<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 1999
REGISTRATION NO. 333-79077
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
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)
------------------------
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)
------------------------
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE(2)
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Common Stock, $0.001 par value per share................ $64,400,000 $17,904
- ------------------------------------------------------------------------------------------------------------------
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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.
(2) $15,346 already paid.
------------------------
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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<PAGE> 2
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 JULY 27, 1999
LOGO
4,000,000 SHARES
COMMON STOCK
Packeteer, Inc. is offering 4,000,000 shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. The shares being sold in the offering have been approved for quotation
on the Nasdaq National Market under the symbol "PKTR." We anticipate that the
initial public offering price will be between $12 and $14 per share.
------------------------------
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................................. $ $
</TABLE>
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
600,000 additional shares of our common stock. BancBoston Robertson Stephens
Inc. expects to deliver the shares of common stock to purchasers on
, 1999.
------------------------------
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
The date of this prospectus is , 1999.
<PAGE> 3
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 JULY 27, 1999
LOGO
4,000,000 SHARES
COMMON STOCK
Packeteer, Inc. is offering 4,000,000 shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. The shares being sold in the offering have been approved for quotation
on the Nasdaq National Market under the symbol "PKTR." We anticipate that the
initial public offering price will be between $12 and $14 per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
------------------------------
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<CAPTION>
PER SHARE TOTAL
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Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Total Proceeds to Packeteer................................. $ $
</TABLE>
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
600,000 additional shares of our common stock. BancBoston Robertson Stephens
Inc. expects to deliver the shares of common stock to purchasers on
, 1999.
------------------------------
BANCBOSTON ROBERTSON STEPHENS INTERNATIONAL LIMITED
BEAR, STEARNS INTERNATIONAL LIMITED
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER
INCORPORATED
The date of this prospectus is , 1999.
<PAGE> 4
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.
------------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Dilution.................................................... 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 31
Management.................................................. 49
Certain Transactions........................................ 59
Principal Stockholders...................................... 60
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 66
Underwriting................................................ 68
Legal Matters............................................... 70
Experts..................................................... 70
Where You Can Find More Information......................... 71
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------------
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.
i
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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 to financial statements
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.
PACKETEER, INC.
Packeteer is a provider of network software products that enhance
mission-critical application performance over enterprise wide area networks and
the Internet. An enterprise wide area network, or WAN, is a computer
communications network that extends beyond a single location or office. Our
application-adaptive bandwidth management solutions give businesses and service
providers control of bandwidth at congested WAN access links, the slow-speed
bottlenecks that connect high-speed local area networks, or LANs, with wide area
backbone networks. Our bandwidth management solutions are application-adaptive
because they allow network managers to identify different applications at the
WAN access link and to control the bandwidth allocated to each of these
applications, enabling them to protect the performance of their most critical
applications.
We deliver comprehensive application-adaptive bandwidth management by
discovering and classifying network traffic, analyzing application and network
performance, controlling traffic flows and reporting on performance. These four
steps are accomplished through our PacketWise software which is embedded in our
PacketShaper family of products and in the networking products of our technology
partners. Our PacketShaper product family consists of hardware platforms based
on Intel compatible microprocessor technologies. Installing a PacketShaper
imposes no changes to the existing network's equipment, configuration or
software.
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. Electronic commerce extends the confines of the enterprise network
across the Internet, making application performance difficult to ensure.
The rapid emergence of Internet computing has created new challenges for
information technology managers. Enterprise users access graphics-intensive web
sites, download large files, view streaming media presentations, monitor news
and stock quotes and access 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.
1
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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.
- Enable Interactive Services. We deliver smooth and predictable
performance of delay-sensitive multimedia services that require
guaranteed bandwidth, such as voice calls over networks based on Internet
Protocol 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 times for critical
e-commerce sites such as online retailing or banking by automatically
redirecting users with slower network connections to less
graphics-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 based on our comprehensive
solution that provides the elements for effective bandwidth management, 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
technology partnerships 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 2,800 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
technology partners who license our PacketWise software for integration into
their networking products and private-label relationships with companies such as
Lucent Technologies, Inc., who resell our PacketWise-enabled platforms under
their private labels.
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.
2
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THE OFFERING
Common stock offered by Packeteer........ 4,000,000 shares
Common stock to be outstanding after this
offering................................. 26,153,884 shares
Use of proceeds.......................... General corporate purposes
including working capital,
repayment of $2.5 million of
indebtedness and potential
acquisitions. See "Use of
Proceeds."
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 June 30, 1999. This number excludes, as
of June 30, 1999, 1,833,167 shares of common stock reserved for issuance under
our equity plans and 2,936,377 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 4,000,000 shares of common stock offered hereby at an assumed
offering price of $13.00 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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<CAPTION>
YEARS ENDED SIX MONTHS
JAN. 25, 1996 DECEMBER 31, ENDED JUNE 30,
(INCEPTION) TO ----------------- -----------------
DEC. 31, 1996 1997 1998 1998 1999
-------------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total net revenues..................................... $ -- $ 1,413 $ 7,230 $ 2,917 $ 7,080
Gross profit........................................... -- 956 4,844 1,847 5,153
Total operating expenses............................... 1,312 7,076 13,932 5,611 10,082
Net loss from operations............................... (1,312) (6,120) (9,088) (3,764) (5,649)
Net loss............................................... $(1,237) $(5,909) $(8,799) $(3,629) $(5,723)
Basic and diluted net loss per share................... $ (1.28) $ (1.82) $ (1.54) $ (0.72) $ (0.76)
Shares used in computing basic and diluted net loss per
share................................................ 965 3,253 5,709 5,064 7,565
Pro forma basic and diluted net loss per share......... $ (0.49) $ (0.29)
Shares used in computing pro forma basic and diluted
net loss per share................................... 18,100 19,956
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JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
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CONSOLIDATED BALANCE SHEETS DATA:
Cash, cash equivalents and short-term investments........... $ 7,774 $55,084
Working capital............................................. 1,786 49,096
Total assets................................................ 11,430 58,740
Long-term obligations....................................... 2,498 2,498
Total stockholders' equity.................................. 327 47,637
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<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. 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.
OUR LIMITED OPERATING HISTORY AND THE RAPIDLY EVOLVING MARKET WE SERVE MAKES
EVALUATING OUR BUSINESS PROSPECTS DIFFICULT
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. As an investor in our
common stock, you should consider the risks and difficulties that we face as an
early stage company in a new and rapidly evolving market. Some of the specific
risks we face include our ability to:
- execute our sales and marketing strategy;
- maintain current and develop new relationships with key VARs,
distributors, systems integrators and original equipment manufacturers,
or OEMs; and
- expand our domestic and international sales efforts.
WE HAVE A HISTORY OF LOSSES, EXPECT OUR EXPENDITURES TO INCREASE AND OUR LOSSES
TO CONTINUE, AND MAY NEVER ACHIEVE PROFITABILITY
We have incurred losses since we commenced operations in 1996 and may never
achieve profitability. 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.
We incurred net losses of $1.2 million in 1996, $5.9 million in 1997, $8.8
million in 1998 and $5.7 million for the six months ended June 30, 1999. As of
June 30, 1999, we had an accumulated deficit of $21.7 million. Although our
revenues have grown in recent quarters, we cannot be certain when or if we will
realize sufficient revenues to achieve profitability. 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. Even if we achieve profitability, we cannot
assure you that we can sustain or increase profitability on a quarterly or
annual basis in the future.
OUR FUTURE OPERATING RESULTS MAY NOT MEET ANALYSTS' EXPECTATIONS AND MAY
FLUCTUATE SIGNIFICANTLY, WHICH COULD ADVERSELY AFFECT OUR STOCK PRICE
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. Our operating results are likely to fluctuate significantly in the
future on both 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 variations in:
- the mix of products we sell;
- the mix of channels through which those products are sold;
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<PAGE> 9
- the average selling prices of our products;
- the timing and size of orders and shipments of our products;
- the amount and timing of revenues from OEMs; and
- the amount and timing of our operating expenses.
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 channels through which
products were sold. 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
move. Sales and marketing expenses have fluctuated due to increased personnel
expenses, expenditures related to trade shows and the launch of new products.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for detailed information on our annual and quarterly operating
results.
OUR RELIANCE ON SALES OF OUR PRODUCTS BY OTHERS MAKES IT DIFFICULT TO PREDICT
OUR REVENUES AND RESULTS OF OPERATIONS
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 through 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. 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. Sales from our VARs and systems
integrators to end users typically take three to four months to complete. We are
dependent on timely and accurate inventory information from our indirect channel
partners to enable us to establish channel inventory reserves for indirect
channel partners whose inventory exceeds normal stocking levels. If this
inventory information is not timely or accurate, we could experience increased
levels of sales returns or unforecasted fluctuations in future revenue.
If revenues forecasted in a particular quarter do not occur in that
quarter, our operating results for that quarter could be adversely affected.
Furthermore, 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.
IF THE BANDWIDTH MANAGEMENT SOLUTIONS MARKET FAILS TO GROW, OUR BUSINESS WILL
FAIL
The market for bandwidth management solutions is in an early stage of
development and its success is not guaranteed. Therefore, we cannot accurately
assess the size of the market, the products needed to address the market, the
optimal distribution strategy, or 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 bandwidth management
solutions. The growth of the bandwidth management solutions market also depends
upon a number of factors, including the availability of inexpensive bandwidth,
especially in international markets, and the growth of wide area networks.
5
<PAGE> 10
IF WE ARE UNABLE TO DEVELOP AND MAINTAIN STRONG PARTNERING RELATIONSHIPS WITH
OUR INDIRECT CHANNEL PARTNERS, OR IF THEIR SALES EFFORTS ON OUR BEHALF ARE NOT
SUCCESSFUL, OUR SALES MAY SUFFER AND OUR REVENUES MAY NOT INCREASE
We rely on an indirect distribution channel consisting of VARs,
distributors, systems integrators and OEMs for all of our revenues. Because many
of our indirect channel partners also sell competitive products, our success and
revenue growth will depend on our ability to develop and maintain strong
cooperative relationships with significant indirect channel partners, as well as
on the sales efforts and success of those 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 would harm our sales.
DEVELOPING STRONG OEM RELATIONSHIPS WILL BE TIME AND RESOURCE INTENSIVE AND MAY
NOT RESULT IN THE SUCCESSFUL 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. If we are not successful in entering into suitable OEM
relationships, our ability to successfully deploy our PacketWise software and
build brand awareness would be harmed. The development of OEM relationships
generally involves a considerable amount of management time and company
resources as potential OEM partners evaluate the viability of integrating our
technology. We cannot assure you that potential OEM partners will enter into a
relationship with us after we have expended these efforts and costs. 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 and sale 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. The failure to build and
maintain successful OEM relationships would have a negative effect on the
deployment of our technology and products.
IF WE ARE NOT ABLE TO MAINTAIN CURRENT AND FUTURE OEM RELATIONSHIPS, OUR
BUSINESS WILL BE HARMED
We may be unable to retain our current or future OEM partners. Generally,
OEM relationships can be terminated with little or no notice. Our recent OEM
agreements with ADC Telecommunications, Inc. and Adtran, Inc. are not exclusive
and are each for an initial term of five years, with no obligation for either
ADC or Adtran to renew their respective agreements with us. We expect to enter
into similar OEM relationships in the future. 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.
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OUR RELIANCE ON OEM PARTNERS FOR THE SALE OF OUR PRODUCTS MAKES IT DIFFICULT TO
MANAGE AND FORECAST PRODUCTION AND DELIVERY SCHEDULES AND SALES EXPECTATIONS
Our inability to forecast the level of orders from OEM partners may make it
difficult to schedule production, manage our contract manufacturers, and
forecast sales. 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. 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.
These order fluctuations and deferrals will 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.
IF OUR INTERNATIONAL SALES EFFORTS ARE UNSUCCESSFUL, OUR BUSINESS WILL FAIL TO
GROW
The failure of our indirect partners to sell our products internationally
will harm our business. Sales to customers outside of North America accounted
for 54.7% of our total net revenues in 1998 and 55.0% of our total net revenues
for the six months ended June 30, 1999. In particular, sales to customers in our
Asia Pacific region accounted for 31.0% of our total net revenues in 1998 and
28.7% of our total net revenues for the six months ended June 30, 1999. Our
ability to grow will depend in part on the expansion of international sales,
which will require success on the part of our VARs, distributors, systems
integrators and OEMs in marketing our products.
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 foreign markets will require us to develop
relationships with suitable indirect channel partners operating abroad. We may
not be able to identify, attract or retain these 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
these 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.
Our international sales are currently all 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.
7
<PAGE> 12
SALES TO MACNICA, ADC TELECOMMUNICATIONS OR OUR OTHER LARGE CUSTOMERS WOULD BE
DIFFICULT TO REPLACE IF LOST
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.
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 these indirect channel partners could harm our business.
Sales to Macnica, Inc. accounted for 11.9% of our total net revenues in 1998.
For the six months ended June 30, 1999, sales to ADC Telecommunications
accounted for 10.6% of total net revenues and sales to Macnica accounted for
10.5% of total net revenues. We expect that our largest customers in the future
could be different from our largest customers today. End users can stop
purchasing and indirect channel partners can stop marketing our products at any
time. 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 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 operating results.
COMPETITION FOR EXPERIENCED PERSONNEL IS INTENSE AND OUR INABILITY TO ATTRACT
AND RETAIN QUALIFIED PERSONNEL COULD SIGNIFICANTLY INTERRUPT OUR BUSINESS
OPERATIONS
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 attract,
retain and motivate high caliber key personnel. We have recently expanded our
sales force, and we are actively searching for systems engineers, research and
development engineers and sales and marketing personnel, all of whom are in
short supply. 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. Competition for qualified
personnel in the networking industry, including systems engineers, sales and
service and support personnel, 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 these key positions and it may
become increasingly difficult to hire such persons. 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
could negatively impact our ability to carry out our business plan.
WE MAY BE UNABLE TO COMPETE EFFECTIVELY WITH OTHER COMPANIES IN OUR MARKET
SECTOR WHO ARE SUBSTANTIALLY LARGER AND MORE ESTABLISHED AND WHO HAVE
SIGNIFICANTLY GREATER RESOURCES THAN OUR COMPANY
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. Increased competition could
result in reduced prices and gross margins for our products and could require
increased spending by us on research and development, sales and marketing and
customer support, any of which could harm our business. We compete with Cisco
8
<PAGE> 13
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 upgrades that increase the capacity of their networks, which 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 alternative products and technologies,
which could reduce the sales or market acceptance of our products and services,
perpetuate intense price competition or make our products obsolete. If any
technology that is competing with ours is or becomes more reliable, 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.
IF WE DO NOT EXPAND OR ENHANCE OUR PRODUCT OFFERINGS OR RESPOND EFFECTIVELY TO
TECHNOLOGICAL CHANGE, OUR BUSINESS MAY NOT GROW
Our future performance will depend on the successful development,
introduction and market acceptance of new and enhanced products that address
customer requirements in a cost-effective manner. We cannot assure you that our
technological approach will achieve broad market acceptance or that other
technologies or solutions will not supplant our approach. 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. 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.
9
<PAGE> 14
We have in the past experienced delays in product development which to date
have not materially adversely affected us. However, these delays may occur in
the future and could result in a loss of customers and market share.
INTRODUCTION OF OUR NEW PRODUCTS MAY CAUSE CUSTOMERS TO DEFER PURCHASES OF OUR
EXISTING PRODUCTS WHICH COULD HARM OUR OPERATING RESULTS
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.
IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR GROWTH, WE MAY EXPERIENCE OPERATING
INEFFICIENCIES AND HAVE DIFFICULTY MEETING DEMAND FOR OUR PRODUCTS
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. This expansion could place a
significant strain on our management, products and support operations, sales and
marketing personnel and other resources, which could harm our business.
In the future, we may experience difficulties meeting the demand for our
products and services. The installation and use of our products requires
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.
OUR RELIANCE ON PEMSTAR, INC. AND SANMINA CORPORATION FOR SUBSTANTIALLY ALL OF
OUR MANUFACTURING REQUIREMENTS COULD CAUSE US TO LOSE ORDERS IF THESE THIRD
PARTY MANUFACTURERS FAIL TO SATISFY OUR COST, QUALITY AND DELIVERY REQUIREMENTS
We currently contract with PEMSTAR, Inc. and Sanmina Corporation, for the
manufacture of all of our current products. Any manufacturing disruption could
impair our ability to fulfill orders. Our future success will depend, in
significant part, on our ability to have others manufacture our
10
<PAGE> 15
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.
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. To date,
these problems have not materially adversely affected us. 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
assure you that we can 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 of these 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 product delivery delays.
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 ability to grow our business.
OUR PRODUCTS MAY HAVE ERRORS OR DEFECTS THAT WE FIND AFTER THE PRODUCTS HAVE
BEEN SOLD, WHICH COULD NEGATIVELY AFFECT OUR REVENUES, INCREASE OUR COSTS AND
THE MARKET ACCEPTANCE OF OUR PRODUCTS
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. To
date, these errors have not materially
11
<PAGE> 16
adversely affected us. 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. In addition, we would have limited experience responding to new problems
that could arise with any new products that we introduce. These occurrences
could also result in the loss of or delay in market acceptance of our products,
which could harm our business.
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.
ANY ACQUISITIONS WE MAKE COULD RESULT IN DILUTION, UNFAVORABLE ACCOUNTING
CHARGES AND DIFFICULTIES IN SUCCESSFULLY MANAGING OUR BUSINESS
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 integrating the acquired operations and retaining acquired
personnel;
- limitations on our ability to retain acquired distribution channels and
customers;
- diversion of management's attention and disruption of our ongoing
business; and
- limitations 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.
Finally, 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.
FAILURE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY WOULD RESULT IN
SIGNIFICANT HARM TO OUR BUSINESS
Our success depends significantly upon our proprietary technology and our
failure or inability to protect our proprietary technology would result in
significant harm to our business. 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 and technologies
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
12
<PAGE> 17
involve a high degree of uncertainty. These 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. If we do
not enforce and protect our intellectual property, our business will suffer
substantial harm.
CLAIMS BY OTHERS THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS COULD BE
COSTLY TO DEFEND AND COULD HARM OUR BUSINESS
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 these different standards emerge, evolve and
achieve acceptance. 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. To remain competitive we must continue to introduce new
products and product enhancements that meet these emerging U.S. and
International standards. However, 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. Failure to
comply with existing or evolving industry standards or to obtain timely domestic
or foreign regulatory approvals or certificates could harm our business.
OUR GROWTH AND OPERATING RESULTS WOULD BE IMPAIRED IF WE ARE UNABLE TO MEET OUR
FUTURE CAPITAL REQUIREMENTS
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. These 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.
13
<PAGE> 18
ADDITIONAL SHARES HELD BY EXISTING STOCKHOLDERS MAY BE SOLD INTO THE PUBLIC
MARKET IN THE FUTURE, WHICH 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 26,153,884 shares of
common stock, assuming no exercise of outstanding options or warrants after June
30, 1999 and no exercise of the underwriters' over-allotment option. The
4,000,000 shares of common stock sold in this offering, which would be 4,600,000
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 22,153,884
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 INCLUDING DELAYING OR PREVENTING A CHANGE IN OUR
CORPORATE CONTROL
After this offering, our executive officers and directors and their
affiliates will together control approximately 54.0% 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
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, WHICH COULD LOWER THE MARKET PRICE OF THE COMMON STOCK
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 $11.18 per share. 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. To the extent that currently
outstanding options and warrants are exercised or converted, there will be
further dilution in your shares. See "Dilution."
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<PAGE> 19
YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS AND THE COSTS TO CORRECT THESE
PROBLEMS MAY BE MATERIAL
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. 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."
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES
This prospectus contains forward-looking statements that are not historical
facts but rather are based on current expectations, estimates and projections
about our industry, our beliefs and assumptions. Word such as "anticipates",
"expects", "intends", "plans", "believes", "seeks", "estimates" and variations
of these words and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to certain risks, uncertainties and other factors, some of which are
beyond our control, are difficult to predict and could cause actual results to
differ materially from those expressed or forecasted in the forward-looking
statements. These risks and uncertainties include those described in "Risk
Factors" and elsewhere in this prospectus. Readers are cautioned not to place
undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this prospectus. We undertake no
obligation to update these statements or publicly release the results of any
revisions to the forward-looking statements that we may make to reflect events
or circumstances after the date of this prospectus or to reflect the occurrence
of unanticipated events.
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<PAGE> 20
USE OF PROCEEDS
Our net proceeds from the sale and issuance of 4,000,000 shares of common
stock are estimated to be approximately $47.3 million (approximately $54.6
million if the underwriters' over-allotment option is exercised in full), at an
assumed offering price of $13.00 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 the
remainder of the proceeds of this offering for working capital and to fund our
operations, including to continue expanding and enhancing our sales and
marketing operations and to continue expanding our product offerings. We have
not yet determined our expected use of these proceeds but we currently
anticipate that we will incur at least $5.0 million in research and development
expenses, $13.0 million in sales and marketing expenses and $2.5 million in
general and administrative expenses over the next twelve months. Actual
expenditures may vary substantially from these estimates. The amounts and timing
of our actual expenditures will depend upon numerous factors, including the
status of our product development efforts, marketing and sales activities, and
the amount of cash generated by our operations and competition. We may find it
necessary or advisable to use portions of the proceeds for other purposes.
We may also use a portion of the net proceeds to acquire complementary
businesses, products or technologies. From time to time, we evaluate these
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 any of these 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 June 30, 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 4,000,000 shares of common stock offered by
Packeteer at an assumed offering price of $13.00 per share and after
deducting the estimated underwriting discounts and commissions and the
estimated offering expenses.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term obligations............. $ 3,330 $ 3,330 $ 3,330
-------- -------- --------
Long-term obligations................................ 2,498 2,498 2,498
-------- -------- --------
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; 9,762,883 shares
issued and outstanding, actual; 22,153,884 shares
issued and outstanding, pro forma; and 26,153,884
shares issued and outstanding, as adjusted......... 10 23 26
Additional paid-in capital........................... 26,043 26,043 73,350
Deferred stock-based compensation.................... (3,265) (3,265) (3,265)
Notes receivable from stockholders................... (806) (806) (806)
Accumulated deficit.................................. (21,668) (21,668) (21,668)
-------- -------- --------
Total stockholders' equity...................... 327 327 47,637
-------- -------- --------
Total capitalization....................... $ 2,825 $ 2,825 $ 50,135
======== ======== ========
</TABLE>
The outstanding shares shown above exclude, as of June 30, 1999:
- 2,506,750 shares of common stock issuable upon exercise of stock options
outstanding under our 1996 Equity Incentive Plan at a weighted average
exercise price of $3.21 per share;
- 200,628 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $3.67 per share;
- 1,333,167 shares of common stock reserved for future issuance under our
1999 Stock Incentive Plan;
- 500,000 shares of common stock reserved for future issuance under our
1999 Employee Stock Purchase Plan; and
- 228,999 shares of common stock issuable upon exercise of stock options
outstanding outside of our equity plans.
