.
However, each outstanding option so incorporated shall continue to be governed
solely by the terms of the documents evidencing such option, and no provision of
the Plan shall be deemed to affect or otherwise modify the rights or obligations
of the holders of such incorporated options with respect to their acquisition of
shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) May
18, 2009, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully-vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on May 18, 2009, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations with
respect to stock options or unvested stock issuances at the time outstanding
under the Plan unless the Optionee or the Participant consents to such amendment
or modification. In addition, certain amendments may require stockholder
approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted
under the Discretionary Option Grant and Salary Investment Option Grant Programs
and shares of Common Stock may be issued under the Stock Issuance Program that
are in each instance in excess of the number of shares then available for
issuance under the Plan, provided any excess
28.
<PAGE> 29
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock
option under the Plan and the issuance of any shares of Common Stock (i) upon
the exercise of any granted option or (ii) under the Stock Issuance Program
shall be subject to the Corporation's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
29.
<PAGE> 30
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the beginning of
such period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
<PAGE> 31
G. CORPORATION shall mean Packeteer, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Packeteer, Inc.. which shall by appropriate action
adopt the Plan.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member
eligible to participate in the Automatic Option Grant Program in accordance with
the eligibility provisions of Articles One and Five.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
A-1.
<PAGE> 32
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A)
a change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and target
bonus under any corporate-performance based bonus or incentive programs)
by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
S. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, Automatic
Option Grant or Director Fee Option Grant Program.
A-2.
<PAGE> 33
U. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1999 Stock Incentive Plan,
as set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is authorized
to administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. PLAN EFFECTIVE DATE shall mean the date the Plan shall become
effective and shall be coincident with the Underwriting Date.
AA. PREDECESSOR PLAN shall mean the Corporation's 1998 Stock Plan
in effect immediately prior to the Plan Effective Date hereunder.
BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program solely
with respect to the selection of the eligible individuals who may participate in
such program.
CC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under the Plan.
DD. SECONDARY COMMITTEE shall mean a committee of one or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
A-3.
<PAGE> 34
EE. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
GG. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
HH. STOCK ISSUANCE AGREEMENT shall mean the agreement entered
into by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
II. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
JJ. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
KK. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
LL. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
MM. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
NN. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.
OO. WITHHOLDING TAXES shall mean the Federal, state and local
income and employment withholding taxes to which the holder of Non-Statutory
Options or unvested shares of Common Stock may become subject in connection with
the exercise of those options or the vesting of those shares.
A-4.
<PAGE> 1
EXHIBIT 10.10
PACKETEER, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Packeteer, Inc., a Delaware corporation, by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall be limited to
500,000 shares.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of January
each calendar year during the term of the Plan, beginning with calendar year
2000, by an amount equal to two percent (2%) of the total number of shares of
Common Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
1,000,000 shares.
C. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable by all Participants in the aggregate on any one Purchase
Date, (iv) the maximum
<PAGE> 2
number and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B of
this Article One and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in July
2001. The next offering period shall commence on the first business day in
August 2001, and subsequent offering periods shall commence as designated by the
Plan Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February to the last business day in July each year and from the
first business day in August each year to the last business day in January in
the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in January 31, 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then that
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty (24) months, unless a shorter duration is
established by the Plan Administrator within five (5) business days following
the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date
of any offering period under the Plan may enter that offering period on such
start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after
the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
2.
<PAGE> 3
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Base Salary paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
fifteen percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with the
Plan Administrator. The Participant may not, however, effect more than
one (1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of
any new Purchase Interval within the offering period, increase the rate
of his or her payroll deduction by filing the appropriate form with the
Plan Administrator. The new rate (which may not exceed the fifteen
percent (15%) maximum) shall become effective on the start date of the
first Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the Participant's
book account under the Plan, but no interest shall be paid on the balance from
time to time outstanding in such account. The amounts collected from the
Participant shall not be required to be held in any segregated account or trust
fund and may be commingled with the general assets of the Corporation and used
for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan
on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
3.
