<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 2000
REGISTRATION NO. 333-95509
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
ARROWPOINT COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3576 04-3364184
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
ARROWPOINT COMMUNICATIONS, INC.
50 NAGOG PARK
ACTON, MASSACHUSETTS 01720
(978) 206-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHIN-CHENG WU
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
50 NAGOG PARK
ACTON, MASSACHUSETTS 01720
(978) 206-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
PATRICK J. RONDEAU, ESQ. KEITH F. HIGGINS, ESQ.
HALE AND DORR LLP ROPES & GRAY
60 STATE STREET 1 INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02110
TELEPHONE: (617) 526-6000 TELEPHONE: (617) 951-7000
TELECOPY: (617) 526-5000 TELECOPY: (617) 951-7050
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
------------------------
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 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 of
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 registrations statement
of 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>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(2) REGISTRATION FEE(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value...... 5,750,000 $17.00 $97,750,000 $25,806
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 750,000 shares of common stock which may be purchased to cover
overallotments, if any.
(2) Estimated solely for purposes of calculating registration fee pursuant to
Rule 457(a).
(3) A registration fee of $22,770 was paid with the initial filing of this
registration statement. Accordingly, an additional registration fee of
$3,036 is being paid herewith.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER 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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS 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 9, 2000.
5,000,000 Shares
[ARROWPOINT COMMUNICATIONS LOGO]
Common Stock
------------------------
This is an initial public offering of shares of ArrowPoint Communications,
Inc. All of the shares of common stock are being sold by ArrowPoint.
Prior to this offering, there has been no public market for the common
stock. It is currently estimated that the initial public offering price per
share will be between $15.00 and $17.00. ArrowPoint has applied for quotation of
the common stock on the Nasdaq National Market under the symbol "ARPT".
See "Risk Factors" beginning on page 6 to read about certain factors you
should consider before buying shares of the common stock.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY 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 ArrowPoint.................. $ $
</TABLE>
To the extent that the underwriters sell more than 5,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
750,000 shares from ArrowPoint at the initial public offering price less the
underwriting discount.
------------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
GOLDMAN, SACHS & CO.
DEUTSCHE BANC ALEXS BROWN
J.P. MORGAN & CO.
------------------------
Prospectus dated , 2000.
<PAGE> 3
[ARTWORK]
[Description of inside front cover graphic: graphic depicts ArrowPoint's two web
switches along with the captions "The CS-100 Content Smart Web Switch is a
compact solution for small to medium sized Web sites" and "The CS-800 Content
Smart Web Switch is a carrier-class modular solution for high traffic Web sites:
Graphic contains our name and logo at the bottom right corner of the page. The
phrase 'for high traffic sites' is on the right side of the web switches.]
[Description of gatefold graphics: This is a detailed graphic outlining
ArrowPoint's Web Network Architecture. Under the caption "Service Provider
Infrastructure" is a graphic of seven destinations from the cloud shape with the
word Internet in the middle of the page. Five destinations are routed through
ArrowPoint's Web Network Architecture and two destinations are not. The
destination circles are connected by color-coded lines representing user
requests. The color lines are described in a legend in the bottom left corner.
Yellow dashed lines are captioned "Request routed based on user info," red
dashed and solid lines are captioned "Request routed based on URL" and blue
dashed lines are captioned "Request routed based on best site, server, content
and application availability." Two circles at the top of the page are routed
through a circle entitled ArrowPoint Web Network Architecture in the center
above the Internet cloud. The Web Network Architecture circle depicts two of
ArrowPoint's CS-800 web switches. Beneath the switches are the following three
questions: "Who is Requesting User Info?" "What is Requested? URL" "Where are
the best Resources?" At the top left corner, one destination circle is captioned
"stocks.com hosted Web site" with icons of four groups of servers collectively
captioned "Boston Data Center" and individually captioned "Real-time Stock
Quotes," "401(k) Account Browsing," "Traffic Overflow Servers" and "Platinum
Account Services." Beneath the circle is the caption "E-Commerce ArrowPoint
enables businesses to offer high-speed services such as prioritizing important
customers and transactions, delivering personalized content, and processing
electronic shopping with increased reliability and security." In the top right
corner, is another circle, captioned "portal.com hosted Web Site," with icons of
two groups of servers collectively captioned "Boston Data Center" and
individually captioned "Chat Room" and "Streaming Media Service." Above this
circle is the caption "Web Content Providers ArrowPoint enables Web content
providers to offer reliable, high-speed delivery of multimedia and other
sophisticated content to customers, and to reduce Web infrastructure costs by
using servers efficiently."
There are two more circles at the bottom of the page directly connected to the
Internet Cloud. Red and blue lines lead to these two circles. The circle to the
left is captioned "stocks.com customers" and contains three icons of personal
computers captioned "Platinum Account Customer," "Stock Broker" and "401(k)
Browser." The circle to the right is captioned "portal.com customers" and
contains three icons of personal computers captioned "Boston User Wants Music
Download," "Boston Chat Room Member" and "London User Wants Music Download."
In the bottom right corner, are the following two captions:
1. "Web & Application Hosters ArrowPoint enables hosting providers to offer
new, managed services for e-commerce, content delivery and security. 'Flash
crowd' insurance supports sudden traffic surges that can disrupt hosting
customers' Web businesses."
2. "Internet Service Providers ArrowPoint enables ISPs to improve speed for
broadband users, prioritize delivery of important information to subscribers,
and realize significant savings on Internet bandwidth and cache servers."
Above these captions, and connected on the left by a red line to the cloud shape
captioned "Internet" is a web switch icon captioned "CS-100" and "Dallas Data
Center." This icon is also connected by a red line to an icon of a server to the
right.
Above the "CS-100" caption is an icon captioned "CS-800" and "London Data
Center" which is connected on the left by red and blue lines to the circle
entitled Web Network Architecture. This London data center is also connected to
both the lower right circle entitled portal.com customers and the Internet
cloud. This London Data Center is connected on the right to two icons of servers
captioned "Chat Room" and "Streaming Media Service."]
<PAGE> 4
PROSPECTUS SUMMARY
The following is a summary of some important information about ArrowPoint
and this offering. It may not contain all of the information that is important
to you. You should read this summary together with the more detailed information
and our financial statements and the notes to those statements appearing
elsewhere in this prospectus.
ARROWPOINT
We provide intelligent Web switches that enable our customers to deploy a
global Web network architecture to optimize e-commerce transactions and the
delivery of Web content. Our products, which are specifically designed for the
Web, are intended to enhance the performance, scalability, availability,
reliability and security of our customers' Web sites. Using patented technology,
our switches intelligently route requests for Web content or transactions to the
network server that is best able to handle the request at that moment based on
information about:
- - the requesting party;
- - the content or transaction requested; and
- - the structure and changing conditions of the customer's Web network.
In recent years there has been dramatic growth in both the number of people
using the Internet and the amount of e-commerce taking place over the Web. To
attract and retain Internet users, companies are continually increasing the
amount and the sophistication of the information and services offered on their
Web sites. This has resulted in significantly more complex Web sites, typically
consisting of a variety of different types of servers connected by traditional
networking devices such as switches and routers. While the increasing importance
of the Internet to the businesses of many companies makes it critical for those
companies to effectively manage their Web site traffic and provide visitors with
a positive experience, the increasing complexity of their Web networks is making
it more difficult to do so. We believe many companies are seeking to develop a
Web network architecture that improves the ability to conduct e-commerce on
their Web sites, intelligently directs Web traffic and enables these companies
to offer new and enhanced Web services.
Our intelligent Web switches enable our customers to deploy a Web network
architecture that:
- - facilitates e-commerce transactions;
- - enables companies to give preferred or differing treatment to specific users
or specific types of content requests;
- - directs Web requests to the network server best able to handle those requests
based on information about the requesting party, the Web content or
transaction requested and the customer's Web network;
- - identifies hot content, such as a breaking news story, and automatically
triggers the copying of that content to dynamically add capacity to handle the
requests for that content;
- - intelligently redirects requests for content or applications unavailable due
to a Web site failure to another Web site or server which has the requested
information;
- - protects against attempts by computer hackers to disable servers or keep
servers busy performing useless tasks without significantly impairing
performance;
- - addresses a range of customer needs, from those of smaller Web sites to the
high-performance demands of large, complex Web hosting operations; and
- - tracks detailed statistics about the performance of the network, servers,
applications and content.
Our objective is to be the leading provider of intelligent Web switches
that enable the deployment of a global Web network architecture to optimize
e-commerce transactions and the delivery of Web content. To achieve this
3
<PAGE> 5
objective, we are pursuing the following strategies:
- - targeting leading Web hosting and application service providers and e-commerce
companies;
- - aggressively expanding our direct sales force and increasing the size and
productivity of our indirect sales channels;
- - maintaining our technological leadership;
- - pursuing strategic alliances with key customers, Web hosting and application
service providers; and
- - continuing to deliver superior service and support to our customers.
Our customers include Web hosting and application service providers,
e-commerce companies, Internet service providers and other enterprises deploying
applications on the Web. Our Web switches enable our customers to solve many
e-commerce problems and to offer new and enhanced Web services. As of December
31, 1999, over 100 companies have deployed our switches in their Web networks.
Our customers include EMC, Exodus Communications, Global Crossing, NaviSite and
Road Runner.
ArrowPoint Communications, Inc. was incorporated in Delaware in April 1997.
Our principal executive offices are located at 50 Nagog Park, Acton,
Massachusetts 01720. Our telephone number is (978) 206-3000. Our World Wide Web
site is located at www.arrowpoint.com. The information on our Web site should
not be considered part of this prospectus.
THE OFFERING
Shares offered by
ArrowPoint.................... 5,000,000 shares
Shares outstanding after the
offering.................... 34,201,964 shares
Proposed Nasdaq National
Market symbol................. "ARPT"
Use of proceeds............... For general corporate purposes, including
funding expansion of product development and
sales and marketing activities and working
capital. See "Use of Proceeds".
The number of shares of common stock to be outstanding after the offering
is based on the number of shares outstanding on January 31, 2000. This number
does not include 5,685,498 shares of common stock issuable upon the exercise of
stock options outstanding on January 31, 2000 with a weighted average exercise
price of $5.13 per share. This number also does not include an aggregate of
10,816,234 additional shares reserved for future issuance under ArrowPoint's
stock option and purchase plans as of January 31, 2000.
Except as otherwise specified in this prospectus, all information in this
prospectus:
- gives effect to the automatic conversion of all outstanding shares of our
preferred stock into 21,003,996 shares of our common stock, or two shares
of common stock for each outstanding share of preferred stock, which will
occur upon the closing of this offering;
- gives effect to the two-for-one split of our common stock in February
2000; and
- assumes that the underwriters do not exercise the over-allotment option
that we have granted to them to purchase additional shares in the
offering. See "Underwriting".
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
You should read this summary information with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and notes to those statements included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEAR ENDED
(APRIL 14, 1997) TO DECEMBER 31,
DECEMBER 31, -------------------
1997 1998 1999
------------------- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................. $ -- $201 $12,377
Cost of revenue..................................... -- 150 5,110
------- ------- --------
Gross profit........................................ -- 51 7,267
Total operating expenses............................ 2,996 9,900 20,390
------- ------- --------
Net loss............................................ (2,856) (9,447) (12,606)
Net loss per share:
Basic and diluted................................. $(11.36) $(6.26) $(3.99)
======= ======= ========
Pro forma basic and diluted....................... $(0.57)
========
Shares used in computing net loss per share:
Basic and diluted................................. 251 1,509 3,157
Pro forma basic and diluted....................... 22,277
</TABLE>
The following table presents a summary of our balance sheet as of December
31, 1999:
- on an actual basis,
- on a pro forma basis to reflect the sale in January 2000 of 657,263
shares of Series E preferred stock at $21.14 per share, a charge to
accumulated deficit of $6.6 million related to the fair value of the
beneficial conversion feature of the Series E preferred stock, and the
conversion of all outstanding shares of our preferred stock into
21,003,996 shares of our common stock, and
- on a pro forma basis as adjusted to reflect our sale of 5,000,000 shares
of common stock in this offering at an assumed initial public offering
price of $16.00 per share, after deducting the estimated underwriting
discount and offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA ADJUSTED
------ --------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $10,731 $24,586 $ 98,061
Working capital......................................... 10,350 24,206 97,681
Total assets............................................ 23,206 37,061 110,536
Long-term liabilities................................... -- -- --
Redeemable preferred stock.............................. 34,534 -- --
Total stockholders' equity (deficit).................... (19,858) 28,531 102,006
</TABLE>
5
<PAGE> 7
RISK FACTORS
This offering involves a high degree of risk. You should carefully
consider the risks described below and the other information in this prospectus
before deciding to invest in shares of our common stock.
RISKS RELATING TO OUR BUSINESS AND
FINANCIAL PERFORMANCE
OUR LIMITED OPERATING HISTORY MAY MAKE IT DIFFICULT TO VALUE AND EVALUATE OUR
BUSINESS AND OUR FUTURE PROSPECTS
We commenced operations in April 1997 and commercially released our first
product in the fourth quarter of 1998. Your evaluation of the risks and
uncertainties of our business will be difficult because of our limited operating
history. In addition, our limited operating history means that we have less
insight into how technological and market trends may affect our business. 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 the Internet
infrastructure industry.
WE HAVE INCURRED SUBSTANTIAL LOSSES TO DATE AND MAY NOT BE ABLE TO ACHIEVE OR
MAINTAIN PROFITABILITY, WHICH COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK
TO DECLINE
Since we began operations, we have incurred losses in every fiscal period.
We incurred a net loss of $4.7 million in the fourth quarter of 1999 and our
accumulated deficit through December 31, 1999 was $25.0 million. We cannot be
certain if or when we will become profitable. Our failure to become profitable
within the timeframe expected by investors may adversely affect the market price
of our common stock. We expect to continue to increase our expenses in an effort
to develop our business and, as a result, we will need to generate significant
revenue to achieve profitability. Even if we do achieve profitability, we cannot
assure you that we can sustain or increase profitability on a quarterly or
annual basis in the future.
OUR OPERATING RESULTS ARE DIFFICULT TO FORECAST AND MAY FLUCTUATE FROM QUARTER
TO QUARTER, WHICH MAY HAVE A NEGATIVE IMPACT ON THE MARKET PRICE OF OUR COMMON
STOCK
Our operating results are difficult to forecast and may fluctuate from
quarter to quarter. As a result of our limited operating history, we do not have
historical financial data for a significant number of periods upon which to
forecast quarterly financial performance. If our quarterly revenue or operating
results fall below the expectations of investors or securities analysts, the
price of our common stock could fall substantially.
Among the factors that could cause our quarterly operating results to
fluctuate are:
- - We depend on a relatively small number of customers for a large percentage of
our revenue in any particular quarter. As a result, a delay in a particular
quarter in receiving orders from one or a small number of customers may have a
significant negative impact on our operating results for that quarter.
- - Our sales cycle makes it difficult to predict accurately when we will complete
sales and when we will recognize revenue.
- - We have historically derived a significant portion of our revenue from sales
that occur near the end of a fiscal quarter. As a result, a delay in
anticipated sales is more likely to result in a deferral of the associated
revenue beyond the end of a particular quarter, which would have a significant
impact on our operating results for that quarter.
Most of our operating expenses do not vary directly with revenue and are
difficult to adjust in the short term. As a result, if revenue for a particular
quarter is below our expectations, we could not proportionately reduce operating
expenses for that quarter,
6
<PAGE> 8
and therefore this revenue shortfall would have a disproportionate effect on our
expected operating results for that quarter.
THERE IS INTENSE COMPETITION IN THE MARKET FOR INTERNET INFRASTRUCTURE SOLUTIONS
AND IF WE FAIL TO COMPETE SUCCESSFULLY, OUR REVENUE COULD DECLINE AND WE COULD
EXPERIENCE ADDITIONAL LOSSES
The market for Internet infrastructure solutions is new, rapidly evolving
and very competitive. We expect competition in this market to increase as a
result of factors such as:
- - the entrance of new competitors;
- - innovations that improve competitive products or that enable products or
services that are not currently competitive with our solutions to compete with
us;
- - acquisitions of competitive products or technologies, particularly by a large
company with an established market presence and distribution capabilities; and
- - strategic alliances, in which competitors succeed in bundling their products
with other software products, hardware products or services.
This competition could, among other things:
- - divert sales from us;
- - force us to charge lower prices; and
- - adversely affect our strategic relationships with manufacturers, resellers and
others.
If any of these risks occurred, our revenues could decline, our gross margins
could decrease, our expenses could increase and we could experience additional
losses.
Our principal competitors include large networking equipment companies such
as Cisco Systems, as well as companies such as Alteon WebSystems, F5 Networks
and Foundry Networks. Some of our competitors have longer operating histories,
greater name recognition and greater financial, technical, sales, marketing,
support and other resources than we do.
OUR COMPANY IS GROWING RAPIDLY AND WE MAY BE UNABLE TO MANAGE OUR GROWTH
EFFECTIVELY, WHICH COULD RESULT IN LOST SALES OR DISRUPTIONS TO OUR BUSINESS
Our failure to effectively manage our recent and anticipated growth could
have a material adverse effect on the quality of our products, our ability to
retain key personnel and financial performance. From January 1, 1999 to January
31, 2000, the number of our employees increased from 60 to over 200 and we
established a sales presence in over 10 U.S. cities and 14 countries. In
addition, the proceeds of this offering will be used in part to further expand
our operations and increase the number of our employees. This growth has
strained, and may further strain, our management, operational systems and other
resources. To manage our growth effectively, we must be able to enhance our
financial and accounting systems and controls, integrate new personnel and
manage expanded operations. There can be no assurance we will be able to do so.
WE PURCHASE SEVERAL OF OUR KEY COMPONENTS FROM SINGLE SOURCES, AND WE COULD LOSE
REVENUE AND MARKET SHARE IF WE ARE UNABLE TO OBTAIN A SUFFICIENT SUPPLY OF THOSE
COMPONENTS
Several key components of our products are currently available from single
vendors. If we are unable to obtain sufficient quantities of these components,
we would be unable to manufacture and ship our products on a timely basis. This
could result in lost or delayed revenue, damage to our reputation and increased
manufacturing costs.
Examples of the components which we purchase from single sources are:
- - critical network processors for both the CS-100 and the CS-800 from MMC
Networks;
- - the power supply device for the CS-100 from Cherokee International; and
- - the power supply device for the CS-800 from Tectrol.
We do not have guaranteed supply agreements with any of the vendors of
these
7
<PAGE> 9
products. Moreover, even if supply is available, our inability to accurately
forecast the demand for our products may result in an inadequate supply of these
components. Our products are designed based on the MMC network processor, and if
we are unable to obtain a sufficient supply of these network processors from
MMC, we would be forced to significantly modify the design of our products to
use different network processors. If we are unable to obtain a sufficient supply
of power supplies from our current vendors, we would be forced either to develop
alternative sources of supply or to modify the design of our products to use
more readily available components. Redesigning our products, particularly a
redesign involving new network processors, or identifying new sources of supply
may take a long time and may involve significant additional expenses. Moreover,
our vendors may increase their prices for these components. Accordingly, the
lack of alternative sources for these components may force us to pay higher
prices for these components, which would cause our gross margins to decrease and
could cause us to incur additional losses.
WE DEPEND UPON A SINGLE CONTRACT MANUFACTURER TO MANUFACTURE ALL OF OUR PRODUCTS
AND IF THAT MANUFACTURER IS UNABLE OR UNWILLING TO MANUFACTURE A SUFFICIENT
NUMBER OF OUR PRODUCTS, WE MAY NOT BE ABLE TO TIMELY FILL CUSTOMER ORDERS
We currently subcontract the manufacturing and testing of our products to
Plexus, an independent manufacturer. Our reliance on a single manufacturer
exposes us to a number of risks, including reduced control over manufacturing
capacity, product completion and delivery times, product quality and
manufacturing costs. If, as we anticipate, we experience increased demand for
our products, the challenges we face in managing our relationship with Plexus
will be increased. If Plexus is unable or unwilling to manufacture a sufficient
quantity of products for us, on the time schedules and with the quality that we
demand, we may be forced to engage additional or replacement manufacturers,
which could result in additional expenses and delays in product shipments.
IF WE ARE NOT ABLE TO HIRE AND RETAIN THE SKILLED PERSONNEL WE NEED TO SUCCEED,
WE WILL NOT BE ABLE TO GROW OUR BUSINESS AS WE ANTICIPATE
The growth of our business and revenue depends in large part upon our
ability to attract and retain sufficient numbers of highly skilled employees,
particularly qualified sales and engineering personnel. We plan to increase our
employee count from 148 at December 31, 1999 to between 350 and 400 by December
31, 2000. We may not be successful in hiring and retaining the skilled personnel
that we need. Qualified personnel are in great demand throughout the computer
networking industry.
IF INTERNET INFRASTRUCTURE SOLUTIONS DO NOT ACHIEVE WIDESPREAD COMMERCIAL
ACCEPTANCE, WE WILL NOT BE ABLE TO SELL OUR PRODUCTS AND OUR ABILITY TO INCREASE
REVENUE WOULD BE HARMED
Widespread commercial acceptance of our products is critical to our future
success. The market for Internet infrastructure solutions is relatively new and
rapidly evolving. Rather than utilizing Internet infrastructure solutions, many
Web data center administrators manage Internet traffic by adding servers and
interconnecting a variety of single-function traffic management tools. Our
ability to increase revenue in the future depends on the extent to which our
potential customers recognize the value of our solutions.
The acceptance of our products may be hindered by:
- - the failure of prospective customers to recognize the value of Internet
infrastructure solutions;
- - the reluctance of our prospective customers to replace or expand their current
networking solutions, which may be supplied by more established vendors, with
our products; and
- - the emergence of new technologies or industry standards that could cause our
products to be less competitive or obsolete.
In addition, because the market for Internet infrastructure solutions is in
an early
8
<PAGE> 10
stage of development, we cannot assess the size of the market accurately, 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 those products. We may also have difficulties in predicting the competitive
environment that will develop.
BECAUSE WORLDWIDE DEMAND FOR MEMORY CHIPS HAS INCREASED, ADEQUATE QUANTITIES OF
THIS KEY COMPONENT MAY NOT BE AVAILABLE TO SATISFY OUR NEEDS, WHICH COULD
INCREASE THE COST AND DELAY DELIVERY OF OUR PRODUCTS
During the last year, the demand for memory chips, a key component in our
products, has increased worldwide. Although we purchase our memory chips from
several suppliers, if these suppliers are unable to provide adequate quantities
of memory chips to satisfy our needs, product shipments may be delayed, we could
experience a loss of or delay in revenue and our competitive position would be
harmed. In addition, if, as a result of increased demand, our suppliers raise
the price of memory chips, the cost of manufacturing our products would increase
and the sales of our products could decrease.
IF WE ARE UNABLE TO INTRODUCE NEW PRODUCTS AND FEATURES ON A TIMELY BASIS OR IF
OUR NEW PRODUCTS ARE UNSUCCESSFUL, OUR SALES AND COMPETITIVE POSITION WILL
SUFFER
The market for Internet infrastructure solutions is characterized by
rapidly changing technologies, frequent new product introductions and evolving
customer requirements and industry standards. The rapid growth in the use of the
Web and intense competition in our industry exacerbate these market
characteristics. In order to remain competitive in our markets, we will need to
introduce on a timely basis new products that offer significantly improved
performance and features, at lower prices, and we may not be successful in doing
so. Some prior versions of our products were released behind schedule, and this
may happen again in the future. Delays in introducing new products and features,
or the introduction of new products which do not meet the evolving demands of
our customers, could damage our corporate reputation and cause a loss of or
delay in revenue. In addition, some of the benefits offered by our products are
based on their ability to route Web requests based on information about, among
other things, the person making the request. To the extent that privacy concerns
or technological developments limit the amount of information available about
the person making the Web request, the benefits of our products would be
diminished.
BECAUSE WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM A SMALL NUMBER OF
CUSTOMERS, ANY LOSS OF OR DELAY IN RECEIVING REVENUE FROM THOSE CUSTOMERS COULD
SIGNIFICANTLY DAMAGE OUR FINANCIAL PERFORMANCE
We have historically derived a significant portion of our revenue from a
relatively small number of customers. If any of these customers stop or delay
purchasing products or services from us, our financial performance would be
negatively impacted. NaviSite accounted for 14% of our revenue in 1999. None of
our reseller or end-user customers are contractually obligated to purchase
future products or services from us, and they may discontinue doing so at any
time. In addition, although our largest customers will probably vary from period
to period, we anticipate that a small number of customers will continue to
represent a large percentage of our revenue in any given fiscal period.
Accordingly, the failure to obtain a significant order from a customer within
the fiscal period expected by us could have a significant adverse effect on our
financial performance for that fiscal period.
OUR SUCCESS DEPENDS ON THE CONTINUED SERVICES OF OUR TOP EXECUTIVES AND OTHER
KEY PERSONNEL
Our future success depends to a significant degree on the skills and
efforts of Chin-Cheng Wu, our founder, Chairman of the Board and Chief Executive
Officer, and Louis J. Volpe, our President and Chief Operating Officer. The loss
of the services of Mr. Wu or Mr. Volpe could have a material adverse effect on
our financial performance and ability to compete. In addition, Mr. Wu
9
<PAGE> 11
and Mr. Volpe have been working together only since November 1999, and their
effectiveness in working together cannot be fully assessed at this time. We also
depend on the ability of our other executive officers and members of senior
management to work effectively as a team. The loss of one or more of our
executive officers or senior management members could also have a material
adverse effect on our financial performance and ability to compete.
OUR INTERNATIONAL BUSINESS EXPOSES US TO SPECIAL RISKS WE DO NOT FACE IN OUR
U.S. BUSINESS
In 1999, we derived 47% of our revenue from sales outside the U.S., and we
expect to derive a comparable percentage in 2000. Our significant international
business exposes us to a number of risks that we do not have to address in our
U.S. operations. These risks include:
- - longer accounts receivable collection cycles;
- - challenges and costs inherent in managing geographically dispersed operations;
- - protectionist laws and business practices that favor local competitors;
- - economic or political instability in some international markets;
- - difficulties in finding and managing local resellers;
- - diverse and changing governmental laws and regulations; and
- - foreign currency exchange rate fluctuations.
If we are unsuccessful in addressing these risks, our international business
will not achieve the revenue or profits we expect.
IF OUR PRODUCTS DO NOT COMPLY WITH INDUSTRY STANDARDS OR WORK EFFECTIVELY WITH
OUR CUSTOMERS' NETWORKS, WE MAY LOSE SALES AND INCUR ADDITIONAL EXPENSES
Our success depends in part on both the adoption of industry standards for
technologies in the Internet infrastructure solutions market and our products'
compliance with those industry standards. The absence of industry standards for
a particular technology may prevent widespread adoption of products based on
that technology. In addition, because many technological developments occur
prior to the adoption of related industry standards, we may develop products
that do not comply with industry standards that are eventually adopted, which
would hinder our ability to sell those products. Moreover, because of Cisco
Systems' leadership position in selling products that comprise the
infrastructure of the Internet, Cisco may have the ability to establish de facto
standards within the industry. Actions by Cisco, for competitive or other
reasons, that diminish our products' compliance with industry or de facto
standards or their ability to interoperate with other Internet-related products
would be damaging to our ability to generate revenue and our reputation.
Our products must work effectively with our customers' existing networks,
which typically include products from a variety of different vendors and utilize
multiple protocol standards. The complexity of these networks makes it difficult
for us to ensure that our products will function properly within these networks
and also makes it difficult for us to identify the source of any problems which
occur in the operation of our products. If our products fail to work properly
within our customers' networks, we may:
- - lose sales;
- - incur additional expenses in our efforts to identify and remedy the problems;
and
- - suffer damage to our corporate reputation.
FACTORS ADVERSELY AFFECTING THE USE OF THE INTERNET COULD REDUCE THE DEMAND FOR
OUR PRODUCTS
Our products are designed to enable our customers to provide faster and
more reliable connections to users accessing their Web sites. Any factors that
adversely affect Internet usage could result in less demand for
10
<PAGE> 12
our products. Among the factors that could disrupt Internet usage are:
- - security concerns;
- - user dissatisfaction due to network problems or service disruptions that
prevent users from accessing an Internet server; and
- - delays in, or disputes concerning, the development and adoption of
industry-wide Internet standards and protocols.
IF OUR PRODUCTS CONTAIN DEFECTS OR FAIL TO PERFORM PROPERLY, WE COULD LOSE
REVENUE AND INCUR DAMAGE TO OUR REPUTATION AND LIABILITY TO OUR CUSTOMERS
Our products may contain undetected errors, or bugs, which result in
product failures or poor product performance. Our products may be particularly
susceptible to bugs or performance degradation because of the emerging nature of
Web-based technologies and the stress that may be placed on our products by the
full deployment of our products on a customer's Web site. Product performance
problems could result in:
- - loss of or delay in revenue;
- - failure of our products to achieve market acceptance;
- - incurrence of significant expenses to remedy problems;
- - diversion of development resources;
- - liability claims by our customers; and
- - negative publicity and injury to our reputation.
RISKS RELATED TO LEGAL UNCERTAINTIES
CLAIMS BY OTHER COMPANIES THAT OUR PRODUCTS INFRINGE THEIR PROPRIETARY RIGHTS
COULD HINDER OR BLOCK OUR ABILITY TO SELL OUR PRODUCTS, SUBJECT US TO
SIGNIFICANT MONETARY LIABILITY AND DIVERT THE TIME AND ATTENTION OF OUR
MANAGEMENT
If any of our products violate third party proprietary rights, we may be
required to reengineer our products or seek to obtain licenses from third
parties to continue offering our products without substantial reengineering. Any
efforts to reengineer our products or obtain licenses from third parties may not
be successful, in which case we may be forced to stop selling the infringing
product or remove the infringing functionality or feature. We may also become
subject to damage awards as a result of infringing the proprietary rights of
others, which could cause us to incur additional losses and have an adverse
impact on our financial position. We do not conduct comprehensive patent
searches to determine whether the technologies used in our products infringe
patents held by others. In addition, product development is inherently uncertain
in a rapidly evolving technological environment in which there may be numerous
patent applications pending, many of which are confidential when filed, with
regard to similar technologies.
OUR COMPETITIVE POSITION WOULD BE ADVERSELY AFFECTED IF WE WERE UNABLE TO
PROTECT OUR PROPRIETARY TECHNOLOGY
Our success and competitiveness are dependent to a significant degree on
the protection of our proprietary technology. We rely primarily on a combination
of patents, copyrights, trade secret laws and restrictions on disclosure to
protect our proprietary technology. Despite these precautions, others may be
able to copy or reverse engineer aspects of our products, to obtain and use
information that we regard as proprietary or to independently develop similar
technology. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States, and
effective patent, copyright and trade secret protection may not be available in
those jurisdictions. Litigation may be necessary in the future to enforce or
defend our proprietary technology or to determine the validity and scope of the
proprietary rights of others. This litigation, whether successful or
unsuccessful, could result in substantial costs and diversion of management and
technical resources.
