<PAGE>
As filed with the Securities and Exchange Commission on March 3, 2000
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
--------------
RESONATE INC.
(Exact name of Registrant as specified in its charter)
--------------
<TABLE>
<S> <C> <C>
Delaware 7372 94-3228496
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
385 Moffett Park Drive
Sunnyvale, California 94089
(408) 548-5500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
Kenneth Schroeder Chief Executive Officer 385 Moffett Park Drive
Sunnyvale, California 94089 (408) 548-5500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
<TABLE>
<C> <S>
Aaron J. Alter, Esq. Kevin P. Kennedy, Esq.
Michelle L. Whipkey, Esq. Shearman & Sterling
David R. Bowman, Esq. 1550 El Camino Real
Richard A. Kline, Esq. Menlo Park, California 94025
Wilson Sonsini Goodrich & Rosati (650) 330-2200
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of 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, 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, 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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class of
Securities to be Proposed Maximum Aggregate
Registered Offering Price(1) Amount of Registration Fee
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock $0.0001 par
value................. $60,000,000 $15,840
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effectiveness date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall hereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated March 3, 2000.
Shares
[RESONATE LOGO APPEARS HERE]
Resonate Inc.
Common Stock
----------
This is an initial public offering of shares of common stock by Resonate Inc.
All of the shares of common stock are being sold by Resonate.
Prior to this offering, there has been no public market for the common stock.
Resonate anticipates that the initial public offering price per share will be
between $ and $ . Resonate has applied for approval for quotation of
its common stock on the Nasdaq National Market under the symbol "RSNT."
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying shares of our common stock.
----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to Resonate.......................... $ $
</TABLE>
To the extent the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from Resonate at the initial public offering price, less the
underwriting discount.
----------
The underwriters expect to deliver the shares on , 2000.
Goldman, Sachs & Co.
Chase H&Q
Dain Rauscher Wessels
Wit SoundView
----------
Prospectus dated , 2000.
<PAGE>
[Inside Front Cover of Prospectus]
The inside front cover page begins with our logo followed by our trademark
"Keeping E-Business Open for Business."
After the above trademark, the title "Resonate's Internet Services Management
Solution" is centered above a graphic.
The graphic is a square with four quadrants, each quadrant representing one of
our products: Central Dispatch, Commander, Global Dispatch and Enterprise
Services Console.
Under the graphic is the language "Resonate Managed Services(TM)."
Below this language are four paragraphs describing our products with one
quadrant of the above graphic juxtapositioned next to the paragraph describing
the corresponding product. Finally, there is a fifth paragraph describing our
Resonate Managed Services product. Below is the language contained in the five
paragraphs.
"Resonate Control Dispatch(TM)
Central Dispatch is an enterprise traffic management solution for high traffic,
eBusiness applications where high availability and predictable performance are
necessities. Central Dispatch's distributed software architecture enables
multiple servers to act as a single, scalable, reliable and easily managed
server system.
"Resonate Commander(TM)
Commander provides automated service level control for complex eBusiness
applications. It provides resource monitoring, rapid problem diagnosis and
isolation, and automated corrective response at the web server, application
server and database server levels of the infrastructure."
"Resonate Global Dispatch(TM)
Global Dispatch provides traffic management functions across geographically
distributed eBusiness applications to consolidate multiple points of presence
into a single enterprise-wide resource."
"Resonate Enterprise Services Console(TM)
Resonate Enterprise Services Console provides a single unified view of
enterprise-wide deployments of multiple Central Dispatch and Global Dispatch
installations.
"Resonate Managed Services(TM)
Resonate Managed Services give our customers a way to benefit from our knowledge
and experience by allowing them to outsource their monitoring and service level
control needs."
<PAGE>
[Inside Gatefold of Front Cover of Prospectus]
The gatefold page begins with our logo and our trademark "Keeping E-Business
Open for Business" in the upper left corner and the title "The Platform for
Ensuring E-Business Success" across the top of the page.
Below this title is a graphic depicting various terminals, computers, network
connectable devices, servers, switches, routers, mainframes and their network
connections arranged to illustrate how Resonate's products, including a
depiction of Resonate's Enterprise Services Console, are positioned to integrate
enterprise traffic management and systems management capabilities to provide
real-time monitoring, reporting and automated service level control of eBusiness
applications and the computing resources on which they operate. Labels of the
elements of the graphic include "Terminal," "Fat Client," "Thin Client," "IP
Telephony," "IP Servers," "Application Servers," "Gateways," "DASD,"
"Mainframes," "Client Server Applications," and "E-mail." Some of the above
elements are arranged in areas labeled "End Users," "Caching and Content
Delivery," and "Routing, Quality of Service and Bandwidth Management."
Below the Graphic is the language "Internet Services Management" with the
following product trademarks: "Resonate Central Dispatch," "Resonate
Commander," "Resonate Global Dispatch" and "Resonate Services Console." A small
graphic representation of the Resonate Services Console appears next to the
trademarked language.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all the information you
should consider before buying shares in the offering. You should read the
entire prospectus carefully.
Our Business
We develop and market a family of software products and services that ensures
the availability and performance of eBusiness applications. Our family of
software products is a platform that integrates enterprise traffic management
and systems management capabilities, which together provide real-time
monitoring, reporting and automated service level control of eBusiness
applications and the computing resources on which they operate. We call these
integrated capabilities Internet services management.
We believe our platform is uniquely suited to the requirements of eBusiness
applications. Our distributed software architecture provides a platform that is
more feature-rich, flexible, scalable and fault tolerant than either server
load balancing and traffic management alternatives or systems and network
management alternatives.
We currently have over 250 customers worldwide ranging from high volume
Internet sites to large corporate enterprises deploying eBusiness applications.
Some of our key customers include Charles Schwab, DoubleClick, eBay, E*TRADE,
Federal Express, Morgan Stanley Dean Witter Online and Yahoo!/Geocities. A
market study performed by International Data Corporation indicates that our
customer base represents more than: 57% of all online brokerage accounts; 89%
of all person-to-person Internet auction revenues; 75% of third-party online
ads served; and 34% of all online personal home pages.
In addition to direct sales efforts, we sell our products and services
through multiple indirect channels, including systems integrators, hardware
platform vendors and independent software vendors such as Siebel Systems and
Vignette, who embed our software within their own products and sell them to
their customers.
Our Market Opportunity
Companies worldwide are transforming their business processes by using the
Internet and Internet-based technologies to deploy critical business
applications. These enterprises are increasingly aware that the availability
and performance of their eBusiness applications are critical, since they
directly impact the operational success of their businesses. For example, a
report by Zona Research estimates the cost to U.S. eCommerce companies
associated with poor or degraded services to be $4.35 billion in 1999. With the
increasing reliance by businesses on their eBusiness applications, and the
growing complexity of these applications' underlying infrastructure, businesses
must now continually address the following issues:
. Application performance and response times
. The cost of downtime and poor service levels
. The cost of administration and control
. The management of rapid growth and complexity
3
<PAGE>
Over the past several years, companies have attempted to address these issues
by using server load balancing and traffic management products in conjunction
with systems and network management products. Companies have found that these
products, even when used in combination, still do not adequately address these
issues.
According to International Data Corporation, the network analysis and
reporting market is expected to grow from approximately $300 million in 1999 to
over $800 million in 2002. According to the Internet Research Group, the
traffic management market is expected to grow from less than $100 million in
1999 to approximately $800 million in 2002. Both of these markets are subsets
of the Internet services management market as a whole, for which no forecasts
have yet been published.
Our Solution
We provide a comprehensive, standards-based Internet services management
platform that seeks to optimize availability and performance of eBusiness
applications. Our solution facilitates cost-effective growth while simplifying
the administration and control of complex eBusiness computing environments.
Our Strategy
We intend to be the leading Internet services management platform provider.
Our products and services optimize availability and performance and provide
management and control of eBusiness applications. Key elements of our strategy
are:
. Become the de facto standard Internet services management software
platform
. Target leading companies that are deploying critical, complex eBusiness
applications
. Leverage strategic relationships to facilitate the broad deployment of
our platform
. Provide outsourced Internet services management on a subscription basis
. Expand direct and indirect distribution channels
Corporate Information
We were incorporated in California in July 1995 under the corporate name
Mediability Inc. In April 1996, we changed our corporate name to Resonate Inc.
We intend to reincorporate in Delaware prior to the closing of this offering.
Our principal executive offices are located at 385 Moffett Park Drive,
Sunnyvale, California 94089 and our telephone number is (408) 548-5500. Our Web
site is located at http://www.resonate.com. Information contained on our Web
site does not constitute part of this prospectus.
For the year ended December 31, 1999, we had revenue of $9.9 million and a
net loss of $18.9 million.
"Resonate" is a registered trademark of Resonate. "Resonate Central
Dispatch," "Resonate Global Dispatch," "Resonate Dispatch Commander," "Resonate
Dispatch SLB-Now!," "Resonate Managed Services," "Resonate InterAct Services,"
"Resonate ProAct Services," "Resonate Services Console," "Keeping E-Business
Open for Business," and the stylized "R" logo are trademarks of Resonate. All
other trademarks or service marks appearing in this prospectus are trademarks
or service marks of the companies that use them.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered....................... shares
Common stock to be outstanding after the
offering.................................. shares
Proposed Nasdaq National Market symbol..... "RSNT"
Use of proceeds............................ We plan to use the net proceeds from this
offering principally for working capital
and general corporate purposes and to fund
anticipated operating losses.
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on shares outstanding as of December 31, 1999. This number excludes:
. 2,403,960 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $1.01 per share as of December 31,
1999
. 346,444 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $2.30 per share as of December 31,
1999
. a total of 514,967 shares available for issuance under our 1996 stock
plan as of December 31, 1999
Except as otherwise indicated, information in this prospectus is based on the
following three assumptions:
. The reincorporation of Resonate into Delaware, which will be completed
prior to the closing of this offering
. The conversion of all outstanding shares of our convertible preferred
stock into shares of our common stock, on a one for one basis,
immediately prior to the closing of this offering
. No exercise by the underwriters of their option to purchase additional
shares of common stock in this offering
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
(In thousands, except per share data)
The following table sets forth a summary of our statements of operations data
for the periods presented. Our operations from our inception in July 1995
through December 31, 1995 were not significant and are included in our results
of operations for the year ended December 31, 1996. The pro forma information
in the following table gives effect to the automatic conversion of all
outstanding shares of our convertible preferred stock into shares of common
stock immediately prior to the closing of this offering.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1997 1998 1999
------- ------- ------- --------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Total revenue......................... $ 32 $ 445 $ 2,695 $ 9,914
Cost of revenue....................... -- 84 319 1,104
------- ------- ------- --------
Gross profit.......................... 32 361 2,376 8,810
Operating expenses.................... 1,135 4,194 10,181 27,569
------- ------- ------- --------
Loss from operations.................. (1,103) (3,833) (7,805) (18,759)
------- ------- ------- --------
Net loss.............................. $(1,180) $(3,711) $(7,671) $(18,865)
======= ======= ======= ========
Net loss per share:
Basic and diluted................... $ (0.46) $ (1.20) $ (1.90) $ (4.18)
======= ======= ======= ========
Weighted average shares............. 2,551 3,083 4,048 4,513
======= ======= ======= ========
Pro forma net loss per share:
Basic and diluted (unaudited)....... $ (1.27)
========
Weighted average shares
(unaudited)........................ 14,841
========
</TABLE>
The following table summarizes:
. Actual balance sheet data
. Pro forma balance sheet data giving effect to the conversion of all
outstanding shares of our convertible preferred stock into shares of our
common stock immediately prior to the closing of this offering
. Pro forma as adjusted balance sheet data, adjusted to give effect to the
conversion of our convertible preferred stock and our sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share and after deducting estimated
underwriting discounts and estimated offering expenses
<TABLE>
<CAPTION>
December 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and investments... $ 11,999 $11,999
Working capital.......................... 7,674 7,674
Total assets............................. 18,386 18,386
Long-term debt, net of current portion... 3,346 3,346
Mandatorily redeemable convertible and
convertible preferred stock............. 28,401 --
Total stockholders' equity (deficit)..... (21,757) 6,644
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks described below, together with all of the other information
included in this prospectus, before buying shares in this offering.
We only began substantive operations in April 1996 and, as a result, it is
difficult to forecast our future operating results.
We were incorporated in July 1995 and had no substantive operations until
April 1996. As a result, we have a limited operating history that makes it
difficult to forecast our future operating results. In addition, the revenue
and income potential of our business and market are unproven. You must consider
our business and prospects in light of the risks and difficulties typically
encountered by companies in their early stages of development, particularly
those in new and rapidly evolving markets such as ours. Some of the specific
risks we face include our ability to:
. Successfully develop, commercialize and achieve significant market
acceptance of our current and next generation of products
. Develop and maintain strong relationships with hardware platform
vendors, independent software vendors, application service providers,
web hosting services, value-added resellers and systems integrators
. Expand our domestic and international sales efforts
. Continue to attract and retain qualified personnel, particularly in the
areas of sales, marketing and engineering
. Manage growing operations
We have a history of losses, expect to continue to incur significant operating
expenses and losses in the future, and may never achieve or sustain
profitability.
We have experienced operating losses in each quarterly and annual period
since our inception in 1995, and we expect to continue to incur significant
operating expenses and losses for the foreseeable future. We incurred net
losses of $7.7 million and $18.9 million for the fiscal years ended December
31, 1998 and December 31, 1999, respectively. As of December 31, 1999, we had
an accumulated deficit of $31.4 million. We cannot predict when we will be
profitable, if at all. We may never achieve future revenue growth or achieve or
sustain profitability. If we do achieve profitability in any period, we cannot
be certain that we will sustain or increase such profitability on a quarterly
or annual basis. If we continue to incur net losses and never attain
profitability, our stock price will suffer.
We intend to substantially increase our operating expenses, particularly
expenses relating to expanding our sales and marketing activities and our
direct sales force, adding to the number of relationships within our indirect
distribution channels and increasing levels of research and development. As a
result, we will need to generate significant additional revenue to achieve and
maintain profitability in the future. Moreover, failure to achieve and sustain
significant increases in our quarterly net sales could cause us to curtail
planned increases in our operating expenses, which would adversely impact our
ability to grow our business.
The planned expansion of our direct sales force will involve significant
expense to us, and may not succeed.
During 2000, we expect to substantially increase the number of our direct
sales personnel to both support and develop leads for our indirect distribution
channels and increase the direct sale of
7
<PAGE>
our products. This expansion will significantly increase personnel costs and
related expenditures. We do not expect new sales personnel to be productive
immediately, and we can not assure you that costs of this expansion will not
exceed the revenue generated by the new sales personnel. We also can not assure
you that we will be successful in hiring our target number of sales personnel.
Our quarterly operating results may fluctuate significantly, and may be subject
to seasonality, which may cause our stock price to fall.
Our quarterly operating results have varied significantly in the past and are
likely to vary significantly in the future, which makes it difficult for us to
predict our future operating results. Factors that could cause our operating
results to fluctuate include:
. Changes in the mix of products and services we sell
. The timing of the development and release of enhanced versions of
Central Dispatch, Commander, Global Dispatch, Enterprise Service Console
and Resonate Managed Services, as well as future product enhancements
and new products
. Deferrals of customer orders in anticipation of product enhancements or
new products
. Announcement or market acceptance of new products or product
enhancements offered by our competitors
. The mix of channels through which we sell our products
. The timing and amount of orders from companies who sell our products
through our indirect distribution channel
. General economic conditions and economic conditions specific to the
Internet services management industry
Because of these factors, we believe that period-to-period comparisons of our
results of operations are not meaningful and should not be relied upon as an
indicator of our future performance. Our operating results will likely be below
the expectations of public market analysts and investors in some future quarter
or quarters. If this occurs, the price of our common stock will probably
decline.
A delay in anticipated sales beyond the end of a particular quarter may harm
our results of operations for that quarter. Furthermore, we base our decisions
regarding our operating expenses on anticipated revenue trends, and our expense
levels are relatively fixed. Consequently, if revenue levels fall below our
expectations, we may suffer unexpected losses because only a small portion of
our expenses vary with our revenue.
We expect to experience seasonality in the sales of our software products.
For example, we expect that sales may decline during summer months,
particularly in Europe. We also anticipate that sales may be lower in our first
fiscal quarter due to patterns in the capital budgeting and purchasing cycles
of our current and prospective customers. These seasonal variations in our
sales may lead to fluctuations in our quarterly operating results. Furthermore,
it is difficult for us to evaluate the degree to which this seasonality may
affect our business because our growth may have largely overshadowed this
seasonality in recent periods.
If we fail to successfully educate potential customers regarding the benefits
of our Internet services management solutions, our ability to sell our products
and grow our business will be severely limited.
Our future success depends on widespread commercial acceptance of our
products. The market for Internet services management solutions is relatively
new and rapidly evolving. If we are unable to
8
<PAGE>
educate our potential customers, and the market in general, of the advantages
of our software based Internet services management solutions over hardware
based server load balancing products, our ability to sell our products will be
severely limited. Rather than utilizing comprehensive Internet services
management solutions, most web data center administrators manage their services
by adding servers and interconnecting a variety of single function system and
traffic management tools. In addition, our competitors offer a wide variety of
hardware or software products that purport to serve the needs addressed by our
products. Our ability to increase revenue in the future depends on the extent
to which our potential customers recognize the value of our integrated Internet
services management solutions. The acceptance of our products and services may
also be hindered by:
. The reluctance of our prospective customers to replace or supplement
their current networking products, which may be supplied by more
established vendors, with our products
. The emergence of new technologies or industry standards which could
cause our products to be less competitive or obsolete
In addition, because the market for Internet services management solutions is
in an early stage of development, we cannot accurately assess the size of the
market, and we have limited insight into trends that may emerge and affect our
business. For example, we may have difficulty in predicting customer needs,
developing products that could address those needs, and establishing a
distribution strategy for these products.
If our Central Dispatch, Commander, Global Dispatch, Enterprise Service Console
or Resonate Managed Services products or other new products or product
enhancements fail to achieve customer acceptance, our growth and revenue will
be limited.
Rapid technological change, frequent new product introductions and
enhancements, changes in customer demands and evolving industry standards
characterize our industry. Our existing products will be rendered less
competitive or obsolete if we fail to introduce new products or product
enhancements that anticipate the features and functionality that customers
demand or ensure that they interoperate with current and emerging networking
technologies. The success of our products will depend on factors including:
. Their ability to meet customer needs and expectations regarding features
and performance
. Our ability to accurately anticipate industry trends and changes in
technology standards
. Timely completion and introduction of new product designs and features
Further, because the market is new for products that facilitate the efficient
processing of data and transactions across distributed computer networks,
potential customers in this market may be confused or uncertain about the
relative merits of these products or which product to adopt, if any. Confusion
and uncertainty in the marketplace may inhibit customers from purchasing our
products, which could limit our growth and revenue.
Our sales of Central Dispatch generated approximately 75% of our product
revenue in the fourth quarter of 1999, and a decline in our sales of Central
Dispatch could materially harm our results of operations.
In the fourth quarter of 1999, we derived approximately 75% of our product
revenue from sales of our Central Dispatch product, and we expect to derive a
significant portion of our revenue from sales of Central Dispatch for at least
the next two years. Our ability to sell Central Dispatch depends upon its
ability to solve critical network performance and availability problems of our
customers. If Central Dispatch is unable to solve these problems for our
customers, our ability to maintain our existing customer base and to obtain new
customers for Central Dispatch will be adversely impacted, which would result
in a substantial loss of revenue or an inability to grow our revenue.
9
<PAGE>
Our ability to grow Resonate Managed Services will depend upon the willingness
of customers to outsource Internet management services.
We only recently introduced Resonate Managed Services, and we have derived
almost no revenue from Resonate Managed Services. Potential customers may be
unwilling to outsource monitoring and service level control of their eBusiness
applications and the infrastructure that supports them. For example, potential
customers may be reluctant to give our professional services engineers the
ability to adjust configuration of their infrastructure. Furthermore, it is
difficult for us to evaluate the extent to which potential customers will be
willing to outsource these functions due to the limited time period during
which we have been offering Resonate Managed Services. Should this occur, our
ability to grow our business may be harmed.
Our ability to grow our business depends upon increased demand for our products
from corporate enterprises and the extent to which our products can accommodate
the needs of corporate enterprises.
We derive a substantial portion of our revenue from companies that operate
their business primarily or exclusively through their public web site, commonly
known as "dot.com" companies. We cannot assure you that corporate enterprises,
who typically operate in more complicated information technology environments
will widely adopt Internet services management solutions to facilitate their
data and transaction processing needs. Our ability to grow our business will
depend upon the extent to which corporate enterprises adopt Internet services
management solutions. Moreover, if corporate enterprises require significantly
different product features for our Internet services management solutions than
our dot.com customers, we will be required to enhance or modify our products to
meet those corporate enterprise requirements. If we are required to enhance or
modify our products in this manner, we could incur delays in introducing
enhanced or modified versions of our products, delays in capturing enterprise
customers and significant expense. Any of these alternatives will limit our
ability to grow our business and could result in higher net losses.
We derive substantially all our revenue through the sale of upfront licenses of
our software products, and alternative business models employed by competition
could erode our product pricing.
If alternative business methods of delivering the capabilities of our
software products are developed by competition, they may substantially erode
the price which we can charge for our products. These alternative methods
include bundling these capabilities in operating systems by hardware platform
vendors or the delivery of these capabilities through a subscription model by
application service providers.
Our markets are highly competitive, our customers may choose to purchase our
competitors' products, and we cannot assure you that we will be able to compete
effectively.
Our markets are new, rapidly evolving and highly competitive, and we expect
competition to persist and intensify in the future. Our principal competitors
for our Central Dispatch and Global Dispatch products include several companies
offering hardware-based server load balancing such as Alteon Web Systems,
Arrowpoint Communications, Cisco Systems, F5 Networks, Foundry Networks and
Microsoft. These competitors have significantly greater financial, technical,
marketing, service and other resources than we do.
In the future, increased competition for our Commander and Enterprise Service
Console products may come from providers of systems management products,
including Tivoli Systems, BMC Software and others, and from providers of
network management products, such as Micromuse and Visual Networks. As these
providers enhance their products to meet the needs and requirements of Internet
deployed applications and services, potential customers may choose their
products over our solutions.
10
<PAGE>
We expect to continue to face additional competition as new participants
enter the traffic or systems management markets. In addition, other large
companies with significant resources, brand recognition and sales channels may
form alliances with or acquire competing traffic management solutions and
emerge as significant competitors. Potential competitors may bundle their
products or incorporate a load balancing or traffic management component into
existing products in a manner that discourages users from purchasing our
products. In addition, our competitors may choose to significantly reduce the
prices of their hardware-based products and we may be forced to significantly
reduce our prices in order to remain competitive. This price reduction could
significantly lower our revenue or increase our operating losses.
Our competitors may respond more quickly to emerging technologies than we do.
We may lose customers to competitors if we are not able to respond to requests
for additional features in a timely fashion. We may not be able to maintain or
improve our competitive position against current or potential competitors,
especially those with greater resources.
Our sales cycle is lengthy and unpredictable, involving significant expense and
effort by us in advance of product orders, and may cause our operating results
to fluctuate, which could result in volatility in the price of our stock.
The typical sales cycle of our Internet services management products is
lengthy and unpredictable and involves significant capital investment decisions
by prospective customers, as well as education of potential customers regarding
the benefits of our software-based solutions. The sales cycle for our products
has ranged from one to three months for sales to smaller customers to up to one
year or more for sales to large, established enterprises. If sales forecasted
from specific customers for a particular quarter are not realized in that
quarter, we may be unable to compensate for the revenue shortfall causing our
operating results to vary significantly from quarter to quarter. A significant
variation in our quarterly results could result in volatility in our stock
price. Customers frequently begin by evaluating our products on a limited basis
before deciding to purchase them. Generally, customers consider a wide range of
issues before committing to purchase our products, including product benefits,
ability to interoperate with their networking equipment and product
reliability. While potential customers are evaluating a purchase of our
products, we may incur substantial sales and marketing expenses and expend
significant management effort. The result of making these expenditures with no
corresponding revenue in any given quarter could further exacerbate our
quarterly fluctuations and our stock price volatility.
We rely on our relationships with a limited number of third parties to
implement and promote our software platform, and if these relationships fail,
our revenue or our ability to grow our revenue may decrease.
We depend upon our relationships with Brokat Infosystems, IBM and Sun
Microsystems to help distribute and market our products. Although we have
developed distribution and marketing relationships with these three companies
and a limited number of other hardware platform vendors, independent software
vendors, value-added resellers and systems integrators, we cannot control the
amount or timing of resources that these third parties devote to our business.
We cannot assure you that the third parties who currently market our products
will do so effectively, and we may not be able to maintain our existing
relationships with these third parties. In addition, our arrangements with
third parties typically do not restrict them from working with our competitors.
In the event one or more of these third parties were to acquire or
significantly increase their relationships with our competitors, their
incentive to continue to devote their resources to selling our products could
decline and our revenue could suffer accordingly. If any of our relationships
is terminated, we may not be able to develop or maintain substitute marketing
and distribution relationships.
11
<PAGE>
If we do not substantially expand our direct and indirect sales channels, our
ability to sustain or increase our sales will be harmed.
In order to increase the sales of our products and services, we need to
increase both our direct and indirect sales channels. If we are unable to
increase both our direct and indirect sales channels, our ability to increase
revenue could be seriously harmed. In North America, we currently sell our
products directly and through companies with whom we have established indirect
sales channel relationships. We sell our products internationally primarily
through resellers and referrals from our channel relationships. Our sales and
distribution strategy depends principally on:
. Developing and expanding our indirect sales and distribution channels by
establishing relationships with leading hardware platform vendors,
independent software vendors, application service providers, web hosting
services, value-added resellers and systems integrators
. Developing and expanding our direct sales organization by hiring
additional personnel
For the twelve months ended December 31, 1999, our indirect channel
relationships accounted for 100% of our revenue from customers located outside
North America and 19% of our revenue from customers located in North America.
To achieve broader distribution of our products, we expect to continue to
invest in the development of indirect sales channels. If we fail to develop and
maintain relationships with significant hardware platform vendors, independent
software vendors, application service providers, web hosting services, value-
added resellers and systems integrators, or if these third parties are not
successful in their sales efforts or if we fail to expand our direct sales
organization, sales of our products and services may decrease or fail to
increase.
Our expansion into international markets may not succeed and will expose us to
risks associated with international operations and result in higher personnel
costs.
We intend to expand into international markets. We have only limited
experience in marketing, selling and supporting our products internationally.
Prior to 1998, we had no revenue from sales to customers located outside North
America. Sales to customers located outside North America represented 14% of
our revenue for the year ended December 31, 1998 and 15% of our revenue for the
year ended December 31, 1999.
In order to increase our international sales, we intend to expand the number
of relationships with third parties who sell our products internationally and
develop a direct international sales presence. We may incur higher personnel
costs by hiring international sales staff, which may not result in an increase
in our revenue. We may not be able to maintain our operating margins for
international sales due to the higher costs of these sales.
Our continued growth will require us to develop our international operations
in European and Asian countries. If we are unable to expand our international
operations successfully, and in a timely manner, our business and results of
operations may be seriously harmed. Such expansion may be more difficult or
take longer than we anticipate, and we may not be able to successfully market,
sell, deliver and support our products internationally. Our international
operations could also be affected by a number of risks and uncertainties,
including:
. The difficulties and significant costs of staffing and managing foreign
operations
. Unexpected changes in regulatory requirements
. Legal uncertainties regarding liability, export and import restrictions,
tariffs and other trade barriers
. Reduced protection of intellectual property in other countries
12
<PAGE>
. Longer collection cycles and increased difficulty in collecting
delinquent or unpaid accounts
. Fluctuations in the value of the U.S. dollar relative to other
currencies
. Potentially adverse tax consequences
. Political and economic instability
Any of these factors could impair our ability to expand our international
operations into these markets or to generate significant revenue from those
markets in which we operate.
We may not be able to attract, train or retain qualified engineering, sales,
marketing, professional services and customer support personnel because these
personnel are limited in number and in high demand.
Our future success will depend in large part on our ability to hire and
retain a significant number of qualified personnel, particularly in
engineering, sales, marketing, professional services and customer support.
Competition for qualified personnel is intense, especially in Northern
California where we are headquartered, and we may not be able to hire the
quality and number of personnel we are targeting. Our inability to hire and
retain qualified personnel may harm our results of operations and our ability
to maintain or increase market share.
We currently have a small professional services and customer support
organization and will need to increase our staff to support new customers and
the expanding needs of existing customers. The installation of Internet traffic
management solutions, the integration of these solutions into existing networks
and the ongoing support can be complex. Accordingly, we need highly trained
professional services and customer support personnel. Hiring professional
services and customer support personnel is very difficult in our industry due
to the limited number of people available with the necessary technical skills
and understanding of our products.
After this offering, our ability to attract and retain qualified personnel
may be even more difficult because potential employees may perceive the value
of our future stock option grants offered to them to be less valuable than
stock option grants offered by other companies that are not yet public. Our
inability to attract, train or retain the number of highly qualified
engineering, sales, marketing, professional services and customer support
personnel that our business needs may seriously harm our business and results
of operations.
Our recent growth has placed a significant strain on our management, systems
and resources, and we may experience difficulties managing our expected growth.
Since the introduction of our product line, we have experienced a period of
rapid growth and expansion that has placed, and continues to place, a
significant strain on all of our management, systems and resources. From
December 31, 1997 to December 31, 1999, we increased the number of our
employees from 42 to 147. We expect our headcount to continue to grow
substantially. We expect our growth to continue to strain our management,
operational and financial resources. For example, we may not be able to install
adequate financial control systems in an efficient and timely manner, and our
current or planned information systems, procedures and controls may be
inadequate to support our future operations. The difficulties associated with
installing and implementing new systems, procedures and controls may place a
significant burden on our management and our internal resources. If we are
unable to manage our growth effectively, our business and results of operations
may be seriously harmed.
13
<PAGE>
We depend on our key personnel and the loss of any key personnel may harm our
business and results of operations.
Our success depends to a significant degree upon the continued contributions
of our key management, product development, sales and marketing and finance
personnel, many of whom would be difficult to replace. In particular, we rely
on our President and Chief Executive Officer, Kenneth Schroeder. If we were to
lose the services of Mr. Schroeder, our business and results of operations
could be harmed. We do not maintain employment agreements or key person life
insurance for any of our key personnel.
The development of new operating systems or the emergence of new network
standards could cause our products to become obsolete or require us to redesign
our products.
Our products operate on Solaris, Windows NT, Linux and AIX operating systems,
and features of our products are dependent upon the network standards used by a
customer. If new operating systems are developed or new network standards
emerge, our failure to modify our products in a timely or cost effective manner
could limit our potential customer base, which would adversely affect our
ability to increase our revenue. Furthermore, we will need to modify our
products or develop new versions of our products as new versions of operating
systems are developed. If we fail to continue to develop new products to
respond to changes in computer networks and operating systems, our ability to
grow our business will suffer.
Undetected software errors in our products could harm our reputation and cause
us to incur significant warranty and repair costs.
Software products frequently contain undetected errors when first introduced
or as new versions are released. We have experienced these errors in the past
in connection with new products and product upgrades. We expect that these
errors will be found from time to time in new or enhanced products after
commencement of commercial shipments. These problems may cause us to incur
significant warranty and repair costs, divert the attention of our engineering
personnel from our product development efforts and cause significant customer
relations problems.
Because our products could interfere with the operations of our customers'
other software applications, we may be subject to potential product liability
and warranty claims by these customers, which may be costly and may not be
adequately covered by insurance.
Our products are integrated with our customers' networks and software
applications. The sale and support of our products may entail the risk of
product liability or warranty claims based on disruption to these networks or
applications. In addition, the failure of our products to perform to customer
expectations could give rise to warranty claims. Any of these claims, even if
not meritorious, could result in costly litigation or divert management's
attention and resources. Although we carry general liability insurance, our
current insurance coverage would likely be insufficient to protect us from all
liability that may be imposed under these types of claims. A material product
liability claim may seriously harm our results of operations.
Our intellectual property could be used by others without our consent because
protection of our intellectual property is limited.
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We also enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our software, documentation and other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use
14
<PAGE>
our products or technology. In addition, other parties may breach
confidentiality agreements or other protective contracts we have entered into,
and we may not be able to enforce our rights in the event of these breaches.
Any actions taken by us to enforce our intellectual property rights could
result in significant expense to us and the diversion of management time and
other resources.
Monitoring use of our products is difficult and we cannot be certain that the
steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States.
Our products may infringe the intellectual property rights of others, and
resulting claims against us could be costly and require us to enter into
disadvantageous license or royalty arrangements.
Our industry is characterized by the existence of a large number of patents
and frequent litigation based on allegations of patent infringement and the
violation of other intellectual property rights. We may be subject to legal
proceedings and claims for alleged infringement by us or our licensees of third
party proprietary rights, such as patents, trademarks or copyrights, from time
to time in the ordinary course of business. Any claims relating to the
infringement of third party proprietary rights, even if not meritorious, could
result in costly litigation, divert management's attention and resources, or
require us to enter into royalty or license agreements that are not
advantageous to us. In addition, parties making these claims may be able to
obtain an injunction, which could prevent us from selling our products in the
United States or abroad. Any of these results could harm our business. We may
increasingly be subject to infringement claims as the number of products and
competitors in our industry grows and functionalities of products overlap.
Furthermore, former employers of our current and future employees may assert
that our employees have improperly disclosed confidential or proprietary
information to us.
Our products incorporate the Java run time environment, which we license from
Sun Microsystems, and our product shipments could be delayed if that software
is no longer available to us.
Our products incorporate the Java run time environment, which we license from
Sun Microsystems. This third party software may not continue to be available to
us on commercially reasonable terms. If we cannot maintain our license to Sun's
Java run time environment, shipments of our products could be delayed until we
could develop or license software to replace the functionality provided by this
license and integrate that software into our products. Delays in product
shipments could harm our revenue.
A disaster could severely damage our operations because we do not have a
separate geographically located backup system or a disaster recovery plan.
We currently do not have a disaster recovery plan in effect and do not have
fully redundant systems for our service at an alternate site. A disaster could
severely damage our ability to deliver Resonate Managed Services. Resonate
Managed Services depend upon our ability to maintain and protect our computer
systems, all of which are located in our principal headquarters in Sunnyvale,
California. Sunnyvale exists on or near a known earthquake fault zone. Although
our facility which hosts our computer systems, is designed to be fault
tolerant, the system is vulnerable to damage from fire, floods, earthquakes,
power loss, telecommunications failures, and similar events. Although we
maintain general business insurance against fires, floods and some general
business interruptions, there can be no assurance that the amount of coverage
will be adequate in any particular case.
15
<PAGE>
We may need to raise additional funds, which may not be available on terms
favorable to us, if at all.
We expect that the net proceeds from this offering, cash from operations and
borrowings available under our credit facility will be sufficient to meet our
working capital and capital expenditure needs for at least the next twelve
months. The estimate of the time period in which our cash resources and
proceeds from this offering will be sufficient to meet our working capital and
capital expenditure needs is a forward-looking statement that involves risks
and uncertainties. Our actual funding requirements may differ materially from
this as a result of a number of factors, including our development and
introductions of new products and expansion in the number of our personnel. We
may need to raise additional funds prior to the end of the next twelve months
or at a later date. We cannot assure you that any additional financing we may
need will be available on terms favorable to us, if at all.
Further, if we issue additional equity securities, stockholders may
experience dilution, and the new equity securities may have rights, preferences
or privileges senior to those of existing holders of our common stock. If we
cannot raise funds on acceptable terms, we may not be able to develop new
products or enhance our existing products, take advantage of future
opportunities or respond to competitive pressures or unanticipated
requirements.
Our existing stockholders will be able to exercise significant control over all
matters requiring stockholder approval.
On completion of this offering, executive officers, directors and their
affiliates and 5% stockholders will beneficially own, in the aggregate,
approximately % of our outstanding common stock. As a result, these
stockholders will be able to exercise significant control over all matters
requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, which may have the effect of
delaying or preventing a third party from acquiring control over us even if our
other stockholders believe that it is desirable.
We are at risk of securities class action litigation due to our expected stock
price volatility.
An active public market for our common stock may not develop or be sustained
after this offering. The initial public offering price will be determined by
negotiations between us and representatives of the underwriters, and we cannot
assure you that the trading price of our common stock will not decline below
the initial public offering price. The market price of our common stock may
fluctuate significantly in response to a number of factors such as changes in
accounting rules and regulations, market trends and company performance, some
of which are beyond our control. In the past, securities class action
litigation has often been brought against a company following periods of
volatility in the market price of its securities. We may in the future be the
target of similar litigation. Regardless of its outcome, securities litigation
may result in substantial costs and divert management's attention and
resources, which could harm our business and results of operations.
A total of 19,876,185, or %, of our total outstanding shares are restricted
from immediate resale but may be sold into the market in the near future. This
could cause the market price of our common stock to drop significantly, even if
our business is doing well.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may fall. In addition, such sales could create the
perception to the public of difficulties or problems with our products. As a
result, these sales might also make it more difficult for us to sell equity or
equity-related securities in the future at a time and price that we deem
appropriate.
16
<PAGE>
Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of outstanding options or warrants after
February 15, 2000. Of these shares, the shares sold in this offering are freely
tradable. The remaining 19,939,029 shares will become eligible for sale in the
public market as follows:
<TABLE>
<CAPTION>
Number of
Shares Date
--------- ----
<C> <S>
62,844 At the date of this prospectus
11,725 90 days after the date of this prospectus
19,847,175 181 days after the date of this prospectus subject to some
restrictions under the federal securities laws
17,285 More than 181 days after the date of this prospectus, subject to
some restrictions under the federal securities laws
</TABLE>
The above table gives effect to lock-up arrangements with the underwriters
under which our directors, officers and stockholders have agreed not to sell or
otherwise dispose of their shares of common stock for a period of 181 days
after the date of this prospectus. The underwriters may remove these lock-up
restrictions prior to 181 days after the offering without prior notice.
We may engage in future acquisitions that dilute our stockholders, cause us to
incur debt or assume contingent liabilities.
We may acquire businesses, products or technologies that we believe may
complement our current product offerings, augment our market coverage or
enhance our technical capabilities, or that may otherwise offer growth
opportunities. While we have no current agreements with respect to any
acquisitions, we may acquire businesses, products or technologies in the
future. We may not be able to successfully integrate any businesses, products,
technologies or personnel that we might acquire in the future, and our failure
to do so could harm our business. Furthermore, we may issue equity securities
to pay for any future acquisitions which could be dilutive to our existing
stockholders.
We have broad discretion to use the proceeds from this offering and may not use
the proceeds effectively.
The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Thus, our management has
broad discretion over how these proceeds are used and could spend most of these
proceeds in ways with which our stockholders may not agree. We cannot assure
you that the proceeds will be invested to yield a favorable return.
Provisions in our charter documents and Delaware law may delay or prevent an
acquisition of our company.
Our certificate of incorporation and bylaws contain provisions which could
make it harder for a third party to acquire us without the consent of our board
of directors. For example, if a potential acquiror were to make a hostile bid
for us, the acquiror would not be able to call a special meeting of
stockholders to remove our board of directors or act by written consent without
a meeting. In addition, our board of directors have staggered terms which makes
it difficult to remove them all at once. The acquiror would also be required to
provide advance notice of its proposal to remove directors at an annual
meeting. The acquiror also will not be able to cumulate votes at a meeting,
which will require the acquiror to hold more shares to gain representation on
the board of directors than if cumulative voting were permitted.
17
<PAGE>
Our board of directors also has the ability to issue preferred stock which
would significantly dilute the ownership of a hostile acquiror. In addition,
Section 203 of the Delaware General Corporation Law limits business combination
transactions with 15% stockholders that have not been approved by the board of
directors. These provisions and other similar provisions make it more difficult
for a third party to acquire us without negotiation. These provisions may apply
even if the offer may be considered beneficial by some stockholders.
Our board of directors could choose not to negotiate with an acquiror that it
does not feel is in the strategic interests of Resonate. If the acquiror was
discouraged from offering to acquire us or prevented from successfully
completing a hostile acquisition by the antitakeover measures, you could lose
the opportunity to sell your shares at a favorable price.
As a new investor, you will experience immediate and substantial dilution.
If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution of $ per share in pro forma
net tangible book value based on the assumed initial public offering price of
$ per share. If the holders of the outstanding options or warrants exercise
their options or warrants, you will experience further dilution of $ per
share.
18
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock we are offering will be approximately $ million, or $
million if the underwriters exercise their overallotment option in full. We
based our estimate of our net proceeds on an assumed initial public offering
price of $ per share and deducted the estimated underwriting discount and
estimated offering expenses payable by us.
We intend to use the net proceeds we receive from the offering for working
capital, general corporate purposes and to fund our anticipated operating
losses. Although we may use a portion of the net proceeds to acquire technology
or businesses that are complementary to our business, we currently have no
commitments or agreements and are not involved in any negotiations to acquire
any technology or business. We plan to invest the net proceeds, pending their
use, in short-term, interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future. In addition, our loan agreements prevent us from
paying cash dividends without the consent of the lenders.
FORWARD LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute forward-
looking statements. These statements involve risks, uncertainties, and other
factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or
implied by these forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue" or the negative of these terms or other comparable
terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of these
statements. Except as required by law, we do not intend to update any of the
forward-looking statements after the date of this prospectus to conform these
statements to actual results.
19
<PAGE>
CAPITALIZATION
The following table sets forth:
. Our actual capitalization as of December 31, 1999
. Our pro forma capitalization after giving effect to the automatic
conversion of all outstanding shares of convertible preferred stock into
common stock
. Our pro forma as adjusted capitalization to give effect to the sale of
shares of common stock at an assumed initial public offering
price of $ per share in this offering, after deducting the
underwriting discount and estimated offering expenses payable by us
This table excludes the following shares:
. 2,403,960 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $1.01 per share as of December 31,
1999
. 346,444 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $2.30 per share as of December 31,
1999
. a total of 514,967 shares available for issuance under our 1996 Stock
Plan as of December 31, 1999
<TABLE>
<CAPTION>
As of December 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- ----------- -----------
(unaudited) (unaudited)
(in thousands, except share and
per share data)
<S> <C> <C> <C>
Cash, cash equivalents and investments....... $ 11,999 $ 11,999 $
======== ======== ====
Long-term debt, net of current portion....... $ 3,346 $ 3,346 $
Mandatorily redeemable convertible
preferred stock; no par value; 10,035,328
shares authorized, 9,793,440 shares issued
and outstanding, actual; no shares
authorized, issued or outstanding, pro
forma and pro forma as adjusted........... 28,027 --
Mandatorily redeemable convertible
preferred stock warrants.................. 374 --
Stockholders' equity (deficit):
Convertible preferred stock; $0.0001 par
value, 1,891,227 shares authorized,
1,827,472 shares issued and outstanding,
actual; no shares issued or outstanding,
pro forma and pro forma as adjusted....... -- --
Preferred stock, $0.0001 par value, no
shares authorized, issued or outstanding,
actual and pro forma; 10,000,000 shares
authorized, no shares issued or
outstanding, pro forma as adjusted........ -- --
Common stock, $0.0001 par value; 50,000,000
shares authorized, actual and pro forma;
7,847,454 shares issued and outstanding,
actual; 19,468,366 shares issued and
outstanding, pro forma; 200,000,000 shares
authorized, shares issued and
outstanding, pro forma as adjusted........ 1 2
Additional paid-in capital................. 29,371 57,771
Notes receivable from stockholders......... (755) (755)
Unearned stock-based compensation.......... (18,948) (18,948)
Accumulated deficit........................ (31,426) (31,426)
-------- -------- ----
Total stockholders' equity (deficit)..... (21,757) 6,644
======== ======== ====
Total capitalization..................... $ 9,990 $ 9,990 $
======== ======== ====
</TABLE>
20
<PAGE>
DILUTION
The pro forma net tangible book value of our common stock, after giving
effect to the conversion of all outstanding shares of our convertible preferred
stock into 11,620,912 shares of our common stock, on December 31, 1999 was $6.6
million, or approximately $0.34 per share. Pro forma net tangible book value
per share represents the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding.
Dilution in net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of our common stock in this
offering and the net tangible book value per share of our common stock
immediately afterwards. After giving effect to our sale of shares of
common stock offered by this prospectus at an assumed initial public offering
price of $ per share and after deducting the underwriting discounts and
estimated offering expenses payable by us, our net tangible book value would
have been approximately $ million, or $ per share. This represents an
immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors purchasing shares of common stock in this offering. The
following table illustrates this dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $
---
Pro forma net tangible book value per share as of December 31,
1999............................................................. $0.34
Increase per share attributable to new investors..................
-----
As adjusted pro forma net tangible book value per share after the
offering...........................................................
---
Dilution in pro forma net tangible book value per share to new
investors.......................................................... $
===
</TABLE>
The following table sets forth, as of December 31, 1999, on the pro forma
basis described above, the differences between the number of shares of common
stock purchased from us, the total price paid and average price per share paid
by existing stockholders and by the new investors in this offering at an
assumed initial public offering price of $ per share, calculated before
deducting the estimated underwriting discounts and commissions and offering
expenses.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 19,648,366 % $30,542,000 % $1.55
New investors.............. $ $
---------- ----- ----------- ----- -----
Total.................... 100.0% $ 100.0% $
========== ===== =========== ===== =====
</TABLE>
The foregoing discussion and tables are based upon the number of shares
actually issued and outstanding as of December 31, 1999 and assume no exercise
of options or warrants outstanding as of December 31, 1999. As of that date,
there were:
. 2,403,960 shares issuable upon exercise of options outstanding at a
weighted average exercise price of $1.01 per share
. 346,444 shares issuable upon exercise of warrants outstanding at a
weighted average exercise price of $2.30 per share
Assuming the exercise in full of all outstanding options and warrants, our
pro forma as adjusted net tangible book value as of December 31, 1999 would be
$ per share, representing an immediate increase in net tangible book value
of $ per share to our existing stockholders and an immediate decrease in
net tangible book value of $ per share to new investors.
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and related notes included in this prospectus as well as
the section of the prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The statement of operations
data for each of the three years ended December 31, 1999 and the balance sheet
data as of December 31, 1998 and 1999 are derived from our audited financial
statements included in this prospectus. The statement of operations data for
the year ended December 31, 1996 and the balance sheet data as of December 31,
1996 and December 31, 1997 are derived from our audited financial statements
which are not included in this prospectus. Our operations for the period from
our inception in July 1995 through December 31, 1995 were not significant and
are included in our results of operations for the year ended December 31, 1996.