See "Management -- Employee Benefit Plans" and Note 5 of Notes to
Consolidated Financial Statements.
17
<PAGE> 22
DILUTION
As of June 30, 1999 our net tangible book value was $327,000, or $0.03 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 4,000,000 shares of common stock offered
by Packeteer, at an assumed offering price of $13.00 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 June 30, 1999
would have been $47.6 million, or approximately $1.82 per share. This represents
an immediate increase in net tangible book value of $1.79 per share to existing
stockholders and an immediate dilution of $11.18 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share............................ $13.00
Net tangible book value per share as of June 30, 1999....... $0.03
Increase per share attributable to the offering............. 1.79
-----
Net tangible book value per share after the offering........ 1.82
------
Dilution per share to new investors......................... $11.18
======
</TABLE>
The following table summarizes, as of June 30, 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........ 22,153,884 84.7% $21,068,000 28.8% $ 0.95
New investors................ 4,000,000 15.3 52,000,000 71.2 13.00
---------- ----- ----------- -----
Total.............. 26,153,884 100.0% $73,068,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing computations are based on the number of shares of common
stock outstanding as of June 30, 1999 and exclude:
- 2,506,750 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 $3.21 per share;
- 200,628 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $3.67 per share;
- 1,333,167 shares of common stock reserved for future issuance under our
1999 Stock Incentive Plan;
- 500,000 shares of common stock reserved for future issuance under our
1999 Employee Stock Purchase Plan; and
- 228,999 shares of common stock issuable upon exercise of stock options
outstanding outside of our equity plans.
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.
18
<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, the date of 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 June 30,
1999 and for the six months ended June 30, 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 SIX MONTHS
JAN. 25, 1996 DECEMBER 31, ENDED JUNE 30,
(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 $ 2,917 $ 6,330
Licensing revenues......................... -- -- 125 -- 750
------- ------- ------- ------- -------
Total net revenues.................... -- 1,413 7,230 2,917 7,080
Cost of revenues............................. -- 457 2,386 1,070 1,927
------- ------- ------- ------- -------
Gross profit................................. -- 956 4,844 1,847 5,153
Operating expenses:
Research and development................... 725 2,932 2,779 1,168 2,220
Sales and marketing........................ 349 3,210 8,866 3,469 5,656
General and administrative................. 238 934 1,750 746 1,142
Amortization of stock-based compensation... -- -- 537 228 1,784
------- ------- ------- ------- -------
Total operating expenses.............. 1,312 7,076 13,932 5,611 10,802
------- ------- ------- ------- -------
Net loss from operations..................... (1,312) (6,120) (9,088) (3,764) (5,649)
Other income (expense), net.................. 75 211 289 135 (74)
------- ------- ------- ------- -------
Net loss..................................... $(1,237) $(5,909) $(8,799) $(3,629) $(5,723)
======= ======= ======= ======= =======
Basic and diluted net loss per share......... $ (1.28) $ (1.82) $ (1.54) $ (0.72) $ (0.76)
======= ======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share......................... 965 3,253 5,709 5,064 7,565
======= ======= ======= ======= =======
Pro forma basic net loss per share........... $ (0.49) $ (0.29)
======= =======
Shares used in computing pro forma basic net
loss per share............................. 18,100 19,956
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
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 $ 7,774
Working capital.......................................... 4,077 2,612 3,501 1,786
Total assets............................................. 4,453 4,935 8,570 11,430
Long-term obligations.................................... -- 356 739 2,498
Total stockholders' equity............................... 4,251 2,804 3,759 327
</TABLE>
19
<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 network software products that enhance
mission-critical application performance over WANs and the Internet. We market
and distribute our products via a worldwide network of VARs, distributors,
systems integrators and OEMs. 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 June 30, 1999, had an
accumulated deficit of $21.7 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. Service revenue is recognized as the services are performed.
Maintenance and service revenues to date have not been material. 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. These 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 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 sufficient evidence of fair
value of post-contract customer support is not available, revenues are
recognized ratably over the support period. We do not have sufficient evidence
of fair value of post-contract customer support for our current OEM license
arrangements, and therefore are recognizing the revenues for these arrangements
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 PEMSTAR and the PacketShaper 4000 to Sanmina.
20
<PAGE> 25
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 June 30, 1999, all research and
development costs have been expensed as incurred. We believe that continued
investment in research and development is critical to attaining our strategic
product and cost reduction objectives. 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 $1.8 million in 1998 and for the six months ended June 30, 1999,
respectively, leaving $3.3 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.
21
<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 SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
---------------- ---------------
1997 1998 1998 1999
------ ------ ------ -----
<S> <C> <C> <C> <C>
Net revenues:
Product revenues.................................. 100.0% 98.3% 100.0% 89.4%
Licensing revenues................................ -- 1.7 -- 10.6
------ ------ ------ -----
Total net revenues........................... 100.0 100.0 100.0 100.0
Cost of revenues.................................... 32.3 33.0 36.7 27.2
------ ------ ------ -----
Gross margin........................................ 67.7 67.0 63.3 72.8
Operating expenses:
Research and development.......................... 207.5 38.4 40.0 31.4
Sales and marketing............................... 227.2 122.6 118.9 79.9
General and administrative........................ 66.1 24.2 25.6 16.1
Amortization of stock-based compensation.......... -- 7.5 7.8 25.2
------ ------ ------ -----
Total operating expenses..................... 500.8 192.7 192.3 152.6
------ ------ ------ -----
Net loss from operations............................ (433.1) (125.7) (129.0) (79.8)
Other income (expense), net......................... 14.9 4.0 4.6 (1.0)
------ ------ ------ -----
Net loss............................................ (418.2)% (121.7)% (124.4)% (80.8)%
====== ====== ====== =====
</TABLE>
Six months ended June 30, 1998 and 1999
Total net revenues. Our total net revenues increased by $4.2 million from
$2.9 million for the six months ended June 30, 1998 to $7.1 million for the six
months ended June 30, 1999, an increase of 142.7%. This increase was due to an
increased number of units sold relating to channel development and increased
product acceptance, and the revenue from the ADC Telecommunications agreement.
Product revenues increased by $3.4 million from $2.9 million for the six months
ended June 30, 1998, to $6.3 million for the six months ended June 30, 1999, an
increase of 117.0%. Product revenues comprised all of total net revenues for the
six months ended June 30, 1998, and 89.4% of total net revenues for the six
months ended June 30, 1999. Licensing revenues were $750,000, or 10.6% of total
net revenues, for the six months ended June 30, 1999, which consisted of
revenues from the ADC agreement. We recorded no licensing revenues for the six
months ended June 30, 1998.
Cost of revenues. Our cost of revenues increased by $857,000 from $1.1
million for the six months ended June 30, 1998 to $1.9 million for the six
months ended June 30, 1999, an increase of 80.1%. The cost of revenues was 36.7%
of total net revenues for the six months ended June 30, 1998 as compared to
27.2% of total net revenues for the six months ended June 30, 1999. The decrease
in cost of revenues as a percentage of total net revenues was primarily due to
increased economies of scale and, to a lesser extent, reductions in
manufacturing costs.
Research and development. Research and development expenses increased by
$1.0 million from $1.2 million for the six months ended June 30, 1998 to $2.2
million for the six months ended June 30, 1999, an increase of 90.1%. The
absolute dollar increase was due primarily to increases in staffing and related
personnel costs of $606,000 and, to a lesser extent, related overhead and
consulting costs. Research and development expenses represented 40.0% of total
net revenues for the
22
<PAGE> 27
six months ended June 30, 1998 as compared to 31.4% of total net revenues for
the six months ended June 30, 1999. The decrease in research and development
expenses as a percentage of total net revenues was due to increased net
revenues.
Sales and marketing. Sales and marketing expenses increased by $2.2 million
from $3.5 million for the six months ended June 30, 1998 to $5.7 million for the
six months ended June 30, 1999, an increase of 63.0%. The absolute dollar
increase was primarily due to increases in staffing, related personnel costs of
$1.3 million and, to a lesser extent, increased marketing activities. Sales and
marketing expenses were 118.9% of total net revenues for the six months ended
June 30, 1998 as compared to 79.9% of total net revenues for the six months
ended June 30, 1999. The decrease in sales and marketing expenses as a
percentage of total net revenues was due to increased net revenues.
General and administrative. General and administrative expenses increased
by $396,000 from $746,000 for the six months ended June 30, 1998 to $1.1 million
for the six months ended June 30, 1999, an increase of 53.1%. The absolute
dollar increase was primarily due to increases in staffing and related personnel
costs of $247,000 to support our growth and, to a lesser extent, consulting and
professional services costs. General and administrative expenses were 25.6% of
total net revenues for the six months ended June 30, 1998 as compared to 16.1%
of total net revenues for the six months ended June 30, 1999. The decrease in
general and administrative expenses as a percentage of total net revenues was
due to increased net revenues.
Other income (expense), net. Other income (expense), net consisted
primarily of interest income and interest expense. Other income (expense), net
decreased by $209,000 from $135,000 for the six months ended June 30, 1998 to an
expense of $74,000 for the six months ended June 30, 1999, a decrease of 154.8%.
Interest income earned increased by $39,000 from $159,000 for the six months
ended June 30, 1998 to $198,000 for the six months ended June 30, 1999, an
increase of 24.5%. This increase was due to increased interest earned on higher
average levels of cash. Interest expense increased by $247,000 from $23,000 for
the six months ended June 30, 1998 to $270,000 for the six months ended June 30,
1999. This increase was due 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, an increase of 402.8%. This increase was due to increased unit sales as a
result of 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 due to an increased number of units
sold. 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%. Decreases in consulting and other nonpersonnel-related costs were offset
by $550,000 in personnel related expenses tied to higher headcount. 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
23
<PAGE> 28
as a percentage of total net revenues was due to relatively unchanged expenses
coupled with increased net revenues.
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 increased headcount costs and related commissions
of approximately $2.3 million, marketing communication programs of approximately
$1.0 million and, to a lesser extent, consulting and travel expenses. 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 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 of approximately $400,000 and, to a lesser extent,
miscellaneous other 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 due to increased sales.
Other income (expense), net. Other income (expense), 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 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 due to increased
interest earned on higher average levels of cash. Interest expense increased by
$51,000 from $27,000 in 1997 to $78,000 in 1998, an increase of 188.9%. This
increase was due to increased financing costs.
Period from inception through December 31, 1996
During the period from January 25, 1996, the date of 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.
24
<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 ten
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 to fairly present the unaudited quarterly
results. These adjustments consist only of normal recurring adjustments. This
information should be read in conjunction with the consolidated financial
statements and related notes 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,
CONSOLIDATED STATEMENTS OF 1997 1997 1997 1997 1998 1998 1998 1998
OPERATIONS DATA: --------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Product revenues.......... $ 43 $ 153 $ 424 $ 793 $ 1,246 $ 1,671 $ 1,895 $ 2,293
Licensing revenues........ -- -- -- -- -- -- -- 125
--------- ------- ------- ------- ------- ------- ------- --------
Total net revenues.... 43 153 424 793 1,246 1,671 1,895 2,418
Cost of revenues............ 10 60 146 241 476 594 605 711
--------- ------- ------- ------- ------- ------- ------- --------
Gross profit................ 33 93 278 552 770 1,077 1,290 1,707
Operating expenses:
Research and
development............. 489 755 827 861 566 602 676 935
Sales and marketing....... 339 622 614 1,635 1,551 1,918 2,306 3,091
General and
administrative.......... 174 202 219 339 292 454 453 551
Amortization of
stock-based
compensation............ -- -- -- -- -- 228 172 137
--------- ------- ------- ------- ------- ------- ------- --------
Total operating
expenses............ 1,002 1,579 1,660 2,835 2,409 3,202 3,607 4,714
--------- ------- ------- ------- ------- ------- ------- --------
Net loss from operations.... (969) (1,486) (1,382) (2,283) (1,639) (2,125) (2,317) (3,007)
--------- ------- ------- ------- ------- ------- ------- --------
Other income (expense),
net....................... 58 27 74 52 34 101 101 53
--------- ------- ------- ------- ------- ------- ------- --------
Net loss.................... $ (911) $(1,459) $(1,308) $(2,231) $(1,605) $(2,024) $(2,216) $ (2,954)
========= ======= ======= ======= ======= ======= ======= ========
<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 31, JUNE 30,
CONSOLIDATED STATEMENTS OF 1999 1999
OPERATIONS DATA: --------- --------
(IN THOUSANDS)
<S> <C> <C>
Net revenues:
Product revenues.......... $ 2,724 $ 3,606
Licensing revenues........ 375 375
------- -------
Total net revenues.... 3,099 3,981
Cost of revenues............ 854 1,073
------- -------
Gross profit................ 2,245 2,908
Operating expenses:
Research and
development............. 955 1,265
Sales and marketing....... 2,429 3,227
General and
administrative.......... 533 609
Amortization of
stock-based
compensation............ 865 919
------- -------
Total operating
expenses............ 4,782 6,020
------- -------
Net loss from operations.... (2,537) (3,112)
------- -------
Other income (expense),
net....................... 14 (88)
------- -------
Net loss.................... $(2,523) $(3,200)
======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET REVENUES
------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1997 1997 1997 1998 1998
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net revenues:
Product revenues......... 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
Cost of revenues........... 23.3 39.2 34.4 30.4 38.2 35.5
--------- ------- ------- ------- ------- --------
Gross margin............... 76.7 60.8 65.6 69.6 61.8 64.5
Operating expenses:
Research and
development............ 1,137.2 493.5 195.0 108.6 45.4 36.0
Sales and marketing...... 788.4 406.5 144.8 206.2 124.5 114.8
General and
administrative......... 404.6 132.0 51.7 42.7 23.4 27.2
Amortization of
stock-based
compensation........... -- -- -- -- -- 13.6
--------- ------- ------- ------- ------- --------
Total operating
expenses........... 2,330.2 1,032.0 391.5 357.5 193.3 191.6
--------- ------- ------- ------- ------- --------
Net loss from operations... (2,253.5) (971.2) (325.9) (287.9) (131.5) (127.1)
--------- ------- ------- ------- ------- --------
Other income (expense),
net...................... 134.9 17.6 17.4 6.6 2.7 6.0
--------- ------- ------- ------- ------- --------
Net loss................... (2,118.6)% (953.6)% (308.5)% (281.3)% (128.8)% (121.1)%
========= ======= ======= ======= ======= ========
<CAPTION>
AS A PERCENTAGE OF NET REVENUES
-------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1998 1999 1999
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net revenues:
Product revenues......... 100.0% 94.8% 87.9% 90.6%
Licensing revenues....... -- 5.2 12.1 9.4
------- -------- ----- -----
Total net revenues... 100.0 100.0 100.0 100.0
Cost of revenues........... 31.9 29.4 27.6 27.0
------- -------- ----- -----
Gross margin............... 68.1 70.6 72.4 73.0
Operating expenses:
Research and
development............ 35.7 38.7 30.8 31.8
Sales and marketing...... 121.7 127.8 78.4 81.0
General and
administrative......... 23.9 22.8 17.2 15.3
Amortization of
stock-based
compensation........... 9.0 5.7 27.9 23.1
------- -------- ----- -----
Total operating
expenses........... 190.3 195.0 154.3 151.2
------- -------- ----- -----
Net loss from operations... (122.2) (124.4) (81.9) (78.2)
------- -------- ----- -----
Other income (expense),
net...................... 5.3 2.2 0.5 (2.2)
------- -------- ----- -----
Net loss................... (116.9)% (122.2)% (81.4)% (80.4)%
======= ======== ===== =====
</TABLE>
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Total net revenues. Total net revenues have increased each quarter since
the three months ended March 31, 1997, due to an increased number of units sold
resulting from 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. During the first three quarters of 1997, our
units shipped were manufactured by small volume specialty house manufacturers
rather than by our current high-volume contract manufacturers. Our gross margin
increased in the three months ended December 31, 1997 consistent with our launch
of the PacketShaper 4000, which is our highest margin product. 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 to 73.0% for the three months ended June 30, 1999. The increases,
beginning in the three months ended December 31, 1998, were 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 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 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, due to increased net revenues.
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 due to increased expenditures related to trade shows. Sales and
marketing expenses increased for the three months ended December 31, 1997, 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, due to increased net revenues.
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 net revenues.
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 June 30, 1999,
we had cash, cash equivalents and short-term investments of $7.7 million which
included amounts borrowed under our credit facilities.
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<PAGE> 31
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 in January 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 June 30, 1999, and are
due upon demand and are secured by substantially all of our assets. As of June
30, 1999, we had an outstanding balance of $1.5 million. The agreement expires
on January 10, 2000. We also entered into subordinated loan and security
agreements in January and May 1999. Borrowings under these loans were $2.5
million individually, bear interest at a rate of 12.25% and 12.76% per annum,
respectively, and are secured by all of our tangible assets.
Net cash used by operating activities was $3.2 million for the six months
ended June 30, 1999. Net cash used by operating activities during the six months
ended June 30, 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 used in investing activities was $1.6 million for the six months
ended June 30, 1999 as a result of net purchases of short-term investments and
property and equipment. Net cash used by investing activities was $605,000 in
1997 and $2.6 million in 1998. Cash was used during these periods to acquire
property and equipment and purchase investments. There were no short-term
investments at December 31, 1997. We currently do not have significant capital
spending or short-term 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 $6.8 million for the six
months ended June 30, 1999. The net increase was primarily due to subordinated
debt offerings that resulted in proceeds of $5.0 million and a revolving credit
facility against accounts receivables that netted $1.5 million. 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
investment-grade 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.
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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.
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
change by an insignificant amount.
We invoice all of our foreign customers from the United States in U.S.
dollars and all revenues are collected in U.S. dollars. In addition, we do not
have significant cash balances denominated in foreign currencies. As a result,
we do not believe that we have significant market risks associated with foreign
currencies or related to sales and collections.
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 and expect this process to be completed by the end of the
calendar year 1999.
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.
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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. 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 with compliance 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.
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RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the FASB issued Statement of Financial Accounting Standards,
or 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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BUSINESS
OVERVIEW
Packeteer is a provider of network software products that enhance
mission-critical application performance over enterprise WANs and the Internet.
These application-adaptive bandwidth management solutions give businesses and
service providers per-application control of bandwidth at congested WAN access
links. Our bandwidth management solutions are application-adaptive because they
allow network managers to identify different applications at the WAN access link
and to control the bandwidth allocated to each of these applications, enabling
them to protect the performance of their most critical applications.
We deliver comprehensive application-adaptive bandwidth management by
discovering and classifying network traffic, analyzing application and network
performance, controlling traffic flows and then reporting on performance. These
four steps are accomplished through our PacketWise software which is embedded in
our PacketShaper family of products and in the networking products of our
technology partners. Our PacketShaper product family consists of hardware
platforms based on Intel compatible microprocessor technologies. Installing
PacketShaper imposes no changes to the existing network's equipment,
configuration or software.
We have shipped over 2,800 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 business partners who license our
PacketWise software for integration into their networking products and other
partners, such as Lucent Technologies, who resell our products under their
private labels.
INDUSTRY BACKGROUND
The Emergence of Internet Computing
Today, both the Internet and its underlying protocol TCP/IP, have grown to
positions of prominence in enterprise networking. Protocols are predefined
mechanisms for computers to communicate over networks. 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 Internet computing, TCP/IP has become the
communications fabric, or as is commonly referred to in the technology industry,
the underlying protocol, 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 versions of enterprise software platforms, such as SAP R/3,
Oracle, PeopleSoft and Baan, the amount of network data is increasing
dramatically. E-commerce extends the confines of the enterprise network across
the Internet, making application performance difficult to ensure. Enterprise
users access graphics-intensive web sites, download large files, view streaming
media presentations, monitor news and stock quotes and access 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.
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Internet computing relies on TCP/IP as the underlying protocol to support
distributed enterprise applications and the delivery of electronic services. The
Internet Protocol, or IP, provides for routing of packets across networks that
utilize TCP/IP as their underlying protocol. The Transmission Control Protocol,
or TCP, provides flow control for, and reliable ordered delivery of, Internet
Protocol packets. 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 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 because TCP flow control is handled only by end
systems. 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.
LOGO
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.
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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.
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. Queuing technologies provide some
degree of prioritization and are frequently incorporated in routers, which are
devices that forward data packets from one LAN or WAN to another. 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, a simplistic
mechanism to coordinate the transmission of application data, 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 applications, 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
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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.
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 hardware platforms
based on Intel compatible microprocessor technologies that run various
configurations of our PacketWise software. Our PacketShaper products provide
customers with a 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.
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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.
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 R/3, 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 disrupt network connectivity in the event of software
or hardware failure.
- Enable Interactive Services. VoIP, 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
web site 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 based on our comprehensive solution that provides for effective
bandwidth management, 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 Telecommunications Service Provider Market. We are
actively pursuing opportunities in the service provider market and currently
have numerous service provider customers, including: BIGLOBE, 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, systems integrators and OEMs, 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 PQ Client Computing, a subsidiary of
Comparex Holdings; Unisys Corp.; and Williams Communications Solutions, LLC.
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 QoS is required but is beyond the scope
of the PacketShaper offering. We currently have two software OEM relationships.
ADC Telecommunications has licensed portions of our PacketWise software to
incorporate in its networking products. Adtran has licensed PacketWise
technology to enable classification and partitioning in managed network services
products. In addition, Lucent Technologies, Memorex Telex and NEC sell
PacketShaper with PacketWise software under their own labels. These private
label relationships allow our products to reach consumers and markets that we
would have difficulty reaching alone. With Memorex Telex and NEC we have
partners in Asia that provide local account management. Lucent Technologies
provides us a worldwide partnership with a
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<PAGE> 41
leader in the convergence of data and voice. 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, precise rate control expertise and ability to
measure response time and network performance. We intend to invest our research
and development resources to increase performance by handling higher speed WAN
connections, functionality by identifying and managing additional applications
or traffic types, and modularity by taking individual components of Packetwise
together or on a stand-alone basis 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 Intel compatible microprocessor technology running various
configurations of PacketWise. We also license our PacketWise software to OEM
partners for incorporation in their 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 megabits per second, or
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, or 100 Mbps, 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. Even if one of the fans or power supplies
fails, PacketShaper still operates.