11
<PAGE> 13
WE ARE INVOLVED IN LITIGATION WITH ARROW ELECTRONICS OVER OUR USE OF THE NAME
ARROWPOINT, AND AN ADVERSE OUTCOME IN THIS LITIGATION COULD CAUSE US TO CHANGE
OUR NAME, INCUR SIGNIFICANT COSTS AND DAMAGE OUR COMPETITIVE POSITION
We were sued by Arrow Electronics in July 1999 over our use of the
trademark ArrowPoint and the Internet domain name arrowpoint.com. Arrow
Electronics is seeking an injunction precluding us from using the name
ArrowPoint and requiring us to relinquish the domain name arrowpoint.com. This
lawsuit is still in the early stages of discovery, and we are not yet able to
assess our potential liability. If we fail to prevail in this litigation, we may
be forced to change our corporate name and our domain name, which could damage
our sales and marketing efforts and our competitive position. In addition,
regardless of its outcome, this litigation may force us to incur significant
expenses in defending the lawsuit and may divert the attention and efforts of
our management team from normal business operations.
OUR FAILURE TO COMPLY WITH DOMESTIC AND FOREIGN REGULATIONS COULD LIMIT OUR
ABILITY TO SELL OUR PRODUCTS
Our products must comply with a number of regulations and standards adopted
by the U.S. Federal Communications Commission and by Underwriters Laboratories.
Internationally, our products may be required to comply with regulations
established by telecommunications and other government authorities in each
country in which we sell our products. Moreover, the encryption technology
contained in our products is subject to U.S. export controls, which limit our
ability to distribute some versions of our products outside of the United States
and Canada. If we do not comply with the governmental regulations applicable to
our products, we may be prevented from selling our products in some
jurisdictions and we may incur fines or other penalties.
RISKS ASSOCIATED WITH THIS OFFERING OF OUR COMMON STOCK
THE PRICE OF OUR COMMON STOCK AFTER THIS OFFERING MAY BE LOWER THAN THE PRICE
YOU PAY AND MAY BE EXTREMELY VOLATILE
The price of our common stock that will prevail in the market after this
offering may be lower than the price you pay. After this offering, an active
trading market in our stock might not develop or continue. If you purchase
shares of our common stock in this offering, you will pay a price that we
negotiated with the representatives of the underwriters, and not a price that
was established in a competitive market.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly Web-related companies, have been extremely volatile, and
have experienced fluctuations that have often been unrelated or disproportionate
to operating performance. These broad market fluctuations could adversely affect
the market price of our common stock. Securities class action litigation is
often instituted against companies following significant drops in the market
price of their common stock. If litigation of this nature were instituted
against us, it could result in substantial costs, a diversion of our
management's attention and liability for damages.
THE SIGNIFICANT CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK WILL LIMIT YOUR
ABILITY TO INFLUENCE CORPORATE ACTIONS
Immediately following this offering, our executive officers, directors and
their affiliates will together own approximately 53.0% of our outstanding common
stock. As a result, those stockholders, if they act together, will be able to
determine the outcome of the vote on any matter requiring stockholder approval,
including the election of directors and the approval of significant corporate
transactions. This concentration of ownership may have the effect of delaying,
preventing or deterring a change in control of ArrowPoint, could deprive our
stockholders of an opportunity to receive a premium for their common stock as
12
<PAGE> 14
part of a sale of ArrowPoint and might affect the market price of our common
stock.
SOME PROVISIONS OF OUR CHARTER AND BY-LAWS MAY DELAY OR PREVENT TRANSACTIONS
THAT MANY STOCKHOLDERS MAY FAVOR
Some provisions of our certificate of incorporation and by-laws may
discourage, delay or prevent a merger or acquisition that our stockholders may
consider favorable, including transactions in which stockholders might otherwise
receive a premium for their shares. These provisions include:
- - authorization of the issuance of "blank check" preferred stock without the
need for action by stockholders;
- - provision for a classified board of directors with staggered three-year terms;
- - elimination of the ability of stockholders to call special meetings of
stockholders or act by written consent; and
- - advance notice requirements for proposing matters that can be acted on by
stockholders at stockholder meetings.
Some provisions of Delaware law may also discourage, delay or prevent
someone from acquiring us or merging with us. See "Description of Capital
Stock -- Delaware Anti-Takeover Law and Certain Charter and By-Law Provisions"
for more detailed information on these provisions.
FUTURE SALES OF OUR COMMON STOCK BY EXISTING STOCKHOLDERS COULD DEPRESS THE
MARKET PRICE OF OUR COMMON STOCK
Once a trading market develops for our common stock, many of our
stockholders will have an opportunity to sell their common stock for the first
time. Sales of a substantial number of shares of common stock in the public
market, or the threat that substantial sales might occur, could cause the market
price of the common stock to decrease significantly. These factors could also
make it difficult for us to raise additional capital by selling stock. See
"Shares Eligible for Future Sale" for further details regarding the number of
shares eligible for sale in the public market after this offering.
SPECIAL NOTE REGARDING 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 relate to future events or our
future financial performance, and are identified by terminology such as "may",
"will", "should", "expects", "scheduled", "plans", "intends", "anticipates",
"believes", "estimates", "potential", or "continue" or the negative of these
terms or other comparable terminology. These statements are only predictions and
involve known and unknown risks and uncertainties. Actual events or results may
differ materially from those indicated by such forward-looking statements. In
evaluating those statements, you should consider the inherent risks and
uncertainties involved, including the risks outlined under "Risk Factors".
Although we believe that the expectations reflected in those
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 updating of any of those
forward-looking statements after the date of this prospectus.
This prospectus also contains several projections of market development by
industry analysts, such as projected growth in the use of the Web and projected
increases in e-commerce revenue. Those projections involve a number of
assumptions and limitations. We cannot assure you that those projections will be
attained.
13
<PAGE> 15
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the 5,000,000 shares of
common stock in this offering will be approximately $73.5 million at an assumed
initial public offering price of $16.00 per share, after deducting the estimated
underwriting discount and offering expenses. If the underwriters' over-allotment
option is exercised in full, we estimate our net proceeds will be approximately
$84.6 million.
The principal purposes of this offering are to create a public market for
our common stock, increase our visibility in the market place, provide liquidity
to existing stockholders and obtain additional working capital. We intend to use
the net proceeds of this offering for general corporate purposes, including the
funding of our operations, the expansion of our sales and marketing and product
development activities and for working capital. We may also use a portion of the
net proceeds to acquire or invest in complementary businesses or products, or to
obtain the right to use complementary technologies. We have no specific
understandings, commitments or agreements relating to an acquisition or
investment. We have not specifically allocated the proceeds of this offering to
any of these purposes and our uses of the proceeds of this offering may change
as our business develops. A public market for our common stock will facilitate
future access to public equity markets and enhance our ability to use our common
stock as a means of attracting and retaining key employees and as consideration
for acquisitions.
Pending these uses, we will invest the net proceeds of this offering in
short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying cash dividends in the foreseeable future. Covenants in
our credit facility prohibit the payment of cash dividends so long as there are
loans or letters of credit outstanding and until the termination of commitments
and the payment of all of our obligations under the credit facility. We
currently intend to retain future earnings, if any, to fund the expansion and
growth of our business.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- - on an actual basis;
- - on a pro forma basis to reflect the sale in January 2000 of 657,263 shares of
Series E preferred stock at $21.14 per share, a charge to accumulated deficit
of $6.6 million related to the fair value of the beneficial conversion feature
of the Series E preferred stock, and the conversion of all outstanding shares
of our preferred stock into 21,003,996 shares of our common stock; and
- - on a pro forma basis, as adjusted to reflect our sale of 5,000,000 shares of
common stock in this offering at an assumed initial public offering price of
$16.00 per share, after deducting the estimated underwriting discount and
offering expenses.
The outstanding share information does not include 3,805,070 shares of
common stock issuable upon the exercise of stock options outstanding on December
31, 1999 with a weighted average exercise price of $1.92 per share.
You should read this information in conjunction with our financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------ --------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Redeemable convertible preferred stock, $.01 par
value; 12,500,000 shares authorized, 9,844,735
issued and outstanding, actual; none issued or
outstanding, pro forma or pro forma as adjusted..... $ 34,534 $ -- $ --
Stockholders' equity (deficit):
Common stock, $.001 par value; 25,000,000 shares
authorized, 8,351,330 shares issued, actual;
200,000,000 shares authorized, 29,355,326 shares
issued, pro forma; 200,000,000 shares authorized,
34,355,326 shares issued, pro forma as
adjusted......................................... 8 29 34
Additional paid-in capital............................ 20,483 75,424 148,894
Treasury stock........................................ (36) (36) (36)
Deferred compensation................................. (15,300) (15,300) (15,300)
Accumulated deficit................................... (25,013) (31,586) (31,586)
-------- -------- --------
Total stockholders' equity (deficit)............. (19,858) 28,531 102,006
-------- -------- --------
Total capitalization........................ $ 14,676 $ 28,531 $102,006
======== ======== ========
</TABLE>
15
<PAGE> 17
DILUTION
Our pro forma net tangible book value at December 31, 1999 was $28.5
million, or $0.98 per share of common stock. Pro forma net tangible book value
per share represents the amount of total tangible assets less total liabilities,
divided by the number of shares of our common stock outstanding after giving
effect to the sale in January 2000 of 657,263 shares of Series E preferred stock
at $21.14 per share and the conversion of all outstanding shares of our
preferred stock into an aggregate of 21,003,996 shares of common stock. After
giving effect to our sale of 5,000,000 shares of common stock in this offering
at an assumed initial public offering price of $16.00 per share, and after
deducting the estimated underwriting discount and offering expenses, our pro
forma net tangible book value as of December 31, 1999 would have been $102.0
million, or $2.99 per share. This represents an immediate increase in pro forma
net tangible book value of $2.01 per share to existing stockholders and an
immediate dilution of $13.01 per share to investors purchasing common stock in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $16.00
Pro forma net tangible book value per share at December
31, 1999............................................... $0.98
Increase per share attributable to new investors.......... 2.01
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.99
------
Dilution per share to new investors......................... $13.01
======
</TABLE>
Assuming the exercise in full of the underwriters' over-allotment option,
our pro forma net tangible book value as of December 31, 1999 would have been
approximately $113.2 million, or $3.24 per share, representing an immediate
increase in pro forma net tangible book value of $2.26 per share to existing
stockholders and an immediate dilution of $12.76 per share to new investors.
The following table summarizes, as of December 31, 1999, the total number
of shares of common stock purchased, the consideration paid to us and the
average price per share paid by existing stockholders and by new investors
purchasing common stock in this offering at an assumed initial public offering
price of $16.00 per share, before deducting the estimated underwriting discount
and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 29,130,992 85.4% $ 51,240,621 39.0% $ 1.76
New investors................ 5,000,000 14.6 80,000,000 61.0 16.00
---------- ----- ------------ -----
Totals.................. 34,130,992 100.0% $131,240,621 100.0%
========== ===== ============ =====
</TABLE>
The tables above assume no exercise of stock options outstanding on
December 31, 1999. As of December 31, 1999, there were 3,805,070 shares of
common stock issuable upon the exercise of outstanding stock options with a
weighted average exercise price of $1.92 per share. To the extent that these
options are exercised, there will be further dilution to new investors. The
outstanding share information includes 1,314,526 shares of common stock issuable
upon the conversion of 657,263 shares of Series E preferred stock that were
issued in January 2000 at a price of $21.14 per share of Series E preferred
stock, or $10.57 per share of underlying common stock.
16
<PAGE> 18
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our financial statements and the notes to those statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", appearing elsewhere in this prospectus. The statement of operations
data for the period from inception (April 14, 1997) to December 31, 1997 and for
the years ended December 31, 1998 and 1999 and the balance sheet data as of
December 31, 1997, 1998 and 1999 are derived from our audited financial
statements. The historical results of operations are not necessarily indicative
of the operating results to be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
INCEPTION DECEMBER 31,
(APRIL 14, 1997) TO -------------------
DECEMBER 31, 1997 1998 1999
------------------- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................ $ -- $ 201 $ 12,377
Cost of revenue.................................... -- 150 5,110
------- ------- --------
Gross profit.................................. -- 51 7,267
Operating expenses:
Sales and marketing.............................. 137 3,074 9,919
Research and development......................... 2,494 5,902 6,438
General and administrative....................... 365 924 1,690
Stock-based compensation......................... -- -- 2,343
------- ------- --------
Total operating expenses...................... $ 2,996 $ 9,900 $ 20,390
Operating loss..................................... (2,996) (9,849) (13,123)
Interest income, net............................... 140 402 517
------- ------- --------
Net loss........................................... $(2,856) $(9,447) $(12,606)
======= ======= ========
Net loss per share:
Basic and diluted................................ $(11.36) $ (6.26) $ (3.99)
======= ======= ========
Pro forma basic and diluted...................... $ (0.57)
========
Shares used in computing net loss per share:
Basic and diluted................................ 251 1,509 3,157
Pro forma basic and diluted...................... 22,277
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 2,682 $ 4,339 $ 10,731
Working capital........................................... 2,220 4,810 10,350
Total assets.............................................. 3,438 7,663 23,206
Long-term liabilities..................................... -- 470 --
Redeemable preferred stock................................ 5,750 18,189 34,534
Total stockholders' deficit............................... (2,847) (12,162) (19,858)
</TABLE>
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with our financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
OVERVIEW
From our inception on April 14, 1997 through September 1998, we were a
development stage enterprise and had no product revenue. Our operating
activities during this period related primarily to developing our initial
product, recruiting personnel, building our corporate infrastructure and raising
capital.
In October 1998, we released our CS-100 Web switch and in January 1999 we
released the CS-800, our high-performance switching chassis. We derive our
revenue from both the sale of these two products and the sale of technical
support contracts. Our customers consist of end users, distributors, resellers
and original equipment manufacturers, known as OEMs.
We recognize revenue from product sales to end users, resellers and OEMs
upon product shipment, provided that there are no uncertainties regarding
acceptance, there is persuasive evidence of an arrangement, the sales price is
fixed or determinable and collection of the related receivable is probable. If
uncertainties exist, we recognize revenue when those uncertainties are resolved.
Our distributors have limited rights of return and therefore we recognize
revenue on product sales to distributors when the rights of return lapse,
provided that the other criteria listed above are met. If uncertainties exist,
we recognize revenue when those uncertainties are resolved.
In arrangements that contain products and services, we allocate revenue to
each product or service based on its respective fair value. We recognize service
revenue as the services are performed or ratably over the terms of the service
contracts. Amounts collected or billed prior to satisfying the above revenue
recognition criteria are reflected as deferred revenue. See Note 1 of the notes
to our financial statements for a more detailed description of our revenue
recognition policy.
Revenue derived from customers located outside of the United States was 16%
of our revenue in 1998 and 47% of our revenue in 1999. We expanded our
international activities significantly in 1999 in Europe, Latin America and the
Asia/Pacific market, and plan to continue to do so in 2000.
We have incurred significant net losses since our inception and we had an
accumulated deficit of $25.0 million as of December 31, 1999. We have not
achieved profitability on a quarterly or annual basis, and we cannot be certain
if or when we will become profitable. We expect to increase our sales and
marketing, research and development and general and administrative expenses and,
as a result, we will need to generate significant revenue to achieve
profitability. Although we have achieved rapid growth in revenue in recent
periods, we may not be able to sustain these growth rates in the future.
We recorded deferred compensation of approximately $17.6 million in 1999.
We expect to record additional deferred compensation of approximately $2.5
million in the quarter ending March 31, 2000. These amounts represent the
difference between the exercise or purchase price of stock options granted or
stock sold to our employees and the deemed fair value of our stock at the time
of grant or sale. We are amortizing these amounts over the vesting period of the
options and stock awards, which is generally five years. We recorded
compensation expense of $2.3 million for the year ended December 31, 1999. We
also expect to record compensation expense relating to these stock awards of
approximately $8.3 million in 2000, $4.7 million in 2001, $2.8 million in 2002,
$1.5 million in 2003 and $430,000 in 2004. It is possible that the amount of our
total deferred compensation, and therefore the
18
<PAGE> 20
amount of expense we incur each year, may increase as a result of factors such
as the grant of additional stock awards with a purchase price below the deemed
fair market value of our common stock.
We also expect to record a charge to accumulated deficit of approximately
$6.6 million in the quarter ending March 31, 2000. This amount represents the
fair value of the beneficial conversion feature of the Series E convertible
preferred stock. This amount will be accounted for like a dividend to preferred
stockholders and, as a result, will increase the Company's net loss available to
common stockholders and the related net loss per share.
In light of the rapidly evolving 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. This is particularly true of companies
such as ours that operate in new and rapidly evolving markets.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUE
We derive revenue from the sale of our CS-100 and CS-800 products and
related technical support contracts. We first shipped our CS-100 product in the
fourth quarter of 1998. Revenue increased by $12.2 million from $201,000 in 1998
to $12.4 million in 1999. This increase was due to growth in sales of the CS-100
since its commercial introduction in the fourth quarter of 1998 and the CS-800
since its commercial introduction in the first quarter of 1999 as well as
further development of our sales channels. Approximately 92.0% of this increase
was attributable to revenue from new customers. Substantially all of the revenue
increase was comprised of product revenue, as service revenue represented only
approximately 1.0% of total revenue in 1999.
COST OF REVENUE
Cost of revenue consists of material, assembly, test and overhead costs
incurred to produce our products. Cost of revenue increased by $5.0 million from
$150,000 in 1998 to $5.1 million in 1999 as a result of the increased volume of
sales. Gross margin increased from 25% to 59% due to higher production volumes
that resulted in cost efficiencies for both material and overhead costs.
SALES AND MARKETING
Sales and marketing expenses consist primarily of compensation, travel,
advertising, public relations, trade show and marketing literature expenses. Our
sales and marketing expenses increased from $3.1 million in 1998 to $9.9 million
in 1999. This increase was due primarily to investing in our sales and marketing
infrastructure, both domestically and internationally. These investments
included an increase in our sales, marketing and customer support personnel from
18 at December 31, 1998 to 73 at December 31, 1999 resulting in an increase in
compensation expenses of $4.2 million, an increase in travel expenses of
$839,000, and an increase in other sales and marketing activities resulting in
increased expenses of $1.8 million. Sales and marketing expenses were 80% of
revenue in 1999. We expect sales and marketing expenses to increase on an
absolute dollar basis in future periods.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of compensation,
depreciation and prototyping material expenses. Our research and development
expenses increased from $5.9 million in 1998 to $6.4 million in 1999. This
increase was due primarily to an increase in our software engineers and other
technical staff from 30 at December 31, 1998 to 50 at December 31, 1999
resulting in an increase in compensation expenses of $1.4 million and an
increase in depreciation expense of $303,000, partially offset by a reduction in
spending for prototype materials of $1.1 million from 1998 to 1999. Research and
development expenses were 52% of revenue in 1999. We believe continued
investment in research and devel-
19
<PAGE> 21
opment is essential to attaining our strategic objectives, and as a result, we
expect research and development expenses to increase on an absolute dollar basis
in future periods.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation for
general and administrative personnel, depreciation and professional fees. Our
general and administrative expenses increased from $924,000 in 1998 to $1.7
million in 1999. This increase was due primarily to an increase in general and
administrative personnel from 6 at December 31, 1998 to 16 at December 31, 1999
resulting in increased compensation expenses of $325,000, increased depreciation
expense of $143,000 and increased professional and other expenses of $298,000.
General and administrative costs were 14% of revenue in 1999. We expect general
and administrative expenses to increase on an absolute dollar basis in future
periods.
INTEREST INCOME, NET
Net interest income was $517,000 in 1999 compared to net interest income of
$402,000 in 1998. This increase was due primarily to increased cash and cash
equivalents balances as a result of our Series D preferred stock financing in
February 1999.
PERIOD FROM INCEPTION (APRIL 14, 1997) TO DECEMBER 31, 1997 AND THE YEAR ENDED
DECEMBER 31, 1998
REVENUE
We derived $201,000 of revenue in 1998 from the initial sales of our CS-100
product in the fourth quarter of 1998. We recorded no revenue for the period
from inception (April 14, 1997) to December 31, 1997.
COST OF REVENUE
We recorded no cost of revenue for the period from inception to December
31, 1997. Cost of revenue was $150,000 in 1998 reflecting costs of the initial
sales of our CS-100 product. Gross margin of 25% reflects the start-up costs of
manufacturing and lower production levels during this period.
SALES AND MARKETING
Our sales and marketing expenses increased from $137,000 for the period
from inception to December 31, 1997, to $3.1 million in 1998. This increase was
due primarily to investing in our sales and marketing infrastructure. These
investments included an increase in our sales, marketing and customer support
personnel with an increase in compensation and recruiting expenses of $1.4
million, an increase in travel expenses of $284,000, and increased other sales
and marketing activities, including advertising, trade shows and other
promotional expenses, resulting in increased expenses of $1.2 million.
RESEARCH AND DEVELOPMENT
Our research and development expenses increased from $2.5 million for the
period from inception to December 31, 1997, to $5.9 million in 1998. This
increase was due primarily to an increase in our personnel resulting in an
increase in compensation expenses of $1.4 million, an increase in prototyping
materials expenses of $1.0 million and an increase in other related expenses of
$1.0 million.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses increased from $366,000 for the
period of inception to December 31, 1997 to $924,000 in 1998. This increase was
due primarily to an increase in general and administrative personnel resulting
in an increase in compensation expenses of $331,000 and an increase in
professional and other expenses of $227,000.
INTEREST INCOME, NET
Net interest income was $140,000 in the period from inception to December
31, 1997 compared to net interest income of $402,000 in 1998. This increase was
due primarily to increased cash and cash equivalents received from the sale of
our Series B preferred stock in February 1998.
20
<PAGE> 22
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly results of operations
for the eight quarters ended December 31, 1999 in dollars. You should read the
following table in conjunction with our financial statements and related notes
in this prospectus. We have prepared this unaudited information on the same
basis as our audited financial statements. These results include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of our operating results for the quarters
presented. You should not draw any conclusions about our future results from the
results of operations for any quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... $ -- $ -- $ -- $ 201 $ 737 $ 1,929 $ 3,686 $ 6,025
Cost of revenue............. -- -- -- 150 501 839 1,365 2,405
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................ -- -- -- 51 236 1,090 2,321 3,620
Operating expenses:
Sales and marketing....... 255 842 919 1,058 1,298 1,837 2,536 4,248
Research and
development............. 1,276 1,526 1,398 1,702 1,342 1,452 1,682 1,962
General and
administrative.......... 157 247 258 262 350 305 405 630
Stock-based
compensation............ -- -- -- -- 104 292 328 1,619
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses.... 1,688 2,615 2,575 3,022 3,094 3,886 4,951 8,459
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations........ (1,688) (2,615) (2,575) (2,971) (2,858) (2,796) (2,630) (4,839)
Interest income, net........ 102 131 100 69 100 167 147 103
------- ------- ------- ------- ------- ------- ------- -------
Net loss.................... $(1,586) $(2,484) $(2,475) $(2,902) $(2,758) $(2,629) $(2,483) $(4,736)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Our quarterly operating results have fluctuated significantly and we expect
that future operating results will be subject to similar fluctuations for a
variety of factors, many of which are substantially outside our control. See
"Risk Factors -- Our operating results are difficult to forecast and may
fluctuate from quarter to quarter, which may have a negative impact on the
market price of our common stock".
LIQUIDITY AND CAPITAL RESOURCES
From our inception through December 1999, we financed our operations and
capital expenditures primarily through the sale of approximately $34.5 million
in equity securities and borrowings of $1.1 million. In January 2000, we sold
approximately $13.9 million of preferred stock.
We have a $2 million equipment line of credit and a $5 million accounts
receivable line of credit with Fleet National Bank with interest rates of
approximately 9% as of December 31, 1999. At December 31, 1999, there was $1.1
million outstanding under the equipment line of credit and no borrowings under
the accounts receivable line of credit. We are required to comply with financial
and restrictive covenants related to, among other things, minimum liquidity,
maximum leverage, profitability and net worth. As of December 31, 1999, we were
out of compliance with one of these covenants. The bank waived our
non-compliance with this covenant for the year ended December 31, 1999. The
waiver does not apply to periods after December 31, 1999. We are currently
renegotiating the financial covenants under these lines of credit. Accordingly,
amounts outstanding under the lines of credit have been classified as short-
term.
Cash used in our operating activities was $2.4 million for 1997, $10.0
million for 1998 and $9.4 million for 1999. These net cash outflows resulted
primarily from operating losses because:
- in 1997 our operating expenses of $3.0 million exceeded our revenue of
zero;
21
<PAGE> 23
- in 1998 our operating expenses of $9.9 million exceeded our revenue of
$200,000; and
- in 1999 our operating expenses of $20.4 million, which included
incremental spending increases of $6.8 million on sales and marketing,
$535,000 on research and development and $766,000 on general and
administrative, exceeded our revenue of $12.4 million.
The net cash outflow in 1999 also resulted from accounts receivable and
inventory increasing by $4.7 million and $1.4 million, respectively, from 1998
to 1999. Accounts receivable at December 31, 1999 were approximately 79.0% of
revenue for the quarter ended December 31, 1999 due primarily to the large
portion of sales occurring during the second half of the quarter and the level
of international sales, which generally have longer standard payment terms than
domestic sales. The increases in accounts receivable and inventory were
partially offset by increases in accounts payable of $2.7 million, accrued
liabilities of $1.3 million and deferred revenue of $2.5 million, from 1998 to
1999.
Cash used in investing activities was $608,000 for 1997, $1.5 million for
1998 and $3.6 million for 1999, substantially all of which was used for the
purchase of property and equipment, primarily computers and test equipment for
our development and manufacturing activities and leasehold improvements. We
expect capital expenditures to continue to increase through the year 2000, due
to the costs of expansion and expenditures for computers and test equipment.
As of December 31, 1999, we had obligations outstanding under various
operating leases. In August 1999 we agreed to lease approximately 45,000 square
feet in a facility located in Acton, Massachusetts for a term of five years. The
annual cost of this lease is approximately $817,000, subject to annual
adjustments. Although we have no other material commitments, we anticipate a
substantial increase in our lease commitments consistent with anticipated growth
in our operations, infrastructure and personnel. In the future we may also
require a larger inventory of products in order to provide better availability
to customers and achieve purchasing efficiencies. We expect that the net
proceeds from this offering, our existing cash balances and amounts available
under our credit facilities will be sufficient to meet our currently anticipated
working capital and capital expenditure needs for at least the next 18 months.
NET OPERATING LOSSES AND
TAX CREDIT CARRYFORWARDS
As of December 31, 1999, we had approximately $20.6 million of net
operating loss carryforwards and $1.1 million of tax credit carryforwards
available to offset future taxable income. These carryforwards expire at various
dates through 2019, to the extent that they are not utilized. Utilization of
these carryforwards may be subject to annual limitations due to ownership change
provisions. A 100% valuation allowance has been recorded against the related
deferred tax assets due to uncertainties surrounding the realization of these
assets.
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". This statement requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as a part
of a hedge transaction and, if it is, the type of hedge transaction. In July
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133".
SFAS No. 137 deferred the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. We do not currently use derivative instruments.
Therefore we do not expect the adoption of this statement to have any
significant effect on our results of operations or financial position.
22
<PAGE> 24
MARKET RISK
We do not currently use derivative financial instruments. We generally
place our marketable security investments in high credit quality instruments,
primarily U.S. Government obligations with contractual maturities of less than
one year. We do not expect to have any material loss from our marketable
security investments and therefore believe that our potential interest rate
exposure is not material.
YEAR 2000 COMPLIANCE
BACKGROUND OF YEAR 2000 ISSUES
Many currently installed computer and communications systems and software
products are unable to distinguish 21st century dates from 20th century dates.
This situation could result in system failures or miscalculations causing
business disruptions. As a result, many companies' software and computer and
communications systems may need to be upgraded or replaced to become Year 2000
compliant.
OUR PRODUCT TESTING AND LICENSING
We have tested all of our current products for Year 2000 compliance. We
derived our testing method from our review and analysis of the Year 2000 testing
practices of other software vendors, relevant industry Year 2000 compliance
standards and the specific functionality and operating environments of our
products. The tests were run on all supported platforms for each current release
of our product and included testing for date calculations and internal storage
of date information with test numbers starting in 1999 and going beyond the Year
2000. Based on these tests, we believe our products to be Year 2000 compliant
with respect to date calculations and internal storage of date information. To
date, we have not encountered any material Year 2000 problems with our products.
CUSTOMER CLAIMS
We may be subject to customer claims to the extent our products fail to
operate properly as a result of the Year 2000 problem. Liability may result to
the extent our products are not able to store, display, calculate, compute and
otherwise process date-related data. We could also be subject to claims based on
the failure of our products to work with software or hardware from other
vendors. To date, we have not received any customer claims alleging that our
products are not Year 2000 compliant in any material respect.
OUR EXTERNAL VENDORS
We have verified Year 2000 compliance by some of the external vendors that
supply us with material software and information systems and communicated with
our significant suppliers to determine their Year 2000 readiness. As part of our
assessment, we have evaluated the level of validation we require of third
parties to ensure their Year 2000 readiness. To date, we have not encountered
any material Year 2000 problems with software and information systems provided
to us by third parties.
OUR INTERNAL SYSTEMS
We have reviewed our internal management information and other systems to
identify any products, services or systems that may not be Year 2000 compliant
and to take corrective action when required. To date, we have not encountered
any material Year 2000 problems with our computer systems or any other equipment
that might be subject to such problems.
COSTS OF ADDRESSING YEAR 2000 COMPLIANCE
To date, we have incurred aggregate expenses of approximately $50,000 in
connection with our Year 2000 remediation program. We do not believe that we
will be required to expend any additional material amounts in the future in
connection with addressing Year 2000 non-compliance issues. However, any Year
2000 compliance problems experienced by us or our customers could require us to
incur expenses to correct problems with our products and could decrease demand
for our products which could seriously harm our business and results of
operations.
23
<PAGE> 25
BUSINESS
OVERVIEW
We provide intelligent Web switches that enable our customers to deploy a
global Web network architecture to optimize e-commerce transactions and the
delivery of Web content. Our products, which are specifically designed for the
Web, are intended to enhance the performance, scalability, availability,
reliability and security of our customers' Web sites. Using patented technology,
our switches intelligently route requests for Web content or transactions to the
network server that is best able to handle the request at that moment based on
information about:
- - the requesting party;
- - the content or transaction requested; and
- - the structure and changing conditions of the customer's Web network.
Our customers include Web hosting and application service providers,
e-commerce companies, Internet service providers and other enterprises deploying
applications on the Web. Our Web switches enable our customers to solve many
e-commerce problems and to offer new and enhanced Web services. As of December
31, 1999, over 100 companies have deployed our switches in their Web networks.
Our customers include EMC, Exodus Communications, Global Crossing, NaviSite and
Road Runner.