Historical results are not necessarily indicative of future results. The pro
forma net loss per share information in the following table gives effect to the
automatic conversion of all outstanding shares of our convertible preferred
stock into common stock immediately prior to the closing of this offering.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1997 1998 1999
------- ------- -------- --------
(in thousands, except per share
amounts)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Total revenue............................ $ 32 $ 445 $ 2,695 $ 9,914
Total cost of revenue (excluding stock-
based compensation of $0, $0, $4 and
$306, respectively)..................... -- 84 319 1,104
------- ------- -------- --------
Gross profit............................. 32 361 2,376 8,810
Operating expenses:
Research and development (excluding
stock-based compensation of $0, $0,
$101 and $1,169, respectively)......... 676 1,605 3,218 6,807
Sales and marketing (excluding stock-
based compensation of $0, $0, $379, and
$2,177, respectively).................. 247 2,045 4,739 11,340
General and administrative (excluding
stock-based compensation of $0, $0,
$394 and $2,136, respectively)......... 212 544 1,346 3,634
Stock-based compensation................ -- -- 878 5,788
------- ------- -------- --------
Total operating expenses................ 1,135 4,194 10,181 27,569
Loss from operations................... (1,103) (3,833) (7,805) (18,759)
Interest and other income (expense),
net..................................... (77) 122 134 (106)
------- ------- -------- --------
Net loss................................. $(1,180) $(3,711) $ (7,671) $(18,865)
======= ======= ======== ========
Net loss per share (basic and diluted)... $ (0.46) $ (1.20) $ (1.90) $ (4.18)
======= ======= ======== ========
Weighted average shares (basic and
diluted)................................ 2,551 3,083 4,048 4,513
======= ======= ======== ========
Pro forma net loss per share (basic and
diluted) (unaudited).................... $ (1.27)
========
Weighted average shares (basic and
diluted) (unaudited).................... 14,841
========
<CAPTION>
December 31,
------------------------------------
1996 1997 1998 1999
------- ------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and investments... $ 122 $ 2,343 $ 4,322 $ 11,999
Working capital (deficit)................ (251) 1,777 4,153 7,674
Total assets............................. 337 3,088 7,652 18,386
Long term debt, net of current portion... 35 235 521 3,346
Mandatorily redeemable convertible and
convertible preferred stock............. 0 5,206 15,122 28,401
Total stockholders' equity (deficit)..... (90) (3,130) (10,006) (21,757)
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in forward-looking statements for many reasons, including the risks
described in "Risk Factors" and elsewhere in this prospectus. You should read
the following discussion with the "Selected Financial Data" and our financial
statements and related notes included elsewhere in this prospectus.
Overview
We develop and market a family of software products and services that ensures
the availability and performance of eBusiness applications. Our family of
software products is a platform that integrates enterprise traffic management
and systems management capabilities, which together provide real-time
monitoring, reporting and automated service level control of eBusiness
applications and the computing resources on which they operate. We call these
integrated capabilities Internet services management.
Resonate was founded in July 1995 and began substantive operations in April
1996. From April 1996 through the first quarter of 1997, we primarily engaged
in research activities, developing our products and building our business
infrastructure. We began shipping our first software product, Central Dispatch,
and first generated revenue from software license fees and implementation and
consulting fees, in the first quarter of 1997. We released our Global Dispatch
software product in the first quarter of 1998 and our Commander software
product in the third quarter of 1999. From inception through 1999, we derived
approximately 85% of our product revenue from our Central Dispatch product.
Although our revenue increased in each quarter during 1999, we incurred
significant costs to develop our technology, products and services, to continue
the recruitment of research and development personnel, to build a sales force
and a professional services organization, and to expand our general and
administrative infrastructure. Our total headcount has increased from 42 at
December 31, 1997 to 147 at December 31, 1999.
We market and sell our software products through our direct sales force and
indirect channels. Our indirect channels consist of hardware platform vendors,
independent software vendors, value added resellers and systems integrators. We
have derived, and expect to continue to derive, a significant portion of our
sales in both channels from customers that have significant relationships with
third-party system integrators. Our current relationships with these systems
integrators typically are structured as non-exclusive co-marketing and resale
arrangements. In addition, we have entered into a limited number of reseller
arrangements in which our products are embedded in the reseller's products, for
which we receive a royalty from the reseller. To date, revenue from these
reseller arrangements has been insignificant.
Source of Revenue and Revenue Recognition Policy
To date, we have generated revenue principally from licensing our software
products, and to a lesser extent, providing professional services including
assistance in implementing and integrating our software products and providing
maintenance, training and consulting services. For the year ended December 31,
1999, we derived 85% of our revenue from sales in North America. For the same
period, we derived 79% of our revenue from our direct sales force and 21% of
our revenue from our indirect channels. Product revenue accounted for 81% of
total revenue for the year ended December 31, 1999. We expect that revenue from
our indirect channels will increase as a percentage of total revenue in future
periods.
Our license agreements generally provide that customers pay a software
license fee for one or more software products for a specified number of
servers. The amount of the license fees varies
23
<PAGE>
based on which software product is purchased and the number and processing
capacity of servers on which it is deployed. Customers can purchase additional
licenses to use previously purchased products at additional locations or on
additional servers. In addition, we recently began offering our software
products on a subscription basis. Revenue from subscription licenses has not
been material to date.
For agreements with our customers that do not involve significant
implementation or customization essential to the functionality of our products,
we recognize product revenue when all of the following conditions are met:
. there is persuasive evidence of an arrangement
. we have delivered the product to the customer
. collection of the license fees is probable
. the amount of the fee to be paid by the customer is fixed or
determinable
We recognize revenue from multiple-element software arrangements by
allocating revenue to each element of the arrangement based on fair values of
the elements such as software products, maintenance and support and consulting
services.
For agreements with our customers that involve significant implementation or
customization essential to the functionality of our products, product and
services revenue is recognized under the percentage-of-completion method using
labor hours incurred as the measure of progress toward completion. We classify
our revenue from these arrangements as product and services revenue,
respectively, based upon the estimated fair value of each of the product and
services.
Services revenue consists of professional services and maintenance fees.
Professional services primarily consist of software installation and
integration, consulting and training. We generally bill our professional
services customers on a time and materials basis and recognize revenue as the
services are performed. Maintenance agreements are typically priced based on a
percentage of the product license fee, and typically have a one-year term that
is renewable annually. Services provided to customers under maintenance
agreements include technical product support and an unspecified number of
product upgrades as released by us during the term of a maintenance agreement.
We recognize revenue from maintenance support agreements ratably over the term
of the agreement. We record payments received in advance of services rendered
as deferred revenue, and these balances were $785,000 at December 31, 1998 and
$3.4 million at December 31, 1999.
Cost of Revenue and Operating Expenses
Our cost of product revenue includes expenses incurred to manufacture,
package and distribute software products and related documentation. Our cost of
services revenue includes salaries and related expenses for our implementation,
consulting support, and training organizations and an allocation of facilities,
communications and depreciation expenses. Our operating expenses are classified
into three general categories: sales and marketing, research and development
and general and administrative. We classify all charges to these operating
expense categories based on the nature of the expenditures. We allocate the
costs for overhead and facilities to each of the functional areas that use the
overhead and facilities services based on headcount. These allocated charges
include facility rent for corporate offices, communication charges and
depreciation expenses for office furniture and equipment.
Costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
development costs would be capitalized. Because we believe our current process
for developing software is essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date.
24
<PAGE>
Since April 1996, we have incurred substantial research and development costs
and have invested heavily in the expansion of our sales and marketing and
professional services organizations to build an infrastructure to support our
long-term growth strategy. Our full-time employees increased from 42 as of
December 31, 1997 to 147 as of December 31, 1999. As a result of these
investments, we have incurred net losses in each quarter since inception. As of
December 31, 1999, we had an accumulated deficit of $31.4 million. We
anticipate that our operating expenses will continue to increase for the
foreseeable future as we expand our product development and sales and marketing
efforts. In addition, we expect to incur additional expenses associated with
being a public company. Accordingly, we expect to incur net losses for the
foreseeable future.
In view of the rapidly changing nature of our business and our limited
operating history, we believe that period-to-period comparisons of revenue and
operating results are not necessarily meaningful and should not be relied upon
as indications of future performance.
Results of Operations
The following table sets forth financial data for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
(in thousands)
<S> <C> <C> <C>
Statements of Operations Data:
Revenue:
Product.......................................... $ 394 $ 2,373 $ 8,004
Services......................................... 51 322 1,910
------- ------- --------
Total revenue.................................. 445 2,695 9,914
------- ------- --------
Cost of revenue:
Product.......................................... 64 37 62
Services......................................... 20 282 1,042
------- ------- --------
Total cost of revenue.......................... 84 319 1,104
------- ------- --------
Gross profit....................................... 361 2,376 8,810
------- ------- --------
Operating expenses:
Research and development......................... 1,605 3,218 6,807
Sales and marketing.............................. 2,045 4,739 11,340
General and administrative....................... 544 1,346 3,634
Stock-based compensation......................... -- 878 5,788
------- ------- --------
Total operating expenses....................... 4,194 10,181 27,569
------- ------- --------
Loss from operations............................... (3,833) (7,805) (18,759)
Interest and other income (expense), net........... 122 134 (106)
------- ------- --------
Net loss........................................... $(3,711) $(7,671) $(18,865)
======= ======= ========
</TABLE>
25
<PAGE>
The following table sets forth financial data as a percentage of total
revenue for the periods indicated.
<TABLE>
<CAPTION>
Years Ended December
31,
------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Statements of Operations Data:
Revenue:
Product............................................ 88.5 % 88.1 % 80.7 %
Services........................................... 11.5 11.9 19.3
------ ------ ------
Total revenue.................................... 100.0 100.0 100.0
------ ------ ------
Cost of revenue:
Product............................................ 14.4 1.4 0.6
Services........................................... 4.5 10.4 10.5
------ ------ ------
Total cost of revenue............................ 18.9 11.8 11.1
------ ------ ------
Gross profit......................................... 81.1 88.2 88.9
------ ------ ------
Operating expenses:
Research and development........................... 360.7 119.4 68.6
Sales and marketing................................ 459.6 175.8 114.4
General and administrative......................... 122.2 50.0 36.7
Stock-based compensation........................... -- 32.6 58.4
------ ------ ------
Total operating expenses......................... 942.5 377.8 278.1
------ ------ ------
Loss from operations................................. (861.4) (289.6) (189.2)
Interest and other income (expense), net............. 27.5 5.0 (1.1)
------ ------ ------
Net loss............................................. (833.9)% (284.6)% (190.3)%
====== ====== ======
</TABLE>
Revenue
Our total revenue was $445,000 in 1997, $2.7 million in 1998 and $9.9 million
in 1999, and was comprised of sales of software products and related services
fees from implementation, consulting, training and support. Product revenue was
$394,000 in 1997, $2.4 million in 1998 and $8.0 million in 1999. Services
revenue was $51,000 in 1997, $322,000 in 1998 and $1.9 million in 1999. Product
revenue accounted for 88.5% of revenue in 1997, 88.1% of revenue in 1998 and
80.7% of revenue in 1999, and services revenue accounted for 11.5% of revenue
in 1997, 11.9% of revenue in 1998 and 19.3% of revenue in 1999. We currently
expect services revenue to be between 20% and 25% of our total revenue for
future periods. The increases in our revenue year to year were due to our
introduction of new products, and wider acceptance of our products due to
increased investment in our selling and marketing organizations and development
of additional distribution channels.
In 1997, Yahoo!/GeoCities accounted for 22% of our total revenue and
Interactive Futures accounted for 11% of our total revenue. In 1998 and 1999,
no individual customer accounted for 10% or more of our total revenue.
Cost of Revenue
Cost of revenue was $84,000 in 1997, $319,000 in 1998 and $1.1 million in
1999. The increase in our cost of revenue was primarily due to an increase in
our cost of services revenue, which was $20,000 in 1997, $282,000 in 1998 and
$1.0 million in 1999. Cost of services revenue as a percentage of cost of
revenue was 23.8% in 1997, 88.4% in 1998 and 94.4% in 1999. Cost of product
revenue as a percentage of cost of revenue was 76.2% in 1997, 11.6% in 1998 and
5.6% in 1999. The increase in cost of services revenue each year resulted
primarily from the hiring of additional employees.
26
<PAGE>
We expect our cost of services revenue to increase as a result of our
continued expansion of our services staff and professional services and
consulting organizations. Since services revenue has substantially lower
margins than product revenue, this expansion would reduce our gross margins if
our product revenue was not to increase significantly. We expect cost of
services revenue as a percentage of services revenue to vary from period to
period depending on the mix of services we provide and the overall utilization
rates of professional services staff.
Operating Expenses
Research and Development
Research and development expenses increased from $1.6 million in 1997 to $3.2
million in 1998 and $6.8 million in 1999. The increase in research and
development expenses was related primarily to an increase in the number of
software engineers and other technical staff supporting the quality assurance,
development and testing of new products. As a percentage of revenue, research
and development expenses decreased from 360.7% in 1997 to 119.4% in 1998 and
68.6% in 1999, primarily due to revenue growing faster than research and
development expenses. We believe that continued investment in research and
development is critical to our strategic objectives, and we expect that the
dollar amounts of research and development expenses will increase in future
periods, but may fluctuate as a percentage of revenue from period to period.
Sales and Marketing
Sales and marketing expenses increased from $2.0 million in 1997 to $4.7
million in 1998 and $11.3 million in 1999. The increase in sales and marketing
expenses resulted primarily from building a direct sales force and investing in
sales and marketing infrastructure which included significant personnel-related
expenses, recruiting fees, travel expenses, and related facility and equipment
costs, as well as increased marketing activities, including trade shows,
advertising and other promotional expenses. As a percentage of revenue, sales
and marketing expenses decreased from 459.6% in 1997 to 175.8% in 1998 and
114.4% in 1999, primarily due to revenue growing faster than our sales and
marketing expenses. We anticipate that these sales and marketing expenses will
continue to increase in absolute dollar amounts in future periods as we
continue to expand our sales and marketing efforts, but may fluctuate as a
percentage of total revenue from period to period.
General and Administrative
General and administrative expenses increased from $544,000 in 1997 to $1.3
million in 1998 and $3.6 million in 1999. The year to year increase in general
and administrative expenses resulted primarily from the addition of executive,
finance and administrative personnel to support the growth of our business. As
a percentage of revenue, general and administrative expenses decreased from
122.2% in 1997 to 50.0% in 1998 and 36.7% in 1999 primarily due to revenue
growing faster than our general and administrative expenses. We expect general
and administrative expenses to continue to increase as we add personnel to
support expanding operations, incur additional costs related to the growth of
our business, and assume the reporting requirements of a public company. These
expenses, however, may fluctuate as a percentage of revenue from period to
period.
Stock-Based Compensation
In 1999, stock-based compensation consisted of amortization of unearned
stock-based compensation in connection with certain stock option grants to
employees at exercise prices below the deemed fair market value of our common
stock. We recorded aggregate deferred compensation of $4.1 million in 1998 and
$21.6 million in 1999, related to stock transactions with employees. Of the
deferred compensation, $878,000 was amortized in 1998, and $5.8 million was
amortized in 1999.
27
<PAGE>
See Note 8 of Notes to Financial Statements for further discussion regarding
the accounting treatment for stock-based compensation. In 2000 and 2001, we
expect to amortize stock compensation of:
<TABLE>
<CAPTION>
Expected Amortization
Quarter Ending of Stock Compensation
-------------- ---------------------
(in thousands)
<S> <C>
March 31, 2000......................................... $2,870
June 30, 2000.......................................... 2,785
September 30, 2000..................................... 2,588
December 31, 2000...................................... 1,852
March 31, 2001......................................... 1,500
June 30, 2001.......................................... 1,455
September 30, 2001..................................... 1,359
December 31, 2001...................................... 983
</TABLE>
The remaining unamortized, unearned stock based compensation would be $2.7
million for the year ended December 31, 2002 and $867,000 for the year ended
December 31, 2003.
Interest Income, net
We had net interest income of $122,000 in 1997 and $134,000 in 1998 compared
to net interest expense of $106,000 in 1999. The increase in net interest
income in 1998 was due to interest earned from higher cash balances on hand as
a result of sales of our preferred stock in June and July 1998, partially
offset by increased interest expense associated with borrowings. Net interest
expense in 1999 was primarily due to increased interest expense associated with
borrowings, partially offset by increased interest income from the investment
of cash balances resulting from the sale of our preferred stock in June and
August 1999.
Provision for Income Taxes
As of December 31, 1999, we had approximately $23.5 million of federal and
$11.6 million of state net operating loss carryforwards available to reduce
future taxable income. These net operating loss carryforwards begin to expire
in 2010 and 2003 for federal and state tax purposes, respectively. Under the
Tax Reform Act of 1986, the amounts of and benefits from net operating loss
carryforwards may be impaired or limited. Events which cause limitation in the
amount of net operating losses that we may utilize in any one year include, but
are not limited to, a cumulative ownership change of more than 50%, as defined,
over a three year period. It is possible that such a change may have already
occurred or could occur as a result of this offering. We have provided a full
valuation allowance on the deferred tax asset because of the uncertainty
regarding its realization. Our accounting for deferred taxes under Statement of
Financial Accounting Standards No. 109 involves the evaluation of a number of
factors concerning the realizability of our deferred tax assets. In concluding
that a full valuation allowance was required, management primarily considered
factors such as our history of operating losses and expected future losses and
the nature of our deferred tax assets.
28
<PAGE>
Quarterly Results of Operations
The following tables set forth, for the periods presented, unaudited
quarterly financial results for the eight quarters ended December 31, 1999 and
those results expressed as a percentage of total revenue for each quarter. The
statements of operations data has been derived from our quarterly unaudited
financial statements. In management's opinion, these statements have been
prepared on substantially the same basis as the audited financial statements
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information for the periods
presented. This information should be read in conjunction with the financial
statements and notes thereto included elsewhere in this prospectus. We have
experienced and expect to continue to experience fluctuations in operating
results from quarter to quarter. You should not draw any conclusions about our
future results from the results of operations for any quarter, as quarterly
results are not indicative of the results for a full fiscal year or any other
period.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(in thousands)
Statements of Operations
Data:
Revenue:
Product................ $ 497 $ 564 $ 254 $ 1,058 $ 1,380 $ 1,499 $ 2,306 $ 2,819
Services............... 42 75 98 107 212 496 590 612
------- ------- ------- ------- ------- ------- ------- -------
Total revenue........ 539 639 352 1,165 1,592 1,995 2,896 3,431
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Product................ 3 4 13 17 15 19 23 5
Services............... 40 59 82 101 117 127 313 485
------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenue............. 43 63 95 118 132 146 336 490
------- ------- ------- ------- ------- ------- ------- -------
Gross profit............ 496 576 257 1,047 1,460 1,849 2,560 2,941
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 586 684 883 1,065 1,275 1,320 1,812 2,400
Sales and marketing.... 871 1,135 1,163 1,570 2,128 2,268 2,907 4,037
General and
administrative........ 204 227 301 614 655 760 976 1,243
Stock-based
compensation.......... 126 117 133 502 657 949 1,848 2,334
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 1,787 2,163 2,480 3,751 4,715 5,297 7,543 10,014
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (1,291) (1,587) (2,223) (2,704) (3,255) (3,448) (4,983) (7,073)
Interest and other
income (expense), net.. 8 (4) 81 49 (10) (114) 8 10
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,283) $(1,591) $(2,142) $(2,655) $(3,265) $(3,562) $(4,975) $(7,063)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- ------------- ------------ --------- -------- ------------- ------------
(As a percentage of revenue)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product................ 92.2% 88.3% 72.2% 90.8% 86.7% 75.1% 79.6% 82.2%
Services............... 7.8 11.7 27.8 9.2 13.3 24.9 20.4 17.8
------ ------ ------ ------ ------ ------ ------ ------
Total revenue........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenue:
Product................ 0.6 0.6 3.7 1.5 0.9 1.0 0.8 0.1
Services............... 7.4 9.2 23.3 8.7 7.3 6.4 10.8 14.1
------ ------ ------ ------ ------ ------ ------ ------
Total cost of
revenue............. 8.0 9.9 27.0 10.1 8.3 7.3 11.6 14.3
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 92.0 90.1 73.0 89.9 91.7 92.7 88.4 85.7
------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Research and
development........... 108.7 107.0 250.9 91.4 80.1 66.2 62.6 70.0
Sales and marketing.... 161.6 177.6 330.4 134.8 133.7 113.7 100.4 117.7
General and
administrative........ 37.8 35.5 85.5 52.7 41.1 38.1 33.7 36.2
Stock-based
compensation.......... 23.4 18.3 37.8 43.1 41.3 47.6 63.8 68.0
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 331.5 338.5 704.5 322.0 296.2 265.5 260.5 291.9
------ ------ ------ ------ ------ ------ ------ ------
Loss from operations.... (239.5) (248.4) (631.5) (232.1) (204.5) (172.8) (172.1) (206.1)
Interest and other
income (expense), net.. 1.5 (0.6) 23.0 4.2 (0.6) (5.7) 0.3 0.3
------ ------ ------ ------ ------ ------ ------ ------
Net loss................ (238.0)% (249.0)% (608.5)% (227.9)% (205.1)% (178.5)% (171.8)% (205.9)%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Our product and services revenue has grown in each of the eight quarters
ended December 31, 1999, except for the quarter ended September 30, 1998. The
decline in product revenue for that quarter reflected unusually high revenue in
the previous two quarters as a result of a few large product sales in those
periods. Cost of revenue also increased in each of these quarters as a result
of the hiring of employees and increased sales. Total operating expenses
increased in each quarter primarily due to increased expenses associated with
building a sales and marketing infrastructure including the development of a
direct sales force, increased spending on research and development to support
new product introductions and quality assurance testing, and an increase in
general and administrative expenses to manage our expanding operations.
Although we have a limited operating history, we believe that quarterly
operating results may experience seasonal fluctuations in the future. For
example, we expect that sales may decline during summer months, particularly in
European markets. We also anticipate that sales may be lower in our first
fiscal quarter due to patterns in the capital budgeting and purchasing cycles
of our current and prospective customers.
Quarterly services revenue has increased in each quarter, and we expect the
dollar amount of services revenue to continue to increase. Services revenue as
a percentage of total revenue has fluctuated from quarter to quarter based on
new product introductions and the hiring of additional services personnel.
Cost of services revenue as a percentage of total revenue has increased in
each of the last two quarters, primarily as a result of the increased hiring of
employees to provide technical support, consulting and training.
30
<PAGE>
Liquidity and Capital Resources
We have funded our operations to date primarily through private placements of
equity securities and, to a lesser extent, revenue, subordinated debt and
equipment lines of credit. Through December 31, 1999, we have raised a total of
$30.5 million through equity financing.
We have two subordinated debt facilities with a lending institution under
which we are entitled to borrow up to $3.5 million and $1.5 million,
respectively. At December 31, 1999, $2.7 million and $1.1 million were
outstanding under these facilities. These facilities expire in March and June
2002. Interest on the subordinated debt facilities is fixed between 12.0% and
12.5%. All borrowings under the subordinated facilities are secured by
substantially all of our assets after the rights of senior creditors, and we
cannot maintain more than $3.0 million of senior debt without approval of the
lender. As of December 31, 1999, obligations under subordinated debt are $1.5
million in 2000, $1.7 million in 2001 and $585,000 in 2002.
We maintain three equipment lines of credit with a commercial bank. The first
line of credit, expiring in June 2000, permits us to borrow up to $150,000 at
the bank's prime rate plus 2%, resulting in a rate of 10.5% at December 31,
1999. The second line of credit, expiring in March 2001, permits us to borrow
up to $350,000 at the bank's prime rate plus 1.5%, resulting in a rate of 10.0%
at December 31, 1999. Our third line of credit, expiring in March 2002, permits
us to borrow up to $500,000 at the bank's prime rate plus 0.5%, resulting in a
rate of 9.0% at December 31, 1999. As of December 31, 1999, the total amounts
outstanding on the equipment lines of credit were $25,000, $130,000 and
$397,000, respectively. As of December 31, 1999, obligations under our
equipment lines of credit are $318,000 in 2000, $190,000 in 2001 and $44,000 in
2002.
We also maintain a working capital line of credit in the amount of $1.0
million, with the same commercial bank, that expires in March 2000 and bears
interest at the bank's prime rate plus 0.25%, resulting in a rate of 8.75% at
December 31, 1999. As of December 31, 1999, there were no borrowings
outstanding under this line of credit.
Net cash used in investing activities totaled $479,000 in 1997, $819,000 in
1998 and $7.0 million in 1999. The increases in each period resulted primarily
from the purchase of property and equipment to support our growth, as well as
the transfer of approximately $7.0 million of cash in 1999 into short-term
investments.
Net cash provided by financing activities totaled $6.1 million in 1997, $10.0
million in 1998 and $17.1 million in 1999. The increase in each period resulted
primarily from the net proceeds from sale of our equity securities and
borrowings.
As of December 31, 1999, our principal sources of liquidity included $12.0
million of cash, cash-equivalents and investments. Capital expenditures,
including those under capital leases, were $479,000 in 1997, $1.1 million in
1998 and $1.7 million in 1999. Our capital expenditures consist primarily of
purchases of computer equipment and software, furniture and fixtures and
leasehold improvements. We anticipate a substantial increase in our capital
expenditures and lease commitments consistent with anticipated growth in
operations, infrastructure and personnel. For 2000, we anticipate that our
capital expenditures will be at least $5.0 million.
As of December 31, 1999, our principal commitment consisted of obligations
under our operating and capital leases. Future lease commitments for our office
facilities and equipment are $2.5 million in 2000, $1.3 million in 2001,
$947,000 in 2002 and $547,000 in 2003.
We believe that the net proceeds from this offering, combined with current
cash balances and short-term investments, will be sufficient to meet our
anticipated liquidity needs for working capital and capital expenditures for at
least 12 months from the date of this prospectus. Our forecast of the period of
time through which our financial resources will be adequate to support
operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary
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materially as a result of the factors described above. We expect to continue to
incur net losses for the foreseeable future and we may need additional funds to
expand or meet all of our operating needs.
If we require additional capital resources to grow our business internally or
to acquire complementary technologies and businesses at any time in the future,
we may seek to sell additional equity or debt securities or secure an
additional bank line of credit. The sale of additional equity or convertible
debt securities could result in additional dilution to our stockholders. We
cannot assure you that any financing arrangements will be available in amounts
or on terms acceptable to us.
Year 2000 Compliance
We are aware of the issues surrounding the year 2000 and problems relating to
computers and computer software incorrectly distinguishing between 21st and
20th century dates. As a result, beginning on January 1, 2000, computer systems
and software used by many companies and organizations in a wide variety of
industries, including technology, transportation, utilities, finance and
telecommunications, may have produced erroneous results or failed unless they
had been modified or upgraded to process date information correctly. We use
software, computer technology and other services internally developed and
provided by third-party vendors that may fail due to the Year 2000 phenomenon
even after January 1, 2000. This failure may involve significant time and
expense, and uncorrected problems could seriously harm our business. In
addition, the potential failure of our customers to ensure that their
operations are Year 2000 compliant could have an adverse effect on them, which
in turn could limit their ability to use our products and services or process
our invoices in a timely manner.
Market and Currency Risk
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the risk factors section of this
prospectus.
Foreign Currency Exchange Rate Risk
To date, all of our recognized revenue has been denominated in U.S. dollars
and primarily from customers in the United States, and our exposure to foreign
currency exchange rate changes has been immaterial. We expect, however, that an
increasing percentage of our future product and services revenue may come from
international markets and may be denominated in the currency of the applicable
market. As a result, our operating results may become subject to significant
fluctuations based upon changes in the exchange rates of some currencies in
relation to the U.S. dollar. Although we will continue to monitor our exposure
to currency fluctuations, and, when appropriate, may use financial hedging
techniques in the future to minimize the effect of these fluctuations, we
cannot assure you that exchange rate fluctuations will not adversely affect our
financial results in the future.
Interest Rate Risk
As of December 31, 1999, we had total short term and long term debt
outstanding of $318,000 and $234,000, respectively, which contain interest
rates that are tied to the prime rate. Therefore, we are subject to exposure to
interest rate risk for these borrowings based on fluctuations in the prime
rate. Based upon the outstanding indebtedness under these arrangements, an
increase in the prime rate of 0.5% would cause a corresponding increase in our
annual interest expense of approximately $2,760.
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Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 of Financial Accounting Standards, "Accounting for Derivative Instruments
and Hedging Activities," which requires companies to record derivative
financial instruments on their balance sheets 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. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. In July 1999, the
Financial Accounting Standards Board issued Statement No. 137 of Financial
Accounting Standards, "Accounting For Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," which
deferred the effective date of Statement No. 133 to the first fiscal quarter
ending June 30, 2000. We will adopt Statement No. 133 in our quarter ending
June 30, 2000. We have not engaged in hedging activities and do not use
derivative instruments. Therefore, the adoption of this statement will not have
any effect on our results of operations or financial position.
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BUSINESS
Overview
We develop and market a family of software products and services that ensures
the availability and performance of eBusiness applications. Our family of
software products is a platform that integrates enterprise traffic management
and systems management capabilities, which together provide real-time
monitoring, reporting and automated service level control of eBusiness
applications and the computing resources on which they operate. We call these
integrated capabilities Internet services management.
Enterprises' growing dependence on the Internet and Internet-based
technologies is driving the demand for solutions that can provide superior
availability, scalability and management as well as lower overall cost of
administration and control of their eBusiness applications. According to
International Data Corporation, the network analysis and reporting market is
expected to grow from approximately $300 million in 1999 to over $800 million
in 2002. According to the Internet Research Group, the traffic management
market is expected to grow from less than $100 million in 1999 to approximately
$800 million in 2002. Both of these markets are subsets of the Internet
services management market as a whole, for which no forecasts have yet been
published.
We currently have over 250 customers worldwide ranging from high volume
Internet sites to large corporate enterprises deploying eBusiness applications.
Some of our key customers include Charles Schwab, DoubleClick, eBay, E*TRADE,
Federal Express, Morgan Stanley Dean Witter Online and Yahoo!/Geocities. A
market study performed by International Data Corporation indicates that our
customer base represents more than: 57% of all online brokerage accounts; 89%
of all person-to-person Internet auction revenues; 75% of third-party online
ads served; and 34% of all online personal home pages.
We intend to be the leading Internet services management platform provider.
Our products and services optimize availability, performance and service
response times of eBusiness applications. Our objective is to continue to
develop advanced solutions, aggressively build sales and distribution channels
to leverage our current success among early adopters and thereby capture a
significant share of the market for Internet services management solutions.
Industry Background
Companies worldwide are transforming their business processes by using the
Internet and Internet-based technologies to deploy critical business
applications. The primary force driving businesses to rapidly adopt these
technologies is the need to become more efficient, productive and competitive.
Applications and services that use Internet-based technologies, whether
deployed across the Internet, intranets or extranets, are commonly referred to
as eBusiness applications and have become critical to many companies' success.
Whether eBusiness applications are used within a traditional corporate
enterprise or are the defining element of a dot.com company, they are managing
an increasing portion of many companies' interactions with their customers,
suppliers, partners, employees and other parties. The availability, performance
and response time of these applications are critical since they directly impact
the operational success of a company's business.
The standard computer communication protocol underlying the Internet, TCP/IP,
or Transmission Control Protocol/Internet Protocol, has enabled an entirely new
distributed computing environment. This environment consists of groups of
distributed independent computer server systems all communicating using TCP/IP,
and is the preferred platform for new eBusiness application deployment.
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Deploying eBusiness applications across multiple server systems significantly
increases the complexity of monitoring, managing and controlling these
applications. These applications include customer relationship management,
sales force automation, self-service customer information and product support
and supply chain management. The growth in Internet use and the increase in
demands placed on eBusiness applications, combined with this complexity, can
substantially reduce performance, reliability and response time of these
applications.
With the increasing reliance by business on their eBusiness applications, and
the growing complexity of these applications' infrastructure, businesses must
continually address the following issues:
. Application performance and response times. As performance requirements
grow, businesses are seeking solutions that enable them to add server
capacity in a scalable, non-disruptive manner as well as to improve the
efficiency of existing systems. According to a June 1999 report by Zona
Research, approximately $362 million in eCommerce revenues could be at
risk of being lost each and every month because of the impact of
unacceptable download times.
. Cost of downtime and poor service levels. Service outages can drive
customers to competitors' web sites, resulting in the loss of revenue,
goodwill and brand equity. In addition, as businesses deploy internal
eBusiness applications, outages can result in lost productivity and
increased expenses. A report by Zona Research estimates the cost to U.S.
eCommerce companies associated with poor or degraded services to be
$4.35 billion in 1999.
. Cost of administration and control. As eBusiness applications grow more
complex and integration with existing enterprise applications becomes
more critical, the cost of administration and control increases
significantly. Businesses are, therefore, seeking solutions that can
limit and/or reduce their overall administration and management burden.
An April 1998 Forrester Research report indicates that 70% of the
ongoing costs of operating a typical eCommerce site are for systems
administration and support services that are required to manage and
control the site infrastructure.
. Management of rapid growth and complexity. As businesses deploy greater
numbers of increasingly complex eBusiness applications, they must
efficiently monitor, manage and control these applications and their
supporting infrastructure. A March 1999 Gartner Group report indicates
that it is common for Enterprise 500 companies to have multiple public
sites. The report also predicts that for the average enterprise the
number of internal sites per employee will increase from approximately
one site per 10,000 employees in 1998 to one site per 25 employees by
the end of 2001.
Companies have employed a number of techniques to achieve a high level of
availability, performance, and scalability, as well as better management,
administration and control of their eBusiness applications. Some of these
techniques focus on the external network performance issues. Internet caching
technologies as well as content delivery services, which store commonly
accessed data at a location separate from its source and closer to the
requester are both popular techniques to improve content download times and
overall response time.
These techniques, however, do not address the challenges of executing
Internet-based transactions that usually require data be changed or modified in
real time. Over the past several years, software and hardware vendors have
attempted to address these challenges by using server load balancing and
enterprise traffic management products in conjunction with systems and network
management products.
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. Server load balancing. Server load balancing products are predominantly
single-purpose hardware-based products that are designed to simplify the
problem of adding capacity and to increase the performance of an
eBusiness application or service. Server load balancing products also
provide a measure of availability and fault tolerance since they are
generally designed to distribute incoming requests to resources that are
currently operational and available. Server load balancing products can
range from those providing simple sequential distribution of requests
among identical server resources, to those that can take into account
factors such as request volume, server workload and content type.
. Traffic management. Traffic management products provide the base
capabilities of server load balancing and add more sophisticated
techniques for distributing incoming user requests. These products
enable request distribution across disparate resources and
geographically distributed computer centers. In addition, these products
often provide greater measures of fault tolerance and reliability than
server load balancing products acting alone. Traffic management products
generally incorporate the monitoring and measuring of system status and
service response times. These products may also provide capabilities to
address some of the transactional challenges of eBusiness applications
such as ensuring that all consecutive requests necessary to execute a
transaction are directed to the appropriate system resource.
. Systems management. Systems management and some network management
software products are being used in corporations to monitor and report
on the health and status of applications and server systems. They help
diagnose problems and notify systems administrators of problems and
failures. Many of these products trigger alarms to notify operators of a
change in system or network status so that system administrators can
take corrective action.
Corporations are increasingly aware that the service availability and
scalable performance provided by server load balancing, traffic management and
systems management products do not adequately address the increasing challenges
of conducting eBusiness. Hardware-based products may introduce performance
bottlenecks because the processing power necessary for sophisticated traffic
management functions consumes all available processing capacity in these
devices, resulting in delays. In addition, some types of products themselves
represent new potential failure points, which can limit the effectiveness of
these products as high availability alternatives.
Even if these products could ensure that a service is available and
responding to requests, they may not be able to ensure that the service
responds fast enough to satisfy users' expectations or provide minimum service
levels or response times. In addition, eBusiness applications must be able to
handle problems such as traffic surges, intermittent delays or network service
interruptions. These problems generally occur without warning and have an
immediate impact on availability and service levels. These problems need to be
detected, diagnosed and isolated quickly, and corrective action often must take
place within seconds to maintain an on-line presence and adequate levels of
service. Even when these products are used together there is generally no
automated, integrated way to take corrective action to restore service.
In an attempt to address the limitations of existing products, some users
have resorted to redundant, internally developed alternatives which attempt to
integrate the capabilities of independent, stand alone traffic management and
systems management products. These alternatives, however, may be unreliable and
often require manual user intervention for administrative tasks that need to be
performed to restore a failed service. These administrative tasks, when
performed by site operators, often take excessive time and are prone to errors.
As a result, we believe an opportunity exists for a comprehensive, standards-
based Internet services management solution that transparently optimizes
performance, availability and service response times of eBusiness applications.
This solution should also facilitate the administration and
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control of the distributed computing environments that support these eBusiness
applications to reduce costs and simplify administrative overhead.
In addition to the traffic management and systems management capabilities
described above, we believe that this solution needs to provide the following
key capabilities:
. Flexibility. The solution should have the configuration, functional
flexibility and features to address the broad range of complex and
growing customer requirements. The solution should be easily upgradable
to accommodate future requirements, without the need to replace
expensive system infrastructure. The solution should be deployable on
standard open systems, independent of network configuration and physical
location of server systems, in order to support rapid addition of new
server system resources for increased application capacity.
. Performance, scalability and fault tolerance. The solution should avoid
introducing performance bottlenecks that degrade response times and
should accommodate sustained high levels of performance without
sacrificing features or functionality to meet the growing demands of
eBusiness applications. The solution also should be fault tolerant and
avoid the introduction of possible new failure points.
. Visibility and control. The solution should include a single,
consolidated user interface that can provide real time information on
the status of all eBusiness applications and the resources that support
them. In order to simplify and lower the cost of administration of
eBusiness applications, the solution should provide views into the
configuration of those resources and a means to adjust them regardless
of their location.
. Automated corrective action. The solution should provide the means to
establish service management policies that can immediately detect,
diagnose and isolate problems impacting service levels and automatically
take corrective action. In addition, the solution should provide the
means for businesses to define and deliver differentiated, prioritized
classes of service, ensuring the appropriate allocation of resources,
especially during periods of peak usage when available resources are
scarce.
. Platform extensibility. The solution should be a platform that supports
integration of third-party applications, thereby enabling a more
complete eBusiness solution.
Resonate Solution
We provide a comprehensive, standards-based Internet services management
platform that seeks to optimize availability, performance and service response
times of eBusiness applications. It is software-based and features a
distributed architecture that mirrors the deployment environment of existing
eBusiness applications.
Our platform provides high availability, and scalable performance of
eBusiness applications and facilitates cost-effective growth while simplifying
the administration and control of complex eBusiness computing environments. We
believe our platform is well suited to the distinct requirements of critical
eBusiness applications because we integrate enterprise traffic management and
systems management capabilities with real-time monitoring and automated
control. We believe our platform provides the following key benefits:
Superior Availability, Performance and Automated Corrective Action
Our Internet services management platform features server-resident software
modules, commonly referred to as agents, that act as distributed monitoring and
control points. These agents enable multiple server systems to act as a single
scalable, reliable computing platform, providing
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superior availability, performance and service level control. Our platform
automatically routes traffic to the best available resource based on customer-
specified criteria, such as traffic type, resource capacity or resource
response speed. Using our platform, customers can also define and deliver
differentiated classes of service, ensuring the appropriate allocation of
resources. In this way, users seeking particular information, performing
specified transactions or meeting other pre-specified criteria, such as user
identity, can gain access to the appropriate resources. Our adaptive platform
automatically adjusts in response to changing infrastructure conditions. For
example, a failing server can be automatically detected, and traffic can
subsequently be rerouted to maintain service levels.
Reduced Costs and Improved Return on Investment
Our Internet services management platform is designed to reduce costs for
customers by enabling them to more efficiently utilize their network
infrastructure and server system resources. Our platform's traffic management,
problem avoidance and service restoration features reduce the need for human
monitoring and intervention, thereby lowering administrative and maintenance
costs for our customers. In addition, our platform increases resource capacity
utilization, reducing the need to invest in additional network and server
systems while increasing return on investment of existing resources.
Integrated Monitoring, Management and Service Level Control Capabilities
Our platform provides customers with a consolidated, detailed view of their
infrastructure, allowing them to monitor, manage and control service levels
from a single console. Our platform automatically implements customer-defined
configuration changes, and also enables customers to generate real-time and
historical performance reports, reconfigure system options, add or remove
infrastructure resources, and conduct maintenance and repairs from a single
point of administration. We offer a fully integrated Internet services
management platform that incorporates real-time feedback of system status and
health to provide automated, self-adjusting problem avoidance and service
restoration.
We believe that, compared to single-purpose hardware-based alternatives, our
software platform provides distinct advantages, the most significant of which
are highlighted below.
Flexibility
Our software-based platform offers our customers a high degree of flexibility
and can be deployed within our customers' existing infrastructure without any
changes to their physical networks. To address their growing requirements, our
customers can easily add functionality or features provided by the most recent
enhancement of our Internet services management platform by simply deploying
the latest version of our software. In contrast, for customers to benefit from
new functionality or features with a hardware alternative, they must go to the
expensive and time-consuming task of removing old hardware from various
locations and installing new equipment. Moreover, our software can be installed
on our customers' existing distributed server systems regardless of physical
location, while hardware products generally require a device to be physically
installed at each resource location.
Our platform's rich feature set also gives our customers the flexibility to
implement and modify a broad range of systems management and service level
control policies, when and as they choose. In contrast, configurations of
hardware products are generally more limited and are often constrained by the
underlying hardware capability, and therefore lack the flexibility to meet
businesses' different or changing needs.
In addition, our platform supports a broad range of computer hardware and
operating systems, such as Solaris, Windows NT, Linux and AIX for both low
capacity and high-performance sites. This flexibility allows our customers to
choose the operating system or combinations of operating systems that are best
suited for their needs.
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Performance Scalability
The computing requirements of our platform are distributed across all of a
customer's available computing resources. Our customers benefit from this
distribution when they add new server systems to an eBusiness application to
accommodate growing request volume. When new systems are added, our platform's
computing processing capacity grows accordingly. In contrast, hardware-based
products, whose computing processing capacity remains constant, can introduce
delays when a hardware device reaches its processing capacity limit.
The benefit of the distributed processing approach becomes more important as
traffic management processing requirements grow. These requirements are growing
rapidly in response to both the increase in request volume to eBusiness
applications and the increasing complexity of processing each request. The
combined effect can quickly overcome the capacity of any individual hardware-
based traffic management device.
Visibility and Control
Our distributed software platform features agents, which provide local
monitoring of the health and load of the hardware and software components of
our customers' overall systems. Immediate feedback from these agents enables
our customers to have a detailed view of the overall health of their
infrastructure. Because these agents also provide points of direct control, our
platform can launch applications or services on back-up servers in response to
increased site load or other problems.
As a distributed, modular, Internet services management platform, components
of our software may be deployed independently and across multiple systems. Our
platform's remote management capability allows our customers to configure,
manage and control its distributed software components from a centralized
location.
The Resonate Strategy
We intend to be the leading Internet services management platform provider.
Our products and services optimize availability, performance and service
response times and provide management and control of eBusiness applications.
Key elements of our strategy are:
Become the de facto standard Internet services management software platform
Our objective is to be the leading Internet services management provider and
become the software and services platform of choice for eBusinesses worldwide.
We intend to capitalize upon the inherent advantages of our software platform
approach to Internet services management by providing more robust, scalable and
flexible solutions than the single-purpose products offered by our competitors.
For example, our Dispatch SLB-Now! offering, available free of charge over the
Internet, is intended to promote widespread adoption of our server load
balancing solution. We recognize that our continued success is also dependent
upon maintaining and extending our technology and product leadership.
Consequently, we expect to continue to devote substantial resources to the
development of new and innovative technologies and products, as well as the
ongoing enhancement of our software and services platform. We intend to take
advantage of our strategic marketing and distribution relationships, our broad-
based sales and marketing efforts and our significant customer relationships to
facilitate the wide deployment and acceptance of our platform.
Target leading companies that are deploying critical, complex eBusiness
applications
Our focus has been, and we expect will continue to be, on those eBusiness
customers whose applications are sophisticated, complex and business critical,
and attract significant volumes of traffic
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and transactions. We have designed our platform to meet the demands of these
advanced customers, which we believe will rapidly become the demands of
mainstream customers in the future. Our ability to successfully meet the
demands of these customers provides us with a portfolio of respected,
referenceable customers who are leaders within their respective industries and
facilitates our further penetration into those industries. In addition, the
knowledge and experience that we acquire by working with these demanding
customers allow us to more quickly and comprehensively incorporate into our
platform the features and functionality the marketplace increasingly requires.
Leverage strategic relationships to facilitate the broad deployment of our
platform
We intend to expand and strengthen our strategic relationships with server
and operating systems vendors, independent software vendors and systems
integrators to provide products and services that complement our software
product-driven business model. Through our relationships and alliances with
companies such as Brokat Infosystems, IBM, Siebel Systems, Sun Microsystems and
Vignette, we expect to accelerate the broad deployment of our platform. Some of
these third parties embed our software within their own products, while others
provide the integration services among ours and a range of other products to
deliver complete eBusiness applications. These strategic relationships enable
us: to focus on being the provider of an Internet services management platform;
to concentrate on our core capabilities and technologies; and to scale our
business more quickly, effectively and inexpensively.
Provide outsourced Internet services management on a subscription basis
We offer Resonate Managed Services, our outsourced Internet services
management solution, on a subscription basis. Resonate Managed Services enables
customers who are at an early stage of their Internet services management needs
to scale their utilization of our platform to meet their growing requirements
and to minimize their upfront investment in software, services and personnel.
These services allows us to expand our target market to include customers who
prefer to license our software and services platform on a subscription basis.
Resonate Managed Services enable us, from our Resonate operations center, to
provide ongoing monitoring, analysis and optimization of eBusiness application
performance, service levels and infrastructure utilization.
Expand direct and indirect distribution channels
We intend to increase the size of our direct sales force and establish
additional offices both domestically and internationally. We will continue to
complement our direct sales efforts by expanding our indirect distribution
channels worldwide through relationships with hardware platform vendors,
independent software vendors, application service providers, web hosting
services, value-added resellers and systems integrators. These indirect
channels are aimed at increasing geographic sales coverage and addressing
potential customers that would otherwise be beyond the reach of our direct
sales organization.
Products and Services
Our solution consists of Central Dispatch, Commander, Global Dispatch and the
Enterprise Services Console, which can be deployed individually or together to
provide a comprehensive Internet services management platform. We offer
outsourced monitoring and control of service levels through Resonate Managed
Services, as well as the option to license our software on a subscription
basis. Our products are open, standards-based software solutions that run on
industry standard computing platforms and operating systems including Solaris,
Windows NT, Linux, and AIX.
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Our products include: Central Dispatch, which directs traffic across a site's
local area network; Commander, which provides automated, real-time control of
service levels; Global Dispatch, which manages traffic across a wide area
network; the Enterprise Services Console, a unified management interface and
integration point for our products; Resonate Managed Services; and Dispatch
SLB-Now!, a free server-load balancing product.
Central Dispatch
Central Dispatch is a traffic management solution for high traffic, eBusiness
applications where high availability and predictable performance are
necessities. Central Dispatch's distributed software architecture enables
multiple server systems to act as a single, scalable, reliable and easily
managed server system. Central Dispatch is more than a server load balancing
product because it allows for precise, real-time control of incoming traffic by
intelligently routing requests to the server system best suited to respond.
Central Dispatch can be quickly deployed into a customer's existing
infrastructure, without altering the physical network architecture, for
immediate improvements in the performance and availability of eBusiness
applications.
Central Dispatch enables server systems to be accessed through a single
Internet Protocol address, or IP address. Since this single IP address
represents all of the server systems, and not any single, individual server
system, users making requests for server resources at this single IP address
appear to be accessing a single, scalable, highly available server system. This
allows content and applications to be replicated on multiple server systems for
the highest availability, or segregated by type or by subject to maximize
performance. The software-based architecture of Central Dispatch can
accommodate new server additions to achieve higher performance or to maintain
performance levels as request volume increases. Since each server in the
Central Dispatch configuration can perform the request distribution function,
Central Dispatch avoids introducing new potential failure points and provides
high availability to eBusiness applications.