<PAGE> 4
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under the
Plan to any Eligible Employee if such individual would, immediately after the
grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the Participant's Entry
Date into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed 1,000 shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization. In addition, the maximum aggregate
number of shares of Common Stock purchasable by all Participants on any one
Purchase Date shall not exceed 200,000 shares, subject to periodic adjustments
in the event of certain changes in the Corporation's capitalization. However,
the Plan Administrator shall have the discretionary authority, exercisable prior
to the start of any offering period under the Plan, to increase or decrease the
limitations to be in effect for the number of shares purchasable per Participant
and in the aggregate by all Participants on each Purchase Date during that
offering period.
4.
<PAGE> 5
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied
to the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in the
aggregate on the Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Interval in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into that offering period.
(iii) Should the Participant cease to remain an
Eligible Employee for any reason (including death, disability or change
in status) while his or her purchase right remains outstanding, then
that purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the Purchase Interval in which the
purchase right so terminates shall be immediately refunded. However,
should the Participant cease to remain in active service by reason of an
approved unpaid leave of absence, then the Participant shall have the
right, exercisable up until the last business day of the Purchase
Interval in which such leave commences, to (a) withdraw all the payroll
deductions collected to date on his or her behalf for that Purchase
Interval or (b) have such funds held for the purchase of shares on his
or her behalf on the next scheduled Purchase Date. In no event, however,
shall any further payroll deductions be collected on the Participant's
behalf during such leave. Upon the Participant's return to active
service (x) within ninety (90) days following the commencement of such
leave or (y) prior to the expiration of any longer period for which such
Participant's right to reemployment with the Corporation is guaranteed
by statute or contract, his or her payroll deductions under the Plan
shall automatically resume at the rate in
5.
<PAGE> 6
effect at the time the leave began, unless the Participant withdraws
from the Plan prior to his or her return. An individual who returns to
active employment following a leave of absence which exceeds in duration
the applicable (x) or (y) time period will be treated as a new Employee
for purposes of subsequent participation in the Plan and must
accordingly re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into the offering period.
G. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in the
aggregate.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Change in Control,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only by
the Participant and shall not be assignable or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans
6.
<PAGE> 7
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or
any Corporate Affiliate (determined on the basis of the Fair Market Value per
share on the date or dates such rights are granted) for each calendar year such
rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on
each successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one or more other purchase rights at a rate equal to
Twenty-Five Thousand Dollars ($25,000.00) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any purchase right
of a Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval with
respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on May 19, 1999 and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
7.
<PAGE> 8
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in July 2009, (ii) the
date on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at
any time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the recognition of compensation
expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following
amendments or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation; however, each Plan Participant shall bear
all costs and expenses incurred by such individual in the sale or other
disposition of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE> 9
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Packeteer, Inc.
Packeteer KK
Packeteer Asia Pacific Limited
Packeteer Europe B.V.
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the base salary payable to a
Participant by one or more Participating Corporations during such individual's
period of participation in one or more offering periods under the Plan. Such
Base Salary shall be calculated before deduction of (A) any income or employment
tax withholdings or (B) any pre-tax contributions made by the Participant to any
Code Section 401(k) salary deferral plan or any Code Section 125 cafeteria
benefit program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Base Salary shall NOT include any overtime payments,
bonuses, commissions, current profit-sharing distributions and other
incentive-type payments contributions (other than Code Section 401(k) or Code
Section 125 contributions) made on the Participant's behalf by the Corporation
or any Corporate Affiliate to any employee benefit or welfare plan now or
hereafter established.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership of the
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by or is under common
control with the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
A-1.
<PAGE> 11
F. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. CORPORATION shall mean Packeteer, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Packeteer, Inc., which shall by appropriate action
adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and the Common Stock priced for the initial public
offering. Any Corporate Affiliate which becomes a Participating Corporation
after such Effective Time shall designate a subsequent Effective Time with
respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) For purposes of the initial offering period which begins
at the Effective Time, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is sold in the initial
public offering pursuant to the Underwriting Agreement.