INDUSTRY BACKGROUND
EVOLUTION OF THE WEB AND E-COMMERCE
The emergence of the Web has enabled the delivery of information and rich
media content and the sale of products and services to a worldwide audience.
According to International Data Corporation, or IDC, an information technology
industry analyst, the number of e-commerce users with access to the Web will
grow from an estimated 142 million at the end of 1998 to 502 million by the end
of 2003. To attract and retain these users, companies are continually increasing
the amount and the sophistication of the information and services offered on
their Web sites. Most leading Web sites offer one or more of the following:
- - personalized information, such as individual stock portfolios or custom home
pages;
- - rich media content, such as audio and video; and
- - e-commerce transactions, such as electronic ordering, order status and bill
payment.
Accompanying the growth of the Web has been a dramatic increase in the
amount of e-commerce taking place over the Web. According to a report by IDC,
e-commerce revenue is expected to increase from $50 billion in 1998 to over $1.3
trillion in 2003. To be successful, companies conducting e-commerce must
effectively manage their Web site traffic and provide visitors with a positive
experience.
In response to the rapid growth in the number and complexity of Web sites
and e-commerce and the significance of the Internet to the business strategies
of many companies, a Web hosting industry has developed. According to IDC, the
Web hosting market will expand from $823 million during 1998 to $18.9 billion by
2003. Web hosting companies manage a company's Web servers at data centers with
high-speed Internet connectivity and provide the hosted company with the
benefits of high-bandwidth access to its Web site without having to build its
own network. Web hosting companies are increasingly offering services in
addition to Web connectivity, including content development, Web site
management, disaster recovery and various service guarantees. In addition, many
Web hosting companies are either providing on-line software applications
directly to their customers or providing Web hosting services to other
application service providers, which in turn provide on-line software
applications to other companies. The increasing complexity and scalability
requirements of business-critical Web sites and the emergence of Web hosting
companies are creating new opportunities to provide infrastructure products and
24
<PAGE> 26
services for complex Web networks and applications.
TODAY'S WEB SITE INFRASTRUCTURE
Web sites today typically consist of multiple types of servers, providing
the following functions:
- - Web servers provide the primary interface for visitors to the Web site;
- - application servers provide a platform for application-specific processing
such as personalized services or on-line shopping;
- - secure servers are used for encrypted operations such as credit card
processing or viewing account information;
- - database servers provide centralized information repositories; and
- - cache servers store copies of frequently accessed files to improve response to
requests for those files.
These servers are connected by traditional networking devices such as switches
and routers. As Web traffic volume increases, the performance of any individual
server can degrade. By copying applications and data to multiple servers of the
same type, a company can provide increased capacity and performance for its Web
site as a whole. Load balancing devices, typically PC-based servers, are then
used to distribute the traffic among these multiple servers.
Traditional load balancing devices operate by intercepting data packets
addressed to a Web site and translating the destination address of the packets
to the address of the server. If a particular server is unavailable, the load
balancing device stops using its address as a destination and routes the packet
to another server. Due to the limited performance of PC platforms, these load
balancing devices can themselves become overloaded, reducing the performance and
response time of the Web site. In addition, because these devices base their
decisions on packet address information, they cannot determine the identity of
the user or what content the user is trying to access. This is because the
information that uniquely identifies users and content is located much deeper
inside the packets. Although manufacturers of traditional switching equipment
have attempted to address some of the performance issues of PC-based load
balancing products by introducing load-balancing capabilities to their switches,
these switches were not designed for this task and typically suffer from serious
performance limitations of their own. In addition, like PC-based load balancers,
these devices are "content blind" -- that is, they are unaware of the user's
identity or the specific content being requested.
These existing solutions do not adequately address the problems confronting
complex Web sites today because they are unable to do all of the following:
- - provide e-commerce transaction integrity by ensuring server continuity to
avoid problems such as lost electronic shopping carts;
- - provide special treatment to certain content requests based upon information
such as the identity of the requester or the type of content requested;
- - maximize the efficiency of Web servers, application servers, databases, caches
and firewalls by routing requests to the best server to handle that type of
request;
- - detect and handle flash crowds -- that is, a sudden surge of requests for a
piece of Web content such as a breaking news story -- by identifying hot
content and creating additional ways to access this hot content;
- - route traffic around failed servers, applications or content;
- - block denial-of-service attacks by computer hackers, which are attempts to
disable servers or keep the servers busy performing useless tasks so that
other users of the site are denied service;
- - improve the scalability, performance and reliability of high-end Web sites;
and
- - provide systems administrators with data about content and application
performance.
The rapid growth in the use of the Web and in e-commerce, coupled with the
increase in Web site complexity, has put tremendous pressure on companies to
develop new Web
25
<PAGE> 27
network architectures that can efficiently and
effectively address the problems described above.
ARROWPOINT SOLUTION
Our intelligent Web switches are used by companies such as Web hosting and
application service providers, e-commerce companies and Internet service
providers to deploy a Web network architecture that optimizes e-commerce
transactions and the delivery of Web content. Using our technology, our
customers can significantly improve the experience of visitors to their Web
sites. Our customers typically deploy our Web switches in their Web networks in
a configuration similar to the following:
ArrowPoint Solutions graphic
The graphic is titled "ArrowPoint Solutions." Beneath this title is a cloud
shaped area labeled "Internet." A line leads from the cloud shape to the icon of
a router below, labeled "Router." Beneath the router and connected to it by a
line is a web switch icon labeled "ArrowPoint Web Switch." Four lines lead from
beneath the web switch icon to four icons of web servers which are collectively
labeled "Web Servers."
Our intelligent Web switches enable our customers to deploy a Web network
architecture that offers the following benefits:
E-COMMERCE TRANSACTION ASSURANCE
E-commerce transactions depend on the ability of the server and the
application to maintain information about the purchaser's transaction until the
transaction is completed. For example, a purchaser may initiate several requests
while browsing through a Web site and adding items to an electronic shopping
cart. The items in the shopping cart must be maintained on the server until
checkout. To accomplish this, it is critical to ensure that a purchaser's
requests are always directed to the same server until the transaction is
complete. Our intelligent Web switches, unlike traditional switches, are able to
use information located deep within the purchaser's Web request to continually
direct the purchaser to the correct server, preventing problems such as lost
electronic shopping carts.
SPECIALIZED TREATMENT BASED ON CONTENT, APPLICATION OR USER
Our Web switches can direct traffic to specific servers or groups of
servers based on a range of different information about the requesting party or
the Web content or transaction requested. This feature enables companies to give
preferred or differing treatment to specific users, such as preferred customers.
In addition, this feature enables companies to distinguish among Web requests
based on the nature of the request, such as giving requests for
revenue-generating transactions priority over requests for information.
OPTIMIZED CONTENT DELIVERY
Poor Web site performance can disrupt Web transactions and cause user
dissatisfaction, resulting in lost revenue for e-commerce companies and other
businesses dependent on their Web sites. Using information about the requesting
party, the Web content or
26
transaction requested and the customer's Web network, our intelligent Web
switches can direct requests for Web content or transactions to the network
server -- which may be part of a globally dispersed network -- best able to
handle that request at that moment. This enables our customers to pro-
27
<PAGE> 28
vide dynamic Web content from Web servers, static content from caches, and
streaming audio and video from optimized streaming servers. These capabilities
optimize Web performance and content delivery and enhance the experience of
visitors to the Web site.
FLASH CROWD INSURANCE
The popularity of a particular piece of Web content changes from moment to
moment. At a news service Web site, for example, a breaking news story can cause
a sudden surge of requests for that story that overwhelms the site's Web
servers. It is often difficult to predict which content will be popular and to
provide additional servers in anticipation of flash crowds. Our Web switches can
identify hot content and automatically trigger the copying of that content to
servers or caches to dynamically add capacity to handle flash crowds. This
enables our customers to cost-efficiently maximize the number of Web requests
they can satisfy.
IMPROVED AVAILABILITY OF APPLICATIONS AND CONTENT
Even when a Web site is available, a particular server or application at
that site may still fail. Our Web switches can recognize this and intelligently
redirect requests for unavailable content or applications to another Web site or
server which has the requested information.
ENHANCED SITE SECURITY
While firewalls can effectively perform many security functions for a
customer's network, they are less well-suited to the protection of Web sites, as
most companies want to encourage rather than restrict access to their Web sites.
Firewalls generally do not provide effective protection against denial-of-
service attacks -- which are attempts by computer hackers to disable servers or
keep servers busy performing useless tasks -- without significantly impairing
the performance of the Web site. Our switches are able to differentiate between
legitimate Web requests and denial-of-service attacks. In addition, our switches
can be used to improve the performance of traditional firewalls through load
balancing.
SUPERIOR SCALABILITY, PERFORMANCE AND RELIABILITY
Our Web switches are designed to address the needs of our customers, which
range from smaller Web sites to large, complex Web hosting operations. In
addition, our different product offerings and flexible software architecture
enable customers to easily deploy additional ArrowPoint switches as their Web
networks expand, without having to replace their existing ArrowPoint switches.
Our switches were designed for the strict reliability standards of
telecommunications networks, and an individual CS-800 Web switch can handle
approximately three billion Web requests in a 24-hour period. In addition, our
products include features and components to enhance the reliability of our
customers' Web sites and the availability of their content.
PERFORMANCE MONITORING AND CAPACITY PLANNING
Our products track detailed statistics about the performance of our
customers' networks, servers, applications and content, which can be used to
operate their Web sites more efficiently and plan more effectively for growth.
This information can be accessed from any standard network management system.
ARROWPOINT STRATEGY
Our objective is to be the leading provider of intelligent Web switches
that enable the deployment of a global Web network architecture to optimize
e-commerce transactions and the delivery of Web content. To achieve this
objective, we are pursuing the following strategies:
TARGET LEADING WEB HOSTING AND APPLICATION SERVICE PROVIDERS AND E-COMMERCE
COMPANIES
We will continue to focus on providing our Web products and services
directly to leading Web hosting and application service providers and e-commerce
companies, as well as to Web hosting and application service providers for
integration into their product and service offerings. We believe that our
solutions are particularly well-suited for com-
28
<PAGE> 29
panies in these rapidly expanding target markets and position us well for future
penetration of these markets. Focusing on these selected industries has also
allowed us to develop considerable expertise that we can apply to improve our
product and service offerings for companies in these industries.
AGGRESSIVELY EXPAND DIRECT AND INDIRECT SALES CHANNELS
We will continue to aggressively expand our sales channels on a world-wide
basis by seeking to significantly expand our direct sales force and to increase
the productivity and size of our reseller network. Since the beginning of the
third quarter of 1999, we have established a sales presence in ten locations in
the United States and locations in Argentina, Australia, Belgium, Brazil,
France, Hong Kong, Japan, Mexico, South Korea and the United Arab Emirates. We
plan to continue to increase the size of our existing sales teams as well as
establish sales teams in new locations around the world. In addition, we are
continuing to develop strategies designed to increase the productivity of our
direct sales force and reseller network, including bolstering our marketing
efforts and sales training and providing additional consulting services to our
end-users and reseller network.
MAINTAIN TECHNOLOGICAL LEADERSHIP
We believe we offer the most advanced Web switching solution for optimizing
e-commerce transactions and Web content delivery. By working closely with our
customers, we are able to quickly define and assess our customers' changing
business needs and utilize that information in our product development efforts.
We plan to continue to devote substantial resources to improving the performance
and features of our products and to ensure that our products continue to support
emerging technologies and industry standards. We also plan to introduce new
products and software releases with additional features to address different
market segments. We believe that these product development efforts will allow us
to continue to offer advanced product performance to our customers at a range of
price points.
DEVELOP STRATEGIC ALLIANCES
We will continue to pursue strategic alliances, including product
development relationships, with key customers, Web hosting and application
service providers and other companies that offer complementary products or
technologies. We plan to pursue this strategy both by leveraging our existing
marketing and other relationships with vendors and by continuing to develop new
relationships. We believe that these strategic alliances will enable us to
enhance both the attractiveness of our product offerings and our marketing reach
and penetration by providing us with access to many of our strategic partners'
development resources and marketing channels.
DELIVER SUPERIOR SERVICE AND SUPPORT
As our intelligent Web switches are an integral part of our customers' Web
businesses, we will continue to seek to increase customer satisfaction and
strengthen customer loyalty through our quality service offerings. We believe
that delivering superior customer service and support is essential to winning
business. We offer comprehensive customer service and support, including
consulting and training, software upgrades and around-the-clock on-line support
and telephone support. We intend to continue improving our customer support
services and devoting significant resources to providing installation, training,
support and consulting services to our customers to help them fully utilize the
benefits of our solution.
PRODUCTS AND TECHNOLOGY
We believe we offer the most advanced Web switching solution for optimizing
e-commerce transactions and the delivery of Web content. The principal
components of our technology consist of:
- - a patented technique for intelligently routing Web requests, which we call
content switching;
- - a powerful and scalable software operating system; and
- - a high-performance switching architecture that enables us to rapidly benefit
from new
29
<PAGE> 30
and better-performing commercially available microprocessors.
CONTENT SWITCHING TECHNOLOGY
We have developed a patented technique for routing a Web content request to
the server within a network of distributed servers that is best able to handle
that request. We call this technique content switching. Our switches
intelligently route requests based on an analysis of user and content
identification information found in the request and information about the
performance and availability of eligible servers.
Unlike traditional switching technology, which makes routing and policy
decisions based on Internet protocol, or IP, addresses, our content switching
also makes use of detailed information available only through the Hypertext
Transfer Protocol, or HTTP, the data transfer protocol of the World Wide Web. In
particular, our switches use the following information found through HTTP as
part of the content switching process:
- - Uniform Resource Locator, or URL -- This information uniquely identifies the
specific file requested from the server or the specific operation to be
performed.
- - Host header -- This information uniquely identifies the requested host.
- - Cookie -- "Cookies" have a variety of uses, but are generally used by Web
applications to maintain information about users. A cookie is a small file of
information about a user's transaction that a Web server places on a user's
computer; the user returns the cookie in subsequent Web requests to the same
site, which our switches can use to direct the user to the correct server.
This allows the site to maintain information about a user's transactions that
spans multiple HTTP requests.
The policies our Web switches can apply based on this information are very
flexible, allowing our customers to customize their Web sites and to optimize
them for peak performance.
SOFTWARE
We have invested significant resources in the development of our software,
which runs on both our CS-100 and our CS-800 switches. Our software enables many
of the important customer benefits offered by our Web switches. Because so much
of our technology is embedded in our software platform, we can easily add
functionality and features to our products through software upgrades, which
enables our customers to benefit from our technological developments without
having to replace their existing ArrowPoint switches.
Among the many technologies and features contained in our operating system
software are the following:
- - Our Web switches facilitate e-commerce transactions by maintaining information
across multiple HTTP requests to a Web site. This is done by "sticking" the
user to the same server until the transaction is complete. This "stickyness"
can be accomplished by matching on the IP address, URL, cookie or the secure
socket layer session ID.
- - Our Web switches allow customers to deploy distributed networks of servers
and/or caches, leveraging those servers as a shared resource that can be used
to accelerate the delivery of content around the world.
- - Our Web switches can be configured to restrict access to a Web site based on
IP address, URL, host header or cookie. In addition, our operating system
filters out common denial-of-service attacks and notifies Web site operators
about security violations so they can take corrective action.
- - Our customers can configure our switches to load balance among local servers
using a number of industry-standard algorithms, as well as an advanced
algorithm developed by us. These load balancing algorithms can be invoked
based on IP address, Internet domain name, URL or any combination of these
identifications. This allows our customers to adopt extremely flexible
policies, which they can use to
30
<PAGE> 31
partition content by type, directory or individual file name.
- - Our software enables our switches to intelligently route content requests to
the optimal site and server for that request based on what content is being
requested, who is requesting it and where the requestor is located. Our global
load balancing methods take into account information the switches have learned
about content location, availability and proximity to the requesting user. Our
switches use a proprietary protocol to maintain and communicate information
about a variety of relevant data, including the performance of not only the
local servers attached to them but all other servers and switches in the
network. This enables distributed calculation of best site and server
information.
- - Our switches can automatically replicate content when it is added or changed
on a server or, alternatively, when the access frequency for a particular
piece of content exceeds a user-defined threshold.
CONTENT SWITCHING ARCHITECTURE
We have developed a distributed processing architecture for content
switching that leverages multiple specialized processors in a way that optimizes
the system for specific tasks. Arriving Web content requests are analyzed by an
array of general-purpose microprocessors, which then determine where to send the
content request based on what content is being requested and who is requesting
it. Once a request is analyzed and the best server is selected, the content is
delivered by special-purpose network processors, which are optimized for packet
forwarding. This content switching architecture allows us to offer products that
combine a high degree of content intelligence with high-performance and
cost-effectiveness. In addition, our architecture is highly scalable, enabling
us to add new features for higher performance without modifying the underlying
architecture.
PRODUCTS
We offer two Web switches today: the CS-100 and the CS-800.
The CS-100 is designed for smaller Web sites with 16 or fewer servers. It
is comprised of 12 or 16 100-megabit Ethernet interfaces interconnected by a
five gigabit per second switching fabric. The CS-100 is priced from $17,000 to
$25,000 depending on configuration and software options.
The CS-800 is a high-performance switching chassis designed for large Web
sites and Web hosting operations. Each CS-800 can support up to 64 100-megabit
Ethernet interfaces or 32 gigabit Ethernet interfaces interconnected by a 20
gigabit per second switching fabric. It features redundant power supplies,
switching fabrics and control logic. All systems modules, power supplies and
fans are field replaceable. The CS-800 was designed for the high performance,
reliability, availability and redundancy requirements of service providers and
telecommunications companies. The CS-800 is priced from $35,000 to $220,000
depending on configuration and software options.
Both Web switches support our full range of content switching capabilities.
Both of our Web switches are based on our content switching architecture and
combine the necessary performance and intelligence to enable efficient, reliable
and secure delivery of Web content. Customers can install our products without
having to modify the hardware, software or content of their Web site.
SERVICES AND SUPPORT
We believe that quality technical support is a critical factor in a
customer's decision to purchase a Web switching solution. Accordingly, we devote
significant resources to ensure that we deliver high-quality support to our
customers.
Our technical support includes:
- - telephone support, which is available either 24 hours a day, seven days a
week, or during business hours, depending upon the support option chosen by
our customers;
- - online support, including answers to frequently asked questions, technical
tips and manuals;
- - software upgrades; and
- - hardware repair.
31
<PAGE> 32
We generally charge our customers an annual technical support fee ranging
from 12% to 18% of the purchase price for the products being supported. We
believe that our technical support work with our customers not only helps ensure
a customer's success with our products, but also allows our personnel to gain
industry-specific knowledge that can be leveraged in future customer accounts
and utilized in our product development efforts.
We also offer installation, training and consulting services to assist
customers in optimizing the benefits of our products. We assist with the
implementation of our products and provide training on their functionality and
features. In addition, we offer network design, configuration and optimization
advice and services to our customers.
SALES AND MARKETING
We sell our products through a direct sales force, distributors, a network
of resellers, including application service providers, and OEMs. We believe that
a direct sales force is critical for addressing our largest customers and
potential customers, helping to create demand in the marketplace and generating
an understanding of customer needs for use in product development efforts. We
use our indirect channel to address accounts with which those resellers have
strategic relationships, smaller accounts and geographic areas that are more
efficiently addressed indirectly than directly.
We are making a significant investment in our direct sales force. We expect
direct sales to account for a majority of our revenue in 2000. Our direct sales
force is comprised of a series of sales teams, consisting of a sales executive
and a systems engineer. We have sales personnel in a number of major
metropolitan areas, including Atlanta, Boston, Chicago, Dallas, Denver, Houston,
Los Angeles, Minneapolis, New York, Philadelphia, San Jose, Seattle and
Washington, D.C. Our international sales personnel are located in Argentina,
Australia, Belgium, Brazil, Canada, France, Germany, Hong Kong, Israel, Japan,
Mexico, the Netherlands, Singapore, South Korea, the United Arab Emirates and
the United Kingdom. Our systems engineers support our sales efforts by working
with potential customers to help them analyze the structure and needs of their
particular network and how best to configure and implement our Web switching
solutions into their network.
We also sell our products through the following indirect channels:
- - distributors, such as ACAL Nederland, NetOne Systems and Westcon;
- - traditional resellers, such as Case Technology, Cube Computer, Sumitronics and
Telemation Netzwerke;
- - Web hosting and application service providers, such as Exodus Communications,
GlobalCenter and NaviSite; and
- - OEMs, such as Alcatel.
Our marketing organization utilizes a variety of programs to build brand
awareness, convey our value proposition and technology leadership position and
create demand for our products. Our marketing programs include:
- - seminars and trade shows;
- - market research and analysis;
- - product and strategy updates with industry analysts;
- - public relations activities and speaking engagements;
- - media advertisements;
- - direct mail programs;
- - brochures, data sheets and white papers;
- - Web site marketing; and
- - telemarketing programs.
CUSTOMERS
Our customers include Web hosting and application service providers,
Internet service providers, e-commerce companies, Web portals and other
enterprises deploying applications on the Web. In 1999, the following end users
purchased at least $100,000 of our
32
<PAGE> 33
products and services from us or through one of our resellers or OEMs:
<TABLE>
<S> <C>
Adonis Lyonais de Cable
Asnet Matav
Avantel NaviSite
EMC Nettaxi.com
Exodus Road Runner
Communications Siemens
GlobalCenter Spinway.com
Green Information Telefonica
and Communication Interactiva
Iaxis T-Online
Infosel Unitel
Liberte Surf World Online
</TABLE>
NaviSite accounted for 14% of our revenue in 1999. Sales to customers
outside of the United States accounted for approximately 47% of our revenue in
1999.
The following are examples of how customers in different Web markets have
implemented our products and services.
NAVISITE. NaviSite is an application service provider and Web hosting
provider for large e-commerce and content delivery companies. NaviSite was
looking for a strategic advantage in the high-end Web hosting and application
services market. Our intelligent Web switches have enabled NaviSite to offer
fee-based services to customers, including e-transaction assurance, site
security, and dynamic load balancing. NaviSite has deployed CS-100 and CS-800
Web switches to deliver these services faster and more reliably than it was
previously able. For example, NaviSite has used our Web switches to provide
real-time streaming video content, including the broadcast of New England
Patriot football games, for ThingWorld.com. The stability and support of our Web
switches helped NaviSite create a scalable and reliable Web infrastructure that
meets the demands of next-generation e-commerce and Web site services.
TOYSMART.COM. Toysmart.com is an on-line provider of toys, children's
products, learning tools and resources for parents, caregivers and educators.
Like many e-commerce sites, toysmart.com confronts the significant e-commerce
problem of managing a deluge of holiday shoppers to its site. In 1999,
toysmart.com installed two ArrowPoint intelligent CS-800 Web switches to manage
its site traffic so that holiday shoppers would experience smooth browsing and
strong connections during their on-line shopping. Toysmart.com used our Web
switches to perform load balancing, service selection and user selection. Our
Web switches allowed toysmart.com to examine their customers' cookies and to
make decisions based on content. Depending on the results, the CS-800 would
decide which caching or SSL server was most appropriate for a particular
customer. Toysmart.com reported that our Web switches allowed toysmart.com to
double the performance and capacity of its Web site without adding servers or
other hardware.
ROAD RUNNER. Road Runner is a high-speed, on-line service provider. Road
Runner has subscribers for its cable broadband online service in many locations
throughout the United States. It is a joint venture among Time Warner, MediaOne
Group, Microsoft, Compaq, and Advance/Newhouse. Road Runner installed our CS-100
Web switches at 21 data centers nationwide to deliver broadband Web content to
hundreds of thousands of users simultaneously. Our Web switches work in
combination with caches to enable Road Runner to deliver faster and more
efficient service to its customers. Our Web switches have helped boost the
performance of the Road Runner network and have reduced the need for Road Runner
to purchase additional bandwidth. According to Road Runner, it chose ArrowPoint
because we offered the only solution for directing Web traffic based on the
content requested. With the assistance of our Web switching technology, Road
Runner can offer its subscribers fast, reliable and advanced broadband online
experiences.
NETTAXI.COM. Nettaxi.com is a developer of commerce-enabled and content
rich Web communities that allow its members to build their own distinctive
"homes" on the Internet. These personalized "homes" may include news,
entertainment, sports, financial and travel information as well as e-mail,
personal home pages and chat rooms. Like many large-scale, on-line communities
and portals, Nettaxi.com faced the problem of managing
33
<PAGE> 34
high traffic volumes and content load balancing. Nettaxi.com deployed our
intelligent CS-100 Web switches to better manage its large on-line community of
home pages, e-mail, domain hosting and e-commerce Web sites. Nettaxi.com
reported that our Web switches significantly improved the performance and
reliability of its Web site. Nettaxi.com uses our Web switches in place of a
traditional load balancing solution. Our Web switches read URL addresses,
allowing Nettaxi.com to separate requests for content, e-commerce services and
on-line community content by type across the three server farms. Segmenting its
content enables Nettaxi.com to scale its site intelligently, adding servers only
where needed, as well as to deliver larger volumes of content to users faster
and more reliably than was possible with traditional solutions. Intelligently
managing its Web traffic flows with our Web switches has helped keep
Nettaxi.com's growing community of users returning to the site.
EXODUS COMMUNICATIONS. Exodus Communications is a provider of complex
Internet hosting services. Exodus desired to improve the overall performance and
speed of its ReadyCache content distribution service. The ReadyCache service
improves response times over the Internet by storing frequently accessed Web
content closer to the user. In addition, Exodus was looking for a URL-based load
balancing product that would bring more intelligence and scalability to its
service offerings. Exodus also required a Web switching solution that was
compatible with its encryption technology. During 1999, Exodus installed 18 of
our CS-100 Web switches in its data centers. The ability of our CS-100 Web
switches to perform intelligent cache bypass and provide Exodus with effective
load balancing capabilities enhanced the performance and scalability of the
ReadyCache content distribution service.
MANUFACTURING
While we design our products and develop our software in-house, we
subcontract the manufacturing of our products to Plexus, an independent
manufacturer. Plexus assembles our products, tests them, stores and delivers
them, and provides some field service to our customers. Our reliance on a single
manufacturer exposes us to a number of risks, as described under "Risk
Factors -- Because we depend upon a single contract manufacturer to manufacture
all of our products, we are exposed to significant risks over which we have
little control".
In addition to managing our relationship with Plexus, our internal
manufacturing group is responsible for the following functions which support the
manufacturing activities of Plexus:
- - vendor selection and management;
- - purchasing;
- - materials management and forecasting; and
- - quality assurance.
Several key components of our products are currently available from only
single vendors. The key components of our products that we purchase from single
sources are: - critical network processors for both the CS-100 and the CS-800
from MMC Networks;
- - the power supply device for the CS-100 from Cherokee International; and
- - the power supply device for the CS-800 from Tectrol.
For a discussion of the risks associated with this, see "Risk Factors -- We
purchase several of our key components from single sources, and we could lose
revenue and market share if we are unable to obtain a sufficient supply of those
components".
COMPETITION
We compete primarily on the basis of:
- - the features and functionality of our products, including their ability to
analyze the content of Web requests;
- - the scalability of our solutions;
- - the ease of installing, configuring and managing our products;
- - the services we offer in support of our products; and
34
<PAGE> 35
- - the ratio of performance to price for our products.
We believe that we currently compete effectively against our competitors
with respect to each of the competitive factors listed above. However, we cannot
assure you that we will be able to maintain our competitive position in the
future.
The market for Internet infrastructure solutions is new, rapidly evolving
and very competitive. We expect competition in this market will increase in the
future. Our principal competitors include large networking equipment companies
such as Cisco Systems, as well as companies such as Alteon WebSystems, F5
Networks and Foundry Networks. Some of our competitors have longer operating
histories, greater name recognition and greater financial, technical, sales,
marketing, support and other resources than we do.
PROPRIETARY RIGHTS
Our success and competitiveness depend significantly on the protection of
our proprietary technology. We rely primarily on a combination of patents,
copyrights, trade secret laws and restrictions on disclosure to protect our
proprietary technology. In December 1999 we were awarded a U.S. patent covering
a variety of claims relating to our content switching technology, including a
method for analyzing content to select the most appropriate server to handle a
particular request by a user. This patent expires in August 2017. Despite these
protections, others may be able to copy or reverse engineer aspects of our
products, to obtain and use information that we regard as proprietary or to
independently develop similar technology. In addition, our patent has been
issued only in the United States and the laws of some foreign countries do not
protect our proprietary rights to the same extent as do the laws of the United
States.
Litigation may be necessary in the future to enforce or defend our
proprietary technology or to determine the validity and scope of the proprietary
rights of others. This litigation, whether successful or unsuccessful, could
result in substantial costs and diversion of management and technical resources.
We attempt to avoid infringing intellectual property and proprietary rights
of third parties in our product development efforts. However, we do not conduct
patent searches to determine whether the technology used in our products
infringes patents held by third parties. In addition, product development is
inherently uncertain in a rapidly evolving technological environment in which
there may be numerous patent applications pending, many of which are
confidential when filed, with regard to similar technologies. If our products
violate third-party proprietary rights, we could be liable for substantial
damages. In addition, we may be required to reengineer our products or seek to
obtain licenses to continue offering those products, and there can be no
assurance that those efforts would be successful.
We incorporate into our products some technology developed by third
parties, including the operating system for our Web switches and some routing
technology. We have purchased licenses to these technologies, which generally
have an indefinite term or renew automatically, and in some cases have obtained
rights to the source code for the licensed software. We believe that alternative
sources for these technologies are available.
We have received trademark registrations in several foreign jurisdictions
for the mark "ArrowPoint", and we have applications pending in the U.S. and
several foreign jurisdictions for the trademarks "Content Smart", "Content Smart
Switching", "Flowminder" and "Flowwall Security".
EMPLOYEES
As of December 31, 1999, we had 148 employees, including 73 in sales,
marketing and support, 50 in product development, nine in manufacturing and 16
in finance and administration. None of our employees is subject to a collective
bargaining agreement. We believe that our relations with our employees are good.
FACILITIES
Our headquarters are located in approximately 45,000 square feet of space
in an
35
<PAGE> 36
office building in Acton, Massachusetts, under a lease that expires in November
2004. We also lease sales offices in 12 locations around the world. We believe
that our existing facilities are adequate to meet our current needs and that
suitable additional or substitute space will be available on commercially
reasonable terms when needed.
LEGAL PROCEEDINGS
We were named a defendant in a civil suit filed in the United States
District Court for the Southern District of New York by Arrow Electronics, Inc.
on July 19, 1999. In the lawsuit, Arrow Electronics asserts trademark
infringement and associated state law claims. In particular, Arrow Electronics
alleges that customers are likely to be confused between Arrow Electronics and
ArrowPoint, and by use of the Internet domain name arrowpoint.com. Arrow
Electronics is seeking an injunction precluding us from using the name and mark
ArrowPoint and requiring us to relinquish registration of the domain name
arrowpoint.com. We have filed an answer denying all material allegations
asserted in the complaint. The case is presently in the early stages of
discovery. We intend to vigorously defend this lawsuit, including our right to
use the ArrowPoint trademark and the arrowpoint.com domain name.