Central Dispatch performs automatic, real-time distribution of incoming
requests to available server resources based on both server load and health. In
addition, by defining distinct priority levels for different users' requests
and setting capacity thresholds, our customers' computer system administrators
can use Central Dispatch to allocate or reserve resources so that targeted
service levels are more likely to be maintained.
Our patented workload distribution technique enables Central Dispatch to
avoid bottlenecks by enabling any server to return responses directly to the
requester, which eliminates the need for any single server to process both
incoming and outgoing data. This avoids the potential bottleneck that may occur
when an eBusiness application gets overloaded by requests.
Commander
Commander provides automated service level control for complex, eBusiness
applications. It provides resource monitoring, rapid problem diagnosis and
isolation, and automated corrective response at the web server, application
server and database server levels of the infrastructure. Commander integrates
the key elements of traffic management and systems management to enable
automated real-time control of service levels.
Commander is used to establish and enforce service management rules that
strive to maintain service levels within target ranges. When these rules are
automatically enforced, they relieve our customers' computer system
administrators of ongoing routine tasks such as continual site observation and
manual performance tuning. Commander can capture the information gathered by
third party monitoring products and can take action based on that information.
Commander's testing, statistics and automated configuration adjustment
capabilities, as well as its fault tolerant operation
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give systems administrators a comprehensive solution for effectively managing
performance, availability and overall service levels. It also lets site
managers centrally monitor end-user connectivity by verifying client access to
a site through URL tests, host access tests, and other service availability
tests.
Commander monitors events throughout a site and processes them according to
customer defined rules or policies that specify the appropriate action. The
policies can specify that scripts or programs be executed to actively control
service levels. Examples of policy-based controls include:
. Direct requests away from a server system that depends upon a
supplemental resource that is congested or responding too slowly
. Increase, or decrease, request traffic to a server system when response
times fall below, or above, specified thresholds
. Enable a redundant, stand-by backup resource in a Central Dispatch site
when the primary resource fails or becomes too busy
. Monitor applications and server processes, as well as restart any that
fail by executing policies customized to the customer's environment
Global Dispatch
Global Dispatch provides traffic management functions across geographically
distributed eBusiness applications to consolidate multiple points of presence,
or POPs, into a single, enterprise-wide resource. Global Dispatch uses site
performance and availability metrics including network delays, server activity
and service availability to direct users to the site best suited to respond.
Global Dispatch provides features that can simplify administrative tasks such
as database and content replication. Global Dispatch also incorporates features
that allow a user to access an alternative POP when a particular resource,
including an entire site, is unavailable due to failure or routine maintenance.
Global Dispatch automatically monitors POPs for failures and only routes
requests to available, healthy resources.
Enterprise Services Console
The Enterprise Services Console provides a single unified view of enterprise
wide deployments of multiple Central Dispatch and Global Dispatch
installations. It also serves as an enterprise wide integration point for the
exchange of information among our products. Our Enterprise Services Console
enables remote monitoring of the services deployed on our Internet services
management platform and can be used from any networked computer. Currently part
of our managed services offering, the Enterprise Services Console can also be
customized to establish thresholds for site activity, generate alerts and
alarms and make platform adjustments to avoid service failures.
Resonate Managed Services
In addition to the technical support and maintenance services we typically
provide to our customers in connection with installing, configuring and
optimizing our products, Resonate Managed Services give our customers a way to
benefit from our knowledge and experience by allowing them to outsource their
monitoring and service level control needs. Resonate Managed Services have two
distinct service offerings: InterAct and ProAct. These offerings optimize
server availability and ensure end-user service quality.
. InterAct, our standard managed services offering, provides "24x7"
monitoring of eBusiness applications, and the infrastructure that
supports them, from our Resonate Operations
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Center. InterAct allows our professional services engineers to adjust
configurations as appropriate for efficient operation of our platform
and relieves customers of the day-to-day monitoring and control
responsibilities of their core eBusiness infrastructure. Customers
receive weekly reports on server utilization and are advised on the
health and trends of their computer system resources.
. ProAct, our premium managed services offering, provides the capabilities
of InterAct plus continuous monitoring of service response times and
complex end-user transactions. Our premium services offering provides
testing and identification of server and service delays and takes
automatic corrective action. Our service teams perform ongoing
evaluations of real-time service levels and extensive transaction
response-time testing. Customers also receive weekly and monthly reports
about the availability and service quality experienced by their end-
users.
Dispatch SLB--Now!
Dispatch SLB--Now! is our server load balancing product that we make
available free of charge over the Internet. It allows two servers to appear as
a single unified server system. It is based on the same patented traffic
management technology as our Central Dispatch product, but is limited in the
features it offers and the number of server systems it supports. Similar to
Central Dispatch, users can specify how requests are to be distributed across
the server systems based on requested content type or status of the server
systems.
Users of our Dispatch SLB--Now! product have a clear migration path to our
enterprise traffic management products and our complete Internet services
management platform as their requirements grow. Dispatch SLB--Now! is intended
to promote widespread adoption of our server load balancing technology so as to
further our strategy and establish our Internet services management offerings
as the de facto standard platform for eBusiness applications.
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<PAGE>
Technology
At the heart of Central Dispatch is our patented networking technology that
enables user requests to be transferred, or "hopped" from one server system to
another. We call this technique a "TCP Connection Hop." As illustrated below,
this technique enables the system that receives the incoming request to hop
that request to the server system best suited to respond.
[Graphic depicting the "TCP connection Hop" technology illustrating a
request from a client computer to a server, the request being transferred to a
different server system and the response being sent directly back to the
client computer.]
Central Dispatch determines which system is best suited to respond based on
the type of content requested, the identity of the client making the request,
the current workload on the server system, the overall status of applications
running on the systems or other customer-specified criteria.
This technology provides the following capabilities:
. Single IP Address. When a connection is hopped to a server system to
respond, the client is unaware that the response is coming from a
different system. As a result, all the server systems in a Central
Dispatch cluster appear to the client to behave as a single reliable,
high performance system.
. Triangular Data Flow. Since the response is sent directly to the client,
without requiring the data to flow back through the system that
originally received the request, the resulting triangular data flow
eliminates the performance bottleneck that can occur when a single
system or network device must process all incoming and outgoing data.
Additionally, since no individual server system is responsible for
processing all data packets, Central Dispatch has computing resources to
implement a rich traffic management feature set without degrading the
throughput or overall performance of the platform.
. Network Design Flexibility. A connection can be hopped to any system
independent of its location. This means that Central Dispatch can
provide performance scalability and high reliability to server systems
that are spread across an enterprise, perhaps in different physical
locations.
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<PAGE>
Global Dispatch takes advantage of our distributed software approach by also
using software agents to check the health and status of the Internet POPs to
determine which one should be selected to receive incoming requests. With this
distributed software approach, Global Dispatch and Central Dispatch can
exchange information about server performance and availability at each location
which can improve end-to-end traffic flow and response time.
Commander leverages our distributed software architecture to collect
information gathered by Central Dispatch and Global Dispatch. Our event
translation technology, which processes this information, allows Commander to
automatically reconfigure Central Dispatch or Global Dispatch, or to run
programs that have been predefined to take the necessary steps to restore a
failed or slowly responding system resource.
Customers
We have developed a customer base of over 250 accounts that we believe is an
indication of our having established Resonate as a technology leader through a
variety of industry firsts, including patented traffic management technologies,
and as a provider of a range of solution capabilities that include server load-
balancing, enterprise traffic management and service level control.
We believe that our technology leadership is demonstrated by our success
penetrating some of the most sophisticated and complex vertical markets, or
industries, on the Internet. A study of market penetration within those
vertical markets performed by International Data Corporation at our request
reports our presence as of the fourth quarter of 1999 in the markets for:
. Online brokerage services: Our customers, Charles Schwab, DLJ Direct,
E*Trade and Morgan Stanley Dean Witter, represent 57% of all online
brokerage accounts
. Online ad insertion: Our customers, DoubleClick and AdForce, deliver 75%
of all third-party online ads
. Internet personal homepage services: Our customers, Yahoo!/GeoCities and
theGlobe, represent 34% of all online personal home pages
. Internet auctions: Our customers, eBay, Internet Shopping Network,
Auction Universe and ACUSA represent 89% of all online person-to-person
Internet auction revenues
Our customers include Internet content publishers, Internet service
providers, application service providers and corporate intranet sites that vary
in complexity and sophistication, ranging from two or three individual web
servers located in a single location up to several hundred server systems
geographically distributed across multiple locations.
The following is a list of our customers who have purchased greater than
$100,000 of our products and services since our inception:
Acclaim Technology DoubleClick On The Go Software
Anteon Corporation E*Trade Securities Planet Direct
Applied Management Eakins Open Systems SBC Communications
Systems eBay Siebel Systems
Bank of America eCollege.com Southwest Securities
BankBoston Federal Express Group
Brokat Infosystems AG Interactive Futures Sun Microsystems
Charles Schwab & Co. International Business Tech Data Corporation
Citicorp Machines TelePost
Consumer Financial Interpath Communications Universo Online
Network Intraware US WEST
Corporate Software and Itochu Technology USA.NET
Technology Morgan Stanley Dean UUNET Technologies
CSX Technology Witter Online Vignette
Deutsche Telekom AG
Digital Insight
45
<PAGE>
Customer Case Studies
The following are examples of how some of our customers are using our
products for Internet services management:
Yahoo!/GeoCities
Yahoo!/GeoCities is an Internet site where visitors create personal home
pages and locate them in one of several themed communities. Themed communities
vary from Bourbon Street, which has a Jazz music theme, to Wall Street, which
has an investment and financial theme. GeoCities was looking for a solution
that enabled them to distinguish and classify incoming user requests according
to the requested content, and that could scale to accommodate GeoCities'
continuing growth. Moreover, GeoCities required a solution that enabled them to
manage and control their overall service infrastructure that was growing to
over 100 individual server systems.
Our Central Dispatch product enables Yahoo!/GeoCities to direct incoming
requests according to the content that is being requested to the appropriate
communities without introducing any performance bottlenecks or single points of
failure. Central Dispatch provides high availability by directing visitors'
requests only to systems that are active and operational. Our platform also
provides Yahoo!/GeoCities with a single management and control console where
services can be monitored and managed.
According to Yahoo!/GeoCities, since Central Dispatch was first installed in
July 1997, it has scaled to accommodate their growth in daily traffic from
approximately 30 million hits per day in July 1997 to over 300 million hits per
day in December 1999, while realizing up to a 40% reduction in their projected
server systems costs.
DoubleClick
DoubleClick sells and serves advertising on the Internet. One of
DoubleClick's flagship products is the DoubleClick Network, a collection of
some of the most highly trafficked and branded sites on the Web, including
AltaVista, Dilbert, Macromedia, and more than 1,500 others. DoubleClick leads
the industry in providing a complete advertising solution, displaying on
average 1.5 billion ads each day for thousands of businesses. As of February
2000 their server infrastructure totalled more than 400 server systems
distributed across 10 geographically disparate Internet locations.
DoubleClick found that our Central Dispatch, Global Dispatch and Enterprise
Services Console products had the performance, scalability, functionality and
flexability needed to service the growth in their traffic and the requirements
of their distributed architecture. Central Dispatch and Global Dispatch manage
site resources and ad traffic, enabling DoubleClick to better meet the service
levels agreements that they have with their customers.
Covad
As a leading national provider of broadband internet services, Covad's
network currently covers more than 29 million homes and businesses in major
metropolitan areas. Covad's service allows high-speed access to the Internet
and corporate networks through copper phone wires located within homes and
businesses. Covad DSL permits customers to use a dedicated data connection to
the Internet and eliminates the need for dial-up access. Covad was looking for
a solution that would improve the reliability and availability of its eCommerce
site. This online site enables Covad's customers, who are primarily Internet
service providers, to place orders and check on the availability of service and
installation status. Using our Central Dispatch product to support and manage
tens of thousands of user requests from Covads's Internet service provider
customers everyday, Covad is reporting that its eCommerce site uptime has
improved to 99.9%. According to Covad, Central
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Dispatch has helped enhance its ability to manage the large amounts of traffic
during periods of high demand to its online customer care center.
Digital Insight
Digital Insight offers a cost-effective, outsourced service to community
banks and credit unions. Digital Insight provides Internet-based financial
solutions to these institutions' retail and commercial customers. In addition,
Digital Insight provides fully transactional Internet banking development and
implementation; website design, maintenance and hosting; as well as other
services.
According to Digital Insight, Resonate's Central Dispatch and Global Dispatch
products, first installed in December of 1998, enable them to easily add new
Internet banking clients to their service. Currently they support more than 400
Internet banking clients on their servers.
Sales and Marketing
Direct Sales
We promote and sell the majority of our products and services through our
direct sales organization. As of February 15, 2000, we had 50 people in our
sales organization and 24 in our marketing organization. In 2000, we plan to
significantly increase the number of our direct sales personnel to increase the
direct sales of our products and to support and develop leads for our indirect
distribution channels.
Indirect Sales Channels
Our distribution strategy utilizes multiple indirect sales channels,
including platform vendors, value added resellers/system integrators and
independent software vendors.
. Platform vendors: Platform vendors bundle versions of our Central
Dispatch software with their own systems to provide their customers with
a server load balancing capability. This provides them with a
differentiated product offering and enables their systems to be easily
integrated into a more scalable eBusiness application solution.
. Value-added resellers/system integrators: The value-added resellers with
whom we work typically combine our products with other products or
services that they provide and then resell the combined product or
service to their customers. System integrators typically provide, on a
contract basis, integration of new hardware and/or software with an
enterprise's existing IT systems. In this context, system integrators
will incorporate our software products into an integrated eBusiness
application to provide their customers with our platform capabilities.
. Independent software vendors: By embedding our software within their own
products, independent software vendors are able to provide their
customers with traffic management functions which makes them more
scalable and more reliable when used within an eBusiness application
environment.
47
<PAGE>
We market and sell our products through a variety of relationships with
service companies and hardware and software vendors. Our professional services
organization provides consulting and training to ensure that both companies who
sell our products and our customers get the education and support they need to
design and deploy our products. The following is a list of companies that sold
more than $30,000 of our product during 1999:
<TABLE>
<S> <C> <C>
Acclaim Technology Brokat Infosystems AG Navidec
Acuma Cat Technology Penguin Computing
Advanced Systems Group Corporate Software and Perot Systems
Anteon Corporation Technology Siebel Systems
Applied Management Eakins Open Systems Stonebridge Technologies
Systems Interactive Futures Sun Professional Services
Atos Multimedia Intraware
</TABLE>
These indirect channels are aimed at increasing geographic sales coverage and
addressing potential customers that would otherwise be beyond the reach of our
direct sales organization. We intend to expand the types of companies with whom
we have indirect sales relationships to include providers of Internet co-
location facilities, web site hosting and application services. Our indirect
sales channels enable us to effectively leverage our direct sales channels to
accelerate revenue growth and to pursue our strategic objective of making our
solution the de facto Internet services management platform worldwide.
Resonate REACH Partner Program
Our REACH Partner Program is intended to help companies who comprise our
indirect sales channel sell our products. We provide participants in the REACH
Program with technical training, as well as sales and marketing support, to
enhance their offerings through the recommendation or implementation of our
platform. We offer REACH Program participants use of our logo, a listing on our
web site, demonstration software, and sales, marketing and technical assistance
materials. We work with each participant to tailor the elements of the program
to each participant's sales and applications goals.
The following list contains those companies with whom we have signed REACH
Partner Program agreements:
<TABLE>
<S> <C>
North American value added
resellers Peripheral Vision Infosystems
Acclaim Technology Sigma Solutions
Acropolis Systems SourceOne
Advanced Systems Group Star Solutions
Alphabit Media Tactics
Anteon Corporation Winkcomm
Basis
Business Interactive
Corporation International value added resellers
Cat Technology Brokat Infosystems AG
Central Design Systems dcVAST
Eakins Open Systems Itochu Technology
Exodus Communications Merkantildata
Extreme Technologies
GlobalCenter Global value added resellers
Intelligent Solutions Compaq Professional Services
Interactive Futures Sun Professional Services
Internet Information Services
Key Information Systems Consulting
Madison Technology Group Raba Technologies
Navidec
</TABLE>
48
<PAGE>
Research and Development
We have made substantial investments to design and develop our Internet
services management platform. We have assembled a team of highly experienced
network engineers, software developers, system architects and test engineers to
design, implement and test our platform. As part of this development we have 3
patents pending and 1 patent issued which contain in the aggregate over 75
claims.
The majority of our research and development activity has been directed
towards feature enhancement to our products and the development of new
functionality. Although we intend to continue to invest heavily in research and
development, we also plan to evaluate third party suppliers for complimentary
technologies that might be integrated into our offering.
Our research and development expenditures were approximately $1.6 million in
1997, $3.2 million in 1998 and $6.8 million in 1999. We will continue to commit
significant resources to research and development in the future. All research
and development expenses have been expensed as incurred.
The market for our products and services is characterized by rapid
technological change, frequent new product introductions and enhancements,
evolving industry standards, and rapidly changing customer requirements. The
introduction of features and functionality, incorporating new technologies and
the emergence of new industry standards could render existing products obsolete
and unmarketable. Our future success will depend in part on its ability to
anticipate changes, enhance its current products, develop and introduce new
products that keep pace with technological advancements and address the
increasingly sophisticated needs of its customers.
Competition
Our markets are new, rapidly evolving and highly competitive, and we expect
competition to persist and intensify in the future. Our principal competitors
for our Central Dispatch product include Alteon Web Systems, Arrowpoint
Communications, Cisco Systems, F5 Networks and Microsoft, and other load
balancing and traffic management product suppliers. We expect to continue to
face additional competition as new participants enter the traffic or systems
management market. In addition, companies with greater resources and more
established brand recognition and sales channels may form alliances with or
acquire competing traffic management solutions and emerge as significant
competitors. Potential competitors may bundle their products or incorporate a
load balancing or traffic management capability into their existing products in
a manner that discourages users from purchasing our products. In the future,
increased competition may come from systems and network management product
providers including Tivoli Systems, BMC Software, Visual Networks, Micromuse
and others. As these providers enhance their products to target the needs and
requirements of Internet deployed applications, potential customers may choose
their products over ours.
Intellectual Property
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We also enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our software, documentation and other proprietary information.
The software industry is characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement and
the violation of other intellectual property rights. Although we attempt to
avoid infringing known proprietary rights of third parties in our product
development efforts, we may be subject to legal proceedings and claims for
alleged
49
<PAGE>
infringement by us or our licensees of third party proprietary rights, such as
patents, trademarks or copyrights, by us or our licensees from time to time in
the ordinary course of business. Any claims relating to the infringement of
third-party proprietary rights, even if not meritorious, could result in costly
litigation, divert management's attention and resources, or require us to enter
into royalty or license agreements which are not advantageous to us. In
addition, parties making these claims may be able to obtain an injunction,
which could prevent us from selling our products in the United States or
abroad. Any of these results could harm our business. We may increasingly be
subject to infringement claims as the number of products and competitors in our
industry grow and functionalities of products overlap. Furthermore, former
employers of our current and future employees may assert that our employees
have improperly disclosed confidential or proprietary information to us.
Employees
As of February 15, 2000, we had a total of 179 employees. Of the total number
of employees, 69 were in engineering, 89 were in sales and marketing, 4 were in
business development and 17 were in operations and administration. None of our
employees is subject to a collective bargaining agreement, and we have never
experienced a work stoppage. We consider our relations with our employees to be
good.
Facilities
Our corporate headquarters are located in Sunnyvale, California, under leases
that expire in January 2001 and November 2003. We occupy approximately 53,600
square feet in this facility. We also lease space in McLean, Virginia;
Norcross, Georgia; Isolin, New Jersey; Chicago, Illinois; Irvine, California;
and Bellevue, Washington for our sales personnel. We believe that our existing
facilities are adequate for current requirements and that additional space can
be obtained on commercially reasonable terms to meet future requirements.
Legal Proceedings
We are not currently a party to any litigation.
50
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages and positions as of
February 15, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Kenneth Schroeder................... 52 President, Chief Executive Officer and Director
Christopher C. Marino............... 39 Founder, Corporate Vice President and Director
Robert C. Hausmann.................. 36 Vice President and Chief Financial Officer
Karen L. Styres..................... 42 Vice President, Marketing
Karen S. Barnes..................... 49 Vice President, Engineering
A. Alan Button...................... 53 Vice President, Worldwide Sales
Stanley L. Chin..................... 46 Vice President, Business Development
Cameron L. Lorentz.................. 43 Vice President, North American Sales
David R. Guercio.................... 46 Vice President, Professional Services
Gordon A. Campbell(2)............... 55 Chairman of the Board
Robert J. Finocchio, Jr.(1)......... 48 Director
I. Robert Greene(1)(2).............. 39 Director
John S. McFarlane................... 51 Director
Russell L. Siegelman(1)(2).......... 37 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Kenneth Schroeder has been our President and Chief Executive Officer since
August 1998 and has been a member of our board of directors since October 1998.
From March 1997 to August 1998, Mr. Schroeder provided interim management
services to several venture capital firms, as president of his consulting firm,
TechVenture Management. From June 1996 to March 1997, Mr. Schroeder was
President and Chief Executive Officer of Computer Aided Service, Inc., an
automotive services software company. From July 1994 through June 1996, Mr.
Schroeder served as Chief Operating Officer in a consultant capacity to
Realtron, Inc./Interealty, a real estate information systems and services
company. Mr. Schroeder's business experience prior to 1994 includes executive
and management positions at Lotus Development, a software company, and General
Electric Company, including general manager of its Industrial Electronics
Development Laboratory. Mr. Schroeder holds a B.S. in Electrical Engineering
from City College of New York and an M.S. in computer science from Rutgers
University.
Christopher C. Marino founded Resonate in July 1995. Mr. Marino has been our
Corporate Vice President since August 1998 and has been a member of our board
of directors since August 1995. From August 1995 to August 1998, Mr. Marino
served as our President and Chief Executive Officer. Mr. Marino holds a B.S. in
electrical engineering from Columbia University, an M.S. in electrical
engineering and computer science from the University of California at Berkeley
and an M.B.A. from Stanford University.
Robert C. Hausmann has been our Vice President and Chief Financial Officer
since September 1999. From September 1997 to September 1999, Mr. Hausmann was
Chief Financial Officer at Mohr Davidow Ventures, a venture capital firm. Mr.
Hausmann also acted as Chief Financial Officer for certain portfolio companies
of Mohr Davidow. From October 1991 to September 1997, Mr. Hausmann was Vice
President and Chief Financial Officer of Red Brick Systems, a provider of data
warehousing solutions. Mr. Hausmann holds a B.A. in finance and accounting from
Bethel College and an M.B.A. from Santa Clara University.
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<PAGE>
Karen L. Styres has been our Vice President, Marketing since March 1999.
From December 1995 to February 1999, Ms. Styres was Vice President, Marketing
for Diffusion, Inc., a vendor in the customer relationship management market.
Ms. Styres holds a B.A. in marketing from the University of Kentucky and an
M.B.A. from the University of California at Berkeley.
Karen S. Barnes has been our Vice President, Engineering since March 1999.
From July 1997 to March 1999, Ms. Barnes was business unit manager at Legato
Systems, a developer of enterprise-strength storage management software for the
enterprise computing market. From July 1995 to July 1997, Ms. Barnes was
director of Solaris Engineering at Sun Microsystems. Ms. Barnes holds a B.A. in
mathematics from the University of California at Berkeley.
A. Alan Button has been our Vice President, Worldwide Sales since February
2000. From 1986 through February 2000, Mr. Button served in various capacities
with Hewlett-Packard Corporation, most recently as Vice President and General
Manager, Sales and Marketing for Hewlett-Packard's Customer Support and
Professional Services Group. Mr. Button holds a B.A. in history from UCLA.
Stanley L. Chin has been our Vice President, Business Development since May
1999. From January 1997 to April 1999, Mr. Chin was Vice President of Worldwide
Strategic Alliances for Legato Systems, a developer of enterprise-strength
storage management software for the enterprise computing market. Mr. Chin holds
a B.S. and an M.S. in engineering from Northeastern University.
Cameron L. Lorentz has been our Vice President, North American Sales since
February 2000. From January 1998 to February 2000, Mr. Lorentz was our Vice
President, Worldwide Sales. From April 1997 to November 1997, Mr. Lorentz was
Vice President of North American Sales at Allied Telesyn, a manufacturer of
ethernet, fast ethernet and gigabit networking components. Mr. Lorentz holds a
B.A. in business economics from the University of California at Santa Barbara.
David R. Guercio has been our Vice President, Professional Services since
September 1999. From January 1995 to September 1999, Mr. Guercio was Vice
President of Business Operations and Customer Services at NeoVista Software, a
provider of business intelligence applications and technology. Mr. Guercio
holds a B.S. in finance and an M.B.A. from Santa Clara University.
Gordon A. Campbell has served as Chairman of the Board since January 1996
and a director since December 1995. Mr. Campbell has been a managing member of
TechFund Capital, a venture capital fund, since August 1997. In 1993, Mr.
Campbell created TechFarm Management, Inc., an incubation company for new
technology companies, including Resonate. Mr. Campbell has founded and has been
involved in the start-up of numerous Silicon Valley companies, including CHIPS
and Technologies, Inc., a semiconductor and related device company, 3dfx
Interactive and Cobalt Networks. In addition to his role at Resonate, Mr.
Campbell serves as Chairman of the Board of 3dfx Interactive and Cobalt
Networks and is a member of the boards of directors of Palm Computing, a
portable computing platform and device company, and Bell Microproducts, a
computer components company.
Robert J. Finocchio, Jr. has served as a member of our board of directors
since October 1999. Mr. Finocchio served as the President and Chief Executive
Officer of Informix Corporation from July 1997 to July 1999 and has served as
its Chairman of the Board since July 1997. From December 1988 until April 1997,
Mr. Finocchio was employed with 3Com Corporation, where he held various
positions, most recently serving as President, 3Com Systems. Prior to his
employment with 3Com Corporation, Mr. Finocchio held various executive
positions in sales and service with Rolm Communications, a telecommunications
and networking company, most recently as Vice President of Rolm Systems
Marketing. Mr. Finocchio also serves as a director of Latitute Communications,
Echelon Corporation and Turnstone Systems. Mr. Finocchio is also a Regent of
Santa Clara University. Mr. Finocchio holds a B.S. in economics from Santa
Clara University and an M.B.A. from Harvard Business School.
52
<PAGE>
I. Robert Greene has served as a member of our board of directors since
April 1997. Mr. Greene has served as a Managing Partner of Flatiron Partners, a
venture capital firm, since June 1999. From 1994 to 1999, Mr. Greene was with
Chase Capital Partners, a venture capital firm, serving as a Principal from
1994 to 1999, and a General Partner thereof in 1999. Mr. Greene also serves as
a director of Multex.com Inc. Mr. Greene holds a B.S. from the Wharton School
and an M.B.A. from the Massachusetts Institute of Technology Sloan School of
Management.
John S. McFarlane has served as a member of our board of directors since
July 1999. Mr. McFarlane has served as President, Network Service Provider at
Sun Microsystems since July 1999 and served as President, Solaris Software at
Sun Microsystems from April 1998 to July 1999. Mr. McFarlane served as Vice
President, Solaris and Network Software at Sun Microsystems from December 1997
to April 1998 and as Vice President, Network Software Group at Sun Microsystems
from May 1997 to December 1997. Mr. McFarlane served as Vice President,
Technology at Northern Telecom from 1993 to 1997. Mr. McFarlane holds a B.S.
and an M.B.A. from the University of Toronto.
Russell L. Siegelman has served as a member of our board of directors since
April 1997. Since 1996, Mr. Siegelman has been a partner of Kleiner Perkins
Caufield & Byers, a venture capital firm. Prior to joining Kleiner Perkins, Mr.
Siegelman served in a variety of positions at Microsoft from 1989 to July 1996,
including most recently as Vice President of the Microsoft Network, Microsoft's
online service. Mr. Siegelman holds a B.S. in Physics from the Massachusetts
Institute of Technology and an M.B.A. from Harvard Business School.
Classified Board
Our certificate of incorporation provides for a classified board of directors
consisting of three classes of directors, each serving staggered three-year
terms. As a result, a portion of our board of directors will be elected each
year. To implement the classified board structure, prior to the consummation of
the offering, two of the members of the board will be elected to one-year
terms, two will be elected to two-year terms and three will be elected to
three-year terms. Thereafter, directors will be elected for three-year terms.
Messrs. and have been designated Class I directors whose term expires
at the 2001 annual meeting of stockholders. Messrs. and have been
designated Class II directors whose term expires at the 2002 annual meeting of
stockholders. Messrs. , and have been designated Class III
directors whose term expires at the 2003 annual meeting of stockholders.
Executive officers are appointed by the board of directors and serve until
their successors have been duly elected and qualified. There are no family
relationships among any of our directors, officers or key employees.
Board Committees
We established an audit committee in May 1998 and a compensation committee in
October 1998.
Our audit committee currently consists of Messrs. Finocchio, Greene and
Siegelman. The audit committee reviews our internal accounting procedures and
consults with and reviews the audit and services provided by our independent
accountants.
Our compensation committee currently consists of Messrs. Campbell, Greene and
Siegelman. The compensation committee reviews and recommends to the board of
directors the compensation and benefits of our employees.
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Compensation Committee Interlocks and Insider Participation
Prior to establishing the compensation committee, the board of directors as a
whole performed the functions delegated to the compensation committee. No
member of the board of directors or the compensation committee serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of
directors or compensation committee.
Director Compensation
We do not currently compensate our directors in cash for their service as
members of the board of directors, although they are reimbursed for expenses in
connection with attendance at board of director and committee meetings. Under
our stock option plan, directors are eligible to receive stock option grants at
the discretion of the board of directors or other administrator of the plan.
During 1996, the board granted options to purchase 100,000 shares to Mr. Marino
at an exercise price per share of $0.0333 per share. During 1999, the board
granted: options to purchase 52,000 shares to Mr. Finocchio at an exercise
price per share of $1.25; options to purchase 52,000 shares to Mr. McFarlane at
an exercise price per share of $1.25; and options to purchase 200,000 shares to
Mr. Schroeder at an exercise price per share of $1.25. The grants to Messrs.
Marino and Schroeder were in consideration of their service to Resonate as
executive officers.
Executive Compensation
The table below summarizes the compensation earned for services rendered to
us in all capacities for the fiscal year ended December 31, 1999 by our named
executive officers. Our named executive officers are our Chief Executive
Officer and our next four most highly compensated executive officers who earned
more than $100,000 during the fiscal year ended December 31, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------------- ------------
Securities
Bonus/ All Other Underlying
Name and Principal Position Salary Commission Compensation Options
- --------------------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Kenneth Schroeder, President and
Chief Executive Officer........ $220,000 $100,000 -- 200,000
Christopher Marino, Founder and
Corporate Vice President....... $145,151 -- -- --
Karen Barnes, Vice President,
Engineering.................... $129,091 $ 22,319 -- 206,432
Karen Styres, Vice President,
Marketing...................... $124,445 $ 21,238 -- 206,432
Cameron Lorentz, Vice President,
North American Sales........... $157,443 $174,878 $5,400 --
</TABLE>
Option Grants in Last Fiscal Year
The following table sets forth information with respect to stock options
granted to each of the named executive officers in the fiscal year ended
December 31, 1999. This information includes the potential realizable value
over the ten-year term of the options, based on assumed rates of stock
appreciation of 5% and 10%, compounded annually, and based upon the exercise
price of the option which equals the fair market value on the date of grant as
determined by the board of directors. These assumed rates of appreciation
comply with the rules of the Securities and Exchange Commission and do not
represent our estimate of future stock price. Actual gains, if any, on stock
option exercises will be dependent on the future performance of our common
stock.
54
<PAGE>
In the fiscal year ended December 31, 1999, we granted options to purchase up
to an aggregate of 2,934,874 shares to employees, directors and consultants.
These options were granted under our 1996 Stock Plan at exercise prices at the
fair market value of our common stock on the date of grant, as determined in
good faith by our board of directors. Options to employees and directors have a
term of ten years. Options to consultants have a one-year term. Optionees may
pay the exercise price by cash, certified check, or delivery of already-owned
shares of our common stock. Options to the named executive officers are
immediately exercisable upon grant; however, we may repurchase any unvested
shares at their cost if the optionee's service terminates. Options to employees
and directors vest over four years. Options to consultants vest immediately
upon grant.
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------
% of Potential
Total Realizable Value
Options at Assumed Annual
Granted Rates of Stock
Number of to Price
Securities Employees Appreciation for
Underlying In Last Exercise Option Term
Options Fiscal Price Expiration -----------------
Name Granted(#) Year ($/share) Date 5% 10%
---- ---------- --------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Schroeder.. 200,000 6.8% $1.25 11/15/09 $407,224 $648,436
Christopher
Marino............ -- -- -- -- -- --
Karen Barnes....... 206,432 7.0 0.38 03/06/09 127,778 203,464
Karen Styres....... 206,432 7.0 0.38 02/24/09 127,778 203,464
Cameron Lorentz.... -- -- -- -- -- --
</TABLE>
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table describes for our named executive officers their option
exercises for the fiscal year ended December 31, 1999, and exercisable and
unexercisable options held by them as of December 31, 1999.
The "Value of Unexercised In-the-Money Options at December 31, 1999" is based
on a value of $3.75 per share, the fair market value of our common stock as of
December 31, 1999, as determined by the board of directors, less the per share
exercise price, multiplied by the number of shares issued upon exercise of the
option. The shares vest over four years.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options At the-Money Options At
Number of December 31, 1999 December 31, 1999
Shares Acquired ------------------------- -------------------------
Name on Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth Schroeder....... 1,408,500 $3,521,250 200,000 -- $500,000 --
Christopher Marino...... 50,000 185,833 -- -- -- --
Karen Barnes............ 206,432 695,676 -- -- -- --
Karen Styres............ 77,412 260,878 129,020 -- 434,797 --
Cameron Lorentz......... 210,000 756,000 -- -- -- --
</TABLE>
55
<PAGE>
INCENTIVE STOCK PLANS
1996 Stock Plan
Our board of directors adopted our 1996 stock plan in January 1996, and our
stockholders approved the plan in January 1996. Our 1996 stock plan provides
for the grant to employees of incentive stock options within the meaning of
federal income tax laws, and for the grant to employees, directors and
consultants of nonstatutory stock options and stock purchase rights. Unless
terminated sooner, the 1996 stock plan will terminate automatically in 2006.
The board of directors has determined that no future options will be granted
under our 1996 stock plan following the effective date of this offering.
However, our board of directors or a committee of our board of directors will
administer the options granted under the 1996 stock plan that are outstanding
on the effective date of this offering. A total of 6,140,250 shares of common
stock were authorized for issuance under the 1996 stock plan. As of February
15, 2000, options to purchase an aggregate of 2,713,741 shares of our common
stock were outstanding under the 1996 stock plan, and a total of 2,787,673
shares that have been issued pursuant to the exercise of options granted under
the 1996 stock plan were outstanding. The options outstanding at the time of
this offering will remain subject to the terms of the agreements evidencing
such options and the terms of the 1996 stock plan.
The 1996 stock plan provides that in the event of our merger with or into
another corporation, the successor corporation may assume or substitute each
option or stock purchase right. If the outstanding options or stock purchase
rights are not assumed or substituted, each outstanding option and stock
purchase right will terminate as of the date of closing of the merger.
2000 Stock Plan
Our board of directors adopted our 2000 stock plan in March 2000, subject to
stockholder approval. Our 2000 stock plan provides for the grant to employees
of incentive stock options within the meaning of federal income tax laws, and
for the grant to employees, directors and consultants of nonstatutory stock
options and stock purchase rights. Unless terminated sooner, the 2000 stock
plan will terminate automatically in 2010.
A total of 3,200,000 shares of common stock has been reserved for issuance
under the 2000 stock plan, plus annual increases equal to the lesser of:
. 2,500,000 shares
. 5% of the outstanding shares on such date
. a lesser amount determined by the board
Our board of directors or a committee of our board administers the 2000 stock
plan. The committee may consist of two or more "outside directors" to satisfy
certain tax and securities requirements. The administrator has the power to
determine the terms of the options or stock purchase rights granted, including
the exercise price, the number of shares subject to each option or stock
purchase right, the exercisability of the options and the form of consideration
payable upon exercise. The administrator determines the exercise price of
options granted under our stock option plan, but with respect to incentive
stock options, the exercise price must at least be equal to the fair market
value of our common stock on the date of grant. Additionally, the term of an
incentive stock option may not exceed ten years. The administrator determines
the term of all other options. No optionee may be granted an option to purchase
more than 750,000 shares in any fiscal year. In connection with his or her
initial service, an optionee may be granted an additional option to
56
<PAGE>
purchase up to 750,000 shares of our common stock. After termination of one of
our employees, directors or consultants, he or she may exercise his or her
option for the period of time stated in the option agreement. If termination is
due to death or disability, the option will generally remain exercisable for 12
months following such termination. In all other cases, the option will
generally remain exercisable for 3 months. However, an option may never be
exercised later than the expiration of its term. The administrator determines
the exercise price of stock purchase rights granted under our 2000 stock plan.
Unless the administrator determines otherwise, the restricted stock purchase
agreement will grant us a repurchase option that we may exercise upon the
voluntary or involuntary termination of the purchaser's service with us for any
reason (including death or disability). The purchase price for shares we
repurchase will generally be the original price paid by the purchaser. The
administrator determines the rate at which our repurchase option will lapse.
Our stock option plan generally does not allow for the transfer of options or
stock purchase rights and only the optionee may exercise an option and stock
purchase right during his or her lifetime.
The 2000 stock plan provides that if we merge with or into another
corporation, or sell substantially all of our assets, each option and stock
purchase right must be assumed or an equivalent option or stock purchase right
substituted for by the successor corporation. If the outstanding options and
stock purchase rights are not assumed or substituted for by the successor
corporation, the optionees shall become fully vested in and have the right to
exercise such options or stock purchase rights. If an option or stock purchase
right becomes fully vested and exercisable in the event of a merger or sale of
assets, the administrator must notify the optionee that the option or stock
purchase right is fully exercisable for a period of 30 days from the date of
the notice, and the option or stock purchase right will terminate upon the
expiration of the 30 day period.
2000 Employee Stock Purchase Plan
Our board of directors adopted our 2000 employee stock purchase plan in March
2000, subject to stockholder approval. The employee stock purchase plan will
not become effective until the effective date of this offering. A total of
2,000,000 shares of common stock has been reserved for issuance under the
purchase plan, plus annual increases equal to the lesser of:
. 750,000 shares
. 2.5% of the outstanding shares on such date
. a lesser amount determined by the board
The board of directors or a committee appointed by the board administers the
purchase plan. The board or its committee has full and exclusive authority to
interpret the terms of the purchase plan and determine eligibility.
The purchase plan contains consecutive, overlapping 24 month offering
periods. Each offering period includes four six-month purchase periods. The
offering periods generally start on the first trading day on or after August 1
and February 1 of each year, except for the first such offering period which
will commence on the first trading day on or after the effective date of this
offering and will end on the last trading day on or before July 31, 2002.
Employees are eligible to participate if we or any participating subsidiary
employs them for at least 20 hours per week and more than five months in any
calendar year. However, the following employees may not purchase stock under
the purchase plan:
. any employee who immediately after grant owns stock possessing 5% or
more of the total combined voting power or value of all classes of our
capital stock
. any employee whose rights to purchase stock under all our employee stock
purchase plans accrues at a rate which exceeds $25,000 worth of stock
for each calendar year
57
<PAGE>
Participants may purchase common stock through payroll deductions of up to
15% of the participant's eligible compensation. "Compensation" is defined to
include a participant's gross earnings and commissions only. The maximum number
of shares a participant may purchase during a single purchase period is 1,250
shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period and at the end of
each purchase period.
The purchase plan provides that, if we merge with or into another corporation
or sell substantially all of our assets, each outstanding option may be assumed
or substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering
period then in progress will be shortened and a new exercise date will be set,
which will occur before the proposed sale or merger.
The purchase plan will terminate in 2010. The board of the directors has the
authority to amend or terminate the purchase plan, except that no such action
may adversely affect any outstanding rights to purchase stock.
401(k) Plan
We have a 401(k) plan covering our full-time employees located in the United
States. The 401(k) plan is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986, as amended. Contributions to the 401(k) plan by
employees or by us, and the investment earnings thereon, are not taxable to
employees until withdrawn. Consequently, contributions by us, if any, will be
deductible by us when made. Employees may elect to reduce up to 20% of their
current compensation by up to the statutorily prescribed annual limit, which
was $10,000 in 1999, and to have the amount of such reduction contributed to
the 401(k) plan. The 401(k) plan permits, but does not require, additional
matching contributions by us on behalf of all participants. To date, we have
not made any contributions to the 401(k) plan.
Change in Control, Severance and Employment Arrangements
In connection with our hiring of Kenneth Schroeder as our President and Chief
Executive Officer in August 1998, we granted Mr. Schroeder an initial option
outside of our 1996 stock plan to purchase 1,408,500 shares of our common stock
at an exercise price of $0.38 per share. We also agreed that he was entitled to
a base salary, bonuses and would be eligible for future option grants subject
to our board of directors' determination. Pursuant to our offer letter, Mr.
Schroeder purchased all 1,408,500 shares of his initial option in exchange for
a full-recourse promissory note. We have a right to repurchase these shares of
stock at a price of $0.38 per share. Our right to repurchase these shares
lapses as to 1/48th of the total number of shares at the end of each month
after August 1, 1998. If there is a change of control of Resonate, 50% of Mr.
Schroeder's shares still subject to repurchase at the time of any such change
of control will accelerate and be deemed fully vested and not subject to
repurchase by us. Furthermore, if Mr. Schroeder is not offered an equivalent
position and title in the post-change of control company, all of Mr.
Schroeder's shares then subject to repurchase will accelerate and be deemed
fully vested and not subject to repurchase upon the termination of Mr.
Schroeder's employment with the new company. As of February 1, 2000, our
repurchase right had lapsed with respect to 498,836 of Mr. Schroeder's shares,
leaving 909,664 of his shares subject to our repurchase right. Pursuant to our
offer letter to Mr. Schroeder, if Mr. Schroeder is terminated not for cause or
as a result of a constructive termination, he will be entitled to the payment
of nine months of his base salary.
58
<PAGE>
In connection with our hiring of Robert C. Hausmann as our Chief Financial
Officer in September 1999, we granted Mr. Hausmann an initial option to
purchase 315,774 shares of our common stock at a purchase price of $1.25 per
share. We also agreed that he was entitled to a base salary, bonuses and would
be eligible for future option grants. In December 1999, we granted Mr. Hausmann
an option to purchase an additional 10,000 shares of our common stock at a
purchase price of $2.50 per share. Mr. Hausmann purchased all of the shares of
both of his option grants in exchange for $200,000 in cash and full-recourse
promissory notes. We currently have the right to repurchase all of these shares
at their initial purchase price per share if Mr. Hausmann's employment with us
is terminated under some conditions. In general, our right to repurchase these
shares lapses as to 25% of the total number of shares on September 7, 2000 and
an additional 6.25% of the total number of shares each quarter thereafter.
However, in the event of Mr. Hausmann's death or a change in control of the
company resulting in the constructive termination of his employment prior to
September 7, 2000, 1/48th of the total number of shares multiplied by the
number of full months that Mr. Hausmann was employed will immediately vest and
will not be subject to our repurchase right. Furthermore, in the event of a
change in control of the company resulting in the constructive termination of
Mr. Hausmann's employment, an additional 50% of the total number of shares of
these grants will immediately vest and will not be subject to our repurchase
right.
Karen Styres, Karen Barnes and Cameron Lorentz, who are executive officers of
Resonate, each have the right to eighteen months of accelerated vesting of his
or her stock holdings if Resonate undergoes a change of control and, after the
change of control, his or her employment is constructively terminated or
terminated without cause. In addition, Alan Button, Stanley Chin and David
Guercio each have the right to twelve months of accelerated vesting of his
stock holdings if Resonate undergoes a change of control and, after the change
of control, his employment is constructively terminated or terminated without
cause. A constructive termination is defined as a substantial change of an
executive's duties and responsibilities without the executive's concurrence.
Limitations on Directors' Liability and Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in such capacity,
regardless of whether our bylaws would permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors
and executive officers for expenses, judgments, fines and settlement amounts
incurred by any such person in any action or proceeding arising out of such
person's
59
<PAGE>
services as a director or executive officer or at our request. We believe that
these provisions and agreements are necessary to attract and retain qualified
persons as directors and executive officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative litigation, if successful, might otherwise benefit us and
our stockholders. A stockholder's investment in us may be adversely affected to
the extent we pay the costs of settlement or damage awards against our
directors or officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of our
directors, officers or employees in which indemnification is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
RELATED PARTY TRANSACTIONS
During the last two years, there has not been, nor is there currently
proposed, any transaction or series of similar transactions to which we were or
are to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our common stock had
or will have a direct or indirect interest other than compensation
arrangements, which are described where required under "Management," and the
transactions described below.
Equity Investment Transactions for Cash
In June and July 1998, we sold 3,230,418 shares of Series C preferred stock
for $3.034 per share. In June and August 1999, we sold an aggregate of
2,706,877 shares of Series D preferred stock for $4.81 per share. Listed below
are the directors, executive officers and stockholders who beneficially own
more than 5% of our securities who participated in these financings.
<TABLE>
<CAPTION>
Shares of Shares of Aggregate
Series C Series D Cash
Stockholder Preferred Preferred Consideration
----------- --------- --------- -------------
<S> <C> <C> <C>
Entities affiliated with Kleiner Perkins
Caufield & Byers(1).................... 464,596 893,971 $5,709,585
Chase Venture Capital Associates,
L.P. .................................. 525,618 697,121 4,947,877
Entities affiliated with Lehman
Brothers(2)............................ 1,318,392 270,270 5,300,000
Entities affiliated with TechFarm(3).... 36,735 23,700 225,451
Gordon A. Campbell(4)................... 36,735 23,700 225,451
I. Robert Greene(5)..................... 27,376 193,098 1,011,860
Russell L. Siegelman(6)................. 464,596 893,971 5,709,585
</TABLE>
- --------
(1) The aggregated shares listed for entities affiliated with Kleiner Perkins
Caufield & Byers are owned as follows: KPCB Java Fund, L.P. owns 232,298
shares of Series C preferred stock and 446,986 shares of Series D preferred
stock; Kleiner Perkins Caufield & Byers VIII, L.P. owns 208,604 shares of
Series C preferred stock and 401,393 shares of Series D preferred stock;
KPCB VIII Founder's Fund, L.P. own 12,079 shares of Series C preferred
stock and 23,243 shares of Series D preferred stock; and KPCB Information
Sciences Zaibatsu Fund II, L.P. owns 11,615 shares of Series C preferred
stock and 22,349 shares of Series D preferred stock.
(2) The aggregated shares listed for entities affiliated with Lehman Brothers
are owned as follows: LB I Group Inc. owns 1,251,850 shares of Series C
preferred stock; Lehman Brothers MBG Venture Capital Partners 1998 (A) L.P.
owns 58,767 shares of Series C preferred stock; Lehman Brothers MBG Venture
Capital Partners 1998 (B) L.P. owns 1,085 shares of Series C preferred
stock; Lehman Brothers MBG Venture Capital Partners 1998 (C) L.P. owns
6,690 shares of
60
<PAGE>
Series C preferred stock; and Lehman Brothers VC Partners L.P. owns 270,270
shares of Series D preferred stock.