</TABLE>
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<PAGE> 42
PacketShapers are 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 that maintains network connectivity if
a PacketShaper is turned off or shuts down due to a hardware or software
failure. PacketShapers are typically deployed between the LAN and the WAN access
router in order to manage bandwidth at the WAN access link where traffic needs
to be controlled to avoid a bottleneck. The diagram below depicts examples of
how PacketShapers are deployed on customer networks.
LOGO
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<PAGE> 43
TECHNOLOGY
We differentiate our solution by combining our knowledge of enterprise
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, web
browser 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 protocol
type or port numbers. 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 more basic protocols to classify traffic prevents network
managers from discovering important traffic trends and limits policy-setting.
Sophisticated traffic types such as voice calls over networks based on Internet
Protocol, or VoIP, Oracle 8, TN3270, Citrix, and Microsoft DCOM cannot be
identified using rudimentary traffic classification schemes. PacketShaper
identifies traffic markers, detects changing, or dynamic, port assignments and
tracks transactions with changing 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 on a centralized server and can also differentiate among various
applications using the same port. For example, noncritical applications such as
web browsing and PointCast and mission-critical applications such as PeopleSoft
e7.5 and critical web sites are all assigned to the same TCP port number on a
network but can be individually classified using PacketShaper.
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<PAGE> 44
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 older
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 to or from a particular database. The
PacketShaper automatically classifies over 150 different traffic types, some of
which are listed below. The traffic types are named either with their associated
protocol or application and are grouped according to the class of application
which generated that traffic. Each traffic type has an associated protocol which
allows it to be recognized on the network.
<TABLE>
<S> <C> <C> <C> <C> <C>
CLIENT/SERVER DIRECTORY E-MAIL FILE INTERNET LEGACY LAN
CORBA SERVICES cc:MAIL SERVER ActiveX AND NON-IP
FileMaker Pro CRS IMAP Lockd FTP AppleTalk
FIX DHCP MS DCOM NetBIOS-IP Gopher DECnet
LotusNotes DNS (MS NFS HTTP IPX
MS DCOM DPA Exchange IPv6 SNA
MS SQL Finger MSSQ GAMING IRC FNA
Oracle Ident POP3 SYSTEMS NNTP LAT
SunRPC Kerberos SMTP Doom SSH NetBEUI
LDAP Kali SSL AFP
RADIUS Quake TFTP
TACACS Quake II UDP
Whois UUCP
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
NETWORK PRINT ROUTING SESSION TUNNELING VOICE OVER
MANAGEMENT LPR AURP Citrix PROTOCOL IP
PROTOCOL TN3287 BGP RDP DLS CUSeeMe
Cisco TN5250p CBT Telnet GRE H.323
Discovery DRP Timbuktu IPSEC I-Phone
ICMP PUSH EGP TN3270 L2TP Micom VIP
NTP Backweb EIGRP TN5250 PPTP RTCP
SNMP Marimba IGMP Xwindows RTP
SYSLOG PointCast OSPF T.120
PIM STREAMING VDOPhone
RARP MEDIA
RIP MPEG
Spanning NetShow
Tree RealAudio
RTSP
ST2
Streamworks
</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. Our policy features 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
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<PAGE> 45
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 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 traffic that tends to consume
any available bandwidth.
- 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.
- 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
systems network architecture, or SNA, and asynchronous transfer mode, or 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 paces 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 which consume all available bandwidth, 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, however, 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, 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
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<PAGE> 46
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. 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.
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 PacketShapers that are distributed throughout the network. To
address these requirements, PacketShaper offers its own features, aligns with
industry standards and integrates with third-party tools.
For example, PacketShaper's Group Configuration Service is a feature in the
form of a web-based tool that network managers use to configure and deploy large
PacketShaper installations. As another example, PacketShaper can access a
lightweight directory access protocol, or LDAP, which is a networking industry
standard, to enable centralized management of data such as lists of IP
addresses. Finally, PacketShaper is accessible from within HP OpenView, a
Hewlett-Packard developed tool for network management.
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CUSTOMERS
We sell all of our products through indirect channel partners. The
following is a representative list 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 Alcatel Kanematsu USA, Inc.
DTM Corporation Antea Consulting Lan Systems Pty Ltd.
M-13 Data Construction Macnica, Inc.
MicroVisions Iperformances Nissho Electronics Corporation
NCA (Network Logical Networks Plc Teledata (Singapore) Ltd.
Computing Architects, Inc.) ME Networks AG Unitech Computer Systems Limited
NETPLEX Systems, Inc. MIEL
NETsource Persetel PQ Client Computing
Ocean Systems Engineer/ITI Telemation AG & Co Netzwerke
(OSEC) Wang Holdings Netherlands B.V.
SE Technologies, Inc.
Solunet, Inc.
ThinApse Corp
Trivalent LAN Concepts, Inc.
Unisys Corp. through LACD
</TABLE>
The following is a representative list of end users that have deployed
multiple PacketShapers:
<TABLE>
<CAPTION>
ENTERPRISES SERVICE PROVIDERS
- ------------------------------------------------------------------- --------------------------------
<S> <C> <C>
American Bottling Company Mitchell International, Inc. BIGLOBE
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 six months ended June 30, 1999, sales to ADC Telecommunications accounted
for 10.6% of total net revenues and sales to Macnica accounted for 10.5% 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 six months ended June 30
1999, sales to the top 10 indirect channel partners accounted for 46.2% of total
net revenues.
In 1998, sales to customers outside of North America constituted 54.7% of
total net revenues and in the six months ended June 30, 1999, revenues
attributable to sales to customers outside of North America constituted 55.0% of
total net revenues.
The following representative case studies of three of our current customers
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
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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, or 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,
attempt to consume all of the available bandwidth on a network, leaving other
applications with inadequate bandwidth to perform properly. 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 enabling SAP R/3 to perform even
during heavy network congestion. The easily deployable 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. PEMSTAR, 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. PEMSTAR, 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. 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
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<PAGE> 49
providers that provide valued-added service offerings, such as web hosting,
application outsourcing and application service-level management.
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 an indirect distribution channel
which is comprised of 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.
- Technology Partners. Technology partners are OEMs and companies with whom
we have established joint development relationships. These partners
license our PacketWise software for integration into their networking
products. For example, we established a relationship with Hewlett-Packard
to enhance HP OpenView so that PacketShaper can be managed through its
interface.
- 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
identify the needs of specific customer environments. For example, we
formed an alliance with Citrix to identify and enhance the performance of
individual applications within the Citrix MetaFrame and WinFrame
environments and an alliance with Clarent Corporation to identify and
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 June 30, 1999, our worldwide sales and marketing organization
consisted of 51 individuals, including managers, sales representatives and
technical and administrative support personnel. We have ten domestic sales
offices located in Bedminster, New Jersey; Chicago, Illinois; Cupertino and San
Diego, California; Dallas and Houston, Texas; Fall River, Massachusetts;
Littleton, Colorado; Duluth, Georgia; 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 55.0% of our total net revenues for
the six months ended June 30, 1999. In addition, sales to Asia Pacific accounted
for 31.0% of our total net revenues in 1998 and 28.7% of our total net revenues
for the six months ended June 30, 1999.
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<PAGE> 50
RESEARCH AND DEVELOPMENT
As of June 30, 1999, our research and development organization consisted of
26 employees, each with expertise in a different area of our software: core
engineering, classification, configuration and reporting management, 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> <C>
Q1 1997 PacketShaper 2000 - First product introduced, a T1
PacketWise v1.1 bandwidth-capacity hardware model
- -------------------------------------------------------------------------------------------------
Q2 1997 PacketWise v2.0 - Policy Console, which provides management of
PacketShaper from a web browser
- Multi-protocol support (non-IP traffic types)
- -------------------------------------------------------------------------------------------------
Q3 1997 PacketWise v2.1 - First add-on policy modules for classifying and
suggesting policies for applications
- -------------------------------------------------------------------------------------------------
Q4 1997 PacketShaper 4000 - T3 bandwidth-capacity hardware model introduced
----------------------------------------------------------------------------------
PacketShaper 1000 - Fractional-T1 bandwidth-capacity hardware model
introduced
----------------------------------------------------------------------------------
PacketWise v3.0 - Integrated measurement engine for recording and
reporting usage and performance data
- Built-in application traffic discovery and
suggested policies
- -------------------------------------------------------------------------------------------------
Q2 1998 PacketWise v3.1 - Policy-based management
-- Dynamic domain name servers, or DNS, software
that lets users locate computers on the
Internet by domain name, to permit traffic to
be classified by dynamic DNS name and not
static IP address
-- Fail-over to lower-capacity backup link, to
permit different policies to be applied where
lower bandwidth capacity is available
-- Group configuration services, for sharing
configurations between multiple PacketShapers
- Support for classifying and managing VoIP
traffic
- Support for classifying and managing thin-client
traffic
- HP OpenView network management support
- -------------------------------------------------------------------------------------------------
Q3 1998 Memorex Telex - First private label PacketShaper introduced
Bandwidth Manager
- -------------------------------------------------------------------------------------------------
Q4 1998 PacketWise v3.1-ADC - First commercial OEM software product license
- -------------------------------------------------------------------------------------------------
Q1 1999 PacketWise v4.0 - Support for measurement and reporting of
response times
- Deep application classification of Oracle (e.g.
database name) and of Citrix (e.g. published
application name)
- Microsoft Exchange classification
- -------------------------------------------------------------------------------------------------
Q2 1999 PacketWise v4.1-Adtran - OEM software product license
----------------------------------------------------------------------------------
Lucent bandwidth manager - Private label PacketShaper
- -------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 51
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. These services are typically sold as
a one-year contract to our resellers and end users. These services are not
provided without a maintenance contract. Our two maintenance programs are
described as follows:
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 updates; and
- 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;
- a software subscription service allowing access to all software upgrades
and updates;
- unlimited telephone and e-mail support; and
- 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. Increased
competition could result in reduced prices and gross margins for our products
and could require increased spending by us on research and development, any of
which could harm our business. We compete with Cisco, CheckPoint and several
small private companies which sell products that 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;
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<PAGE> 52
- size and scope of distribution network;
- brand name; and
- access to customers and size of installed customer base.
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 June 30, 1999, Packeteer employed a total of 90 full-time employees.
Of the total number of employees, 26 were in research and development, 40 in
sales and customer service, 11 in marketing, three in operations and 10 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: Duluth, Georgia; 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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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of June 30, 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 1991, 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., a wireless Internet
networking company, 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
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<PAGE> 54
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> 55
company, Montgomery Securities, an investment bank, 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
Networks, 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 which was acquired by 3Com 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 are eligible to receive discretionary option grants and
stock issuances under the 1999 Stock Incentive Plan.
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<PAGE> 56
EXECUTIVE COMPENSATION
The following table sets forth compensation 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 for the year ended December 31, 1998, whose salary and bonus exceeded
$100,000.
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
The following table sets forth option grants for the year ended December
31, 1998 to Packeteer's Chief Executive Officer and each of the four other most
highly compensated executive officers for the year ended December 31, 1998,
whose salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
PERCENT OF STOCK PRICE VALUE OF
NUMBER OF TOTAL OPTIONS APPRECIATION OPTION GRANT
SHARES GRANTED TO FOR OPTION TERM(3) AT ASSUMED
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION --------------------- INITIAL
NAME OPTIONS GRANTED FISCAL YEAR(1) PRICE(2) DATE 5% 10% OFFERING PRICE
---- --------------- -------------- -------- ---------- --------- --------- --------------
<S> <C> <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 $550,000
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
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<PAGE> 57
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.
(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 earlier of the closing of at
least two OEM agreements, as a result of Mr. Klaus' efforts or August 19,
2005. 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 FISCAL YEAR 1998
AND FISCAL YEAR-END 1998 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 Chief
Executive Officer and each of the four other most highly compensated executive
officers for the year ended December 31, 1998, whose salary and bonus exceeded
$100,000. 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 VALUE OF
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED UNDERLYING
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS UNEXERCISED
SHARES YEAR-END AT FISCAL YEAR-END(4) OPTIONS AT
ACQUIRED ON VALUE --------------------------- --------------------------- ASSUMED INITIAL
NAME EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE OFFERING PRICE
---- ----------- ----------- ----------- ------------- ----------- ------------- ---------------
<S> <C> <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) $6,000 $6,000 $550,000
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 earlier of the closing of at
least two OEM agreements, as a result of Mr. Klaus' efforts or August 19,
2005. 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,
which was $3.74 per share, as determined by the board, 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
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<PAGE> 58
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. Except as described 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. 3,836,167 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;
- 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;
- the salary investment option grant program, which may, at the plan
administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow executive officers and other key
executives selected by the plan administrator the opportunity to apply a
portion of their base salary each year to the acquisition of special
below-market stock option grants; and
- the director fee option grant program, which may, in the plan
administrator's sole discretion, be activated for one or more calendar
years and, if so activated, will allow non-employee board members the
opportunity to apply all or a portion of the annual retainer fee
otherwise payable to them in cash each year to the acquisition of special
below-market option grants.
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
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<PAGE> 59
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.
- 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 Equity Incentive
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
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<PAGE> 60
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
the optionee no longer serves on the board. 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
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.
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<PAGE> 61
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 February and August each
year beginning on February 1, 2000. 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%, or such lesser
amount as may be designated by the plan administrator prior to the beginning of
a six month purchase period of his or her total cash compensation 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 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 except
the initial purchase date will occur on January 31, 2000. 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 of the four other most highly compensated executive
officers for the year ended December 31, 1998, whose salary and bonus exceeded
$100,000. 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.
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<PAGE> 62
In the event that Packeteer is acquired by merger or asset sale, 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. This accelerated vesting shall take place
whether that change of control is 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. This vesting shall occur either at the time of such change in
control or upon the subsequent termination of the individual's service within a
designated period following such change in control. This designated period shall
not exceed 18 months. Some of the options incorporated from the Predecessor Plan
will immediately vest upon an acquisition of Packeteer by merger or asset sale,
as if they had been held for two times the length of the time they had actually
been held by the optionee, and the options will terminate unless 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 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> 63
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 New Enterprise Associates VII.
(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."
59
<PAGE> 64
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock as of June 30, 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 Chief Executive Officer and the four other most highly compensated
executive officers for the year ended December 31, 1998, whose salary and
bonus exceeded $100,000; 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
-----------------------
NUMBER BEFORE THE AFTER THE
OF SHARES OFFERING OFFERING
---------------- ---------- ---------
<S> <C> <C> <C>
Peter T. Morris.................................... 4,520,620 20.4% 17.3%
New Enterprise Associates(1)
2490 Sand Hill Road
Menlo Park, CA 94025
BG Services Limited................................ 2,538,071 11.5 9.7
6 Minden Place
St. Helier
Channel Islands, JE 24WQ
William R. Stensrud................................ 1,618,128 7.3 6.2
Enterprise Partners(2)
7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
Onset Enterprise Associates II, L.P................ 1,312,600 5.9 5.0
2490 Sand Hill Road
Menlo Park, CA 94025
Craig W. Elliott(3)................................ 1,250,000 5.6 4.7
Brett D. Galloway(4)............................... 2,271,300 10.2 8.7
Robert L. Packer(5)................................ 2,071,300 9.3 7.9
William E. Klaus(6)................................ 250,000 1.1 1.0
Neil A. Sundstrom(7)............................... 262,500 1.2 1.0
Steven J. Campbell(8).............................. 1,238,620 5.6 4.7
Joseph A. Graziano(9).............................. 617,656 2.8 2.4
All directors and officers as a group (11
persons)(10)..................................... 14,700,124 63.3 54.0
</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. De Anza Boulevard, Cupertino, California
95014.
The number of shares beneficially owned and the percentage of shares
beneficially owned prior to the offering are based on 22,153,884 shares
outstanding as of June 30, 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
currently exercisable or exercisable within 60 days after June 30, 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
60
<PAGE> 65
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.
(1) 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.
(2) 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.
(3) Includes 250,000 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 166,676 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.
(4) Includes 62,500 shares of common stock issuable upon exercise of
immediately exercisable options.
(5) Includes 62,500 shares of common stock issuable upon exercise of
immediately exercisable options.
(6) Includes 50,000 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 70,843 shares of common
stock subject to Packeteer's right of repurchase.
(7) Includes 46,875 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 119,788 shares of common
stock subject to Packeteer's right of repurchase. Includes 3,000 shares
held by Neil Sundstrom, as Custodian under the California Uniform Minor
Act, for the benefit of Eric John Sundstrom and Lee Roland Sundstrom until
age 18.
(8) Includes 1,238,620 shares held by the Campbell 1984 Revocable Trust U/A
2/12/84 UT, of which Mr. Campbell is Trustee.
(9) Includes 22,925 shares of common stock subject to Packeteer's right of
repurchase.
(10) Includes 1,071,875 shares of common stock issuable upon exercise of
immediately exercisable options. Also includes 380,232 shares of common
stock subject to Packeteer's right of repurchase.
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<PAGE> 66
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 June
30, 1999, there were an aggregate 22,153,884 shares of common stock outstanding
held of record by 78 stockholders and after giving effect to this offering,
there will be an aggregate of 26,153,884 shares of common stock issued and
outstanding and approximately 2,735,749 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 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 out of funds legally available
for dividends. 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 June 30, 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 than
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<PAGE> 67
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. An interested stockholder is 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> 68
- 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, which excludes 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> 69
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
At June 30, 1999, there were warrants to purchase 200,628 shares of common
stock at a weighted average exercise price of $3.67.
LISTING
Our common stock has been 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> 70
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, 26,153,884 shares of common stock will be outstanding,
assuming the issuance of an aggregate of 4,000,000 shares of common stock. The
number of shares outstanding after this offering is based on the number of
shares outstanding as of June 30, 1999, and assumes no exercise of outstanding
options or warrants. The 4,000,000 shares sold in this offering will be freely
tradable without restriction under the Securities Act. The remaining 22,153,884
shares of common stock outstanding upon completion of the offering 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 of the Securities Act. In addition,
all outstanding shares are subject to a 180 day market standoff either directly
with Packeteer or as described below.
All of the officers and directors, who hold an aggregate of 13,628,249
shares of common stock, and stockholders of Packeteer holding an aggregate of
8,429,966 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. Transfers may be
made earlier:
- as a bona fide gift or gifts, provided the donee or donees agree in
writing to be bound by this restriction;
- as a transfer to members of the undersigned's immediate family or to
trusts for the benefit of members of the undersigned's immediate family,
provided that the transferees agree in writing to be bound by the terms
of this restriction;
- as a distribution to partners, stockholders or beneficiaries of the
transferor, provided that the distributees agree in writing to be bound
by the terms of this restriction;
- with respect to dispositions of common stock acquired on the open market;
- with respect to sales or purchases of common stock acquired on the open
market; or
- with the prior written consent of BancBoston Robertson Stephens Inc.
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. 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.
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<PAGE> 71
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.
67
<PAGE> 72
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 in this prospectus, 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 600,000 additional shares of common stock at the same price per
share as we will receive for the 4,000,000 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 these 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 4,000,000 shares offered in this offering. If purchased, such
additional shares will be sold by the underwriters on the same terms as those on
which the 4,000,000 shares are being sold. We will be obligated, according to
the option, to sell shares to the extent the option is exercised. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the shares of common stock offered in this offering.
If this option is exercised in full, the total public offering price of the
4,600,000 shares we sell to the underwriters, underwriting discounts and
commissions on such shares and total proceeds to us from the sale of these
shares will be $ , $ and $ , respectively.
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<PAGE> 73
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 95,667 shares of
outstanding common stock and holders of options and warrants to purchase 490,128
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 been approved for quotation on the Nasdaq National Market
under the symbol PKTR.
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
69
<PAGE> 74
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 240,000 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 legality of the common stock we are offering will be passed upon for
Packeteer by Brobeck, Phleger & Harrison LLP, Palo Alto, California, and 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.
70
<PAGE> 75
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.
71
<PAGE> 76
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.......................................
--------
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL UNDERWRITER
-------------------------
<S> <C>
BancBoston Robertson Stephens International Limited.........
Bear, Stearns International Limited.........................
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 in this prospectus, 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 600,000 additional shares of common stock at the same price per
share as we will receive for the 4,000,000 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 these 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 4,000,000 shares offered in this offering. If purchased, such
additional shares will be sold by the underwriters on the same terms as those on
which the 4,000,000 shares are being sold. We will be obligated, according to
the option, to sell shares to the extent the option is exercised. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the shares of common stock offered in this offering.
If this option is exercised in full, the total public offering price of the
4,600,000 shares we sell to the underwriters, underwriting discounts and
commissions on such shares and total proceeds to us from the sale of these
shares will be $ , $ and $ , respectively.
68
<PAGE> 77
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 warrants to purchase
200,628 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.
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
69
<PAGE> 78
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 240,000 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 legality of the common stock we are offering will be passed upon for
Packeteer by Brobeck, Phleger & Harrison LLP, Palo Alto, California, and 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.
70
<PAGE> 79
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.
71
<PAGE> 80
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 June 30, 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 six
months ended June 30, 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 six months ended June 30, 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 six
months ended June 30, 1998 and 1999 (unaudited)........... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 81
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.