We are not currently a party to any other legal proceedings.
36
<PAGE> 37
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table lists our executive officers and directors and their
ages as of December 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Chin-Cheng Wu........................ 49 Chairman of the Board and Chief Executive Officer
Louis J. Volpe....................... 50 President, Chief Operating Officer and Director
Cynthia M. Deysher................... 41 Vice President, Operations, Chief Financial Officer
and Treasurer
Christopher P. Lynch................. 36 Vice President, Worldwide Sales and Support
Peter M. Piscia...................... 39 Vice President, Engineering
Edward T. Anderson(1)(2)............. 50 Director
James A. Dolce, Jr.(1)............... 37 Director
Paul J. Ferri(1)(2).................. 61 Director
</TABLE>
- ---------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
CHIN-CHENG WU founded ArrowPoint, has served as our Chief Executive Officer
since our inception in April 1997 and has served as Chairman of the Board since
November 1999. Mr. Wu also served as President from our inception until November
1999. From March 1996 to March 1997, Mr. Wu was the Vice President of Remote
Access Engineering at Cascade Communications, a networking company. Mr. Wu
co-founded Arris Communications, a networking company, and served as Vice
President of Engineering from June 1995 to March 1996. From January 1991 to June
1995, Mr. Wu was Vice President of Engineering at Xyplex Inc., a computer
networking company.
LOUIS J. VOLPE joined us as President, Chief Operating Officer and a
director in November 1999. Mr. Volpe was Senior Vice President, Worldwide Sales
and Marketing and a director of GeoTel Communications, a provider of software
solutions for call center applications, from May 1996 to June 1999. From
February 1995 to April 1996, Mr. Volpe served as GeoTel's Vice President of
Marketing.
CYNTHIA M. DEYSHER joined us as Vice President of Operations and Chief
Financial Officer in December 1997. From January 1994 to March 1997, Ms. Deysher
served as Senior Vice President, Finance and Administration and as Chief
Financial Officer at Shiva Corporation, a designer and manufacturer of hardware
and software products.
CHRISTOPHER P. LYNCH joined us as Vice President, Worldwide Sales and
Support in February 1998. From December 1997 to February 1998, Mr. Lynch served
as Vice President, North American Sales of Lucent Technologies, a communications
systems company. Mr. Lynch served as Vice President, North American Sales of
Prominet Corporation from May 1997 until Prominet's acquisition by Lucent in
January 1998. From October 1992 to May 1997, Mr. Lynch was a sales executive at
Bay Networks, Inc., an Internetworking solutions company, and its predecessor
company, Wellfleet Communications.
PETER M. PISCIA joined us as Director of Engineering in August 1997 and was
promoted to Vice President, Engineering in November 1998. From May 1996 to June
1997, Mr. Piscia served as Director of Engineering Operations at Cascade
Communications. From June 1995 to May 1996, Mr. Piscia was Director of
Engineering Operations at Xyplex, Inc.
EDWARD T. ANDERSON has served as a director since April 1997. Mr. Anderson
has been General Partner of North Bridge Venture Management Company, a venture
capital firm, since March 1994.
37
<PAGE> 38
JAMES A. DOLCE, JR. has served as a director since January 2000. Mr. Dolce
has served as Vice President and General Manager of Unisphere Solutions, Inc., a
computer networking company and a division of Siemens, since April 1999. Mr.
Dolce founded Redstone Communications in September 1997 and served as its Chief
Executive Officer and President until April 1999. From May 1996 to July 1997,
Mr. Dolce was Vice President and General Manager of Cascade Communications'
Remote Access Business Unit. Mr. Dolce co-founded Arris Networks and served as
its Vice President, Sales and Marketing from October 1995 until Arris Networks'
acquisition by Cascade in May 1996.
PAUL J. FERRI has served as a director since April 1997. Mr. Ferri has been
General Partner of Matrix Partners, a venture capital firm, since 1982. Mr.
Ferri also serves as a director of Sycamore Networks, Inc., Ezenia!, Inc. and
Applix, Inc.
The terms of office of the members of our board of directors are divided
into three classes. Messrs. Wu and Anderson serve as Class I Directors (whose
terms expire in 2001), Messrs. Volpe and Ferri serve as Class II Directors
(whose terms expire in 2002) and Mr. Dolce serves as a Class III Director (whose
term expires in 2003). At each annual meeting of stockholders, the successors to
directors whose terms will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election.
Additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the total number of directors. The
classification of our board of directors may have the effect of delaying or
preventing changes in control or management of ArrowPoint. See "Description of
Capital Stock -- Charter Documents".
Each executive officer is appointed by, and serves at the discretion of,
our board of directors. There are no family relationships among any of our
directors or officers.
COMMITTEES OF OUR BOARD OF DIRECTORS
Our compensation committee consists of Mr. Anderson and Mr. Ferri. It
establishes the salaries and incentive compensation of our executive officers
and administers our stock option plans.
Our audit committee consists of Mr. Anderson, Mr. Dolce and Mr. Ferri. It
reviews the results and scope of audits and other services provided by our
independent public accountants and reviews our system of internal accounting and
financial controls. Our audit committee also reviews such other matters with
respect to our accounting, auditing and financial reporting practices and
procedures as it may find appropriate or may be brought to its attention.
DIRECTOR COMPENSATION
Non-employee directors are reimbursed for their reasonable out-of-pocket
expenses incurred in attending meetings of our board of directors. No director
receives compensation for services rendered as a director. Non-employee
directors will be eligible for participation in our 2000 Non-Employee Director
Stock Option Plan. See "Management -- Stock Plans".
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table presents information concerning
compensation paid or accrued for the year ended December 31, 1999 for each of
our executive officers during that year.
38
<PAGE> 39
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------
AWARDS
-------------------------
ANNUAL COMPENSATION RESTRICTED STOCK
------------------------------- STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER AWARDS(1) OPTIONS
- --------------------------- -------- ------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Chin-Cheng Wu................. $160,000 $64,000 -- -- 340,000
Chairman of the Board and
Chief Executive Officer
Louis J. Volpe................ 14,564 9,333 -- $15,125,000 --
President and Chief
Operating Officer(2)
Cynthia M. Deysher............ 135,000 32,400 -- -- 60,000
Vice President, Operations
and Chief Financial Officer
Christopher P. Lynch.......... 120,000 -- $144,134(3) -- 90,000
Vice President, Worldwide
Sales and Support
Peter M. Piscia............... 130,000 31,110 -- -- 80,000
Vice President, Engineering
</TABLE>
- ---------------
(1) Amounts shown represent the value of the restricted stock award, based on
the midpoint of the estimated public offering price range less the purchase
price paid. The number of shares of restricted stock beneficially held by
each of the executive officers as of December 31, 1999 and their value as of
December 31, 1999, based on the midpoint of the estimated public offering
price range, were as follows: Mr. Wu: 2,000,000 shares, $31,999,000; Mr.
Volpe: 1,100,000 shares, $15,125,000; Ms. Deysher: 300,000 shares,
$4,792,500; Mr. Lynch: 400,000 shares, $6,300,000; and Mr. Piscia: 140,000
shares, $2,239,300. The holders of those shares of restricted stock will be
entitled to receive any dividends paid by ArrowPoint on its common stock.
(2) Mr. Volpe joined ArrowPoint in November 1999 and thus received compensation
for only part of the fiscal year.
(3) Consists of sales commissions.
39
<PAGE> 40
OPTION GRANTS
The following table presents information concerning grants of stock options
to each of our executive officers during the year ended December 31, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED
NUMBER OF ANNUAL RATES OF
SHARES PERCENT OF TOTAL EXERCISE STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED OR BASE FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES PRICE EXPIRATION ---------------------------
NAME GRANTED IN FISCAL YEAR PER SHARE(1) DATE 5% 10%
- ---- ---------- ---------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Chin-Cheng Wu............ 140,000 4.6% $1.25 6/10/09 $3,473,724 $5,634,983
200,000 6.6 3.50 11/19/09 4,512,463
7,599,976
Louis J. Volpe........... -- -- -- -- -- --
Cynthia M. Deysher....... 60,000 2.0 1.25 6/10/09 1,488,739 2,414,993
Christopher P. Lynch..... 90,000 3.0 1.25 6/10/09 2,233,108 3,622,489
Peter M. Piscia.......... 80,000 2.7 1.25 6/10/09 1,984,985 3,219,990
</TABLE>
- ---------------
(1) In general, options become exercisable over a five-year period and terminate
three months following termination of the executive officers' employment or
ten years after the date of grant, whichever occurs earlier. 50% of the
unvested shares become exercisable upon an acquisition of ArrowPoint.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) in
the assumed initial public offering price of our common stock of $16.00 over
the term of the options. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect our
estimate of future stock price growth. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise of the option or the sale of the underlying
shares. The actual gains, if any, on the exercises of stock options will
depend on the future performance of our common stock, the optionholders'
continued employment through the option period, and the date on which the
options are exercised.
40
<PAGE> 41
YEAR-END OPTION VALUES
The following table presents information concerning the unexercised options
held by each of our executive officers on December 31, 1999. None of our
executive officers exercised any stock options during the year ended December
31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR ENDED OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR END
---------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
- ---- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Chin-Cheng Wu....................... -- 340,000 -- $4,565,000
Louis J. Volpe...................... -- -- -- --
Cynthia M. Deysher.................. -- 60,000 -- 885,000
Christopher P. Lynch................ -- 90,000 -- 1,327,500
Peter M. Piscia..................... 22,732 157,268 $355,299 2,387,101
</TABLE>
- ---------------
(1) There was no public trading market for our common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of an
assumed initial public offering price of $16.00 per share, less the
applicable exercise price.
STOCK PLANS
1997 STOCK INCENTIVE PLAN
General. Our 1997 Stock Incentive Plan (the "Incentive Plan") provides for
the grant of incentive stock options, nonstatutory stock options, restricted
stock awards and other awards. The Incentive Plan authorizes the issuance of a
maximum of 19,000,000 shares of common stock. As of December 31, 1999, 3,127,296
shares had been issued and are outstanding under the Incentive Plan and
3,805,070 shares were subject to outstanding options under the Incentive Plan.
The Incentive Plan is administered by our board of directors and the
compensation committee.
Eligibility to Receive Awards. Employees, officers, directors, consultants
and advisors of ArrowPoint and our subsidiaries are eligible to be granted
awards under the Incentive Plan. Under present law, however, incentive stock
options qualifying under Section 422 of the Internal Revenue Code may only be
granted to employees.
Incentive Stock Options and Nonstatutory Stock Options. Stock options
entitle the holder to purchase a specified number of shares of common stock at a
specified option price, subject to the other terms and conditions contained in
the option grant. The board establishes the exercise price on the date of grant.
Under present law, however, incentive stock options and options intended to
qualify as performance-based compensation under Section 162(m) of the Internal
Revenue Code may not be granted at an exercise price less than the fair market
value of the common stock on the date of grant (or less than 110% of the fair
market value in the case of incentive stock options granted to optionees holding
more than 10% of the voting power of ArrowPoint). Options may not be granted for
a term in excess of ten years. Our board of directors or our compensation
committee determines:
- - the recipients of stock options,
- - the number of shares subject to each option granted,
- - the exercise price of the option,
- - the vesting schedule of the option (generally over five years),
- - the duration of the option (generally ten years, subject to earlier
termination in the event of the termination of the optionee's employment), and
41
<PAGE> 42
- - the manner of payment of the exercise price of the option.
Restricted Stock Awards. Restricted stock awards entitle recipients to
acquire shares of common stock, subject to our right to repurchase all or part
of such shares from the recipient in the event of the termination of the
recipient's employment prior to the end of the vesting period for such award or
if other conditions specified in the award are not satisfied. Our board of
directors or the compensation committee determines:
- - the recipients of restricted stock,
- - the number of shares subject to each restricted stock award granted,
- - the purchase price of the restricted stock award,
- - the vesting schedule of the restricted stock award (generally over five
years), and
- - the manner of payment of the purchase price for the restricted stock award.
Acquisition of ArrowPoint. Most outstanding stock options and restricted
stock awards under the Incentive Plan provide that 50% of the unvested portion
of such option or award becomes vested upon an acquisition of ArrowPoint.
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
Our 2000 Non-Employee Director Stock Option Plan (the "Director Plan")
authorizes the grant of options to purchase up to 300,000 shares of common stock
to our non-employee directors. No options have been granted to date under the
Director Plan.
Under the Director Plan, each non-employee director will be granted a stock
option to purchase 20,000 shares of common stock on the date of this prospectus,
and each future non-employee director will be granted a stock option to purchase
20,000 shares of common stock on the date he or she is first elected to our
board of directors. In addition, each non-employee director will be granted a
stock option to purchase 10,000 shares of common stock on January 31 of each
year, beginning January 31, 2001. The exercise price for all options granted
under the Director Plan will be equal to the fair market value of the common
stock on the date of grant. Each option granted will become exercisable in full
on the first anniversary of the date of grant, provided that the optionee
remains a director, and will become exercisable as to 50% of the shares covered
by the option upon a change in control of ArrowPoint. Each option will expire on
the earlier of ten years from the date of grant or on the first anniversary of
the date on which the optionee ceases to be a director.
2000 EMPLOYEE STOCK PURCHASE PLAN
Our 2000 Employee Stock Purchase Plan (the "Purchase Plan") provides for
the issuance of up to 400,000 shares of our common stock to participating
employees. On May 1 of each year, commencing with May 1, 2001, the aggregate
number of shares available for purchase during the life of the Purchase Plan
will be automatically increased by the number of shares necessary to increase
the number of shares then available under the Purchase Plan to 400,000.
All of our employees, including directors who are employees, and all
employees of any participating subsidiaries:
- - whose customary employment is more than 20 hours per week for more than five
months in a calendar year;
- - who are employed by us for at least 15 days prior to enrolling in an offering;
and
- - who are employed on the first day of a designated payroll deduction offering
period are eligible to participate in an offering under the Purchase Plan.
Employees who would immediately after the grant own five percent or more of
the total combined voting power or value of our stock or any subsidiary are not
eligible to participate.
The Purchase Plan will be implemented through a series of six-month
offering periods. The first offering period will commence on May 1, 2000. To
participate in an offering under the Purchase Plan, an employee must authorize
us to deduct from one to ten
42
<PAGE> 43
percent of his or her base pay during the offering period. At the end of each
offering period, the accumulated payroll deductions of each participating
employee will be used to purchase shares of our common stock at the purchase
price for that offering period. The purchase price of the shares in each
offering period will be 85% of the closing price per share of the common stock
on either the first or last day of the offering period, whichever is lower.
401(k) PLAN
We maintain a 401(k) plan qualified under Section 401(k) of the Internal
Revenue Code. Under the 401(k) plan, a participant may contribute a maximum of
15% of his or her pre-tax salary, commissions and bonuses through payroll
deductions, up to the statutorily prescribed annual limit ($10,000 in calendar
year 1999). The percentage elected by more highly compensated participants may
be required to be lower. In addition, at the discretion of our board of
directors, we may make discretionary profit-sharing contributions into the
401(k) plan for all eligible employees. During the years ended December 31, 1998
and 1999, we made no profit-sharing contributions to the 401(k) plan.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
None of our executive officers has served as a director or member of the
compensation committee of any other entity whose executive officers served as a
director or member of our compensation committee.
LIMITATION OF LIABILITY AND
INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of our directors to
the maximum extent permitted by Delaware law. Delaware law provides that a
corporation's certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of his or her fiduciary duties as a
director, except for liability
- - for any breach of his or her duty of loyalty to the corporation or its
stockholders;
- - for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- - for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation
Law; or
- - for any transaction from which he or she derived an improper personal benefit.
Our certificate of incorporation provides that we will indemnify our
directors and officers to the fullest extent permitted by law. Our certificate
of incorporation permits us to advance expenses incurred by an indemnified
director or officer in connection with the defense of any action or proceeding
arising out of such director's or officer's status or a director or officer upon
an undertaking by such director or officer to repay such advances if it is
ultimately determined that the director or officer is not entitled to such
indemnification.
We have also purchased directors and officers liability insurance.
TRANSACTIONS WITH AFFILIATES
We have engaged in the following transactions, with our directors,
executive officers, and stockholders who beneficially own more than 5% of our
outstanding common stock.
On April 17, 1997, we sold an aggregate of 5,600,000 shares of our Series A
preferred stock to ten purchasers at a purchase price of $1.00 per share. North
Bridge Venture Partners II, L.P., which currently owns more than 5% of our
outstanding common stock and has a representative on our board of directors,
purchased 2,100,000 of those shares. Various funds affiliated with Matrix
Partners, which currently owns more than 5% of our outstanding common stock and
has a representative on our board of directors,
43
<PAGE> 44
purchased 2,875,000 of those shares. Chin-Cheng Wu, our Chairman and Chief
Executive Officer, purchased 280,000 of those shares. James A. Dolce, Jr., a
director, purchased 25,000 of those shares. On December 30, 1997, we sold 25,000
shares of Series A preferred stock to Cynthia M. Deysher, our Vice President,
Operations and Chief Financial Officer, at a purchase price of $1.00 per share.
On February 5, 1998, we sold an aggregate of 2,213,828 shares of our Series
B preferred stock to 16 purchasers at a purchase price of $4.63 per share.
Various funds affiliated with Accel Partners, which currently owns more than 5%
of our outstanding common stock, purchased 1,079,914 of those shares. North
Bridge Venture Partners II, L.P. purchased 453,564 of those shares. Various
funds affiliated with Matrix Partners purchased 626,350 of those shares. Mr. Wu
purchased 10,800 of those shares. Ms. Deysher and members of her family
purchased 10,800 of those shares.
On September 30, 1998, we sold an aggregate of 278,464 shares of our Series
C preferred stock to seven purchasers at a purchase price of $7.86 per share.
Various funds affiliated with Accel Partners purchased 24,100 of those shares.
On February 16, 1999, we sold an aggregate of 1,502,443 shares of our
Series D preferred stock to 20 purchasers at a purchase price of $10.20 per
share. North Bridge Venture Partners II, L.P. purchased 98,039 of those shares.
Various funds affiliated with Matrix Partners purchased 147,058 of those shares.
Various funds affiliated with Accel Partners purchased 49,019 of those shares.
On November 24, 1999, we sold 100,000 shares of our Series D preferred stock to
Louis J. Volpe, our President, Chief Operating Officer and a director, at a
purchase price of $10.20 per share.
Between January 14, 2000, and January 26, 2000, we sold an aggregate of
657,263 shares of our Series E preferred stock to 42 purchasers at a purchase
price of $21.14 per share. Various funds affiliated with North Bridge Venture
Partners purchased 140,992 of those shares. Various funds affiliated with Matrix
Partners purchased 193,995 of those shares. Various funds affiliated with Accel
Partners purchased 61,309 of those shares. Mr. Dolce purchased 9,460 of those
shares.
On April 15, 1997, we sold 2,000,000 shares of restricted common stock to
Mr. Wu for $.0005 per share. On October 10, 1997, we sold 140,000 shares of
restricted common stock to Peter M. Piscia, Vice President, Engineering, for
$.005 per share. On December 31, 1997, we sold 300,000 shares of restricted
common stock to Ms. Deysher for $.025 per share. On March 12, 1998 we sold
400,000 shares of restricted common stock to Christopher P. Lynch, Vice
President, Worldwide Sales and Support, for $.25 per share. On November 29,
1999, we sold 1,100,000 shares of restricted common stock to Mr. Volpe for $2.25
per share.
We believe that all transactions set forth above were made on terms no less
favorable to us than we would have obtained from unaffiliated third parties.
We have adopted a policy providing that all future transactions between
ArrowPoint and our officers, directors and affiliates must be approved by a
majority of the disinterested members of our board of directors and must either
be for a valid business purpose or be on terms no less favorable to ArrowPoint
than could be obtained from unaffiliated third parties.
44
<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of January 31, 2000, and as adjusted to reflect
the sale of the shares of common stock in this offering, by:
- - each person known by us to be the beneficial owner of more than 5% of our
common stock;
- - each of our executive officers listed in the Summary Compensation table;
- - each of our directors; and
- - all of our executive officers and directors as a group.
To our knowledge, each person has sole voting and investment power over the
shares shown as beneficially owned except to the extent authority is shared by
spouses under applicable law and except as described in the footnotes to the
table. The number of shares of common stock owned by each person listed includes
shares of common stock underlying options held by that person that are
exercisable within 60 days after January 31, 2000. The number of outstanding
shares of common stock used in calculating the percentage ownership for each
person listed includes the shares of common stock underlying options held by
that person that are exercisable within 60 days after January 31, 2000, but
excludes shares of common stock underlying options held by any other person.
Percentage ownership calculations are based on 29,201,964 shares of common stock
outstanding as of January 31, 2000, and the additional 5,000,000 shares of
common stock to be sold in this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
OUTSTANDING
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------ ------------------ -------- --------
<S> <C> <C> <C>
North Bridge Venture Partners(1)...................... 5,585,190 19.13% 16.33%
Matrix Partners(2).................................... 7,684,806 26.32 22.47
Accel Partners(3)..................................... 2,428,684 8.32 7.10
Chin-Cheng Wu(4)...................................... 2,581,600 8.84 7.55
Louis J. Volpe........................................ 1,300,000 4.45 3.80
Cynthia M. Deysher(5)................................. 371,600 1.27 1.09
Christopher P. Lynch(6)............................... 400,000 1.37 1.17
Peter M. Piscia(7).................................... 167,733 * *
Paul J. Ferri(2)...................................... 7,684,806 26.32 22.47
Edward T. Anderson(1)................................. 5,585,190 19.13 16.33
James A. Dolce, Jr.(8)................................ 68,920 * *
All executive officers and directors as a group (eight
persons)............................................ 18,159,849 62.13 53.05
</TABLE>
- ---------------
* Less than 1%.
(1) Composed of 5,303,206 shares held by North Bridge Venture Partners II,
L.P., 191,156 shares held by North Bridge Venture Partners IV-A, L.P. and
90,828 shares held by North Bridge Venture Partners IV-B, L.P. Messrs.
Edward Anderson, Richard D'Amore, William Geary and Jeffrey McCarthy, by
virtue of their management position in the North Bridge entities, each have
voting and dispositive power with respect to the shares owed by North
Bridge Venture Partners II, L.P. Messrs. Edward Anderson, Richard D'Amore,
William Geary, Jeffrey McCarthy and Angelo Santinelli, by virtue of their
management position in the North Bridge entities, each have voting and
dispositive power with respect to the shares owned by North Bridge Venture
Partners IV-A, L.P. and North Bridge Venture Partners IV-B, L.P. The
address of North Bridge Venture Partners, L.P. is 950 Winter Street, Suite
4600, Waltham, MA 02451.
45
<PAGE> 46
(2) Composed of 6,931,976 shares held by Matrix Partners IV, L.P., 364,840
shares held by Matrix IV Entrepreneurs Fund, L.P., 333,672 shares held by
Matrix Partners VI, L.P. and 54,318 shares held by Weston & Co., as nominee
for certain persons. Mr. Ferri, by virtue of his management position in the
Matrix entities, has sole voting and dispositive power with respect to
these shares. Mr. Ferri disclaims beneficial ownership of these shares. The
address of Matrix Partners is Bay Colony Corporate Center, 1000 Winter
Street, Suite 4500, Waltham, MA 02154.
(3) Composed of 1,906,518 shares held by Accel V L.P., 252,582 shares held by
Accel Internet/Strategic Technology Fund L.P., 99,576 shares held by Accel
Keiretsu V L.P., 116,578 shares held by Accel Investors '97 L.P. and 53,430
shares held by Ellmore C. Patterson Partners. Arthur C. Patterson is the
sole general partner of Ellmore C. Patterson Partners and has sole voting
and dispositive power with respect to these shares. The address of Accel
Partners is 428 University Avenue, Palo Alto, California 94301.
(4) Includes 1,000,000 shares held by the Chin-Cheng Wu 1996 Irrevocable
Children's Trust dated December 9, 1996. The address of Chin-Cheng Wu is
c/o ArrowPoint Communications, Inc., 50 Nagog Park, Acton, Massachusetts
01720.
(5) Includes 16,000 shares held for the benefit of Ms. Deysher's minor children
under the Massachusetts Uniform Transfer to Minors Act.
(6) Includes 8,000 shares held for the benefit of Mr. Lynch's minor children
under the Massachusetts Uniform Transfer to Minors Act.
(7) Includes 27,733 shares issuable upon the exercise of options exercisable
within 60 days after January 25, 2000.
(8) Composed of 50,000 shares held by the Alexer Family Limited Partnership and
18,920 held by Mr. Dolce. Mr. Dolce is a general partner of the Alexer
Family Limited Partnership.
46
<PAGE> 47
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will
consist of 200,000,000 shares of common stock, $.001 par value per share, and
5,000,000 shares of preferred stock, $.01 par value per share. As of January 31,
2000, there were outstanding
- - 8,197,968 shares of common stock held by 78 stockholders of record,
- - 10,501,998 shares of convertible preferred stock (convertible into 21,003,996
shares of common stock) held by 71 stockholders of record, and
- - options to purchase an aggregate of 5,685,498 shares of common stock.
The following summary of our capital stock and our certificate of
incorporation and bylaws is qualified by reference to the provisions of
applicable law and to our certificate of incorporation and bylaws included as
exhibits to the registration statement of which this prospectus is a part. See
"Where You Can Find More Information".
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any dividends declared by our board of directors, subject to any
preferential dividend rights of outstanding preferred stock. In addition, our
credit facility restricts the payment of cash dividends without the bank's
consent. See "Dividend Policy". Upon the liquidation, dissolution or winding up
of ArrowPoint, the holders of common stock are entitled to receive ratably our
net assets available after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding preferred stock. Holders of
common stock have no preemptive, subscription, redemption or conversion rights.
The rights, preferences and privileges of holders of common stock are subject to
the rights of the holders of shares of any series of preferred stock which we
may designate and issue in the future.
PREFERRED STOCK
Under the terms of our certificate of incorporation, our board of directors
is authorized to designate and issue shares of preferred stock in one or more
series without stockholder approval. Our board has discretion to determine the
rights, preferences, privileges and restrictions, including voting rights,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, of each series of preferred 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 the preferred stock. However, these effects
might include:
- - restricting dividends on the common stock;
- - diluting the voting power of the common stock;
- - impairing the liquidation rights of the common stock; and
- - delaying or preventing a change in control of our company.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third party from attempting to acquire, a
majority of our outstanding voting stock. We have no present plans to issue any
shares of preferred stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. In general, the statute prohibits
47
<PAGE> 48
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless the
business combination is approved by our board of directors and/or stockholders
of the corporation in a prescribed manner. A "business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock.
Our certification of incorporation and bylaws provide for the division of
our board of directors into three classes as nearly equal in size as possible
with staggered three-year terms. Any vacancy on our board of directors,
including a vacancy resulting from an enlargement of our board of directors, may
only be filled by vote of a majority of the directors then in office. The
classification of our board of directors and the limitation on filling of
vacancies could make it more difficult for a third party to acquire, or
discourage a third party from attempting to acquire, control of ArrowPoint.
Our bylaws also provide that any action required or permitted to be taken
by our stockholders at an annual meeting or special meeting of stockholders may
only be taken if it is properly brought before such meeting and may not be taken
by written action in lieu of a meeting. Our bylaws further provide that special
meetings of the stockholders may only be called by the Chairman of the Board,
the President or our board of directors. In order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice and provide certain information to
us. These provisions could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders of a
majority of our outstanding voting securities. These provisions could also
discourage a third party from making a tender offer for our common stock,
because even if it acquired a majority of our outstanding voting securities, it
would be able to take action as a stockholder (such as electing new directors or
approving a merger) only at a duly called stockholders' meeting and not by
written consent.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.
48
<PAGE> 49
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of contractual and legal restrictions on resale described
below, sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
SALES OF RESTRICTED SHARES AND
LOCK-UP AGREEMENTS
After this offering, we will have outstanding 34,201,964 shares of common
stock, based upon shares outstanding as of January 31, 2000, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options after January 31, 2000. All of 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 29,201,964 shares of common
stock held by existing stockholders are "restricted" shares as that term is
defined in Rule 144 under the Securities Act. We issued and sold the restricted
shares in private transactions in reliance upon exemptions from registration
under the Securities Act. Restricted shares may be sold in the public market
only if they are registered under the Securities Act or if they qualify for an
exemption from registration, such as Rule 144 or 701 under the Securities Act,
which are summarized below.
Except for sales of common stock to the underwriters in accordance with the
terms of the underwriting agreement, ArrowPoint, our executive officers and
directors and most of our stockholders and optionholders, who in the aggregate
hold 28,114,076 shares of our common stock, have agreed with the underwriters
not to dispose of or hedge any of their shares of common stock or securities
convertible into or exchangeable for shares of common stock (excluding shares
purchased in open market transactions or pursuant to our directed share program,
which are not subject to the lock-up) during the period from the date of this
prospectus continuing through the date 180 days after the date of this
prospectus, except that (i) two days after ArrowPoint publicly releases its
operating results for the quarter ended June 30, 2000, 15% of the total number
of shares of common stock locked-up pursuant to lock-up agreements shall be
released from the lock-up provisions on a pro rata basis for each stockholder
subject to such lock-up agreements, and (ii) 30 days after ArrowPoint releases
its operating results for the quarter ended June 30, 2000, another 25% of the
total number of shares of common stock locked-up pursuant to lock-up agreements
shall be released from the lock-up provisions on a pro rata basis for each
stockholder subject to such lock-up agreements. In addition, shares of common
stock can be released with the prior written consent of Goldman, Sachs & Co. See
"Underwriting".
Taking into account the lock-up agreements, the number of additional shares
that will be available for sale in the public market under the provisions of
Rules 144, 144(k) and 701 will be as follows:
<TABLE>
<CAPTION>
NUMBER OF
DATE OF AVAILABILITY FOR SALE ADDITIONAL SHARES
- ----------------------------- -----------------
<S> <C>
On the date of this prospectus.............................. 5,040,000
90 days after the date of this prospectus................... 998,992
Two days after ArrowPoint releases its operating results for
the quarter ended June 30, 2000........................... 3,990,066
30 days after ArrowPoint releases its operating results for
the quarter ended June 30, 2000........................... 6,511,263
180 days after the date of this prospectus.................. 12,909,139
</TABLE>
49
<PAGE> 50
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year would be entitled to sell, within any three-month
period, up to that number of restricted shares as is equal to the greater of one
percent of the number of shares of common stock then outstanding (which will
equal approximately 342,020 shares immediately after this offering) or the
average weekly trading volume of our common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice on Form 144 with
respect to such sale. Sales under Rule 144 are also subject to manner of sale
provisions, notice requirements and the availability of current public
information about ArrowPoint. Rule 144 also provides that our affiliates who are
selling shares of common stock that are not restricted shares must nonetheless
comply with the same restrictions applicable to restricted shares with the
exception of the holding period requirement.