(3) The aggregated shares listed for entities affiliated with TechFarm are
owned as follows: TechFund Capital, L.P. owns 32,812 shares of Series C
preferred stock; TechFund Capital Management, LLC owns 3,923 shares of
Series C preferred stock; TechFund Capital II, L.P. owns 19,750 shares of
Series D preferred stock; and TechFund Capital Management II, LLC owns
3,950 shares of Series D preferred stock.
(4) Includes 36,735 shares of Series C preferred stock and 23,700 shares of
Series D preferred stock owned by entities affiliated with TechFarm. Mr.
Campbell disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein.
(5) Includes 27,376 shares of Series C preferred stock held by Flatiron Fund
LLC; 175,218 shares of Series D preferred stock held by Flatiron Fund
1998/99 LLC and 17,880 shares of Series D preferred stock held by Flatiron
Associates, LLC. Mr. Greene disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest therein.
(6) Includes 464,596 shares of Series C preferred stock and 893,971 shares of
Series D preferred stock owned by entities affiliated with Kleiner Perkins
Caufield & Byers. Mr. Siegelman disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest therein.
Loans to Executive Officers
On February 16, 1999, Mr. Schroeder purchased 1,408,500 shares of our common
stock at a price of $0.38 per share. Mr. Schroeder paid for such shares with a
full recourse five-year $535,230 promissory note, secured by the purchased
shares. The note bears interest at a rate of 5% per annum.
On September 28, 1999, Mr. Hausmann purchased 315,744 shares of our common
stock at a price of $1.25 per share. Mr. Hausmann paid for such shares in part
with a full recourse five-year $194,680 promissory note, secured by the
purchased shares. The note bears interest at a rate of 6.25% per annum. On
December 1, 1999, Mr. Hausmann purchased 10,000 shares of our common stock at
an exercise price of $2.50 per share. Mr. Hausmann paid for such shares with a
full recourse five-year $25,000 promissory note, secured by the purchased
shares. The note bears interest at a rate of 6.25% per annum.
On February 7, 2000, Mr. Button purchased 226,000 shares of our common stock
at a price of $5.00 per share. Mr. Button paid for such shares in part with a
full recourse five-year $930,000 promissory note, secured by the purchased
shares. The note bears interest at a rate of 6.6% per annum.
We have the right to repurchase unvested shares from these executive officers
if their service with us terminates, which right lapses over four years after
the date of grant, absent any accelerating event.
Other Transactions
We have entered into indemnification agreements with each of our executive
officers and directors.
We have granted options to our executive officers and some of our directors.
Holders of preferred stock are entitled to registration rights with respect
to the common stock issued or issuable upon conversion of the preferred stock.
We believe that all related party transactions described above were on terms
no less favorable than could have been obtained from unrelated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of February 15, 2000, by the
following individuals or groups:
. each person or entity who we know beneficially owns more than 5% of our
outstanding stock
. each of our named executive officers
. each of our directors
. all directors and executive officers as a group
Unless otherwise indicated, the address for each stockholder listed in the
following table is c/o Resonate Inc., 385 Moffett Park Drive, Sunnyvale,
California 94089. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes voting
or investment power with respect to securities. Except as otherwise indicated,
to our knowledge, the persons named in the table have sole voting and
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable, of common stock held by them. In
computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
or warrants held by that person that are currently exercisable or will become
exercisable within 60 days after February 15, 2000, are deemed outstanding, but
the shares are not deemed outstanding for purposes of computing percentage
ownership of any other person.
Applicable percentage ownership in the following table is based on 19,939,029
shares of common stock outstanding as of February 15, 2000, as adjusted to
reflect the conversion of all outstanding shares of preferred stock upon the
closing of this offering.
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<PAGE>
Principal Stockholders Table
<TABLE>
<CAPTION>
Percentage of
Shares
Outstanding
-----------------
Number of
Shares Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------------- -------- --------
<S> <C> <C> <C>
5% Stockholders:
Entities affiliated with Kleiner Perkins
Caufield & Byers (1)................... 3,136,345 15.7%
Chase Venture Capital Associates, L.P... 3,000,517 15.0
Entities affiliated with Lehman Brothers
(2).................................... 1,588,662 8.0
Entities affiliated with TechFarm (3)... 1,264,967 6.3
Directors and Named Executive Officers:
Kenneth Schroeder (4)................... 1,608,500 8.0
Christopher C. Marino................... 2,499,253 12.5
Robert C. Hausmann (5).................. 325,744 1.6
Karen S. Barnes (6)..................... 220,000 1.1
Karen L. Styres (7)..................... 220,000 1.1
Cameron L. Lorentz (8).................. 210,000 1.1
Gordon A. Campbell (9).................. 1,389,214 7.0
Robert J. Finocchio, Jr. (10)........... 52,000 *
I. Robert Greene (11)................... 313,067 1.6
John S. McFarlane (12).................. 52,000 *
Russell Siegelman (13).................. 3,136,345 15.7
Stanley L. Chin (14).................... 220,000 1.1
David R. Guercio (15)................... 191,868 1.0
A. Alan Button (16)..................... 226,000 1.1
All directors and executive officers as
a group (14 persons) (17).............. 10,663,991 52.3
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
(1) The aggregated shares listed for entities affiliated with Kleiner Perkins
Caufield & Byers are owned as follows: KPCB Java Fund, LP owns 1,923,729
shares; Kleiner Perkins Caufield & Byers VIII, L.P. owns 1,072,141 shares;
KPCB VIII Founder's Fund, L.P. owns 62,067 shares; and KPCB Information
Sciences Zaibatsu Fund II, L.P. owns 78,408 shares. The address for
Kleiner Perkins Caufield & Byers is 2750 Sand Hill Road, Menlo Park,
California 94025.
(2) The aggregated shares listed for entities affiliated with Lehman Brothers
are owned as follows: LB I Group Inc. owns 1,251,850 shares; Lehman
Brothers MBG Venture Capital Partners 1998 (A) L.P. owns 58,767 shares;
Lehman Brothers MBG Venture Capital Partners 1998 (B) L.P. owns 1,085
shares; Lehman Brothers MBG Venture Capital Partners 1998(C) L.P. owns
6,690 shares; and Lehman Brothers VC Partners L.P. owns 270,270 shares.
The address for Lehman Brothers is 3 World Financial Center, 18th Floor,
New York, New York.
(3) The aggregated shares listed for entities affiliated with TechFarm are
owned as follows: TechFarm II, L.P. owns 1,170,157 shares; TechFarm L.P.
owns 34,375 shares; TechFund Capital, L.P. owns 32,812 shares; TechFund
Capital Management, LLC owns 3,923 shares; TechFund Capital II, L.P. owns
19,750 shares; and TechFund Capital Management II, LLC owns 3,950 shares.
The address for TechFarm is 200 West Evelyn Avenue, Suite 100, Mountain
View, California 94041.
(4) At February 15, 2000, 909,664 shares held by Mr. Schroeder were unvested
and subject to a right of repurchase in our favor, which right lapses over
time. Includes 200,000 shares issuable upon exercise of options held by
Mr. Schroeder within 60 days of February 15, 2000, 187,500 of which would
be subject to a right of repurchase in our favor, which right lapses over
time.
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<PAGE>
(5) Includes 315,744 shares held by the Robert C. Hausmann and Lori Anne
Hausmann Living Trust dated November 21, 1991. At February 15, 2000,
325,744 shares held by Mr. Hausmann and the trust were unvested and
subject to a right of repurchase in our favor, which right lapses over
time.
(6) At February 15, 2000, 206,432 shares held by Ms. Barnes were unvested and
subject to a right of repurchase in our favor, which right lapses over
time. Includes 13,568 shares issuable upon exercise of options held by Ms.
Barnes within 60 days of February 15, 2000, all of which would be subject
to a right of repurchase in our favor, which right lapses over time.
(7) At February 15, 2000, 77,412 shares held by Ms. Styres were unvested and
subject to a right of repurchase in our favor, which right lapses over
time. Includes 142,588 shares issuable upon exercise of options held by
Ms. Styres within 60 days of February 15, 2000, all of which would be
subject to a right of repurchase in our favor, which right lapses over
time.
(8) At February 15, 2000, 105,000 shares held by Mr. Lorentz were unvested and
subject to a right of repurchase in our favor, which right lapses over
time.
(9) Includes 1,264,967 shares held by entities associated with TechFarm. Mr.
Campbell disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest therein.
(10) At February 15, 2000, 52,000 shares held by Mr. Finocchio were unvested
and subject to a right of repurchase in our favor, which right lapses over
time.
(11) Includes 119,969 shares held by the Flatiron Fund LLC, 175,218 shares held
by the Flatiron Fund 1998/99 LLC and 17,880 shares held by Flatiron
Associates, LLC. Mr. Greene disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest therein.
(12) Includes 52,000 shares held by John S. McFarlane and Janet E. McFarlane,
Trustees, or their successors, under the McFarlane Revocable Family Trust,
Dated November 22, 1999. At February 15, 2000, 52,000 shares held by the
trust were unvested and subject to a right of repurchase in our favor,
which right lapses over time.
(13) Includes 3,136,345 shares held by entities associated with Kleiner Perkins
Caufield & Byers. Mr. Siegelman disclaims beneficial ownership of these
shares except to the extent of his pecuniary interest therein.
(14) At February 15, 2000, 220,000 shares held by Mr. Chin were unvested and
subject to a right of repurchase in our favor, which right lapses over
time.
(15) At February 15, 2000, 91,400 shares held by Mr. Guercio were unvested and
subject to a right of repurchase in our favor, which right lapses over
time. Includes 100,468 shares issuable upon exercise of options held by
Mr. Guercio within 60 days of February 15, 2000, all of which would be
subject to a right of repurchase in our favor, which right lapses over
time.
(16) At February 15, 2000, 226,000 shares held by Mr. Button were unvested and
subject to a right of repurchase in our favor, which right lapses over
time.
(17) Includes 2,265,652 shares which were unvested at February 15, 2000 and
subject to a right of repurchase in our favor, which right lapses over
time. Includes 456,624 shares issuable upon exercise of options within 60
days of February 15, 2000, of which 444,124 would be subject to a right of
repurchase in our favor, which right lapses over time.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the completion of this offering, we will be authorized to issue
200,000,000 shares of common stock, $0.0001 par value, and 10,000,000 shares of
undesignated preferred stock, $0.0001 par value. The following description of
our capital stock does not purport to be complete and is subject to and
qualified in its entirety by our certificate of incorporation and bylaws, which
are included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.
Common Stock
As of February 15, 2000, there were 19,939,029 shares of common stock
outstanding which were held of record by approximately 120 stockholders, as
adjusted for the conversion of all outstanding shares of convertible preferred
stock into an aggregate of 11,625,697 shares of common stock, which will occur
upon the closing of this offering.
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, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for that
purpose. In the event of our 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 holders of common stock have 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. The shares of common stock to
be issued upon the closing of this offering will be fully paid and
nonassessable.
Preferred Stock
The board of directors has the authority, without action by the stockholders,
to designate and issue preferred stock in one or more series and to designate
the rights, preferences and privileges of each series, which may be greater
than the rights of the common stock. It is not possible to state the actual
effect of the issuance of any shares of preferred stock upon the rights of
holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:
.Restricting dividends on the common stock
.Diluting the voting power of the common stock
.Impairing the liquidation rights of the common stock
.Delaying or preventing a change in control of us without further action by
the stockholders.
Upon the closing no shares of preferred stock will be outstanding, and we
have no present plans to issue any shares of preferred stock.
Warrants
At February 15, 2000, there were warrants outstanding to purchase 58,970
shares of Series A preferred stock, 3,333 shares of Series B preferred stock
and 213,436 shares of Series C preferred stock, which collectively will be
exercisable to purchase an aggregate of 275,739 shares of common stock upon
closing of this offering. At February 15, 2000, there were warrants outstanding
to purchase 65,920 shares of common stock.
65
<PAGE>
Registration Rights
At February 15, 2000, we have granted registration rights to the holders of
preferred stock convertible into 11,625,697 shares of common stock and the
holders of warrants to purchase preferred stock convertible into 275,739 shares
of common stock. Beginning 180 days after the date of this prospectus, holders
of these registrable securities may require that we register their shares for
public resale. Furthermore, in the event we elect to register any of our shares
of common stock for purposes of effecting any public offering, the holders of
the registrable securities are entitled to include their shares of common stock
in the registration, but we may reduce the number of shares proposed to be
registered in view of market conditions, including the right of the
underwriters in any underwritten offering to limit the number of shares to be
included in the offering. These registration rights have been waived in
connection with this offering. We will pay all expenses, other than
underwriting discounts and commissions, in connection with any registration.
These registration rights will terminate seven years following the consummation
of this offering, or, for each holder of registrable securities, at the time
the holder is entitled to sell all of its shares in any 90 day period under
Rule 144 of the Securities Act.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:
.The acquisition of us by means of a tender offer
.Acquisition of us by means of a proxy contest or otherwise
.The removal of our incumbent officers and directors
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging such proposals because negotiation of such proposals could result
in an improvement of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
one class being elected each year by our stockholders. This system of electing
and removing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of us because it
generally makes it more difficult for stockholders to replace a majority of the
directors.
Stockholder Meetings. Under our bylaws only the board of directors, the
chairman of the board and the president may call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an
66
<PAGE>
"interested stockholder" is a person who, together with affiliates and
associates, owns or within three years prior to the determination of interested
stockholder status, did own, 15% or more of a corporation's voting stock. The
existence of this provision may have an anti-takeover effect with respect to
transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for
the shares of common stock held by stockholders.
Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Elimination of Cumulative Voting. Our certificate of incorporation and bylaws
do not provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of any
attempt to change control of us. These and other provisions may have the effect
of deterring hostile takeovers or delaying changes in control or management of
us.
Amendment of Charter Provisions. The amendment of any of the above provisions
would require approval by holders of at least 66 2/3% of the outstanding common
stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
Nasdaq National Market Listing
We have applied for the listing of our shares on The Nasdaq National Market
under the symbol "RSNT."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
following this offering could adversely affect the market price of our common
stock and our ability to raise equity capital in the future on terms favorable
to us.
After this offering, shares of common stock will be outstanding
based upon shares outstanding as of , 2000, assuming that the
underwriters do not exercise their over-allotment option and that no
outstanding options or warrants are exercised prior to completion of this
offering. Of these shares, the shares sold in this offering will be
freely tradable without restriction under the Securities Act except for any
shares purchased by our affiliates as that term is defined in Rule 144 under
the Securities Act. The remaining shares of common stock held by existing
stockholders are restricted securities as that term is defined in Rule 144
under the Securities Act. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144 or 701 under the Securities Act, which rules are summarized
below.
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<PAGE>
As described below, 62,844 shares currently outstanding will be available for
sale immediately after this offering because of contractual restrictions on
resale. Of the 19,939,029 shares of our common stock that are not being sold in
this offering but will be outstanding when this offering is complete:
.11,725 shares will become eligible for sale 90 days after the effective
date
.19,847,175 shares will become eligible for sale 181 days after the date of
this prospectus
.the remaining 17,285 shares will become eligible for sale from time to
time more than 181 days after the date of this prospectus
Resale of 19,847,175 of the shares that will become eligible for sale in the
public market starting 181 days after the date of this prospectus will be
limited by volume and other resale restrictions under Rule 144.
Rule 144
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted shares for at least one year including the
holding period of any prior owner except an affiliate would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
.1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after this offering
.the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been an affiliate of us
at any time during the three months preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years including the
holding period of any prior owner except an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchase shares from us under a
stock option plan or other written agreement can resell those shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
complying with some of the restrictions, including the holding period,
contained in Rule 144. As of February 15, 2000, 2,687,205 shares had been
issued as a result of exercise of stock options under the 1996 stock plan and
1,408,500 shares had been issued as a result of exercise of stock options
outside of the 1996 stock plan.
Lock-Up Agreements
Each of our executive officers and directors and substantially all of our
stockholders and optionees have agreed not to offer to sell, contract to sell
or otherwise dispose of any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock, for
a period of 180 days after the date of this prospectus. Sales or other
dispositions can be made sooner with the prior written consent of Goldman,
Sachs & Co., which may release all or any portion of the securities subject to
lock-up agreements, in its sole discretion and at any time without notice.
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<PAGE>
Registration Rights
Upon completion of this offering, the holders of 11,625,697 shares of our
common stock and warrants convertible into 275,739 shares of our common stock
will be entitled to rights to registration of their shares under the Securities
Act. Registration of those shares under the Securities Act would result in
those shares becoming freely tradable without restriction under the Securities
Act, except for shares purchased by affiliates, immediately upon the
effectiveness of such registration.
Stock Options
Immediately after this offering we intend to file a registration statement
under the Securities Act covering shares of common stock under outstanding
options or reserved for issuance under our stock option plans. Each year as the
number of shares reserved for issuance under our 2000 stock plan and 2000
employee stock purchase plan increases, we will file an amendment to the
registration statement covering the additional shares. As of February 15, 2000,
options to purchase 2,814,209 shares of common stock were issued and
outstanding and 6,140,250 shares were reserved for issuance under our 1996
stock plan. Shares registered under that registration statement will, upon the
optionee's exercise and depending on vesting provisions and Rule 144 volume
limitations applicable to our affiliates, be available for sale in the open
market immediately after the 180 day lock-up agreements expire.
Warrants
Upon consummation of this offering, warrants to purchase 341,659 shares of
common stock will be outstanding. These warrants will have the registration
rights described above.
69
<PAGE>
UNDERWRITING
Resonate and the underwriters named below have entered into an underwriting
agreement with respect to shares being offered. Subject to certain conditions,
each underwriter has severally agreed to purchase the number of shares
indicated in the following table. Goldman, Sachs & Co., Chase Securities Inc.,
Dain Rauscher Incorporated and SoundView Technology Group, Inc. are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Goldman, Sachs & Co................................................
Chase Securities Inc...............................................
Dain Rauscher Incorporated.........................................
SoundView Technology Group, Inc....................................
----
Total............................................................
====
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Resonate to cover such sales. They may exercise that option for 30
days. If any shares are purchased under this option, the underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by Resonate. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by Resonate No Exercise Full Exercise
---------------- ----------- -------------
<S> <C> <C>
Per share.......................................... $ $
Total.............................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.
Resonate and its directors, officers, employees and substantially all other
stockholders have agreed with the underwriters not to dispose of or hedge any
of their common stock or securities convertible into or exchangeable for shares
of common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. This restriction does not apply
to any issuances under our existing employee benefit plans or, with respect to
individuals, transfers by gift, or with respect to corporations, transfers to
wholly-owned subsidiary of such corporation, provided that in each case the
transferee agrees to be bound by the restriction for any remaining period. See
"Shares Eligible for Future Sale" for a discussion of transfer restrictions.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Resonate and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Resonate's historical performance, estimates of the
business potential and earnings prospects of Resonate, an assessment of
Resonate's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
70
<PAGE>
Resonate has applied for approval for quotation of its common stock on the
Nasdaq National Market under the symbol "RSNT."
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of this underwriter in stabilizing or short-sale covering
transactions.
These activities by the underwriters may stabilize, maintain or affect the
market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market. If
these activities are commenced, they may be discontinued by the underwriters at
any time. These transactions may be effected on the Nasdaq National Market or
in the over-the-counter market.
The underwriters do not expect sales to discretionary accounts to exceed five
percent of the total number of shares offered.
Resonate has requested the underwriters to reserve for sale, at the initial
public offering price, up to shares of common stock offered in this
offering for individuals designated by Resonate who have expressed an interest
in purchasing the shares of common stock in the offering. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered to the general public on the same basis as the other shares offered
hereby.
A prospectus in electronic format will be made available on Internet web
sites maintained by one or more of the lead or co-managers of this offering and
may also be made available on web sites maintained by other underwriters. The
underwriters may agree to allocate a number of shares to underwriters for sale
to their online brokerage account holders. Internet distributions will be
allocated by the lead managers to underwriters that may make Internet
distributions on the same basis as other allocations.
Resonate estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .
Resonate has agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act of 1933.
Affiliates of Chase Securities Inc., one of the representatives of the
underwriters, hold greater than 10% of the outstanding shares of common stock,
as adjusted to reflect the conversion of all outstanding shares of preferred
stock. Because of this relationship between Chase Securities and us, the
offering is being conducted in accordance with Rule 2720 of the NASD. That rule
requires that the initial public offering price can be no higher than that
recommended by a "qualified independent underwriter," as defined by the NASD.
Goldman, Sachs & Co. is serving in that capacity and will perform due diligence
investigations and review and participate in the preparation of the
registration statement of which this prospectus forms a part. Goldman, Sachs &
Co. will receive a customary fee from us as compensation for such role.
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<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Shearman & Sterling, Menlo Park,
California. As of the date of this prospectus, investment partnerships composed
of members of and persons associated with Wilson Sonsini Goodrich & Rosati,
Professional Corporation, as well as some individual attorneys of this firm,
beneficially own an aggregate of 30,710 shares of our common stock.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for each of the
three years in the period ended December 31, 1999 included in this prospectus
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the common stock offered by this
prospectus. This prospectus, which constitutes a part of the registration
statement, does not contain all of the information set forth in the
registration statement or the exhibits and schedules which are part of the
registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and exhibits and
schedules filed as part of the registration statement. Statements contained in
this prospectus concerning the contents of any contract or any other documents
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to the copy of the contract
or document that has been filed. Each statement in this prospectus relating to
a contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. Any document we file may be read and copied at the Commission's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the Commission at 1-800-SEC-0330 for further information
about the public reference rooms. Our filings with the Commission are also
available to the public from the Commission's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public reference rooms, and the Web site of the Commission referred to above.
72
<PAGE>
RESONATE INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Balance Sheet.............................................................. F-3
Statement of Operations.................................................... F-4
Statement of Stockholders' Equity (Deficit)................................ F-5
Statement of Cash Flows.................................................... F-6
Notes to Financial Statements.............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Resonate Inc.
The reincorporation described in Note 1 to the financial statements has not
been consummated as of March 2, 2000. When the reincorporation has been
completed, we will be in a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of Resonate Inc.
(the "Company") at December 31, 1998 and 1999, and the results of its
operations and its cash flows for the three years in the period ended
December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 2, 2000
F-2
<PAGE>
RESONATE INC.
BALANCE SHEET
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------
Pro Forma
December 31,
1998 1999 1999
-------- -------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 4,322 $ 5,011
Short-term investments...................... -- 6,988
Accounts receivable, net.................... 1,605 3,751
Prepaid expenses and other current assets... 241 320
-------- --------
Total current assets....................... 6,168 16,070
Property and equipment, net................... 1,251 2,160
Other assets.................................. 233 156
-------- --------
$ 7,652 $ 18,386
======== ========
LIABILITIES, MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Debt, current............................... $ 261 $ 1,725
Accounts payable............................ 286 983
Accrued liabilities......................... 596 1,635
Deferred revenue............................ 785 3,399
Capital lease obligation, current........... 87 654
-------- --------
Total current liabilities.................. 2,015 8,396
Debt, long-term............................... 401 2,422
Capital lease obligation, long-term........... 120 924
-------- --------
2,536 11,742
-------- --------
Mandatorily redeemable convertible preferred
stock: no par value; 10,035,328 shares
authorized; 7,086,563 and 9,793,440 shares
issued and outstanding in 1998 and 1999,
respectively, and none pro forma (unaudited);
aggregate liquidation value of $31,532,000 at
December 31, 1999............................ 15,007 28,027 $ --
Mandatorily redeemable convertible preferred
stock warrants............................... 115 374 --
-------- --------
15,122 28,401
-------- --------
Commitments (Note 9)
Stockholders' equity (deficit):
Series A convertible preferred stock:
$0.0001 par value; 1,891,227 shares
authorized; 1,814,972 and 1,827,472 shares
issued and outstanding in 1998 and 1999,
respectively and none proforma (unaudited);
aggregate liquidation preference of
$1,827,000 at December 31, 1999............ -- -- --
Common stock: $0.0001 par value; 50,000,000
shares authorized; 4,722,840 and 7,847,454
shares issued and outstanding in 1998 and
1999, respectively and 19,468,366 shares
proforma (unaudited)....................... -- 1 2
Additional paid-in capital.................. 5,741 29,371 57,771
Notes receivable from stockholders.......... -- (755) (755)
Unearned stock-based compensation........... (3,186) (18,948) (18,948)
Accumulated deficit......................... (12,561) (31,426) (31,426)
-------- -------- --------
Total stockholder's equity (deficit)....... (10,006) (21,757) $ 6,644
-------- -------- ========
$ 7,652 $ 18,386
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
RESONATE, INC.
STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenue:
Product.......................................... $ 394 $ 2,373 $ 8,004
Services......................................... 51 322 1,910
------- ------- --------
Total revenue.................................. 445 2,695 9,914
------- ------- --------
Cost of revenue:
Product.......................................... 64 37 62
Services (excluding stock-based compensation of
$0, $4 and $306, respectively).................. 20 282 1,042
------- ------- --------
Total cost of revenue.......................... 84 319 1,104
------- ------- --------
Gross profit....................................... 361 2,376 8,810
Operating expenses:
Research and development (excluding stock-based
compensation of $0, $101, and $1,169,
respectively)................................... 1,605 3,218 6,807
Sales and marketing (excluding stock-based
compensation of $0, $379 and $2,177,
respectively)................................... 2,045 4,739 11,340
General and administrative (excluding stock-based
compensation of $0, $394 and $2,136,
respectively)................................... 544 1,346 3,634
Stock-based compensation......................... -- 878 5,788
------- ------- --------
Total operating expenses....................... 4,194 10,181 27,569
------- ------- --------
Loss from operations............................... (3,833) (7,805) (18,759)
Interest and other income (expense), net........... 122 134 (106)
------- ------- --------
Net loss........................................... $(3,711) $(7,671) $(18,865)
======= ======= ========
Net loss per share:
Basic and diluted................................ $ (1.20) $ (1.90) $ (4.18)
======= ======= ========
Weighted average shares.......................... 3,083 4,048 4,513
======= ======= ========
Pro forma net loss per share:
Basic and diluted (unaudited).................... $ (1.27)
========
Weighted average shares (unaudited).............. 14,841
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
RESONATE INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Notes
Stock Common Stock Additional Receivable Unearned
------------- -------------- Paid-In from Stock-Based Accumulated
Shares Amount Shares Amount Capital Stockholders Compensation Deficit Total
------ ------ ------ ------ ---------- ------------ ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 1,074 $-- 4,358 $-- $ 1,089 $ -- $ -- $ (1,179) $ (90)
Issuance of Series A
convertible preferred
stock upon conversion
of promissory notes.... 83 -- -- -- 83 -- -- -- 83
Issuance of Series A
convertible preferred
stock.................. 657 -- -- -- 657 -- -- -- 657
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- (73) -- -- -- (73)
Issuance of common stock
upon exercise of stock
options................ -- -- 213 -- 4 -- -- -- 4
Net loss................ -- -- -- -- -- -- -- (3,711) (3,711)
----- --- ----- --- ------- ----- -------- -------- --------
Balance at December 31,
1997................... 1,814 -- 4,571 -- 1,760 -- -- (4,890) (3,130)
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- (100) -- -- -- (100)
Issuance of common stock
upon exercise of stock
options................ -- -- 293 -- 16 -- -- -- 16
Repurchase of common
stock.................. -- -- (141) -- -- -- -- -- --
Issuance of Series A
convertible preferred
stock upon exercise of
warrant................ 1 -- -- -- 1 -- -- -- 1
Unearned stock-based
compensation........... -- -- -- -- 4,064 -- (4,064) -- --
Stock-based
compensation........... -- -- -- -- -- -- 878 -- 878
Net loss................ -- -- -- -- -- -- -- (7,671) (7,671)
----- --- ----- --- ------- ----- -------- -------- --------
Balance at December 31,
1998................... 1,815 -- 4,723 -- 5,741 -- (3,186) (12,561) (10,006)
Accretion of mandatorily
redeemable convertible
preferred stock........ -- -- -- -- (38) -- -- -- (38)
Issuance of common stock
upon exercise of stock
options................ -- -- 3,124 1 1,460 (755) -- -- 706
Issuance of Series A
convertible preferred
stock upon exercise of
warrant................ 12 -- -- -- 12 -- -- -- 12
Issuance of stock
options for services... -- -- -- -- 646 -- -- -- 646
Unearned stock-based
compensation........... -- -- -- -- 21,550 -- (21,550) -- --
Stock-based
compensation........... -- -- -- -- -- -- 5,788 -- 5,788
Net loss................ -- -- -- -- -- -- -- (18,865) (18,865)
----- --- ----- --- ------- ----- -------- -------- --------
Balance at December 31,
1999................... 1,827 $-- 7,847 $ 1 $29,371 $(755) $(18,948) $(31,426) $(21,757)
===== === ===== === ======= ===== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
RESONATE INC.
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(3,711) $(7,671) $(18,865)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 141 359 801
Loss on disposal of property and equipment....... -- (33) --
Provision for doubtful accounts.................. -- 21 79
Stock-based compensation......................... -- 878 5,788
Issuance of stock options for services........... -- -- 646
Warrant related non-cash interest expense........ 3 -- 125
Changes in assets and liabilities:
Accounts receivable............................. (113) (1,513) (2,225)
Prepaid expenses and other current assets....... (79) (105) (117)
Other assets.................................... -- (156) --
Accounts payable................................ 122 32 697
Accrued liabilities............................. 149 282 1,039
Deferred revenue................................ 83 702 2,614
------- ------- --------
Net cash used in operating activities.......... (3,405) (7,204) (9,418)
------- ------- --------
Cash flows from investing activities:
Purchase of property and equipment................ (479) (905) (46)
Proceeds from disposal of property and equipment.. -- 86 --
Purchase of short-term investments................ -- -- (6,988)
------- ------- --------
Net cash used in investing activities.......... (479) (819) (7,034)
------- ------- --------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.......... 336 453 4,910
Repayments of long-term debt...................... (25) (153) (1,205)
Borrowings under working capital line of credit... -- 1,000 --
Repayments of working capital line of credit...... -- (1,000) --
Principal payments under capital lease
obligations...................................... -- (16) (264)
Proceeds from issuance of mandatorily redeemable
convertible preferred stock, net of issuance
costs............................................ 5,133 9,701 12,982
Proceeds from issuance of Series A convertible
preferred stock.................................. 657 -- --
Proceeds from exercise of Series A convertible
preferred stock warrant.......................... -- 1 12
Proceeds from issuance of common stock upon
exercise of stock options........................ 4 16 706
------- ------- --------
Net cash provided by financing activities...... 6,105 10,002 17,141
------- ------- --------
Net increase in cash and cash equivalents.......... 2,221 1,979 689
Cash and cash equivalents at beginning of year..... 122 2,343 4,322
------- ------- --------
Cash and cash equivalents at end of year........... $ 2,343 $ 4,322 $ 5,011
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS
1. The Company and Summary of Significant Accounting Policies:
The Company
Resonate Inc. (the "Company") was incorporated in July 1995 under the laws of
the State of California. The Company develops and markets a family of software
products and services that ensures the availability and performance of
eBusiness applications. The Company's family of software products is a platform
that integrates enterprise traffic management and systems management
capabilities, which together provide real time monitoring, reporting and
automated service level control of eBusiness applications and the computing
resources on which they operate.
During 1997, the Company emerged from the development stage. Although no
longer in the development stage, the Company continues to be subject to risks
and challenges similar to other companies in a comparable stage of development.
These risks include, but are not limited to successful development,
commercialization and market acceptance of products expansion of direct and
indirect sales channels and the ability to obtain adequate financing to support
growth.
Reincorporation
In March, 2000, the Company's Board of Directors authorized the
reincorporation of the Company in the State of Delaware. As a result of the
reincorporation, the Company is authorized to issue 200,000,000 shares of
$0.0001 par value Common Stock and 10,000,000 shares of $0.0001 par value
Preferred Stock. The Board of Directors has the authority to issue undesignated
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof. Share and per share information for each
of the periods presented has been retroactively adjusted to reflect the
reincorporation.
Use of estimates
The preparation of 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 assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue recognition
The Company derives revenue from licenses of its software and related
services, which include implementation and integration services, technical
services, training and consulting. Revenue is recognized for the various
contract elements based upon vendor-specific objective evidence of fair value
of each element.
For contracts involving significant implementation or customization essential
to the functionality of the Company's product, product and services revenue is
recognized under the percentage-of-completion method using labor hours incurred
as the measure of progress towards completion. The Company classifies revenue
from these arrangements as product and services revenue, respectively, based
upon the estimated fair value of each element. Provisions for estimated
contract losses are recognized in the period in which the loss becomes probable
and can be reasonably estimated.
F-7
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
For contracts that do not involve significant implementation or customization
essential to the functionality of the Company's product, product revenue is
recognized when there is persuasive evidence of an arrangement for a fixed and
determinable fee that is probable of collection and when delivery has occurred.
For arrangements with multiple elements, the Company recognizes revenue for the
delivered elements based upon the residual contract value as prescribed by
Statement of Position No. 98-9, "Modification of SOP No. 97-2 with Respect to
Certain Transactions."
Product revenue from reseller arrangements is recognized when reported by the
reseller upon re-licensing of the Company's software to end users. The
Company's agreements with its customers and resellers do not contain product
return rights.
Services revenue consists of professional services and maintenance fees.
Professional services primarily consist of software installation and
integration, consulting and training.Professional services revenue is
recognized as such services are performed. Services revenue from maintenance
agreements, which include services such as technical product support and an
unspecified number of product upgrades, are recognized ratably over the term of
the agreement, generally one year.
Cash, cash equivalents and short-term investments
The Company considers all highly liquid investments purchased with a maturity
of three months or less at the date of acquisition to be cash equivalents;
those with original maturities greater than three months and current maturities
less than twelve months from the balance sheet date are considered short-term
investments.
Cash equivalents and short-term investments are considered available-for-sale
securities and are carried at cost, which approximates fair value. The
following schedule summarizes the estimated fair value of the Company's cash,
cash equivalents and short-term investments (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------- ------
<S> <C> <C>
Cash and cash equivalents:
Cash............................................................ $ 108 $ 430
Money market funds.............................................. 4,183 2,564
Auction rate preferred stock.................................... -- 1,996
Certificates of deposit......................................... 31 21
------- ------
$ 4,322 $5,011
======= ======
Short-term investments:
Commercial paper................................................ $ -- $2,000
Corporate notes................................................. -- 1,000
Corporate bonds................................................. -- 997
U.S. government debt securities................................. -- 1,992
Medium term notes............................................... -- 999
------- ------
$ -- $6,988
======= ======
</TABLE>
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash, cash equivalents, short-term investments and
accounts receivable. The Company limits its exposure to credit loss by placing
its cash, cash equivalents and short-term investments with major financial
institutions. The Company's accounts receivable are derived from revenue earned
F-8
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
from customers located primarily in the U.S., and to a lesser extent, in
Brazil, Canada, Europe and Japan. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company maintains an allowance for doubtful
accounts receivable based upon the expected collectibility of accounts
receivable.
During the years ended December 31, 1998 and 1999, respectively, no
individual customer accounted for more than 10% of the Company's total revenue.
For the year ended December 31, 1997, two individual customers accounted for
22% and 11% of total revenue.
At December 31, 1998, two individual customers accounted for 17% and 13%,
respectively, of total accounts receivable. At December 31, 1999, one
individual customer accounted for 16% of total accounts receivable.
Fair value of instruments
The Company's financial instruments including cash equivalents, short-term
investments, accounts receivable and accounts payable, are carried at cost,
which approximates fair value due to the short-term maturity of these
instruments. Debt and capital lease obligations are carried at cost, which
approximates fair value due to the proximity of the implicit rates of these
financial instruments and the prevailing market rates for similar instruments.
Property and equipment
Property and equipment are stated at historical cost less accumulated
depreciation and amortization. Depreciation and amortization are computed using
the straight-line method over the useful lives of the assets, generally three
to five years, or the lease term of the respective assets, whichever is
shorter.
Software development costs
Software development costs incurred in the research and development of new
products and enhancements to existing products are charged to expense as
incurred. Software development costs are capitalized after technological
feasibility has been established. The period between achievements of
technological feasibility which the Company defines as the establishment of a
working model, until the general availability of such software to customers,
has been short and software development costs qualifying for capitalization
have been insignificant. Accordingly, the Company has not capitalized any
software development costs since its inception.
Capitalization of internal-use software costs
In January, 1999 the Company adopted Statement of Position ("SOP") 98-1,
"Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use," which requires software development costs associated with
internal use software to be charged to operations until certain capitalization
criteria are met.
Impairment of long-lived assets
The Company evaluates the recoverability of its assets in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
F-9
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Stock-based compensation
The Company accounts for stock-based awards to employees in accordance with
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"). Under APB 25, unearned stock-
based compensation is based on the difference, if any, on the date of the
grant, between the fair value of the Company's stock and the exercise price.
Unearned stock-based compensation is amortized and expensed in accordance with
Financial Accounting Standards Board Interpretation No. 28 using the multiple-
option approach. The Company accounts for stock issued to non-employees in
accordance with the provisions of SFAS No. 123 and the Emerging Issues Task
Force Consensus on Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring or in Conjunction with Selling
Goods or Services." The Company uses the Black-Scholes option pricing model to
value options granted to consultants.
Income taxes
Deferred tax assets and liabilities are computed for differences between the
financial statements and tax basis of assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized.
Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under
the provisions of SFAS No. 128 and SAB No. 98, basic net loss per share is
computed by dividing the net loss available to common stockholders for the
period by the weighted average number of share of common stock outstanding
during the period excluding shares of common stock subject to repurchase.
The following table sets forth the computation of basic and diluted net loss
per share available to common stockholders for the periods indicated (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Numerator:
Net loss......................................... $(3,711) $(7,671) $(18,865)
------- ------- --------
Denominator:
Weighted average shares.......................... 4,452 4,615 6,514
Weighted average Common Stock subject to
repurchase...................................... (1,369) (567) (2,001)
------- ------- --------
Denominator for basic and diluted calculation...... 3,083 4,048 4,513
------- ------- --------
Basic and diluted net loss per share............... $ (1.20) $ (1.90) $ (4.18)
======= ======= ========
</TABLE>
F-10
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table sets forth the weighted average potential shares of
Common Stock that are not included in the diluted net loss per share available
to common stockholders calculation above because to do so would be antidilutive
for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
------------------
1997 1998 1999
----- ----- ------
<S> <C> <C> <C>
Weighted average effect of common stock equivalents:
Series A Preferred Stock................................... 1,777 1,814 1,817
Series B Preferred Stock................................... 2,662 3,856 3,856
Series C Preferred Stock................................... -- 1,677 3,230
Series D Preferred Stock................................... -- -- 1,425
Warrants to purchase Series A Preferred Stock.............. 78 77 74
Warrants to purchase Series B Preferred Stock.............. 3 3 3
Warrants to purchase Series C Preferred Stock.............. -- 29 199
Warrants to purchase Common Stock.......................... -- 38 66
Employee stock options..................................... 868 1,260 1,764
Common Stock subject to repurchase agreements.............. 1,369 567 2,001
----- ----- ------
6,757 9,321 14,435
===== ===== ======
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is computed
using the weighted average number of shares outstanding, including the
conversion of the Company's Mandatorily Redeemable Convertible Preferred Stock
and the Company's Convertible Preferred Stock into shares of the Company's
Common Stock effective upon the closing of the Company's initial public
offering, as if such conversion occurred at January 1, 1999 or at the date of
issuance, if later. The resulting unaudited pro forma adjustment includes an
increase in the weighted average shares used to compute basic and diluted net
loss per share of 10,328,000 for the year ended December 31, 1999. The
calculation of pro forma diluted net loss per share excludes incremental Common
Stock issuable upon the exercise of stock options and warrants as the effect
would be antidilutive.
Pro forma stockholders' equity (unaudited)
Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, B, C and D Preferred Stock will automatically
convert into 1,827,472, 3,856,145, 3,230,418 and 2,706,877 shares of Common
Stock, respectively. The pro forma effects of these transactions have been
reflected in the accompanying pro forma balance sheet at December 31, 1999.
Comprehensive income
The Company accounts for comprehensive income under the provisions of SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. As of December 31, 1998 and 1999, the
Company did not have any transactions that are required to be reported in
comprehensive income.
F-11
<PAGE>
RESONATE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Segment information
The Company has adopted the provisions of SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." The Company identifies its
operating segment based on business activities, management responsibility and
geographic location. During all periods presented, the Company operated in a
single business segment.
Reclassification
Certain reclassifications have been made to the prior year financial
statements to conform to the current period presentation.
Advertising costs
Advertising costs are expensed as in accordance with Statement of Position
93-7, "Reporting on Advertising Costs." Advertising and public relations
expenses for the fiscal years ended December 31, 1997, 1998 and 1999 totaled
$108,332, $102,972, and $794,378, respectively.
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In July 1999, the Financial Accounting
Standards Board issued SFAS No.137, "Accounting with Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No. 133"
("SFAS 137"). SFAS 137 deferred the effective date until the first fiscal
quarter ending June 30, 2000. The Company will adopt SFAS 133 in its quarter
ending June 30, 2000. The Company has not engaged in hedging activities or
invested in derivative instruments and accordingly does not believe
implementation of SFAS 133 will have a material effect on its financial
statements.
2. Supplemental Cash Flow Information (in thousands):
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1997 1998 1999
---- ---- ------
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid for interest...................................... $12 $ 67 $ 488
=== ==== ======
Supplemental non-cash investing and financing activity:
Conversion of convertible promissory notes and related
accrued interest to Series A convertible preferred stock... $83 $ -- $ --
=== ==== ======
Issuance of warrants to purchase Series C mandatorily
redeemable convertible preferred stock in connection with
subordinated debt.......................................... $-- $115 $ 259
=== ==== ======
Capital lease obligations................................... $-- $225 $1,664
=== ==== ======
Common Stock issued in exchange for notes receivable........ $-- $ -- $ 755
=== ==== ======
</TABLE>
F-12
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Balance Sheet Components (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
------ -------
<S> <C> <C>
Accounts receivable, net
Accounts receivable.......................................... $1,626 $ 3,851
Less: Allowance for doubtful accounts........................ (21) (100)
------ -------
$1,605 $ 3,751
------ -------
Property and equipment, net
Computer equipment and software.............................. $1,174 $ 2,708
Furniture and fixtures....................................... 478 577
Leasehold improvements....................................... 103 180
------ -------
1,755 3,465
Less: Accumulated depreciation and amortization.............. (504) (1,305)
------ -------
$1,251 $ 2,160
====== =======
</TABLE>
Property and equipment includes $224,304 and $1,887,978 of fixed assets under
capital lease at December 31, 1998 and 1999, respectively. Accumulated
depreciation of assets under capital lease totaled $16,022 and $353,773 at
December 31, 1998 and 1999, respectively.
<TABLE>
<CAPTION>
December 31,
------------
1998 1999
----- ------
<S> <C> <C>
Accrued liabilities
Accrued compensation and related benefits....................... $ 330 $1,263
Accrued professional services................................... 34 106
Other........................................................... 232 266
----- ------
$ 596 $1,635
===== ======
</TABLE>
F-13
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Financing Arrangements:
<TABLE>
<CAPTION>
December
31,
-----------
1998 1999
---- ------
(in
thousands)
<S> <C> <C>
Equipment line of credit #1, due in equal monthly installments of
$4,167 comprising principal, through June 2000 bearing interest
at the bank's prime rate plus 2% (9.75% and 10.5% at 1998 and
1999, respectively).............................................. $ 75 $ 25
Equipment line of credit #2, due in equal monthly installments of
$9,722 comprising principal, through March 2001, bearing interest
at the bank's prime rate plus 1.5% (9.25% and 10% at 1998 and
1999, respectively).............................................. 247 130
Equipment line of credit #3, due in equal monthly installments of
$14,706 comprising principal, through March 2002, bearing
interest at the bank's prime rate plus 0.50% (8.25% and 9% at
1998 and 1999, respectively)..................................... 340 397
Subordinated debt in equal monthly installments of $83,173 and
$33,511, comprising principal and interest, through March 2002,
bearing interest at 12% and 12.5% per annum, respectively........ -- 2,745
Subordinated debt in equal monthly installments of $41,716
comprising principal and interest, through June 2002, bearing
interest at 12.5% per annum...................................... -- 1,070
---- ------
662 4,367
Deferred debt issuance costs...................................... -- (220)
---- ------
662 4,147
Less: current portion............................................. 261 1,725
---- ------
$401 $2,422
==== ======
</TABLE>
The equipment lines of credit are secured by the Company's assets and are
subject to certain financial covenants. As at December 31, 1999, the Company
was in compliance with all covenants. The Company issued 3,333 warrants to
purchase Series B Preferred Stock and 9,888 warrants to purchase Series C
Preferred Stock in connection with equipment lines of credit (see Note 5).
The subordinated debt is secured by the Company's assets and are subject to
certain nonfinancial covenants. As at December 31, 1999, the Company was in
compliance with all covenants. The Company issued 177,181 warrants to purchase
Series C Preferred Stock in connection with the subordinated debt (see Note 5).
Principal payments under long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
Years Ending
December 31,
------------
<S> <C>
2000................................................................ $1,835
2001................................................................ 1,903
2002................................................................ 629
------
$4,367
======
</TABLE>
F-14
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Working capital line of credit
The Company has a $1,000,000 working capital line of credit that bears
interest at the bank's prime rate plus 0.25% (8.75% at December 31, 1999). The
working capital line of credit expires in March 2000. Borrowings under the
working capital line of credit are limited to the greater of $250,000 or 80%
of eligible accounts receivable. There were no amounts outstanding under the
line of credit at December 31, 1999.
5. Mandatorily Redeemable Convertible Preferred Stock:
At December 31, 1999, Mandatorily Redeemable Convertible Preferred Stock
consists of the following (in thousands):
<TABLE>
<CAPTION>
Proceeds
Shares Net of
---------------------- Liquidation Redemption Issuance
Authorized Outstanding Amount Value Costs
---------- ----------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Series B, no par value.. 3,859 3,856 $ 6,594 $ 5,206 $ 5,133
Series C, no par value.. 3,421 3,230 11,269 9,801 9,701
Series D, no par value.. 2,755 2,707 13,669 13,020 12,982
------ ----- ------- ------- -------
10,035 9,793 $31,532 $28,027 $27,816
====== ===== ======= ======= =======
</TABLE>
In April 1997, the Company issued 3,856,145 shares of Series B Preferred
Stock at a price of $1.35 per share. In June and July 1998, the Company issued
an aggregate of 3,230,418 shares of Series C Preferred Stock, at a price of
$3.034 per share. In June and August 1999, the Company issued an aggregate of
2,706,877 shares of Series D Preferred Stock at a price of $4.81 per share.
The holders of Mandatorily Redeemable Convertible Preferred Stock ("Series
B, C and D Preferred Stock") have various rights and preferences as follows:
Dividend rights
Holders of the Series B, C, and D Preferred Stock are entitled to receive
noncumulative dividends at the per annum rate of $0.135, $0.034 and $0.481 per
share, respectively, when and if declared by the Board of Directors. Dividends
on all Preferred Stock shall be payable in preference and prior to any payment
of any dividend on the Common Stock. The holders of the Series B, C, and D
Preferred Stock are also entitled to participate in dividends on the Common
Stock, when and if declared by the Board of Directors, based on the number of
shares of Common Stock held on an as-converted basis. Through December 31,
1999, no dividends have been declared or paid by the Company.