/s/ KPMG LLP
Mountain View, California
March 3, 1999, except as to
Note 9, which is as of
May 19, 1999
F-2
<PAGE> 82
PACKETEER, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, JUNE 30, STOCKHOLDERS'
------------------ -------- EQUITY AT
1997 1998 1999 JUNE 30, 1999
------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,416 $ 2,550 $ 4,569
Short-term investments.................................... -- 1,927 3,205
Accounts receivable, less allowance for doubtful accounts
of $37, $293, and $211 as of December 31, 1997 and 1998,
and June 30, 1999....................................... 721 2,745 1,955
Other receivables......................................... 764 39 50
Inventories............................................... 362 188 202
Prepaids and other current assets......................... 124 124 410
------- -------- --------
Total current assets.................................. 4,387 7,573 10,391
Property and equipment, net................................. 404 794 849
Other assets................................................ 144 203 190
------- -------- --------
Total assets.......................................... $ 4,935 $ 8,570 $ 11,430
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ -- $ -- $ 1,532
Current portion of capital lease obligations.............. 36 215 286
Current portion of note payable........................... 67 71 3,044
Accounts payable.......................................... 1,334 1,015 726
Accrued compensation...................................... 85 253 452
Other accrued liabilities................................. 211 1,011 1,561
Deferred revenue.......................................... 42 1,507 1,004
------- -------- --------
Total current liabilities............................. 1,775 4,072 8,605
Capital lease obligations, less current portion............. 116 570 643
Note payable, less current portion.......................... 222 151 1,837
Other long-term liabilities................................. 18 18 18
------- -------- --------
Total liabilities..................................... $ 2,131 $ 4,811 $ 11,103
------- -------- --------
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 June 30, 1999; liquidation
preference of $9,955, $20,013 and $20,013 in aggregate
as of December 31, 1997 and 1998, and June 30, 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 9,762,883
shares issued and outstanding as of December 31, 1997
and 1998, and June 30, 1999, respectively; pro
forma -- 22,153,884 shares issued and outstanding as of
June 30, 1999........................................... 9 10 10 23
Additional paid-in capital.................................. 10,145 20,924 26,043 26,043
Deferred stock-based compensation........................... -- (514) (3,265) (3,265)
Notes receivable from stockholders.......................... (214) (729) (806) (806)
Accumulated deficit......................................... (7,146) (15,945) (21,668) (21,668)
------- -------- -------- --------
Total stockholders' equity............................ 2,804 3,759 327 $ 327
------- -------- -------- ========
Total liabilities and stockholders' equity............ $ 4,935 $ 8,570 $ 11,430
======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 83
PACKETEER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED SIX MONTHS ENDED
JAN. 25, 1996 DECEMBER 31, JUNE 30,
(INCEPTION) TO ----------------- -----------------
DEC. 31, 1996 1997 1998 1998 1999
-------------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues:
Product revenues........................... $ -- $ 1,413 $ 7,105 $ 2,917 $ 6,330
Licensing revenues......................... -- -- 125 -- 750
------- ------- ------- ------- -------
Total net revenues.................... -- 1,413 7,230 2,917 7,080
Cost of revenues............................. -- 457 2,386 1,070 1,927
------- ------- ------- ------- -------
Gross profit................................. -- 956 4,844 1,847 5,153
Operating expenses:
Research and development................... 725 2,932 2,779 1,168 2,220
Sales and marketing........................ 349 3,210 8,866 3,469 5,656
General and administrative................. 238 934 1,750 746 1,142
Amortization of stock-based compensation... -- -- 537 228 1,784
------- ------- ------- ------- -------
Total operating expenses.............. 1,312 7,076 13,932 5,611 10,802
------- ------- ------- ------- -------
Net loss from operations..................... (1,312) (6,120) (9,088) (3,764) (5,649)
Other income (expense), net.................. 75 211 289 135 (74)
------- ------- ------- ------- -------
Net loss..................................... $(1,237) $(5,909) $(8,799) $(3,629) $(5,723)
======= ======= ======= ======= =======
Basic and diluted net loss per share......... $ (1.28) $ (1.82) $ (1.54) $ (0.72) $ (0.76)
======= ======= ======= ======= =======
Shares used in computing basic and diluted
net loss per share......................... 965 3,253 5,709 5,064 7,565
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 84
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 SIX MONTHS ENDED JUNE 30, 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........................... -- -- -- -- -- -- -- -- -- --
Stock options granted to new employees.... -- -- -- -- -- -- -- -- -- --
Issuance of common stock upon exercise of
stock options........................... -- -- -- -- -- -- -- -- 57 --
Repurchase of common stock................ -- -- -- -- -- -- -- -- (17) --
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 June 30, 1999
(unaudited)............................. 2,800 $ 3 4,822 $ 5 2,216 $ 2 2,553 $ 3 9,763 $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........................... 621 -- -- -- 621
Stock options granted to new employees.... 16 -- -- -- 16
Issuance of common stock upon exercise of
stock options........................... 216 -- (182) -- 34
Repurchase of common stock................ (16) -- 17 -- 1
Issuance of warrants for Series D
preferred stock......................... 368 -- -- -- 368
Repayments of notes receivable from
stockholders............................ -- -- 88 -- 88
Deferred compensation related to stock
option grants........................... 3,914 (3,914) -- -- --
Amortization of stock-based
compensation............................ -- 1,163 -- -- 1,163
Net loss.................................. -- -- -- (5,723) (5,723)
------- ------- ----- -------- -------
Balances as of June 30, 1999
(unaudited)............................. $26,043 $(3,265) $(806) $(21,668) $ 327
======= ======= ===== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 85
PACKETEER, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM YEARS ENDED SIX MONTHS ENDED
JANUARY 25, 1996 DECEMBER 31, JUNE 30,
(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) $(3,629) $(5,723)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 68 261 215 68 250
Allowance for doubtful accounts................. -- 37 305 105 (82)
Amortization of deferred stock-based
compensation.................................. -- -- 542 228 1,784
Issuance of stock purchase rights............... -- 26 38 38 16
Amortization of deferred interest............... -- -- -- -- 61
Changes in operating assets and liabilities:
Accounts receivable........................... -- (758) (2,329) (488) 872
Other receivables............................. -- (764) 724 745 (11)
Inventories................................... (6) (356) 175 (122) (14)
Prepaids and other current assets............. (18) (106) -- (131) (286)
Accounts payable.............................. 149 1,185 (318) 204 (289)
Accrued compensation.......................... 25 60 168 97 199
Other accrued liabilities..................... 28 184 800 145 550
Deferred revenue.............................. -- 42 1,464 47 (503)
------- ------- ------- ------- -------
Net cash used in operating activities....... (991) (6,098) (7,015) (2,693) (3,176)
------- ------- ------- ------- -------
Cash flows from investing activities:
Purchases of property and equipment............... (241) (492) (605) (242) (305)
Purchase of short-term investments................ -- -- (1,927) -- (3,205)
Proceeds from sale of short-term investments...... -- -- -- -- 1,927
Other assets...................................... -- (113) (59) (35) 13
------- ------- ------- ------- -------
Net cash used in investing activities....... (241) (605) (2,591) (277) (1,570)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net proceeds from issuance of preferred stock..... 5,472 4,391 9,108 9,050 --
Net proceeds from issuance of common stock........ 15 49 53 50 34
Proceeds from stockholders' note receivable....... -- -- 1 -- 88
Repurchase of common stock........................ -- (4) 12 (1) 1
Borrowings under line of credit................... -- -- -- -- 1,892
Repayments of line of credit...................... -- -- -- -- (360)
Proceeds from note payable........................ -- 287 -- -- 5,000
Payments of note payable.......................... -- (29) (67) (33) (34)
Proceeds from lease financing..................... -- 165 749 292 267
Principal payments of capital lease obligations... -- (13) (116) (44) (123)
Proceeds from other long-term liabilities......... -- 18 -- -- --
------- ------- ------- ------- -------
Net cash provided by financing activities... 5,487 4,864 9,740 9,314 6,765
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents....................................... 4,255 (1,839) 134 6,344 2,019
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 $ 8,760 $ 4,569
======= ======= ======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during year for interest................ $ -- $ -- $ 48 $ 17 $ 172
======= ======= ======= ======= =======
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 $ 444 $ 182
======= ======= ======= ======= =======
Repurchase of common stock in exchange for
cancellation of notes receivable.............. $ -- $ 6 $ 52 $ 4 $ 17
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 86
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 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, Hong Kong and The Netherlands.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the financial
statements of the Company and its three 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 June 30, 1999 and the
results of its operations and its cash flows for the six months ended June 30,
1998 and 1999.
(e) Revenue Recognition
The Company recognizes product revenues, with provision made for estimated
returns, 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.
Maintenance revenue on product sales is recognized ratably over the term of
the maintenance period.
F-7
<PAGE> 87
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 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.
Licensing revenues relate to OEM arrangements. 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
sufficient evidence of fair value of post-contract customer support is not
available, revenues are recognized ratably over the support period. We do not
have sufficient evidence of fair value of post-contract customer support for our
current OEM license arrangements, and therefore are recognizing the revenues for
these arrangements 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.
F-8
<PAGE> 88
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(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.
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.
F-9
<PAGE> 89
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
(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
period-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.
F-10
<PAGE> 90
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
(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
F-11
<PAGE> 91
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
(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> 92
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 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> 93
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 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 June 30, 1999, the Company had
designated and issued preferred stock as follows:
<TABLE>
<CAPTION>
OUTSTANDING SHARES
--------------------------
DECEMBER 31,
DESIGNATED -------------- JUNE 30, 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> 94
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 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. As of December 31, 1998, 747 of these shares were subject to repurchase.
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.
F-15
<PAGE> 95
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. STOCKHOLDERS' EQUITY -- (CONTINUED)
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. 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 25%
vested one year after the date of grant with 1/48 per month vesting thereafter
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> 96
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 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)......................... 17 -- --
Granted (unaudited)............................. (1,503) 1,503 4.18
Exercised (unaudited)........................... -- (53) 3.99
Cancelled (unaudited)........................... 16 (16) 3.23
------ ------
Balances as of June 30, 1999...................... 433 2,507 $3.21
====== ======
</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> 97
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 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 six months
ended June 30, 1999, the Company has recorded deferred stock-based compensation
of $787 and $3,914 (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 $1,163 (unaudited)
during the six months ended June 30, 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> 98
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 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 differences between the income tax expense (benefit) computed at the
federal statutory rate of 34% and the Company's actual income tax expense
(benefit) for the periods presented are as follows:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 25, 1996
TO
DECEMBER 31, 1996 1997 1998
----------------- ------ ------
<S> <C> <C> <C>
Expected income tax expense....................... (421) (2,009) (2,992)
Net operating losses not benefited................ 421 2,009 2,992
---- ------ ------
Income tax expense (benefit)...................... 0 0 0
==== ====== ======
</TABLE>
F-19
<PAGE> 99
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. INCOME TAXES -- (CONTINUED)
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> 100
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 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.
Long-lived assets are primarily located in North America. Long-lived assets
located outside North America are insignificant.
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
F-21
<PAGE> 101
PACKETEER, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1997 AND 1998
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
9. SUBSEQUENT EVENTS -- (CONTINUED)
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 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 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 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 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 or 2% of the total number of common stock
shares outstanding.
Loan and Security Agreement (Unaudited)
In May 1999, the Company entered into a loan and security agreement
evidenced by a secured promissory note of $2,500. The note has a stated interest
rate of 12.76% with interest-only payments due monthly. The final interest and
principal payment is due in May 2000. In connection with the note, the Company
issued a warrant to purchase 45 shares of Series D preferred stock at $6.25 per
share. The warrant is immediately exercisable and expires in May 2009. The
Company estimated the fair value of the warrant on the grant date to be $157
using the Black-Scholes model. The Company will amortize the value to interest
expense over the term of the note.
F-22
<PAGE> 102
DESCRIPTION OF ARTWORK
INSIDE FRONT COVER
Centered at the top of the Inside Cover, is the caption, "Shaping the
Internet for Business. Packeteer provides bandwidth management solutions that
enhance the performance of applications critical to a customer's business which
run over enterprise wide-area networks and the Internet. This is accomplished
using a comprehensive 4-step process."
Under the caption is a circle consisting of four large arrows pointing in a
clockwise direction. In the middle of the circle is the Packeteer logo. Embedded
in the stem of each arrow is one word reading as follows beginning with the
arrow in the upper left section of the circle: "Classify", "Analyze", "Control"
and "Report." At the outside of each arrow is a caption and a quotation. Outside
the arrow embedded with the word "Classify" is the caption, "Discover & Classify
Traffic" followed by the words, "Identifying the types of network traffic
competing for limited bandwidth is the first step toward solving the problem.
Packeteer discovers and classifies traffic, often exposing applications our
customers do not even realize were sneaking onto their networks." Outside the
arrow embedded with the word, "Analyze" is the caption, "Analyze Network
Behavior" followed by the words, "Packeteer technology shows how limited
bandwidth is consumed. When customers realize that a majority of their bandwidth
is being devoured by casual web browsing, it becomes obvious why critical
applications move so slowly." Outside the arrow embedded with the word "Control"
is the caption, "Control Bandwidth Allocation" followed by the words, "Packeteer
enables customers to protect the performance of critical applications with
bandwidth policies. Control less important traffic while giving voice and video
streams the bandwidth they require for clear reception. Outside the arrow
embedded with the word "Report" is the caption "Report on Performance" followed
by the words "Packeteer's graphs and reports prove to internal and external
customers that applications continue to perform despite a constantly growing
network. If an application becomes too slow, customers can set a policy to
protect the application and keep employees productive."
At the bottom of the Inside Cover is a picture of three PacketShapers next
to the words, "PacketShaper 1000, 2000 & 4000. Packeteer's stand-alone bandwidth
management solutions. PacketWise embedded technology for OEMs," followed by the
PacketWise logo.
<PAGE> 103
BACK INSIDE COVER
The back inside cover has a caption reading, "Take Control of Your Network.
Packeteer's PacketShaper is controlled and monitored through a web-browser
interface that enables network managers with a password to configure, control
and monitor the PacketShaper from anywhere via a network connection. Some sample
screens are shown." On the remainder of the page are five overlapping computer
screenshots displaying various reports on Internet traffic produced by the
PacketWise software.
Below are two cutaway diagrams of bandwidth cable. The left diagram,
entitled "Before PacketShaper," illustrates how the use of bandwidth for "Heavy
Web 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
traffic is.
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> 104
LOGO
<PAGE> 105
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........................................ $ 17,904
NASD Filing Fee............................................. 6,990
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............................................... 20,446
----------
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> 106
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. On May 24, 1999, Packeteer issued 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> 107
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, 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 Indemnity Agreement entered into by Registrant with
each of its executive officers and directors.
10.12+** Loan and Security Agreement between Packeteer and MMC/GATX
Partnership No. 1 dated May 20, 1999.
10.13+ OEM Agreement between Packeteer and Lucent Technologies,
Inc. dated June 25, 1999.
10.14+ OEM Agreement between Packeteer and Adtran, Inc. dated June
29, 1999.
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>
- -------------------------
** Previously filed.
+ Confidential treatment has been requested as to portions of this exhibit.
(b) SCHEDULES
Schedule II -- Valuation and Qualifying Accounts and Reserves
II-3
<PAGE> 108
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.
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> 109
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> 110
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 Amendment No. 3
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cupertino, State of California, on
this 27th day of July, 1999.
PACKETEER, INC.
By: /s/ DAVID YNTEMA
---------------------------------------
David Yntema
Chief Financial Officer and Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to Registration Statement has been signed by the persons
whose signatures appear below, which persons have signed such Amendment No. 3 to
Registration Statement in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* President and Chief Executive July 27, 1999
- ---------------------------------- Officer (Principal Executive
Craig Elliott Officer) and Director
/s/ DAVID YNTEMA Chief Financial Officer and July 27, 1999
- ---------------------------------- Secretary (Principal Financial and
David Yntema Accounting Officer)
* Chief Technical Officer and July 27, 1999
- ---------------------------------- Director
Robert Packer
* Vice President, Engineering, July 27, 1999
- ---------------------------------- Chief Operating Officer
Brett Galloway and Director
* Director July 27, 1999
- ----------------------------------
Steven Campbell
* Director July 27, 1999
- ----------------------------------
Joseph Graziano
* Director July 27, 1999
- ----------------------------------
Peter Morris
</TABLE>
II-6
<PAGE> 111
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director July 27, 1999
- ----------------------------------
William Stensrud
By: /s/ DAVID YNTEMA
- ----------------------------------
David Yntema
Attorney-in-fact
</TABLE>
II-7
<PAGE> 112
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.
10.12+** Loan and Security Agreement between Packeteer and MMC/GATX
Partnership No. 1 dated May 20, 1999.
10.13+ OEM Agreement between Packeteer and Lucent Technologies,
Inc. dated June 25, 1999.
10.14+ OEM Agreement between Packeteer and Adtran, Inc. dated June
29, 1999.
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>
- -------------------------
** Previously filed.
+ Confidential treatment has been requested as to portions of this exhibit.
<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)
2
<PAGE> 3
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.
<PAGE> 4
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.
<PAGE> 5
* 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
5
<PAGE> 6
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.
<PAGE> 7
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.
<PAGE> 9
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.
<PAGE> 10
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
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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.
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14. TERM AND TERMINATION
14.1 TERM. The initial term of this Agreement will be five (5) years from
the Effective Date. At the conclusion of such term (or any subsequent renewal
term), the Agreement will automatically renew for another three (3) 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.
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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
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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.
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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.
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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 three
years 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.
<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 $ 4,000.00
PS2000 PacketShaper 2000 Business Critical Bandwidth Management $ 8,000.00
PS4000 PacketShaper 4000 Broadband Bandwidth Management $16,000.00
PM1000 ProSupport1000 Premium Maintenance Agreement $ 495.00
PM2000 ProSupport2000 Premium Maintenance Agreement $ 995.00
PM4000 ProSupport4000 Premium Maintenance Agreement $ 1,895.00
BM1000 ProSupport1000 Partner Maintenance Agreement $ 345.00
BM2000 ProSupport2000 Partner Maintenance Agreement $ 695.00
BM4000 ProSupport4000 Partner Maintenance Agreement $ 1,295.00
</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
EXHIBIT 10.13
LUCENT TECHNOLOGIES INC.
STANDARD OEM PURCHASE AGREEMENT TERMS AND CONDITIONS
Agreement No. SC11990054
Sheet 1 of 28
Packeteer Inc.
10495 N. De Anza Blvd.
Cupertino, CA 95014
This Agreement is made by and between Lucent Technologies Inc. ("Company")
having an office at 188 Mt Airy Road, Basking Ridge, NJ 07920 and Packeteer Inc.
("Supplier") having an office at 10495 N. De Anza Blvd., Cupertino, CA 95014.
Company agrees to purchase and Supplier agrees to sell in accordance with the
terms and conditions stated in this Agreement and any attachments to this
Agreement.
WHEREAS, Company wishes to purchase products of Supplier's (design and)
manufacture for resale to Company's customers, and
WHEREAS, Supplier desires to sell such materials to Company for resale to
Company's customers,
THEREFORE, the parties agree as follows
1. AGREEMENT EFFECTIVE PERIOD
The term of this Agreement shall commence on, June 25, 1999, and
shall, except as otherwise provided in this Agreement, continue in effect
thereafter until September 21, 2003.
2. MATERIAL
"MATERIAL" as used in this Agreement shall mean Supplier's
PacketShaper Products as listed in APPENDIX A, attached and made a part of
this Agreement. Such MATERIAL is hereby offered for sale of hardware and
license to software by Supplier and may be purchased by Company in
accordance with the terms, conditions and specifications stated in this
Agreement. This Agreement is a non-commitment agreement and MATERIAL shall
be furnished by Supplier on an as-ordered basis.
<PAGE> 2
Agreement No. SC11990054
Sheet 2 of 28
"Specification(s)" as used in this Agreement shall mean all of the
specifications made part of this Agreement.
3. OPTION TO EXTEND
Company shall have the right to extend the period specified in the
section "AGREEMENT EFFECTIVE PERIOD" for up to twelve (12) months by
giving Supplier at least thirty (30) business days prior written notice.
Within ten (10) business days of the date of Company's notice to
extend the period, Supplier shall notify Company in writing whether
Supplier proposes to revise the price(s) under this Agreement. If the
parties fail to agree on the revised price(s) within twenty (20) business
days after the date of Supplier's notice, Company's notice of extension
shall be considered withdrawn and prices for outstanding orders or orders
placed during the term of this Agreement shall not be revised.
4. PRICE AND DISCOUNTS
Prices shall be as shown in APPENDIX A. [*]. Supplier shall
notify Company [*] in advance of any proposed price increase. Orders
placed prior to the proposed effective date shall not be affected by the
proposed price revision. If Company and Supplier fail to agree upon prices
by the proposed effective date, Company reserves the right to terminate
this Agreement and any outstanding purchase orders placed against this
Agreement without any cost to or liability or obligation of Company.
5. COST REDUCTION
Both parties shall endeavor to reduce the costs of products
furnished under this Agreement.
6. BEST PRICE
If, at any time during the term of this Agreement Supplier should
sell to any customer other than to affiliates or subsidiaries of Supplier,
material at least equal or similar quality and volume at a price lower
than that in effect under this Agreement, Company shall pay such lower
price on all deliveries of MATERIAL which are made during the period when
such lower price is in effect Subject to Company's obligations including
without limitation, Company's obligations of confidentiality, and upon ten
(10) days written notice and not more than twice per calendar year, a
qualified third party, reasonably acceptable to both parties, may audit
Supplier's applicable books and records for the purpose of verifying
Supplier's compliance with this provision. Such third party shall be
subject to a confidentiality agreement and any report shall be limited to
verifying Supplier's obligations under this section.
7. TERMS OF PAYMENT
Net thirty (30) business days from the date of shipment of the
MATERIAL to Company, or designate, or receipt of the applicable invoice.
* 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
Agreement No. SC11990054
Sheet 3 of 28
8. FORECASTS
Company shall provide Supplier with a [*] forecast submitted to
Supplier by the fifth (5th) business day of each calendar month. Such
forecast shall be used by Supplier for planning purposes only and shall
not be deemed a commitment by Company to purchase the MATERIAL shown in
the forecast.
9. FOB
The MATERIAL shall be shipped FOB Supplier's location ( or such
other Supplier's location as may be designated by Supplier). Company shall
select the carrier(s) and provide the name(s) of the carrier(s) and
Company's account number(s) with said carriers to Supplier within thirty
(30) days of execution of this Agreement.
10. FREIGHT CLASSIFICATION
MATERIAL purchased under this Agreement shall be shipped to Company
or Company's customers subject to freight charges appropriate for goods
classified as Data Communication Products. Supplier shall indicate on the
bill of lading that Company's contract rates apply.
11. NON-EXCLUSIVE MARKET RIGHTS
This Agreement neither grants to Supplier an exclusive right or
privilege to sell to Company any or all products of the type described in
the MATERIAL section which Company may require, nor requires the purchase
of any MATERIAL or other products from Supplier by Company. Therefore,
Company may contract with other manufacturers and suppliers for the
procurement of comparable products. In addition, Company shall, at its
sole discretion, decide the extent to which Company will market advertise,
promote, support or otherwise assist in further offerings of the MATERIAL.
Purchases by Company under this Agreement shall neither restrict the
right of Company to cease purchasing nor require Company to continue any
level of such purchases. Company's right to any supply of MATERIAL
hereunder is non-exclusive except for MATERIAL marked with INSIGNIA.
Supplier shall have the right to supply comparable products to third
parties.
12. SPECIFICATIONS OR DRAWINGS
Supplier's standard commercial specifications (data sheets) are
included by reference and further defined in APPENDIX B
("Specifications"). Supplier shall manufacture MATERIAL in accordance with
Specifications, so that MATERIAL conforms to such Specifications.
In accordance with the notification requirements outlined in Section
"PRODUCT CHANGES", Supplier shall provide Company with at least thirty
(30) business days prior written notice of any hardware change, and any
notification of any software change
* 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> 4
Agreement No. SC11990054
Sheet 4 of 28
to be made by Supplier in the MATERIAL furnished pursuant to said
Specifications under this Agreement.
If Company, in its sole discretion, does not agree to the change
proposed by Supplier, Company may submit a Modification Request to address
the change. If the Company's Modification Request is not an acceptable
solution, then in lieu of all other rights and remedies at law or equity
or otherwise, and without any cost to or liability or obligation of
Company, Company shall have the right to terminate this Agreement .