A-2.
<PAGE> 12
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. PLAN shall mean the Corporation's 1999 Employee Stock Purchase
Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each
Purchase Interval. The initial Purchase Date shall be January 31, 2000.
R. PURCHASE INTERVAL shall mean each successive six (6)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
February and August each year on which an Eligible Employee may first enter an
offering period.
T. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE> 1
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (this "AGREEMENT") is entered into as of
the ____ day of __________, 1999, by and among Packeteer, Inc., a Delaware
corporation (the "COMPANY") and each indemnitee ("INDEMNITEE") executing this
Agreement.
RECITALS
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees,
stockholders (as defined in Section 10(g)), controlling persons, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
controlling persons, stockholders (as defined in Section 10(g)), agents and
fiduciaries to expensive litigation risks at the same time as the availability
and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, stockholders (as defined in Section 10(g)), controlling
persons, agents and fiduciaries of the Company may not be willing to serve in
such capacities without additional protection.
D. The Company (i) desires to attract and retain the involvement of
highly qualified groups, such as Indemnitee, to serve the Company and, in part,
in order to induce each Indemnitee to be involved with the Company and (ii)
wishes to provide for the indemnification and advancing of expenses to each
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that each Indemnitee be indemnified by the Company as set forth herein.
NOW THEREFORE, the Company and each Indemnitee hereby agrees as follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify and
hold harmless each Indemnitee (including its respective directors, officers,
general partners, limited partners, members, managing members, employees, agents
and spouses) and each person who controls any of them or who may be liable
within the meaning of Section 15 of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or Section 20 of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), to the fullest extent permitted by law if such
Indemnitee was or is or becomes a party to or witness or other participant in,
or is threatened to be made a party to or witness or other participant in, any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that such
Indemnitee believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "CLAIM") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was or may be deemed a director, officer,
<PAGE> 2
stockholder (as defined in Section 10(g)), employee, controlling person, agent
or fiduciary of the Company, or any subsidiary or parent of the Company, or is
or was or may be deemed to be serving at the request of the Company as a
director, officer, stockholder (as defined in Section 10(g)), employee,
controlling person, agent or fiduciary of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action or inaction
on the part of such Indemnitee while serving in such capacity including, without
limitation, any and all losses, claims, damages, expenses and liabilities, joint
or several (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit,
proceeding or any claim asserted) under the Securities Act, the Exchange Act or
other federal or state statutory law or regulation, at common law or otherwise,
which relate directly or indirectly to the registration, purchase, sale or
ownership of any securities of the Company or to any fiduciary obligation owed
with respect thereto (hereinafter referred to as an "Indemnification Event") or
as a result of any claim against any and all expenses (including attorneys' fees
and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including an
appeal), or preparing to defend, be a witness in or participate in, any such
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if, and only if, such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) of such Claim and
any federal, state, local or foreign taxes imposed on Indemnitee as a result of
the actual or deemed receipt of any payments under this Agreement (collectively,
hereinafter "EXPENSES"), including all interest, assessments and other charges
paid or payable in connection with or in respect of such Expenses. Such payment
of Expenses shall be made by the Company as soon as practicable but in any event
no later than ten (10) days after written demand by the Indemnitee therefor is
presented to the Company.