Liquidation preferences
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series B, C, and D Preferred Stock shall be entitled to
receive an amount equal to $1.35, $3.034, and $4.81 per share, respectively,
plus any declared but unpaid dividends prior to, and in preference to, any
distribution to the holders of Common Stock. In addition, the holders of the
Series B, C, and D Preferred Stock shall be entitled to receive an amount
equal to a 10% annual cumulative dividend thereon from the date of issuance of
Series B, C, and D Preferred Stock, before any payment shall be made to the
holders of the Common Stock. Should the Company's available assets be
insufficient to satisfy the liquidation preferences of the holders of the
Series A, B, C and D Preferred Stock, the funds will be distributed ratably
among the holders of the Series A, B, C and D Preferred Stock. Any assets
remaining following the distributions to the holders of the Preferred Stock
will be distributed ratably among the holders of Common Stock.
F-15
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Conversion
Each share of the Series B, C, and D Preferred Stock is initially
convertible, at the option of the holder, into one share of Common Stock, based
on a formula which results in a one-for-one exchange ratio at December 31,
1999. This formula is subject to adjustment, as defined, which essentially
provides adjustments for holders of the Preferred Stock in the event of
dilutive issuances, stock splits, combinations or other recapitalizations. All
shares of the Preferred Stock will automatically convert into Common Stock upon
either (i) the approval by vote or written consent of the holders of at least
66 2/3% of the total number of shares of Preferred Stock outstanding, (ii) the
closing of a public offering of the Company's common stock involving aggregate
proceeds to the Company of at least $20 million and a per share price of not
less than $9.00, or (iii) the date on which fewer than 50,000 shares of the
originally issued Preferred Stock remain outstanding.
Voting rights
Each holder of Preferred Stock is entitled to the number of votes equal to
the number of shares of the Company's Common Stock into which such holder's
shares are convertible at the record date for such vote.
Redemption
Beginning March 31, 2003, all outstanding shares of the Series B, C, and D
Preferred Stock are eligible to be redeemed in full at the option of the
holder. The redemption rights are cumulative; however, each holder of the
Series B, C, and D Preferred Stock may only exercise its redemption right twice
and only once per calendar quarter. In the event of redemption, each holder of
the Series B, C, and D Preferred Stock would be entitled to receive $1.35,
$3.034 and $4.81 per share, respectively, plus all declared but unpaid
dividends.
Warrants
During 1997, the Company issued 3,333 warrants to purchase Series B Preferred
Stock in connection with the Equipment line of credit #2 discussed in Note 4.
The warrants have an exercise price of $1.35 per share and expire in March,
2002. The warrants automatically convert to warrants to purchase Common Stock
upon the effective date of an initial public offering. The Company determined
the value of the warrants was nominal based on the Black-Scholes option pricing
model.
In November 1998, the Company issued 102,999 and 26,367 warrants to purchase
Series C Preferred Stock in connection with the subordinated debt discussed in
Note 4 and capital lease obligations, respectively. The warrants have an
exercise price of $3.034 per share and expire in December 2005 or three-years
from an initial public offering, whichever is longer. The warrants
automatically convert to warrants to purchase Common Stock upon the effective
date of an initial public offering. The estimated fair value of warrants using
the Black-Scholes option pricing model was $115,000. In 1998, the value of
warrants was recorded as deferred debt issuance costs and included in other
assets as the borrowings had yet to be drawn upon at December 31, 1998.
Beginning in 1999, amortization of the discount was recognized as interest
expense over the respective terms of the financing arrangements. The Company
recognized $38,333 as interest expense associated with these warrants for the
year ended December 31, 1999.
In June 1998, the Company issued 131,839 warrants to purchase Series C
Preferred Stock to a strategic investor. The warrants have an exercise price of
$3.034 and expire in June 2000. The
F-16
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
warrants are contingently exercisable upon the investor meeting certain product
performance milestones associated with product development. The investor has
not met any of the published milestones, consequently the Company has not
recorded a value for the warrants. The warrants automatically convert to
warrants to purchase Common Stock upon the effective date of an initial public
offering.
In March 1998, the Company issued 9,888 warrants to purchase Series C
Preferred Stock in connection with the Equipment line of credit #3 discussed in
Note 4. The warrants have an exercise price of $3.034 per share and expire in
March 2003. The warrants automatically convert to warrants to purchase Common
Stock upon the effective date of an initial public offering. The Company
determined the value of the warrants was nominal based on the Black-Scholes
option pricing model.
In February 1999, the Company issued 41,199 warrants to purchase Series C
Preferred Stock in connection with the subordinated debt discussed in Note 4.
The warrants have an exercise price of $3.034 per share and expire in March
2006 or three years from an initial public offering, whichever is longer. In
May 1999, the Company issued an additional 32,983 warrants to purchase Series C
Preferred Stock in connection with the subordinated debt. These warrants have
an exercise price of $4.74 per share and expire in May 2006 or three years from
an initial public offering, whichever is longer. Both sets of warrants will
automatically convert to warrants to purchase Common Stock upon the effective
date of an initial public offering. The estimated fair value of warrants using
the Black-Scholes option pricing model was $259,071. The fair value of the
warrants will be amortized to interest expense over the term of the
subordinated debt. The Company recognized $86,691 as interest expense
associated with these warrants of the year ended December 31, 1999.
6. Convertible preferred stock:
In November 1996, the Company issued an aggregate of 690,000 shares of Series
A Preferred Stock at a price of $1.00 per share. Additionally, $383,884 of
convertible promissory notes and accrued interest were converted into 383,884
shares of Series A Preferred Stock. In January 1997, the Company issued 739,838
shares of Series A Preferred Stock at a price of $1.00 per share.
The holders of Series A Preferred Stock have various rights and preferences
as follows:
Dividend rights
Holders of the Series A Preferred Stock are entitled to receive noncumulative
dividends at the per annum rate of $0.10 per share, when and if declared by the
Board of Directors. Dividends on all the Preferred Stock shall be payable in
preference and prior to any payment of any dividend on the Common Stock.
Through December 31, 1999, no dividends have been declared or paid by the
Company.
Liquidation preferences
In the event of any liquidation, dissolution or winding up of the Company,
the holders of the Series A Preferred Stock shall be entitled to receive an
amount equal to $1.00 per share, plus any declared but unpaid dividends prior
to, and in preference to, any distribution to the holders of Common Stock.
Should the Company's available assets be insufficient to satisfy the
liquidation preferences of the holders of the Series A, B, C and D Preferred
Stock, the funds will be distributed ratably among the holders of the Series A,
B, C and D Preferred Stock. Any assets remaining following the distributions to
the holders of the Preferred Stock will be distributed ratably among the
holders of Common Stock.
F-17
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Conversion
Each share of the Series A Preferred Stock is initially convertible, at the
option of the holder, into one share of Common Stock based on a formula which
results in a one-for-one exchange ratio at December 31, 1999. This formula is
subject to adjustment, as defined, which provides for adjustments in the event
of dilutive issuances, stock splits, combinations or other recapitalizations.
All shares of the Preferred Stock will automatically convert into common stock
upon either (i) the approval by vote or written consent of the holders of at
least 66 2/3% of the total number of shares of Convertible Preferred Stock
outstanding, (ii) the closing of a public offering of the Company's common
stock involving aggregate proceeds to the Company of at least $20 million and a
per share price of not less than $9.00, or (iii) the date on which fewer than
50,000 shares of the originally issued Preferred Stock remain outstanding.
Voting rights
Each holder of Preferred Stock is entitled to the number of votes equal to
the number of shares of the Company's Common Stock into which such holder's
shares are convertible at the record date for such vote.
Preferred Stock warrants
During 1996, the Company issued 77,505 warrants to purchase Series A
Preferred Stock at an exercise price of $l.00 per share. The warrants expire at
various dates ranging from three to five years from the date of grant. During
1998 and 1999, 1,250 and 12,500, warrants to purchase Series A Convertible
Preferred Stock were exercised, respectively. The warrants automatically
convert to warrants to purchase Common Stock upon the effective date of an
initial public offering.
7. Common Stock:
As of December 31, 1999, the Company had reserved shares of common stock as
follows (in thousands):
<TABLE>
<S> <C>
Common Stock outstanding.............................................. 7,847
Conversion of Series A................................................ 1,827
Conversion of Series B................................................ 3,856
Conversion of Series C................................................ 3,230
Conversion of Series D................................................ 2,707
Exercise of warrants issued for Common Stock.......................... 66
Exercise of warrants issued for Series A Preferred Stock.............. 64
Exercise of warrants issued for Series B Preferred Stock.............. 3
Exercise of warrants issued for Series C Preferred Stock.............. 213
Common Stock options.................................................. 2,919
Undesignated.......................................................... 27,268
------
Total shares authorized............................................. 50,000
======
</TABLE>
A portion of the shares sold are subject to repurchase rights by the Company
over a four year period from the earlier of grant date or employee hire date,
as applicable. At December 31, 1998 and 1999, there were 567,000 and 2,001,000
shares subject to repurchase, at an average price of $0.00067 and $0.58 per
share, respectively.
F-18
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
In June 1998, the Company issued 65,920 warrants to purchase Common Stock to
a strategic investor. The warrants have an exercise price of $0.35 and expire
in June 2008. The Company determined the value of the warrants was nominal
based on the Black-Scholes option pricing model.
In February and September 1999, certain executives of the Company exercised
their stock options prior to vesting by issuance of full recourse promissory
notes to the Company. The notes totaling $755,000 bear interest at rates
between 5.00% and 6.25% per annum and are due five years from the date of the
note or one year after the holder ceases holding a position with the Company.
The notes are collateralized by the related 1,734,244 shares of Common Stock
issued, which are subject to the Company's right of repurchase. The net amount
outstanding under these notes has been reflected as a separate component of
stockholders' equity.
8. Employee Benefit Plans:
401(k) Savings Plan
The Company has a 401(k) Savings Plan (the "Plan") that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code.
Under the Plan, participating employees may elect to contribute up to 20% of
their eligible compensation, subject to certain limitations. All employees on
the United States payroll of the Company are eligible to participate in the
Plan. The Company is not required to contribute to the Plan and has made no
contributions since the Plan's inception.
Stock Option Plan
During 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"). The
Plan provides for the granting of incentive and non-qualified stock options to
employees, consultants and directors of the Company. The total number of shares
of common stock that may be issued pursuant to the exercise of options granted
under the Plan is 5,140,250.
Options under the Plan may be granted at an exercise price not less than 100%
of the fair market value of the Company's common stock on the date of grant, as
determined by the Board of Directors, for incentive stock options and 85% of
such fair market value for non-qualified stock options. All options are granted
at the discretion of the Company's Board of Directors and have a term not
greater than ten years. For holders of more than 10% of the Company's total
combined voting power of all classes of stock, incentive stock options may not
be granted at less than 110% of the fair market value of the Company's common
stock at the date of grant or for a term greater than five years. The fair
market value of the Company's Common Stock is determined by the Board of
Directors. Options granted under the Plan become exercisable at a rate of 25%
after the first year and ratably over the next three years or ratably over four
years. Certain employee's options are immediately exercisable but unvested
shares are subject to repurchase by the Company at the original exercise price.
F-19
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes the activity under the Plan (shares in
thousands):
<TABLE>
<CAPTION>
Options Outstanding
--------------------
Weighted
Options Average
Available Options Exercise
for Grant Outstanding Price
--------- ----------- --------
<S> <C> <C> <C>
Balance at December 31,1996...................... 692 948 $0.04
Granted......................................... (537) 537 $0.14
Exercised....................................... -- (213) $0.02
Canceled........................................ 82 (82) $0.15
------ ------ -----
Balance at December 31, 1997..................... 237 1,190 $0.08
Additional shares authorized.................... 700 -- --
Granted......................................... (967) 967 $0.22
Exercised....................................... -- (292) $0.05
Canceled........................................ 308 (308) $0.14
------ ------ -----
Balance at December 31, 1998..................... 278 1,557 $0.16
Additional shares authorized.................... 2,800 -- --
Granted......................................... (2,935) 2,935 $1.11
Exercised....................................... -- (1,716) $0.54
Canceled........................................ 372 (372) $0.34
------ ------ -----
Balance at December 31, 1999..................... 515 2,404 $1.01
====== ====== =====
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable under the plan at December 31, 1999 (shares in thousands):
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Range of Exercise Number Life Exercise Number Exercise
Price Outstanding (Years) Price Outstanding Price
----------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.0007-0.10 142 6.42 $0.05 65 $0.07
$ 0.15 273 8.08 $0.15 95 $0.15
$ 0.38 466 8.51 $0.38 64 $0.38
$ 0.65 158 9.35 $0.65 1 $0.65
$ 1.25 1,169 9.57 $1.25 75 $1.25
$ 2.50-3.75 196 9.85 $3.21 3 $3.75
----- ---- ----- --- -----
2,404 9.02 $1.01 303 $0.49
===== ==== ===== === =====
</TABLE>
At December 31, 1997, 1998 and 1999, approximately 159,000, 263,000 and
303,000 options were exercisable at a weighted average exercise price per share
of $0.06, $0.10 and $0.49, respectively.
In connection with a 1998 employment agreement with an executive (the
"Executive Agreement"), the Company issued options to purchase 1,408,500 shares
of Common Stock outside of the Company's stock option plan. The options have an
exercise price of $ 0.38, vest over a forty-eight month period and expire in
2008. During 1999, the options were exercised and 939,000 outstanding shares of
Common Stock purchased upon exercise of the option are subject to repurchase at
December 31, 1999. Upon termination of employment, unvested shares are subject
to repurchase by the Company at the original exercise price.
F-20
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair value disclosures
The fair value of each option grant has been estimated on the date of grant
using the minimum value method with the following assumptions:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Dividend yield..................................... -- -- --
Average risk free interest rate.................... 6.27% 5.25% 5.64%
Expected life (in years)........................... 4 4 4
Weighted average fair value of options granted (per
share)............................................ $ 0.80 $ 2.20 $ 7.67
</TABLE>
Had compensation cost for options granted under the Plan and the Executive
Agreement been determined based on the fair value at the grant dates for the
awards under a method prescribed by SFAS No. 123, the Company's net loss would
have been increased to the pro forma amounts below for the years ended December
31, 1997, 1998 and 1999, respectively (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net loss as reported............................... $(3,711) $(7,671) $(18,865)
Pro forma net loss................................. $(3,735) $(7,693) $(19,104)
Net loss per share as reported..................... $ (1.20) $ (1.90) $ (4.18)
Pro forma net loss per share....................... $ (1.21) $ (1.90) $ (4.23)
</TABLE>
Because the determination of the fair value of all options granted after the
Company becomes a public entity will include an expected volatility factor in
addition to the factors described above and because additional option grants
are expected to be made each year, the compensation expense for options granted
during each of the three years in the period ended December 31, 1999 are not
representative of the pro forma effects of options grants on reported net
income (loss) for future years.
Unearned stock-based compensation
In connection with certain stock option grants during the years ended
December 31, 1998 and 1999, the Company recorded unearned stock-based
compensation cost totaling $4,064,000 and $21,550,000 respectively, which is
being recognized over the vesting period of the related options of four years.
Amortization of unearned stock-based compensation totaled $878,000 and
$5,788,000 for the years ended December 31, 1998 and 1999, respectively.
The remaining unamortized, unearned stock-based compensation for all option
grants through December 31, 1999 will be amortized as follows: $10.1 million in
2000, $5.3 million in 2001, $2.7 million in 2002 and $867,000 in 2003.
9. Commitments and contingencies:
Capital leases
The Company has entered into capital lease agreements for their office
equipment. The Company issued 26,367 warrants to purchase Series C Preferred
Stock in connection with the agreement (see Note 5).
F-21
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Operating leases
The Company leases its facilities and certain equipment under noncancelable
operating leases which expire at various dates through 2003. Rent expense under
these leases totaled approximately $127,000, $463,204 and $914,768 for 1997,
1998 and 1999, respectively.
Future minimum lease payments due under capital leases and operating leases
at December 31, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Years Ended December 31, Leases Leases
- ------------------------ ------- ---------
<S> <C> <C>
2000......................................................... $ 772 $1,697
2001......................................................... 636 662
2002......................................................... 364 583
2003......................................................... -- 547
------ ------
Total minimum lease payments and sublease income............. 1,772 $3,489
======
Less: Amount representing finance costs...................... (194)
------
Present value of capital lease obligations................... 1,578
Less: Current portion........................................ (654)
------
Long-term portion of capital lease obligations............... $ 924
======
</TABLE>
10. Income Taxes:
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
------- --------
<S> <C> <C>
Net operating loss carryforwards............................. $ 4,452 $ 8,684
Research and development credit carryforwards................ 349 947
Capitalized research and development costs................... 174 346
Other........................................................ 78 198
------- --------
Deferred tax assets.......................................... 5,053 10,175
Deferred tax asset valuation allowance....................... (5,053) (10,175)
------- --------
$ -- $ --
======= ========
</TABLE>
The Company has provided a full valuation allowance for its deferred tax
assets since the realization of these future benefits cannot be sufficiently
assured.
As of December 31, 1999, the Company has available net operating loss
carryforwards for federal and state income tax purposes of approximately
$23,501,000 and $11,554,000, respectively. These net operating loss
carryforwards begin to expire in 2010 and 2003 for federal and state tax
purposes, respectively. Under the Tax Reform Act of 1986, the amounts of and
benefits from net operating loss carryforwards may be impaired or limited in
certain circumstances. Events which cause limitations in the amounts of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative ownership change of more than 50% as defined, over
a three year period.
F-22
<PAGE>
RESONATE INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
11. Related Party Transaction:
During 1997, the Company paid a management consulting fee of $60,000 to a
stockholder.
12. Subsequent Events:
2000 Equity Incentive Plan and Employee Stock Purchase Plan
In March 2000, the Company's Board of Directors adopted, subject to
stockholder approval, the 2000 Stock Plan and the 2000 Employee Stock Purchase
Plan, which will not become effective until the effective date of the offering.
Each plan will be administered by the Board or by a committee of the Board.
A total of 3,200,000 shares of common stock are authorized and reserved for
issuance under the 2000 Stock Plan ("Stock Plan"), and the cumulative number of
shares authorized for issuance will be increased annually to the lessor of:
. 2,500,000 shares;
. 5% of the outstanding shares on such date; or
. a lessor amount to be determined by the Board.
The Stock Plan allows awards to be granted in the form of incentive stock
options, nonstatutory stock options and stock purchase rights. Unless
terminated sooner by the Board, the Stock Plan will terminate automatically in
2010.
A total of 2,000,000 shares of common stock are reserved for issuance under
the Employee Stock Purchase Plan ("ESPP"), plus annual increases equal to the
lessor of:
. 750,000 shares;
. 2.5% of the outstanding shares on such date; or
. a lessor amount to be determined by the Board.
The ESPP permits participants to purchase common stock through payroll
deductions of up to 15% of the participant's gross earnings and commissions,
but not to exceed the established maximum. Such amounts are applied to the
purchase from the Company of shares of common stock at the end of each offering
period at a price which is generally 85% of the lower of the fair market value
of the common stock at the beginning or at the end of the offering period. The
plan contains consecutive, overlapping 24 month offering periods. Each offering
period includes four six-month purchase periods. The plan will terminate in
2010.
Stock options
In January and February 2000, the Company issued 880,716 common stock options
to employees and 47,475 to consultants and other service providers with
exercise prices between $3.75 and $5.00 per share.
Initial public offering
On March 2, 2000, the Board of Directors approved the initial public offering
of the Company's Common Stock.
F-23
<PAGE>
[Inside Back Cover of Prospectus]
The inside back cover begins with our Logo and the following title centered at
the top of the page:
"The Resonate Internet Services Management Differentiation:
Real-Time Monitoring, Reporting and Control
of eBusiness Applications
Below this language is a graphic of two circles one of which circumscribes the
words "Enterprise Traffic Management" and the other circumscribes the words
"Systems Management." Arrows above and below the circles point from one circle
to the other and are labeled "Feedback" to depict the integration of our
solution.
Below this graphic is the following language:
Internet Services Management integrates enterprise traffic management and
systems management capabilities, to optimize the availability and performance,
and provides real-time management and automated control of eBusiness
applications.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Corporate Information.................................................... 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Forward Looking Statements............................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition And Results
of Operations........................................................... 23
Business................................................................. 34
Management............................................................... 51
Related Party Transactions............................................... 60
Principal Stockholders................................................... 62
Description of Capital Stock............................................. 65
Shares Eligible for Future Sale.......................................... 67
Underwriting............................................................. 70
Legal Matters............................................................ 72
Experts.................................................................. 72
Where You Can Find More Information About Us............................. 72
Index to Financial Statements............................................ F-1
</TABLE>
---------------
Through and including 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when
acting as an underwriter and with respect to an unsold allotment or
subscription.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Resonate Inc.
Common Stock
---------------
[RESONATE LOGO APPEARS HERE]
---------------
Goldman, Sachs & Co.
Chase H&Q
Dain Rauscher Wessels
Wit SoundView
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 Resonate in connection with
the sale of common stock being registered hereby. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC registration fee................................................ $15,840
NASD filing fee..................................................... 6,500
Nasdaq National Market listing fee.................................. *
Printing and engraving costs........................................ 125,000
Legal fees and expenses............................................. 400,000
Accounting fees and expenses........................................ *
Blue Sky fees and expenses.......................................... *
Transfer Agent and Registrar fees................................... *
Miscellaneous expenses.............................................. *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* to be filed by amendment
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article IX of the Registrant's Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if
such person acted in good faith and in a manner reasonably believed to be in
and not opposed to the best interest of the Registrant, and, with respect to
any criminal action or proceeding, the indemnified party had no reason to
believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its directors
and executive officers, in addition to indemnification provided for in the
Registrant's Bylaws, and intends to enter into indemnification agreements with
any new directors and executive officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the underwriters for some liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in the
Registration Statement.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the Registrant has issued unregistered
securities to a limited number of persons as described below:
(a) On April 24, 1997, the Registrant issued and sold an aggregate of
3,856,145 shares of Series B preferred stock to a total of 15 investors for
$1.35 per share, or an aggregate of
II-1
<PAGE>
$5,205,795. The foregoing purchases and sales were exempt from registration
under the Securities Act pursuant to Section 4(2) thereof on the basis that
the transaction did not involve a public offering.
(b) On June 25, 1998, July 1, 1998 and July 15, 1998, the Registrant
issued and sold an aggregate of 3,230,418 shares of Series C preferred
stock to a total of 27 investors for $3.034 per share, or an aggregate of
$10,176,159. The foregoing purchases and sales were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof on
the basis that the transaction did not involve a public offering.
(c) On June 22, 1999 and August 13, 1999, the Registrant issued and sold
an aggregate of 2,706,877 shares of Series D preferred stock to a total of
50 investors for $4.81 per share, or an aggregate of $13,008,053. The
foregoing purchases and sales were exempt from registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.
(d) As of February 15, 2000, an aggregate of 2,794,486 shares of common
stock had been issued upon exercise of options under the Registrant's 1996
Stock Option Plan.
Except as indicated above, none of the foregoing transactions involved any
underwriters, underwriting discounts or commissions, or any public offering,
and the Registrant believes that each transaction was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof, Regulation D promulgated thereunder or Rule 701 pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients in such transactions represented their
intention 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 and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with the Registrant, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant to be in
effect after the closing of the offering to be made under this
Registration Statement.
3.2 Bylaws of the Registrant to be in effect after the closing of the
offering to be made under this Registration Statement.
4.1* Form of Specimen Certificate for Registrant's common stock.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2 1996 Stock Plan and form of agreement thereunder.
10.3* 2000 Stock Plan and form of agreement thereunder.
10.4 2000 Employee Stock Purchase Plan and form of agreement thereunder.
10.5* Third Amended and Restated Investor Rights Agreement dated June 22,
1999.
10.6 Lease in Sunnyvale, California.
23.1 Consent of Independent Accountants.
23.2* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedules.
</TABLE>
- --------
* To be filed by amendment.
II-2
<PAGE>
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
Item 17. Undertakings
The undersigned Registrant 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 by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant 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 the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant 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 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 that:
(1) For purposes of determining any liability under the Securities Act,
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 the Registrant 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.
(2) For the purpose of determining any liability under the Securities
Act, 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale,
State of California, on the 3rd day of March, 2000.
RESONATE INC.
/s/ Kenneth Schroeder
By: _________________________________
Kenneth Schroeder
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth Schroeder and Robert Hausmann and each
of them singly, as true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities to sign the Registration Statement filed herewith and
any or all amendments to said Registration Statement (including post-effective
amendments and registration statements filed pursuant to Rule 462 and
otherwise), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents the full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them, or his substitute, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Kenneth Schroeder President, Chief March 3, 2000
______________________________________ Executive Officer and
Kenneth Schroeder Director (Principal
Executive Officer)
/s/ Robert C. Hausmann Vice President and Chief March 3, 2000
______________________________________ Financial Officer
Robert C. Hausmann (Principal Financial
and Accounting Officer)
/s/ Gordon A. Campbell Chairman of the Board March 3, 2000
______________________________________
Gordon A. Campbell
/s/ Christopher C. Marino Founder, Corporate Vice March 3, 2000
______________________________________ President and Director
Christopher C. Marino
/s/ I. Robert Greene Director March 3, 2000
_____________________________________
I. Robert Greene
/s/ Robert J. Finocchio, Jr. Director March 3, 2000
_____________________________________
Robert J. Finocchio, Jr.
/s/ Russell L. Siegelman Director March 3, 2000
_____________________________________
Russell L. Siegelman
/s/ John S. McFarlane Director March 3, 2000
_____________________________________
John S. McFarlane
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant to be in
effect after the closing of the offering to be made under this
Registration Statement.
3.2 Bylaws of the Registrant to be in effect after the closing of the
offering to be made under this Registration Statement.
4.1* Form of Specimen Certificate for Registrant's common stock.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2 1996 Stock Plan and form of agreement thereunder.
10.3* 2000 Stock Plan and form of agreement thereunder.
10.4 2000 Employee Stock Purchase Plan and form of agreement thereunder.
Third Amended and Restated Investor Rights Agreement dated June 22,
10.5* 1999
10.6 Lease in Sunnyvale, California
23.1 Consent of Independent Accountants
23.2* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedules.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 1.1
Resonate, Inc.
Common Stock, Par Value $.0001 Per Share
_______________
Underwriting Agreement
----------------------
____________, 2000
Goldman, Sachs & Co.
Chase Securities Inc.
Dain Rauscher Incorporated
SoundView Technology Group, Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004
Ladies and Gentlemen:
Resonate, Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of ........ shares
(the "Firm Shares") and, at the election of the Underwriters, up to ........
additional shares (the "Optional Shares") of Common Stock, par value $0.001 per
share ("Stock") of the Company (the Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof being collectively
called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-....) (the "Initial
Registration Statement") in respect of the Shares has been filed with the
Securities and Exchange Commission (the "Commission"); the Initial Registration
Statement and any post-effective amendment thereto, each in the form heretofore
delivered to you and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such form; other
than a registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), which became effective upon
filing, no other document with respect to the Initial Registration Statement has
heretofore been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or threatened by
the Commission (any preliminary prospectus included in the Initial
<PAGE>
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was declared
effective, each as amended at the time such part of the Initial Registration
Statement became effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective, are hereinafter
collectively called the "Registration Statement"; such final prospectus, in the
form first filed pursuant to Rule 424(b) under the Act, is hereinafter called
the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or affecting the
general affairs, management, financial position, stockholders' equity or results
of operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title in fee
simple to all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere with the use
made and
2
<PAGE>
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries;
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the state of Delaware, with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so qualified
in any such jurisdiction; and each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and (except for directors' qualifying shares) are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or claims;
(h) The Shares have been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be duly and validly
issued and fully paid and non-assessable and will conform to the description of
the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the compliance by
the Company with all of the provisions of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the Company
of the transactions contemplated by this Agreement, except the registration
under the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(j) No holder of securities of the Company has any rights, not effectively
satisfied or waived, to the registration of such securities for sale under the
Act in connection with this offering as a result of the filing of the
Registration Statement or otherwise in connection with the offer and sale of the
Shares by the Underwriters hereunder;
3
<PAGE>
(k) Neither the Company nor any of its subsidiaries is in violation of its
Certificate of Incorporation or By-laws or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound;
(l) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(m) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material adverse
effect on the current or future consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries; and, to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(n) The Company is not and, after giving effect to the offering and sale
of the Shares, will not be an "investment company", as such term is defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act");
(o) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba within the
meaning of Section 517.075, Florida Statutes;
(p) PricewaterhouseCoopers LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(q) The Company has reviewed its operations and that of its subsidiaries
and any third parties with which the Company or any of its subsidiaries has a
material relationship to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries has been or will be affected by the
Year 2000 Problem. As a result of such review, the Company has no reason to
believe, and does not believe, that the Year 2000 Problem has had or will have a
material adverse effect on the general affairs, management, the current or
future consolidated financial position, business prospects, stockholders' equity
or results of operations of the Company and its subsidiaries, or has resulted in
or will result in any material loss or interference with the Company's business
or operations. The "Year 2000 Problem" as used herein means any significant risk
that computer hardware or software used in the receipt, transmission,
processing, manipulation, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind is not functioning UL will not function, in the case of dates or time
periods occurring after December 31, 1999, at least as effectively as in the
case of dates or time periods occurring prior to January 1, 2000;
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
4
<PAGE>
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences;
(s) The Company and its subsidiaries own or possess adequate rights to
use, all material trademarks, service marks, trademark registrations, service
mark registrations, domain names, copyrights, licenses, inventions and know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) necessary for the conduct of
its business as described in the Prospectus, and, except as set forth in the
Prospectus, the Company has no reason to believe that the conduct of its
business will conflict with, and has not received any notice of any claim of
conflict with, any such rights of others, except as would not have a material
adverse effect on the business, financial condition, results of operations or
prospects of the Company; and neither the Company nor any of its subsidiaries
have infringed or are infringing any trademarks, service marks, trademark
registrations, service mark registrations, domain names or copyrights, which
infringement could reasonably be expected to result in a material adverse change
in or affecting the general affairs, financial position, stockholder's equity or
results of operations of the Company and its subsidiaries;
(t) The Company and its subsidiaries possess adequate rights to use all
material patents necessary for the conduct of its business; no valid United
States patent is or would be infringed by the activities of the Company, except
as would not have a material adverse effect on the business, financial
condition, results of operations or prospects of the Company; there are no
actions, suits or proceedings pending relating to patents or proprietary
information to which the Company or any of its subsidiaries is a party or of
which any property of the Company or any of its subsidiaries is subject and no
such actions, suits or proceedings are threatened by governmental authorities or
others; the Company is not aware of any claim by others that the Company is
infringing or otherwise violating the patents or other intellectual property of
others and, except as set forth in the Prospectus, is not aware of any rights of
third parties to any of the Company's licensed patents or licenses which could
materially affect the use thereof by the Company; and
(u) No material labor dispute with the employees of the Company exists,
or, to the knowledge of the Company, is imminent.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
5
<PAGE>
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................... Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
sales of shares in excess of the number of Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be purchased
and the date on which such Optional Shares are to be delivered, as determined by
you but in no event earlier than the First Time of Delivery (as defined in
Section 4 hereof) or, unless you and the Company otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in
such names as Goldman, Sachs & Co. may request upon at least forty-eight
hours' prior notice to the Company shall be delivered by or on behalf of
the Company to Goldman, Sachs & Co., through the facilities of the
Depository Trust Company ("DTC"), for the account of such Underwriter,
against payment by or on behalf of such Underwriter of the purchase price
therefor by wire transfer of Federal (same-day) funds to the account
specified by the Company to Goldman, Sachs & Co. at least forty-eight hours
in advance. The Company will cause the certificates representing the
Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect thereto
at the office of DTC or its designated custodian (the "Designated Office").
The time and date of such delivery and payment shall be, with respect to
the Firm Shares, 9:30 a.m., New York City time, on ............., 2000 or
such other time and date as Goldman, Sachs & Co. and the Company may agree
upon in writing, and, with respect to the Optional Shares, 9:30 a.m., New
York time, on the date specified by Goldman, Sachs & Co. in the written
notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman,
Sachs & Co. and the Company may agree upon in writing. Such time and date
for delivery of the Firm Shares is herein called the "First Time of
Delivery", such time and date for delivery of the Optional Shares, if not
the First Time of Delivery, is herein called the "Second Time of Delivery",
and each such time and date for delivery is herein called a "Time of
Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(k) hereof, will be delivered at the
offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650
Page Mill Road, Palo Alto, CA 94304 (the "Closing Location"), and the
Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at 6:00 p.m., New
York City time, on the New York Business Day next preceding such Time of
Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review
by the parties hereto. For the purposes of this Section 4, "New York
Business Day" shall mean each Monday,
6
<PAGE>
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to advise
you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any event shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order
to comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of
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issue of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations thereunder (including, at the option of the Company,
Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder any securities of the Company that are substantially similar to
the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option plans existing on, or upon the conversion
or exchange of convertible or exchangeable securities outstanding as of,
the date of this Agreement), without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement), to make
available to its stockholders consolidated summary financial information of
the Company and its subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement in the manner specified in the Prospectus
under the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
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<PAGE>
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
in connection with the offering, purchase, sale and delivery of the Shares;
(iii) all expenses in connection with the qualification of the Shares for
offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey
(iv) all fees and expenses in connection with listing the Shares on the NASDAQ;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Shearman & Sterling, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of Delivery,
with respect to the matters covered in paragraphs (i), (ii), (vii), (xi)
and (xiii) of subsection (c) below as well as such other related matters as
you may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to
pass upon such matters;
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<PAGE>
(c) Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Company, shall have furnished to you their written opinion draft
of such opinion is attached as Annex II(b) hereto), dated such Time of Delivery,
in form and substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
state of Delaware, with power and authority (corporate and other) to
own its properties and conduct its business as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and non-assessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification or is subject to no material liability or disability by
reason of failure to be so qualified in any such jurisdiction (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) Each subsidiary of the Company has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation; and all of the issued
shares of capital stock of each such subsidiary have been duly and
validly authorized and issued, are fully paid and non-assessable, and
(except for directors' qualifying shares) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims (such counsel being entitled to rely in respect of
the opinion in this clause upon opinions of local counsel and in
respect to matters of fact upon certificates of officers of the
Company or its subsidiaries, provided that such counsel shall state
that they believe that both you and they are justified in relying
upon such opinions and certificates);
(v) The Company and its subsidiaries have good and marketable
title in fee simple to all real property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and its
subsidiaries (in giving the opinion in this clause, such counsel may
state that no examination of record titles for the purpose of such
opinion has been made, and that they are relying upon a general
review of the titles of the Company and its
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subsidiaries, upon opinions of local counsel and abstracts, reports
and policies of title companies rendered or issued at or subsequent
to the time of acquisition of such property by the Company or its
subsidiaries, upon opinions of counsel to the lessors of such
property and, in respect to matters of fact, upon certificates of
officers of the Company or its subsidiaries, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions, abstracts, reports, policies
and certificates);
(vi) To the best of such counsel's knowledge and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company
with all of the provisions of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument known to such counsel
to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any
of the property or assets of the Company or any of its subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties;
(ix) No consent, approval, authorization, order, registration
or qualification of or with any such court or governmental agency or
body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement, except the registration under the Act of the Shares, and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares
by the Underwriters;
(x) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in
default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or any of its
properties may be bound;
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<PAGE>
(xi) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock and under the caption
"Underwriting", insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate, complete
and fair;
(xii) The Company is not an "investment company", as such term
is defined in the Investment Company Act; and
(xiii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder;
although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred
to in the opinion in subsection (xi) of this section 7(c), they have
no reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as of its
date, the Prospectus or any further amendment or supplement thereto
made by the Company prior to such Time of Delivery (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading or that, as of such Time of Delivery,
either the Registration Statement or the Prospectus or any further
amendment or supplement thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration Statement
required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration
Statement or required to be described in the Registration Statement
or the Prospectus which are not filed or described as required;
(d) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery,
PricewaterhouseCoopers LLP shall have furnished to you a letter or letters,
dated the respective dates of delivery thereof, in form and substance
satisfactory to you, to the effect set forth in Annex I hereto (the executed
copy of the letter delivered prior to the execution of this Agreement is
attached as Annex I(a) hereto and a draft of the form of letter
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<PAGE>
to be delivered on the effective date of any post-effective amendment to
the Registration Statement and as of each Time of Delivery is attached as
Annex I(b) hereto);
(e) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any change, or
any development involving a prospective change, in or affecting the general
affairs, management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the Company's debt securities or preferred
stock by any "nationally recognized statistical rating organization", as
that term is defined by the Commission for purposes of Rule 436(g)(2) under
the Act, and (ii) no such organization shall have publicly announced that
it has under surveillance or review, with possible negative implications,
its rating of any of the Company's debt securities or preferred stock;
(g) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on NASDAQ ; (ii) a
suspension or material limitation in trading in the Company's securities on
NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York or California State authorities; or
(iv) the outbreak or escalation of hostilities involving the United States
or the declaration by the United States of a national emergency or war, if
the effect of any such event specified in this clause (iv) in the judgment
of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
(i) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from the directors and executive officers
of the Company, and from such stockholders of the Company who, in the
aggregate, beneficially own substantially all of the shares of Stock of the
Company prior to the offering of the Shares, substantially to the effect
set forth in Subsection 5(e) hereof in form and substance satisfactory to
you;
(j) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
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<PAGE>
(k) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsections (a) and (e) of this Section and as to such other matters as
you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified
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party, be counsel to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act, by or on behalf of any indemnified
party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue
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or alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this subsection
(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company [(including
any person who, with his or her consent, is named in the Registration Statement
as about to become a director of the Company)] and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase
the Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six hours
after such default by any Underwriter you do not arrange for the purchase of
such Shares, then the Company shall be entitled to a further period of thirty-
six hours within which to procure another party or other parties satisfactory to
you to purchase such Shares on such terms. In the event that, within the
respective prescribed periods, you notify the Company that you have so arranged
for the purchase of such Shares, or the Company notifies you that it has so
arranged for the purchase of such Shares, you or the Company shall have the
right to postpone such Time of Delivery for a period of not more than seven
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to
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<PAGE>
purchase Shares of a defaulting Underwriter or Underwriters, then this Agreement
(or, with respect to the Second Time of Delivery, the obligations of the
Underwriters to purchase and of the Company to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company, except for the expenses to be borne by the Company
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
17
<PAGE>
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
18
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
Resonate Inc.
By:_____________________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Chase Securities Inc.
Dain Rauscher Incorporated
SoundView Technology Group, Inc.
By:________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
19
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- -----------------
<S> <C> <C>
Goldman, Sachs & Co........................
Chase Securities Inc.......................
Dain Rauscher Incorporated.................
SoundView Technology Group, Inc............
----------- --------------
Total...........................
=========== ==============
</TABLE>
20
<PAGE>
ANNEX I
FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of the
Act and the related published rules and regulations thereunder; and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, financial forecasts and/or condensed
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been separately furnished to the
representatives of the Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
nothing came to their attention that cause them to believe that the
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in the
audited consolidated financial statements for such five fiscal years which
were included or incorporated by reference in the Company's Annual Reports
on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
<PAGE>
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(a) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of
the Act and the related published rules and regulations, or (ii)
any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally accepted
accounting principles;
(b) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial
statements from which such data and items were derived, and any
such unaudited data and items were not determined on a basis
substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included
in the Prospectus;
(c) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited
condensed financial statements referred to in clause (A) and any
unaudited income statement data and balance sheet items included
in the Prospectus and referred to in clause (B) were not
determined on a basis substantially consistent with the basis for
the audited consolidated financial statements included in the
Prospectus;
(d) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in
all material respects with the applicable accounting requirements
of the Act and the published rules and regulations thereunder or
the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(e) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the
consolidated capital stock (other than issuances of capital stock
upon exercise of options and stock appreciation rights, upon
earn-outs of performance shares and upon conversions of
convertible securities, in each case which were outstanding on
the date of the latest financial statements included in the
Prospectus) or any increase in the consolidated long-term debt of
the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared
with amounts shown in the latest balance sheet included in
<PAGE>
the Prospectus, except in each case for changes, increases or
decreases which the Prospectus discloses have occurred or may occur
or which are described in such letter; and
(f) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in clause (E) there were any decreases in consolidated net
revenues or operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
decreases or increases which the Prospectus discloses have occurred
or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and (vi)
above, they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
RESONATE INC.
(Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Kenneth Schroeder and Christopher C. Marino each hereby certifies:
(1) They are the President and Secretary, respectively, of Resonate Inc.,
a corporation organized and existing under the General Corporation Law
of the State of Delaware (the "General Corporation Law");
(2) The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on March 1, 2000.
FIRST: The name of this corporation is Resonate Inc. (the "Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address
is Corporation Service Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of stock to be
designated respectively Common Stock and Preferred Stock. The total
number of shares of all classes of stock that the Corporation has
authority to issue is Two Hundred Ten Million (210,000,000),
consisting of Two Hundred Million (200,000,000) shares of Common
Stock, par value $0.0001 per share (the "Common Stock"), and Ten
Million (10,000,000) shares of Preferred Stock, par value $0.0001 per
share (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized subject to
limitations prescribed by law, to fix by resolution or resolutions the
designations, powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, of each such series of Preferred
Stock, including without limitation authority to fix by resolution or
resolutions, the dividend rights, dividend rate, conversion rights,
voting
<PAGE>
rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and liquidation preferences
of any wholly unissued series of Preferred Stock, and the number of
shares constituting any such series and the designation thereof, or
any of the foregoing.
The Board of Directors is further authorized to increase (but not
above the total number of authorized shares of the class) or decrease
(but not below the number of shares of any such series then
outstanding) the number of shares of any series, the number of which
was fixed by it, subsequent to the issue of shares of such series then
outstanding, subject to the powers, preferences and rights, and the
qualifications, limitations and restrictions thereof stated in the
resolution of the Board of Directors originally fixing the number of
shares of such series. If the number of shares of any series is so
decreased, then the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The election of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
SEVENTH: The number of directors which constitute the whole Board of Directors
of the Corporation shall be designated in the Bylaws of the
Corporation.
EIGHTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, alter, amend or repeal the Bylaws of the
Corporation.
NINTH: To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a
director.
The Corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative,
by reason of the fact that he, his testator or intestate is or was a
director, officer or employee of the Corporation or any predecessor of
the Corporation or serves or served at any other enterprise as a
director, officer or employee at the request of the Corporation or any
predecessor to the Corporation.
-2-
<PAGE>
Neither any amendment nor repeal of this Article, nor the adoption of
any provision of this Amended and Restated Certificate of
Incorporation inconsistent with this Article, shall eliminate or
reduce the effect of this Article in respect of any matter occurring,
or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
TENTH: At the election of directors of the Corporation, each holder of stock
of any class or series shall be entitled to one vote for each share
held. No stockholder will be permitted to cumulate votes at any
election of directors.
The number of directors which constitute the whole Board of Directors
of the Corporation shall be fixed exclusively by one or more
resolutions adopted from time to time by the Board of Directors. The
Board of Directors shall be divided into three classes designated as
Class I, Class II, and Class III, respectively. Directors shall be
assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. At the first annual meeting of
stockholders following the date hereof, the term of office of the
Class I directors shall expire and Class I directors shall be elected
for a full term of three years. At the second annual meeting of
stockholders following the date hereof, the term of office of the
Class II directors shall expire and Class II directors shall be
elected for a full term of three years. At the third annual meeting of
stockholders following the date hereof, the term of office of the
Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual
meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire
at such annual meeting.
Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, may be filled by the
vote of a majority, although less than a quorum, of the directors then
in office, or by a sole remaining director.
ELEVENTH: Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the laws of the State
of Delaware) outside of the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
-3-
<PAGE>
The stockholders of the Corporation may not take any action by
written consent in lieu of a meeting, and must take any actions at a
duly called annual or special meeting of stockholders and the power
of stockholders to consent in writing without a meeting is
specifically denied.
TWELFTH: Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent
provided in the Bylaws of the Corporation.
THIRTEENTH: Notwithstanding any other provisions of this Restated Certificate of
Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, but in addition to any affirmative vote of
the holders of the capital stock required by law or this Restated
Certificate of Incorporation, the affirmative vote of the holders of
at least two-thirds (2/3) of the combined voting power of all of the
then-outstanding shares of the Corporation entitled to vote shall be
required to alter, amend or repeal Articles NINTH, TENTH, ELEVENTH
or TWELFTH hereof, or this Article THIRTEENTH, or any provision
hereof or thereof, unless such amendment shall be approved by a
majority of the directors of the Corporation.
FOURTEENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by the laws
of the State of Delaware, and all rights conferred herein are
granted subject to this reservation.
(3) This Amended and Restated Certificate of Incorporation has been duly
adopted by the Board of Directors of this Corporation in accordance
with Sections 242 and 245 of the General Corporation Law.
(4) This Amended and Restated Certificate of Incorporation has been duly
approved, in accordance with Section 242 of the General Corporation
Law, by vote of the holders of a majority of the outstanding stock
entitled to vote thereon.
-4-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this ________ Amended and
Restated Certificate of Incorporation on this ____ day of ________, 2000.
_____________________________________
Kenneth Schroeder
President and Chief Executive Officer
_____________________________________
Christopher C. Marino
Secretary
-5-
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
RESONATE INC.
(A Delaware Corporation)
(Post-IPO)
<PAGE>
AMENDED AND RESTATED
BYLAWS OF
RESONATE INC.