Supplier shall continue to supply MATERIAL to Company pursuant to
the Specifications for the term of the Agreement. If Supplier is unable to
continue to thus supply or discontinues manufacture of MATERIAL, Company
shall be entitled to three (3) month's advance notice, provided (i) the
discontinuance is at Supplier's election and (ii) there has been a
reasonable amount of purchases during the period preceding Supplier's
notice of discontinuance.
13. ASSIGNMENT
Supplier shall not assign any right or interest under this Agreement
(excepting solely for moneys due or to become due) without the prior
written consent of Company, provided however, no such consent shall be
required in connection with the sale of all or substantially all of the
business of Supplier related to MATERIAL or in connection with any merger,
reorganization or sale of Supplier. Except where Company has specified a
designated subcontractor, Supplier shall be responsible to Company for all
work performed by Supplier's subcontractor(s) at any tier. In the event of
an assignment, Company may terminate this Agreement or an order, in whole
or in part, by written notice to Supplier. In such case, Company's
liability shall be limited to payment of the amount due for Work performed
and/or MATERIAL provided by Supplier up to and including the date of
termination.
14. BANKRUPTCY AND TERMINATION FOR FINANCIAL INSECURITY
Either party may terminate this Agreement by notice in writing:
(i) if the other party makes an assignment for the benefit of
creditors (other than solely an assignment of monies due); or:
(ii) if the other party evidences an inability to pay debts as they
become due, unless adequate assurance of such ability to pay
is provided within thirty (30) days of such notice.
If a proceeding is commenced under any provision of the United
States Bankruptcy Code, voluntary or involuntary, by or against either
party, and this Agreement has not been terminated, the non-debtor party
may file a request with the bankruptcy court to have the court set a date
within sixty (60) days after the commencement of the case, by which the
debtor party will assume or reject this
<PAGE> 5
Agreement No. SC11990054
Sheet 5 of 28
Agreement, and the debtor party shall cooperate and take whatever steps
necessary to assume or reject the Agreement by such date.
15. CFC PACKAGING
Supplier warrants that all packaging materials furnished under this
Agreement and all packaging associated with MATERIAL furnished under this
Agreement were not manufactured using and do not contain
chlorofluorocarbons. "Packaging" means all bags, wrapping, boxes, cartons
and any other packing materials used for packaging. Supplier shall
indemnify and hold Company harmless for any liability, fine or penalty
incurred by Company to any third party or governmental agency arising out
of Company's good faith reliance upon said warranty.
16. CHOICE OF LAW
This Agreement and all transactions under it shall be governed by
the laws of the State of New Jersey excluding its choice of laws rules and
excluding the Convention for the International Sale of Goods. Supplier
agrees to submit to the jurisdiction of any court wherein an action is
commenced against Company based on a claim for which Supplier has agreed
to indemnify Company under this Agreement.
17. COMPLIANCE WITH LAWS
Supplier and Company and all persons furnished by Supplier and
Company shall comply at their own expense with all applicable laws,
ordinances, regulations and codes, export regulations, including the
identification and procurement of required permits, certificates,
licenses, insurance, approvals and inspections in performance under this
Agreement.
18. CONTINUING AVAILABILITY
Supplier shall offer for sale to Company, during the term of this
Agreement and for at least six (6) months after the expiration of this
Agreement, MATERIAL conforming to the Specifications set forth in this
Agreement. Supplier further shall offer for sale to Company, during the
term of this Agreement and until [*] after the expiration of this
Agreement, maintenance, replacement, and repair parts ("Parts") which are
functionally equivalent for the MATERIAL covered by this Agreement. The
price for the MATERIAL and Parts shall be the price set forth in
Supplier's then current agreement with Company for said MATERIAL or Parts
or, if no such agreement exists, at a price agreed upon by Company and
Supplier. If the parties fail to agree on a price, the price shall be a
reasonably competitive price for said MATERIAL or Parts at the time for
delivery. The MATERIAL and Parts shall be warranted as set forth in the
"WARRANTY" section of this Agreement. The term "Parts" is included in the
term "MATERIAL."
In the event Supplier fails to supply such MATERIAL or Parts and
Supplier is unable to obtain another source of supply for Company, then
Company and Supplier shall endeavor to develop an alternative method of
provisioning MATERIAL or parts, which
* 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> 6
Agreement No. SC11990054
Sheet 6 of 28
may include licensing Manufacturing Rights to Company. At that time, both
parties shall determine necessary measures required for Company to obtain
MATERIAL under this license.
19. DEFAULT
If either Supplier or Company shall be in breach or default of any
of the terms, conditions or covenants of this Agreement or of any purchase
order, and if such breach or default shall continue for a period of thirty
(30) days after the giving of written notice to the other party then, in
addition to all other rights and remedies which each party may have at law
or equity or otherwise, Supplier or Company shall have the right to cancel
this Agreement and/or any purchase orders placed by Company without any
charge to or obligation or liability of either party.
20. ELECTRONIC DELIVERY SERVICE
Supplier agrees, if requested by Company, to implement Electronic
Delivery Service (EDS) ordering arrangements as an electronic means of
trading business document with Company when it can reasonably accomplish
the task. The electronic business documents include purchase orders,
acknowledgments, purchase order changes, ship notices, remittance advice,
or such purchasing communications as may be requested by Company for
transaction under this Agreement.
21. EPIDEMIC CONDITION
If during the term of this Agreement and for [*] after the last
shipment date of MATERIAL under this Agreement Company notifies Supplier
that MATERIAL shows evidence of an "Epidemic Condition," Supplier shall
prepare and propose a Corrective Action Plan ("CAP") with respect to such
MATERIAL within fifteen (15) working days of such notification, addressing
implementation and procedure milestones for remedying such Epidemic
Condition(s). An extension of this time-frame is permissible upon mutual
written agreement of the parties.
Upon notification of the Epidemic Condition to Supplier, Company
shall have the right to postpone all or part of the shipments of unshipped
MATERIAL, by giving written notice of such postponement to Supplier,
pending correction of the Epidemic Condition. Such postponement shall
temporarily relieve Supplier of its shipment liability and Company of its
shipment acceptance liability. Should Supplier not agree to the existence
of an Epidemic Condition or should Company not agree to the CAP, then
Company shall have the right to suspend all or part of its unshipped
orders without liability to Company until such time as a mutually
acceptable solution is reached.
An Epidemic Condition will be considered to exist when one or more
of the following conditions occur:
(1) Failure reports or statistical samplings show that MATERIAL
shipped contain a potential safety hazard (such as personal injury or
death, fire, explosion, toxic
* 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> 7
Agreement No. SC11990054
Sheet 7 of 28
emissions, etc.), or exhibit a highly objectionable symptom (such as
emissions of smoke, loud noises, deformation of housing) or other
disconcerting symptoms of this type.
(2) Reliability plots of relevant data indicate that the MATERIAL
has actual Mean Time Between Failures (MTBF) of less than 80% of the MTBF
stipulated in the Specification. The MTBF parameter of MATERIAL is defined
as the total operating or power-on time of any population under
observation ("T"), in hours, divided by the total number of critical
failures ("n") that have occurred during the observed period. A critical
failure is defined as a failure to operate per the requirements of the
Specification. The total operating time of a population is the summation
of operating time of individual units in that population. MTBF is
expressed as MTBF = T/n. An Epidemic Condition shall exist when data
derived from populations being tracked confirms the condition with 80%
confidence. (3) MATERIAL Dead on Arrival (DOA) failures exceed the
Epidemic DOA failure rate which is defined as 1.2 x DOA specified in the
section of this Agreement entitled PRODUCT CONFORMANCE REVIEW.
Only major hardware failures and visual/mechanical/appearance
defects are considered for determining Epidemic Condition. MATERIAL could
be either sampled or, a Company's option, 100% audited at Company
warehouses, factories or Company's customers' locations. If MATERIAL is
sampled, the data must have 80% or better statistical confidence.
For the purpose of this Agreement, functional DOA shall be defined
as any MATERIAL that during the test, installation or upon its first use
fails to operate in accordance with the Specifications as defined or
specified in writing. Visual/mechanical/appearance DOA is defined as any
MATERIAL containing one or more major defects that would make the MATERIAL
unfit for use or installation.
An Epidemic Condition shall not include failures due to customer
misapplication, utilization of parts not approved by Supplier, or chain
failures induced by internally or externally integrated subassemblies.
In the event that Supplier develops a remedy for the defect(s) that
caused the Epidemic Condition and Company agrees in writing that the
remedy is acceptable, such acceptance shall not be unreasonably withheld
or delayed, Supplier shall:
(a) Incorporate the remedy in the affected MATERIAL in accordance with
Company's written instructions.
(b) Ship all subsequent MATERIAL incorporating the required modification
correcting the defect(s) at no additional charge to Company; and
(c) Repair and/or replace MATERIAL that caused the Epidemic Condition. In
the event that Company incurs reasonable and documented costs due to such
repair and/or
<PAGE> 8
Agreement No. SC11990054
Sheet 8 of 28
replacement, including but not limited to labor and shipping costs,
Company shall supply such documentation and Supplier shall reimburse
Company for such reasonable costs. Supplier shall bear risk of in transit
loss and damage for such repaired and/or replaced MATERIAL.
Supplier and Company shall mutually agree in writing as to the
remedy's implementation schedule. Supplier shall use its best efforts to
implement the remedy in accordance with the agreed-upon schedule.
If Supplier is unable to develop a mutually agreeable remedy, or
does not adequately take into account the business interests of Company,
as reasonably agreed by the parties, Company may (1) develop and implement
such remedy and, in such case, implementation costs and risk of in-
transit loss and damage shall be allocated between the parties as set
forth in this section, and/or (2) cancel postponed orders without
liability and return all MATERIAL affected by such Epidemic Condition for
full refund, payable by Supplier within thirty (30) business days after
receipt of returned MATERIAL (with risk of loss or in-transit damage borne
by Supplier) and/or (3) terminate this Agreement without further
liability.
22. EXPORT CONTROL
Supplier and Company will not use, distribute, transfer or transmit
any products, software or technical information (even if incorporated into
other products) provided under this Agreement except in compliance with
U.S. export laws and regulations (the "Export Laws"). Supplier and Company
will not, directly or indirectly, export or re-export the following items
to any country which is in the then current list of prohibited countries
specified in the applicable Export Laws:(a) software or technical data
disclosed or provided to Supplier by Company or by Company to Supplier or
Company's subsidiaries or affiliates; or (b) the direct product of such
software or technical data. Supplier and Company agree to promptly inform
the other party in writing of any written authorization issued by the U.S.
Department of Commerce office of export licensing to export or re-export
any such items referenced in (a) or (b). The obligations stated above in
this clause will survive the expiration, cancellation or termination of
this Agreement or any other related agreement.
23. FORCE MAJEURE
Neither party shall be held responsible for any delay or failure in
performance of any part of this Agreement (except for the obligation to
pay money) to the extent such delay or failure is caused by fire, flood,
strike, civil, governmental, or military authority, act of God, or other
similar causes beyond its control and without the fault or negligence of
the delayed or non performing party or its subcontractors. Supplier's
liability for loss or damage to Company's MATERIAL in Supplier's
possession or control shall not be modified by this section. When a
party's delay or nonperformance continues for a period of at least fifteen
(15) days, the other party may terminate, at no charge, this Agreement or
an order under the Agreement.
<PAGE> 9
Agreement No. SC11990054
Sheet 9 of 28
24. GOVERNMENT CONTRACT PROVISIONS
The following provisions regarding equal opportunity, and all
applicable laws, rules, regulations and executive orders specifically
related thereto, including applicable provisions and sections from the
Federal Acquisition Regulation and all supplements thereto are
incorporated in this Agreement as they apply to work performed under
specific U.S. Government contracts: 41 CFR 60-1.4, Equal Opportunity; 41
CFR 60-1.7, Reports and Other Required Information; 41 CFR 60-1.8,
Segregated Facilities; 41 CFR 60-250.4, Affirmative Action For Disabled
Veterans and Veterans of the Vietnam Era (if in excess of $10,000); and 41
CFR 60-741.4, Affirmative Action for Disabled Workers (if in excess of
$2,500), wherein the terms "contractor" and "subcontractor" shall mean
"Supplier". In addition, orders placed under this Agreement containing a
notation that the material or services are intended for use under
Government contracts shall be subject to such other Government provisions
printed, typed or written thereon, or on the reverse side thereof, or in
attachments thereto.
25. HEAVY METALS IN PACKAGING
Supplier warrants to Company that no lead, cadmium, mercury or
hexavalent chromium have been intentionally added to any packaging or
packaging component (as defined under applicable laws) to be provided to
Company under this Agreement and that packaging materials were not
manufactured using and do not contain chlorofluorocarbons. Supplier
further warrants to Company that the sum of the concentration levels of
lead, cadmium, mercury and hexavalent chromium in the package or packaging
component provided to Company under this Agreement does not exceed 100
parts per million. Upon request, Supplier shall provide to Company
Certificates of Compliance certifying that the packaging and/or packaging
components provided under this Agreement are in compliance with the
requirements set forth above in this section.
26. IDENTIFICATION
Except where provided by law, neither party shall, without the other
party's prior written consent, which consent shall not be unreasonably
withheld, engage in publicity related to this Agreement, or make public
use of any Identification in any circumstances related to this Agreement.
"Identification" means any semblance of any trade name, trademark, service
mark, insignia, symbol, logo, or any other designation, or drawing of
either party or its affiliates. Supplier shall remove or obliterate any
Identification prior to any use or disposition of any MATERIAL rejected or
not purchased by Company.
27. INDEMNITY
At Company's request, Supplier agrees to indemnify, defend and hold
harmless Company, its affiliates, customers, employees, successors and
assigns (all referred to as "Company") from and against any losses,
damages, claims, fines, penalties and expenses (including reasonable
attorney's fees) that arise out of or result from: (i) injuries or death
to persons or damage to property, including theft, in any way arising out
of or caused or alleged to have been caused by the Work or services
performed by, or material provided by Supplier or persons furnished by
Supplier; (ii) assertions under
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Workers' Compensation or similar acts made by persons furnished by
Supplier; or (iii) any failure of Supplier to perform its obligations
under this Agreement; provided however, Supplier shall not be liable for
any expense or settlement under this section unless Supplier shall have
complete control of the defense of any claim or settlement, and Company
timely notifies Supplier of any claim or allegation and shall cooperate,
at Supplier's expense, in good faith with Supplier to facilitate the
defense of any such claim or allegation. Supplier agrees not to make any
admissions that would be detrimental to Company.
28. INFRINGEMENT
Supplier shall indemnify and save harmless Company, its affiliates
and their customers, officers, directors, employees (all referred to in
this section as "Company") from and against any losses, damages,
liabilities, fines, penalties, and expenses (including reasonable
attorneys' fees) that arise out of or result from any and all claims (i)
of infringement of any patent, copyright, trademark or trade secret right,
or other intellectual property right, private right, or any other
proprietary or personal interest, and (ii) related by circumstances to the
existence of this Agreement or performance under or in contemplation of it
(an Infringement Claim). If the Infringement Claim arises solely from
Supplier's adherence to Company's written instructions regarding services
or tangible or intangible goods provided by Supplier (Items) and if the
Items are not (i) commercial items available on the open market or the
same as such items, or (ii) items of Supplier's designated origin, design
or selection, Company shall indemnify Supplier. Company or Supplier (at
Company's request) shall defend or settle, at its own expense any demand,
action or suit on any Infringement Claim for which it is indemnitor under
the preceding provisions; provided however, the party shall not be liable
for any expense or settlement under this section unless such party shall
have complete control of the defense of any Infringement Claim or
settlement and each shall timely notify the other of any assertion against
it or any Infringement Claim and shall cooperate in good faith with the
other to facilitate the defense of any such Claim.
29. INSIGNIA
Upon Company's written request, "Insignia", including certain
trademarks, trade names, insignia, symbols, decorative designs or
packaging designs of Company, or evidences of Company's inspection will be
properly affixed by Supplier to the MATERIAL furnished or its packaging.
Such Insignia will not be affixed, used or otherwise displayed on the
MATERIAL furnished or in connection therewith without written approval by
Company. The manner in which such Insignia will be affixed must be
approved in writing by Company in accordance with standards established by
Company. Company shall retain all right, title and interest in any and all
packaging designs, finished artwork and separations furnished to Supplier.
This section does not reduce or modify Supplier's obligations under the
"IDENTIFICATION" and "USE OF INFORMATION" section.
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30. INSURANCE
Supplier shall maintain and cause Supplier's subcontractors to
maintain during the term of this Agreement: (i) Workers' Compensation
insurance as prescribed by the law of the state or nation in which the
Work is performed; (ii) employer's liability insurance with limits of at
least $500,000 for each occurrence; (iii) automobile liability insurance
if the use of motor vehicles is required, with limits of at least
$1,000,000 combined single limit for bodily injury and property damage for
each occurrence; (iv) Commercial General Liability ("CGL") insurance, iso
1988 or later occurrence form of insurance including Blanket Contractual
Liability and Broad Form Property Damage, with limits of at least
$1,000,000 combined single limit for bodily injury and property damage for
each occurrence; and (v) if the furnishing to Company (by sale or
otherwise) of products or material is involved, CGL insurance endorsed to
include products liability and completed operations coverage in the amount
of $5,000,000 per occurrence. All CGL and automobile liability insurance
shall designate Company, its affiliates, and its directors, officers and
employees (all referred to as "Company") as additional insured. All such
insurance must be primary and non-contributory and required to respond and
pay prior to any other insurance or self-insurance available. Any other
coverage available to Company shall apply on an excess basis. Supplier
agrees that Supplier, Supplier's insurer(s) and anyone claiming by,
through, under or in Supplier's behalf shall have no claim, right of
action or right of subrogation against Company and its customers based on
any loss or liability insured against under the foregoing insurance.
Supplier and Supplier's subcontractors shall furnish prior to the start of
Work, certificates or adequate proof of the foregoing insurance, including
if specifically requested by Company, endorsements and insurance policies.
Company shall be notified in writing at least thirty (30) days prior to
cancellation of or any change in the policy. Insurance companies providing
coverage under this Agreement must be rated by A-M Best with at least an
A-rating.
31. INVOICING FOR GOODS
Supplier shall: (i) render original invoice, or as otherwise
specified in this Agreement, showing Agreement and order number, through
routing and weight, (ii) render separate invoices for each shipment, and
(iii) mail invoices with copies of shipping notices to the address shown
on this Agreement or order. If prepayment of transportation charges is
authorized, Supplier shall include the transportation charges from the
F.O.B. point to the destination as a separate item on the invoice stating
the name of the carrier used.
32. INVOICING FOR STOCKS
If Company requests for reasons other than covered by Section "FORCE
MAJEURE", that shipment be postponed beyond the date shown on a purchase
order, Supplier may invoice Company as of the original scheduled delivery
date for MATERIAL manufactured under this Agreement, if it has been
inspected and approved by Company's designated quality organization
(provided inspection has been specified in this Agreement or in an order
issued under this Agreement).
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33. JURISDICTION
Subject to the section "MEDIATION", the parties agree that any
action or legal proceeding arising out of this Agreement shall be brought
only in a court of competent jurisdiction in the United States of America
and the parties expressly submit to, and accepts the jurisdiction of, any
such court in connection with such action or proceeding and the parties
further consent to the enforcement of any judgment arising therefrom in
any jurisdiction in which a losing party has or shall have any assets.
34. LICENSES
Except as provided in Section 42, no Licenses, express or implied,
under any patents, copyrights, trademarks or other proprietary rights are
granted by Company to Supplier, or by Supplier to Company, under this
Agreement or order.
35. MARKING
All MATERIAL furnished under this Agreement shall be marked for
identification purposes in accordance with the specifications set forth in
this Agreement and as follows:
(a) with Supplier model/serial number; and
(b) with month and year of manufacture.
(c) with Company's Comcode
In addition, Supplier shall add any other identification which might
be requested by Company such as but not limited to indicia conforming to
the Company's Serialization Plan (KS-23490) as shown in APPENDIX E.
Charges, if any, for such additional identification marking shall be as
agreed upon by Supplier and Company. This section does not reduce or
modify Supplier's obligations under the "IDENTIFICATION" section.
36. MEDIATION
If a dispute relates to this Agreement, or its breach, and the
parties have not been successful in resolving such dispute through
negotiation for not more than thirty (30) days from the notice by either
party of such a dispute, the parties shall attempt to resolve the dispute
through mediation by submitting the dispute to a sole mediator selected by
the parties or, at any time at the option of a party, to mediation by the
American Arbitration Association ("AAA"). Each party shall bear its own
expenses and an equal share of the expenses of the mediator and the fees
of the AAA. All defenses based on passage of time shall be suspended
pending the termination of the mediation. Nothing in this section shall be
construed to preclude any party from seeking injunctive relief in order to
protect its rights pending mediation.
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37. MONTHLY ORDER AND SHIPMENT REPORTS
Supplier shall render monthly order and shipment reports on or
before the fifth working day of the succeeding month containing the
information required on report form APPENDIX C. These forms will be
furnished by Company.
38. NEW AND CHANGED METHODS, PROCESSES AND EQUIPMENT
Supplier shall keep abreast of major developments in Supplier's
industry and to promptly advise Company of any developments which might
affect the production of any MATERIAL under this Agreement.
39. NON DISCLOSURE AGREEMENT
Whereas Company and Supplier each expect to disclose to the other
party certain information concerning products, business and strategies
which are considered confidential and proprietary and which neither party
wants to disclose to others, they have entered into a Non Disclosure
Agreement. A copy of the Non Disclosure Agreement is attached hereto and
made a part hereof, as APPENDIX D. This section does not reduce or modify
Supplier's obligations under Section "USE OF INFORMATION."
40. NON WAIVER
The failure of either party at any time to enforce any right or
remedy available to it under this Agreement or otherwise with respect to
any breach or failure by the other party shall not be construed to be a
waiver of such right or remedy with respect to any other breach or failure
by the other party.
41. NOTICES
Any notice given or demand which under the terms of this Agreement
or under any statute must or may be given or made by Supplier or Company
shall be in writing and shall be given or made by confirmed facsimile, or
similar communication or by certified or registered mail addressed to the
respective parties as follows
To Company: Lucent Technologies Inc.
Global Procurement Organization
188 Mt. Airy Road
Room C222
Basking Ridge, NJ 07920
Attn.: [*]
-OR-
To Supplier: Packeteer Inc.
10495 N. De Ariza Blvd.
Cupertino, CA 95014
Attn: Bill Klaus
* 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.
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Such notice or demand shall be deemed to have been given or made
when sent by facsimile, or other communication or when deposited, postage
prepaid in the U.S. mail. The above addresses may be changed at any time
by giving prior written notice as above provided.