(b) REVIEWING PARTY. Notwithstanding the foregoing, (i) the
obligations of the Company under Section 1(a) shall be subject to the condition
that it shall not have been finally determined that Indemnitee would not be
permitted to be indemnified under applicable law (initial determination shall be
made by the Reviewing Party as described in Section 10(e) hereof in a written
opinion, in any case in which the Independent Legal Counsel referred to in
Section 1(e) hereof is involved), and (ii) and Indemnitee acknowledges and
agrees that the obligation of the Company to make an advance payment of Expenses
to Indemnitee pursuant to Section 2(a) (an "EXPENSE ADVANCE") shall be subject
to the condition that, if, when and to the extent that it is so determined that
Indemnitee would not be permitted to be so indemnified under applicable law, the
Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced or thereafter commences legal proceedings in a
court of competent jurisdiction to secure a determination that Indemnitee should
be indemnified under applicable law, any initial determination made by the
Reviewing Party that Indemnitee would not be permitted to be indemnified under
applicable law shall not be binding and Indemnitee shall not be required to
reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse
the Company for any Expense Advance shall be unsecured and no interest shall be
charged thereon. If there has not been a Change in Control (as defined in
Section 10(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in
2
<PAGE> 3
Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), the
Reviewing Party shall be the Independent Legal Counsel referred to in Section
1(e) hereof. If there has been no determination by the Reviewing Party or if the
Reviewing Party determines that Indemnitee substantively would not be permitted
to be indemnified in whole or in part under applicable law, Indemnitee shall
have the right to commence litigation seeking an initial determination by the
court or challenging any such determination by the Reviewing Party or any aspect
thereof, including the legal or factual bases therefor, and the Company hereby
consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.
(c) CONTRIBUTION. If the indemnification provided for in Section
1(a) above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnitee in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the Company, in lieu of indemnifying
such Indemnitee thereunder, shall contribute to the amount paid or payable by
such Indemnitee as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Indemnitee, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Indemnitee in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In connection with the registration of the Company's
securities, the relative benefits received by the Company and the Indemnitee
shall be deemed to be in the same respective proportions that the net proceeds
from the offering (before deducting expenses) received by the Company and the
Indemnitee, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Indemnitee
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Indemnitee and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Indemnitee agree that it would not be just and equitable if
contribution pursuant to this Section 1(c) were determined by pro rata or per
capita allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. In connection with the registration of the Company's securities, in
no event shall Indemnitee be required to contribute any amount under this
Section 1(c) in excess of the lesser of (i) that proportion of the total of such
losses, claims, damages or liabilities indemnified against equal to the
proportion of the total securities sold under such registration statement which
is being sold by such Indemnitee or (ii) the proceeds received by such
Indemnitee from its sale of securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
3
<PAGE> 4
(d) SURVIVAL REGARDLESS OF INVESTIGATION. The indemnification and
contribution provided for in this Section 1 will remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnitee or any
officer, director, general partner, limited partner, member, managing member,
employee, agent or controlling person of the Indemnitee.
(e) CHANGE IN CONTROL. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
under this Agreement or any other agreement or under the Company's Amended and
Restated Certificate of Incorporation (the "CERTIFICATE") or Bylaws as now or
hereafter in effect, Independent Legal Counsel (as defined in Section 10(d)
hereof) shall be selected by the Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether and
to what extent Indemnitee would be permitted to be indemnified under applicable
law. The Company agrees to abide by such opinion and to pay the reasonable fees
of the Independent Legal Counsel referred to above and to fully indemnify such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or its
engagement pursuant hereto.
(f) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee has been successful
on the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in the defense of any action, suit, proceeding,
inquiry or investigation referred to in Section 1(a) hereof or in the defense of
any claim, issue or matter therein, each Indemnitee shall be indemnified against
all Expenses incurred by such Indemnitee in connection herewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
Expenses incurred by Indemnitee. The advances to be made hereunder shall be paid
by the Company to Indemnitee as soon as practicable but in any event no later
than fifteen (15) days after written demand by such Indemnitee therefor to the
Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall give the
Company notice as soon as practicable of any Claim made against Indemnitee for
which indemnification will or could be sought under this Agreement. Notice to
the Company shall be directed to the Chief Executive Officer of the Company at
the address shown on the signature page of this Agreement (or such other address
as the Company shall designate in writing to Indemnitee).