(a Delaware corporation)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES............................................ 1
1.1 REGISTERED OFFICE............................................. 1
1.2 OTHER OFFICES................................................. 1
ARTICLE II - MEETINGS OF STOCKHOLDERS.................................... 1
2.1 PLACE OF MEETINGS............................................. 1
2.2 ANNUAL MEETING................................................ 1
2.3 SPECIAL MEETING............................................... 3
2.4 NOTICE OF STOCKHOLDERS' MEETINGS.............................. 3
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.................. 4
2.6 QUORUM........................................................ 4
2.7 ADJOURNED MEETING; NOTICE..................................... 4
2.8 VOTING........................................................ 5
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING....... 5
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.................... 5
2.11 PROXIES....................................................... 5
2.12 ORGANIZATION.................................................. 6
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE......................... 6
ARTICLE III - DIRECTORS.................................................. 6
3.1 POWERS........................................................ 6
3.2 NUMBER OF DIRECTORS........................................... 6
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS...................... 7
3.4 RESIGNATION AND VACANCIES..................................... 7
3.5 REMOVAL OF DIRECTORS.......................................... 8
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE...................... 8
3.7 FIRST MEETINGS................................................ 8
3.8 REGULAR MEETINGS.............................................. 8
3.9 SPECIAL MEETINGS; NOTICE...................................... 9
3.10 QUORUM........................................................ 9
3.11 WAIVER OF NOTICE.............................................. 9
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.12 ADJOURNMENT................................................... 9
3.13 NOTICE OF ADJOURNMENT......................................... 10
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING............. 10
3.15 FEES AND COMPENSATION OF DIRECTORS............................ 10
3.16 APPROVAL OF LOANS TO OFFICERS................................. 10
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION........ 10
ARTICLE IV - COMMITTEES.................................................. 11
4.1 COMMITTEES OF DIRECTORS....................................... 11
4.2 MEETINGS AND ACTION OF COMMITTEES............................. 11
4.3 COMMITTEE MINUTES............................................. 12
ARTICLE V - OFFICERS..................................................... 12
5.1 OFFICERS...................................................... 12
5.2 ELECTION OF OFFICERS.......................................... 12
5.3 SUBORDINATE OFFICERS.......................................... 12
5.4 REMOVAL AND RESIGNATION OF OFFICERS........................... 12
5.5 VACANCIES IN OFFICES.......................................... 13
5.6 ADMINISTRATIVE OFFICERS....................................... 13
5.7 AUTHORITY AND DUTIES OF OFFICERS.............................. 13
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS........................................................ 13
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..................... 13
6.2 INDEMNIFICATION OF OTHERS..................................... 14
6.3 INSURANCE..................................................... 15
ARTICLE VII - RECORDS AND REPORTS........................................ 15
7.1 MAINTENANCE AND INSPECTION OF RECORDS.......................... 15
7.2 INSPECTION BY DIRECTORS........................................ 16
7.3 ANNUAL STATEMENT TO STOCKHOLDERS............................... 16
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................. 16
7.5 CERTIFICATION AND INSPECTION OF BYLAWS......................... 16
ARTICLE VIII - GENERAL MATTERS........................................... 16
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.......... 16
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS...................... 17
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED............. 17
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES............... 17
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.5 SPECIAL DESIGNATION ON CERTIFICATES............................ 18
8.6 LOST CERTIFICATES.............................................. 18
8.7 TRANSFER AGENTS AND REGISTRARS................................. 18
8.8 CONSTRUCTION; DEFINITIONS...................................... 19
ARTICLE IX - AMENDMENTS.................................................. 19
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED
--------------------
BYLAWS
------
OF
--
RESONATE INC.
-------------
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation shall be fixed in the certificate
of incorporation of the corporation.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of the stockholders of this corporation shall be held
each year on a date and at a time designated by the board of directors. At the
meeting, directors shall be elected and any other proper business may be
transacted. Nominations of persons for election to the board of directors of
the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders only (a) pursuant
to the corporation's notice of meeting, (b) by or at the direction of the board
of directors, or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in these Bylaws, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Bylaw.
<PAGE>
For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of the foregoing paragraph, (1)
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation, (2) such business must be a proper matter for
stockholder action under the General Corporation Law of Delaware, (3) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the Corporation with a Solicitation Notice, as
that term is defined in subclause (c)(iii) of this paragraph, such stockholder
or beneficial owner must, in the case of a proposal, have delivered a proxy
statement and form of proxy to holders of at least the percentage of the
Corporation's voting shares required under applicable law to carry any such
proposal, or, in the case of a nomination or nominations, have delivered a proxy
statement and form of proxy to holders of a percentage of the Corporation's
voting shares reasonably believed by such stockholder or beneficial holder to be
sufficient to elect the nominee or nominees proposed to be nominated by such
stockholder, and must, in either case, have included in such materials the
Solicitation Notice and (4) if no Solicitation Notice relating thereto has been
timely provided pursuant to this section, the stockholder or beneficial owner
proposing such business or nomination must not have solicited a number of
proxies sufficient to have required the delivery of such a Solicitation Notice
under this section. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not less
than 60 or more than 90 days prior to the first anniversary (the "Anniversary")
of the date on which the Corporation first mailed its proxy materials for the
preceding year's annual meeting of stockholders; provided, however, that if the
date of the annual meeting is advanced more than 30 days prior to or delayed by
more than 30 days after the anniversary of the preceding year's annual meeting,
notice by the stockholder to be timely must be so delivered not later than the
close of business on the later of (i) the 90/th/ day prior to such annual
meeting or (ii) the 10/th/ day following the day on which public announcement of
the date of such meeting is first made. Such stockholder's notice shall be set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person as
would be required to be disclosed in solicitations of proxies for the election
of such nominees as directors pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and such person's written
consent to serve as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of such
business, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; (c) as to the stockholder giving
the notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as they appear on
the Corporation's books, and of such beneficial owner, (ii) the class and number
of shares of the Corporation that are owned beneficially and of record by such
stockholder and such beneficial owner, and (iii) whether either such stockholder
or beneficial owner intends to deliver a proxy statement and form of proxy to
holders of, in the case of a proposal, at least the percentage of the
Corporation's voting shares required under applicable law to carry the proposal
or, in the case of a nomination or nominations, a sufficient number of holders
of the Corporation's voting shares to elect such nominee or nominees (an
affirmative statement of such intent, a "Solicitation Notice").
Only persons nominated in accordance with the procedures set forth in this
Bylaw shall be eligible to serve as directors and only such business shall be
conducted at an annual meeting of stockholders as shall have been brought before
the meeting in accordance with the procedures set
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forth in this section. The chair of the meeting shall have the power and the
duty to determine whether a nomination or any business proposed to be brought
before the meeting has been made in accordance with the procedures set forth in
these Bylaws and, if any proposed nomination or business is not in compliance
with these Bylaws, to declare that such defective proposed business or
nomination shall not be presented for stockholder action at the meeting and
shall be disregarded.
For the purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board or by the president.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing to the secretary of the
corporation, and shall set forth (a) as to each person whom such person or
persons propose to nominate for election or reelection as a director at such
meeting all information relating to such proposed nominee that is required to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required, in each case pursuant to Regulation 14A under
the Exchange Act (or any successor thereto) and Rule 14a-11 thereunder (or any
successor thereto) (including such proposed nominee's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected); (b) as to any other business to be taken at the meeting, a brief
description of such business, the reasons for conducting such business and any
material interest in such business of the person or persons calling such meeting
and the beneficial owners, if any, on whose behalf such meeting is called; and
(c) as to the person or persons calling such meeting and the beneficial owners,
if any, on whose behalf the meeting is called (i) the name and address of such
persons, as they appear on the corporation's books, and of such beneficial
owners, and (ii) the class and number of shares of the corporation that are
owned beneficially and of record by such persons and such beneficial owners. No
business may be transacted at such special meeting otherwise than specified in
such notice or by or at the direction of the corporation's board of directors.
The corporation's secretary shall cause notice to be promptly given to the
stockholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5, that a meeting will be held at the time reasonably requested by the
person or persons who called the meeting, not less than 60 nor more than 90 days
after the receipt of the request. If the notice is not given within 20 days
after the receipt of a valid request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph 2.3 shall be
construed as limiting, fixing or affecting the time when a meeting of
stockholders called by action of the board of directors may be held.
Only such business shall be conducted at a special meeting of stockholders
called by action of the board of directors as shall have been brought before the
meeting pursuant to the corporation's notice of meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
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All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Sections 2.2 and 2.3 of these bylaws not less than ten (10) nor
more than sixty (60) days before the date of the meeting. The notice shall
specify the place, date and hour of the meeting and (i) in the case of a special
meeting, the purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the board of directors, at the time
of giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. Notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time and place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are
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announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business that might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
2.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.10 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the certificate of incorporation or
these bylaws, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
The stockholders may not take any action by written consent in lieu of a
meeting, and must take any actions at a duly called annual or special meeting of
stockholders and the power of stockholders to consent in writing is specifically
denied.
2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
------------------------------------------
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these bylaws.
2.11 PROXIES
-------
Every person entitled to vote for directors, or on any other matter, shall
have the right to do so either in person or by one or more agents authorized by
a written proxy signed by the person and
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filed with the secretary of the corporation, but no such proxy shall be voted or
acted upon after three (3) years from its date, unless the proxy provides for a
longer period. A proxy shall be deemed signed if the stockholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission, telefacsimile or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(e) of the General Corporation Law of Delaware.
2.12 ORGANIZATION
------------
The president, or in the absence of the president, the chairman of the
board, shall call the meeting of the stockholders to order, and shall act as
chairman of the meeting. In the absence of the president, the chairman of the
board, and all of the vice presidents, the stockholders shall appoint a chairman
for such meeting. The chairman of any meeting of stockholders shall determine
the order of business and the procedures at the meeting, including such matters
as the regulation of the manner of voting and the conduct of business. The
secretary of the corporation shall act as secretary of all meetings of the
stockholders, but in the absence of the secretary at any meeting of the
stockholders, the chairman of the meeting may appoint any person to act as
secretary of the meeting.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and to
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
-------------------
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The board of directors shall consist of seven (7) members. The number of
directors may be changed by an amendment to this bylaw, duly adopted by the
board of directors or by the stockholders, or by a duly adopted amendment to the
certificate of incorporation.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Except as provided in Section 3.4 of these bylaws or the certificate of
incorporation, directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting. Each director, including a
director elected or appointed to fill a vacancy, shall hold office until the
expiration of the term for which elected and until a successor has been elected
and qualified.
Election of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the chairman
of the board, the president, the secretary or the board of directors, unless the
notice specifies a later time for that resignation to become effective. If the
resignation of a director is effective at a future time, the board of directors
may elect a successor to take office when the resignation becomes effective.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director; provided however, a vacancy created by the removal of a
director by the vote of the stockholders or by court order may be filled only by
the affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum). Unless
otherwise provided in the certificate of incorporation or these bylaws, each
director so elected shall hold office until the next annual meeting of the
stockholders and until a successor has been elected and qualified.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
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If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent (10%) of the total number of the shares then outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, only with cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place within
or outside the State of Delaware that has been designated from time to time by
resolution of the board. In the absence of such a designation, regular meetings
shall be held at the principal executive office of the corporation. Special
meetings of the board may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting of the board, regular or special, may be held by conference
telephone or similar communication equipment, so long as all directors
participating in the meeting can hear one another; and all such participating
directors shall be deemed to be present in person at the meeting.
3.7 FIRST MEETINGS
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting. In the event of the failure of the stockholders to fix the time
or place of such first meeting of the newly elected board of directors, or in
the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.8 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time as shall from time to time be determined by the board of directors.
If any regular meeting day shall fall on a legal holiday, then the meeting shall
be held at the same time and place on the next succeeding business day.
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3.9 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telecopy, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telecopy, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.10 QUORUM
------
A majority of the authorized number of directors shall constitute a quorum
for the transaction of business, except to adjourn as provided in Section 3.12
of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of the
certificate of incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the quorum for that meeting.
3.11 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice, whether before or after the meeting, or (ii) who attends the
meeting other than for the express purposed of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. All such waivers shall be filed with the corporate records
or made part of the minutes of the meeting. A waiver of notice need not specify
the purpose of any regular or special meeting of the board of directors.
3.12 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a quorum,
may adjourn any meeting of the board to another time and place.
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3.13 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting of the board
need not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.9 of these
bylaws, to the directors who were not present at the time of the adjournment.
3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of directors may
be taken without a meeting, provided that all members of the board individually
or collectively consent in writing to that action. Such action by written
consent shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board of directors.
3.15 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.17 SOLE DIRECTOR PROVIDED BY CERTIFICATE OF INCORPORATION
------------------------------------------------------
In the event only one director is required by these bylaws or the
certificate of incorporation, then any reference herein to notices, waivers,
consents, meetings or other actions by a majority or quorum of the directors
shall be deemed to refer to such notice, waiver, etc., by such sole director,
who shall have all the rights and duties and shall be entitled to exercise all
of the powers and shall assume all the responsibilities otherwise herein
described as given to the board of directors.
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ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. Any
committee, to the extent provided in the resolution of the board, shall have and
may exercise all the powers and authority of the board, but no such committee
shall have the power or authority to (i) amend the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the following provisions of Article III of these bylaws:
Section 3.6 (place of meetings; meetings by telephone), Section 3.8 (regular
meetings), Section 3.9 (special meetings; notice), Section 3.10 (quorum),
Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13
(notice of adjournment) and Section 3.14 (board action by written consent
without meeting), with such changes in the context of those bylaws as are
necessary to substitute the committee and its members for the board of directors
and its members; provided, however, that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee, that special meetings of committees may also be
called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
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4.3 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The Corporate Officers of the corporation shall be a president, a secretary
and a chief financial officer. The corporation may also have, at the discretion
of the board of directors, a chairman of the board, one or more vice presidents
(however denominated), one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 5.3 of these bylaws. Any number of offices may be held by
the same person.
5.2 ELECTION OF OFFICERS
--------------------
The Corporate Officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment, and shall hold their
respective offices for such terms as the board of directors may from time to
time determine.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or may empower the president to
appoint, such other Corporate Officers as the business of the corporation may
require, each of whom shall hold office for such period, have such power and
authority, and perform such duties as are provided in these bylaws or as the
board of directors may from time to time determine.
The president may from time to time designate and appoint Administrative
Officers of the corporation in accordance with the provisions of Section 5.6 of
these bylaws.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of a Corporate Officer under any contract of
employment, any Corporate Officer may be removed, either with or without cause,
by the board of directors at any regular or special meeting of the board or,
except in case of a Corporate Officer chosen by the board of directors, by any
Corporate Officer upon whom such power of removal may be conferred by the board
of directors.
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Any Corporate Officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the Corporate
Officer is a party.
Any Administrative Officer designated and appointed by the president may be
removed, either with or without cause, at any time by the president. Any
Administrative Officer may resign at any time by giving written notice to the
president or to the secretary of the corporation.
5.5 VACANCIES IN OFFICES
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 ADMINISTRATIVE OFFICERS
-----------------------
In addition to the Corporate Officers of the corporation as provided in
Section 5.1 of these bylaws and such subordinate Corporate Officers as may be
appointed in accordance with Section 5.3 of these bylaws, there may also be such
Administrative Officers of the corporation as may be designated and appointed
from time to time by the president of the corporation. Administrative Officers
shall perform such duties and have such powers as from time to time may be
determined by the president or the board of directors in order to assist the
Corporate Officers in the furtherance of their duties. In the performance of
such duties and the exercise of such powers, however, such Administrative
Officers shall have limited authority to act on behalf of the corporation as the
board of directors shall establish, including but not limited to limitations on
the dollar amount and on the scope of agreements or commitments that may be made
by such Administrative Officers on behalf of the corporation, which limitations
may not be exceeded by such individuals or altered by the president without
further approval by the board of directors.
5.7 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
The officers of the corporation shall respectively have such authority and
powers and perform such duties in the management of the business of the
corporation as may be designated from time to time by the board of directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
-------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware as the same now exists or may hereafter
be amended, indemnify any
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person against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending or completed action, suit, or proceeding in which such
person was or is a party or is threatened to be made a party by reason of the
fact that such person is or was a director or officer of the corporation. For
purposes of this Section 6.1, a "director" or "officer" of the corporation shall
mean any person (i) who is or was a director or officer of the corporation, (ii)
who is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise,
or (iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
The corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
board of directors of the corporation.
The corporation shall pay the expenses (including attorney's fees) incurred
by a director or officer of the corporation entitled to indemnification
hereunder in defending any action, suit or proceeding referred to in this
Section 6.1 in advance of its final disposition; provided, however, that payment
of expenses incurred by a director or officer of the corporation in advance of
the final disposition of such action, suit or proceeding shall be made only upon
receipt of an undertaking by the director or officer to repay all amounts
advanced if it should ultimately be determined that the director or officer is
not entitled to be indemnified under this Section 6.1 or otherwise.
If a claim for indemnification or payment of expenses under this Article is
not paid in full within sixty days after a written claim therefor has been
received by the corporation the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim. In any such action the
corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under applicable law.
The rights conferred on any person by this Article shall not be exclusive
of any other rights which such person may have or hereafter acquire under any
statute, provision of the corporation's Certificate of Incorporation, these
bylaws, agreement, vote of the stockholders or disinterested directors or
otherwise.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware as the same now
exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or
proceeding, in which such person was or
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is a party or is threatened to be made a party by reason of the fact that such
person is or was an employee or agent of the corporation. The corporation's
obligation, if any, to indemnify any person who was or is serving at its request
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, enterprise or non-profit entity shall be reduced by any
amount such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise or non-profit enterprise. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) shall mean any person (i) who is or was an employee
or agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records of its business and properties.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual business hours to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
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7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, if any, the president, any vice president, the
chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the board of directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock of any other corporation or corporations standing in the name of this
corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
--------------------------------------
The original or a copy of these bylaws, as amended or otherwise altered to
date, certified by the secretary, shall be kept at the corporation's principal
executive office and shall be open to inspection by the stockholders of the
corporation, at all reasonable times during business hours.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the board of directors may fix, in advance, a record date, which shall not
precede the date upon which the resolution fixing the record date is adopted and
which shall not be more than sixty (60) days before any such action. In that
case, only stockholders of record at the close of business on the date so fixed
are entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
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<PAGE>
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the applicable
resolution.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
--------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize and empower any officer or officers, or agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
corporation; such power and authority may be general or confined to specific
instances. Unless so authorized or ratified by the board of directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES
------------------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and, upon
request, every holder of uncertificated shares, shall be entitled to have a
certificate signed by, or in the name of the corporation by, the chairman or
vice-chairman of the board of directors, or the president or vice-president, and
by the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
Certificates for shares shall be of such form and device as the board of
directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any; a conspicuous notice of
restrictions upon transfer or registration of transfer, if any; a statement as
to any applicable voting trust agreement; if the shares be assessable, or, if
assessments are collectible by personal action, a plain statement of such facts.
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<PAGE>
Upon surrender to the secretary or transfer agent of the corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences and the relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 TRANSFER AGENTS AND REGISTRARS
------------------------------
The board of directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, each of which shall be an incorporated bank
or trust company--either domestic or foreign--who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
board of directors may designate.
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<PAGE>
8.8 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of
this provision, as used in these bylaws, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both an entity and a natural person.
ARTICLE IX
AMENDMENTS
----------
Any of these bylaws may be altered, amended or repealed by the affirmative
vote of a majority of the members of the board of directors or, with respect to
bylaw amendments, excluding amendments relating to Sections 2.2, 2.3, 2.9 or
Article VI, placed before the stockholders for approval and except as otherwise
provided herein or required by law, by the affirmative vote of the holders of a
majority of the shares of the corporation's stock entitled to vote, voting as
one class, and with respect to bylaw amendments relating to Sections 2.2, 2.3,
2.9 or Article VI, placed before the stockholders for approval and except as
otherwise provided herein or required by law, by the affirmative vote of the
holders of at least two-thirds of the shares of the corporation's stock entitled
to vote, voting as one class.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
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<PAGE>
EXHIBIT 10.1
RESONATE INC.
-------------
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of March
__, 2000 by and between Resonate Inc. a Delaware corporation (the "Company") and
((Name)) ("Indemnitee").
RECITALS
--------
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and other directors, officers,
employees, agents and fiduciaries of the Company may not be willing to continue
to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires that
Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify
---------------------------
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to the institution of any such action, suit, proceeding or
alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other (hereinafter a "Claim") by reason of (or
arising in part out of) any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee, agent or fiduciary of the
Company, or any subsidiary of the Company, or is or was serving at the request
of the Company as a director, officer, employee, agent or fiduciary of another
-1-
<PAGE>
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of Indemnitee while serving in such
capacity (hereinafter an "Indemnifiable Event") against any and all expenses
(including attorneys' fees and all other costs, expenses and obligations
incurred in connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to defend, be a witness in
or participate in, any such action, suit, proceeding, alternative dispute
resolution mechanism, hearing, inquiry or investigation), judgments, fines,
penalties and amounts paid in settlement (if such settlement is approved in
advance by the Company, which approval shall not be unreasonably withheld) of
such Claim and any federal, state, local or foreign taxes imposed on Indemnitee
as a result of the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses.
Such payment of Expenses shall be made by the Company as soon as practicable but
in any event no later than five days after written demand by Indemnitee therefor
is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in Section 1(c) hereof. If there has been
no determination by the Reviewing Party or if the Reviewing Party determines
that Indemnitee substantively would not be permitted to be indemnified in whole
or in part under applicable law, Indemnitee shall have the right to commence
litigation seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of process
and to appear in any such proceeding. Any determination by the Reviewing Party
otherwise shall be conclusive and binding on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the
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<PAGE>
Company's Board of Directors who were directors immediately prior to such Change
in Control) then, with respect to all matters thereafter arising concerning the
rights of Indemnitees to payments of Expenses and Expense Advances under this
Agreement or any other agreement or under the Company's Certificate of
Incorporation or Bylaws as now or hereafter in effect, Independent Legal Counsel
(as defined in Section 10(d) hereof) shall be selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law and the Company agrees to abide
by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to fully indemnify such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a condition
--------------------------------
precedent to Indemnitees' right to be indemnified under this Agreement, give the
Company notice in writing as soon as practicable of any Claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitees'
power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
--------------------------------
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or
---------------
its equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In addition,
neither the failure of the Reviewing Party to have made a determination as to
whether Indemnitee has met any particular standard of conduct or had any
particular belief, nor an actual determination by the Reviewing Party that
Indemnitee has not met such standard of conduct or did not have such belief,
prior to the commencement of legal proceedings by Indemnitee to secure a
judicial determination that Indemnitee should be indemnified under applicable
law, shall be a defense to Indemnitee's claim
-3-
<PAGE>
or create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any
determination by the Reviewing Party or otherwise as to whether Indemnitee is
entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company
------------------
notice of a Claim pursuant to Section 2(b) hereof, the Company has liability
insurance in effect which may cover such Claim, the Company shall give prompt
notice of the commencement of such Claim to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of Indemnitee, all amounts payable as a result of such action, suit, proceeding,
inquiry or investigation in accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to Indemnitee of
written notice of its election so to do. After delivery of such notice, approval
of such counsel by Indemnitee and the retention of such counsel by the Company,
the Company will not be liable to Indemnitee under this Agreement for any fees
of counsel subsequently incurred by Indemnitee with respect to the same Claim;
provided that, (i) Indemnitee shall have the right to employ Indemnitees'
counsel in any such Claim at Indemnitee expense and (ii) if (A) the employment
of counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there is a conflict of interest
between the Company and Indemnitee in the conduct of any such defense, or (C)
the Company shall not continue to retain such counsel to defend such Claim, then
the fees and expenses of Indemnitee counsel shall be at the expense of the
Company. The Company shall have the right to conduct such defense as it sees fit
in its sole discretion, including the right to settle any claim against
Indemnitee without the consent of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
-----
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of
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<PAGE>
Incorporation, its Bylaws, any agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Delaware,
or otherwise. The indemnification provided under this Agreement shall continue
as to Indemnitee for any action Indemnitee took or did not take while serving in
an indemnified capacity even though Indemnitee may have ceased to serve in such
capacity.
4. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee are entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
----------------------
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. To indemnify Indemnitee for
----------------------------
Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be indemnified under applicable law;
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or
-5-
<PAGE>
bringing of such Claim, or (iii) as otherwise required under Section 145 of the
Delaware General Corporation Law, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause of
---------------------
action shall be asserted by or in the right of the Company against Indemnitee,
Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-------- -------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities
-6-
<PAGE>
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
(A) who is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 10% or more of the combined voting power
of the Company's then outstanding Voting Securities, increases his beneficial
ownership of such securities by 5% or more over the percentage so owned by such
person, or (B) becomes the "beneficial owner" (as defined in Rule 13d-3 under
said Act), directly or indirectly, of securities of the Company representing
more than 20% of the total voting power represented by the Company's then
outstanding Voting Securities, (ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean any
appropriate person or body consisting of a member or members of the Company's
Board of Directors or any other person or body appointed by the Board of
Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean any
securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or
-7-
<PAGE>
indirect by purchase, merger, consolidation or otherwise) to all, substantially
all, or a substantial part, of the business and/or assets of the Company, by
written agreement in form and substance satisfactory to Indemnitee, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform if no such succession had
taken place. This Agreement shall continue in effect with respect to Claims
relating to Indemnifiable Events regardless of whether Indemnitee continues to
serve as a director, officer, employee, agent or fiduciary of the Company or of
any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of Indemnitee material defenses to such action
was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or permitted
------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
the Indemnitee address as set forth beneath Indemnitee signatures to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each
-8-
<PAGE>
portion of this Agreement containing any provision held to be invalid, void or
otherwise unenforceable, that is not itself invalid, void or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. Subject to Indemnitee's right under
--------------------------------
Section 3(b) hereof, this Agreement sets forth the entire understanding between
the parties hereto and supersedes and merges all previous written and oral
negotiations, commitments, understandings and agreements relating to the subject
matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
RESONATE INC.
___________________________________
By:
___________________________________
Title:
Address: 385 Moffett Park Drive
Sunnyvale, CA 94089
AGREED TO AND ACCEPTED BY:
Signature:__________________________
Name: ((Name))
Address:____________________________
____________________________
-10-
<PAGE>
EXHIBIT 10.2
RESONATE INC.
1996 STOCK PLAN
(As amended October 28, 1999)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant of an Option and subject to the applicable provisions of Section 422 of
the Code and the regulations promulgated thereunder. Stock Purchase Rights may
also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
-----
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means a Committee appointed by the Board of Directors
---------
in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Resonate Inc., a California corporation.
-------
(g) "Consultant" means any person who is engaged by the Company or any
----------
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not. If the Company registers any class of any
equity security pursuant to the Exchange Act, the term Consultant shall
thereafter not include Directors who are not compensated for their services or
are paid only a Director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick
<PAGE>
leave, military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no such
leave may exceed 90 days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract, including Company policies. If reemployment
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 91st day of such leave any Incentive Stock Option held by the
Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option.
(i) "Director" means a member of the Board of Directors of the Company.
--------
(j) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the time of determination and reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the Nasdaq National Market thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
-2-
<PAGE>
(o) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
------
(q) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(r) "Optionee" means an Employee or Consultant who receives an Option
--------
or Stock Purchase Right.
(s) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(t) "Plan" means this 1996 Stock Plan.
----
(u) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(v) "Section 16(b)" means Section 16(b) of the Securities Exchange
-------------
Act of 1934, as amended.
(w) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 below.
(x) "Stock Purchase Right" means a right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be Optioned Stock and
sold under the Plan is 5,140,250 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an option
exchange program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if either (i) Shares of Restricted Stock or (ii) Shares issued
upon exercise of unvested Options and subject to a repurchase right at cost, are
repurchased by the Company at their original purchase price, and
-3-
<PAGE>
the original purchaser of such Shares under clause (i) or (ii) did not receive
any benefits of ownership of such Shares, such Shares shall become available for
future grant under the Plan. For purposes of the preceding sentence, voting
rights shall not be considered a benefit of Share ownership.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which the
----------------------
Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a Committee appointed by the Board.
(b) Plan Procedure After the Date, if any, upon Which the Company
-------------------------------------------------------------
becomes Subject to the Exchange Act.
- -----------------------------------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
------------------------------
Plan may be administered by different bodies with respect to Directors, Officers
and Employees who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Options and Stock Purchase Rights to Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board if the Board may administer the Plan in compliance with the rules under
Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule
16b-3") relating to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted to comply with the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made.
(iii) Administration With Respect to Other Employees and Consultants.
--------------------------------------------------------------
With respect to grants of Options and Stock Purchase Rights to Employees or
Consultants who are neither Directors nor Officers of the Company, the Plan
shall be administered by (A) the Board or (B) a Committee designated by the
Board, which committee shall be constituted in such a manner as to satisfy the
legal requirements relating to the administration of incentive stock option
plans, if any, of California corporate and securities laws, of the Code, and of
any applicable stock exchange (the "Applicable Laws"). Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board. From time to time the Board may
-4-
<PAGE>
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies, however caused, and remove all members of the
Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value of the Common Stock,
in accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of Shares to be covered by each
such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award
granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(ix) to provide for the early exercise of Options for the
purchase of unvested Shares, subject to such terms and conditions as the
Administrator may determine; and
(x) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees and any other holders of any Options or Stock Purchase Rights.
-5-
<PAGE>
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if otherwise eligible, be granted additional Options
or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuation of his or her
employment or consulting relationship with the Company, nor shall it interfere
in any way with his or her right or the Company's right to terminate his or her
employment or consulting relationship at any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options and
Stock Purchase Rights to Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options and Stock Purchase Rights to purchase more than 500,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options and Stock Purchase Rights to purchase up to an
additional 500,000 Shares which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
(iv) If an Option or Stock Purchase Right is cancelled in the
same fiscal year of the Company in which it was granted (other than in
connection with a transaction described in Section 12), the cancelled Option or
Stock Purchase Right shall be counted against the limit set forth in subsection
(i) above. For this purpose, if the exercise price of an Option or Stock
-6-
<PAGE>
Purchase Right is reduced, such reduction will be treated as a cancellation of
the Option or Stock Purchase Right and the grant of a new Option or Stock
Purchase Right.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
------------
of its adoption by the Board of Directors or its approval by the shareholders of
the Company, as described in Section 18 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 14 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
--------------
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any other person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant.
-7-
<PAGE>
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
a broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan, but in no case at a rate of less than 20% per year over five (5)
years from the date the Option is granted. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence to the extent permitted by applicable laws; provided,
however, that if an Optionee returns from an unpaid leave of absence and remains
in Continuous Status as an Employee or Consultant for a period of time equal to
such leave, the Administrator shall accelerate the vesting on the Option as to
that number of Shares that would have vested had vesting not been tolled during
the leave of absence.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) hereof. Until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote, receive dividends or any other rights
as a shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 hereof.
-8-
<PAGE>
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (but not in the event of an Optionee's change of status from Employee
to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
----------------------
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
to the extent otherwise entitled to exercise it at the date of such termination.
If such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall automatically cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day three months and one day following such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of termination,
or if the Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant) by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option on the date of
death, or such greater extent as the Administrator may determine. If, at the
time of death, the Optionee was not entitled to exercise his or her entire
Option and the Administrator does not determine a greater extent to which such
Option may be exercised, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after the Optionee's death,
the Optionee's estate or a person who acquires the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
-9-
<PAGE>
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buy out Provisions. The Administrator may at any time offer to
------------------
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed thirty (30) days from the date
upon which the Administrator makes the determination to grant the Stock Purchase
Right. The offer shall be accepted by execution of a Restricted Stock purchase
agreement in the form determined by the Administrator. Shares purchased
pursuant to the grant of a Stock Purchase Right shall be referred to herein as
"Restricted Stock."
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
-10-
<PAGE>
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the
extent it has not been previously exercised, the Option or Stock Purchase Right
shall terminate immediately prior to the consummation of such proposed action.
(c) Merger. In the event of a merger of the Company with or into
------
another corporation, each outstanding Option or Stock Purchase Right may be
assumed or an equivalent option or right may be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. If, in
such event, an Option or Stock Purchase Right is not assumed or substituted, the
Option or Stock Purchase Right shall terminate as of the date of the closing of
the merger. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger, the Option or Stock
Purchase Right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Common Stock for each Share held
on the effective date of the transaction (and if the holders are offered a
choice of consideration, the type
-11-
<PAGE>
of consideration chosen by the holders of a majority of the outstanding Shares).
If such consideration received in the merger is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger.
13. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Stock Purchase Right is so granted within a reasonable time
after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of the NASD or an established stock exchange), the
Company shall obtain shareholder approval of any Plan amendment in such a manner
and to such a degree as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options or Stock Purchase Rights
already granted, and such Options and Stock Purchase Rights shall remain in full
force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Administrator, which
agreement must be in writing and signed by the Optionee and the Company.
15. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option or Stock Purchase Right,
the Company may require the person exercising such Option or Stock Purchase
Right to represent and warrant at the time of any such exercise that the Shares
are being purchased only for investment and without
-12-
<PAGE>
any present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
16. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
17. Agreements. Options and Stock Purchase Rights shall be evidenced by
----------
written agreements in such form as the Administrator shall approve from time to
time.
18. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange upon which the Common Stock is listed.
-13-
<PAGE>
RESONATE INC.
1996 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
FIELD(1)
FIELD(2)
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number FIELD(3)
Date of Grant FIELD(4)
Vesting Commencement Date FIELD(5)
Exercise Price per Share $FIELD(6)
Total Number of Shares Granted FIELD(7)
Total Exercise Price $FIELD(8)
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: FIELD(9)
Vesting Schedule:
----------------
You may exercise this Option, in whole or in part, according to the
following vesting schedule:
25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/12 of the Shares subject to the Option shall
vest each quarter (3 months) of the year for an additional 3 years, according to
schedule outlined in Exhibit C.
<PAGE>
Termination Period:
------------------
You may exercise this Option for 30 days after your employment or
consulting relationship with the Company terminates, or for such longer period
upon your death or disability as provided in the Plan. If your status changes
from Employee to Consultant or Consultant to Employee, this Option Agreement
shall remain in effect. In no case may you exercise this Option after the
Term/Expiration Date as provided above.
II. AGREEMENT
---------
1. Grant of Option. Resonate Inc., a California corporation (the
---------------
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase the total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the 1996 Stock Plan (the "Plan")
adopted by the Company, which is incorporated herein by reference. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Option Agreement.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option shall be exercisable during its
-----------------
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement. In the
event of Optionee's death, disability or other termination of the employment or
consulting relationship, this Option shall be exercisable in accordance with the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as Exhibit A) which shall state the election to
---------
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax
<PAGE>
purposes the Shares shall be considered transferred to the Optionee on the date
on which the Option is exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
---------
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(a) cash;
(b) check;
(c) if, at the time of exercise, the Company has registered its Common
Stock under the Exchange Act, by surrender of other shares of Common Stock of
the Company which (A) in the case of Shares acquired pursuant to the exercise of
a Company option, have been owned by the Optionee for more than six (6) months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the Exercise Price of the Shares as to which the Option is
being exercised; or
(d) delivery of a properly executed exercise notice together with such
other documentation as the Administrator and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the Exercise Price.
5. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board.
6. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
<PAGE>
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of an Optionee's consulting relationship or
Continuous Status as an Employee as a result of his or her disability, Optionee
may, but only within twelve (12) months from the date of such termination (and
in no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), exercise the Option to the extent otherwise
entitled to exercise it at the date of such termination; provided, however, that
if such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option on the day three months
and one day following such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
8. Death of Optionee. In the event of termination of Optionee's
-----------------
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 11 below), by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee could exercise the Option at
the date of death.
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
10. Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to the first registration statement of the
Company to become effective under the Securities Act which include securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
11. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
12. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal and California tax consequences of exercise
of this Option and disposition of the
<PAGE>
Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS
ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will be
---------------
no regular federal income tax liability or California income tax liability upon
the exercise of the Option, although the excess, if any, of the Fair Market
Value of the Shares on the date of exercise over the Exercise Price will be
treated as an adjustment to the alternative minimum tax for federal tax purposes
and may subject the Optionee to the alternative minimum tax in the year of
exercise.
(b) Exercise of ISO Following Disability. If the Optionee's
------------------------------------
Continuous Status as an Employee or Consultant terminates as a result of
disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination, the
Optionee must exercise an ISO within three months of such termination for the
ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability and California income tax liability upon the
exercise of a Nonstatutory Stock Option. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an Employee or a former Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities including, if
required, withholding for FICA, FUTA and similar statutes an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal and California income tax
purposes. In the case of an ISO, if Shares transferred pursuant to the Option
are held for at least one year after exercise and are disposed of at least two
years after the Date of Grant, any gain realized on disposition of the Shares
will also be treated as long-term capital gain for federal and California income
tax purposes. If Shares purchased under an ISO are disposed of within such one-
year period or within two years after the Date of Grant, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the difference between the Exercise Price and the
lesser of (1) the Fair Market Value of the Shares on the date of exercise, or
(2) the sale price of the Shares.
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
<PAGE>
13. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by California law except for that body of
law pertaining to conflict of laws.
RESONATE INC.
a California corporation
By: ___________________________________
Its: __________________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated: _______________ ______________________________
Optionee
Residence Address:
______________________________
______________________________
______________________________
<PAGE>
EXHIBIT A
---------
1996 STOCK PLAN
EXERCISE NOTICE
Resonate Inc.
385 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 19__, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Resonate Inc., a
California corporation (the "Company"), under and pursuant to the 1996 Stock
Plan, as amended (the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock
Option Agreement dated ________, 19___ (the "Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. Company's Right of First Refusal. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
<PAGE>
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the
<PAGE>
Shares so transferred subject to the provisions of this Section, and there shall
be no further transfer of such Shares except in accordance with the terms of
this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares 90 days after the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
5. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY
BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT
THE PRIOR
<PAGE>
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be restricted by
Section 260.141.11 of the Rules of the California Corporations Commissioner, a
copy of which is attached to Exhibit B, the Investment Representation Statement.
---------
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
<PAGE>
12. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company and Optionee
Submitted by: Accepted by:
OPTIONEE: RESONATE INC.
a California corporation
______________________________ By:________________________________
(Signature)
Its:_______________________________
Address: ________________ Address: ________________
________________ ________________
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: RESONATE INC.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
<PAGE>
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Option to the Optionee, the exercise will be
exempt from registration under the Securities Act. In the event the Company
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter (or such longer
period as any market stand-off agreement may require) the Securities exempt
under Rule 701 may be resold, subject to the satisfaction of certain of the
conditions specified by Rule 144, including: (1) the resale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934); and, in the case of an affiliate, (2) the availability of certain
public information about the Company, (3) the amount of Securities being sold
during any three month period not exceeding the limitations specified in Rule
144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters in connection with any registration of the
offering of any securities of the Company under the Securities Act, Optionee
shall not sell or otherwise transfer any Shares or other securities of the
Company during the 180-day period following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however, that
such restriction shall only apply to the first registration statement of the
Company to become effective under the Securities Act which include securities to
be sold on behalf of the Company to the public in an underwritten public
offering under the Securities Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
<PAGE>
Optionee understands that no assurances can be given that any such other
registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the Securities
will be imprinted with a legend which prohibits the transfer of the Securities
without the consent of the Commissioner of Corporations of California. Optionee
has read the applicable Commissioner's Rules with respect to such restriction, a
copy of which is attached.
Signature of Optionee:
______________________________________
Date:__________________________, 19___
<PAGE>
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security upon
---------- -----------------------
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section to be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory
or country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state; or
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES."
<PAGE>
EXHIBIT 10.4
RESONATE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of Resonate, Inc..
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company or any
-----
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Resonate, Inc. and any Designated Subsidiary
-------
of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last trading day prior to the date of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the last trading day prior to the date of determination, as reported in The Wall
Street Journal or such other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after August 1/st/ and
February 1/st/ of each year and terminating on the last Trading Day in the
periods ending twenty-four months later; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day on
or before July 31, 2002. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 2000 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
-2-
<PAGE>
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after August 1/st/ and February 1/st/ each year, or on such
other date as the Board shall determine, and continuing thereafter until
terminated in accordance with Section 20 hereof; provided, however, that the
first Offering Period under the Plan shall commence with the first Trading Day
on or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective and ending on the last Trading
Day on or before July 31, 2002. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding 15% of the Compensation
which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
---------------
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
1,250 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of
-4-
<PAGE>
the Company's Common Stock an Employee may purchase during each Purchase Period
of such Offering Period. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant
-5-
<PAGE>
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 1,000,000 shares plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2001, equal to the lesser of (i)
750,000 shares, (ii) 2.5% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
-6-
<PAGE>
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), the
number of shares that may be added annually to the shares reserved under the
Plan (pursuant to Section 13(a)(i)), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the
-7-
<PAGE>
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be
-8-
<PAGE>
entitled to change the Offering Periods, limit the frequency and/or number of
changes in the amount withheld during an Offering Period, establish the exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a participant
in order to adjust for delays or mistakes in the Company's processing of
properly completed withholding elections, establish reasonable waiting and
adjustment periods and/or accounting and crediting procedures to ensure that
amounts applied toward the purchase of Common Stock for each participant
properly correspond with amounts withheld from the participant's Compensation,
and establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent with
the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-9-
<PAGE>
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
RESONATE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Resonate, Inc.
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the date
---------------------------------------------------------------------------
of any disposition of my shares and I will make adequate provision for
----------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the
--------
<PAGE>
disposition of the Common Stock. The Company may, but will not be obligated
-------------------------------
to, withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year and 1-year holding
periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of
the shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares on
the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)_______________________________________________________
(First) (Middle) (Last)
_________________________ ________________________________________
Relationship
________________________________________
(Address)
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other
than spouse)
<PAGE>
EXHIBIT B
---------
RESONATE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Resonate, Inc.
Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:____________________________
<PAGE>
RESONATE INC.
2000 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number ______________________________
Date of Grant ______________________________
Vesting Commencement Date ______________________________
Exercise Price per Share $_____________________________
Total Number of Shares Granted ______________________________
Total Exercise Price $_____________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: ______________________________
Vesting Schedule:
----------------
Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
[25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates].
<PAGE>
Termination Period:
------------------
This Option may be exercised for [three months] after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for [twelve months] after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
---------
A. Grant of Option.
---------------
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c)
of the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to [title] of the Company. The Exercise Notice
shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by such aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
<PAGE>
C. Method of Payment.
-----------------
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
2. check; or
3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
4. surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares; [or
5. with the Administrator's consent, delivery of Optionee's
promissory note (the "Note") in the form attached hereto as Exhibit C, in the
amount of the aggregate Exercise Price of the Exercised Shares together with the
execution and delivery by the Optionee of the Security Agreement attached hereto
as Exhibit B. The Note shall bear interest at the "applicable federal rate"
prescribed under the Code and its regulations at time of purchase, and shall be
secured by a pledge of the Shares purchased by the Note pursuant to the Security
Agreement][; or
6. to the extent permitted by the Administrator, delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale proceeds required to pay
the Exercise Price.]
D. Non-Transferability of Option.
-----------------------------
This Option may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of the Plan and this
Option Agreement shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
E. Term of Option.
--------------
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
F. Tax Consequences.
----------------
Some of the federal tax consequences relating to this Option, as of
the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE
OPTIONEE SHOULD
<PAGE>
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
G. Exercising the Option.
---------------------
1. Nonstatutory Stock Option. The Optionee may incur regular
-------------------------
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
2. Incentive Stock Option. If this Option qualifies as an ISO,
----------------------
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
3. Disposition of Shares.
---------------------
(a) NSO. If the Optionee holds NSO Shares for at least
---
one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least
---
one year after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares.
-------------------------------------------------
If the Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to an ISO on or before the later of (i) two years after the grant date,
or (ii) one year after the exercise date, the Optionee shall immediately notify
the Company in writing of such disposition. The Optionee agrees that he or she
may be subject to income tax withholding by the Company on the compensation
income recognized from such early disposition of ISO Shares by payment in cash
or out of the current earnings paid to the Optionee.
<PAGE>
H. Entire Agreement; Governing Law.
-------------------------------
The Plan is incorporated herein by reference. The Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
I. NO GUARANTEE OF CONTINUED SERVICE.
---------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS
OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING
PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE
PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: RESONATE INC.
_______________________________ __________________________________
Signature By
_______________________________ __________________________________
Print Name Title
_______________________________
Residence Address
_______________________________
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_______________________________
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
RESONATE INC.
2000 STOCK OPTION PLAN
EXERCISE NOTICE
Resonate Inc.
385 Moffett Park Drive
Sunnyvale, California 94089
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________, _____,
------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Resonate Inc. (the "Company") under and
pursuant to the 2000 Stock Plan (the "Plan") and the Stock Option Agreement
dated, _____ (the "Option Agreement"). The purchase price for the Shares shall
be $_____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
<PAGE>
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Purchaser with respect to the subject matter
hereof, and may not be modified adversely to the Purchaser's interest except by
means of a writing signed by the Company and Purchaser. This agreement is
governed by the internal substantive laws, but not the choice of law rules, of
California.
Submitted by: Accepted by:
PURCHASER: RESONATE INC.
_______________________________ _______________________________
Signature By
_______________________________ _______________________________
Print Name Its
Address: Address:
- ------- -------
_______________________________ Resonate Inc.
385 Moffett Park Drive
_______________________________ Sunnyvale, California 94089
_______________________________
Date Received
<PAGE>
EXHIBIT B
---------
SECURITY AGREEMENT
This Security Agreement is made as of __________, _____ between Resonate
Inc., a Delaware corporation ("Pledgee"), and _________________________
("Pledgor").
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ________ (the "Option"), between Pledgor and Pledgee under
Pledgee's 2000 Stock Plan, and Pledgor's election under the terms of the Option
to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased _________ shares of Pledgee's Common Stock (the "Shares") at a price
of $________ per share, for a total purchase price of $__________. The Note and
the obligations thereunder are as set forth in Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
---------------------------------------------
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment
for use in transferring all or a portion of the Shares to Pledgee if, as and
when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the Option,
and the Pledgeholder shall not encumber or dispose of such Shares except in
accordance with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
(c) Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
-----------------
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
------------------
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall
have the right to accelerate payment of the Note upon notice to Pledgor, and
Pledgee shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
<PAGE>
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the internal substantive laws, but not the choice of law rules,
of California.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR"
_________________________________________
Signature
_________________________________________
Print Name
Address: ______________________________
______________________________
"PLEDGEE" RESONATE INC.
a Delaware corporation
_________________________________________
Signature
_________________________________________
Print Name
_________________________________________
Title
"PLEDGEHOLDER"
_________________________________________
Secretary of Resonate Inc.
<PAGE>
EXHIBIT C
---------
NOTE
$_______________ [City, State]
__________________, _____
FOR VALUE RECEIVED, _____________________ promises to pay to Resonate Inc.,
a Delaware corporation (the "Company"), or order, the principal sum of
_______________________ ($_____________), together with interest on the unpaid
principal hereof from the date hereof at the rate of _______________ percent
(____%) per annum, compounded semiannually.
Principal and interest shall be due and payable on _______________, _____.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of
________________. This Note is secured in part by a pledge of the Company's
Common Stock under the terms of a Security Agreement of even date herewith and
is subject to all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
____________________________________
____________________________________
<PAGE>
RESONATE INC.
2000 STOCK PLAN
NOTICE OF GRANT OF STOCK PURCHASE RIGHT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Grantee's Name and Address]
You have been granted the right to purchase Common Stock of the Company,
subject to the Company's Repurchase Option and your ongoing status as a Service
Provider (as described in the Plan and the attached Restricted Stock Purchase
Agreement), as follows:
Grant Number _________________________
Date of Grant _________________________
Price Per Share $________________________
Total Number of Shares Subject _________________________
to This Stock Purchase Right
Expiration Date: _________________________
YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR
IT WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES. By
your signature and the signature of the Company's representative below, you and
the Company agree that this Stock Purchase Right is granted under and governed
by the terms and conditions of the 2000 Stock Plan and the Restricted Stock
Purchase Agreement, attached hereto as Exhibit A-1, both of which are made a
part of this document. You further agree to execute the attached Restricted
Stock Purchase Agreement as a condition to purchasing any shares under this
Stock Purchase Right.
GRANTEE: RESONATE INC.
________________________________ _____________________________________
Signature By
________________________________ _____________________________________
Print Name Title
<PAGE>
EXHIBIT A-1
-----------
RESONATE INC.
2000 STOCK OPTION PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Restricted Stock Purchase Agreement.
WHEREAS the Purchaser named in the Notice of Grant, (the "Purchaser") is a
Service Provider, and the Purchaser's continued participation is considered by
the Company to be important for the Company's continued growth; and
WHEREAS in order to give the Purchaser an opportunity to acquire an equity
interest in the Company as an incentive for the Purchaser to participate in the
affairs of the Company, the Administrator has granted to the Purchaser a Stock
Purchase Right subject to the terms and conditions of the Plan and the Notice of
Grant, which are incorporated herein by reference, and pursuant to this
Restricted Stock Purchase Agreement (the "Agreement").