42. OPERATING SYSTEM SOFTWARE
The term MATERIAL includes any software (operating program in
machine readable form and related documentation) and storage media
therefor normally furnished with or embedded in the MATERIAL. Title to the
software, including copyright, shall remain in Supplier. The party having
title to the MATERIAL shall have title to the software storage media. For
the life of the MATERIAL listed in this Agreement, Supplier grants to
Company and any subsequent purchaser, lessee or other end user (referred
to collectively in this section as "end user") a non-exclusive license to
use said software on the MATERIAL on which it was delivered and only in
accordance with Supplier's documentation. Company and any subsequent end
user may not copy the software included on any storage media of the
MATERIAL except as such copy may be created by the execution or loading of
such software. Company will not reverse compile or disassemble the
software. Company will include and display all proprietary notices and/or
copyrights in or on the software in the form delivered by the Supplier
when the MATERIAL is operational.
43. OZONE DEPLETING CHEMICALS
Supplier hereby warrants that it is aware of international
agreements and pending legislation in several nations, including the
United States, which would limit, ban and/or tax importation of any
product containing, or produced using ozone depleting chemicals ("ODCs"),
including chloroflurocarbons, halons and certain chlorinated solvents.
Supplier hereby warrants that the MATERIAL furnished to Company will
conform to all applicable requirements established pursuant to such
agreements, legislation and regulations, and the MATERIAL furnished to
Company will be able to be imported and used lawfully (and without
additional taxes associated with ODCs not reported to Company by Supplier
as set forth in this section) under all such agreements, legislation and
requirements. Supplier also warrants that it is currently reducing, or if
Supplier is not the manufacturer of the MATERIAL, is currently causing the
manufacturing vendor to reduce and will, in an expeditious manner,
eliminate, or, as applicable, have its manufacturing vendor eliminate the
use of ODCs in the manufacture of the MATERIAL.
If the MATERIAL furnished by Supplier under this Agreement is
manufactured outside the United States, Supplier shall, upon execution of
this Agreement, and at any time that new products are added to this
Agreement or changes are made to the MATERIAL furnished under this
Agreement, complete, sign and return to Company the attached ODC Content
Certification. The ODC Content Certification must be signed by Supplier's
facility manager, corporate officer or his delegate.
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The term "ODC content" on the ODC Content Certification means the
total pounds of ODC used directly in the manufacture of each unit of
MATERIAL. This includes all ODCs used in the manufacturing and assembly
operations for the MATERIAL plus all ODCs used by Supplier's vendors and
any other vendors in producing components or other products incorporated
into the MATERIAL sold to Company.
Supplier is responsible to obtain information on the ODC content of
all components and other products acquired to manufacture the MATERIAL and
to incorporate such information into the total ODC content reported to
Company. Provided however, that Supplier should not include in the ODC
content those components or other products which are manufactured in the
United States. Supplier hereby warrants to Company that all information
furnished by Supplier on the ODC Content Certification is complete and
accurate and that Company may rely on such information for any purpose,
including but not limited to providing reports to government agencies or
otherwise complying with applicable laws. Supplier shall defend, indemnify
and hold Company harmless of and from any claims, demands, suits,
judgments, liabilities, fines, penalties, costs and expenses (including
additional ODC taxes as provided for in paragraph one of this section and
reasonable attorney's fees) which Company may incur under any applicable
federal, state, or local laws or international agreements, and any and all
amendments thereto by reason of Company's use of reliance on the
information furnished to Company by Supplier on the ODC Content
Certification or by reason of Supplier's breach of this section. Supplier
shall cooperate with Company in responding to any inquiry concerning the
use of ODCs to manufacture the MATERIAL or components thereof and to
execute without additional charge any documents reasonably required to
certify the absence or quantity of ODCs used to manufacture the MATERIAL
or components thereof.
44. OZONE DEPLETING SUBSTANCES LABELING
Supplier warrants and certifies that all MATERIAL and other
products, including packaging and packaging components, provided to
Company under this Agreement have been accurately labeled, in accordance
with the requirements of 40 CFR, Part 82 entitled "Protection of
Stratospheric Ozone, Subpart E- The Labeling of Products Using Ozone
Depleting Substances."
45. PACKING, LABELING AND SERIALIZATION
MATERIAL purchased, repaired, replaced or refurbished under this
Agreement shall be packed, labeled and serialized by Supplier at no
additional charge in accordance with specifications PKG-91NJ1045
"Packaging, Packing, Palletization, Labeling and Marking Requirements for
Material being Delivered to Lucent Technologies Manufacturing and
Distribution Locations", and KS-23490 "Product Bar Code, Serial and
Comcode Label," as changed from time to time with Supplier's written
approval, which Specifications are attached and made a part of this
Agreement as APPENDIX E. Company shall pre-approve and if approved, incur
the initial expenses for development of
<PAGE> 16
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the packaging and labeling as specified in PKG-91NJ1045 and KS-23490. In
no event shall Company's labeling or other Identification marks be applied
to the interior of the MATERIAL, nor shall Supplier's marks be removed
from the interior of the MATERIAL. Pursuant to Company's written approval
of the design, all MATERIAL will be affixed with Supplier's logo.
46. PRODUCT CHANGES
Supplier shall provide Company with at least thirty (30) days, prior
written notice of any change proposed to be made in accordance with this
Agreement, or in the Specification and documentation covered by this
Agreement that would impact upon: (i) reliability, or (ii) functional
equivalency (as defined below).
The only exception will be in those cases where an extremely
hazardous or unsatisfactory condition requires immediate action.. In such
cases, verbal notification shall be made, followed by Supplier's prompt
written confirmation. Procedures for reporting MATERIAL changes are
described in "Product Change Notice Procedure", APPENDIX F.
Supplier shall submit changes to the following address:
Lucent Technologies Inc.
188 Mt. Airy Road
Room: C261
Basking Ridge, NJ 07920
Attn.: [*]
If the plan for MATERIAL Change is not accepted by Company, in
addition to all other rights and remedies at law or equity or otherwise,
and without any cost to or liability or obligation of Company, Company
shall have the right to terminate this Agreement and to terminate any or
all orders for MATERIAL affected by such change. Notwithstanding the
above, Supplier shall continue to provide functionally equivalent MATERIAL
for a period of twelve (12) months from the date the change is effective.
47. PRODUCT CONFORMANCE REVIEWS
Sections (1) or (2) applies if either is indicated in this Agreement
or an order issued pursuant to this Agreement. Section 30 applies to both
section (1) and (2). (1) All MATERIAL is subject to a Product Conformance
Review ("Review") prior to shipment. (1) Supplier shall notify Company's
designated quality inspection organization, at (609) 639-3149, when
MATERIAL is ready for such Review. (2) Supplier may ship MATERIAL without
a review but Company may perform such review prior to shipment by giving
Supplier notice to that effect, in which event Supplier shall notify
Company's designated quality inspection organization when MATERIAL is
ready for such review. (3) Supplier will provide, without charge,
appropriate production testing facilities and
* 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> 17
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personnel at a site of Supplier's selection required to perform or assist
in the Review as specified in the applicable Quality Program Specification
or other quality specification provided under this Agreement or order.
Company's Reviews as set forth herein may only be waived by written
notification from Company's designated quality inspection organization.
Quality Program Specification (QPS) No. 40.030, which may be changed
from time to time with Supplier's written approval, is attached and made a
part of this Agreement as APPENDIX G.
48. PRODUCT DOCUMENTATION
Supplier shall furnish, at no charge, product documentation, and any
succeeding changes thereto, as described in the Specifications. Company
may use, reproduce, reformat, modify and distribute such product
documentation.
Company shall reproduce Supplier's copyright notice contained in any
documentation reproduced without change by Company. For documentation
which is reformatted or modified by Company, Company shall have the right
to place only Company's own copyright notice on the reformatted or
modified documentation; provided that Supplier's copyright notice shall be
placed on any documentation or derivative work of Company.
49. PURCHASE ORDERS
Purchase orders issued under this Agreement shall be sent to the
following address:
Packeteer Inc.
10495 N. De Ariza Blvd.
Cupertino, CA 95014
Attn.: Sales Department
Purchase orders shall specify: (i) description of MATERIAL,
inclusive of any numerical/alphabetical identification referenced in the
price list in this Agreement, (ii) delivery date, (iii) applicable price,
(iv) location to which the MATERIAL is to be shipped and (v) location to
which invoices shall be sent for payment.
50. POINT OF SALE INFORMATION
Company shall provide Supplier, on a quarterly basis, data on the
location of Company's customers who purchase Supplier's MATERIAL provided
pursuant to this Agreement. Such information shall be supplied in machine
readable "softcopy" form in Excel format electronic mail to [*] in no
more than 45 days after the end of each calendar quarter. Format and
method of transmission may be changed from time to time pursuant to
agreement by both parties. Email address shall change upon notice by
* 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> 18
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Supplier to Company. Information supplied shall include, without
limitation: MATERIAL product number, quantity sold, zip code of US
shipment or country (if international shipment).
51. REGISTRATION AND RADIATION STANDARDS
When MATERIAL furnished under this Agreement is subject to Part 68,
Part 15 or any other part of the Federal Communication Commission's Rules
and Regulations, as may be amended from time to time (hereinafter "FCC
Rules"), Supplier warrants that such MATERIAL complies with the
registration, certification, type-acceptance and/or verification standards
of the FCC Rules including, but not limited to, all labeling, customer
instruction requirements, and the suppression of radiation to specified
levels. Supplier shall also establish periodic on-going compliance
retesting and follow a Quality Control program, submitted by Company, to
assure that MATERIAL shipped complies with the applicable FCC Rules.
Supplier shall indemnify and save Company harmless from any liability,
fines, penalties, claims or demands (including the costs, expenses and
reasonable attorney's fees on account thereof) that may be made because of
Supplier's noncompliance with the applicable FCC Rules. Supplier shall
defend Company, at Company's request, against such liability, claim or
demand provided Supplier is promptly notified of any such claim or demand
and Company tenders full control of any such claim or demand to Supplier.
Company shall promptly advise Supplier in writing of any such claim and
shall reasonably cooperate, at Supplier's expense, with Supplier in the
defense or settlement thereof.
In addition, during the WARRANTY period, should MATERIAL which is
subject to Part 15 of the FCC Rules, during use generate harmful
interference to radio communications, Supplier shall provide the Company
information relating to methods of suppressing such interference and pay
the cost of suppressing such interference or, at the option of Company,
accept the return of the MATERIAL and [*].
To the extent that MATERIAL furnished under this Agreement is also
subject to FCC Rules governing the use of the MATERIAL as a component in a
system as identified in Supplier's Specifications , Company shall be
responsible for compliance with the applicable FCC Rules governing the
system. Supplier shall fully cooperate with Company, by providing
technical support and information, and, upon written request from Company,
shall modify MATERIAL to enable Company to ensure ongoing compliance with
the FCC Rules. Company shall pay any increase in Supplier's costs and/or
expenses resulting from Company's request to modify MATERIAL to enable
Company to comply with the FCC Rules.
Nothing in this section shall be deemed to diminish or otherwise
limit Supplier's obligations under the "WARRANTY" section or any other
section of this Agreement.
* 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.
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52. REJECTIONS
If Company rejects any or all of the MATERIAL, Company may, in lieu
of other rights and remedies at law or equity, exercise one or more of the
following remedies: (1) return rejected MATERIAL for full credit at the
price charged plus transportation charges from Supplier's plant, and
return; or (2) accept a conforming part of any shipment; or (3) have
rejected MATERIAL replaced by Supplier at the purchase price stipulated in
this Agreement.
53. RELEASES VOID
Neither party shall require (i) waivers or releases of any personal
rights or (ii) execution of documents which conflict with the terms of
this Agreement, from employees, representatives or customers of the other
in connection with visits to its premises and both parties agree that no
such releases, waivers or documents shall be pleaded by them or third
persons in any action or proceeding.
54. REPAIRS NOT COVERED UNDER WARRANTY
In addition to repairs provided for in the "WARRANTY" section
Supplier shall provide repair service on all MATERIAL ordered under this
Agreement during the term of this Agreement and until * * *
after the expiration of this Agreement. MATERIAL to be repaired under
this section will be returned to a location designated by Supplier, and
unless otherwise agreed upon by Supplier and Company, Supplier shall ship
the repaired MATERIAL which meets the Specifications set forth in the
"SPECIFICATIONS OR DRAWINGS" section and all other Specifications within
ten (10) business days of receipt of the defective or non-conforming
MATERIAL. With the concurrence and scheduling of Company, repair may be
made by Supplier on site.
If MATERIAL is returned to Supplier for repair as provided for in
this section and is determined to be beyond repair, Supplier shall so
notify Company. If requested by Company, Supplier will sell to Company a
replacement at the price set forth in Supplier's then current agreement
with Company for said MATERIAL or, if no such agreement exists, at a price
agreed upon by Supplier and Company. If the parties fail to agree on a
price, the price shall be a reasonably competitive price for such MATERIAL
at the time for delivery. Further, if requested by Company, Supplier shall
take the necessary steps to dispose of the unrepairable MATERIAL and pay
to Company the salvage value, if any. Replacement and repaired MATERIAL
shall be warranted as set forth in the "WARRANTY" section.
This Agreement does not grant Supplier an exclusive privilege to
repair any or all of the MATERIAL purchased under this Agreement for which
Company may require repair; and Company may perform the repairs or
contract with others for these services. In addition, Supplier authorizes
Company and any qualified repairer with whom Company may contract to
perform repairs on all MATERIAL purchased under this Agreement. Not
withstanding any provision of this Agreement to the contrary, any MATERIAL
not repaired by Supplier shall not be covered by any warranty hereunder.
<PAGE> 20
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All transportation costs of and in transit risk of loss and damage
to MATERIAL returned to Supplier for repair under this section will be
borne by Company and all transportation costs of and in transit risk of
loss and damage to such repaired or replacement MATERIAL returned to
Company will be borne by Company.
Price schedules for repairs under this section are listed in
APPENDIX A.
55. REPAIR PROCEDURES
Company shall furnish the following information with MATERIAL
returned to Supplier for repair: (a) Company's name and complete address;
(b) name(s) and telephone numbers(s) of Company's employee(s) to contact
in case of questions about the MATERIAL to be repaired; (c) ship-to
address for return of repaired MATERIAL if different than (a); (d) a
complete list of MATERIAL returned; (e) the nature of the defect or
failure if known; and (f) whether or not returned MATERIAL is in warranty.
Supplier shall, within ten (10) days of the execution of this Agreement,
provide a written notice to Company specifying (i) the name(s) and
telephone number(s) of the individual(s) to be contacted concerning any
questions that may arise concerning repair, and (ii) if required, any
special packing of MATERIAL which might be necessary to provide adequate
in-transit protection from transportation damage.
MATERIAL repaired by Supplier shall have the repair completion date
stenciled or otherwise identified in a permanent manner at a readily
visible location on the MATERIAL and the repaired MATERIAL shall be
returned with a tag or other papers describing the repairs which have been
made.
All invoices originated by Supplier for repair services must be
clearly identified as such, and must contain: (i) a reference to Company's
purchase order for these repair services, (ii) a detailed description of
repairs made by Supplier and the need therefor, and (iii) an itemized
listing of parts and labor charges, if any. Replaced parts will, upon
request, be available for inspection by or returned to Company. Further,
the provisions of the "INVOICING" and "SHIPPING" sections, other than
provisions relating to transportation charges with respect to MATERIAL
repaired under warranty, shall apply to Supplier's return to Company of
repaired MATERIAL.
56. RIGHT OF ENTRY
Subject to prior written notice of ten (10) days and not more than
twice per calendar year, each party shall have the right to enter the
premises of the other party during standard business hours for the purpose
of reasonable verification of each party's performance under this
Agreement, including an inspection or a Quality Review, subject to all
plant rules and regulations, clearances, security regulations and
procedures as applicable. Each party shall provide safe and proper
facilities for such purpose. No charge shall be made for such visits.
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57. SAFETY CERTIFICATION
All MATERIAL purchased under this Agreement shall be designed to be
in compliance with the applicable Underwriters Laboratories (UL)and
Canadian Standards Association (CSA) rules and regulations. It is agreed
that Supplier shall be responsible for filing the required documents to
obtain compliance with said Underwriters Laboratories Standards and
Canadian Standards. Supplier shall be responsible for making the MATERIAL
available for testing.
58. SECTION HEADINGS
The headings of the sections in this Agreement are inserted for
convenience only and are not intended to affect the meaning or
interpretation of this Agreement.
59. SERVICES
Visits by Supplier's representatives or its suppliers'
representatives for inspection, adjustment or other similar purposes in
connection with MATERIAL purchased under this Agreement shall for all
purposes be deemed "Work under this Agreement" and shall be at no charge
to Company unless otherwise agreed in writing between the parties.
60. SEVERABILITY
If any of the provisions of this Agreement shall be invalid or
unenforceable, such invalidity or unenforcability shall not invalidate or
render unenforceable the entire Agreement, but rather the entire Agreement
shall be construed as if not containing the particular invalid or
unenforceable provision or provisions, and the rights and obligations of
Supplier and Company shall be construed and enforced accordingly.
61. SHIPPING
Supplier shall: (i) ship the MATERIAL covered by this Agreement or
order complete unless instructed otherwise, (ii) ship to the destination
designated in the Agreement or order, (iii) ship according to routing
instructions given by Company, (iv) place the Agreement and order number
on all subordinate documents, (v) enclose a packing memorandum with each
shipment and, when more than one package is shipped, identify the package
containing the memorandum; and (vi) mark the order number on all packages
and shipping papers. Adequate protective packing shall be furnished at no
additional charge. Shipping and routing instructions may be furnished or
altered by Company without a writing. If Supplier does not comply with the
terms of the FOB section of the Agreement,Supplier authorizes Company to
deduct from any invoice of Supplier (or to charge back to Supplier), any
increased cost incurred by Company as a result of Supplier's
noncompliance.
62. SHIPPING INTERVAL
The delivery schedule applicable to each purchase order will be
agreed upon by Supplier and Company and set forth in the purchase order.
(Note: Supplier has indicated that MATERIAL can usually be shipped an
average of [*] after receipt of
* 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> 22
Agreement No. SC11990054
Sheet 22 of 28
Company's purchase order; however, in no event shall the delivery interval
[*] after acceptance of purchase order.)
If Supplier exceeds the above maximum interval then in lieu of all
other rights and remedies at law or equity or otherwise, and without any
liability or obligation of Company, Company shall have the right to: (a)
cancel such purchase order, or (b) extend such delivery date to a later
date, subject, however, to the right to cancel as in (a) preceding if
delivery is not made or performance is not completed on or before such
extended delivery date. If Company elects to extend such delivery date,
Supplier shall absorb the difference between the charges to ship normal
transportation and the charges to ship premium overnight.
If a purchase order is canceled by Company pursuant to the above,
Company shall have the right to retain or return any or all MATERIAL
received by or paid for by Company under such purchase order. Within [*]
business days of Supplier's receipt of returned MATERIAL, Supplier shall
reimburse Company for the costs of shipping the MATERIAL returned to
Supplier and for any amounts, including shipping costs, previously paid by
Company for the MATERIAL. Company shall pay for any MATERIAL if retains at
the prices set forth in APPENDIX A, less applicable discounts which shall
be applied on the basis of the quantity specified in the purchase order.
If, during the course of this Agreement, Supplier determines that
Supplier will no longer be able to ship within the above interval,
Supplier shall immediately notify Company's buyer to that effect.
Supplier shall also notify Company's buyer, as soon as it becomes
apparent, if Supplier is unable to meet the delivery date for an order.
However, nothing contained in this paragraph shall waive Company's rights
as set forth above in this section.
63. SHIPPING LOCATION
The material shall be shipped FOB ORIGIN.
64. STORAGE OF PAID FOR STOCK
Subject to the section "OPERATING SYSTEM SOFTWARE", Company has and
shall have at all times all right, title and interest in all MATERIAL
invoiced to Company in accordance with the section "INVOICING FOR STOCKS"
provided Company is in accordance with TERMS OF PAYMENT. Such MATERIAL
shall be referred to in this section as "Company Property." Supplier shall
store such Company Property without cost to Company at Supplier's
[ADDRESS] facility and ship such Company Property as ordered by Company
for a period not to exceed one (1) month. After said one (1) month,
Supplier may transfer Company Property to Company at Company's designated
facility. In addition, Supplier shall:
(i) Be responsible for the safekeeping of the Company Property as a
secondary insurer to Company, assume all risks of loss or damage to the
same and be
* 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> 23
Agreement No. SC11990054
Sheet 23 of 28
liable for the value paid for such Company Property. In case of removal of
all or any part of the Company Property from one building to another,
Supplier's responsibility for loss or damage shall continue and Supplier
shall give Company at least ten (10) days advance notice in writing of the
removal, except when the removal is required to comply with Company's
shipping orders or to protect the Company Property from loss or damage.
(ii) Permanently mark or if impracticable to do so then affix
labeling stating that the Company Property is the "PROPERTY OF LUCENT
TECHNOLOGIES INC." For purposes of this section, the term "LUCENT
TECHNOLOGIES INC." shall be deemed to mean Company or the Company
affiliated or associated company which owns the tooling, as applicable.
(iii) Store the Company Property safely, indoors in protected areas
approved by Company. Store the Company Property segregated from other
property in sections of Supplier's plant marked Property of Company.
(iv) Deliver the Company Property only to Company or Company's
designated customers in accordance with Company's orders or upon Company's
demand, FOB Supplier's plant without additional charge for removal,
packing, or crating.
(v) Supplier shall not allow any security interest, lien, tax lien
or other encumbrance (collectively referred to as "encumbrance") to be
placed on any Company Property. Supplier shall give Company immediate
written notice should any third party attempt to place or place an
encumbrance on such Company Property. Supplier shall indemnify and hold
Company harmless from any such encumbrance. Supplier shall, at Company's
request, promptly execute a "protective notice" UCC-1 form and all other
documents reasonably necessary to enable Company to protect its interest
in such Company Property. This Agreement shall constitute the security
agreement required by the UCC of the appropriate state.
(vi) Company may inspect, inventory, and authenticate the account of
the Company Property during Supplier's normal business hours. Supplier
shall provide Company access to the premises where all such Company
Property is located.
The obligations assumed by Supplier with respect to the Company
Property are for the protection of Company's property. If Supplier
defaults in carrying out Supplier's obligations under this Agreement,
then, at no cost to Company and upon twenty-four (24) hours notice to
Supplier, Company may cancel this Agreement in whole or in part or
withdraw all or any part of the Company Property, or both. Supplier shall,
at Company's option, return to Company or hold for Company's disposition
any or all of such Company Property in Supplier's possession.