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
4
<PAGE> 5
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt written notice of the commencement of such Claim to the insurers in
accordance with the procedures set forth in each of the policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of Indemnitee, all amounts payable as a result of such action,
suit, proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim, with counsel reasonably approved
by the applicable Indemnitee, upon the delivery to such Indemnitee of written
notice of its election to do so. After delivery of such notice, approval of such
counsel by the Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to such Indemnitee under this Agreement for any fees
of counsel subsequently incurred by such Indemnitee with respect to the same
Claim; provided that, (i) the Indemnitee shall have the right to employ such
Indemnitee's counsel in any such Claim at the Indemnitee's expense; (ii) the
Indemnitee shall have the right to employ his own counsel in connection with any
such proceeding, at the expense of the Company, if such counsel serves in a
review, observer, advice and counseling capacity and does not otherwise
materially control or participate in the defense of such proceeding; and (iii)
if (A) the employment of counsel by the Indemnitee has been previously
authorized by the Company, (B) such Indemnitee shall have reasonably concluded
that there is a conflict of interest between the Company and such Indemnitee in
the conduct of any such defense, or (C) the Company shall not continue to retain
such counsel to defend such Claim, then the fees and expenses of the
Indemnitee's counsel shall be at the expense of the Company. The Company shall
have the right to conduct such defense as it sees fit in its sole discretion,
including the right to settle any claim against Indemnitee with the consent of
Indemnitee which shall not be unreasonably withheld.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify Indemnitee to
the fullest extent permitted by law, even if such indemnification is not
specifically authorized by the other provisions of this Agreement or any other
agreement, the Company's Certificate, the Company's Bylaws or by statute. In the
event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to
5
<PAGE> 6
indemnify a member of its Board of Directors or an officer, stockholder (as
defined in Section 10(g)), employee, controlling person, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, stockholder (as defined in Section 10(g)), employee, agent or
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder except as set forth
in Section 8(a) hereof.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall be in addition to any rights to which Indemnitee may be entitled
under the Company's Certificate, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the laws of the State of California or
the State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to each Indemnitee for any action such Indemnitee
took or did not take while serving in an indemnified capacity even though the
Indemnitee may have ceased to serve in such capacity and such indemnification
shall inure to the benefit of each Indemnitee from and after Indemnitee's first
day of with the Company.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate, Bylaws or otherwise) of the amounts
otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If any Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for any portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which such Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGEMENT. The Company and each Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, stockholders (as defined
in Section 10(g)), employees, controlling persons, agents or fiduciaries under
this Agreement or otherwise.
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, stockholders (as defined in Section
10(g)), employees, control persons, agents or fiduciaries, each Indemnitee shall
be covered by such policies in such a manner as to provide Indemnitee the same
rights and benefits as are accorded to the most favorably insured of the
Company's directors, if such Indemnitee is a director, or of the Company's
officers, if such Indemnitee is not a director of the Company but is an officer,
or of the Company's key employees, controlling persons, agents or fiduciaries,
if such Indemnitee is not an officer or director but is a key employee, agent,
control person, or fiduciary.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
6
<PAGE> 7
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to any Indemnitee with respect to Claims initiated or brought
voluntarily by such Indemnitee and not by way of defense, except (i) with
respect to actions or proceedings to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance policy
or under the Company's Certificate or Bylaws now or hereafter in effect relating
to Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Delaware statute or law, regardless of whether such
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be; or
(b) CLAIM UNDER SECTION 16(b). To indemnify any Indemnitee for
expenses and the payment of profits arising from the purchase and sale by such
Indemnitee of securities in violation of Section 16(b) of the Exchange Act or
any similar successor statute; or
(c) UNLAWFUL INDEMNIFICATION. To indemnify an Indemnitee if a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful.
9. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against any
Indemnitee, any Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of five (5) years from the date of
accrual of such cause of action, and any claim or cause of action of the Company
shall be extinguished and deemed released unless asserted by the timely filing
of a legal action within such five (5) year period; provided, however, that if
any shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "COMPANY"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, stockholders
(as defined in Section 10(g)), employees, agents or fiduciaries, so that if
Indemnitee is or was or may be deemed a director, officer, stockholder (as
defined in Section 10(g)), employee, agent, control person, or fiduciary of such
constituent corporation, or is or was or may be deemed to be serving at the
request of such constituent corporation as a director, officer, stockholder (as
defined in Section 10(g)), employee, control person, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, each Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as each Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "OTHER
ENTERPRISES" shall include employee benefit plans; references to "FINES" shall
include any excise taxes assessed on any Indemnitee with respect to an employee
benefit plan; and references to "SERVING AT THE
7
<PAGE> 8
REQUEST OF THE COMPANY" shall include any service as a director, officer,
stockholder (as defined in Section 10(g)), employee, agent or fiduciary of the
Company which imposes duties on, or involves services by, such director,
officer, stockholder (as defined in Section 10(g)), employee, agent or fiduciary
with respect to an employee benefit plan, its participants or its beneficiaries;
and if any Indemnitee acted in good faith and in a manner such Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, such Indemnitee shall be deemed to have acted in a
manner "NOT OPPOSED TO THE BEST INTERESTS OF THE COMPANY" as referred to in this
Agreement.
(c) For purposes of this Agreement a "CHANGE IN CONTROL" shall be
deemed to have occurred if (i) any "PERSON" (as such term is used in Section
13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders (as defined in
Section 10(g)) of the Company in substantially the same proportions as their
ownership of stock of the Company, (A) who is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing twenty percent
(20%) or more of the combined voting power of the Company's then outstanding
Voting Securities, increases his beneficial ownership of such securities by five
percent (5%) or more over the percentage so owned by such person, or (B) becomes
the "BENEFICIAL OWNER" (as defined in Rule 13d-3 under said Exchange Act),
directly or indirectly, of securities of the Company representing more than
thirty percent (30%) of the total voting power represented by the Company's then
outstanding Voting Securities, (ii) during any period of two (2) consecutive
years, individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or combination for election by the Company's stockholders (as defined
in Section 10(g)) was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the stockholders
(as defined in Section 10(g)) of the Company approve a merger or consolidation
of the Company with any other corporation other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least two-thirds (2/3) of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders (as defined
in Section 10(g)) of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all of the
Company's assets.
(d) For purposes of this Agreement, "INDEPENDENT LEGAL COUNSEL"
shall mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(e) hereof, who shall not have otherwise performed
services for the Company or any Indemnitee within the last three (3) years
(other than with respect to matters concerning the right of any Indemnitee under
this Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "REVIEWING PARTY" shall
mean any appropriate person or body consisting of a member or members of the
Company's Board of
8
<PAGE> 9
Directors or any other person or body appointed by the Board of Directors who is
not a party to the particular Claim for which Indemnitee is seeking
indemnification or Independent Legal Counsel.
(f) For purposes of this Agreement, "VOTING SECURITIES" shall
mean any securities of the Company that vote generally in the election of
directors.
(g) For purposes of this Agreement, "STOCKHOLDER" shall include
any holder of any capital stock of the Company and an affiliate thereof. For
purposes of this Agreement, "AFFILIATE" shall constitute any limited partner,
general partner, or any member or managing member of such general partner.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, partnership,
spouses, heirs, and personal and legal representatives. The Company shall
require and cause any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business and/or assets of the Company, by written agreement in form and
substance satisfactory to each Indemnitee, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken place. This
Agreement shall continue in effect with respect to Claims relating to
Indemnifiable Events regardless of whether any Indemnitee continues to serve as
a director, officer, employee, agent, controlling person, or fiduciary of the
Company or of any other enterprise, including subsidiaries of the Company, at
the Company's request.