NOW THEREFORE, the parties agree as follows:
1. Sale of Stock. The Company hereby agrees to sell to the Purchaser and
-------------
the Purchaser hereby agrees to purchase shares of the Company's Common Stock
(the "Shares"), at the per Share purchase price and as otherwise described in
the Notice of Grant.
2. Payment of Purchase Price. The purchase price for the Shares may be
-------------------------
paid by delivery to the Company at the time of execution of this Agreement of
cash, a check, or some combination thereof.
3. Repurchase Option.
-----------------
(a) In the event the Purchaser ceases to be a Service Provider for any
or no reason (including death or disability) before all of the Shares are
released from the Company's Repurchase Option (see Section 4), the Company
shall, upon the date of such termination (as reasonably fixed and determined by
the Company) have an irrevocable, exclusive option (the "Repurchase Option") for
a period of sixty (60) days from such date to repurchase up to that number of
shares which constitute the Unreleased Shares (as defined in Section 4) at the
original purchase price per share (the "Repurchase Price"). The Repurchase
Option shall be exercised by the Company by delivering written notice to the
Purchaser or the Purchaser's executor (with a copy to the Escrow Holder) AND, at
the Company's option, (i) by delivering to the Purchaser or the Purchaser's
executor a check in the amount of the aggregate Repurchase Price, or (ii) by
canceling an amount of the Purchaser's
<PAGE>
indebtedness to the Company equal to the aggregate Repurchase Price, or (iii) by
a combination of (i) and (ii) so that the combined payment and cancellation of
indebtedness equals the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(b) Whenever the Company shall have the right to repurchase Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's purchase rights under this Agreement and
purchase all or a part of such Shares. If the Fair Market Value of the Shares
to be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of such Shares, then each such
designee or assignee shall pay the Company cash equal to the difference between
the Repurchase FMV and the aggregate Repurchase Price of such Shares.
4. Release of Shares From Repurchase Option.
----------------------------------------
(a) _______________________ percent (______%) of the Shares shall be
released from the Company's Repurchase Option [one year] after the Date of
----------
Grant and __________________ percent (______%) of the Shares [at the end of each
------------------
month thereafter], provided that the Purchaser does not cease to be a Service
- ----------------
Provider prior to the date of any such release.
(b) Any of the Shares that have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."
(c) The Shares that have been released from the Repurchase Option
shall be delivered to the Purchaser at the Purchaser's request (see Section 6).
5. Restriction on Transfer. Except for the escrow described in Section 6
-----------------------
or the transfer of the Shares to the Company or its assignees contemplated by
this Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until such Shares
are released from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.
6. Escrow of Shares.
----------------
(a) To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon repurchase by the Company pursuant to the Repurchase
Option, the Purchaser shall, upon execution of this Agreement, deliver and
deposit with an escrow holder designated by the Company (the "Escrow Holder")
the share certificates representing the Unreleased Shares, together with the
stock assignment duly endorsed in blank, attached hereto as Exhibit A-2. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder,
pursuant to the Joint Escrow Instructions of the Company and Purchaser attached
hereto as Exhibit A-3, until such time as the Company's
<PAGE>
Repurchase Option expires. As a further condition to the Company's obligations
under this Agreement, the Company may require the spouse of Purchaser, if any,
to execute and deliver to the Company the Consent of Spouse attached hereto as
Exhibit A-4.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow while acting
in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises the Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such exercise
from the proposed transferee, shall take all steps necessary to accomplish such
transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of the Shares has been released from the Repurchase
Option, upon request the Escrow Holder shall promptly cause a new certificate to
be issued for the released Shares and shall deliver the certificate to the
Company or the Purchaser, as the case may be.
(e) Subject to the terms hereof, the Purchaser shall have all the
rights of a shareholder with respect to the Shares while they are held in
escrow, including without limitation, the right to vote the Shares and to
receive any cash dividends declared thereon. If, from time to time during the
term of the Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Purchaser is entitled by
reason of the Purchaser's ownership of the Shares shall be immediately subject
to this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement and the Repurchase Option.
7. Legends. The share certificate evidencing the Shares, if any, issued
-------
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS SET FORTH IN AN AGREEMENT
BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.
8. Adjustment for Stock Split. All references to the number of Shares
--------------------------
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares that may be made by the Company after the date of this Agreement.
9. Tax Consequences. The Purchaser has reviewed with the Purchaser's own
----------------
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Purchaser
is relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. The Purchaser understands that
<PAGE>
the Purchaser (and not the Company) shall be responsible for the Purchaser's own
tax liability that may arise as a result of the transactions contemplated by
this Agreement. The Purchaser understands that Section 83 of the Internal
Revenue Code of 1986, as amended (the "Code"), taxes as ordinary income the
difference between the purchase price for the Shares and the Fair Market Value
of the Shares as of the date any restrictions on the Shares lapse. In this
context, "restriction" includes the right of the Company to buy back the Shares
pursuant to the Repurchase Option. The Purchaser understands that the Purchaser
may elect to be taxed at the time the Shares are purchased rather than when and
as the Repurchase Option expires by filing an election under Section 83(b) of
the Code with the IRS within 30 days from the date of purchase. The form for
making this election is attached as Exhibit A-5 hereto.
THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE PURCHASER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON THE PURCHASER'S BEHALF.
10. General Provisions.
------------------
(a) This Agreement shall be governed by the internal substantive laws,
but not the choice of law rules of California. This Agreement, subject to the
terms and conditions of the Plan and the Notice of Grant, represents the entire
agreement between the parties with respect to the purchase of the Shares by the
Purchaser. Subject to Section 15(c) of the Plan, in the event of a conflict
between the terms and conditions of the Plan and the terms and conditions of
this Agreement, the terms and conditions of the Plan shall prevail. Unless
otherwise defined herein, the terms defined in the Plan shall have the same
defined meanings in this Agreement.
(b) Any notice, demand or request required or permitted to be given by
either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
Any notice to the Escrow Holder shall be sent to the Company's
address with a copy to the other party hereto.
(c) The rights of the Company under this Agreement shall be
transferable to any one or more persons or entities, and all covenants and
agreements hereunder shall inure to the benefit of, and be enforceable by the
Company's successors and assigns. The rights and obligations of the Purchaser
under this Agreement may only be assigned with the prior written consent of the
Company.
(d) Either party's failure to enforce any provision of this Agreement
shall not in any way be construed as a waiver of any such provision, nor prevent
that party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are
<PAGE>
cumulative and shall not constitute a waiver of either party's right to assert
any other legal remedy available to it.
(e) The Purchaser agrees upon request to execute any further documents
or instruments necessary or desirable to carry out the purposes or intent of
this Agreement.
(f) PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO SECTION 4 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS A SERVICE
PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED OR
PURCHASING SHARES HEREUNDER). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT
THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE
SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT
ALL, AND SHALL NOT INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE PURCHASER'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
By Purchaser's signature below, Purchaser represents that he or she is
familiar with the terms and provisions of the Plan, and hereby accepts this
Agreement subject to all of the terms and provisions thereof. Purchaser has
reviewed the Plan and this Agreement in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Purchaser agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Agreement.
Purchaser further agrees to notify the Company upon any change in the residence
indicated in the Notice of Grant.
DATED: __________________________
PURCHASER: RESONATE INC.
_________________________________ ____________________________________
Signature By
_________________________________ ____________________________________
Print Name Title
<PAGE>
EXHIBIT A-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, _______________________________, hereby sell, assign
and transfer unto _____________________ (__________) shares of the Common Stock
of Resonate Inc., standing in my name of the books of said corporation
represented by Certificate No. _____ herewith and do hereby irrevocably
constitute and appoint _____________________________________________ to transfer
the said stock on the books of the within named corporation with full power of
substitution in the premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement (the "Agreement") between________________________ and
the undersigned dated ______________, _____.
Dated: _______________, _____
Signature:______________________________
INSTRUCTIONS: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise the
Repurchase Option, as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT A-3
-----------
JOINT ESCROW INSTRUCTIONS
__________________, ____
Corporate Secretary
Resonate Inc.
385 Moffett Park Drive
Sunnyvale, California 94089
Dear __________:
As Escrow Agent for both Resonate Inc., a Delaware corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Purchaser and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Purchaser and the Company hereby irrevocably authorize and direct you
to close the transaction contemplated by such notice in accordance with the
terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities.
<PAGE>
Subject to the provisions of this paragraph 3, Purchaser shall exercise all
rights and privileges of a shareholder of the Company while the stock is held by
you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
shall deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within 90 days after Purchaser ceases to be a Service Provider, you shall
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties.
You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in
good faith, and any act done or omitted by you pursuant to the advice of your
own attorneys shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court.
In case you obey or comply with any such order, judgment or decree, you shall
not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Resonate Inc.
385 Moffett Park Drive
Sunnyvale, California 94089
PURCHASER: _________________________________
_________________________________
_________________________________
ESCROW AGENT: Corporate Secretary
Resonate Inc.
385 Moffett Park Drive
Sunnyvale, California 94089
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the internal substantive laws, but not the
choice of law rules, of California.
Very truly yours,
RESONATE INC.
_____________________________________
By
_____________________________________
Title
PURCHASER:
_____________________________________
Signature
_____________________________________
Print Name
ESCROW AGENT:
_____________________________________
Corporate Secretary
<PAGE>
EXHIBIT A-4
-----------
CONSENT OF SPOUSE
I, _________________________, spouse of ________________________, have read
and approve the foregoing Restricted Stock Purchase Agreement (the "Agreement").
In consideration of the Company's grant to my spouse of the right to purchase
shares of Resonate Inc., as set forth in the Agreement, I hereby appoint my
spouse as my attorney-in-fact in respect to the exercise of any rights under the
Agreement and agree to be bound by the provisions of the Agreement insofar as I
may have any rights in said Agreement or any shares issued pursuant thereto
under the community property laws or similar laws relating to marital property
in effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: ____________________, _____
__________________________________________
Signature of Spouse
<PAGE>
EXHIBIT A-5
-----------
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with his or her receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: _______ shares (the "Shares") of the Common Stock of Resonate Inc.
(the "Company").
3. The date on which the property was transferred is: ________________, _____.
4. The property is subject to the following restrictions:
The Shares may be repurchased by the Company, or its assignee, upon certain
events. This right lapses with regard to a portion of the Shares based on
the continued performance of services by the taxpayer over time.
5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never
lapse, of such property is: $__________.
6. The amount (if any) paid for such property is: $___________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: _________________, ____ _______________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________, ____ _______________________________________
Spouse of Taxpayer
<PAGE>
EXHIBIT 10.6
MOFFETT PARK OFFICE CENTER
LEASE
By and Between
Cilker Revocable Trust
U.T.A. dated October 9, 1990
("Lessor")
and
Resonate, Inc., a California Corporation
("Lessee")
For the 15,915 Rentable Square Foot Premises
Located at 385 Moffett Park Drive, Suite 210,
Sunnyvale, California 94089
i
<PAGE>
Table of Contents
<TABLE>
<S> <C>
1 BASIC LEASE PROVISIONS..................................................... 1
1.1 Parties................................................................. 1
1.2 Premises............................................................... 1
1.3 Building............................................................... 1
1.4 Use.................................................................... 1
1.5 Term................................................................... 2
1.6 Base Rent.............................................................. 2
1.7 Base Rent Increase..................................................... 2
1.8 Rent Paid Upon Execution............................................... 2
1.9 Security Deposit....................................................... 2
1.10 Lessee's Share of Operating Expense Increase........................... 2
1.11 Tenant Improvements.................................................... 2
1.12 Load Factor............................................................ 2
1.13 Additional Rent........................................................ 3
2 PREMISES, BUILDING, OFFICE BUILDING PROJECT AND COMMON AREAS............... 3
2.1 Premises............................................................... 3
2.2 Vehicle Parking........................................................ 3
2.3 Common Areas - Definition.............................................. 3
2.4 Common Area - Rules and Regulations.................................... 4
2.5 Common Area - Changes.................................................. 4
3 TERM....................................................................... 5
3.1 Term................................................................... 5
4 RENT....................................................................... 5
4.1 Base Monthly Rent...................................................... 5
4.2 Operating Expenses..................................................... 6
5 USE........................................................................ 8
5.1 Use.................................................................... 8
5.2 Lessee's Compliance with Law........................................... 8
5.3 Condition of Premises.................................................. 9
5.4 Hazardous Material..................................................... 9
6 MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES................. 11
6.1 Lessor's Obligations................................................... 12
6.2 Lessee's Obligations................................................... 12
6.3 Alterations and Additions.............................................. 13
6.4 Utility Additions...................................................... 15
7 INSURANCE; INDEMNITY....................................................... 15
7.1 Liability Insurance - Lessee........................................... 15
7.2 Property Insurance - Lessee............................................ 16
7.3 Insurance - Lessor..................................................... 16
7.4 Insurance Policies..................................................... 16
7.5 Waiver of Subrogation.................................................. 17
7.6 Indemnity.............................................................. 17
7.7 Exemption of Lessor from Liability..................................... 18
7.8 No Representation of Adequate Coverage................................. 18
8 DAMAGE OR DESTRUCTION...................................................... 19
8.1 Definitions............................................................ 19
8.2 Premises Damage; Premises Partial Damage............................... 19
8.3 Premises Total Destruction; Office Building Project Total Destruction.. 20
8.4 Damage Near End of Term................................................ 21
8.5 Abatement of Rent; Lessee's Remedies................................... 21
</TABLE>
ii
<PAGE>
Table of Contents
<TABLE>
<S> <C>
8.6 Termination............................................................ 21
8.7 Waiver................................................................. 22
9 REAL PROPERTY TAXES........................................................ 22
9.1 Payment of Taxes....................................................... 22
9.2 Additional Improvements................................................ 22
9.3 Definition of Real Property Tax........................................ 22
9.4 Joint Assessment....................................................... 23
9.5 Personal Property Taxes................................................ 23
10 UTILITIES AND SERVICES.................................................... 23
10.1 Services Provided by Lessor............................................ 23
10.2 Services Exclusive to Lessee........................................... 24
10.3 Hours of Service....................................................... 24
10.4 Excess Usage by Lessee................................................. 24
10.5 Interruptions.......................................................... 25
11 OPTION TO EXTEND.......................................................... 25
12 ASSIGNMENT AND SUBLETTING................................................. 25
12.1 Lessor's Consent Required.............................................. 25
12.2 Lessee Affiliate....................................................... 26
12.3 Terms and Conditions Applicable to Assignment and Subletting........... 26
12.4 Additional Terms and Conditions Applicable to Subletting............... 28
12.5 Lessor's Expenses...................................................... 29
12.6 Conditions to Consent.................................................. 29
13 DEFAULT; REMEDIES......................................................... 30
13.1 Default................................................................ 31
13.2 Remedies............................................................... 32
13.3 Default by Lessor...................................................... 32
13.4 Late Charges........................................................... 32
14 CONDEMNATION.............................................................. 32
15 BROKER'S FEE.............................................................. 33
16 ESTOPPEL CERTIFICATE...................................................... 34
17 LESSOR'S LIABILITY........................................................ 34
18 SEVERABILITY.............................................................. 35
19 INTEREST ON PAST-DUE OBLIGATIONS.......................................... 35
20 TIME OF ESSENCE........................................................... 35
21 ADDITIONAL RENT........................................................... 35
22 INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS............................. 35
23 NOTICES................................................................... 36
24 WAIVERS................................................................... 36
25 RECORDING................................................................. 36
26 NO RIGHT TO HOLD OVER..................................................... 36
</TABLE>
iii
<PAGE>
Table of Contents
<TABLE>
<S> <C>
27 CUMULATIVE REMEDIES....................................................... 37
28 COVENANTS AND CONDITIONS.................................................. 37
29 BINDING EFFECT; CHOICE OF LAW............................................. 37
30 SUBORDINATION............................................................. 37
31 ATTORNEYS' FEES........................................................... 38
31.1 Attorneys' Fees........................................................ 38
31.2 Reimbursement.......................................................... 38
31.3 Default................................................................ 38
32 LESSOR'S ACCESS........................................................... 38
32.1 Entry Onto Premises.................................................... 38
32.2 Abatement of Rent...................................................... 39
32.3 Emergency.............................................................. 39
33 AUCTIONS.................................................................. 39
34 SIGNS..................................................................... 39
35 MERGER.................................................................... 40
36 CONSENTS.................................................................. 40
37 GUARANTOR................................................................. 40
38 QUIET POSSESSION.......................................................... 40
39 SECURITY MEASURES - LESSOR'S RESERVATIONS................................. 40
39.1 Security Measures...................................................... 40
39.2 Lessor's Reservations.................................................. 41
40 EASEMENTS................................................................. 41
40.1 Lessor's Reservations.................................................. 41
40.2 Obstruction............................................................ 41
41 PERFORMANCE UNDER PROTEST................................................. 41
42 AUTHORITY................................................................. 42
43 NO OFFER.................................................................. 42
44 LENDER MODIFICATION....................................................... 42
45 MULTIPLE PARTIES.......................................................... 42
46 FORCE MAJEURE............................................................. 42
47 TENANT IMPROVEMENTS....................................................... 43
EXHIBIT A THE PREMISES....................................................... 45
EXHIBIT B LEGAL DESCRIPTION OF BUILDING...................................... 46
EXHIBIT C RULES AND REGULATIONS.............................................. 47
EXHIBIT D PARKING RULES...................................................... 49
</TABLE>
iv
<PAGE>
Table of Contents
<TABLE>
<S> <C>
EXHIBIT E FINAL PLANS AND SPECIFICATIONS.................................... 50
EXHIBIT F COMMENCEMENT DATE MEMORANDUM...................................... 51
EXHIBIT G JANITORIAL SERVICES............................................... 52
</TABLE>
v
<PAGE>
1. BASIC LEASE PROVISIONS.
----------------------
1.1 Parties. This Lease, dated, for reference purposes only, as of
-------
November 2, 1999 is made by and between CILKER REVOCABLE TRUST U.T.A. dated
October 9, 1990, herein called "Lessor", and RESONATE, INC., a California
Corporation, herein called "Lessee".
1.2 Premises. Suite Number 210, consisting of approximately
--------
fourteen thousand two hundred ten (14,210) usable square feet (USF)
measured from the centerline of shared walls and to the outside of the
outside walls; fifteen thousand nine hundred fifteen (15,915) rentable
square feet (RSF) more or less, including a twelve percent (12%) load
factor, as defined in Paragraph 1.12.
Lessee shall have the option to expand the Premises (the "Expansion
Option") to include (i) Suite No. 105 consisting of approximately 13,624
rentable square feet, (ii) Suite No. 200 consisting of approximately 24,080
rentable square feet or (iii) both, on the same terms and conditions of the
Lease (including the same Base Monthly Rent per rentable square foot),
effective February 1, 2001, by giving Lessor written notice thereof no
later than December 1, 2000. Then the total usage square feet will be forty
seven thousand eight hundred seventy four (47,874), more or less, and total
rentable square feet is fifty three thousand six hundred nineteen (53,619),
more or less.
The Premises for Suite #210 is shown as Exhibit A: The Premises.
1.3 Building. Commonly described as being located at 385 Moffett
--------
Park Drive in the City of Sunnyvale, County of Santa Clara, State of
California as defined in Paragraph 2 and on Exhibit B hereto (the
Building), as measured to the dripline of the outside walls. The total
rentable square feet of the Building is seventy nine thousand four hundred
eighty (79,480), more or less.
1.4 Use. The Premises shall be used for general office and
---
engineering functions and for no other purposes without the prior written
consent of Lessor, subject to Paragraph 6.
1.5 Term. Four (4) years commencing on the later of December 15,
---- --------------
1999 or the completion date of the Tenant Improvements (Commencement Date)
and ending on November 30, 2003 (Termination Date) in accordance with
Exhibit F (Commencement Date Memorandum).
- 1 -
<PAGE>
1.6 Base Rent. Forty five thousand and thirty nine Dollars and
---------
fourty five cents($45,039.45) per month, payable on the first day of each
month, per Paragraph 4.1, commencing on the Commencement Date, on or about
December 15, 1999.
1.7 Base Rent Increase. Monthly Base Rent payable under Paragraph
------------------
1.6 above shall be adjusted as provided in Paragraph 4.1 below.
1.8 Rent Paid Upon Execution. Forty five thousand and thirty nine
------------------------
Dollars and fourty five cents($45,039.45) for the first month of the Term.
1.9 Security Deposit. One (1) month rent of Forty five thousand and
thirty nine Dollars and fourty five cents($45,039.45) due December 15,
1999. In the event Lessee exercises the Expansion Option with respect to
Suite 105, the Security Deposit shall be increased by $39,839.83 effective
February 1, 2001. In the event Lessee exercises the Expansion Option with
respect to Suite 200, the Security Deposit shall be increased by $70,415.68
effective February 1, 2001.
1.10 Lessee's Share of Operating Expenses. Twenty percent (20%)
------------------------------------
through January 30, 2001, with a proportionate increase in the event the
Premises are expanded pursuant to the Expansion Option.
1.11 Tenant Improvements. The Tenant Improvement allowance for Suite
-------------------
210 shall be equal to the total amount set forth in the estimate attached
hereto as Exhibit H, which total amount shall be paid by Lessor and Lessee
as set forth in Exhibit H.
1.12 Load Factor. Based on the Total Square Foot Space of the lobby,
-----------
common hallways, elevator, common bathrooms, utility rooms, janitorial,
storage rooms and other shared space expressed as a percentage of the total
Building area measured to the outer surface of the outside walls. For this
building, the load factor is calculated to be twelve percent (12%).
1.13 Additional Rent. The additional rent for HVAC that exceeds the
---------------
hours of service provided in Paragraph 10.3 is covered in Paragraph 10.4.
2. PREMISES, BUILDING, OFFICE BUILDING PROJECT PARKING AND COMMON
--------------------------------------------------------------
AREAS.
- -----
- 2 -
<PAGE>
2.1 Premises. The Premises are a portion of a building, herein
--------
sometimes referred to as the "Building" identified in Paragraph 1.3 of the
Basic Lease Provisions. "Building" shall include adjacent parking
structures used in connection therewith. The Premises, the Building, the
Common Areas, the land upon which the same are located, along with all
other improvements thereon or thereunder, are herein collectively referred
to as the "Office Building Project". Lessor hereby leases to Lessee and
Lessee leases from Lessor for the term, at the rental, and upon all of the
conditions set forth herein, the real property referred to in the Basic
Lease Provisions, Paragraph 1.2, as the "Premises", including rights to the
Common Areas as hereinafter specified.
2.2 Vehicle Parking. So long as Lessee is not in default beyond
---------------
applicable notice and cure period, and subject to the rules and regulations
attached hereto as Exhibit D, and as established by Lessor from time to
time, Lessee shall be entitled to use fifty seven (57) parking spaces in
the Common Area of the Office Building Project. If Lessee knowingly
commits, permits or allows any of the prohibited activities described in
the Lease or the rules then in effect, then Lessor shall have the right,
after making reasonable effort to notify Lessee of the prohibited activity,
in addition to such other rights and remedies that it may have, to remove
or tow away any vehicle involved in such prohibited activity, or otherwise
take action to cure such prohibited activity, and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
2.3 Common Areas - Definition. The term "Common Areas" is defined
-------------------------
as all areas and facilities outside the Premises and within the exterior
boundary line of the Office Building Project that are provided and
designated by the Lessor from time to time for the general nonexclusive use
of Lessor, Lessee and of other lessees of the Office Building Project and
their respective employees, suppliers, shippers, customers and invitees,
including but not limited to common entrances, parking areas to the extent
not otherwise prohibited by this Lease, roadways and walks, walkways,
parkways, ramps, driveways, striping, bumpers, irrigation systems, and
Common Area lighting facilities and landscaped areas.
2.4 Common Area - Rules and Regulations. Lessee agrees to abide by
-----------------------------------
and conform to the rules and regulations attached hereto as Exhibit C with
respect to the Office Building Project and Common Areas and to cause its
employees, suppliers, shippers, customers, and invitees to so abide and
conform to such rules and
- 3 -
<PAGE>
regulations. Lessor or such other person(s) as Lessor may appoint shall
have the exclusive control and management of the Common Areas and shall
have the right to enforce said rules and regulations and may, from time to
time, reasonably modify or amend and enforce said rules and regulations.
2.5 Common Areas - Changes. Provided the following changes do not
----------------------
significantly interfere with Lessee's business and are not inconsistent
with other first-class office buildings in the vicinity, Lessor shall have
the right in Lessor's sole discretion, from time to time:
(a) To make changes to the Building exterior and Common Areas,
including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the windows,
air shafts, driveways, entrances, parking spaces, parking areas, loading
and unloading areas, ingress, egress, direction of traffic, landscaped
areas, walkways and the outside walls and the roof of the Building;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land and improvements outside the
boundaries of the Office Building Project to be a part of the Common Areas,
provided that such other land and improvements have a reasonable and
functional relationship to the Office Building Project and may increase the
financial obligations of Lessee under this Lease with Lessee's consent,
which shall not be unreasonably withheld;
(d) To add additional improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Office Building
Project as Lessor may, in the exercise of sound business judgment, deem to
be appropriate.
(g) Lessor shall use its best efforts to minimize disruption to
Lessee's business.
3. TERM.
----
- 4 -
<PAGE>
3.1 Term. The Term and Commencement Date of this Lease shall be as
----
specified in Paragraph 1.5 of the Basic Lease Provisions.
4. RENT.
----
4.1 Base Monthly Rent. Lessee shall pay to Lessor the Base Monthly
-----------------
Rent for the Premises set forth in Paragraph 1.6 of the Basic Lease
Provisions and this Paragraph 4.1 herein, without offset or deduction,
payable on the first day of each month (or in the event of a partial month,
on the first day of such partial month), except for the deduction described
in Paragraph 1.11. Lessee shall pay Lessor upon execution hereof the
advance Base Rent described in Paragraph 1.6 of the Basic Lease Provisions.
Rent for any period during the term hereof which is for less than one month
shall be prorated based upon the actual number of days of the calendar
month involved. Rent shall be payable in lawful money of the United States
to Lessor at the address stated herein or to such other persons or at such
other places as Lessor may designate in writing.
Tenant shall pay the Base Monthly Rent on the amount and for the months set
forth below, and otherwise as provided in this Paragraph 4.1.
Months 1 - 12 12/01/99-11/30/00- $ 45,039.45
Months 13 - 14 12/01/00-01/30/01- $ 46,539.26
Months 15 - 24 02/01/01-11/30/01- $ 46,539.26
Months 25 - 36 12/01/01-11/30/02- $ 48,089.02
Months 37 - 48 12/01/02-11/30/03- $ 49,690.39
Months 49 - 60 12/01/03-11/30/04- 100% Fair Market Rate
Months 61 - 72 12/01/04-11/30/05- Inc. by 3.33%
Months 73 - 84 12/01/05-11/30/06- 100% Fair Market Rate
In the event that Lessee exercises the Expansion Option in month 15
with respect to Suites 105 or 200, the same Base Monthly Rent per square
foot shall apply to each Suite for which the Expansion Option is elected.
4.2 Operating Expenses. Lessee shall pay to Lessor during the term
------------------
hereof, in addition to the Base Rent, Lessee's Share of Operating Expenses,
as defined in Paragraph 1.10, of any increases in total Operating Expenses
for any "Comparison Year", as defined in Paragraph 4.2(d) herein over the
Operating Expenses for the Base Year, as hereinafter defined, during each
- 5 -
<PAGE>
calendar year, following the Base Year, of the term of this Lease, in
accordance with the following provisions:
(a) "Lessee's Share of Operating Expenses" is defined in
Paragraph 1.10 of the Base Lease Provisions. Lessee's Share of Operating
Expenses has been established as a percentage determined by dividing the
approximate rentable square footage of the Premises by the approximate
total rentable square footage of the Building. Using this same method of
determination, the Lessee's Share of Operating Expenses may be redetermined
by Lessor in the event of a change in the rentable square footage in the
Building.
(b) "Operating Expenses" is defined, for purposes of this
Lease, to include all costs, if any, incurred by Lessor in the exercise of
its reasonable discretion, for:
(i) The operation, repair, maintenance, and replacement (of
a non-capital nature), in neat, clean, safe, good order and condition, of
the Common Areas;
(ii) Trash disposal, landscaping, irrigation, replacement of
plants and trees, janitorial services as delineated in Exhibit F, and
supplies, sealing and striping the parking area, window and door washing,
service door and window seals, roof repairs, reserve for painting, sealing
and striping, and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease defined to be an "Operating Expense";
(iv) The cost of the premiums for all insurance policy to be
maintained by Lessor under Paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by
Lessor under Paragraph 9.1 hereof;
(vi) The cost of utilities, including water, sewer, gas,
electricity, and other publicly mandated services to the Building,
including fire detection systems, fire sprinkler systems and security
systems;
(vii) The cost of monitoring of environmental matters and the
building HVAC management system;
(viii) Replacing, adding, or removing any improvement for
better security, safety, increased energy efficiency, or as mandated by any
governmental agency after the Commencement Date, and any repairs or
removals
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<PAGE>
necessitated thereby, including seismic upgrades, amortized over its useful
life according to federal income tax regulations or guidelines for
depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants, provided, however,
costs incurred to correct violations by Lessor of any law, rule, order or
regulation prior to the Commencement Date shall not be included as an
Operating Expense;
(ix) Replacements of equipment or improvements to include
HVAC equipment and monitoring systems, elevator maintenance, plumbing,
including fire sprinklers, supplies, materials and equipment and tools;
including maintenance, cost and upkeep of all parking and common areas;
expenses incurred in an amount necessary to reduce direct expenses; and
(x) A management fee attributable to the operation of the
Office Building Project.
(c) Lessee's share of additional rent for capital
improvements to the common area, grounds, and for improved efficiency and
appearance of the building, to be amortized by normal accounting practice
plus interest.
(d) "Base Year" is defined, for purposes of this Lease, to
be the period of ninety-one (91) days (December 1, 1999 through February
29, 2000 annualized for 365 days).
(e) "Comparison Year" is defined, for purposes of this
Lease, as each 12 months period starting March 1, 2000, during the term of
this Lease.
(f) Lessee's Share of the Operating Expenses identified in
Paragraphs 4.2(b), 4,2(d) and 4.2(e) shall be payable on a annual or semi-
annual basis by Lessee after a statement of actual expenses is presented to
Lessee by Lessor. Lessee shall have the right for one hundred and eighty
(180) days from receipt of such statement to audit Lessor's books and
records to verify Lessor's calculations.
(g) Notwithstanding the foregoing, Operating Expenses shall
not include and Lessee shall in no event have any obligation to perform or
to pay for the following (collectively, "Costs"): (a) Costs occasioned by
the act, omission or violation of any law by Lessor or any other occupant
of the Building, or their respective agents,
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employees or contractors; (b) Costs occasioned by casualty or condemnation;
(c) Costs of any renovation, improvement, painting or redecorating of any
portion of the Building not made available for Lessee's use; (d) Costs
incurred in connection with marketing or advertising the Building, or the
violation by Lessor or any occupant of the Building (other than Lessee) of
the terms and conditions of any lease or other agreement; (e) Costs
incurred in connection with the presence of any Hazardous Material, except
to the extent caused by the release or emission of the Hazardous Material
in question by Lessee; (f) Costs which could properly be capitalized under
generally accepted accounting principles, except those set forth in
subsections (viii) and (c) of this Section 4.2.
5. USE.
---
5.1 Use. The Premises shall be used and occupied only for the
---
purpose set forth in Paragraph 1.4 of the Basic Lease Provisions or any
other use which is reasonably comparable to that use and for no other
purpose.
5.2 Lessee's Compliance with Law. Except as otherwise provided in
----------------------------
this Lease, Lessee shall, at Lessee's expense, promptly comply with all
applicable statutes, ordinances, rules, regulations, orders, the
requirements of that certain Declaration of Protective Covenants Moffett
Industrial Park No. 1 (a copy of which is attached hereto as Exhibit G, and
requirements of any fire insurance underwriters or rating bureaus, now in
effect or which may hereafter come into effect, whether or not they reflect
a change in policy from that now existing, during the term or any part of
the term hereof, relating in any manner to the Premises and the occupation
and use by Lessee of the Premises. Lessee shall conduct Lessee's business
in a lawful manner and shall not use or permit the use of the Premises or
the Common Areas in any manner that will tend to create waste or nuisance
or shall tend to disturb other occupants of the Office Building Project.
5.3 Condition of Premises. Lessee accepts the Premises and the
---------------------
Office Building Project in their condition existing as of the Commencement
Date or the date that Lessee takes possession of the Premises (exclusive of
any latent defects), whichever is earlier, subject to all applicable
zoning, municipal, county and state laws, ordinances and regulations
governing and regulating the use of the Premises, and accepts this Lease
subject thereto and to all matters disclosed thereby and by any
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<PAGE>
exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises (exclusive of any
latent defects) are suitable for its intended use, and that neither Lessor
nor Lessor's agent or agents has made any representation or warranty as to
the present or further suitability of the Premises, Common Areas, or Office
Building Project for the conduct of Lessee's business; provided, however,
Lessor warrants that all plumbing, electrical, mechanical, elevator,
structural and roof systems shall be in good operating condition on the
Commencement Date. Notwithstanding any provision to the contrary in this
Lease, Lessor represents and warrants that as of the Commencement Date the
Premises (other than the Tenant Improvements to be constructed by Lessee)
and the Common Areas shall be in compliance with all applicable laws,
rules, order, regulations and orders, including without limitation, all
applicable requirements of the Americans with Disabilities Act (ADA) of
1990 (42 U.S.C. 12101, et. seq.).
-------
5.4 Hazardous Material.
------------------
(a) Lessee shall not engage in any activities upon or in the
Office Building Project, nor bring onto, create, or dispose of upon or in
the Premises or Office Building Project, any Hazardous Material other than
those in the forms and quantities used in normal office use and building
management.
(b) Lessee shall not engage in any activity upon or in the
Premises that violates any federal, state or local laws, rules or
regulations pertaining to Hazardous Material. Lessee shall promptly, at
Lessee's sole cost and expense, take all investigatory or remedial actions
requested or ordered for clean-up of any contamination of the Premises
created or suffered by Lessee. Provided, however, Lessee shall not be
liable for such action or clean up if suffered by Lessee as a result of
Lessor's or other tenants' actions. Lessee shall comply with any and all
requirements related to handling, use, storage and disposal of Hazardous
Materials.
(c) Lessee shall indemnify, defend and hold harmless Lessor,
Lessor's agents, employees, servants, and lenders, from any and all claims,
losses, liability, demands, damages, costs, offsets, lawsuits, judgments,
award and expenses, including, but not limited to, attorneys' fees arising
out of or in connection with any breach of Lessee's obligations under this
Paragraph 5.4.
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<PAGE>
(d) Lessee's obligations under this Paragraph 5.4 shall survive
the ending, termination, and cancellation of this Lease, and no
termination, cancellation or release agreement entered into by Lessor and
Lessee shall release Lessee from Lessee's obligations under this Paragraph
5.4 unless any such agreement expressly sets forth Lessor's intention to so
release Lessee.
(e) The term "Hazardous Material" means any chemical substance:
(i) the presence of which requires investigation,
regulation or remediation under any federal, state or local statute,
regulation, ordinance, order, action, policy or common law; or
(ii) which is or becomes defined as a "hazardous waste"
or "hazardous substance" under any federal, state or local statute,
regulation or ordinance or amendments thereto including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Section 9601 et. seq.) and or the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et. seq.)
(iii) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise
hazardous and is or becomes regulated by any governmental authority,
agency, department, commission, board, agency or instrumentality of
the United States, the State of California or any political
subdivision thereof; or
(iv) the presence of which on the Premises poses or
threatens to pose a hazard to the health or safety of persons on or
about the Premises; or
(v) without limitation which contains gasoline, diesel
fuel or other petroleum hydrocarbons; or
(vi) without limitation which contains polychlorinated
bipheynols (PCBs), or asbestos; or
(vii) which is considered by any government
authority to be harmful, dangerous, toxic, flammable or otherwise
deserving of special care.
(f) Lessor shall indemnify, defend and hold harmless Lessee,
Lessee's agents, employees, and lenders, from any and all claims, losses,
liability, demands,
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damages, costs, offsets, lawsuits, judgments, award and expenses,
including, but not limited to, attorneys' fees arising out of or in
connection with any Hazardous Material in, on, about or under the Premises
or the Office Building Project, to the extent that the presence of such
Hazardous Materials was caused by Lessor or Lessor's Agents (defined
below). Lessor shall comply with any requirements imposed by any
governmental entity or agency with respect to Hazardous Materials in, on,
under or about the Premises and/or the Office Building Project to the
extent such presence was not caused by a breach of this Paragraph 5.4 by
Lessee or Lessee's Agents. Lessor's obligations under this Paragraph 5.4
shall survive the ending, termination, and cancellation of this Lease, and
no termination, cancellation or release Agreement entered into by Lessor
and Lessee shall release Lessor from Lessor's obligations under this
Paragraph 5.4 unless any such Agreement expressly sets forth Lessee's
intention to so release Lessor.
6. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
----------------------------------------------------------
6.1 Lessor's Obligations. Lessor shall keep the Office Building
--------------------
Project, including the Premises, interior and exterior walls, roof, and
Common Areas, and the equipment whether used exclusively for the Premises
or in common with other premises, in good condition and repair; provided,
however, Lessor shall not be obligated to paint, repair or replace wall
coverings, or to repair or replace any improvements that are not ordinarily
a part of the Building or are above Building standards as of the
Commencement Date of this Lease. Lessor shall not be obligated to repair
damage caused by negligence of Lessee or of Lessee's agents, employees,
contractors, guests or invitees, or by reason of the failure of Lessee to
perform or comply with any terms, conditions or covenants in this Lease, or
caused by alterations, additions or improvements made by Lessee or Lessee's
agents, employees or contractors, which damage Lessee shall repair at its
sole expense. Lessee expressly waives the benefits of any statute now or
hereafter in effect (including, without limitation, the provisions of
Sections 1941 and 1942 of the California Civil Code) which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate
this Lease because of Lessor's failure to keep the Premises, the Building
or the Common Areas in good order, condition and repair.
6.2 Lessee's Obligations.
--------------------
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<PAGE>
(a) Notwithstanding Lessor's obligation to keep the Premises in
good condition and repair, Lessee shall be responsible for payment to
Lessor, as additional rent, that portion of the cost of any maintenance and
repair of the Premises, or any equipment (wherever located), that serves
only Lessee or the Premises, to the extent such cost is attributable to any
cause beyond normal wear and tear or damage from casualty described in
Paragraph 8. Lessee shall be responsible for the actual cost of painting,
repairing or replacing wall coverings, and to repair or replace any
Premises Improvements that are not ordinarily a part of the Building or
that are above Building standards as of the Commencement Date of this
Lease. Lessor may, at its option, upon reasonable notice, elect to have
Lessee perform any particular such maintenance or repairs the cost of which
is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same
condition as received, ordinary wear and tear and damage from casualty
described in Paragraph 8, excepted, clean and free of debris. Any damage
or deterioration of the Premises shall not be deemed ordinary wear and tear
if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair any damage to the Premises occasioned by the
installation or removal of Lessee's trade fixtures, alterations,
furnishings and equipment. Except for such conditions resulting from
normal wear and tear and damage from casualty, Lessee shall leave the air
lines, power panels, electrical distribution systems, lighting fixtures,
air conditioning, window coverings, ceilings and plumbing on the Premises
clean and in good operating condition and shall leave the ceiling panels,
air conditioning vents, painted surfaces, wall coverings, paneling and
carpets clean and in good repair.
6.3 Alterations and Additions.
-------------------------
(a) Except for the initial Tenant Improvements and non-
structural alterations which do not affect Building systems, Lessee shall
not make any alterations, improvement, additions, Utility Installation or
repair in, on or about the Premises, over Three Thousand Dollars ($3,000)
without Lessor's prior written consent which shall not be unreasonably
withheld, conditioned or delayed. As used in the Paragraph 6.3 the term
"Utility Installation" shall mean carpeting, window and wallcoverings,
power panels, electrical distribution
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<PAGE>
systems, lighting fixtures, air conditioning and plumbing. At the
expiration of the term, Lessor may require the removal of any or all of
said alterations, improvements, additions or Utility Installations, and the
restoration of the Premises to their prior condition, at Lessee's expense.
Should Lessor permit Lessee to make its own alterations, improvements,
additions or Utility Installations, Lessee shall use only such contractor
as has been expressly approved by Lessor, which approval shall not be
unreasonably withheld, and Lessor may require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount
equal to one and one-half (1 1/2) times the estimated cost of such
improvements, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Lessee
make any alterations, improvements, additions or Utility Installations
without the prior approval of Lessor, or use a contractor not expressly
approved by Lessor, Lessor may, at any time during the term of this Lease,
require that Lessee remove any part or all of the same.
(b) Except as provided in subsection (a) above, any
alterations, improvements, additions or Utility Installations in or about
the Premises over Three Thousand Dollars ($3,000) that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed
detailed plans. If Lessor shall give its consent to Lessee's making such
alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from
the applicable governmental agencies, furnishing a copy thereof to Lessor
prior to the commencement of the work, and compliance by Lessee with all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at
or for use in the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises, the Building or the
Office Building Project, or any interest therein.
(d) Lessee shall give Lessor not less than fifteen (15) days'
notice prior to the commencement of any work in the Premises by Lessee, and
Lessor shall have the right to post notices of non-responsibility in or on
the Premises or the Building as provided by law. If Lessee shall, in good
faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and
shall pay and satisfy any such adverse judgment that may
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<PAGE>
be rendered thereon before the enforcement thereof against the Lessor or
the Premises, the Building or the Office Building Project, upon the
condition that if Lessor shall require, Lessee shall furnish to Lessor a
surety bond satisfactory to Lessor in an amount equal to such contested
lien claim or demand indemnifying Lessor against liability for the same and
holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require
Lessee to pay Lessor's reasonable attorneys' fees and costs in
participating in such action if Lessor shall decide it is to Lessor's best
interest to do so.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including
but not limited to, floor coverings, paneling, doors, drapes, built-ins,
moldings, sound attenuation, and lighting, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the
Lease term, unless Lessor requires their removal pursuant to Paragraph
6.3(a). Provided Lessee is not in default, notwithstanding the provisions
of this Paragraph 6.3(e), Lessee's personal property, trade fixtures,
equipment, phone systems, security systems and wiring, and furniture shall
remain the property of Lessee and may be removed by Lessee subject to the
provisions of Paragraph 6.2(b). Lessee shall repair any material damage to
the Premises or the Building caused by the removal of any such personal
property, systems or equipment of Lessee.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
6.4 Utility Additions.
-----------------
Lessor reserves the right to install new or additional utility facilities
throughout the Office Building Project for the benefit of Lessor or Lessee,
or any other lessee of the Office Building Project, including, but not by
way of limitation, such utilities as plumbing, electrical systems, security
systems, communication systems, and fire protection and detection systems,
so long as such installations do not unreasonably interfere with Lessee's
use of the Premises and do not affect Lessee's rights, use or obligations
hereunder. A proportional share of the amortized cost of such additions
including interest shall be charged to the Lessee.
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<PAGE>
7. INSURANCE; INDEMNITY.
--------------------
7.1 Liability Insurance - Lessee. Lessee shall, at Lessee's
----------------------------
expense, obtain and keep in force during the term of this Lease a policy of
Comprehensive General Liability insurance utilizing an Insurance Services
Office standard form with Broad Form General Liability Endorsement
(GL0404), or equivalent, in an amount of not less than Two Million Dollars
($2,000,000) per occurrence of bodily injury and property damage combined
or in a greater amount as reasonably determined by Lessor as the amount
then customarily carried by owners and operators of similar properties and
shall insure Lessee, and Lessor as an additional insured, against liability
arising out of the use, occupancy or maintenance of the Premises.
Compliance with the above requirement shall not, however, limit the
liability of Lessee hereunder.
7.2 Property Insurance - Lessee. Lessee shall, at Lessee's
---------------------------
expense, obtain and keep in force during the term of this Lease for the
benefit of Lessee, replacement cost of fire and extended coverage
insurance, with vandalism and malicious mischief endorsements, in an amount
sufficient to cover not less than 100% of the full replacement cost, as the
same may exist from time to time, of all of Lessee's personal property,
fixtures, equipment and tenant improvements financed by Lessee.
7.3 Insurance - Lessor. Lessor shall obtain and keep in force
------------------
during the term of this Lease a policy or policies of insurance covering
loss or damage to the Office Building Project improvements, but not
Lessee's personal property, fixtures, equipment or tenant improvements in
the amount of the full replacement cost thereof, as the same may exist from
time to time, utilizing Insurance Services Office standard form, or such
other form as Lessor elects, providing protection against all perils
included within the classification of special causes of loss, and such
other perils as Lessor deems advisable, including without limitation
earthquake and flood coverage. In addition, Lessor shall, at Lessor's
option, obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable
to Lessor, which insurance shall also cover all Operating Expenses for said
period. Lessee will not be named in any such policies carried by Lessor
and shall have no right to any proceeds therefrom. The policies required
by this Paragraph 7.3 shall contain such deductibles as Lessor or the
aforesaid lender may determine. In the event that the Premises shall
suffer an insured loss as defined in Paragraph
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<PAGE>
8.1(e) hereof, the deductible amounts under the applicable insurance
policies shall be deemed an Operating Expense. Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
carried by Lessor. Lessee shall pay the entirety of any increase in the
property insurance premium for the Office Building Project over what it was
immediately prior to the commencement of the term of this Lease if the
increase is specified by Lessor's insurance carrier as being caused by the
nature of Lessee's occupancy or any act or omission of Lessee.
7.4 Insurance Policies. Lessee shall deliver to Lessor copies of
------------------
all insurance policies required to be maintained by Lessee under this
section 8 or certificates evidencing the existence and amounts of such
insurance within thirty (30) business days after the Commencement Date of
this Lease. All such policies shall name Lessor as an additional insured
and no such policy shall be cancelable or subject to reduction of coverage
or other modification except after thirty (30) days prior written notice to
Lessor. Lessee shall, at least thirty (30) days prior to the expiration of
such policies, furnish Lessor with renewals thereof.
7.5 Waiver of Subrogation. Notwithstanding anything to the contrary
---------------------
in the Lease. Lessee and Lessor each hereby release and relieve the other,
and waive their entire right of recovery against the other, for direct or
consequential loss or damage arising out of or incident to the perils
covered by property insurance carried by such party, without regard to the
negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. All of Lessor's and Lessee's repair and indemnity
obligations under the Lease shall be subject to the waiver contained in
this paragraph. Each party shall cause each insurance policy it obtains to
provide that the insurer thereunder waives all right of recovery by way of
subrogation as required herein in connection with any injury or damage
covered by the policy.