Under Rule 144(k), beginning on the date of this prospectus, a person who
is not deemed to have been an affiliate of ArrowPoint at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years, is entitled to sell those shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.
Rule 701 may be relied upon with respect to the resale of shares of common
stock originally purchased from us by employees or consultants prior to the date
of this prospectus. Shares issued in reliance on Rule 701 are restricted shares
and, subject to the lock-up agreements described above, may be sold beginning 90
days after the date of this prospectus by persons other than affiliates, subject
only to the manner of sale provisions of Rule 144, and may be sold by affiliates
under Rule 144 without compliance with its one-year holding period requirement.
FUTURE REGISTRATIONS OF SHARES
Following this offering, we intend to file registration statements under
the Securities Act covering the shares of common stock issuable upon the
exercise of stock options or reserved for issuance under our stock plans. The
shares registered under these registration statements will, subject to Rule 144
provisions applicable to affiliates, be available for sale in the open market,
except to the extent that the shares are subject to our vesting restrictions or
the lock-up agreements described above. See "Management -- Stock Plans".
In addition, following this offering, the holders of 20,703,996 shares of
common stock will have the right, subject to certain exceptions and conditions,
to require us to register their shares of common stock under the Securities Act,
and they will have the right to participate in future registrations of
securities by us. We are not required to effect more than two demand
registrations on Form S-1 or more than three demand registrations on Form S-3 on
behalf of these holders. We are generally required to bear all of the expenses
of all registrations. Registration of any of the shares of common stock would
result in these shares becoming freely tradable without restriction under the
Securities Act upon effectiveness of the registration statement.
50
<PAGE> 51
UNDERWRITING
ArrowPoint and the underwriters named below have entered into an
underwriting agreement with respect to the 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., Deutsche Bank
Securities Inc. and J.P. Morgan Securities Inc. are the representatives of the
underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Deutsche Bank Securities Inc. ..............................
J.P. Morgan Securities Inc. ................................
--------
Total............................................. 5,000,000
========
</TABLE>
------------------------
If the underwriters sell more shares than the total number presented in the
table above, the underwriters have an option to buy up to an additional 750,000
shares from ArrowPoint to cover such sales. They may exercise that option for 30
days. If any shares are purchased upon exercise of that option, the underwriters
will severally purchase shares in approximately the same proportion as presented
in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by ArrowPoint. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase 750,000 additional shares.
<TABLE>
<CAPTION>
Paid by ArrowPoint
---------------------------
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 presented 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
offering price, the representatives may change the offering price and the other
selling terms.
ArrowPoint and its directors, officers and stockholders who own
approximately 28,109,256 shares of common stock 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 (excluding shares
purchased in open market transactions or pursuant to our directed share program,
which are not subject to the lock-up) during the period from the date of this
prospectus continuing through the date 180 days after the date of this
prospectus, except that (i) two days after ArrowPoint publicly releases its
operating results for the quarter ended June 30, 2000, 15% of the total number
of shares of common stock subject to these lock-up agreements shall be released
from the lock-up provisions on a pro rata basis, and (ii) 30 days after
ArrowPoint releases its operating results for the quarter ended June 30, 2000,
another 25% of the total number of shares of common stock subject to these
lock-up agreements shall be released from the lock-up provisions on a pro rata
basis. In addition, shares of common stock can be released with the prior
written consent of Goldman, Sachs & Co. See "Shares Eligible for Future Sale"
for a discussion of transfer restrictions that apply to the common stock.
At the request of ArrowPoint, the underwriters have reserved up to 650,000
shares of common stock for sale, at the initial public offering price, to
directors, officers, employees, stockholders and friends of ArrowPoint through a
directed share program. There can be no
50
<PAGE> 52
assurance that any of the reserved shares will be so purchased. The number of
shares of common stock available for sale to the general public in the public
offering will be reduced by the number of reserved shares sold. Any reserved
shares not so purchased will be offered to the general public on the same basis
as the other shares offered hereby.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among ArrowPoint 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 ArrowPoint's historical performance, estimates of the
business potential and earnings prospects of ArrowPoint, an assessment of
ArrowPoint's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
ArrowPoint has applied to list the common stock on the Nasdaq National
Market under the symbol "ARPT".
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 certain 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 also may 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 such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
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, in the over-the-counter market or otherwise.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
A prospectus in electronic format may be made available on the websites
maintained by one or more of the underwriters of this offering. 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 representatives to underwriters that may make Internet distributions on the
same basis as other allocations. Any underwriters making such Internet
distributions will follow the procedures for online distributions previously
cleared with the Securities and Exchange Commission.
ArrowPoint estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $925,000.
ArrowPoint has agreed to indemnify the underwriters against various
liabilities, including liabilities under the Securities Act of 1933.
51
<PAGE> 53
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for ArrowPoint by Hale and Dorr LLP, Boston, Massachusetts. Legal matters
in connection with this offering will be passed upon for the underwriters by
Ropes & Gray, Boston, Massachusetts. H&D Investments 97, a fund affiliated with
Hale and Dorr LLP, owns 4,901 shares of Series D preferred stock of ArrowPoint.
EXPERTS
The audited consolidated financial statements as of December 31, 1998 and
1999 and for the period from inception (April 14, 1997) to December 31, 1997 and
for the years ended December 31, 1998 and 1999, included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus does not contain all of the information set
forth in the registration statement. For further information with respect to our
company and our common stock, reference is made to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and, in each
instance, reference is made to the copy of the contract or document filed as an
exhibit to the registration statement, and each such statement is qualified in
all respects by reference to such exhibit. Copies of the registration statement
may be examined without charge at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission at Suite
1400, 500 West Madison Street, Chicago, Illinois 60661 and World Trade Center,
Thirteenth Floor, New York, New York 10048. Copies of all or any portion of the
registration statement may be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, or by calling the Commission at 1-800-SEC-0330, at prescribed rates.
The Commission also maintains a web site at http://www.sec.gov that contains
reports, proxy, registration and information statements and other information
regarding registrants, such as us, that make electronic filings with the
Commission.
We intend to furnish to our stockholders annual reports containing
financial statements audited by an independent public accounting firm.
53
<PAGE> 54
ARROWPOINT COMMUNICATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999
and Pro Forma December 31, 1999 (Unaudited)............... F-3
Consolidated Statements of Operations for the period from
inception (April 14, 1997) to December 31, 1997 and for
the years ended December 31, 1998 and 1999................ F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock And Stockholders' Equity (Deficit) for the period
from inception (April 14, 1997) to December 31, 1997, for
the years ended December 31, 1998 and 1999 and Pro Forma
December 31, 1999 (Unaudited)............................. F-5
Consolidated Statements of Cash Flows for the period from
inception (April 14, 1997) to December 31, 1997, and for
the years ended December 31, 1998 and 1999................ F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
ArrowPoint Communications, Inc.:
We have audited the accompanying consolidated balance sheets of ArrowPoint
Communications, Inc. (a Delaware corporation) and subsidiary as of December 31,
1998 and 1999, and the related consolidated statements of operations, redeemable
convertible preferred stock and stockholders' equity (deficit) and cash flows
for the period from inception (April 14, 1997) to December 31, 1997, and for the
years ended December 31, 1998 and 1999. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ArrowPoint Communications, Inc.
and subsidiary as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for the period from inception (April 14, 1997)
to December 31, 1997, and for the years ended December 31, 1998 and 1999, in
conformity with generally accepted accounting principles.
Boston, Massachusetts Arthur Andersen LLP
January 26, 2000, except with respect to
the matters discussed in
Note 7(a), as to which
the date is February 29, 2000.
F-2
<PAGE> 56
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
---------------------------- 1999
1998 1999 NOTE 1(b)
---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 4,339,436 $ 10,730,584 $ 24,586,000
Accounts receivable, net of allowance for doubtful
accounts of $0 and $250,000 at December 31, 1998 and
1999, respectively...................................... 14,685 4,744,902 4,744,902
Inventory................................................. 1,511,154 2,864,072 2,864,072
Prepaid expenses.......................................... 112,134 541,442 541,442
------------ ------------ ------------
Total current assets................................ 5,977,409 18,881,000 32,736,416
------------ ------------ ------------
Property and Equipment, at cost:
Equipment and software.................................... 2,093,932 4,735,760 4,735,760
Furniture and fixtures.................................... 100,122 339,239 339,239
Leasehold improvements.................................... 44,679 761,478 761,478
------------ ------------ ------------
2,238,733 5,836,477 5,836,477
Less -- Accumulated depreciation and amortization......... 569,063 1,702,251 1,702,251
------------ ------------ ------------
1,669,670 4,134,226 4,134,226
Other Assets................................................ 16,014 190,676 190,676
------------ ------------ ------------
Total assets........................................ $ 7,663,093 $ 23,205,902 $ 37,061,318
============ ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Loans payable............................................. $ 206,614 $ 1,146,864 $ 1,146,864
Accounts payable.......................................... 661,340 3,322,676 3,322,676
Accrued expenses.......................................... 299,088 1,590,507 1,590,507
Deferred revenue.......................................... -- 2,470,525 2,470,525
------------ ------------ ------------
Total current liabilities........................... 1,167,042 8,530,572 8,530,572
------------ ------------ ------------
Loans Payable, net of current portion....................... 469,576 -- --
------------ ------------ ------------
Commitments and Contingencies (Note 6)
Redeemable Convertible Preferred Stock, $ .01 par value;
12,500,000 shares authorized, 8,242,292 shares and
9,844,735 shares issued and outstanding at December 31,
1998 and 1999, respectively; none authorized, issued and
outstanding, pro forma.................................. 18,188,751 34,533,670 --
Stockholders Equity (Deficit):
Preferred stock, $.01 par value; 5,000,000 shares
authorized, none issued and outstanding, pro forma...... -- -- --
Common stock, $.001 par value; 25,000,000 shares
authorized, 7,048,700 shares and 8,351,330 shares issued
at December 31, 1998 and 1999, respectively; 200,000,000
shares authorized, 29,355,326 shares issued, pro
forma................................................... 7,049 8,351 29,355
Additional paid-in capital................................ 227,040 20,483,269 75,423,981
Treasury stock, at cost (190,000 shares and 224,334 shares
at December 31, 1998 and 1999, respectively)............ (27,900) (36,484) (36,484)
Deferred compensation..................................... -- (15,299,920) (15,299,920)
Accumulated deficit....................................... (12,368,465) (25,013,556) (31,586,186)
------------ ------------ ------------
Total stockholders' equity (deficit)................ (12,162,276) (19,858,340) 28,530,746
------------ ------------ ------------
$ 7,663,093 $ 23,205,902 $ 37,061,318
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 57
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 14,
1997) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------
1997 1998 1999
------------ ---- ----
<S> <C> <C> <C>
Revenue........................................ $ -- $ 200,683 $ 12,377,037
Cost of Revenue(1)............................. -- 149,811 5,110,077
----------- ----------- ------------
Gross margin......................... -- 50,872 7,266,960
Operating Expenses:
Sales and marketing(1)....................... 137,088 3,073,920 9,918,476
Research and development(1).................. 2,493,686 5,902,657 6,438,004
General and administrative(1)................ 365,665 923,767 1,690,319
Stock-based compensation..................... -- -- 2,342,804
----------- ----------- ------------
Total operating expenses............. 2,996,439 9,900,344 20,389,603
----------- ----------- ------------
Operating loss....................... (2,996,439) (9,849,472) (13,122,643)
Interest Income................................ 142,311 416,784 584,043
Interest Expense............................... (1,969) (14,292) (67,366)
----------- ----------- ------------
Net loss............................. $(2,856,097) $(9,446,980) $(12,605,966)
=========== =========== ============
Net Loss Per Share:
Basic and diluted............................ $ (11.36) $ (6.26) $ (3.99)
=========== =========== ============
Pro forma basic and diluted.................. $ (0.57)
============
Shares Used In Computing Net Loss Per Share:
Basic and diluted............................ 251,482 1,508,506 3,157,412
Pro forma basic and diluted.................. 22,277,486
- ---------------
(1) Excludes non-cash, stock-based compensation
as follows:
Cost of revenue......................... $ -- $ -- $ 200,568
=========== =========== ============
Sales and marketing..................... $ -- $ -- $ 741,090
=========== =========== ============
Research and development................ $ -- $ -- $ 344,657
=========== =========== ============
General and administrative.............. $ -- $ -- $ 1,056,489
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 58
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE CONVERTIBLE PREFERRED
PREFERRED STOCK STOCK COMMON STOCK
------------------------- ----------------------- ----------------------
CARRYING CARRYING $.001
SHARES AMOUNT SHARES AMOUNT SHARES PAR VALUE
------ -------- ------ -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Inception (April 14, 1997).................... -- $ -- -- $ -- -- $ --
Sale of common stock.......................... -- -- -- -- 6,257,700 6,258
Sale of Series A redeemable convertible
preferred stock, net of issuance costs of
$23,800.................................... 5,750,000 5,750,000 -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ------------ -------- ------------ ---------- -------
Balance, December 31, 1997.................... 5,750,000 5,750,000 -- -- 6,257,700 6,258
---------- ------------ -------- ------------ ---------- -------
Sale of common stock......................... -- -- -- -- 791,000 791
Sale of Series B redeemable convertible
preferred stock, net of issuance costs of
$23,811.................................... 2,213,828 10,250,024 -- -- -- --
Sale of Series C redeemable convertible
preferred stock, net of issuance costs of
$17,777.................................... 278,464 2,188,727 -- -- -- --
Purchase of treasury stock................... -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ------------ -------- ------------ ---------- -------
Balance, December 31, 1998.................... 8,242,292 18,188,751 -- -- 7,048,700 7,049
---------- ------------ -------- ------------ ---------- -------
Sale of common stock......................... -- -- -- -- 1,302,630 1,302
Sale of Series D redeemable convertible
preferred stock, net of issuance costs of
$39,125.................................... 1,602,443 16,344,919 -- -- -- --
Purchase of treasury stock................... -- -- -- -- -- --
Deferred compensation related to stock
options and capital stock.................. -- -- -- -- -- --
Amortization of deferred compensation........ -- -- -- -- -- --
Net loss..................................... -- -- -- -- -- --
---------- ------------ -------- ------------ ---------- -------
Balance, December 31, 1999.................... 9,844,735 34,533,670 -- -- 8,351,330 8,351
---------- ------------ -------- ------------ ---------- -------
Sale of Series E convertible preferred stock,
net of issuance costs of $39,124
(unaudited)................................ -- -- 657,263 13,855,416 -- --
Conversion of convertible preferred stock
into common stock (unaudited).............. (9,844,735) (34,533,670) (657,263) (13,855,416) 21,003,996 21,004
---------- ------------ -------- ------------ ---------- -------
Pro Forma Balance, December 31, 1999
(unaudited).................................. -- $ -- -- $ -- 29,355,326 $29,355
========== ============ ======== ============ ========== =======
<CAPTION>
TOTAL
ADDITIONAL TREASURY STOCK STOCKHOLDERS'
PAID-IN ------------------ DEFERRED ACCUMULATED EQUITY
CAPITAL SHARES COST COMPENSATION DEFICIT (DEFICIT)
---------- ------ ---- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Inception (April 14, 1997).................... $ -- -- $ -- $ -- $ -- $ --
Sale of common stock.......................... 26,331 -- -- -- -- 32,589
Sale of Series A redeemable convertible
preferred stock, net of issuance costs of
$23,800.................................... -- -- -- -- (23,800) (23,800)
Net loss..................................... -- -- -- -- (2,856,097) (2,856,097)
----------- ------- -------- ------------ ------------ ------------
Balance, December 31, 1997.................... 26,331 -- -- (2,879,897) (2,847,308)
----------- ------- -------- ------------ ------------ ------------
Sale of common stock......................... 200,709 -- -- -- -- 201,500
Sale of Series B redeemable convertible
preferred stock, net of issuance costs of
$23,811.................................... -- -- -- -- (23,811) (23,811)
Sale of Series C redeemable convertible
preferred stock, net of issuance costs of
$17,777.................................... -- -- -- -- (17,777) (17,777)
Purchase of treasury stock................... -- 190,000 (27,900) -- -- (27,900)
Net loss..................................... -- -- -- -- (9,446,980) (9,446,980)
----------- ------- -------- ------------ ------------ ------------
Balance, December 31, 1998.................... 227,040 190,000 (27,900) (12,368,465) (12,162,276)
----------- ------- -------- ------------ ------------ ------------
Sale of common stock......................... 2,613,505 -- -- -- -- 2,614,807
Sale of Series D redeemable convertible
preferred stock, net of issuance costs of
$39,125.................................... -- -- -- -- (39,125) (39,125)
Purchase of treasury stock................... -- 34,334 (8,584) -- -- (8,584)
Deferred compensation related to stock
options and capital stock.................. 17,642,724 -- -- (17,642,724) -- --
Amortization of deferred compensation........ -- -- -- 2,342,804 -- 2,342,804
Net loss..................................... -- -- -- (12,605,966) (12,605,966)
----------- ------- -------- ------------ ------------ ------------
Balance, December 31, 1999.................... 20,483,269 224,334 (36,484) (15,299,920) (25,013,556) (19,858,340)
----------- ------- -------- ------------ ------------ ------------
Sale of Series E convertible preferred stock,
net of issuance costs of $39,124
(unaudited)................................ 6,572,630 -- -- -- (6,572,630) 13,855,416
Conversion of convertible preferred stock
into common stock (unaudited).............. 48,368,082 -- -- -- -- 34,533,670
----------- ------- -------- ------------ ------------ ------------
Pro Forma Balance, December 31, 1999
(unaudited).................................. $75,423,981 224,334 $(36,484) $(15,299,920) $(31,586,186) $ 28,530,746
=========== ======= ======== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 59
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(APRIL 14, 1997) YEARS ENDED DECEMBER 31,
TO DECEMBER 31, ------------------------
1997 1998 1999
---------------- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss...................................... $(2,856,097) $(9,446,980) $(12,605,966)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 73,284 495,779 1,133,188
Amortization of deferred compensation.... -- -- 2,342,804
Changes in operating assets and
liabilities:
Accounts receivable.................... -- (14,685) (4,730,217)
Inventories............................ -- (1,511,154) (1,352,918)
Prepaid expenses....................... (73,827) (38,307) (429,308)
Other assets........................... (10,331) (5,683) (174,662)
Accounts payable....................... 297,330 364,010 2,661,336
Accrued expenses....................... 123,267 175,821 1,291,419
Deferred revenue....................... -- -- 2,470,525
----------- ----------- ------------
Net cash used in operating
activities........................ (2,446,374) (9,981,199) (9,393,799)
----------- ----------- ------------
Cash Flows from Investing Activities:
Purchases of property and equipment......... (608,487) (1,493,550) (3,597,744)
----------- ----------- ------------
Cash Flows from Financing Activities:
Net proceeds from sale of Series A
redeemable convertible preferred stock... 5,726,200 -- --
Net proceeds from sale of Series B
redeemable convertible preferred stock... -- 10,226,213 --
Net proceeds from sale of Series C
redeemable convertible preferred stock... -- 2,170,950 --
Net proceeds from sale of Series D
redeemable convertible preferred stock... -- -- 16,305,794
Proceeds from sale of common stock.......... 32,589 201,500 2,614,807
Purchase of treasury stock.................. -- (27,900) (8,584)
Proceeds from loans payable................. -- 676,190 688,530
Payments on loans payable................... -- (114,756) (217,856)
Payments on capital lease obligations....... (21,940) -- --
----------- ----------- ------------
Net cash provided by financing
activities........................ 5,736,849 13,132,197 19,382,691
----------- ----------- ------------
Net Increase in Cash and Cash Equivalents..... 2,681,988 1,657,448 6,391,148
----------- ----------- ------------
Cash and Cash Equivalents, beginning of
period...................................... -- 2,681,988 4,339,436
----------- ----------- ------------
Cash and Cash Equivalents, end of period...... $ 2,681,988 $ 4,339,436 $ 10,730,584
=========== =========== ============
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for interest...... $ 1,968 $ 14,292 $ 57,484
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 60
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ArrowPoint Communications, Inc. (the Company or ArrowPoint) was
incorporated as a Delaware corporation on April 14, 1997 and provides
intelligent Web switches that enable customers to deploy a global Web network
architecture to optimize e-commerce transactions and the delivery of Web
content. The Company's products, which are specifically designed for the Web,
are intended to enhance the performance, scalability, availability, reliability
and security of customers' Web sites.
The Company incurred net losses of $2,856,097, $9,446,980, and $12,605,966
for the period from inception (April 14, 1997) to December 31, 1997 and for the
years ended December 31, 1998 and 1999, respectively. At December 31, 1999, the
Company had an accumulated deficit of $25,013,556. During 1998, ArrowPoint
commenced commercial shipment of its products and emerged from the development
stage. Although no longer in the development stage, ArrowPoint continues to be
subject to the risks and challenges similar to other companies in a similar
stage of development. These risks include, but are not limited to, dependence on
key individuals, dependence on a single contract manufacturer and key suppliers
of integral components, successful development and marketing of products, the
ability to obtain adequate financing to support growth and competition from
substitute products and larger companies with greater financial, technical,
management and marketing resources.
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described in this note and
elsewhere in these notes to consolidated financial statements.
(a) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) UNAUDITED PRO FORMA PRESENTATION
The unaudited pro forma consolidated balance sheet as of December 31, 1999,
reflects the automatic conversion of all outstanding shares of Series A, B, C
and D redeemable convertible preferred stock into 19,689,470 shares of common
stock which will occur upon the closing of the Company's proposed initial public
offering. The unaudited pro forma consolidated balance sheet as of December 31,
1999, also reflects the sale of 657,263 shares of Series E convertible preferred
stock in January 2000, the automatic conversion of those shares into 1,314,526
shares of the Company's common stock upon the closing of the Company's proposed
initial public offering and a charge to accumulated deficit of $6,572,630
related to the fair value of the beneficial conversion feature of the Series E
convertible preferred stock.
(c) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
F-7
<PAGE> 61
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) REVENUE RECOGNITION
The Company recognizes revenue from product sales to end users, resellers
and OEMs upon product shipment, provided that there are no uncertainties
regarding acceptance, there is persuasive evidence of an arrangement, the sales
price is fixed or determinable and collection of the related receivable is
probable. If uncertainties exist, the Company recognizes revenue when those
uncertainties are resolved. The Company's distributors have certain limited
rights of return and therefore, the Company recognizes revenue on product sales
to distributors when the rights of return lapse, provided that there are no
uncertainties regarding acceptance, there is persuasive evidence of an
arrangement, the sales price is fixed or determinable and collection of the
related receivable is probable. If uncertainties exist, the Company recognizes
revenue when those uncertainties are resolved. In multiple element arrangements
that contain product and service elements, revenue is allocated to each element
based on their respective fair values. Fair value is determined as that amount
charged when the element is sold separately. Service revenue is recognized as
the services are performed or ratably over the terms of the service contracts.
Amounts collected or billed prior to satisfying the above revenue recognition
criteria are reflected as deferred revenue.
Warranty costs are estimated and recorded by the Company at the time of
product revenue recognition.
(e) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of 90 days or less at the time of purchase to be cash
equivalents.
(f) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Statement of Financial Accounting Standards (SFAS) No. 105, Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk, requires disclosure of
any significant off-balance-sheet and credit risk concentrations. The Company
has no significant off-balance-sheet concentrations such as foreign exchange
contracts, option contracts or other foreign hedging arrangements. The Company
maintains the majority of its cash and cash equivalent balances with one
financial institution. One customer represented approximately 11% of total
accounts receivable at December 31, 1999. In 1998, three customers accounted for
57%, 22% and 16% of revenue, respectively. In 1999, one customer accounted for
14% of revenue.
(g) SINGLE SOURCE SUPPLIERS AND SINGLE CONTRACT MANUFACTURER
Several key components of the Company's products are currently available
from single vendors. If the Company is unable to obtain sufficient quantities of
these components, it would be unable to manufacture and ship its products on a
timely basis. This could result in lost or delayed revenue, damage to the
Company's reputation and increased manufacturing costs.
The Company currently subcontracts the manufacturing and testing of its
products to an independent manufacturer. The Company's reliance on a single
manufacturer exposes it to a number of risks, including reduced control over
manufacturing capacity, product completion and delivery times, product quality,
and manufacturing costs. If the Company experiences increased demand for its
products, the challenges it faces in managing its relationship with the
independent manufacturer will be increased. If the independent manufacturer is
unable or unwilling to
F-8
<PAGE> 62
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
manufacture a sufficient quantity of products on the time schedules and with the
quality that the Company demands, the Company may be forced to engage additional
or replacement manufacturers, which could result in additional expenses and
delays in product shipments.
(h) INVENTORIES
Inventories are stated at the lower of cost or market, determined on a FIFO
(first-in, first-out) basis and consist of the following:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Raw materials..................................... $1,050,649 $ 170,822
Work-in-process................................... 234,435 256,094
Finished goods.................................... 226,070 2,437,156
---------- ----------
$1,511,154 $2,864,072
========== ==========
</TABLE>
(i) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation on a straight-line basis to allocate
the cost of the assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------- -----------
<S> <C>
Equipment and software...................................... 2-3 years
Furniture and fixtures...................................... 5 years
Leasehold improvements...................................... Life of lease
</TABLE>
(j) RESEARCH AND DEVELOPMENT COSTS
The costs of the development of hardware products and enhancements to
existing hardware products are expensed as incurred. The Company accounts for
its software development costs in accordance with SFAS No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed.
Accordingly, the costs for the development of new software that are included in
the hardware products and substantial enhancements to such existing software are
expensed as incurred until technological feasibility has been established, at
which time any additional costs would be capitalized. The Company determines
technological feasibility has been established at the time at which a working
model of the software has been completed. Because the Company believes its
current process for developing software is essentially completed concurrently
with the establishment of technological feasibility, no costs have been
capitalized to date.
(k) NET LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity with SFAS
No. 128, Earnings Per Share for all periods presented. In accordance with SFAS
No. 128, basic and diluted net loss per common share was determined by dividing
net loss available for common stockholders by the weighted average common shares
outstanding during the period, less shares subject to repurchase. Basic and
diluted net loss per share are the same because all outstanding common stock
options have been excluded as they are considered antidilutive since the Company
has incurred a net loss for all periods presented. Options to purchase a total
of 966,000 and 3,805,070 common shares have been excluded from the computations
of diluted
F-9
<PAGE> 63
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
weighted average shares outstanding for the years ended December 31, 1998 and
1999, respectively. Shares of common stock issuable upon the conversion of
outstanding shares of convertible preferred stock have also been excluded for
all periods presented.
In accordance with the SEC Staff Accounting Bulletin No. 98, Earnings Per
Share in an Initial Public Offering, the Company has determined that there were
no nominal issuances of the Company's common stock prior to the Company's
proposed initial public offering.
The Company's historical capital structure is not indicative of its capital
structure after the proposed initial public offering due to the automatic
conversion of all shares of preferred stock into common stock concurrent with
the closing of the Company's proposed initial public offering. Accordingly, pro
forma net loss per share is presented for the year ended December 31, 1999
assuming the conversion of all outstanding shares of preferred stock into common
stock upon the closing of the Company's initial public offering using the
if-converted method from the respective dates of issuance.
The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of pro forma basic and diluted
net loss per share:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Weighted average common shares outstanding.................. 3,157,412
Add: Weighted average common shares issued upon the
conversion of preferred stock............................. 19,120,074
----------
Pro forma basic and diluted weighted average common shares
outstanding............................................... 22,277,486
==========
</TABLE>
(l) COMPREHENSIVE INCOME (LOSS)
SFAS No. 130, Reporting Comprehensive Income, requires disclosure of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. The Company does not have
any components of comprehensive income (loss) other than its reported net loss.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist principally of cash, accounts receivable,
accounts payable and notes payable. The estimated fair value of these
instruments approximates their carrying value.
(2) ACCOUNTS RECEIVABLE
Accounts receivable, which result primarily from product sales, are
presented net of an allowance for doubtful accounts. The activity in the
Company's allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO END OF
PERIOD EXPENSE WRITE-OFFS PERIOD
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999........ $-- $260,000 $10,000 $250,000
== ======== ======= ========
</TABLE>
F-10
<PAGE> 64
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACCRUED EXPENSES
Accrued expenses at December 31, 1998 and 1999 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Payroll and payroll-related........................ $166,066 $ 860,196
Other.............................................. 133,022 730,311
-------- ----------
$299,088 $1,590,507
======== ==========
</TABLE>
(4) INCOME TAXES
The Company accounts for federal and state income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax
assets and liabilities are recognized based on temporary differences between the
financial statement and tax bases of assets and liabilities using currently
enacted tax rates.
No provision for federal or state income taxes has been recorded, as the
Company has incurred net operating losses for all periods presented. As of
December 31, 1999, the Company had net operating loss and tax credit
carryforwards of approximately $20,594,000 and $1,097,000, respectively,
available to reduce future federal and state income taxes, if any. If not
utilized, these carryforwards will expire at various dates through 2019. If
substantial changes in the Company's ownership were to occur, as defined by
Section 382 of the Internal Revenue Code, there could be annual limitations on
the amount of carryforwards that can be utilized in future periods.
The approximate income tax effects of each type of temporary differences
and carryforwards are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1999
---- ----
<S> <C> <C>
Net operating loss carryforwards.............. $ 4,804,000 $ 8,293,000
Research credits carryforwards................ 575,000 1,097,000
Temporary differences......................... 492,000 1,666,000
----------- ------------
Gross deferred tax assets..................... 5,871,000 11,056,000
Valuation allowance........................... (5,871,000) (11,056,000)
----------- ------------
$ -- $ --
=========== ============
</TABLE>
The Company has recorded a 100% valuation allowance against its gross
deferred tax assets as of December 31, 1998 and 1999 because the future
realizability of such assets is uncertain.
(5) LOANS PAYABLE
As of December 31,1999, the Company has an equipment line-of-credit
agreement (the Equipment Line) and an accounts receivable line-of-credit
agreement (the Accounts Receivable Line) with a bank.
F-11
<PAGE> 65
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(a) EQUIPMENT LINE
This agreement provides for three separate loan commitments consisting of
(i) a Tranche A commitment of up to $2 million, (ii) a Tranche B commitment of
up to $2 million less the amount outstanding on Tranche A and (iii) a Tranche C
commitment of up to $2 million less the amounts outstanding under Tranche A and
B. Advances totaling $676,190 were outstanding under Tranche A at December 31,
1998 and converted to a term loan payable in 36 equal installments commencing on
February 1, 1999. Amounts outstanding under this term loan at December 31, 1999
were $469,577. Advances totaling $80,947 under Tranche B converted to a term
loan payable in 36 equal installments commencing on July 1, 1999. Amounts
outstanding under this term loan at December 31, 1999 were $69,704. Advances
totaling $607,583 were outstanding under Tranche C at December 31, 1999 and will
convert to a term loan payable in 36 equal installments commencing on October 1,
2000.