13. ATTORNEYS' FEES. In the event that any action is instituted by an
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, such Indemnitee shall be entitled to be paid all Expenses incurred by
such Indemnitee with respect to such action, regardless of whether such
Indemnitee is ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless, as a part of such
action, a court of competent jurisdiction over such action determines that each
of the material assertions made by such Indemnitee as a basis for such action
was not made in good faith or was frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, the Indemnitee shall be entitled
to be paid all Expenses incurred by such Indemnitee in defense of such action
(including costs and expenses incurred with respect to Indemnitee counterclaims
and cross-claims made in such action), and shall be entitled to the advancement
of Expenses with respect to such action unless, as a part of such action, a
court having jurisdiction over such action determines that each of Indemnitee's
material defenses to such action was made in bad faith or was frivolous.
9
<PAGE> 10
14. NOTICE. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if deliverable by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed, if to Indemnitee, at
each Indemnitee's address as set forth beneath the Indemnitee's signature to
this Agreement, and, if to the Company, at the address of its principal
corporate offices (attention: Secretary), or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties
hereto.
15. CONSENT TO JURISDICTION. The Company and each Indemnitee each hereby
irrevocably consent to the jurisdiction and venue of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement and agree that any action instituted
under this Agreement shall be commenced, prosecuted and continued only in the
courts of the State of Delaware.
16. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the extent manifested by the provision held invalid, illegal or
unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed and enforced in accordance with the laws of the State of
Delaware, as applied to contracts between Delaware residents, entered into and
to be performed entirely within the State of Delaware, without regard to the
conflict of laws principles thereof.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by the parties to be bound thereby. Notice of same shall be provided to
all parties hereto. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provisions hereof (whether
or not similar) nor shall such waiver constitute a continuing waiver.
20. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving any Indemnitee any right to be retained
in the employ of
10
<PAGE> 11
the Company or any of its subsidiaries.
21. CORPORATE AUTHORITY. The Board of Directors of the Company and its
stockholders in accordance with Delaware law have approved the terms of this
Agreement.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
PACKETEER, INC.
a Delaware corporation
By:_________________________________
Title:______________________________
Address:
INDEMNITEE:
By:_________________________________
Title:______________________________
Address:
12
<PAGE> 1
Subsidiaries
------------
Packeteer Kabushiki Kaisha
Tokyo, Japan
Doing business as Packeteer KK
Packeteer Asia Pacific Limited
Hong Kong
Doing business as Packeteer Asia Pacific Limited
Packeteer Europe B.V.
The Netherlands
Doing business as Packeteer Europe B.V.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors
Packeteer, Inc.:
The audits referred to in our report dated March 3, 1999, except as to Note 9,
which is as of May 19, 1999, included the related financial statement schedule
for the period from January 25, 1996 to December 31, 1996 and for each of the
years in the two-year period December 31, 1998, included in this registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Experts" and "Selected Consolidated Financial Data" in
the prospectus.
Mountain View, California
May 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 7,084 2,550
<SECURITIES> 0 1,927
<RECEIVABLES> 1,725 3,038
<ALLOWANCES> 211 293
<INVENTORY> 419 188
<CURRENT-ASSETS> 9,280 7,573
<PP&E> 1,444 1,339
<DEPRECIATION> 671 545
<TOTAL-ASSETS> 10,250 8,570
<CURRENT-LIABILITIES> 5,215 4,072
<BONDS> 2,658 739
0 0
13 13
<COMMON> 10 10
<OTHER-SE> 2,354 3,736
<TOTAL-LIABILITY-AND-EQUITY> 10,250 8,570
<SALES> 3,099 7,230
<TOTAL-REVENUES> 3,099 7,230
<CGS> 854 2,386
<TOTAL-COSTS> 854 2,386
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 75 78
<INCOME-PRETAX> (2,523) (8,799)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,523) (8,799)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,523) (8,799)
<EPS-PRIMARY> (0.35) (1.54)
<EPS-DILUTED> (0.35) (1.54)
</TABLE>