7.6. Indemnity. Except to the extent and proportion caused by
---------
Lessor's or its agent's or contractor's negligence or willful misconduct,
Lessee shall indemnify and hold harmless Lessor and its agents, partners
and lenders, from and against any and all liability, cost, expense, loss or
claim for damage to the person or property of anyone or any entity arising
from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done or permitted by
Lessee in or about the Premises and shall further indemnify and hold
harmless Lessor from and against any and all liability, cost, expense, loss
or
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<PAGE>
claim arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease,
or arising from any negligent act or omission of Lessee, or any of Lessee's
agents, contractors, employees or invitees and from and against all costs,
attorneys' fees, expenses and liabilities incurred by Lessor as the result
of any such use, conduct, activity, work, things done or permitted, breach,
default or negligence, and in dealing reasonably therewith, including but
not limited to the defense or pursuit of any claim or any action or
proceeding be brought against Lessor by reason of any such matter, Lessee
upon notice from Lessor shall defend the same at Lessee's expense by
counsel reasonably satisfactory to Lessor and Lessor shall cooperate with
Lessee in such defense. Lessor need not have first paid any such liability
cost, expense, loss or claim in order to be so indemnified. Lessee, as a
material part of the consideration to Lessor, hereby assumes all risk of
injury or damage to property of Lessee and its agents in, upon or about the
Premises arising from any cause except for the negligence or willful
misconduct of Lessor and Lessee hereby waives all claims in respect thereof
against Lessor. Notwithstanding any provision to the contrary in this
Lease, Lessor shall indemnify and hold harmless Lessee from all damages,
liabilities, claims, judgments, actions, attorneys' fees, consultants'
fees, costs and expenses arising from the negligence or willful misconduct
of Lessor or Lessor's Agents or Contractors, or the breach of Lessor's
obligations or representations under this Lease.
7.7 Exemption of Lessor from Liability. Lessee hereby agrees that,
----------------------------------
except for the negligence or willful misconduct of Lessor, Lessor's Agents
or Contractors, Lessor shall not be liable for injury to Lessee's business
or any loss of income therefrom or from loss of or damage to the goods,
wares, merchandise or other property of Lessee, Lessee's employees,
invitees, customers, or any other person in or about the Premises or the
Office Building Project, nor shall Lessor be liable for injury to the
person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from thefts, fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon
other portions of the Office
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<PAGE>
Building Project, or from other sources or places, or from new construction
or the repair, alteration or improvement of any part of the Office Building
Project, or of the equipment, fixtures or appurtenances applicable thereto,
and regardless of whether the cause of such damage or injury or the means
of repairing the same is inaccessible. In addition, Lessor shall not be
liable for any damages arising from any act or neglect of any other lessee,
occupant or user of the Office Building Project, nor from the failure of
Lessor to enforce the provisions of any other lease.
7.8 No Representation of Adequate Coverage. Lessor makes no
--------------------------------------
representation that the limits or forms of insurance specified in this
Section 7 are adequate to cover Lessee's property or obligations under this
Lease.
8. DAMAGE OR DESTRUCTION.
---------------------
8.1 Definitions.
-----------
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less than
thirty-three and one-third percent (33-1/3%) of the then Replacement Cost
of the Building.
(c) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost to repair is thirty-three
and one-third percent (33-1/3%) or more of the then Replacement Cost of the
Building.
(d) "Building Total Destruction" shall mean if the Building is
damaged or destroyed to the extent that the cost of repair is thirty-three
and one-third percent (33-1/3%) or more of the then Replacement Cost of the
Building.
(e) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
section 8. The fact that an insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(f) "Replacement Cost" shall mean the amount of money necessary
to be spent in order to repair or rebuild the damaged area to the condition
that existed immediately prior to the damage occurring, excluding all
improvements made by lessees, other than those installed by Lessor at
Lessee's expense.
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<PAGE>
8.2 Premises Damage; Premises Partial Damage.
----------------------------------------
(a) Insured Loss: Subject to the provisions of Paragraphs 8.4
------------
and 8.5, if at any time during the term of this Lease there is damage which
is an Insured Loss and which falls into the classification of either
Premises Damage or Premises Partial Damage, then Lessor shall, as soon as
reasonably possible and to the extent the required materials and labor are
readily available through usual commercial channels, at Lessor's expense,
repair such damage (but not Lessee's fixtures, equipment or tenant
improvements originally paid for by Lessee) to its condition existing at
the time of the damage, and this Lease shall continue in full force and
effect. In the event any such damage is caused by the negligent or willful
act of Lessee, Lessee shall make the repairs at Lessee's expense.
(b) Uninsured Loss: Subject to the provisions of Paragraphs
--------------
8.4 and 8.5, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls within the classification of
Premises Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i)
repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii)
give written notice to Lessee within thirty (30) days after the date of the
occurrence of such damage of Lessor's intention to cancel and terminate
this Lease as of the date of the occurrence of such damage, in which event
this Lease shall terminate as of the date of the occurrence of such damage.
However, Lessor shall not have the right to terminate the Lease if damage
to or destruction of the Premises or Building is relatively minor (e.g.,
repair or restoration would cost less than five percent (5%) of the
replacement cost of the Building).
8.3 Premises Total Destruction; Office Building Project Total
---------------------------------------------------------
Destruction. Subject to the provisions of Paragraphs 8.4 and 8.5, if at
-----------
any time during the term of this Lease there is damage, whether or not it
is an Insured Loss, which falls into the classifications of either (i)
Premises Total Destruction, or (ii) Office Building Project Total
Destruction, then Lessor may at Lessor's option either (i)repair such
damage or destruction within one hundred twenty (120) days at Lessor's
expense to its condition existing at the time of the damage, but not
Lessee's fixtures, equipment or tenant
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improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date
of occurrence of such damage of Lessor's intention to cancel and terminate
this Lease, in which case this Lease shall terminate as of the date of the
occurrence of such damage.
8.4 Damage Near End of Term. If at any time during the last twelve
-----------------------
(12) months of the term of this Lease including extensions there is
substantial damage to the Premises, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by
giving written notice to Lessee of Lessor's election to do so within thirty
(30) days after the date of occurrence of such damage.
8.5 Abatement of Rent; Lessee's Remedies.
------------------------------------
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this Section 8, and any part of the
Premises are not usable in the same manner as before the damage (including
loss of use due to loss of access or essential services), the rent payable
hereunder (including Lessee's Share of Operating Expenses) for the period
during which such damage, repair or restoration continues shall be abated,
provided (1) the damage was not the result of the negligence of Lessee, and
(2) such abatement shall be in proportion to that part of the Premises
which is unusable by Lessee for the conduct of its business in the same
manner as before the damage. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason
of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises or the Building under the provisions of this Section 8 and shall
not commence such repair or restoration within ninety (90) days after such
occurrence or if it shall require more than one hundred twenty (120) days
from the date of such casualty to complete restoration or repair, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor
written notice of Lessee's election to do so at any time prior to the
commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with
any such restoration and repair, including but not limited to the approval
and/or execution of plans and specifications as and when required.
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<PAGE>
8.6 Termination - Advance Payments. Upon termination of this Lease
------------------------------
pursuant to this Section 8, an equitable adjustment shall be made
concerning advance rent, if any, and any advance payments made by Lessee to
Lessor. Lessor shall, in addition return to Lessee so much of Lessee's
security deposit as has not theretofore been applied by Lessor or which
Lessor has a right to apply pursuant to the terms of this Lease.
8.7 Waiver. Lessor and Lessee waive the provisions of any statutes
------
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
9. REAL PROPERTY TAXES.
-------------------
9.1 Payment of Taxes. Lessor shall pay the real property tax, as
----------------
defined in Paragraph 9.3, applicable to the Office Building Project subject
to the payment by Lessee of Lessee's Share of Operating Expenses in
accordance with the provisions of Paragraph 4.2, except as otherwise
provided in Paragraph 9.2.
9.2 Additional Improvements. Lessee shall not be responsible for
-----------------------
paying any increase in real property tax specified in the tax assessor's
records and work sheets as being caused by additional improvements placed
upon the Office Building Project by other lessees or by Lessor for the
exclusive enjoyment of any other lessee. Notwithstanding the provisions
set forth in Paragraph 4.2 hereof, Lessee shall, however, pay to Lessor at
the time that Operating Expenses are payable under Paragraph 4.2(d) the
entirety of any increase in real property taxes if assessed solely by
reason of additional improvements placed upon the Premises by Lessee at
Lessee's request.
9.3 Definition of "Real Property Tax". As used herein, the term
---------------------------------
"real property tax" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary, and any license
fee, commercial rental tax, improvement bond or bonds, levy or tax (other
than inheritance, personal income or estate taxes) imposed on the Office
Building Project or any portion thereof by any authority having the direct
or indirect power to tax, including any city, county, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage
or other improvement district thereof, as against any legal or equitable
interest of Lessor in the Office Building Project or in any portion
thereof, as against
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Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Office Building Project.
Notwithstanding the foregoing, "Real Property Tax" shall not include and
Lessee shall not be required to pay any portion of any tax or assessment
expense or any increase therein (a) levied on Lessor's rental income,
unless such tax or assessment expense is imposed in lieu of real property
taxes; (b) in excess of amount which would be payable if such tax or
assessment expense were paid in installments over the longest possible
term; or (c) attributable to Lessor's net income, inheritance, gift,
transfer, estate or state taxes; or (d) resulting from a change of
ownership or transfer of any or all of the Project or the improvement of
any of the Project for sole use of other occupants.
9.4 Joint Assessment. If the improvements or property, the taxes
----------------
for which are to be paid separately by Lessee under Paragraph 9.2 or 9.5,
are not separately assessed, Lessee's portion of that tax shall be
equitably determined by Lessor from the respective valuations assigned in
the assessor's work sheets or such other information (which may include the
cost of construction) as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
9.5 Personal Property Taxes.
-----------------------
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all
other personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property.
10. UTILITIES AND SERVICES.
----------------------
10.1 Services Provided by Lessor. Lessor shall provide typical
---------------------------
office heating, ventilating and air conditioning (HVAC) throughout the
building from four (4) large house units (AC 1/DF 1, AC 2/DF 2, AC 3/DF 3,
AC 4/ DF 4) during the specified hours of service in Paragraph 10.3. Any
other Fan Coils (FC), Condensing Units (CU), air conditioning units, and/or
fans required for computer rooms, clean air rooms, laboratories, etc. that
require special temperature control, odor control, etc., will
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<PAGE>
result in additional charge to Lessee to cover the costs of the special
system or systems including electricity, gas, water, maintenance and repair
costs, and amortization plus interest charged according to generally
accepted accounting practices. Lessor shall also provide electricity and
water twenty-four (24) hours per day, seven days per week.
10.2 Services Exclusive to Lessee. Lessee shall pay for all water,
----------------------------
heating, ventilation, air conditioning, light, power, telephone, data and
other utilities and services specially or exclusively supplied and/or
metered exclusively to the Premises or to Lessee, together with any taxes
thereon. If any such services are not separately metered to the Premises,
Lessee shall pay at Lessor's option, either Lessee's Share or a reasonable
proportion to be determined by Lessor of all charges jointly metered with
other premises in the Building.
10.3 Hours of Service. The services and utilities described in
----------------
Paragraph 10.1 shall be provided during generally accepted business days,
Monday through Friday, hours 7:00 a.m. through 6:00 p.m. Utilities and
services required at all other times shall be subject to reimbursement by
Lessee to Lessor of the actual cost thereof including allowances for
additional wear, and reduction in expected life of the equipment.
10.4 Excess Usage by Lessee. Lessee shall not make connection to the
----------------------
utilities except by or through existing outlets and shall not install or
use machinery or equipment in or about the Premises that uses excess water,
lighting, or power, or suffer or permit any act that causes extra burden
upon the utilities or services, including but not limited to security
services, over standard office usage for the Office Building Property.
Lessor shall require Lessee to reimburse Lessor for any excess expenses or
costs that may arise out of a breach of this subparagraph by Lessee.
Lessor may in its reasonable discretion, install at Lessee's expense
supplemental equipment and/or separate metering applicable to Lessee's
excess usage or loading.
10.5 Interruptions. There shall be no abatement of rent and Lessor
-------------
shall not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot,
strike, labor dispute, breakdown, accident, repair or other cause beyond
Lessor's reasonable control or in cooperation with governmental request or
directions.
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<PAGE>
11. OPTION TO EXTEND. Lessor hereby grants to Lessee two (2)
----------------
options (the "Option") to extend the term of this lease for two additional terms
of one (1) year, commencing when the initial term expires, upon the terms and
conditions set forth in this Paragraph. Provided "Resonate" or Lessee Affiliate
is then occupying at least fifty percent (50%) of the Premises, Lessee may
exercise such option by giving Lessor written notice of its intention not less
than one hundred eighty (180) days prior to the expiration of the initial term
of this Lease. With respect to the second one year term, Lessee may exercise
such option by giving Lessor written notice of its intention not less than one
hundred eighty (180) days prior to the expiration of the first additional one
year term. All of the term and conditions contained in the Lease, as the same
may be amended from time to time by the parties in accordance with the
provisions of the Lease, shall remain in full force and effect and shall apply
during the Option term except the rent shall be the greater of 100% Fair Market
Rate or the previous 12 months rent.
12. ASSIGNMENT AND SUBLETTING.
-------------------------
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
-------------------------
operation of law sublet, or otherwise transfer or encumber any part of
Lessee's interest in the Lease or in the Premises, without Lessor's prior
written consent, which Lessor shall not unreasonably withhold, and
Sublessee must have a net worth of at least ten million dollars
($10,000,000). If Lessor does not notify Lessee in writing of its consent
or reasonable nonconsent of such sublet, transfer or encumberance proposed
by Lessee within twenty (20) days following Lessee's request for approval,
then Lessor shall be deemed to have consented to such sublet, transfer or
encumberance. Any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void and shall constitute a
material default and breach of this Lease without the need for notice to
Lessee under Paragraph 13.1. If Lessee desires to transfer over fifty
percent (50%) of the space, the Lessor reserves the right to terminate the
Lease.
"Transfer" within the meaning of this Section 12 shall include the transfer
or transfers aggregating, if Lessee is a partnership, more than fifty
percent (50%) of the profit and loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of Paragraph
----------------
12.1 hereof, Lessee may assign or sublet the Premises, or any portion
thereof, without Lessor's consent, to any corporation which controls, is
controlled by or is under common control with Lessee, or
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<PAGE>
to any corporation resulting from the merger or consolidation with Lessee,
or to any person or entity which acquires all the assets of Lessee as a
going concern of the business that is being conducted on the Premises, all
of which are referred to as "Lessee Affiliate"; provided that before such
assignment shall be effective, (a) said assignee shall assume, in full, the
obligations of Lessee under this Lease and (b) Lessor shall be given
written notice of such assignment and assumption. Any such assignment shall
not, in any way, affect or limit the liability of Lessee under the terms of
this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
------------------------------------------------------------
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expenses, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a reasonable delay in the approval or disapproval
of such assignment or subletting, nor the acceptance of rent, shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies
for the breach of any of the terms or conditions of this Section 14 or this
Lease.
(d) If Lessee's obligations under this Lease have been
guaranteed by third parties, then an assignment or sublease, and Lessor's
consent thereto, shall not be effective unless said guarantors give their
written consent to such assignment or sublease and the terms thereof.
(e) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto
without notifying
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<PAGE>
Lessee or anyone else liable on the Lease or sublease and without obtaining
their consent and such action shall not relieve such persons from liability
under this Lease or said sublease; provided, however, such persons shall
not be responsible to the extent any such amendment or modification
enlarges or increases the obligations of the Lessee or sublessee under this
Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or anyone else responsible
for the performance of this Lease, including the sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no
default then exists under this Lease of the obligations to be performed by
Lessee nor shall such consent be deemed a waiver of any then existing
default, except as may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement
relied upon by Lessor in giving its consent to an assignment or subletting
was materially false shall, at Lessor's election, render Lessor's said
consent null and void.
(i) If Lessee receives rent or other consideration, either
initially or over the term of any assignment or sublease in excess of the
rent required under this Lease, Lessee shall pay to Lessor, as additional
rent hereunder, 50% of the excess of each such payment of rent or
additional consideration by Lessee after subtracting Lessee's reasonable
brokers and attorney's fees and the unamortized portion of improvements to
the Premises paid for by Lessee, provided that in no event will Lessor be
responsible for any portion of the broker and attorney fees associated with
such sublease or assignment.
12.4 Additional Terms and Conditions Applicable to Subletting.
--------------------------------------------------------
Regardless of Lessor's consent, the following terms and conditions shall
apply to any subletting by Lessee of all or any part of the Premises and
shall be deemed included in all subleases under this Lease whether or not
expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income
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<PAGE>
arising from any sublease heretofore or hereafter made by Lessee, and
Lessor may collect such rent and income and apply same toward Lessee's
obligations under this Lease, provided, however, that until a default shall
occur in the performance of Lessee's obligations under this Lease, Lessee
may receive, collect and enjoy the rents accruing under such sublease.
Lessor shall not, by reasons of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under
such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a
default in the performance of Lessee's obligations under this Lease, to pay
to Lessor the rents due and to become due under the sublease. Lessee agrees
that such sublessee shall have the right to rely upon any such statement
and request from Lessor, and that such sublessee shall pay such rents to
Lessor without any obligation or right to inquire as to whether such
default exists and notwithstanding any notice from or claim from Lessee to
the contrary. Lessee shall have no right or claim against said sublessee or
Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering
into any sublease, Lessee shall use only such form of sublease as is
satisfactory to Lessor, and once approved by Lessor, such sublease shall
not be changed or modified without Lessor's prior written consent which
consent shall not be unreasonably withheld or delayed. Any sublessee shall,
by reason of entering into a sublease under this Lease, be deemed for the
benefit of Lessor, to have assumed and agreed to conform and comply with
each and every obligation herein to be performed by Lessee other than such
obligations as are contrary to or inconsistent with provisions contained in
a sublease to which Lessor has expressly consented in writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorney to Lessor, in
which event Lessor shall undertake the obligations of Lessee under such
sublease from the time of the exercise of said option to the termination of
such sublease; provided, however, Lessor shall not be liable for any
prepaid rents or security deposit paid by such sublessee to Lessee or
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<PAGE>
for any other prior defaults of Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any part
of the Premises without Lessor's prior written consent in accordance with
the Lease.
(e) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by
Lessee to the sublessee. Such sublessee shall have the right to cure a
default of Lessee within three (3) days after service of said notice of
default upon such sublessee, and the sublessee shall have the right of
reimbursement and offset from and against Lessee for any such defaults
cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet
-----------------
the Premises or request the consent of Lessor to any assignment or
subletting or if Lessee shall request the consent of Lessor for any act
Lessee proposes to do then Lessee shall pay Lessor's reasonable costs and
expenses incurred in connection therewith, including attorneys',
architects', engineers' or other consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition
---------------------
any approval to assign or sublet upon Lessor's determination that (a) the
proposed assignee or sublessee shall conduct a business on the Premises of
a quality substantially equal to that of Lessee and consistent with the
general character of the other occupants of the Office Building Project and
not in violation of any exclusives or rights then held by other tenants,
and (b) the proposed assignee or sublessee be at least as financially
responsible as the other tenants in the Building.
13. DEFAULT; REMEDIES.
-----------------
13.1 Default. The occurrence of any one or more of the following
-------
events shall constitute a material default of this Lease by Lessee:
(a) The abandonment of the Premises by Lessee. Abandonment of
the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is
paid.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due,
where such failure shall
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<PAGE>
continue for a period of three (3) business days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with
a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer
statutes such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(c) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becoming a
"debtor" as defined in 11 U.S.C. (S) 101 or any successor statute thereto
(unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located
at the Premises or of Lessee's interest in this Lease, where such seizure
is not discharged within thirty (30) days. In the event that any provision
of this Paragraph 13.1(c) is contrary to any applicable law, such provision
shall be of no force or effect.
(d) The discovery by Lessor that any financial statement given
to Lessor by Lessee, or its successor in interest or by any guarantor of
Lessee's obligation hereunder, was materially false.
(e) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or
performed by Lessee, other than those specifically referenced in other
subparagraphs of this Paragraph 13.1, where such failure shall continue for
a period of thirty (30) days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's noncompliance is
such that more than thirty (30) days are reasonably required for its cure,
then Lessee shall not be deemed to be in default if Lessee commenced such
cure within said thirty (30) day period and thereafter diligently pursues
such cure to completion. To the extent permitted by law, such thirty (30)
day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes. In the event
a specific time period for performance is set forth in any covenant,
condition or provision of this Lease, such specific time period shall
govern such performance rather than the thirty (30) day period set forth in
this section and such specific time period shall not be subject to
extension as provided in this section.
13.2 Remedies. In the event of any material default or breach of
--------
this Lease by Lessee, Lessor may at any time thereafter, with or without
notice or demand and without
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<PAGE>
limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises
to Lessor. In such event Lessor shall be entitled to recover from Lessee
all damages incurred by Lessor by reason of Lessee's default including, but
not limited to, the cost of recovering possession of the Premises; expenses
of reletting, including reasonably necessary renovation and alteration of
the Premises, reasonable attorneys' fees, and any real estate commission
actually paid; the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid rent for the balance
of the term after the time of such award exceeds the amount of such rental
loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph
15 applicable to the unexpired term of this Lease. Lessor shall use its
best efforts to mitigate any damages caused by any such default.
(b) Maintain Lessee's right to possession, in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce
all of Lessor's rights and remedies under this Lease, including the right
to recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the
Premises are located. Unpaid installments of rent and other unpaid monetary
obligations of Lessee under the terms of this Lease shall bear interest
from the date due at the maximum rate then allowable by law.
(d) Lessor and Lessee agree that if an attorney is consulted by
Lessor in connection with a Lessee Default, $500 is a reasonable minimum
sum per such occurrence for legal services and costs in the preparation and
service of a notice of Default and that Lessor may include the greater of
$500 or the actual cost of such services and costs in said notice as rent
due and payable to cure said Default.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
-----------------
fails to perform obligations required of Lessor within a reasonable time,
but in no event later than thirty (30) days after written notice by
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<PAGE>
Lessee to Lessor specifying wherein Lessor has failed to perform such
obligation; provided, however, that if the nature of Lessor's obligation is
such that more than thirty (30) days are required for performance then
Lessor shall not be in default if Lessor commences performance within such
thirty (30)-day period and thereafter diligently pursues the same to
completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
------------
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or
other sums due hereunder will cause Lessor to incur costs not contemplated
by this Lease, the exact amount of which will be extremely difficult to
ascertain. Such costs include, but are not limited to, processing and
accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Office Building Project.
Accordingly, if any installment of Base Rent, Operating Expenses, or any
other sum due from Lessee shall not be received by Lessor or Lessor's
designee within ten (10) days after such amount shall be due, then, without
any requirement for notice to Lessee, Lessee shall pay to Lessor a late
charge equal to five percent (5%) of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's default with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and
remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the
------------
Office Building Project are taken under the power of eminent domain, or sold
under the threat of the exercise of said power (all of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date the condemning authority takes title or possession, whichever first occurs;
provided that if so much of the Premises or the Office Building Project are
taken by such condemnation as would substantially and adversely affect the
operation and profitability of Lessee's business conducted from the Premises,
Lessee shall have the option, to be exercised only in writing within thirty (30)
days after Lessor shall have given Lessee written notice of such taking (or in
the absence of such notice, within thirty (30) days after the condemning
authority shall have taken possession), to terminate this Lease as of the date
the condemning authority takes such possession. If Lessee does not terminate
this Lease in accordance with the foregoing, this Lease shall remain in full
force and effect as to the portion of the Premises remaining, except that the
rent and Lessee's Share of Operating Expenses shall be reduced in
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the proportion that the floor area of the Premises taken bears to the total
floor area of the Premises. Common Areas taken shall be excluded from the Common
Areas usable by Lessee and no reduction of rent shall occur with respect thereto
or by reason thereof. Lessor shall have the option in its sole discretion to
terminate this Lease as of the taking of possession by the condemning authority,
by giving written notice to Lessee of such election within thirty (30) days
after receipt of notice of a taking by condemnation of any part of the Premises
or the Office Building Project. Any award for the taking of all or any part of
the Premises or the Office Building Project under the power of eminent domain or
any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
separate award for loss of or damage to Lessee's trade fixtures, removable
personal property and unamortized tenant improvements that have been paid for by
Lessee. For that purpose, the cost of such improvements shall be amortized over
the original term of this Lease excluding any options. In the event that this
Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. BROKER'S FEE. None. No fees are applicable to this transaction.
------------
16. ESTOPPEL CERTIFICATE.
--------------------
(a) Each party (as "responding party") shall at any time upon
not less than ten (10) business days' prior written notice from the other
party ("requesting party") execute, acknowledge and deliver to the
requesting party a statement in writing (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the
nature of such modification and certifying that this Lease, as so modified,
is in full force and effect) and the date to which the rent and other
charges are paid in advance, if any, and (ii) acknowledging that there are
not, to the responding party's knowledge, any uncured defaults on the part
of the requesting party, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective
purchaser or encumbrance of the Office Building Project or of the business
of Lessee.
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<PAGE>
(b) At the requesting party's option, the failure to deliver
such statement within such time shall be a material default of this Lease
by the party who is to respond, without any further notice to such party,
and shall give rise to all rights of a non-defaulting party against a
defaulting party without necessity of further notice or cure period. In
addition, at the requesting party's option, such failure shall be
conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party,
(ii) there are no uncured defaults in the requesting party's performance,
and (iii) if Lessor is the requesting party, not more than one month's rent
has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Office
Building Project, or any part thereof, Lessee hereby agrees to deliver to
any lender or purchaser designated by Lessor such financial statements of
Lessee as may be reasonably required by such lender or purchaser. Such
statements shall include the past three (3) years' financial statements of
Lessee. All such financial statements shall be received by Lessor and such
lender or purchaser in strict confidence and shall be used only for the
purposes herein set forth and thereafter returned without duplication.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall
------------------
mean only the owner or owners at the time in question, of the fee title or a
lessee's interest in a ground lease of the Office Building Project, and except
as expressly provided in Section 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as
------------
determined by a court of competent jurisdiction shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
--------------------------------
provided, any amount due to Lessor not paid when due shall bear interest at the
maximum rate then allowable by law or judgments from the date due. Payment of
such
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<PAGE>
interest shall not excuse or cure any default by Lessee under this Lease;
provided, however, that interest shall not be payable on late charges incurred
by Lessee nor on any amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the
---------------
obligations to be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor
---------------
under the terms of this Lease, including but not limited to Lessee's Share of
Operating Expense and any other expenses payable by Lessee hereunder, shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease and
---------------------------------------------
all exhibits hereto contain all agreements of the parties with respect to any
matter mentioned herein. No prior or contemporaneous agreement or understanding
pertaining to any such matter shall be effective. This Lease may be modified in
writing only, signed by the parties in interest at the time of the modification.
Except as otherwise stated in this Lease, Lessee hereby acknowledges that
neither the real estate brokers listed in Section 15 hereof nor any cooperating
broker on this transaction nor the Lessor or any employee or agents of any of
said persons has made any oral or written warranties or representations to
Lessee relative to the condition or use by Lessee of the Premises or the Office
Building Project other than those set forth in this Lease, and Lessee
acknowledges that Lessee assumes all responsibility regarding the Occupational
Safety Health Act, the legal use and adaptability of the Premises and the
compliance thereof with all applicable laws and regulations in effect during the
term of this Lease. It is acknowledged that Lessor shall be responsible for
maintenance and compliance of the elevator and other common areas.
23. NOTICES. Any notice required or permitted to be given hereunder
-------
shall be in writing and may be given by personal delivery, by certified or
registered mail or by private overnight courier, and shall be deemed
sufficiently given: (i) if delivered by United States mail (certified, return
receipt requested), on the date received as shown on the receipt card or, (ii)
one business day after being deposited with Federal Express or similar private
carrier guaranteeing overnight delivery, cost prepaid; and (iv) in all other
cases when actually received. Either party may be noticed to the other
specifying a different address for notice purposes. A copy of all notices
required or permitted to be given to Lessor or Lessee hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor or
Lessee may from time to time hereafter designate to notice to Lessee or Lessor.
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<PAGE>
24. WAIVERS. No waiver by either party of any provision hereof
-------
shall be deemed a waiver of any other provision hereof or of any subsequent
breach of the same or any other provision. Lessor's consent to, or approval of,
any act shall not be deemed to render unnecessary the obtaining of Lessor's
consent to or approval to any subsequent act by Lessee. The acceptance of rent
hereunder by Lessor shall not be a waiver of any preceding breach by Lessee of
any provision hereof, other than the failure of Lessee to pay the particular
rent so accepted, regardless of Lessor's knowledge of such preceding breach at
the time of acceptance of such rent.
25. RECORDING. Each party shall, upon request of the other,
---------
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. NO RIGHT TO HOLD OVER. Lessee has no right to retain possession
---------------------
of the Premises or any part thereof beyond the expiration or earlier termination
of this Lease unless agreed to by the parties. The rent payable during a hold
over shall be 150% of the rent just prior to lease termination.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be
-------------------
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease
------------------------
performable by Lessee and Lessor shall be deemed both a covenant and a
condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
-----------------------------
restricting assignment or subletting by Lessee and subject to the provisions of
Section 19, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. SUBORDINATION.
-------------
(a) This Lease, and any Option or right of first refusal
granted hereby, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now
or hereafter placed upon the Office Building Project and to any and all
advances made on the security thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof without requirement
that Lessee execute any
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<PAGE>
acknowledgment of such subordination. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed
if Lessee is not in default and so long as Lessee shall pay the rent and
observe and perform all of the provisions of this Lease, unless this Lease
is otherwise terminated pursuant to its terms. If any mortgagee, trustee or
ground lessor shall elect to have this Lease and the Options granted hereby
prior to the lien of its mortgage, deed of trust or ground lease, and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such mortgage, deed of trust or ground lease, whether this
Lease or such Options are dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording thereof
and whether or not Lessee has executed any acknowledgment of such.
(b) Lessee agrees to execute, any reasonable documents
requested to evidence or effectuate an attornment, a subordination, or to
make this Lease or any option granted herein prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be so long as such
document is consistent with the provisions set forth herein and contains
Lessee's right to not be disturbed as described herein. Lessee's failure to
execute such documents within fifteen (15) business days after written
demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or any additional cure period and shall give rise
to all remedies of Lessor arising from a default by Lessee hereunder.
31. ATTORNEYS' FEES.
---------------
31.1 Attorneys' Fees. If either party or the broker(s) named herein
---------------
brings an action to enforce the terms hereof or declare rights hereunder,
the prevailing party in any such action, trial or appeal thereon, shall be
entitled to his reasonable attorneys' fees to be paid by the losing party
as fixed by the court in the same or a separate suit, and whether or not
such action is pursued to decision or judgment. The provisions of this
paragraph shall inure to the benefit of the broker named herein who seeks
to enforce a right hereunder.
31.2 Reimbursement. The attorneys' fee award shall not be computed
-------------
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred in good faith.
- 36 -
<PAGE>
31.3 Default. Lessor shall be entitled to reasonable attorneys' fees
-------
and all other costs and expenses incurred in the preparation and service of
notices of default and consultations in connection therewith, whether or
not a legal action is subsequently commenced in connection with such
default.
32. LESSOR'S ACCESS.
---------------
32.1 Entry Onto Premises. Lessor and Lessor's agents shall have the
-------------------
right to enter the Premises at reasonable times and upon reasonable notice
for the purpose of inspecting the same, performing any services required of
Lessor, showing the same to prospective purchasers, lenders, or lessees,
taking such safety measures, erecting such scaffolding or other necessary
structures, making such alterations, repairs, improvements or additions to
the Premises or to the Office Building Project as Lessor may reasonably
deem necessary or desirable and the erecting, using and maintaining of
utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of
the Premises and provided Lessor shall use reasonable efforts to minimize
the extent and duration of any interference with Lessee's use of the
Premises. Notwithstanding anything contained herein to the contrary,
Lessor's, and its agent's and lender's, access to the Premises shall be
subject to Lessee's security regulations. Lessor may at any time place on
or about the Premises or the Building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred eighty (180) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs.
32.2 Abatement of Rent. All activities of Lessor pursuant to this
-----------------
paragraph shall be without abatement of rent, nor shall Lessor have any
liability to Lessee for same.
32.3 Emergency. In case of emergency, at any time of night or day,
---------
Lessee shall provide Lessor immediate access to the Premises by means of
Lessee's personnel, security guard, by key or by any reasonably appropriate
means. Moreover, Lesser shall have the right to enter the Premises in case
of emergency by any reasonable means, and any such entry shall not be
deemed a forceable or unlawful entry or detainer of the Premises or an
eviction. Lessee waives any charges for damages or injuries or interference
with Lessee's property or business in connection therewith, except for
damages or injuries due to Lessor's
- 37 -
<PAGE>
or its Agents' or Contractors' negligence or willful misconduct.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted,
--------
either voluntarily or involuntarily, any auction upon the Premises or the Common
Areas without first having obtained Lessor's prior written consent.
Notwithstanding anything to the contrary in this Lease, Lessor shall not be
obligated to exercise any standard of reasonableness in determining whether to
grant such consent. The holder of any auction on the Premises or Common Areas in
violation of this paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall not place any sign on the Premises or the
-----
Office Building Project without Lessor's prior written consent, which consent
shall not be unreasonably withheld or delayed. Under no circumstances shall
Lessee place a sign on any roof of the Office Building Project. All such signs
are subject to all covenants, conditions and restrictions and zoning and other
ordinances applicable to the Premises and the prior written consent of Lessor as
to the size, color and other details of any such sign. The Lessor will pay the
cost for sign plates for the sign on Moffett Park Drive and in the building
lobby. Lessee shall be entitled to signage on the South exterior wall with a
design, size and specifications reasonably approved by Lessor.
35. MERGER. The voluntary or other surrender of this Lease by
------
Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not
work a merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for Sections 33 (Auctions) and hereof,
--------
wherever in this Lease the consent of one party is required to an action of the
other party, such consent shall not be unreasonably withheld, conditioned or
delayed.
37. GUARANTOR. In the event that there is a guarantor of this
---------
Lease, said guarantor shall have the same obligations as Lessee under this
Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises
----------------
and observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed thereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of
- 38 -
<PAGE>
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. SECURITY MEASURES - LESSOR'S RESERVATIONS.
-----------------------------------------
39.1 Security Measures. Lessee hereby acknowledges that Lessor shall
-----------------
have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Office Building Project.
Lessee assumes all responsibility for the protection of Lessee, its agents,
and invitees and the property of Lessee and of Lessee's agents and invitees
from acts of third parties. Nothing herein contained shall prevent Lessor,
at Lessor's sole option, from providing security protection for the Office
Building Project or any part thereof, in which event the cost thereof shall
be included within the definition of Operating Expenses, as set forth in
Paragraph 4.2(b).
39.2 Lessor's Reservations. Lessor shall have the following rights:
---------------------
(a) To change the name or title of the Office Building Project
or building in which the Premises are located upon not less than ninety
(90) days prior written notice;
(b) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights
expressly given herein;
(c) To place such signs, notices or displays as Lessor
reasonably deems necessary or advisable upon the roof, exterior of the
buildings or the Office Building Project or on pole signs in the Common
Areas.
40. EASEMENTS.
---------
40.1 Lessor's Reservations. Lessor reserves to itself the right,
---------------------
from time to time, to grant such easements, rights and dedications that
Lessor deems necessary or desirable, and to cause the recordation of Parcel
Maps and restrictions, so long as such easements, rights, dedications, Maps
and restrictions do not unreasonably interfere with the use of the Premises
by Lessee. Lessee shall sign any of the aforementioned documents upon
request of Lessor and failure to do so shall constitute a material default
to this Lease by Lessee without the need for further notice to Lessee.
- 39 -
<PAGE>
40.2 Obstruction. The obstruction of Lessee's view, air, or light by
-----------
any structure erected in the vicinity of the Building, whether by Lessor or
third parties, shall in no way affect this Lease or impose any liability
upon Lessor.
41. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise
-------------------------
as to any amount or sum of money to be paid by one party to the other under the
provisions hereof, the party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment, and there shall survive the right
on the part of said party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said party
to pay such sum or any part thereof, said party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
42. AUTHORITY. If Lessee is a corporation, trust, or general or
---------
limited partnership, Lessee represents and warrants that each individual
executing this Lease on behalf of such entity is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation, trust
or partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
43. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent
--------
and submission of same to Lessee shall not be deemed an offer to Lessee to
lease. The Lease shall become binding upon Lessor and Lessee only when fully
executed by both parties.
44. LENDER MODIFICATION. Lessee agrees to make such reasonable
-------------------
modifications to this Lease as may be reasonably required by an institutional
lender in connection with the obtaining of normal financing or refinancing of
the Office Building Project provided, however, such modifications do not
increase the financial obligations of Lessee hereunder or adversely affect the
leasehold interest hereby created or Lessee's reasonable use and enjoyment of
the Premises.
45. MULTIPLE PARTIES. If more than one person or entity is named as
----------------
either Lessor or Lessee herein, except as otherwise expressly provided herein,
the obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
46. FORCE MAJEURE. The term "Force Majeure" shall mean only the
-------------
following events: (i) strikes, boycotts or other
- 40 -
<PAGE>
labor action whether occurring on site or occurring off site or involving the
delivery of labor and materials to the Office Building Project; (ii) inclement
weather; (iii) damage caused by fire, earthquake or other peril; (v) accident,
collapse or explosion; or (vi) government action (e.g., building moratorium) or
extraordinary delay by any governmental entity in issuing required permits
despite the parties' diligent efforts to obtain such permits.
47. TENANT IMPROVEMENTS. Lessee shall be responsible for managing
-------------------
and constructing the "Tenant Improvements" described and depicted on Exhibit E
to this Lease. Lessee shall use its best efforts to substantially complete the
Tenant Improvements prior to the Commencement Date. Lessor reserves the right to
approve Lessee's final plans, architect and contractor.
48. ROOF ACCESS. Lessee shall have the right with approval of owner
-----------
which approval will not be unreasonably withheld to install on the roof, at no
additional rent, supplementary HVAC and be responsible for its utilities,
maintenance and repair, and roof repairs directly related to the installation
and maintenance associated with the supplemental HVAC.
49. OPTION TO EXPAND. In addition to any other expansion rights
----------------
Lessee may have under this Lease, Lessee shall have the right to lease any space
that becomes available for lease from time to time (an "Expansion Space") in the
Building and in the building located in the parking lot portion of the Office
Building Project referred to as 333-335 Moffett Park Drive, Sunnyvale. In the
event from time to time, any Expansion Space shall become available for lease,
Lessor shall provide Lessee written notice thereof, and Lessee shall have the
right to include such Expansion Space in the Premises at Fair Market Rate and
conditions in the Lease upon giving written notice to Lessor within seven (7)
business days of receiving such notice.
50. REASONABLE EXPENDITURES. Any expenditure by a party permitted
-----------------------
or required under the Lease, for which such party is entitled to demand and does
demand reimbursement from the other party, shall be limited to the fair market
value of the goods and services involved, shall be reasonably incurred, and
shall be substantiated by documentary evidence available for inspection and
review by the other party or its representative during normal business hours.
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<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
"LESSOR" "LESSEE"
Cilker Revocable Trust U.T.A. Resonate Inc.,
dated October 9, 1990 a California Corporation
By: /s/ William H. Cilker By: /s/ illegible
------------------------------ -------------------------------
William H. Cilker, trustee
Title:
By: /s/ Leila A. Cilker
-----------------------------
Leila A. Cilker, trustee
Title:
Lessor's address for notices: Lessee's address for notices:
William H. Cilker Resonate Inc.
Cilker Orchards 385 Moffett Park Drive
1631 Willow Street, Suite 225 Suite 105
San Jose, CA 95125 Sunnyvale, CA 94089
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<PAGE>
EXHIBIT A
THE PREMISES
------------
Tenant Improvements for 333 Moffett Park Drive by Dennis Kobza $ Associates,
Inc. 10/26/99
- 43 -
<PAGE>
EXHIBIT B
---------
LEGAL DESCRIPTION OF
BUILDING
The land referred to herein is situated in the State of California, County of
Santa Clara, City of Sunnyvale (and is described as follows):
PARCEL ONE:
ALL OF PARCEL B, as shown upon that certain Map entitled, "Parcel Map being a
resubdivision of Parcel 5 as shown upon that certain Parcel Map recorded in Book
383 of Maps, at page 19, Santa Clara County Records", which Map was filed for
record in the office of the Recorder of the County of Santa Clara, State of
California, on February 13, 1979 in Book 435 of Maps, at page 28.
PARCEL TWO:
An easement for utilities over the Easterly 10 feet of Parcel A, as said parcel
is shown on the map above referred to, as reserved in the Deed from Control Data
Corporation to Humboldt Court Associates Six, recorded February 21, 1979 in Book
E295 of Official Records, page 284.
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<PAGE>
EXHIBIT C
RULES AND REGULATIONS
GENERAL RULES
-------------
1. Lessee shall not suffer or permit the obstruction of any Common
Areas, including driveways, walkways and stairs.
2. Lessor reserves the right to refuse access to any persons Lessor
in good faith judges to be a threat to the safety, reputation, or property of
the Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office
Building Project, and shall not bring bicycles, motorcycles or other vehicles
into areas not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in
appropriate receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional
locks or bolts without first advising Lessor.
7. Lessee shall be responsible for the inappropriate use of any
toilet rooms, plumbing or other utilities. No foreign substances of any kind
are to be inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces
of the Premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the
Premises or Building that causes excessive vibration or floor loading in any
part of the Office Building Project.
10. Significant freight and equipment shall be moved into or out of
the building only with the Lessor's knowledge and consent, and subject to such
reasonable limitations, techniques and timing, as may be designated by Lessor.
Lessee shall be responsible for any damage to the Office Building Project
arising from any such activity.
- 45 -
<PAGE>
11. Lessee shall not employ any service or contractor for services
or work to be performed in the Building, that is not reasonably acceptable to
Lessor.
12. Lessee shall return all keys at the termination of its tenancy
and shall be responsible for the cost of replacing any keys that are lost.
13. No window coverings, shades or awnings shall be installed or
used by Lessee, other than those installed in the Building upon occupancy,
without Lessor's prior written consent.
14. No Lessee, employee or invitee shall go upon the roof of the
Building.
15. Lessee shall not suffer or permit smoking or carrying of lighted
cigars or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
16. Lessee shall not use any method of heating or air conditioning
other than as provided by Lessor.
17. Lessee shall notify Lessor prior to the installation of any
vending machines upon the Premises.
18. The Premises shall not be used for lodging or manufacturing.
19. Lessee shall comply with all safety, fire protection and
evacuation regulations established by Lessor or any applicable governmental
agency.
20. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
21. Lessee assumes all risks from theft or vandalism and agrees to
keep its Premises locked as may be required.
22. Lessor reserves the right to make such other reasonable rules
and regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
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<PAGE>
EXHIBIT D
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no
longer than full size, passenger automobiles herein called "Permitted Size
Vehicles".
2. Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
or invitees to be loaded, unloaded, or parked in areas other than those
designated by Lessor for such activities.
3. Users of the parking area will obey all posted signs and park
only in the areas designated for vehicle parking.
4. Unless otherwise instructed, every person using the parking area
is required to park and lock his own vehicle. Lessor will not be responsible
for any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
5. The maintenance, washing, waxing or cleaning of vehicles in the
parking facility or Common Area is prohibited.
6. Lessee shall be responsible for seeing that all its employees,
agents and invitees comply with the applicable parking rules, regulations and
laws and agreements.
7. Lessor reserves the right to modify these rules and/or adopt
such other reasonable and non-discriminatory rules and regulations as it may
deem necessary for the proper operation of the parking area.
8. Such parking use as is herein provided is intended merely as a
license only and no bailment is intended or shall be created hereby.
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<PAGE>
EXHIBIT E
FINAL PLANS AND SPECIFICATIONS
The Final Plans, Drawings and Specifications are to be mutually approved by both
Lessor and Lessee, subject to those changes outlined in Paragraph 2.B herein.
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<PAGE>
EXHIBIT F
COMMENCEMENT DATE MEMORANDUM
----------------------------
Lessor: Cilker Revocable Trust U.T.A. dated October 9, 1990
---------------------------------------------------
Lessee: Resonate Inc., a California Corporation
---------------------------------------------------
Lease Date:__________________________________________________
Premises: 385 Moffett Park Drive, Suite 210
---------------------------------------------------
Sunnyvale, California 94089
---------------------------------------------------
Pursuant to Paragraph 4.A. of the above-referenced Lease, the
Commencement Date is hereby established as __________, 1999.
LESSOR:
------
Cilker Revocable Trust
U.T.A. dated October 9, 1990
By:____________________________
William H. Cilker, trustee
By:____________________________
Leila A. Cilker, trustee
LESSEE: Resonate Inc.
------
By:____________________________
Its:___________________________
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<PAGE>
EXHIBIT G
JANITORIAL SERVICES
-------------------
JANITORIAL SERVICES
Daily
-----
Empty wastepaper baskets
Sweep or dust mop with treated cloth all floor surfaces
Properly arrange furniture in offices
Damp-wipe spillage on resilient floors
Clean entranceways, lobby, entrance mats
Spot-clean entrance glass and polish entrance chrome
Clean restrooms, wash basins, dispensers, and chrome fittings
Clean mirrors and frame
Wet mop floors
Sanitize toilets, toilet seats and urinals
Refill all restroom dispensers
Wash and wipe dry all drinking fountains
One a Week
----------
(Wednesday)
Dust ledges and partitions
Three Times a Week
------------------
(Monday - Wednesday - Friday)
Vacuum clean all carpeted areas
Weekly
------
Spot wash partitions, walls and doors
Wipe telephones
Remove fingerprints from woodwork, walls & partitions
Spot clean carpets
Spot clean all partition glass
Dust ledges and partitions
Dust desks, chairs, tables, and other furniture with treated cloth
Dust all ledges and other flat surfaces within reach
Dust high partition ledges and moldings
Chair mats removed and vacuumed under
- 50 -
<PAGE>
Monthly Services
----------------
Dust ceiling vents
------------------
Vacuum all upholstered furniture
High dusting
Vacuum with cervices tool all carpet and corners
Additional Services available at additional fee
-----------------------------------------------
Hauling boxes, trash and office furniture
Special or additional cleaning requests
Special supplies ordered and delivered
Any other service not listed on this list of duties.
- 51 -
<PAGE>
EXHIBIT H
---------
Tenant Improvements
-------------------
- 52 -
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated March 2, 2000 relating to the financial statements of Resonate
Inc., which appear in such Registration Statement. We also consent to the
reference to us under the headings "Experts" and "Selected Financial Data" in
such Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 2, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 5,011 4,322
<SECURITIES> 6,988 0
<RECEIVABLES> 3,851 1,626
<ALLOWANCES> 100 21
<INVENTORY> 0 0
<CURRENT-ASSETS> 16,070 6,168
<PP&E> 3,465 1,755
<DEPRECIATION> 1,305 504
<TOTAL-ASSETS> 18,386 7,652
<CURRENT-LIABILITIES> 8,396 2,015
<BONDS> 3,346 521
28,401 15,122
0 0
<COMMON> 1 0
<OTHER-SE> (21,758) (10,006)
<TOTAL-LIABILITY-AND-EQUITY> 18,386 7,652
<SALES> 8,004 2,373
<TOTAL-REVENUES> 9,914 2,695
<CGS> 62 37
<TOTAL-COSTS> 1,104 319
<OTHER-EXPENSES> 27,569 10,181
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 106 (134)
<INCOME-PRETAX> (18,865) (7,671)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (18,865) (7,671)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (18,865) (7,671)
<EPS-BASIC> (4.18) (1.90)
<EPS-DILUTED> (4.18) (1.90)
</TABLE>