Amounts due under the Equipment Line are collateralized by the assets
purchased under the Equipment Line. All outstanding amounts bear interest at the
prime rate (8.50% at December 31, 1999) plus 0.5%.
(b) ACCOUNTS RECEIVABLE LINE
Borrowings under the Accounts Receivable Line are limited to the lesser of
$5 million or an amount based on eligible trade accounts receivable. The
maturity date of this agreement is June 30, 2000. All outstanding amounts under
the Accounts Receivable Line bear interest at the prime rate (8.50% at December
31, 1999). At December 31, 1999, there were no amounts outstanding under the
Accounts Receivable Line. In addition, the Company is required to comply with
certain financial and restrictive covenants.
Pursuant to the line of credit agreements, the Company is required to
comply with financial and restrictive covenants related to, among other things,
minimum liquidity, maximum leverage, profitability and net worth. As of December
31, 1999, the Company was out of compliance with one of these covenants. The
bank waived the Company's non-compliance with this covenant for the year ended
December 31, 1999. The waiver does not apply to periods after December 31, 1999.
The Company is currently renegotiating the financial covenants under these line
of credit agreements. Accordingly, amounts outstanding under the lines of credit
have been classified as short-term.
(6) COMMITMENTS AND CONTINGENCIES
(a) OPERATING LEASES
The Company leases certain equipment and conducts its operations in leased
facilities and is obligated to pay monthly rent through October 31, 2004. Rental
expense charged to operations in the period from inception (April 14, 1997) to
December 31, 1997 and the years ended December 31, 1998 and 1999 was
approximately $57,000, $175,000 and $525,000, respectively.
F-12
<PAGE> 66
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1999, the approximate minimum future rental payments under
these operating lease agreements are as follows:
<TABLE>
<CAPTION>
AMOUNT
------
<S> <C>
2000............................................ $ 943,000
2001............................................ 852,000
2002............................................ 853,000
2003............................................ 854,000
2004............................................ 709,000
Thereafter...................................... --
----------
$4,211,000
==========
</TABLE>
(b) LITIGATION
The Company was named a defendant in a civil suit filed in the United
States District Court for the Southern District of New York by Arrow
Electronics, Inc. on July 19, 1999. In the lawsuit, Arrow Electronics asserts
trademark infringement and associated state law claims. In particular, Arrow
Electronics alleges that customers are likely to be confused between Arrow
Electronics and ArrowPoint, and by use of the Internet domain name
arrowpoint.com. Arrow Electronics is seeking an injunction precluding the
Company from using the name ArrowPoint and requiring the Company to relinquish
registration of the domain name arrowpoint.com. The Company has filed an answer
denying all material allegations asserted in the complaint. The case is
presently in the early stages of discovery. The Company intends to vigorously
defend this lawsuit, including its right to use the ArrowPoint trademark and the
arrowpoint.com domain name. Arrow Electronics is not seeking the recovery of
monetary damages from the Company. Although the Company is unable to estimate
the costs associated with changing its corporate name, the Company believes that
an adverse outcome in this suit would not have a material impact on its
financial condition or results of operations.
The Company is not currently a party to any other legal proceedings.
(7) STOCKHOLDERS' EQUITY (DEFICIT)
(a) BOARD OF DIRECTORS' AND STOCKHOLDERS' ACTIONS
The Company's Board of Directors and stockholders approved the following on
January 25, 2000 and February 18, 2000, respectively:
- amendment to the certificate of incorporation increasing the number of
authorized shares of common stock, $.001 par value per share, from
25,000,000 shares to 200,000,000 shares and authorizing 5,000,000 shares
of preferred stock, $.01 par value per share;
- an increase in the number of shares issuable under the Company's 1997
Stock Incentive Plan from 11,000,000 shares to 19,000,000 shares;
- the adoption of the 2000 Non-Employee Director Stock Option Plan under
which an aggregate of 300,000 shares of common stock may be issued; and
F-13
<PAGE> 67
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- the adoption of the 2000 Employee Stock Purchase Plan under which an
aggregate of 400,000 shares of common stock, subject to automatic
increase as described in the Plan, may be issued.
On January 25, 2000, the Company's Board of Directors approved a
two-for-one split of the outstanding common stock, to be effected in the form of
a 100% dividend of common stock payable on February 29, 2000 to stockholders of
record at the close of business on February 18, 2000. All share and per share
amounts for all periods presented have been retroactively adjusted to reflect
the two-for-one stock split.
The Company's Board of Directors and stockholders also approved on January
25, 2000 and February 18, 2000, respectively, an amended and restated
certificate of incorporation that would be effective following the closing of
the Company's proposed initial public offering that would:
- eliminate all references to the Series Convertible Preferred Stock; and
- establish the authorized capitalization of the Company at 200,000,000
shares of common stock, $.001 par value per share and 5,000,000 shares of
undesignated preferred stock, $.01 par value per share.
(b) PREFERRED STOCK
At December 31, 1999, the Company had 12,500,000 authorized shares of
preferred stock, of which 5,750,000 shares had been designated as Series A
redeemable convertible preferred stock (Series A Preferred Stock), 2,213,828
shares had been designated as Series B redeemable convertible preferred stock
(Series B Preferred Stock), 278,464 shares had been designated as Series C
redeemable convertible preferred stock (Series C Preferred Stock) and 1,602,443
shares had been designated as Series D redeemable convertible preferred stock
(Series D Preferred Stock).
During 1997, the Company sold 5,750,000 shares of Series A Preferred Stock
at $1.00 per share for net proceeds of $5,726,200. On February 5, 1998, the
Company sold 2,213,828 shares of Series B Preferred Stock at $4.63 per share for
net proceeds of $10,226,213. On September 30, 1998, the Company sold 278,464
shares of Series C Preferred Stock at $7.86 per share for net proceeds of
$2,170,950. On February 17, 1999, the Company sold 1,502,443 shares of Series D
Preferred Stock at $10.20 per share and on November 29, 1999, the Company sold
an additional 100,000 shares of Series D Preferred Stock to an employee at
$10.20 per share, for net proceeds of $16,305,794. In connection with the
November 29, 1999 sale, the Company recorded compensation expense of
approximately $460,000. This amount represents the difference between the deemed
fair value of the Series D Preferred Stock and $10.20.
In January 2000, the Company sold 657,263 shares of Series E convertible
preferred stock (Series E Preferred Stock) at $21.14 per share for net proceeds
of $13,855,416. (See Note 10.)
F-14
<PAGE> 68
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Redeemable convertible preferred stock outstanding consists of the
following:
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
-------------------------- 1999
1998 1999 (NOTE 1(B))
---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C>
Series A, $.01 par value -- 5,750,000 shares
issued and outstanding at December 31, 1998 and
1999 (at liquidation value) (pro forma -- no
shares authorized, issued or outstanding)...... $ 5,750,000 $ 5,750,000 $--
Series B, $.01 par value -- 2,213,828 shares
issued and outstanding at December 31, 1998 and
1999 (at liquidation value) (pro forma -- no
shares authorized, issued or outstanding)...... 10,250,024 10,250,024 --
Series C, $.01 par value -- 278,464 shares issued
and outstanding at December 31, 1998 and 1999
(at liquidation value) (pro forma -- no shares
authorized, issued or outstanding)............. 2,188,727 2,188,727 --
Series D, $.01 par value -- 1,602,443 shares
issued and outstanding at December 31, 1999 (at
liquidation value) (pro forma -- no shares
authorized, issued or outstanding)............. -- 16,344,919 --
----------- ----------- --
$18,188,751 $34,533,670 $--
=========== =========== ==
</TABLE>
The rights, preferences and privileges of the Series A, Series B, Series C
and Series D Preferred Stock are listed below.
(I) DIVIDENDS
The Company shall not declare or pay any dividends on shares of common
stock unless the holders of the Series A, Series B, Series C and Series D
Preferred Stock then outstanding receive an amount equal to the dividends
declared or paid on common stock. As of December 31, 1999, no dividends have
been declared or paid.
(II) CONVERSION
Each share of Series A, Series B, Series C and Series D Preferred Stock is
convertible at the option of the holder into two shares of common stock,
adjusted for certain dilutive events. In addition, all shares of the Series A,
Series B, Series C and Series D Preferred Stock shall be automatically converted
into shares of common stock upon the closing of an initial public offering at a
per share price of at least $8.25, resulting in net proceeds to the Company of
at least $10,000,000.
(III) MANDATORY REDEMPTION
The Company will be required to redeem, subject to certain conditions, on
February 16, 2004, February 16, 2005 and February 16, 2006, each a Mandatory
Redemption Date, the percentage of Series A, Series B, Series C and Series D
Preferred Stock, as listed in the following table, at a rate of $1.00 per share
in the case of the Series A Preferred Stock, $4.63
F-15
<PAGE> 69
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
per share in the case of the Series B Preferred Stock, $7.86 per share in the
case of Series C Preferred Stock and $10.20 per share in the case of Series D
Preferred Stock.
<TABLE>
<CAPTION>
PORTION OF SHARES OF
MANDATORY PREFERRED STOCK TO BE
REDEMPTION DATE REDEEMED
- --------------- ---------------------
<S> <C>
February 16, 2004.............................. 33.3%
February 16, 2005.............................. 50.0
February 16, 2006.............................. All shares then held
</TABLE>
(IV) VOTING RIGHTS
The Series A, Series B, Series C and Series D preferred stockholders are
entitled to vote on all matters with the common stockholders as if they were one
class of stock. The Series A, Series B, Series C and Series D preferred
stockholders are entitled to the number of votes equal to the number of shares
of common stock into which each share of those series of preferred stock are
then convertible.
(V) LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the corporation, the holders of the Series A, Series B, Series C
and Series D Preferred Stock then outstanding will be entitled to be paid an
amount equal to $1.00 per share, $4.63 per share, $7.86 per share and $10.20 per
share, respectively, plus any dividends declared but unpaid on such shares prior
to any payment to common stockholders. In addition, the Series A and B preferred
stockholders will participate with the common stockholders on an if-converted
basis in any other proceeds available.
(c) COMMON STOCK
As of December 31, 1999, the Company has 25,000,000 authorized shares of
common stock, of which a total of 8,126,996 shares have been issued and are
outstanding. As previously discussed, the Company's Board of Directors has
approved, subject to stockholder approval, an increase in the number of
authorized shares of common stock from 25,000,000 shares to 200,000,000 shares.
The Company has reserved a total of 11,000,000 shares of common stock for
issuance under the 1997 Stock Incentive Plan, of which 3,127,296 shares have
been issued and are outstanding as of December 31, 1999. In addition, the
Company has reserved a total of 11,500,000 shares of common stock for the
conversion of the Series A Preferred Stock, 4,427,656 shares of common stock for
the conversion of the Series B Preferred Stock, 556,928 shares of common stock
for the conversion of the Series C Preferred Stock and 3,204,886 shares of
common stock for the conversion of the Series D Preferred Stock.
In 1997, the Company sold 4,999,700 shares of common stock to various
employees at prices which represented the fair market value of the common stock.
These shares of common stock are subject to repurchase agreements which provide
for the vesting of these shares generally over five years. In the event that an
employee is terminated, the Company has the right to repurchase any unvested
shares at the original issue price. As of December 31, 1999, 2,103,718 shares of
common stock were subject to repurchase under these agreements.
F-16
<PAGE> 70
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) 1997 STOCK INCENTIVE PLAN
In April 1997, the Company's Board of Directors approved the 1997 Stock
Incentive Plan (the Plan), which provides for the granting of incentive stock
options (ISOs), nonqualified stock options and the sale of common stock to
employees, officers, directors, advisors and consultants of the Company.
(i) COMMON STOCK
Under the Plan, the Board of Directors may authorize the sale of common
stock to employees, officers, directors, advisors and consultants of the
Company. The purchase price for the common stock shall be determined by the
Board of Directors. In addition, for each grant, the Board of Directors will
determine the terms under which the Company may repurchase such shares.
During 1997 and 1998, the Company sold 1,258,000 and 791,000 shares of
common stock, respectively, to various employees. These shares of common stock
were sold at fair market value and are subject to repurchase agreements which
provide for the vesting of these shares generally over five years. In 1999, the
Company sold 1,211,600 shares of common stock to various employees, subject to
repurchase agreements which provide for the vesting of these shares generally
over five years. In connection with the 1999 sales of common stock, the Company
recorded deferred compensation of approximately $5.7 million which represents
the aggregate difference between the deemed fair value and the selling price of
the common stock (See (iii) Accounting for Stock-Based Compensation). During
1998 and 1999, the Company repurchased 224,334 shares of common stock from
terminated employees. As of December 31, 1999, 2,400,944 shares of common stock
sold to employees under the Plan are subject to repurchase.
(ii) STOCK OPTIONS
Under the Plan, the Board of Directors may grant ISOs and nonqualified
stock options to employees, officers, directors, advisors and consultants of the
Company. ISOs may be granted only to employees. The exercise price of each
option shall be determined by the Board of Directors, but it shall not be less
than the estimated fair market value on the date of grant. Nonqualified stock
options may be granted to employees, officers, directors, advisors or
consultants of the Company. The exercise price of each nonqualified stock option
shall be determined by the Board of Directors, but it shall not be less than the
par value of the common stock on the date of grant. All stock options granted
under the Plan expire within 10 years from the date of grant.
F-17
<PAGE> 71
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option activity under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES EXERCISE PRICE PRICE
--------- -------------- --------
<S> <C> <C> <C>
Outstanding, December 31, 1997...... -- $ -- $ --
Granted........................ 966,000 0.05 - 0.40 0.29
--------- ----------- -----
Outstanding, December 31, 1998...... 966,000 0.05 - 0.40 0.29
Granted........................ 3,021,200 0.50 - 5.00 2.34
Exercised...................... (91,030) 0.05 - 0.40 0.18
Canceled....................... (91,100) 0.25 - 0.40 0.34
--------- ----------- -----
Outstanding, December 31, 1999...... 3,805,070 $0.05 - 5.00 $1.92
--------- ----------- -----
Exercisable, December 31, 1999...... 256,234 $0.05 - 0.40 $0.27
========= =========== =====
</TABLE>
The following table summarizes information relating to currently
outstanding and exercisable stock options as of December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OF SHARES LIFE (YEARS) PRICE OF SHARES PRICE
- ------------------------ --------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.05 - 0.40............ 783,870 8.58 $0.30 256,234 $ 0.27
0.50 - 1.25............ 1,246,000 9.31 1.05 -- --
1.75 - 2.25............ 931,000 9.74 2.20 -- --
3.50........... 332,200 9.91 3.50 -- --
5.00........... 512,000 9.99 5.00 -- --
--------- ---- ----- ------- ------
3,805,070 9.41 $1.92 256,234 $ 0.27
========= ==== ===== ======= ======
</TABLE>
(iii) ACCOUNTING FOR STOCK-BASED COMPENSATION
In 1999, the Company recorded deferred compensation of approximately $17.6
million. This amount represents the aggregate difference between the deemed fair
value of the Company's stock and the exercise price of stock options granted and
the selling price of stock sold. The Company expects to record additional
deferred compensation of approximately $2.5 million in the quarter ending March
31, 2000. All stock options granted and stock sold prior to 1999 were at fair
market value and therefore, did not result in deferred compensation. The
deferred compensation will be recognized as an expense over the vesting period
of the stock and stock options. During the year ended December 31, 1999, the
Company recorded approximately $2.3 million of compensation expense. The Company
expects to recognize compensation expense of approximately $8.3 million, $4.7
million, $2.8 million, $1.5 million and $430,000 during the years ended December
31, 2000, 2001, 2002, 2003 and 2004, respectively.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation, which requires the measurement of
the fair value of employee stock options or warrants to be included in the
statement of income or disclosed in the
F-18
<PAGE> 72
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
notes to the financial statements. The Company has determined that it will
account for stock-based compensation for employees and directors under
Accounting Principles Board (APB) Opinion No. 25 and elect the disclosure-only
alternative under SFAS No. 123, which requires disclosure of the pro forma
effects on earnings as if the fair-value-based method of accounting under SFAS
No. 123 had been adopted, as well as certain other information. The Company has
computed the pro forma disclosures required under SFAS No. 123 for options
granted in 1998 and 1999 using the Black-Scholes option pricing model prescribed
by SFAS No. 123. The assumptions used for grants during the years ended December
31, 1998 and 1999 include the following:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Risk-free interest rates.................................... 4% 5% - 6%
Expected dividend yield..................................... -- --
Volatility factor........................................... 100% 100%
Expected lives.............................................. 4 years 4 years
Weighted average fair value of options granted.............. $0.21 $4.70
</TABLE>
If compensation cost had been determined for stock options granted to
employees based on the fair value of the awards at the date of grant in
accordance with the provisions of SFAS No. 123, the Company's net loss and net
loss per share for the years ended December 31, 1998 and 1999 would have
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Net loss --
As reported......................................... $(9,446,980) $(12,605,996)
Pro forma........................................... (9,478,798) (13,066,630)
Basic and diluted net loss per share --
As reported......................................... $ (6.26) $ (3.99)
Pro forma........................................... (6.28) (4.14)
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions, including expected stock price volatility. Because
ArrowPoint's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
(8) EMPLOYEE BENEFIT PLAN
In July 1997, the Company adopted a 401(k) retirement plan (the 401(k)
Plan) for eligible employees, as defined. Each participant may elect to
contribute up to 15% of his or her compensation for the plan year, subject to
certain IRS limitations. Company matching contributions are made to the 401(k)
Plan at the discretion of the Board of Directors. There have been no
discretionary contributions made by the Company to the 401(k) Plan to date.
(9) SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which establishes standards for reporting
information regarding operating
F-19
<PAGE> 73
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. To date, the Company has
viewed its operations and manages its business as principally one segment. As a
result, the financial information disclosed herein represents all of the
material financial information related to the Company's principal operating
segment.
The following table represents the percentage of revenue derived from
individual countries:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
United States............................................... 84% 53%
Japan....................................................... 16 2
Germany..................................................... -- 10
Other....................................................... -- 35
--- ---
100% 100%
--- ---
</TABLE>
(10) SUBSEQUENT EVENT
In January 2000, the Company amended its certificate of incorporation to
authorize 699,837 shares of Series E convertible preferred stock (Series E
preferred stock). Also, in January 2000, the Company sold 657,263 shares of
Series E preferred stock for $21.14 per share resulting in net proceeds to the
Company of approximately $13.9 million. In connection with the sale of Series E
preferred stock, the Company will record a charge to accumulated deficit of
approximately $6.6 million in the quarter ending March 31, 2000. This amount
represents the fair value of the beneficial conversion feature of the Series E
preferred stock. This amount will be accounted for like a dividend to preferred
stockholders and, as a result, will increase the Company's net loss available to
common stockholders and the related net loss per share.
F-20
<PAGE> 74
- -------------------------------------------------------
- -------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. 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
Risk Factors.......................... 6
Special Note Regarding Forward-
Looking Statements.................. 13
Use Of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 24
Management............................ 36
Transactions with Affiliates.......... 42
Principal Stockholders................ 44
Description of Capital Stock.......... 46
Shares Eligible for Future Sale....... 48
Underwriting.......................... 50
Legal Matters......................... 52
Experts............................... 52
Where You Can Find More Information... 52
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.
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
5,000,000 Shares
ARROWPOINT
COMMUNICATIONS, INC.
Common Stock
------------------
[ARROWPOINT COMMUNICATIONS LOGO]
------------------
GOLDMAN, SACHS & CO.
DEUTSCHE BANC ALEXS BROWN
J.P. MORGAN & CO.
Representatives of the Underwriters
- -------------------------------------------------------
- -------------------------------------------------------
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the common stock offered hereby are as
follows:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 25,806
NASD filing fee............................................. 10,275
Nasdaq National Market listing fee.......................... 90,000
Printing and engraving expenses............................. 120,000
Legal fees and expenses..................................... 325,000
Accounting fees and expenses................................ 275,000
Transfer agent and registrar fees and expenses.............. 9,500
Miscellaneous............................................... 69,419
--------
Total............................................. $925,000
========
</TABLE>
- ---------------
ArrowPoint will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and ArrowPoint's Certificate of
Incorporation provide for indemnification of ArrowPoint's directors and officers
for liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of ArrowPoint and, with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.
The Underwriting Agreement provides that the underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of ArrowPoint against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
In addition, ArrowPoint has purchased a directors and officers liability
insurance policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement,
ArrowPoint has sold the following securities that were not registered under the
Securities Act:
On April 15, 1997, ArrowPoint issued and sold 2,600,000 shares of its
common stock to two employees for an aggregate purchase price of $1,300. These
sales were made pursuant to Section 4(2) of the Securities Act.
On April 17, 1997, ArrowPoint issued and sold an aggregate of 5,600,000
shares of its Series A preferred stock to 10 purchasers for an aggregate
purchase price of $5,600,000. These sales were made pursuant to Section 4(2) of
the Securities Act.
On August 8, 1997, ArrowPoint issued and sold an aggregate of 20,000 shares
of its Series A preferred stock to one purchaser for an aggregate purchase price
of $20,000. This sale was made pursuant to Section 4(2) of the Securities Act.
On August 10, 1997, ArrowPoint issued and sold an aggregate of 15,000
shares of its Series A preferred stock to one purchaser for an aggregate
purchase price of $15,000. This sale was made pursuant to Section 4(2) of the
Securities Act.
II-1
<PAGE> 76
On August 11, 1997, ArrowPoint issued and sold an aggregate of 35,000
shares of its Series A preferred stock to one purchaser for an aggregate
purchase price of $35,000. This sale was made pursuant to Section 4(2) of the
Securities Act.
On August 19, 1997, ArrowPoint issued and sold an aggregate of 35,000
shares of its Series A preferred stock to one purchaser for an aggregate
purchase price of $35,000. This sale was made pursuant to Section 4(2) of the
Securities Act.
On December 30, 1997, ArrowPoint issued and sold an aggregate of 25,000
shares of its Series A preferred stock to one purchaser for an aggregate
purchase price of $25,000. This sale was made pursuant to Section 4(2) of the
Securities Act.
On December 31, 1997, ArrowPoint issued and sold an aggregate of 20,000
shares of it Series A preferred stock to one purchaser for an aggregate purchase
price of $20,000. This sale was made pursuant to Section 4(2) of the Securities
Act.
On February 5, 1998, ArrowPoint issued and sold an aggregate of 2,213,828
shares of its Series B preferred stock to 16 purchasers for an aggregate
purchase price of $10,250,023.64. These sales were made pursuant to Section 4(2)
of the Securities Act.
On September 30, 1998, ArrowPoint issued and sold an aggregate of 278,464
shares of its Series C preferred stock to 7 purchasers for an aggregate purchase
price of $2,188,727.04. These sales were made pursuant to Section 4(2) of the
Securities Act.
On February 16, 1999, ArrowPoint issued and sold an aggregate of 1,502,443
shares of its Series D preferred stock to 20 purchasers for an aggregate
purchase price of $15,324,918.60. These sales were made pursuant to Section 4(2)
of the Securities Act.
On November 24, 1999, ArrowPoint issued and sold an aggregate of 100,000
shares of its Series D preferred stock to one purchaser for an aggregate
purchase price of $1,020,000. This sale was made pursuant to Section 4(2) of the
Securities Act.
Between January 14, 2000 and January 26, 2000, ArrowPoint issued and sold
an aggregate of 657,263 shares of its Series E preferred stock to 42 purchasers,
including 15 venture capital investors, 22 purchasers who are employed by
ArrowPoint customers, two purchasers who are employed by a prospective
ArrowPoint customer, one director of ArrowPoint, one customer of ArrowPoint and
one managing director of an investment bank, for an aggregate purchase price of
$13,894,539.82. These sales were made pursuant to Section 4(2) of the Securities
Act.
Between April 15, 1997 and February 29, 2000, ArrowPoint has issued and
sold a total of 8,437,036 shares of its common stock to 79 persons for a
purchase prices ranging from $.0005 to $3.50 per share. All of these sales were
made pursuant to Rule 701 promulgated under the Securities Act.
No underwriters were involved in any of the foregoing sales of securities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
1.01** Form of Underwriting Agreement.
3.01 Certificate of Incorporation of ArrowPoint, as amended to
date.
3.02** Form of Certificate of Amendment to Certificate of
Incorporation of ArrowPoint (to be filed prior to closing of
this public offering).
</TABLE>
II-2
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
3.03** Form of Amended and Restated Certificate of Incorporation of
ArrowPoint (to be filed following the closing of this public
offering).
3.04** Amended and Restated By-Laws of ArrowPoint.
4.01* Specimen Certificate for shares of Common Stock.
5.01 Legal Opinion of Hale and Dorr LLP.
10.01** 1997 Stock Incentive Plan.
10.02** 2000 Non-Employee Director Stock Option Plan.
10.03** Stock Restriction Agreement dated April 15, 1997 between
ArrowPoint and Chin-Cheng Wu.
10.04 Stock Restriction Agreement dated November 29, 1999 between
ArrowPoint and Louis J. Volpe.
10.05 Stock Restriction Agreement dated December 31, 1997 between
ArrowPoint and Cynthia M. Deysher.
10.06 Stock Restriction Agreement dated March 9, 1998 between
ArrowPoint and Christopher P. Lynch.
10.07 Stock Restriction Agreement dated October 10, 1997 between
ArrowPoint and Peter M. Piscia.
10.08** Form of Non-competition and Confidentiality Agreement
between ArrowPoint and each executive officer.
10.09** Investor Rights Agreement dated January 14, 2000 among
ArrowPoint and the investors named therein.
10.10+** Comprehensive Professional Services Agreement dated August
25, 1999 between ArrowPoint and Plexus Corp.
10.11** Sourcepro Software Source Code Escrow Agreement Source File
Number 7541 dated July 30, 1997 among Source File LLC, MMC
Networks, Inc. and ArrowPoint.
10.12** Office Lease dated August 31, 1999 by and between Nagog Park
Investors, L.L.C. and ArrowPoint.
10.13** Credit Agreement dated as of August 5, 1998 between
ArrowPoint and Fleet National Bank, as amended.
10.14 Series B Preferred Stock Purchase Agreement dated February
5, 1998 among ArrowPoint and the purchasers named therein.
10.15 Series C Preferred Stock Purchase Agreement dated September
30, 1998 among ArrowPoint and the purchasers named therein.
10.16 Series D Preferred Stock Purchase Agreement dated February
16, 1999 among ArrowPoint and the purchasers named therein.
10.17 Series D Preferred Stock Purchase Agreement dated November
24, 1999 between ArrowPoint and Louis J. Volpe.
10.18 Series E Preferred Stock Purchase Agreement dated January
25, 2000 among ArrowPoint and the purchasers named therein.
21.01 Subsidiaries.
23.01 Consent of Hale and Dorr LLP (included in Exhibit 5.01).
23.02 Consent of Arthur Andersen LLP.
</TABLE>
II-3
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
23.03 Consent of International Data Corporation.
24.01** Power of Attorney.
27.01** Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the Commission.
(b) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, 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 such director, officer or controlling person
in connection with the securities being registered, 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 (1) 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, (2) that 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; and (3) that 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-4
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in Acton, Massachusetts on March 8,
2000.
ARROWPOINT COMMUNICATIONS, INC.
By: /s/ CYNTHIA M. DEYSHER
------------------------------------
Cynthia M. Deysher
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman and Chief Executive Officer
(principal executive officer)
* March 8, 2000
- ---------------------------------------
Chin-Cheng Wu
Chief Financial Officer (principal
financial and accounting officer)
/s/ CYNTHIA M. DEYSHER March 8, 2000
- ---------------------------------------
Cynthia M. Deysher
Director
* March 8, 2000
- ---------------------------------------
Edward T. Anderson
Director
* March 8, 2000
- ---------------------------------------
James A. Dolce, Jr.
Director
* March 8, 2000
- ---------------------------------------
Paul J. Ferri
Director
* March 8, 2000
- ---------------------------------------
Louis J. Volpe
*By: /s/ CYNTHIA M. DEYSHER
---------------------------------
Cynthia M. Deysher
Attorney-in-fact
</TABLE>
II-5
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
1.01** Form of Underwriting Agreement.
3.01 Certificate of Incorporation of ArrowPoint, as amended to
date.
3.02** Form of Certificate of Amendment to Certificate of
Incorporation of ArrowPoint (to be filed prior to closing of
this public offering).
3.03** Form of Amended and Restated Certificate of Incorporation of
ArrowPoint (to be filed following the closing of this public
offering).
3.04** Amended and Restated By-Laws of ArrowPoint.
4.01* Specimen Certificate for shares of Common Stock.
5.01* Legal Opinion of Hale and Dorr LLP.
10.01** 1997 Stock Incentive Plan.
10.02** 2000 Non-Employee Director Stock Option Plan.
10.03** Stock Restriction Agreement dated April 15, 1997 between
ArrowPoint and Chin-Cheng Wu.
10.04 Stock Restriction Agreement dated November 29, 1999 between
ArrowPoint and Louis J. Volpe.
10.05 Stock Restriction Agreement dated December 31, 1997 between
ArrowPoint and Cynthia M. Deysher.
10.06 Stock Restriction Agreement dated March 9, 1998 between
ArrowPoint and Christopher P. Lynch.
10.07 Stock Restriction Agreement dated October 10, 1997 between
ArrowPoint and Peter M. Piscia.
10.08** Form of Non-competition and Confidentiality Agreement
between ArrowPoint and each executive officer.
10.09** Investor Rights Agreement dated January 14, 2000 among
ArrowPoint and the investors named therein.
10.10+** Comprehensive Professional Services Agreement dated August
25, 1999 between the ArrowPoint and Plexus Corp.
10.11** Sourcepro Software Source Code Escrow Agreement Source File
Number 7541 dated July 30, 1997 among Source File LLC, MMC
Networks, Inc. and ArrowPoint.
10.12** Office Lease dated August 31, 1999 by and between Nagog Park
Investors, L.L.C. and ArrowPoint.
10.13** Credit Agreement dated as of August 5, 1998 between
ArrowPoint and Fleet National Bank, as amended.
10.14 Series B Preferred Stock Purchase Agreement dated February
5, 1998 among ArrowPoint and the purchasers named therein.
10.15 Series C Preferred Stock Purchase Agreement dated September
30, 1998 among ArrowPoint and the purchasers named therein.
10.16 Series D Preferred Stock Purchase Agreement dated February
16, 1999 among ArrowPoint and the purchasers named therein.
10.17 Series D Preferred Stock Purchase Agreement dated November
24, 1999 between ArrowPoint and Louis J. Volpe.
10.18 Series E Preferred Stock Purchase Agreement dated January
25, 2000 among ArrowPoint and the purchasers named therein.
</TABLE>
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
21.01 Subsidiaries.
23.01* Consent of Hale and Dorr LLP (included in Exhibit 5.01).
23.02 Consent of Arthur Andersen LLP.
23.03 Consent of International Data Corporation.
24.01** Power of Attorney
27.01** Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the Commission.