<PAGE> 24
Agreement No. SC11990054
Sheet 24 of 28
65. SUPPLIER'S INFORMATION
Supplier shall not provide under, or have provided in contemplation
of, this Agreement any idea, data, program, technical, business or other
intangible information, however conveyed, or any document, print, tape,
disc, semiconductor memory or other information-conveying tangible
article, unless Supplier has the right to do so, and Supplier shall not
view any of the foregoing as confidential or proprietary. If Supplier must
furnish any such information to Company with restrictions, it shall be
furnished after negotiation and execution on behalf of Company of a
separate written agreement specifically identifying the documents to be
furnished and setting forth Company's rights and obligations with respect
hereto.
66. SURVIVAL OF OBLIGATIONS
Section 16, 18, 26, 27, 28, 29, 34, 37, 41, 42, and 61 shall survive
termination, cancellation or expiration of this Agreement.
67. TAXES
Company shall reimburse Supplier only for the following tax payments
with respect to transactions under this Agreement unless Company advises
Supplier than an exemption applies: state and local sales and use taxes,
as applicable. Taxes payable by Company shall be billed as separate items
on Supplier's invoices and shall not be included in Supplier's prices.
68. TECHNICAL SUPPORT
Company will be the primary interface to the customer and will
provide Tier 1, Tier 2 and Tier 3 technical customer support.
Supplier will provide Tier 4 technical customer support. "Tier 4"
means the fourth of four levels of technical customer support and
addresses issues escalated from Tier 3 when either the source of the issue
cannot be identified, or the issue is identified and must be addressed by
the manufacturer of the MATERIAL. Tier 4 technical customer support will
be provided 24 hours a day, 7 days a week via telephone or pager to
Company's support personnel at no charge. Supplier's response time shall
be within 30 minutes on Monday through Friday, 8:30 am - 5:30 pm (Pacific
Time), and within 2 hours at all other times.. Nine (9) months after the
effective date of this Agreement and every six months thereafter, Supplier
may request a review of Company's Tier 4 support requests that Supplier
believes do not fit into the category of support issues as defined in this
Section. Company shall be given a reasonable cure period to correct any
problem areas identified in the review before re-opening the Tier 4
compensation provision of this Section.
69. TERMINATION OF PURCHASE ORDER
Company may at any time terminate any portion or the total quantity
of any purchase order(s) placed under this Agreement. Company's liability
to Supplier with respect to such termination shall be limited to (i)
Supplier's purchase price of all
<PAGE> 25
Agreement No. SC11990054
Sheet 25 of 28
components for the MATERIAL (not usable in Supplier's other operations or
salable to Supplier's other customers), plus (ii) the actual costs
incurred by Supplier in procuring and manufacturing MATERIAL (not usable
in Supplier's other operations or salable to Supplier's other customers)
in process as of the date of giving notice of termination, less (iii) any
salvage value thereof. However, no such termination charges will be
invoiced if, within sixty (60) days of notice of termination, MATERIAL
equivalent in kind to that being terminated is ordered by Company. If
requested, Supplier shall substantiate such cost and price with proof
satisfactory to Company.
70. TIMELY PERFORMANCE
If Supplier has knowledge that anything prevents or threatens to
prevent the timely performance of the Work under this Agreement, Supplier
shall immediately notify Company's Representative thereof and include all
relevant information concerning the delay or potential delay.
71. TITLE AND RISK OF LOSS
Title (other than software) and risk of loss and damage to MATERIAL
shall vest in Company when the MATERIAL has been delivered at the FOB
point.
72. TOXIC SUBSTANCES AND PRODUCT HAZARDS
Supplier hereby warrants to Company that, except as expressly stated
elsewhere in this Agreement, all MATERIAL furnished by Supplier as
described in this Agreement is safe for its foreseeable use, is not
defined as a hazardous or toxic substance or material under applicable
federal, state or local law, ordinance, rule, regulation or order
(hereinafter collectively referred to as "law" or "laws"), and presents no
abnormal hazards to persons or the environment. Supplier also warrants
that it has no knowledge of any federal, state or local law, that
prohibits the disposal of the MATERIAL as normal refuse without special
precautions except as expressly stated elsewhere in this Agreement.
Supplier also warrants that where required by law, all MATERIAL furnished
by Supplier is either on the EPA Chemical Inventory compiled under Section
8 (a) of the Toxic Substance Control Act, or is the subject of an
EPA-approved pre manufacture notice under 40 CFR Part 720. Supplier
further warrants that all MATERIAL furnished by Supplier complies with all
use restrictions, labeling requirements and all other health and safety
requirements imposed under federal, state, or local laws. Supplier further
warrants that, where required by law, it shall provide to Company, prior
to delivery of the MATERIAL, a Material Safety Data Sheet which complies
with the requirements of the Occupational Safety and Health Act of 1970
and all rules and regulations promulgated thereunder.
Supplier shall defend, indemnify and hold Company harmless for any
expenses (including, but not limited to, the cost of substitute material,
less accumulated depreciation) that Company may incur by reason of the
recall or prohibition against continued use or disposal of MATERIAL
furnished by Supplier as described in its Agreement whether such recall or
prohibition is directed by Supplier or occurs under
<PAGE> 26
Agreement No. SC11990054
Sheet 26 of 28
compulsion of law. Company shall cooperate with Supplier to facilitate and
minimize the expense of any recall or prohibition against use or disposal
of MATERIAL directed by Supplier or under compulsion of law.
Supplier further shall defend, indemnify and hold Company harmless
of and from any claims, demands, suits, judgments, liabilities, costs and
expenses (including reasonable attorney's fees) which Company may incur
under any applicable federal, state or local laws, and any and all
amendments thereto, including but not limited to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980; the
Consumer Product Safety Act of 1972; the Toxic Substance Control Act;
Fungicide, Rodenticide Act; the Occupational Safety and Health Act; and
the Atomic Energy Act; and any and all amendments to all applicable
federal, state, or local laws, by reason of Company's proper acquisition,
use, distribution or disposal of MATERIAL furnished by Supplier under this
Agreement.
73. TRAINING
If requested by Company, Supplier will:
(a) provide instructors and the necessary instructional material of
Supplier's standard format to train Company's personnel in the
installation, planning and practices, operation, maintenance and repair of
MATERIAL furnished under this Agreement. These classes shall be conducted
at reasonable intervals at locations agreed upon by Supplier and Company.
The costs associated with the TRAINING are described in APPENDIX A.
Or, at the option of Company,
(b) provide to Company training modules or manuals and any necessary
assistance, covering those areas of interest outlined in (a) of this
section, sufficient in detail, format and quantity to allow Company to
develop and conduct a training program.
74. USE OF INFORMATION
Supplier shall view as Company's property any idea, data, program,
technical, business or other intangible information, however conveyed, and
any document, print, tape, disc, tool, or other tangible
information-conveying or performance-aiding article owned or controlled by
Company, and provided to, or acquired by, Supplier under or in
contemplation of this Agreement (Information). Supplier shall, at no
charge to Company, and as Company directs, destroy or surrender to Company
promptly at its request any such article or any copy of such Information.
Supplier shall keep Information confidential and use it only in performing
under this Agreement and obligate its employees, subcontractors and others
working for it to do so, provided that the foregoing shall not apply to
information previously known to Supplier free of obligation, or made
public through no fault imputable to Supplier.
<PAGE> 27
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75. VARIATION IN QUANTITY
Company assumes no liability for MATERIAL produced, processed or
shipped in excess of the amount specified in this Agreement or in an order
issued pursuant to this Agreement.
76. WARRANTY
Supplier warrants to Company, as defined in this section, that
MATERIAL furnished will be new, merchantable, free from defects in design,
material and workmanship and will conform to and perform under normal use
in all material respects with the Specifications, drawings and samples set
forth in this Agreement. These warranties extend to the future performance
of the MATERIAL and shall continue for a period of twelve (12) months from
the date of delivery to an end user customer (hereinafter "Customer") but
no longer than fifteen (15) from the date of shipment or, for MATERIAL
installed by Company or its re-sellers, for a period of twelve (12) months
from the completion of installation but no longer than fifteen (15) months
from date of shipment.
Supplier also warrants to Company that services will be performed in
a first class, workmanlike manner. In addition, if MATERIAL furnished
contains one or more manufacturer's warranties, Supplier hereby assigns
such warranties to Company provided such assignment is expressly permitted
under such warranties. Supplier warrants that at the time of delivery to
Company such MATERIAL shall be free of any security interest or any other
lien or any other encumbrance whatsoever. All warranties shall survive
inspection, acceptance and payment.
Defective or non-conforming MATERIAL will, at Company's option,
either be returned to Supplier for repair or replacement, at no cost to
Company, with risk of in-transit loss and damage borne by Supplier and
freight paid by Supplier, or be repaired or replaced by Supplier on
Customer's site or another site designated by Company at no cost to
Company. Unless otherwise agreed upon by Supplier and Company, Supplier
shall complete repairs and ship the repaired MATERIAL within [*] of
receipt of defective or non-conforming MATERIAL, or at Company's option,
ship replacement MATERIAL within [*] after verbal notification is given
Supplier by Company. Supplier shall bear the risk of in-transit loss and
damage and shall prepay and bear that cost of freight for shipments to
Company of repaired or replaced MATERIAL. If requested by Company,
Supplier shall begin on-site repairs within [*] after verbal notification
is given Supplier by Company.
If MATERIAL returned to Supplier or made available to Supplier on
site for repair as provided for in this section is determined to be beyond
repair, Supplier shall promptly so notify Company and, unless otherwise
agreed to in writing by Supplier and Company, Supplier shall ship
replacement MATERIAL without charge [*] of such notification.
* 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> 28
Agreement No. SC11990054
Sheet 28 of 28
Replacement MATERIAL shall be warranted as set forth above in this
"WARRANTY" section. Any MATERIAL which is repaired, modified, or otherwise
serviced by Supplier shall be warranted as provided in this "WARRANTY"
section for the remainder of the warranty period (based upon the date
repair, modification or other service is completed and accepted by
Company) or [*] after the MATERIAL is returned to a Customer, whichever
is later.
Supplier considers MATERIAL year 2000 ready if the MATERIAL's
performance and functionality are unaffected by the processing of dates
prior to, during and through the year 2000 transition, provided that
hardware, firmware, software, and databases used in combination with the
MATERIAL properly exchange accurate and correctly formatted date data with
the MATERIAL.
The MATERIAL defined in APPENDIX A are considered Year 2000 ready.
EXCEPT AS EXPRESSLY PROVIDED IN SECTION 76 AND 28, MATERIAL IS
PROVIDED ON AN "AS IS" BASIS WITHOUT ANY WARRANTY, AND SUPPLIER EXPRESSLY
DISCLAIMS ALL WARRANTIES, EXPRESS, IMPLIED, AND STATUTORY INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY,
NON-INFRINGEMENT OF THIRD PARTY RIGHTS AND FITNESS FOR A PARTICULAR
PURPOSE.
77. ENTIRE AGREEMENT
This Agreement shall incorporate the typed or written provisions on
Company's orders issued pursuant to this Agreement and shall constitute
the entire agreement between the parties with respect to the subject
matter of this Agreement and the order(s) and shall not be modified or
rescinded, except by a writing signed by Supplier and Company. Printed
provisions on the reverse side of Company's orders (except as specified
otherwise in this Agreement) and all provisions on Supplier's forms shall
be deemed deleted. Estimates or forecasts furnished by Company shall not
constitute commitments. The provisions of this Agreement supersede all
contemporaneous oral agreements and all prior oral and written
communications, and understandings of the parties with respect to the
subject matter of this Agreement.
Accepted (Date) June 25, 1999
PACKETEER, INC LUCENT TECHNOLOGIES INC.
* 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> 1
EXHIBIT 10.14
PACKETEER, INC.
OEM AGREEMENT
AGREEMENT NO. __62999__
THIS OEM AGREEMENT (the "Agreement") is entered into as of this 29th day
of June, 1999 (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 ADTRAN,
INC., a Delaware corporation having its principal place of business at 901
Explorer Boulevard, Huntsville, Alabama 35806 (together with any Affiliates,
"ADTRAN").
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.
ADTRAN is engaged in the design and manufacture of certain products,
incorporating both hardware and software elements, which products are utilized
in networks.
ADTRAN desires to port Packeteer's software to ADTRAN's platform, and to
incorporate additional ADTRAN software and hardware elements to create an
enhanced Smart DSU 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 "ADTRAN PRODUCT" means ADTRAN's product that incorporates the Ported
Software, and which provides all the functionality detailed in ATTACHMENT F
("Specifications for ADTRAN Product"), and no greater or lesser functionality
than that detailed therein. In addition to the Ported Software, the ADTRAN
Product includes the following components:
1.2.1 "ADTRAN SOFTWARE" means the software portion of the ADTRAN
Product (other than the Ported Software) developed by ADTRAN. The ADTRAN
Software has been partially developed as of the Effective Date. The ADTRAN
Software will be integrated with Packeteer Software only through the Packeteer
API (See Section 1.5.3).
1.2.2 "ADTRAN HARDWARE" means the hardware portion of the ADTRAN
Product.
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" means the
Packeteer Software for analyzing network traffic flow and usage and for
measuring information related to the network traffic flow, as described in the
PacketShaper/ADTRAN OEM Deliverables document referenced in ATTACHMENT A
("Packeteer Software").
1.3.2 "RATE CONTROL SOFTWARE PACKAGE" 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/ADTRAN OEM Deliverables document referenced in ATTACHMENT A
("Packeteer Software")
1.4 "PACKETEER DOCUMENTATION" means the training manuals and end user
manuals supplied to ADTRAN 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 that 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 ADTRAN
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
1.17, DATED 5/3/99.
1.6 "PORTED SOFTWARE" means the software, in object code form only,
resulting from ADTRAN's porting and compilation of the Packeteer Software Source
and the Packeteer API to the ADTRAN platform.
1.7 "SOURCE CODE SITES" means those geographic locations at which ADTRAN
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 upon
mutual written agreement of the parties.
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) and made generally commercially
available by Packeteer. Updates is not meant to include other
2.
<PAGE> 3
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 ADTRAN 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 ADTRAN 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 ADTRAN's platform to create the Ported Software for
inclusion in the ADTRAN Product.
2.2 DISTRIBUTION LICENSE. Subject to the terms and conditions of this
Agreement, Packeteer hereby grants to ADTRAN 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 ADTRAN Product, by way of licenses to end user customers
("End User Licenses" and "End Users," respectively),and through hardware OEMs
(re-labeled Adtran Product). Notwithstanding the foregoing, ADTRAN will be
permitted to distribute Updates to existing End Users and OEMs 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"). A complete
list of the Third Party Tools is set forth in ATTACHMENT A ("Packeteer
Software).
2.3.2 OTHER EXCLUDED COMPONENTS. The Packeteer Software may
contain certain third party software that Packeteer has no right to redistribute
in source code form ("Excluded Components"). A complete list of Excluded
Components is set forth in ATTACHMENT A ("Packeteer Software).
2.3.3 NO ADDITIONAL RIGHTS. ADTRAN specifically acknowledges
that, other than as expressly set forth above, no rights to the Packeteer
Software are granted to ADTRAN hereunder and there are no implied licenses under
this Agreement. Without limiting the generality of the foregoing, ADTRAN
acknowledges that it has no right to modify the Packeteer Software Source or
Packeteer API except for the limiting porting activities licensed under
PARAGRAPH 2.1 ("Limited Source Code License"), 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 ADTRAN Product, and ADTRAN shall
assign all right, title and interest in such unpermitted modifications to
Packeteer. Except as expressly set forth above, ADTRAN 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 ADTRAN a royalty-free non-exclusive, non-transferable, sub-licensable
license to localize, reproduce, distribute, reformat, modify and sublicense the
Packeteer Documentation so as to apply to the ADTRAN Product. ADTRAN recognizes
that its ownership of any derivative works
3.
<PAGE> 4
of the Packeteer Documentation is subject to Packeteer's underlying ownership of
the Packeteer Documentation. ADTRAN 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 ADTRAN 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 ADTRAN Products.
2.6 END USER LICENSE. ADTRAN will take all steps necessary to protect
Packeteer's proprietary rights in the Packeteer Software and to ensure that each
ADTRAN Product will be accompanied by a localized copy of ADTRAN'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").
2.7 OWNERSHIP OF PORTED SOFTWARE. Packeteer will own all right, title
and interest in all Ported Software created by ADTRAN. ADTRAN hereby assigns to
Packeteer the entire right, title and interest in the Ported Software. ADTRAN
will deliver all such Ported Software to Packeteer in source and object code
form as such Ported Software is created, or upon Packeteer's request, but in no
event less frequently than once per calendar quarter. ADTRAN agrees to render
reasonable cooperation to Packeteer in the procurement and maintenance of
Packeteer's rights in the Ported Software and to sign all papers which Packeteer
may deem necessary and desirable for vesting Packeteer with such rights
throughout the world, including litigation of applicable patents, copyrights and
other proceedings, and execution of an assignment of copyright.
3. DELIVERY
3.1 INITIAL DELIVERY; ACCEPTANCE. Upon receipt of the Initial Delivery
Fee, Packeteer will deliver the Packeteer Software to ADTRAN, 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 ADTRAN is current on 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. ADTRAN will have the option to incorporate
such Updates into the ADTRAN Product, provided that if ADTRAN fails to
successfully incorporate such Updates within one (1) year such Update is made
generally available, (a) the trademark license set forth in PARAGRAPH 2.5
("Trademark License") will terminate and ADTRAN will cease to use the Trademarks
in connection with such ADTRAN Product, and (b) Packeteer will
4.
<PAGE> 5
bear no obligation to continue to provide technical support (but will continue
to provide Updates during the Maintenance Period) for such out-of-date ADTRAN
Product.
4. SUPPORT AND MAINTENANCE
4.1 DEMONSTRATION. Packeteer will provide 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
ADTRAN Product, ADTRAN may from time to time request that Packeteer make changes
to the Packeteer Software in order to provide additional functionality. During
the period in which ADTRAN 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 ADTRAN.
4.3 END USER SUPPORT. ADTRAN will be solely responsible for providing
all support and maintenance for End Users of the ADTRAN Product. ADTRAN will
provide its End Users with reasonable documentation, warranty service, and
e-mail or telephone support for the use of the ADTRAN Product consistent with
good industry practice and the terms of this Agreement.
4.4 TECHNICAL SUPPORT. During the Maintenance Period, Packeteer will
provide ADTRAN (but not ADTRAN'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 ADTRAN
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. In this scenario support will
not be withheld during such discussions.
4.5 COMPATIBILITY. Updates provided hereunder for functionality that has
previously been implemented by ADTRAN 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, ADTRAN will pay Packeteer a
fee (the "Initial Delivery Fee") in SCHEDULE 1.
5.2 MAINTENANCE. For each calendar quarter for which ADTRAN desires to
receive Updates and technical support, it will pay Packeteer a maintenance fee
(the "Maintenance Fee") as set forth on SCHEDULE 1 ("Fees"). Any failure by
ADTRAN to pay a 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
5.
<PAGE> 6
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 failure by ADTRAN to pay a Maintenance Fee shall not relieve
ADTRAN from any of its obligations under this Agreement including, without
limitation, the payment of the Royalties under PARAGRAPH 5.3 ("Royalties"). Upon
a failure by ADTRAN to successfully incorporate any Update as contemplated in
PARAGRAPH 3.3 ("Incorporating Updates") within one (1) year after it is made
generally available by Packeteer, (a) ADTRAN will cease to use the Trademarks
(as described in PARAGRAPH 3.3 ("Incorporating Updates")), and (b) Packeteer
shall have the option not to accept any further Maintenance Fees from ADTRAN 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
6.
<PAGE> 7
SCHEDULE 1 ("Fees").
5.4 TAXES. ADTRAN 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 ADTRAN Product or related products, as well as any costs
associated with the collection of any of the foregoing items in the event that
it is deemed not to be a sale for resale under applicable state law by the
relevant taxing authority. ADTRAN 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 ADTRAN is required in order to
exempt the distribution or licensing of the Packeteer Software, ADTRAN Product
or other related product from any such liability or to enable Packeteer to claim
any tax exemption, credit, or other benefit, ADTRAN will promptly furnish such
certificate or document to Packeteer.
5.5 REPORTING. On a quarterly basis, ADTRAN will, within [*] following
the end of such quarter, provide Packeteer a report including the following: (a)
the number of units of the ADTRAN Product sold during that quarter; (b)
geographic information related to the units of ADTRAN Product sold during that
quarter, including, at least, by the country of the sale, by the State and
postal (zip) code of the sale; (c) 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 ADTRAN
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.
ADTRAN 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
6.1 ADTRAN DEVELOPMENT RESPONSIBILITIES. ADTRAN will be responsible for
creating the Ported Software, the ADTRAN Product, and incorporating Updates in
the ADTRAN Product in compliance with the terms of the Agreement. In addition,
ADTRAN will be responsible for creating and delivering to Packeteer a list of
errors found prior to Packeteer's certification or testing of the ADTRAN Product
pursuant to ATTACHMENT G ("Test Certification Procedures").
* 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.
7.
<PAGE> 8
6.2 TESTING AND CERTIFICATION OF ADTRAN PRODUCTS. ADTRAN will test each
version of the ADTRAN Product. Once yearly, Packeteer will certify ADTRAN's
tests results or perform independent testing in accordance with the procedures
in ATTACHMENT G ("Test Certification Procedures"). If the ADTRAN Product passes
Packeteer's Test Certification Procedures, then ADTRAN shall be entitled to
market and distribute the ADTRAN Product under the Trademarks under the terms of
this Agreement. ADTRAN will provide Packeteer with reasonable access to the
ADTRAN Software and Ported Software, including, but not limited to, exposing
command line interfaces for the ADTRAN Software 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 ADTRAN Software (its source or
object code) to determine the manner and methods utilized in supporting its
functionality without the prior written permission of ADTRAN.
6.3 LOANED EQUIPMENT. ADTRAN will loan Packeteer all necessary equipment
for such certification testing. All equipment loaned by ADTRAN to Packeteer will
remain the property of ADTRAN, will be fully insured by Packeteer, and will be
returned to ADTRAN at its request after termination of Packeteer's testing
activities hereunder. ADTRAN 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 ADTRAN
by Packeteer, shipping, insurance and any other applicable costs prepaid by
ADTRAN. While in the possession of Packeteer, the loaned equipment will be
maintained by ADTRAN in good working order.