<PAGE> 1
Exhibit 3.01
CERTIFICATE OF INCORPORATION
OF
ARROWPOINT COMMUNICATIONS, INC.
FIRST. The name of the Corporation is: ArrowPoint Communications, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 25,000,000 shares, consisting of
(i) 15,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 10,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
- 1 -
<PAGE> 2
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
1. Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Certificate of Incorporation, no vote of the holders
of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
FIFTH. The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
---- ---------------
Garrett D. Sawyer Hale and Dorr LLP
60 State Street
Boston, MA 02109
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or repeal
the By-Laws of the Corporation.
- 2 -
<PAGE> 3
SEVENTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
EIGHTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by or on
behalf of an Indemnitee in connection with such action, suit or proceeding and
any appeal therefrom.
As a condition precedent to his right to be indemnified, the Indemnitee
must notify the Corporation in writing as soon as practicable of any action,
suit, proceeding or investigation involving him for which indemnity will or
could be sought. With respect to any action, suit, proceeding or investigation
of which the Corporation is so notified, the Corporation will be entitled to
participate therein at its own expense and/or to assume the defense thereof at
its own expense, with legal counsel reasonably acceptable to the Indemnitee.
In the event that the Corporation does not assume the defense of any
action, suit, proceeding or investigation of which the Corporation receives
notice under this Article, the Corporation shall pay in advance of the final
disposition of such matter any expenses (including attorneys' fees) incurred by
an Indemnitee in defending a civil or criminal action, suit, proceeding or
investigation or any appeal therefrom; provided, however that the payment of
such expenses incurred by an Indemnitee in advance of the final disposition of
such matter shall be made only upon receipt of an undertaking by or on behalf of
the Indemnitee to repay all amounts so advanced in the event that it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Corporation as authorized in this Article, which undertaking shall be
accepted without reference to the financial ability of the Indemnitee to make
such repayment; and further provided that no such advancement of expenses shall
be made if it is determined that the Indemnitee did not act in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
The Corporation shall not indemnify an Indemnitee seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such Indemnitee unless the initiation thereof was approved by the Board of
Directors of the Corporation. In addition, the Corporation shall not indemnify
an Indemnitee to the extent such Indemnitee is reimbursed from the proceeds
- 3 -
<PAGE> 4
of insurance, and in the event the Corporation makes any indemnification
payments to an Indemnitee and such Indemnitee is subsequently reimbursed
from the proceeds of insurance, such Indemnitee shall promptly refund such
indemnification payments to the Corporation to the extent of such insurance
reimbursement.
All determinations hereunder as to the entitlement of an Indemnitee to
indemnification or advancement of expenses shall be made in each instance by (a)
a majority vote of the directors of the Corporation consisting of persons who
are not at that time parties to the action, suit or proceeding in question
("disinterested directors"), whether or not a quorum, (b) a majority vote of a
quorum of the outstanding shares of stock of all classes entitled to vote for
directors, voting as a single class, which quorum shall consist of stockholders
who are not at that time parties to the action, suit or proceeding in question,
(c) independent legal counsel (who may, to the extent permitted by law, be
regular legal counsel to the Corporation), or (d) a court of competent
jurisdiction.
The indemnification rights provided in this Article (i) shall not be
deemed exclusive of any other rights to which an Indemnitee may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of the Indemnitees. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
NINTH. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
EXECUTED this 14th day of April, 1997.
/s/ Garrett D. Sawyer
--------------------------------------
Garrett D. Sawyer
Incorporator
- 4 -
<PAGE> 5
Certificate of Designations of the Preferred Stock
of
ArrowPoint Communications, Inc.
To be Designated
SERIES A CONVERTIBLE PREFERRED STOCK
ArrowPoint Communications, Inc., a Delaware corporation (the
"Corporation"), pursuant to authority conferred on the Board of Directors of the
Corporation by the Certificate of Incorporation and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, certifies that the Board of Directors of the Corporation duly adopted
the following resolution:
RESOLVED: That, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock of
the Corporation be and hereby is established, consisting of 5,600,000 shares, to
be designated "Series A Convertible Preferred Stock" (hereinafter "Series A
Preferred Stock"); that the Board of Directors be and hereby is authorized to
issue such shares of Series A Preferred Stock from time to time and for such
consideration and on such terms as the Board of Directors shall determine; and
that, subject to the limitations provided by law and by the Certificate of
Incorporation, the powers, designations, preferences and relative,
participating, optional or other special rights of, and the qualifications,
limitations or restrictions upon, the Series A Preferred Stock shall be as
follows:
1. DIVIDENDS.
(a) The Corporation shall not declare or pay any dividends or
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock then outstanding shall have first received, or
simultaneously receive, a like distribution on each outstanding share of Series
A Preferred Stock, in an amount at least equal to the product of (i) the per
share amount, if any, of the dividends or distributions to be declared, paid or
set aside for the Common Stock, multiplied by (ii) the number of whole shares of
Common Stock into which such share of Series A Preferred Stock is convertible as
of the record date for such dividend or distribution.
For purposes of this Section 1, "distribution" shall mean the transfer
of cash or property without consideration, whether by way of dividend or
otherwise, payable other than in Common Stock or other securities of the
Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation upon termination of their employment or services
pursuant to agreements approved by the Board of Directors providing for such
repurchase at a price equal to the original issue price of such shares) for cash
or property, including any such transfer, purchase or redemption by a subsidiary
of the Corporation.
<PAGE> 6
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS, CONSOLIDATIONS
AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the holders of shares of Series A Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders, after and subject to
the payment in full of all amounts required to be distributed to the holders of
any other class or series of stock of the Corporation ranking on liquidation
prior and in preference to the Series A Preferred Stock, but before any payment
shall be made to the holders of Common Stock or any other class or series of
stock ranking on liquidation junior to the Series A Preferred Stock by reason of
their ownership thereof, an amount equal to $1.00 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends declared but unpaid on such shares. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series A Preferred Stock
and any class or series of stock ranking on liquidation on a parity with the
Series A Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
(b) After the payment of all preferential amounts required to be paid to
the holders of any class or series of stock of the Corporation ranking on
liquidation prior to and in preference to the Common Stock, upon the
dissolution, liquidation or winding up of the Corporation, the remaining assets
and funds of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Common Stock and Series A
Preferred Stock, pro rata based upon the number of shares of Common Stock held
by each such stockholder (after giving effect to the conversion into Common
Stock of all Series A Preferred Stock).
(c) Any (i) merger or consolidation which results in the voting securities
of the Corporation outstanding immediately prior thereto representing
immediately thereafter (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than a
majority of the combined voting power of the voting securities of the
Corporation or such surviving or acquiring entity outstanding immediately after
such merger or consolidation, (ii) sale of all or substantially all or a
significant portion of the assets of the Corporation or (iii) sale of shares of
capital stock of the Corporation, in a single transaction or series of related
transactions, representing at least 80% of the voting power of the voting
securities of the Corporation, shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation (net of obligations owed by the Corporation),
together with all other available assets of the Corporation (in the case of an
asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with Subsections 2(a) and 2(b) above. The Corporation
shall promptly provide to the holders of shares of Series A Preferred Stock such
information concerning the terms of such merger,
- 2 -
<PAGE> 7
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series A Preferred Stock. If
applicable, the Corporation shall cause the agreement or plan of merger or
consolidation to provide for a rate at which the shares of capital stock of the
Corporation are converted into or exchanged for cash, new securities or other
property which gives effect to this provision. The amount deemed distributed to
the holders of Series A Preferred Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holders by the Corporation and/or by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation.
3. VOTING.
(a) Each holder of outstanding shares of Series A Preferred Stock shall
be entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Series A Preferred Stock held by such holder are
convertible (as adjusted from time to time pursuant to Section 4 hereof) as of
the record date, at each meeting of stockholders of the Corporation (and written
actions of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law or by the provisions of Section 7 below
or by the provisions establishing any other series of stock, holders of Series A
Preferred Stock and of any other outstanding series of stock shall vote together
with the holders of Common Stock as a single class.
(b) For so long as at least 1,400,000 shares of Series A Preferred
Stock (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares) are
outstanding the holders of record of the shares of Series A Preferred Stock,
exclusively and as a separate class, shall be entitled to elect two members of
the Board of Directors of the Corporation, and the holders of record of the
shares of Common Stock and of any other class or series of voting stock
(including the Series A Preferred Stock), exclusively and as a separate class,
shall be entitled to elect the balance of the total number of directors of the
Corporation. At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the shares of
Series A Preferred Stock then outstanding shall constitute a quorum of the
Series A Preferred Stock for the purpose of electing directors by holders of the
Series A Preferred Stock and the presence of a majority of the shares of Series
A Preferred Stock and Common Stock then outstanding shall constitute a quorum
for the purpose of electing the remaining directors. A vacancy in any
directorship filled by the holders of Series A Preferred Stock shall be filled
only by vote or written consent in lieu of a meeting of the holders of the
Series A Preferred stock.
4. OPTIONAL CONVERSION. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $1.00 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" shall
- 3 -
<PAGE> 8
initially be $1.00. Such Conversion Price, and the rate at which shares of
Series A Preferred Stock may be converted into shares of Common Stock, shall be
subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A
Preferred Stock pursuant to Section 6 hereof, the Conversion Right of the shares
designated for redemption shall terminate at the close of business on the first
full day preceding the date fixed for redemption, unless the redemption price is
not paid when due, in which case the Conversion Right for such shares shall
continue until such price is paid in full. In the event of a liquidation of the
Corporation (or deemed liquidation under Section 2(c) hereof), the Conversion
Right shall terminate at the close of business on the first full business day
preceding the date fixed for the payment of any amounts distributable on
liquidation (or deemed liquidation under Section 2(c) hereof) to the holders of
Series A Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series A Preferred Stock to convert
shares of Series A Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates for such shares of Series A
Preferred Stock, at the office of the transfer agent for the Series A Preferred
Stock (or at the principal office of the Corporation if the Corporation serves
as its own transfer agent), together with written notice that such holder elects
to convert all or any number of the shares of the Series A Preferred Stock
represented by such certificate or certificates. Such notice shall state such
holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If required
by the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the Series A
Preferred, Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Series A Preferred Stock,
the Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the
- 4 -
<PAGE> 9
Corporation may validly and legally issue fully paid and nonassessable shares
of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any declared but unpaid dividends on the Series A
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion.
(iv) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared but unpaid thereon. Any shares of Series A Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized number of shares
of Series A Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Series A Preferred Stock pursuant to this
Section 4. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in a name other than that in which the shares of
Series A Preferred Stock so converted were registered, and no such issuance or
delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d), the
following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "ORIGINAL ISSUE DATE" shall mean the date on which a share
of Series A Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares
of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below, deemed to be
issued) by the Corporation after the Original Issue Date, other than:
- 5 -
<PAGE> 10
(I) shares of Common Stock issued or issuable as a
dividend or other distribution on Series A Preferred
Stock;
(II) shares of Common Stock issued or issuable by reason
of a dividend or other distribution on shares of
Common Stock that is covered by Subsection 4(e) or
4(f) below;
(III) shares of Common Stock issued or issuable upon
conversion of those shares of Series A Preferred
Stock outstanding at the close of business on the
Original Issue Date;
(IV) up to 1,500,000 shares of Common Stock (subject to
appropriate adjustment for stock splits, stock
dividends, combinations and other similar
recapitalizations affecting such shares) issued in
the form of restricted stock awards approved by both
the Board of Directors of the Corporation and a
majority of the non-employee directors of the
Corporation; or
(V) up to 1,700,000 shares of Common Stock (subject to
appropriate adjustment for stock splits, stock
dividends, combinations and other similar
recapitalizations affecting such shares), plus such
additional number of shares as may be approved by
both the Board of Directors of the Corporation and a
majority of the non-employee directors of the
Corporation, issued or issuable to employees or
directors of, or consultants to, the Corporation
pursuant to plans adopted by the Board of Directors
of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the number
of shares of Common Stock into which the Series A Preferred Stock is convertible
shall be made (a) unless the consideration per share (determined pursuant to
Subsection 4(d)(v)) for an Additional Share of Common Stock issued or deemed to
be issued by the Corporation is less than the applicable Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) if prior to or within 60 days subsequent to such issuance, the
Corporation receives written notice from the holders of at least 66 2/3% of the
then outstanding shares of Series A Preferred Stock, agreeing that no such
adjustment shall be made as the result of the issuance of Additional Shares of
Common Stock.
- 6 -
<PAGE> 11
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK.
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase becoming
effective, be recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Conversion Price shall not be readjusted, but the Additional Shares
of Common Stock deemed issued as the result of the original issue of such Option
shall not be deemed issued for the purposes of any subsequent adjustment of the
Conversion Price;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made upon the
basis of such change; and
(E) No readjustment pursuant to clause (B) or (D) above shall
have the effect of increasing the Conversion Price to an amount which exceeds
the lower of (i) the Conversion Price on the original adjustment date, or (ii)
the Conversion Price that would
- 7 -
<PAGE> 12
have resulted from any issuances of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.
In the event the Corporation, after the Original Issue Date, amends any
Options or Convertible Securities (whether such Options or Convertible
Securities were outstanding on the Original Issue Date or were issued after the
Original Issue Date) to increase the number of shares issuable thereunder or
decrease the consideration to be paid upon exercise or conversion thereof, then
such Options or Convertible Securities, as so amended, shall be deemed to have
been issued after the Original Issue Date and the provisions of this Subsection
4(d)(iii) shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK.
In, the event the Corporation shall at any time after the Original
Issue Date issue Additional Shares of Common Stock (including Additional Shares
of Common Stock deemed to be issued pursuant to Subsection 4(d)(iii), but
excluding shares issued as a stock split or combination as provided in
Subsection 4(e) or upon a dividend or distribution as provided in Subsection
4(f)), without consideration or for a consideration per share less than the
applicable Conversion Price in effect on the date of and immediately prior to
such issue, then and in such event, such Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction, (A) the numerator
of which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue plus (2) the number of shares of Common Stock
which the aggregate consideration received or to be received by the Corporation
for the total number of Additional Shares of Common Stock so issued would
purchase at such Conversion Price; and (B) the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issue
plus the number of such Additional Shares of Common Stock so issued; provided
that, (i) for the purpose of this Subsection 4(d)(iv), all shares of Common
Stock issuable upon exercise or conversion of Options or Convertible Securities
outstanding immediately prior to such issue shall be deemed to be outstanding,
and (ii) for the purpose of this Subsection 4(d)(iv), the number of shares of
Common Stock deemed issuable upon conversion of such outstanding Convertible
Securities shall not give effect to any adjustments to the conversion price or
conversion rate of such Convertible Securities resulting from the issuance of
Additional Shares of Common Stock that is the subject of this calculation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this Subsection
4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation,
excluding amounts paid or payable for accrued
interest;
- 8 -
<PAGE> 13
(II) insofar as it consists of property other than cash,
be computed at the fair market value thereof at the
time of such issue, as determined in good faith by
the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or
other assets of the Corporation for consideration
which covers both, be the proportion of such
consideration so received, computed as provided in
clauses (I) and (II) above, as determined in good
faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to Subsection 4(d)(iii), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation shall
issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Convertible Securities, and
such issuance dates occur within a period of no more than 120 days, then, upon
the final such issuance, the Conversion Price shall be adjusted to give effect
to all such issuances as if they occurred on the date of the final such issuance
(and without giving effect to any adjustments as a result of such prior
issuances within such period).
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Conversion Price then in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
- 9 -
<PAGE> 14
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series A Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series A Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend
or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event the
Corporation at any time or from time to time after the Original Issue Date for
the Series A Preferred Stock shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series A Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series A Preferred Stock, and provided further, however, that no
such adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into Common
Stock on the date of such event.
- 10 -
<PAGE> 15
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If the
Common Stock issuable upon the conversion of the Series A Preferred Stock shall
be changed into the same or a different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification, or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for above, or a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of each such share
of Series A Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable, upon such reorganization, reclassification, or other
change, by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series A Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing "in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the
- 11 -
<PAGE> 16
number of shares of Common Stock and the amount, if any, of other property
which then would be received upon the conversion of Series A Preferred Stock.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities
of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to
be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation
or winding up is expected to become effective, and
the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other
property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding
up.
5. MANDATORY CONVERSION.
(a) Upon the closing of the sale of shares of Common Stock, at a
price of at least $5.00 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $10,000,000 of proceeds to the
Corporation (net of the underwriting discounts or commissions and offering
expenses)(the "Mandatory Conversion Date"), (i) all outstanding shares of Series
A Preferred Stock shall automatically be converted into shares of Common Stock,
at the then effective conversion rate, and (ii) all provisions hereof
- 12 -
<PAGE> 17
included under the caption "Series A Convertible Preferred Stock", and all
references herein to the Series A Preferred Stock, shall be deleted and shall
be of no further force or effect.
(b) All holders of record of shares of Series A Preferred Stock
shall be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series A Preferred
Stock, pursuant to this Section 5. Such notice need not be given in advance of
the occurrence of a Mandatory Conversion Date. Such notice shall be sent by
first class or registered mail, postage prepaid, to each record holder of Series
A Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series A Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series A Preferred Stock shall surrender his or
its certificate or certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive certificates for
the number of shares of Common Stock to which such holder is entitled pursuant
to this Section 5. On the Mandatory Conversion Date, all rights with respect to
the Series A Preferred Stock so converted, including the rights, if any, to
receive notices and vote (other than as a holder of Common Stock) will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted, and payment of any declared but unpaid dividends thereon. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the Mandatory Conversion Date and the surrender of the certificate or
certificates for Series A Preferred Stock, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in Subsection 4(b) in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A Preferred Stock accordingly.
6. REDEMPTION.
(a) The Corporation will, subject to the conditions set forth
below, on April 17, 2002, April 17, 2003 and April 17, 2004 (each, a "Mandatory
Redemption Date"), upon receipt not less than 30 nor more than 120 days prior to
the applicable Mandatory Redemption Date of written request(s) for redemption
from holders of at least a majority of the shares of Series A Preferred Stock
then outstanding (a "Series A Redemption Request"), redeem from each holder of
shares of Series A Preferred Stock, at a price equal to $1.00 per share (subject
to appropriate adjustment in the event of any dividend, stock split, combination
or other similar
- 13 -
<PAGE> 18
recapitalization affecting such shares), plus any declared but unpaid
dividends thereon (the "Mandatory Redemption Price"), the following
respective portions of the number of shares of Series A Preferred Stock held by
such holder set forth opposite the applicable Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series A Preferred
Mandatory Redemption Date Stock to be Redeemed
------------------------- ----------------------------
April 17, 2002 33 1/3%
April 17, 2003 50%
April 17, 2004 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series A Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date The Corporation shall
provide notice of any Series A Redemption Request, specifying the time and place
of redemption and the Mandatory Redemption Price, by first class or registered
mail, postage prepaid, to each holder of record of Series A Preferred Stock at
the address for such holder last shown on the records of the transfer agent
therefor (or the records of the Corporation, if it serves as its own transfer
agent), not less than 20 days prior to the Mandatory Redemption Date.
(b) If the funds of the Corporation legally available for
redemption of Series A Preferred Stock on any Mandatory Redemption Date are
insufficient to redeem the number of shares of Series A Preferred Stock required
under this Section 6 to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares of
Series A Preferred Stock ratably on the basis of the number of shares of Series
A Preferred Stock which would be redeemed on such date if the funds of the
Corporation legally available therefor had been sufficient to redeem all shares
of Series A Preferred Stock required to be redeemed on such date. At any time
thereafter when additional funds of the Corporation become legally available for
the redemption of Series A Preferred Stock, such funds will be used, at the end
of the next succeeding fiscal quarter, to redeem, to the extent of the available
funds, the balance of the shares which the Corporation was theretofore obligated
to redeem.
(c) Unless there shall have been a default in payment of the
Mandatory Redemption Price, on such Mandatory Redemption Date all rights of each
holder of shares of Series A Preferred Stock as a stockholder of the Corporation
by reason of the ownership of such shares will cease, except the right to
receive the Mandatory Redemption Price for such shares, without interest, upon
presentation and surrender of the certificate representing such shares, and such
shares will not from and after such Mandatory Redemption Date be deemed to be
outstanding.
(d) Any Series A Preferred Stock redeemed pursuant to this Section
6 will be cancelled and will not under any circumstances be reissued, sold or
transferred
- 14 -
<PAGE> 19
and the Corporation may from time to time take such appropriate action as may
be necessary to reduce the authorized number of shares of Series A Preferred
Stock accordingly.
7. NEGATIVE COVENANTS.
(a) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock and the
authorization of any shares of capital stock on a parity with Series A Preferred
Stock as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely the Series A Preferred Stock,
(b) So long as at least 1,400,000 shares of Series A Preferred
Stock (subject to appropriate adjustment in the event of any dividend, stock
split, combination or other similar recapitalization affecting such shares) are
outstanding, the Corporation shall not, without the prior written consent of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock;
(i) amend the Corporation's Certificate of Incorporation;
(ii) amend the Corporation's By-laws in a manner adverse to
either the holders of Series A Preferred Stock or the directors of the
Corporation;
(iii) declare or pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) repurchase shares of Common Stock at a price greater than
the price at which they were originally issued;
(v) liquidate, dissolve or wind-up the Corporation;
(vi) make (or permit any subsidiary to make) any loan or
advance to any person, including without limitation, any employee or director of
the Corporation or any subsidiary, except (A) advances and similar expenditures
in the ordinary course of business or (B) as approved by the Board of Directors
under the terms of an employee stock or option plan;
(vii) (A) merge with or into or consolidate with any other
corporation, (B) sell, lease, or otherwise dispose of all or substantially all,
or a significant portion, of its properties or assets, or (C) acquire all or
substantially all of the properties or assets of any other corporation or entity
(except for consideration of less than 20% of the Corporation's consolidated net
worth as of the end of the prior fiscal quarter); or
- 15 -
<PAGE> 20
(viii) incur or guaranty indebtedness for borrowed money in an
aggregate amount in excess of $250,000.
8. WAIVER. Any of the rights of the holders of Series A Preferred Stock
set forth herein may be waived by the affirmative vote of the holders of more
than fifty percent (50%) of the shares of Series A Preferred Stock then
outstanding.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by its President this 16th day of April, 1997.
ArrowPoint Communications, Inc.
By: /s/ Chin-Cheng Wu
--------------------------------------
Chin-Cheng Wu
President
- 16 -
<PAGE> 21
Certificate of Designations of the Preferred Stock
of
ArrowPoint Communications, Inc.
To be Designated
SERIES A CONVERTIBLE PREFERRED STOCK
ArrowPoint Communications, Inc., a Delaware corporation (the
"Corporation"), pursuant to authority conferred on the Board of Directors of the
Corporation by the Certificate of Incorporation and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, certifies that the Board of Directors of the Corporation duly adopted
the following resolution:
RESOLVED: That, pursuant to the authority expressly granted to and
vested in the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, a series of Preferred Stock of
the Corporation be and hereby is established, consisting of 5,600,000 shares, to
be designated "Series A Convertible Preferred Stock" (hereinafter "Series A
Preferred Stock"); that the Board of Directors be and hereby is authorized to
issue such shares of Series A Preferred Stock from time to time and for such
consideration and on such terms as the Board of Directors shall determine; and
that, subject to the limitations provided by law and by the Certificate of
Incorporation, the powers, designations, preferences and relative,
participating, optional or other special rights of, and the qualifications,
limitations or restrictions upon, the Series A Preferred Stock shall be as
follows:
1. DIVIDENDS.
(a) The Corporation shall not declare or pay any dividends or
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock then outstanding shall have first received, or
simultaneously receive, a like distribution on each outstanding share of Series
A Preferred Stock, in an amount at least equal to the product of (i) the per
share amount, if any, of the dividends or distributions to be declared, paid or
set aside for the Common Stock, multiplied by (ii) the number of whole shares of
Common Stock into which such share of Series A Preferred Stock is convertible as
of the record date for such dividend or distribution.
(b) For purposes of this Section 1, "distribution" shall mean the
transfer of cash or property without consideration, whether by way of dividend
or otherwise, payable other than in Common Stock or other securities of the
Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation upon termination of their employment or services
pursuant to agreements approved by the Board of Directors providing for such
repurchase at a price equal to the original issue price of such shares) for cash
or property, including any such transfer, purchase or redemption by a subsidiary
of the Corporation.
<PAGE> 22
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock, but before
any payment shall be made to the holders of Common Stock or any other class or
series of stock ranking on liquidation junior to the Series A Preferred Stock by
reason of their ownership thereof, an amount equal to $1.00 per share (subject
to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends declared but unpaid on such shares. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series A Preferred Stock
and any class or series of stock ranking on liquidation on a parity with the
Series A Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of any class or series of stock of the Corporation ranking on
liquidation prior to and in preference to the Common Stock, upon the
dissolution, liquidation or winding up of the Corporation, the remaining assets
and funds of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Common Stock and Series A
Preferred Stock, pro rata based upon the number of shares of Common Stock held
by each such stockholder (after giving effect to the conversion into Common
Stock of all Series A Preferred Stock).
(c) Any (i) merger or consolidation which results in the voting
securities of the Corporation outstanding immediately prior thereto representing
immediately thereafter (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than a
majority of the combined voting power of the voting securities of the
Corporation or such surviving or acquiring entity outstanding immediately after
such merger or consolidation, (ii) sale of all or substantially all or a
significant portion of the assets of the Corporation or (iii) sale of shares of
capital stock of the Corporation, in a single transaction or series of related
transactions, representing at least 80% of the voting power of the voting
securities of the Corporation, shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation (net of obligations owed by the Corporation),
together with all other available assets of the Corporation (in the case of an
asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with Subsections 2(a) and 2(b) above. The Corporation
shall promptly provide to the holders of shares of Series A Preferred Stock such
information concerning the terms of such merger,
- 2 -
<PAGE> 23
consolidation or asset sale and the value of the assets of the Corporation
as may reasonably be requested by the holders of Series A Preferred Stock.
If applicable, the Corporation shall cause the agreement or plan of
merger or consolidation to provide for a rate at which the shares of capital
stock of the Corporation are converted into or exchanged for cash, new
securities or other property which gives effect to this provision. The amount
deemed distributed to the holders of Series A Preferred Stock upon any such
merger or consolidation shall be the cash or the value of the property, rights
or securities distributed to such holders by the Corporation and/or by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation.
3. VOTING.
(a) Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are convertible (as adjusted from time to time pursuant to Section 4
hereof) as of the record date, at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law or by the
provisions of Section 7 below or by the provisions establishing any other series
of stock, holders of Series A Preferred Stock and of any other outstanding
series of stock shall vote together with the holders of Common Stock as a single
class.
(b) For so long as at least 1,400,000 shares of Series A Preferred
Stock (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares) are
outstanding, the holders of record of the shares of Series A Preferred Stock,
exclusively and as a separate class, shall be entitled to elect two members of
the Board of Directors of the Corporation, and the holders of record of the
shares of Common Stock and of any other class or series of voting stock
(including the Series A Preferred Stock), exclusively and as a separate class,
shall be entitled to elect the balance of the total number of directors of the
Corporation. At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the shares of
Series A Preferred Stock then outstanding shall constitute a quorum of the
Series A Preferred Stock for the purpose of electing directors by holders of the
Series A Preferred Stock and the presence of a majority of the shares of Series
A Preferred Stock and Common Stock then outstanding shall constitute a quorum
for the purpose of electing the remaining directors. A vacancy in any
directorship filled by the holders of Series A Preferred Stock shall be filled
only by vote or written consent in lieu of a meeting of the holders of the
Series A Preferred Stock.
4. OPTIONAL CONVERSION. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.00 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" shall
- 3 -
<PAGE> 24
initially be $1.00. Such Conversion Price, and the rate at which shares of
Series A Preferred Stock may be converted into shares of Common Stock, shall be
subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A
Preferred Stock pursuant to Section 6 hereof, the Conversion Right of the shares
designated for redemption shall terminate at the close of business on the first
full day preceding the date fixed for redemption, unless the redemption price is
not paid when due, in which case the Conversion Right for such shares shall
continue until such price is paid in full. In the event of a liquidation of the
Corporation (or deemed liquidation under Section 2(c) hereof), the Conversion
Right shall terminate at the close of business on the first full business day
preceding the date fixed for the payment of any amounts distributable on
liquidation (or deemed liquidation under Section 2(c) hereof) to the holders of
Series A Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series A Preferred Stock to
convert shares of Series A Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
A Preferred Stock, at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series A
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series A Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series A Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the
- 4 -
<PAGE> 25
Corporation may validly and legally issue fully paid and nonassessable shares
of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion
Price shall be made for any declared but unpaid dividends on the Series A
Preferred Stock surrendered for conversion or on the Common Stock delivered upon
conversion.
(iv) All shares of Series A Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared but unpaid thereon. Any shares of Series A Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized number of shares
of Series A Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Series A Preferred Stock pursuant to this
Section 4. The Corporation shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of shares of Common Stock in a name other than that in which the shares of
Series A Preferred Stock so converted were registered, and no such issuance or
delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "ORIGINAL ISSUE DATE" shall mean the date on which a
share of Series A Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date,
other than:
- 5 -
<PAGE> 26
(I) shares of Common Stock issued or issuable as a
dividend or other distribution on Series A
Preferred Stock;
(II) shares of Common Stock issued or issuable by
reason of a dividend or other distribution on
shares of Common Stock that is covered by
Subsection 4(e) or 4(f) below;
(III) shares of Common Stock issued or issuable upon
conversion of those shares of Series A Preferred
Stock outstanding at the close of business on the
Original Issue Date;
(IV) up to 1,500,000 shares of Common Stock (subject
to appropriate adjustment for stock splits, stock
dividends, combinations and other similar
recapitalizations affecting such shares) issued
in the form of restricted stock awards approved
by both the Board of Directors of the Corporation
and a majority of the non-employee directors of
the Corporation; or
(V) up to 1,700,000 shares of Common Stock (subject
to appropriate adjustment for stock splits, stock
dividends, combinations and other similar
recapitalizations affecting such shares), plus
such additional number of shares as may be
approved by both the Board of Directors of the
Corporation and a majority of the non-employee
directors of the Corporation, issued or issuable
to employees or directors of, or consultants to,
the Corporation pursuant to plans adopted by the
Board of Directors of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
number of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made (a) unless the consideration per share (determined
pursuant to Subsection 4(d)(v)) for an Additional Share of Common Stock issued
or deemed to be issued by the Corporation is less than the applicable Conversion
Price in effect on the date of, and immediately prior to, the issue of such
Additional Shares, or (b) if prior to or within 60 days subsequent to such
issuance, the Corporation receives written notice from the holders of at least
66 2/3% of the then outstanding shares of Series A Preferred Stock, agreeing
that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock.
- 6 -
<PAGE> 27
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK.
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase becoming
effective, be recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Conversion Price shall not be readjusted, but the Additional Shares
of Common Stock deemed issued as the result of the original issue of such Option
shall not be deemed issued for the purposes of any subsequent adjustment of the
Conversion Price;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made upon the
basis of such change; and
(E) No readjustment pursuant to clause (B) or (D) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would
- 7 -
<PAGE> 28
have resulted from any issuances of Additional Shares of Common Stock between
the original adjustment date and such readjustment date.