7. MARKETING
7.1 PROMOTIONAL EFFORTS. ADTRAN will use its reasonable efforts to
market and distribute the ADTRAN Product to End Users. ADTRAN may advertise the
ADTRAN Product in advertising media of ADTRAN's choice. ADTRAN 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 the development environment specified by
Packeteer to yield the corresponding object code version of such source code
(excluding any Excluded Components). Packeteer also warrants for the Warranty
Period that the unmodified Packeteer Software Source when used in accordance
with the Packeteer Documentation shall share substantially equivalent
functionality (excluding functionality corresponding to the excluded components)
with Packeteer's PacketShaper software delivered to ADTRAN for testing on or
about February 10, 1999. If ADTRAN reports to Packeteer a failure of the
Packeteer Software Source to conform to the foregoing warranties during the
Warranty Period, and provides such detail as Packeteer may require to permit
8.
<PAGE> 9
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. ADTRAN acknowledges that the Packeteer Software Source
delivered by Packeteer to ADTRAN will require adaptation by ADTRAN or Packeteer
for compatibility with ADTRAN platforms and configurations, which platforms and
configurations will generally be different from the development environment and
platform used by Packeteer. ADTRAN 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 ADTRAN
concerning the Packeteer Software Source and ADTRAN'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 ADTRAN "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 ADTRAN
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 ADTRAN 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 ADTRAN's use of the Packeteer Software is prevented by
permanent injunction, Packeteer may, at its sole option and expense, procure for
ADTRAN the right to continued 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 ADTRAN the Initial Delivery Fee. PACKETEER'S
OBLIGATIONS UNDER THIS SECTION WILL BE ADTRAN'S SOLE AND EXCLUSIVE REMEDY FOR
ANY ALLEGED INFRINGEMENT OF MISAPPROPRIATION OF ANY PROPRIETARY RIGHT. PACKETEER
WILL HAVE NO LIABILITY TO ADTRAN 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 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.
<PAGE> 10
9.1.1 UPDATES. IF PACKETEER GIVES ADTRAN NOTICE THAT A SPECIFIC
UPDATE IS REQUIRED IN ORDER TO AVOID INFRINGING THE INTELLECTUAL PROPERTY RIGHTS
OF A THIRD PARTY, AND IF WITHIN SIXTY (60) DAYS ADTRAN FAILS TO USE SUCH UPDATE
AND TO DISTRIBUTE SUCH UPDATE TO ITS END USERS, THEN PACKETEER WILL HAVE NO
LIABILITY TO ADTRAN UNDER PARAGRAPH 9.1 FOR INFRINGING SUCH INTELLECTUAL
PROPERTY RIGHTS IF THERE WOULD HAVE BEEN NO INFRINGEMENT HAD ADTRAN ADOPTED SUCH
UPDATE.
9.2 BY ADTRAN. ADTRAN 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 ADTRAN Product infringe any
U.S. patents or U.S. copyrights, or misappropriate the trade secrets of any
third party, provided that Packeteer gives ADTRAN prompt written notice of any
such claim, tenders to ADTRAN the defense or settlement of such a claim at
ADTRAN's expense, and cooperates with ADTRAN, at ADTRAN's expense, in defending
or settling such claim. ADTRAN'S OBLIGATIONS UNDER THIS SECTION WILL BE
PACKETEER'S SOLE AND EXCLUSIVE REMEDY FOR ANY ALLEGED INFRINGEMENT OF ANY
PROPRIETARY RIGHT.
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 ADTRAN's request or suggestion under PARAGRAPH 4.2 ("Modifications
to Packeteer Software"). Except for the rights expressly enumerated herein,
ADTRAN 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. ADTRAN 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 ADTRAN OWNERSHIP. Packeteer acknowledges ADTRAN's statement that
ADTRAN 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 ADTRAN
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 ADTRAN Product. Packeteer agrees to
protect the ADTRAN Product in accordance with PARAGRAPH 12 ("Confidentiality").
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.
<PAGE> 11
10.4 PROPRIETARY NOTICES. ADTRAN agrees that as a condition of its
rights hereunder, each copy of the Ported Software will contain the same
proprietary notices which appear on or in such Packeteer Software provided by
Packeteer to ADTRAN. More specifically, ADTRAN agrees that a valid Packeteer
copyright notice will appear on the media or will be displayed on any screen
visible to a user when the ADTRAN Product is first initialized in the following
format or such other format as Packeteer specifies by written notice to ADTRAN:
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 Ported 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. ADTRAN
will ensure that the trademark notices are displayed in the ADTRAN Product as
set forth in PARAGRAPH 11 ("Trademarks").
10.5 UNAUTHORIZED DISTRIBUTION OR COPYING. ADTRAN 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 ADTRAN 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. ADTRAN will take all reasonable steps in
making proposals to and agreements with governments that involve the ADTRAN
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 CERTIFICATION. At Packeteer's request, ADTRAN will provide
Packeteer with written certification by an officer of ADTRAN of ADTRAN's
compliance with its obligations under this PARAGRAPH 10 ("Protection of
Proprietary Rights") and ATTACHMENT E ("Secure Procedures").
10.8 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 ADTRAN agrees they will be used by ADTRAN only in
accordance with the terms of this Agreement. ADTRAN will take all measures
reasonably required to protect the proprietary rights of Packeteer and its
suppliers in the Packeteer Software Information.
10.9 ACCESS. In consideration of the licenses and access to proprietary
information and technology of Packeteer granted under this Agreement, ADTRAN
hereby agrees: (a) not to use the Packeteer Software to develop, manufacture or
distribute GOODS OUTSIDE OF THOSE DEFINED IN ATTACHMENT F (SPECIFICATIONS FOR
ADTRAN PRODUCT); 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
ADTRAN from
11.
<PAGE> 12
independently developing similar technologies or products, where ADTRAN can
demonstrate by competent proof that such independent development has been
created without reference to the Packeteer Software Source, Packeteer Software
Information, or Packeteer Documentation.
11. TRADEMARKS
11.1 PROPER USE. Unless ADTRAN 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, ADTRAN 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 ADTRAN: (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 ADTRAN shall have the right to terminate the trademark usage
requirement of this PARAGRAPH 11.1 ("Proper Use") if ADTRAN 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 ADTRAN 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
ADTRAN, and ADTRAN 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 ADTRAN develops or markets, ADTRAN agrees that ADTRAN
will not exploit its access to the Packeteer Software, its relationship with
Packeteer, or the existence of the Ported Software to promote ATTACHMENT I
"Competitive Products". Furthermore, so long as ADTRAN is marketing the ADTRAN
Product under the Trademarks, ADTRAN agrees to use best efforts to distinguish
the ADTRAN Product from any ATTACHMENT I "Competitive Product" when displaying
or referring to the ADTRAN Product in advertisements, catalogs, brochures and at
trade shows by (a) identifying the ADTRAN Product prominently and exclusively
with the Trademarks in such proximity that the viewer is unlikely to associate
the ADTRAN 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
12.
<PAGE> 13
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 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 ADTRAN 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,
ADTRAN 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
ADTRAN 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,
13.
<PAGE> 14
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.
14. TERM AND TERMINATION
14.1 TERM. The initial term of this Agreement will be five (5) from the
Effective Date; provided however, in the event Packeteer assigns this Agreement
pursuant to PARAGRAPH 16.11 during such initial term, and Packeteer's assignee
fails to perform all or substantially all of its obligations pursuant to such
assignment and such failure remains uncured for a period of [*], ADTRAN may at
its option renew this Agreement with Packeteer for a term of three (3) years by
giving written notice to Packeteer. Such option shall be exercisable, if at all,
only within [*] of such failure; thereafter, this Agreement shall not be
renewable except by written agreement of the parties.
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 OBLIGATIONS ON CANCELLATION, TERMINATION OR EXPIRATION. Upon
cancellation, termination, or expiration of this Agreement:
14.4.1 LICENSES TERMINATED. The licenses granted pursuant to
PARAGRAPH 2 ("License Grants") will terminate immediately; provided, however,
that ADTRAN will be permitted to sell (for a period of ninety (90) days from
termination) any finished inventory of ADTRAN Product then in stock.
14.4.2 SAFEGUARDING OF PROPRIETARY RIGHTS. ADTRAN 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.
14.4.3 RETURN OR DESTRUCTION OF PACKETEER INFORMATION. Except for
the limited exemption set forth in PARAGRAPH 14.4.1 ("Licenses Terminated")
permitting ADTRAN to sell out existing inventory, ADTRAN 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 ADTRAN's
control); provided, however, that ADTRAN may keep a reasonable number of copies
for
* 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.
14.
<PAGE> 15
supporting existing End Users. Upon Packeteer's request, ADTRAN will warrant in
writing to Packeteer compliance with this PARAGRAPH 14.4.3.
14.4.4 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.
14.4.5 CONTINUED USE BY END USERS. End Users will be permitted
the continued and uninterrupted use of the ADTRAN 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.
14.4.6 SURVIVAL. The following sections will survive the
termination of expiration of this Agreement: PARAGRAPHS 1 ("Definitions"), 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 ADTRAN, ADTRAN's sublicensees as
authorized in this Agreement, ADTRAN's End Users, and ADTRAN's other direct and
indirect customers of Packeteer Software (collectively "Customers") exercise the
rights expressly granted in PARAGRAPH 2 ("License Grants") to ADTRAN, or which
ADTRAN is authorized to grant to Customers herein, Packeteer will not (a) assert
any Packeteer Patent Right against ADTRAN, (b) assert any Packeteer Patent Right
against Customers, or (c) require any additional fee or royalty from ADTRAN 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 ADTRAN PATENTS. As used herein, "ADTRAN Patent Right" means any
patent right arising under any United States or foreign patent issued or
assigned to ADTRAN and having a filing date after the inventor had access to the
Packeteer Software in which (a) an inventor is (a) an employee of ADTRAN who has
had access to the Packeteer Software or (b) an independent contractor who has
had access to the Packeteer Software and has assigned patent rights in the
claimed invention to ADTRAN and (b) the Packeteer Software contributed to the
claimed invention. ADTRAN Patent Right will not include any patent applications
filed three (3) years after termination or expiration of this Agreement. ADTRAN
covenants that it will not (a) assert any ADTRAN Patent Right against Packeteer
or against its sublicensees or customers for products of a similar nature to
that distributed by ADTRAN, or (b) require any fee or royalty from Packeteer or
such sublicensees or customers for the sale of such products based upon ADTRAN
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 ADTRAN Patent Right.
15.
<PAGE> 16
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 Huntsville,
Alabama as permitted by law. ADTRAN 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.
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.
<PAGE> 17
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 court 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 ADTRAN hereunder may be assigned or transferred by ADTRAN 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 ADTRAN or the business division of ADTRAN primarily involved in this
Agreement shall not be considered an assignment or transfer of ADTRAN'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
it's right to receive royalties under this Agreement.
16.12 EXPORT. ADTRAN 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. ADTRAN agrees that it will not export or re-export the Packeteer
Software or ADTRAN Product in any form, without the appropriate United States
and foreign governmental licenses, if legally required. ADTRAN 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. It supersedes, and its terms govern, all prior
proposals, agreements, or other 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.
17.
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have caused this OEM Agreement to
be executed by their duly authorized representatives as of the Effective Date.
PACKETEER, INC. ADTRAN, INC.
/s/ CRAIG ELLIOTT /s/ DANNY WINDHAM
- ---------------------------- -----------------------------------------
By: Craig Elliott By: Danny Windham
------------------------ ------------------------------------
Its: President and CEO Its: Vice President, Marketing CPE
----------------------- Products
-----------------------------------
18.
<PAGE> 19
ATTACHMENT A
PACKETEER SOFTWARE
PACKETEER SOFTWARE
The Packeteer Software components that Adtran has the right to use and
distribute are defined with check marks in the following table, and by reference
to the PACKETSHAPER PORTING GUIDE v 1.17 which is fully incorporated into this
agreement in Attachment B.
[*]
* Requires a disk drive
[*]
THIRD PARTY TOOLS
[List of development tools required to replicate the development environment, as
well the vendor who offers such tools]
TOOL VENDOR
SNMP EMANATE
DNS UNIVERSITY OF CALIFORNIA
EXCLUDED COMPONENTS
[List all third party software which Packeteer is not permitted to sublicense in
source code form, as well as all third party software for which there might be
any ambiguity as to their inclusion (e.g. Any RTOS software, objects, etc.).]
* 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.
A-1.
<PAGE> 20
ATTACHMENT B
PACKETSHAPER: OEM SOFTWARE PORTING GUIDE
THE DOCUMENT ENTITLED "PACKETSHAPER PORTING GUIDE," REVISION 1.17, DATED 5/3/99
IS FULLY INCORPORATED WITHIN THIS ATTACHMENT B AND IS DIRECTLY ATTACHED HERETO.
B-1.
<PAGE> 21
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
Equipment 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> 22
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 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.
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> 23
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 ADTRAN pursuant to this Agreement:
[PACKETWISE TECHNOLOGY LOGO]
The above trademark is designated to be included on the back panel of the Adtran
Box Level Product (Attachment F). Pending platform(s) design of the System Level
Products (Attachment F), use of this trademark will be determined prior to
shipping.
The Trademarks may be modified at any time by Packeteer.
USE OF PACKETEER TRADEMARKS
1. OWNERSHIP OF TRADEMARKS. ADTRAN acknowledges the ownership of the Packeteer
Trademarks in Packeteer. ADTRAN agrees that it will do nothing inconsistent with
such ownership and that all use of the Trademarks by ADTRAN will inure to the
benefit of and be on behalf of Packeteer. ADTRAN acknowledges that Trademarks
are valid under applicable law and that ADTRAN's utilization of the Trademarks
will not create any right, title or interest in or to such Trademarks. ADTRAN
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 ADTRAN as its representative for
the limited purpose of controlling the quality of the ADTRAN Products and any
other products or services it supplies in connection with the use of the
Trademarks. ADTRAN agrees that (a) the nature and quality of the ADTRAN 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 ADTRAN's marketing of ADTRAN Products. Upon
reasonable notice to ADTRAN 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.
D-1.
<PAGE> 24
ADTRAN 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 ADTRAN has
not met the Packeteer quality standards, Packeteer will so advise ADTRAN and,
upon ADTRAN's receipt of such notice by any means, ADTRAN will have thirty (30)
days to improve the quality to the standard previously approved by Packeteer, or
to cease the use of all Trademarks. ADTRAN will comply with all applicable laws
and regulations pertaining to the use of the Trademarks and to the distribution
and advertising of the ADTRAN Products; however, Packeteer shall obtain all
appropriate government approvals pertaining to the use of the Trademarks.
3. INFRINGEMENT PROCEEDINGS. ADTRAN agrees to notify Packeteer of any
unauthorized use of the Trademarks by others promptly as it comes to ADTRAN's
attention. Packeteer will have the sole right and discretion to bring
infringement or unfair competition proceedings involving the Trademarks.
4. ADTRAN'S USE OF TRADEMARKS. Except as set forth otherwise in the Agreement,
ADTRAN agrees that it will (a) prominently and permanently include the Packeteer
Trademarks on all copies of the Packeteer Software and on any ADTRAN Products
distributed to End Users (b) use the Packeteer Trademarks, including the
PacketWise logo, in any advertising or printed materials concerning the ADTRAN
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 ADTRAN 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. ADTRAN, 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 ADTRAN is marketing the
ADTRAN Products in association with a Trademark. ADTRAN'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. ADTRAN 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> 25
ATTACHMENT E
SECURE PROCEDURES
1. AUTHORIZED EMPLOYEES AND CONTRACTORS. ADTRAN agrees that it will only
disclose all or any portion of the Packeteer Software to authorized employees
("Authorized Employees") and authorized contractors ("Authorized Contractors")
(subject to ADTRAN'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 ADTRAN pursuant to
which Recipient has agreed to maintain the confidentiality of
confidential information of ADTRAN and its suppliers (the "Confidential
Information") and to use the Confidential Information solely for
ADTRAN'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, know-how, and proprietary information of
Packeteer (the "Packeteer Information") and which constitutes
Confidential Information under Recipient's agreement with ADTRAN.
This is to inform Recipient that the Packeteer Information cannot be
used for any purpose except for the specific purposes which ADTRAN 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 ADTRAN 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 ADTRAN 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."
ADTRAN guarantees the compliance of all such Authorized Employees and Authorized
Contractors with their obligations under such confidentiality agreements.
2. APPROVAL OF CONTRACTORS. Notwithstanding the provisions in this
ATTACHMENT E permitting Authorized Contractors to have access to Source
Information,
E-1.
<PAGE> 26
ADTRAN may not permit a contractor to come into contact with Source
Information, or engage in the development of the Enhanced Software hereunder
unless ADTRAN has first obtained a non-disclosure agreement which protects
against the unauthorized use of Source Information, and assures that the
contractor is not engaged in Competitive Product development.
3. PACKETEER SUPPORT INFORMATION.
3.1 ADTRAN 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. Packeteer will
properly mark all material and Source Information as Packeteer Information.
3.2 ADTRAN will ensure that the same degree of care is used to
prevent the unauthorized use, dissemination, or publication of the Source
Information as ADTRAN 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. ADTRAN will take prompt and appropriate action to
prevent unauthorized use or disclosure of Source Information.
3.3 ADTRAN will instruct Authorized Employees and Authorized
Contractors not to copy Source Information on their own, and not to disclose
Source Information to anyone 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 ADTRAN will provide Packeteer with a list 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 ADTRAN only in accordance with the terms of this Agreement. ADTRAN 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. ADTRAN agrees that it will not attempt to reverse engineer any
portion of the Packeteer Software which is provided to ADTRAN solely in object
code form.
5. NO COMMINGLING OF TECHNOLOGY. If ADTRAN engages in development of
products (other than the Ported Software) that are comparable to the Packeteer
Software ("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 or schematics supplied by Packeteer; (b)
Source Information or other information based upon or
E-2.
<PAGE> 27
derived from the Source Information; or (c) any facilities (including, but not
limited to, computer systems and network storage devices), or (f) personnel with
access to any of (a)-(c) above. ADTRAN 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 ADTRAN or any
Competitive Product (as defined in PARAGRAPH 10.9 ("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. CERTIFICATION. At Packeteer's request ADTRAN will provide Packeteer
with written certification by an officer of ADTRAN of ADTRAN's compliance with
its obligations under PARAGRAPHS 1 and 5 of this ATTACHMENT E.
7. 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 ADTRAN's records and premises to
allow Packeteer to determine whether ADTRAN 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 ADTRAN's regular business hours, (b)
arranged so that, to the extent possible, ADTRAN'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.
If Packeteer determines, after conducting such audit, that ADTRAN is not
substantially in compliance with its obligations to protect Packeteer's
proprietary rights, ADTRAN will pay the costs of such audit. Otherwise,
Packeteer will pay the costs of such audit. Such payment will not preclude
Packeteer from exercising any right which it may have under the Agreement.
ADTRAN will immediately correct any deficiencies discovered in the course of the
audit.
E-3.
<PAGE> 28
ATTACHMENT F
SPECIFICATIONS FOR ADTRAN PRODUCT
[*]
[*]
[*]
[*]
F-1.
<PAGE> 29
ATTACHMENT G
TEST CERTIFICATION PROCEDURES
INTRODUCTION.
This document describes proposed requirements for the software verification
testing that Packeteer, Inc. will perform
The areas are
- Support materials
- Software requirements
- Hardware requirements
- Testing Methods
- Reporting results
SUPPORT MATERIALS
Adtran must provide documentation on the following areas:
- - A set of manuals and a complete description of the feature set of the
Device Under Test (DUT)
- - A description of current revision level, how this version differs from
any previous version, and estimated ship date of the next version.
- - A complete set of test plans, test scripts, test tools and test results
from Adtran's own internal testing effort. This must include a list of
known bugs.
SOFTWARE REQUIREMENTS
- - DUT must have implement the complete Packeteer Command Line Interface
(CLI) for each Packeteer module implemented in the DUT.
- - This CLI must be accessible through Telnet through any port (Inband or
Outband) of the DUT.
- - This CLI need not be accessible for normal customers, but in this event,
Packeteer must be given some means of putting the DUT into this
Packeteer test mode.
G-1.
<PAGE> 30
HARDWARE REQUIREMENTS
- - Adtran will provide at least two (2) end-to-end test rigs for the DUT.
- - These test rigs must be capable of placing the DUT into an IP/Ethernet
based test harness. Thus, for example, if the DUT were a frame-relay
access device, each test rig would consist of at least two Ethernet
frads (one of which would be the DUT), connected back to back across the
frame-relay link by either a frame-relay router or a null-cable.
- - If the DUT features require cross-traffic to test, then the rig must be
capable of passing such traffic. This may require a central router with
3 or more interfaces.
- - The test rig must also have Sun Sparc 20's (or equivalent) running
Solaris 2.6, with Ethernet interfaces, to function as test traffic
generators.
TESTING METHODS
Packeteer testing will consist of two parts
- - Automated testing. In this phase, a series of automated tests will be
performed where the DUT is placed into various traffic modes, loaded
with traffic, and the results compared with expected.
- - Limited manual testing. In this phase, various features which are
awkward to test in an automated fashion are executed manually.
REPORTING RESULTS
Packeteer will provide a complete test report upon completing the tests.
This report will include all automated and manual tests run, the expected
results, the actual results, and whether the result constitutes a test pass or
fail.
G-2.
<PAGE> 31
ATTACHMENT H
SOURCE CODE SITES
ADTRAN facility.
ADDRESS
901 Explorer Boulevard,
Huntsville, Alabama 35806
SCHEDULE-1.
<PAGE> 32
ATTACHMENT I
COMPETITIVE PRODUCTS
PRODUCT WITH TRAFFIC SHAPING FUNCTIONALITY FROM THESE VENDORS:
ALLOT
AMPLIFY.NET
CHECKPOINT
NET REALITY
STRUTURED INTERNETWORKS
XEDIA
G-2.
<PAGE> 33
SCHEDULE 1
FEES
ADTRAN shall make the following payments to Packeteer:
[*] Initial Delivery Fee payable on the Effective Date.
Prepaid royalties shall be paid upon the following schedule:
[*]
For a total of * * * of prepaid royalties. The prepaid royalties shall be fully
creditable against royalties according to the following schedule:
From the Effective Date to December 31, 2000 at a rate of 100% against a unit's
royalty due;
Beginning January 1, 2001 at a rate of 50% against a unit's royalty due. Cash
will make up the remainder of the royalty due.
ROYALTY SCHEDULE:
Cumulative Royalties are an aggregate of all products defined in Attachment F:
- For box level products
Computed as a percentage of list price(s) of the base unit plus any add-on
amount designated for PacketWise.
[*]
For system level products:
Computed as a percentage of list price(s) of the component unit as described in
Attachment F plus any add-on amount designated for PacketWise.
[*]
MAINTENANCE FEE:
[*]
* 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-3.
<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 ended December 31, 1998, included in this
registration statement on page II-5. 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.
/s/ KPMG LLP
Mountain View, California
July 26, 1999