In the event the Corporation, after the Original Issue Date, amends any
Options or Convertible Securities (whether such Options or Convertible
Securities were outstanding on the Original Issue Date or were issued after the
Original Issue Date) to increase the number of shares issuable thereunder or
decrease the consideration to be paid upon exercise or conversion thereof, then
such Options or Convertible Securities, as so amended, shall be deemed to have
been issued after the Original Issue Date and the provisions of this Subsection
4(d)(iii) shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK.
In the event the Corporation shall at any time after the Original Issue
Date issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Subsection 4(d)(iii), but excluding
shares issued as a stock split or combination as provided in Subsection 4(e) or
upon a dividend or distribution as provided in Subsection 4(f)), without
consideration or for a consideration per share less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, (A) the numerator of which
shall be (1) the number of shares of Common Stock outstanding immediately prior
to such issue plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation for the total number
of Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed at
the aggregate of cash received by the
Corporation, excluding amounts paid or payable
for accrued interest;
- 8 -
<PAGE> 29
(II) insofar as it consists of property other than
cash, be computed at the fair market value
thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or
securities or other assets of the Corporation for
consideration which covers both, be the
proportion of such consideration so received,
computed as provided in clauses (I) and (II)
above, as determined in good faith by the Board
of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 4(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation shall
issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Convertible Securities, and
such issuance dates occur within a period of no more than 120 days, then, upon
the final such issuance, the Conversion Price shall be adjusted to give effect
to all such issuances as if they occurred on the date of the final such issuance
(and without giving effect to any adjustments as a result of such prior
issuances within such period).
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Original Issue Date
effect a subdivision of the outstanding Common Stock, the Conversion Price then
in effect immediately before that subdivision shall be proportionately
decreased. If the Corporation shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
- 9 -
<PAGE> 30
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series A Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series A Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Original Issue Date
for the Series A Preferred Stock shall make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series A Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series A Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into Common
Stock on the date of such event.
- 10 -
<PAGE> 31
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable, upon such reorganization, reclassification, or other
change, by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series A Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the
- 11 -
<PAGE> 32
number of shares of Common Stock and the amount, if any, of other property
which then would be received upon the conversion of Series A Preferred Stock.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to
be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation
or winding up is expected to become effective, and
the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other
property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding
up.
5. MANDATORY CONVERSION.
(a) Upon the closing of the sale of shares of Common Stock, at
a price of at least $5.00 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $10,000,000 of proceeds to the
Corporation (net of the underwriting discounts or commissions and offering
expenses)(the "Mandatory Conversion Date"), (i) all outstanding shares of Series
A Preferred Stock shall automatically be converted into shares of Common Stock,
at the then effective conversion rate, and (ii) all provisions hereof
-12-
<PAGE> 33
included under the caption "Series A Convertible Preferred Stock", and all
references herein to the Series A Preferred Stock, shall be deleted and shall
be of no further force or effect.
(b) All holders of record of shares of Series A Preferred Stock
shall be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series A Preferred
Stock, pursuant to this Section 5. Such notice need not be given in advance of
the occurrence of a Mandatory Conversion Date. Such notice shall be sent by
first class or registered mail, postage prepaid, to each record holder of Series
A Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series A Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of Series A Preferred Stock shall surrender his or
its certificate or certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive certificates for
the number of shares of Common Stock to which such holder is entitled pursuant
to this Section 5. On the Mandatory Conversion Date, all rights with respect to
the Series A Preferred Stock so converted, including the rights, if any, to
receive notices and vote (other than as a holder of Common Stock) will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted, and payment of any declared but unpaid dividends thereon. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the Mandatory Conversion Date and the surrender of the certificate or
certificates for Series A Preferred Stock, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in Subsection 4(b) in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A Preferred Stock accordingly.
6. REDEMPTION.
(a) The Corporation will, subject to the conditions set forth
below, on April 17, 2002, April 17, 2003 and April 17, 2004 (each, a "Mandatory
Redemption Date"), upon receipt not less than 30 nor more than 120 days prior to
the applicable Mandatory Redemption Date of written request(s) for redemption
from holders of at least a majority of the shares of Series A Preferred Stock
then outstanding (a "Series A Redemption Request"), redeem from each holder of
shares of Series A Preferred Stock, at a price equal to $1.00 per share (subject
to appropriate adjustment in the event of any dividend, stock split, combination
or other similar
- 13 -
<PAGE> 34
recapitalization affecting such shares), plus any declared but
unpaid dividends thereon (the "Mandatory Redemption Price"), the following
respective portions of the number of shares of Series A Preferred Stock held by
such holder set forth opposite the applicable Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series A Preferred
Mandatory Redemption Date Stock to be Redeemed
------------------------- ----------------------------
April 17, 2002 33 1/3%
April 17, 2003 50%
April 17, 2004 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series A Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series A Redemption Request, specifying the time and place
of redemption and the Mandatory Redemption Price, by first class or registered
mail, postage prepaid, to each holder of record of Series A Preferred Stock at
the address for such holder last shown on the records of the transfer agent
therefor (or the records of the Corporation, if it serves as its own transfer
agent), not less than 20 days prior to the Mandatory Redemption Date.
(b) If the funds of the Corporation legally available for
redemption of Series A Preferred Stock on any Mandatory Redemption Date are
insufficient to redeem the number of shares of Series A Preferred Stock required
under this Section 6 to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares of
Series A Preferred Stock ratably on the basis of the number of shares of Series
A Preferred Stock which would be redeemed on such date if the funds of the
Corporation legally available therefor had been sufficient to redeem all shares
of Series A Preferred Stock required to be redeemed on such date. At any time
thereafter when additional funds of the Corporation become legally available for
the redemption of Series A Preferred Stock, such funds will be used, at the end
of the next succeeding fiscal quarter, to redeem, to the extent of the available
funds, the balance of the shares which the Corporation was theretofore obligated
to redeem.
(c) Unless there shall have been a default in payment of the
Mandatory Redemption Price, on such Mandatory Redemption Date all rights of each
holder of shares of Series A Preferred Stock as a stockholder of the Corporation
by reason of the ownership of such shares will cease, except the right to
receive the Mandatory Redemption Price for such shares, without interest, upon
presentation and surrender of the certificate representing such shares, and such
shares will not from and after such Mandatory Redemption Date be deemed to be
outstanding.
(d) Any Series A Preferred Stock redeemed pursuant to this
Section 6 will be cancelled and will not under any circumstances be reissued,
sold or transferred and the
- 14 -
<PAGE> 35
Corporation may from time to time take such appropriate action as may be
necessary to reduce the authorized number of shares of Series A Preferred
Stock accordingly.
7. NEGATIVE COVENANTS.
(a) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock and the
authorization of any shares of capital stock on a parity with Series A Preferred
Stock as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely the Series A Preferred Stock.
(b) So long as at least 1,400,000 shares of Series A Preferred
Stock (subject to appropriate adjustment in the event of any dividend, stock
split, combination or other similar recapitalization affecting such shares) are
outstanding, the Corporation shall not, without the prior written consent of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock:
(i) amend the Corporation's Certificate of Incorporation;
(ii) amend the Corporation's By-laws in a manner adverse to
either the holders of Series A Preferred Stock or the directors of the
Corporation;
(iii) declare or pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) repurchase shares of Common Stock at a price greater than
the price at which they were originally issued;
(v) liquidate, dissolve or wind-up the Corporation;
(vi) make (or permit any subsidiary to make) any loan or
advance to any person, including without limitation, any employee or director of
the Corporation or any subsidiary, except (A) advances and similar expenditures
in the ordinary course of business or (B) as approved by the Board of Directors
under the terms of an employee stock or option plan;
(vii) (A) merge with or into or consolidate with any other
corporation, (B) sell, lease, or otherwise dispose of all or substantially all,
or a significant portion, of its properties or assets, or (C) acquire all or
substantially all of the properties or assets of any other corporation or entity
(except for consideration of less than 20% of the Corporation's consolidated net
worth as of the end of the prior fiscal quarter); or
- 15 -
<PAGE> 36
(viii) incur or guaranty indebtedness for borrowed money in an
aggregate amount in excess of $250,000.
8. WAIVER. Any of the rights of the holders of Series A
Preferred Stock set forth herein may be waived by the affirmative vote of the
holders of more than fifty percent (50%) of the shares of Series A Preferred
Stock then Outstanding.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by its President this 16th day of April, 1997.
ArrowPoint Communications, Inc.
By: /s/ Chin-Cheng Wu
----------------------------------------
Chin-Cheng Wu
President
- 16 -
<PAGE> 37
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF DESIGNATIONS
OF
ARROWPOINT COMMUNICATIONS, INC.
August 8, 1997
ArrowPoint Communications, Inc. (the "Corporation"), organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
A resolution was duly adopted by the Board of Directors of the
Corporation, pursuant to Sections 151(g) of the General Corporation Law of the
State of Delaware, setting forth an amendment to the Certificate of
Designations. The resolution setting forth the amendment is as follows:
RESOLVED: That, pursuant to the authority expressly granted to and vested in
the Board of Directors of the Corporation in accordance with the
provisions of its Certificate of Incorporation, the number of
authorized shares of Series A Convertible Preferred Stock ("Series A
Preferred Stock") of the Corporation be and hereby is increased to
5,750,000 shares and that the Certificate of Designations be and
hereby is amended accordingly.
EXECUTED as of the date first written above.
ARROWPOINT COMMUNICATIONS, INC.
/s/ Chin-Cheng Wu
----------------------------------------
Chin-Cheng Wu
President
<PAGE> 38
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARROWPOINT COMMUNICATIONS, INC.
ArrowPoint Communications, Inc. (the "Corporation"), organized and
existing under and by virtue of the General Law of the State of Delaware, does
hereby certify as follows:
The Board of Directors of the Corporation duly adopted, pursuant to
Section 242 of the General Corporation Law of Delaware, a resolution setting
forth an amendment to the Certificate of Incorporation of the Corporation and
declaring said amendment to be advisable. The stockholders of the Corporation
duly approved said proposed amendment in accordance with Section 242 of the
General Corporation Law of the State of Delaware by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware, and written notice of such consent has been given to all
stockholders who have not consented in writing to said amendment. The resolution
setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 30,000,000 shares, consisting of
(i) 20,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 10,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), 5,750,O00 shares of which have been designated as Series A
Convertible Preferred Stock ("Series A Preferred Stock") and 2,213,828 shares of
which have been designated as Series B Convertible Preferred Stock ("Series B
Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
<PAGE> 39
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stork.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Certificate of Incorporation, no vote of the holders
of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any
- 2 -
<PAGE> 40
shares of any series of the Preferred Stock authorized by and complying with the
conditions of this Certificate of Incorporation, the right to have such vote
being expressly waived by all present and future holders of the capital stock
of the Corporation.
C. SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK.
1. DIVIDENDS.
(a) The Corporation shall not declare or pay any dividends or
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock and Series B Preferred Stock then outstanding shall
have first received, or simultaneously receive, a like distribution on each
outstanding share of Series A Preferred Stock and Series B Preferred Stock, in
an amount at least equal to the product of (i) the per share amount, if any, of
the dividends or distributions to be declared, paid or set aside for the Common
Stock, multiplied by (ii) the number of whole shares of Common Stock into which
such share of Series A Preferred Stock or Series B Preferred Stock, as the case
may be, is convertible as of the record date for such dividend or distribution.
(b) For purposes of this Section 1, "distribution" shall mean the
transfer of cash or property without consideration, whether by way of dividend
or otherwise, payable other than in Common Stock or other securities of the
Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation upon termination of their employment or services
pursuant to agreements approved by the Board of Directors providing for such
repurchase at a price equal to the original issue price of such shares) for cash
or property, including any such transfer, purchase or redemption by a subsidiary
of the Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock and Series B Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its stockholders, after and subject to the payment in full of all amounts
required to be distributed to the holders of any other class or series of stock
of the Corporation ranking on liquidation prior and in preference to the Series
A Preferred Stock and Series B Preferred Stock, but before any payment shall be
made to the holders of Common Stock or any other class or series of stock
ranking on liquidation junior to the Series A Preferred Stock and Series B
Preferred Stock by reason of their ownership thereof, an amount equal to $1.00
per share, in the case of Series A Preferred Stock, and $4.63 per share, in the
case of Series B Preferred Stock (subject to appropriate adjustment in the event
of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), plus any dividends declared but unpaid
on such shares. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
A Preferred Stock and Series B Preferred Stock the full amount to which they
shall be entitled, the holders of shares of Series A Preferred Stock and Series
B Preferred Stock and any class or series of stock ranking on
- 3 -
<PAGE> 41
liquidation on a parity with the Series A Preferred Stock and Series B
Preferred Stock shall share ratably in any distribution of the remaining assets
and funds of the Corporation in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
(b) After the payment of all preferential amounts required to be paid
to the holders of any class or series of stock of the Corporation ranking on
liquidation prior to and in preference to the Common Stock, upon the
dissolution, liquidation or winding up of the Corporation, the remaining assets
and funds of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock, pro rata based upon the number of
shares of Common Stork held by each such stockholder (after giving effect to the
conversion into Common Stock of all Series A Preferred Stock and Series B
Preferred Stock).
(c) Any (i) merger or consolidation which results in the voting
securities of the Corporation outstanding immediately prior thereto representing
immediately thereafter (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than a
majority of the combined voting power of the voting securities of the
Corporation or such surviving or acquiring entity outstanding immediately after
such merger or consolidation, (ii) sale of all or substantially all or a
significant portion of the assets of the Corporation or (iii) sale of shares of
capital stock of the Corporation, in a single transaction or series of related
transactions, representing at least 80% of the voting power of the voting
securities of the Corporation, shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation (net of obligations owed by the Corporation),
together with all other available assets of the Corporation (in the case of an
asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with Subsections 2(a) and 2(b) above. The Corporation
shall promptly provide to the holders of shares of Series A Preferred Stock and
Series B Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series A Preferred Stock and
Series B Preferred Stock. If applicable, the Corporation shall cause the
agreement or plan of merger or consolidation to provide for a rate at which the
shares of capital stock of the Corporation are converted into or exchanged for
cash, new securities or other property which gives effect to this provision. The
amount deemed distributed to the holders of Series A Preferred Stock and Series
B Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
Corporation and/or by the acquiring person, firm or other entity. The value of
such property, rights or other securities shall be determined in good faith by
the Board of Directors of the Corporation.
3. VOTING.
(a) Each holder of outstanding shares of Series A Preferred Stock and
Series B Preferred Stock shall be entitled to the number of votes equal to the
number of whole shares of Common Stock into which the shares of Series A
Preferred Stock and Series B Preferred Stock held by such holder are convertible
(as adjusted from time to time pursuant to Section 4 hereof) as of the record
date, at each meeting of stockholders of the Corporation (and written actions of
- 4 -
<PAGE> 42
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law or by the provisions of Section 7 below or by the provisions
establishing any other series of stock, holders of Series A Preferred Stock,
Series B Preferred Stock and of any other outstanding series of stock shall vote
together with the holders of Common Stock as a single class.
(b) For so long as at least 1,400,000 shares of Series A Preferred
Stock (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations affecting such shares) are
outstanding, the holders of record of the shares of Series A Preferred Stock,
exclusively and as a separate class, shall be entitled to elect two members of
the Board of Directors of the Corporation, and the holders of record of the
shares of Common Stock and of any other class or series of voting stock
(including the Series A Preferred Stock and Series B Preferred Stock),
exclusively and as a single class, shall be entitled to elect the balance of the
total number of directors of the Corporation. At any meeting held for the
purpose of electing directors, the presence in person or by proxy of the holders
of a majority of the shares of Series A Preferred Stock then outstanding shall
constitute a quorum of the Series A Preferred Stock for the purpose of electing
directors by holders of the Series A Preferred Stock and the presence of a
majority of the shares of Series A Preferred Stock, Series B Preferred Stock and
Common Stock then outstanding shall constitute a quorum for the purpose of
electing the remaining directors. A vacancy in any directorship filled by the
holders of Series A Preferred Stock shall be filled only by vote or written
consent in lieu of a meeting of the holders of the Series A Preferred Stock.
4. OPTIONAL CONVERSION. The holders of Series A Preferred Stock and
Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) Each share of Series A Preferred Stock shall be convertible, at
the option of the holder thereof, at any time and from time to time, and without
the payment of additional consideration by the holder thereof, into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing $1.00 by the Series A Conversion Price (as defined below) in effect at
the time of conversion. The "Series A Conversion Price" shall initially be
$1.00. Such Series A Conversion Price, and the rate at which shares of Series A
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.
(ii) Each share of Series B Preferred Stock shall be convertible,
at the option of the holder thereof, at any time and from time to time, and
without the payment of additional consideration by the holder thereof, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by dividing $4.63 by the Series B Conversion Price (as defined below) in effect
at the time of conversion. The "Series B Conversion Price" shall initially be
$4.63. Such Series B Conversion Price, and the rate at which shares of Series B
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.
- 5 -
<PAGE> 43
In the event of a notice of redemption of any shares of Series A
Preferred Stock or Series B Preferred Stock pursuant to Section 6 hereof, the
Conversion Right of the shares designated for redemption shall terminate at the
close of business on the first full day preceding the date fixed for redemption,
unless the redemption price is not paid when due, in which case the Conversion
Right for such shares shall continue until such price is paid in full. In the
event of a liquidation of the Corporation (or deemed liquidation under Section
2(c) hereof), the Conversion Right shall terminate at the close of business on
the first full business day preceding the date fixed for the payment of any
amounts distributable on liquidation (or deemed liquidation under Section 2(c)
hereof) to the holders of such series of Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Preferred Stock or Series B Preferred
Stock. In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Series A Conversion Price or Series B Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series A Preferred Stock or Series
B Preferred Stock to convert shares of Series A Preferred Stock or Series B
Preferred Stock into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares of Preferred Stock, at the office of
the transfer agent for the Preferred Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any number of the
shares of the Series A Preferred Stock or Series B Preferred Stock represented
by such certificate or certificates. Such notice shall state such holder's name
or the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duty executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock or Series B Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock or Series B Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A Preferred Stock and Series B Preferred
Stock, such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding Series A
Preferred Stock and Series B Preferred Stock. Before taking any action which
would cause an adjustment reducing the Series A Conversion Price or Series B
Conversion Price below the then par value of the shares of Common Stock issuable
upon conversion of the Series A Preferred Stock or Series B Preferred Stock, the
Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly
- 6 -
<PAGE> 44
and legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Series A Conversion Price or Series B Conversion Price.
(iii) Upon any such conversion, no adjustment to the Series A
Conversion Price or Series B Conversion Price shall be made for any declared but
unpaid dividends on the Series A Preferred Stock or Series B Preferred Stock
surrendered for conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series A Preferred Stock or Series B
Preferred Stock which shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all rights with respect
to such shares, including the rights, if any, to receive notices and to vote,
shall immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stork in exchange
therefor and payment of any dividends declared but unpaid thereon. Any shares of
Series A Preferred Stock or Series B Preferred Stock so converted shall be
retired and cancelled and shall not be reissued, and the Corporation (without
the need for stockholder action) may from time to time take such appropriate
action as may be necessary to reduce the authorized number of shares of Series A
Preferred Stock or Series B Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Series A Preferred Stock or Series B
Preferred Stock pursuant to this Section 4. The Corporation shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a name other
than that in which the shares of Series A Preferred Stock or Series B Preferred
Stock so converted were registered, and no such issuance or delivery shall be
made unless and until the person or entity requesting such issuance has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "SERIES A ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series A Preferred Stock was first issued.
(C) "SERIES B ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series B Preferred Stock was first issued.
(D) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
- 7 -
<PAGE> 45
(E) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than:
(I) shares of Common Stock issued or issuable as a
dividend or other distribution on Series A
Preferred Stock or Series B Preferred Stock;
(II) shares of Common Stock issued or issuable by
reason of a dividend or other distribution on
shares of Common Stock that is covered by
Subsection 4(e) or 4(f) below;
(III) shares of Common Stock issued or issuable upon
conversion of those shares of Series A Preferred
Stock or Series B Preferred Stock outstanding at
the close of business on the Series A Original
Issue Date or the Series B Original Issue Date,
respectively;
(IV) 1,199,850 shares of Common Stock (including
issuances prior to the Series A Original Issue
Date or Series B Original Issue Date) (subject to
appropriate adjustment for stock splits, stock
dividends, combinations and other similar
recapitalizations affecting such shares) issued
in the form of restricted stock awards approved
by both the Board of Directors of the Corporation
and a majority of the non-employee directors of
the Corporation; or
(V) up to 2,000,150 shares of Common Stock (including
issuances prior to the Series A Original Issue
Date or Series B Original issue Date) (subject to
appropriate adjustment for stock splits, stock
dividends, combinations and other similar
recapitalizations affecting such shares), plus
such additional number of shares as may be
approved by both the Board of Directors of the
Corporation and a majority of the non-employee
directors of the Corporation, issued or issuable
to employees or directors of, or consultants to,
the Corporation pursuant to plans adopted by the
Board of Directors of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the number
of shares of Common Stock into which the Series A Preferred Stock is convertible
shall be made
- 8 -
<PAGE> 46
(a) unless the consideration per share (determined pursuant to Subsection
4(d)(v)) for an Additional Share of Common Stock issued or deemed to be
issued by the Corporation is less than the applicable Series A Conversion
Price in effect on the date of, and immediately prior to, the issue of such
Additional Shares, or (b) if prior to or within 60 days subsequent to such
issuance, the Corporation receives written notice from the holders of at least
66 2/3% of the then outstanding shares of Series A Preferred Stock, agreeing
that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock. No adjustment in the number of shares of
Common Stock into which the Series B Preferred Stock is convertible shall be
made (a) unless the consideration per share (determined pursuant to Subsection
4(d)(v)) for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is less than the applicable Series B Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) if prior to or within 60 days subsequent to such issuance, the
Corporation receives written notice from the holders of at least 66 2/3% of the
then outstanding shares of Series B Preferred Stock, agreeing that no such
adjustment shall be made as the result of the issuance of Additional Shares of
Common Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK.
If the Corporation at any time or from time to time after the Series A
Original Issue Date or Series B Original Issue Date, as applicable, shall issue
any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that (x) for the purposes of adjusting
the Series A Conversion Price, Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock
would be less than the applicable Series A Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, and (y) for the purposes of adjusting the Series B Conversion Price,
additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Series B Conversion Price in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Series A Conversion Price or
Series B Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
- 9 -
<PAGE> 47
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Series A Conversion Price or Series B Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase becoming effective, be recomputed to reflect such
increase insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Series A Conversion Price and Series B Conversion Price shall not be
readjusted, but the Additional Shares of Common Stock deemed issued as the
result of the original issue of such Option shall not be deemed issued for the
purposes of any subsequent adjustment of the Series A Conversion Price or Series
B Conversion Price;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Series A Conversion Price and Series B
Conversion Price then in effect shall forthwith be readjusted to such Series A
Conversion Price or Series B Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made upon the
basis of such change; and
(E) No readjustment pursuant to clause (B) or (D) above shall
have the effect of increasing the Series A Conversion Price or Series B
Conversion Price to an amount which exceeds the lower of (i) the Series A
Conversion Price or Series B Conversion Price on the original adjustment date,
or (ii) the Series A Conversion Price or Series B Conversion Price, as the case
may be, that would have resulted from any issuances of Additional Shares of
Common Stock between the original adjustment date and such readjustment date.
In the event the Corporation, after the Series A Original Issue Date or
the Series B Original Issue Date, amends any Options or Convertible Securities
(whether such Options or Convertible Securities were outstanding on such
Original Issue Date or were issued after such Original Issue Date) to increase
the number of shares issuable thereunder or decrease the consideration to be
paid upon exercise or conversion thereof, then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after such
Original Issue Date and the provisions of this Subsection 4(d)(iii) shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK.
(A) In the event the Corporation shall at any time after the
Series A Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per
- 10 -
<PAGE> 48
share less than the applicable Series A Conversion Price in effect on the
date of and immediately prior to such issue, then and in such event,
such Series A Conversion Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) determined by multiplying
such Series A Conversion Price by a fraction, (A) the numerator of which shall
be (1) the number of shares of Common Stock outstanding immediately prior to
such issue plus (2) the number of shares of Common Stock which the aggregate
consideration received or to be received by the Corporation for the total number
of Additional Shares of Common Stock so issued would purchase at such Series A
Conversion Price; and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
such Additional Shares of Common Stock so issued; provided that, (i) for the
purpose of this Subsection 4(d)(iv), all shares of Common Stock issuable upon
exercise or conversion of Options or Convertible Securities outstanding
immediately prior to such issue shall be deemed to be outstanding, and (ii) for
the purpose of this Subsection 4(d)(iv), the number of shares of Common Stock
deemed issuable upon conversion of such outstanding Convertible Securities shall
not give effect to any adjustments to the conversion price or conversion rate of
such Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(B) In the event the Corporation shall at any time after the
Series B Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Subsection
4(d)(iii), but excluding shares issued as a stock split or combination as
provided in Subsection 4(e) or upon a dividend or distribution as provided in
Subsection 4(f)), without consideration or for a consideration per share less
than the applicable Series B Conversion Price in effect on the date of and
immediately prior to such issue, then and in such event, such Series B
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series B Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; PROVIDED THAT, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
- 11 -
<PAGE> 49
(I) insofar as it consists of cash, be computed at
the aggregate of cash received by the
Corporation, excluding amounts paid or payable
for accrued interest;
(II) insofar as it consists of property other than
cash, be computed at the fair market value
thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or
securities or other assets of the Corporation for
consideration which covers both, be the
proportion of such consideration so received,
computed as provided in clauses (I) and (II)
above, as determined in good faith by the Board
of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 4(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation shall
issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Convertible Securities, and
such issuance dates occur within a period of no more than 120 days, then, upon
the final such issuance, the Series A Conversion Price and the Series B
Conversion Price shall be adjusted to give effect to all such issuances as if
they occurred on the date of the final such issuance (and without giving effect
to any adjustments as a result of such prior issuances within such period).
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Series A Original
Issue Date or the Series B Original
- 12 -
<PAGE> 50
Issue Date effect a subdivision of the outstanding Common Stock, the Series
A Conversion Price and/or Series B Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Series A Original
Issue Date and/or the Series B Original Issue Date, as the case may be, combine
the outstanding shares of Common Stock, the Series A Conversion Price and/or
Series B Conversion Price, as the case may be, then in effect immediately before
the combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Series A
Original Issue Date and/or the Series B Original Issue Date, as the case may be,
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series A
Conversion Price and/or Series B Conversion Price for the Series A Preferred
Stock, as the case may be, then in effect shall be decreased as of the time of
such issuance or, in the event such a record date shall have been fixed, as of
the close of business on such record date, by multiplying the Series A
Conversion Price and/or Series B Conversion Price, as the case may be, then in
effect by a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price and/or Series B Conversion Price for the
Series A Preferred Stock shall be recomputed accordingly as of the close of
business on such record date and thereafter the Series A Conversion Price and/or
Series B Conversion Price, as the case may be, shall be adjusted pursuant to
this paragraph as of the time of actual payment of such dividends or
distributions; and provided further, however, that no such adjustment shall be
made if the holders of Series A Preferred Stock and/or Series B Preferred Stock
simultaneously receive (i) a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock and/or
Series B Preferred Stock had been converted into Common Stock on the date of
such event or (ii) a dividend or other distribution of shares of such series of
Preferred Stock which are convertible, as of the date of such event, into the
number of shares of Common Stock as is equal to the number of additional shares
of Common Stock being issued with respect to each share of Common Stock in such
dividend or distribution.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Series A Original
Issue Date or the
- 13 -
<PAGE> 51
Series B Original Issue Date shall make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in securities of the Corporation other than
shares of Common Stock, then and in each such event provision shall be made
so that the holders of the Series A Preferred Stock and/or Series B Preferred
Stock, as the case may be, shall receive upon conversion thereof in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation that they would have received had the Series A
Preferred Stock and/or Series B Preferred Stock, as the case may be, been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under this paragraph with respect to the rights of the holders of the Series A
Preferred Stock and/or Series B Preferred Stock, as the case may be; and
provided further, however, that no such adjustment shall be made if the holders
of Series A Preferred Stock and/or Series B Preferred Stock, as the case may be,
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series A Preferred Stock and/or Series B Preferred Stock,
as the case may be, had been converted into Common Stock on the date of such
event.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stork issuable upon the conversion of the Series A Preferred Stock
and Series B Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of stock, whether by capital
reorganization, reclassification, or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or a reorganization,
merger, consolidation, or sale of assets provided for below), then and in each
such event the holder of each such share of Series A Preferred Stock and Series
B Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable,
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Series A Preferred
Stock and Series B Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) ADJUSTMENTS FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock and Series B Preferred
Stock shall thereafter be convertible (or shall be converted into a security
which shall be convertible) into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such Series A Preferred Stock
and Series B Preferred Stock would have been entitled upon such consolidation,
merger or sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and interest
thereafter of the holders of the Series A Preferred Stock and Series B Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Series A
Conversion Price and Series B Conversion Price) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of
- 14 -
<PAGE> 52
stock or other property thereafter deliverable upon the conversion of the
Series A Preferred Stock and Series B Preferred Stock, as the case may be.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock and Series B Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price or Series B
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series A Preferred Stock and/or
Series B Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock or Series B Preferred Stock,
furnish or cause to be furnished to such holder a similar certificate setting
forth (i) such adjustments and readjustments, (ii) the Series A Conversion Price
or Series B Conversion Price then in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which then would be
received upon the conversion of Series A Preferred Stock or Series B Preferred
Stock, as the case may be.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock and Series B
Preferred Stock, and shall cause to be mailed to the holders of the Series A
Preferred Stock and Series B Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least ten days prior
to the date specified in (A) below or twenty days before the date specified in
(B) below, a notice stating
- 15 -
<PAGE> 53
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to
be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation
or winding up is expected to become effective, and
the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other
property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding
up.
5. MANDATORY CONVERSION.
(a) Upon the closing of the sale of shares of Common Stock, at a
price of at least $14.00 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $10,000,000 of proceeds to the
Corporation (net of the underwriting discounts or commissions and offering
expenses)(the "Series A Mandatory Conversion Date"), (i) all outstanding shares
of Series A Preferred Stock shall automatically be converted into shares of
Common Stock, at the then effective conversion rate, and (ii) all references
herein to the Series A Preferred Stock shall be deleted and shall be of no
further force or effect.
(b) Upon the closing of the sale of shares of Common Stock, at a
price of at least $14.00 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $10,000,000 of proceeds to the
Corporation (net of the underwriting discounts or commissions and offering
expenses)(the "Series B Mandatory Conversion Date"), (i) all outstanding shares
of Series B Preferred Stock shall automatically be converted into shares of
Common Stock, at the then effective conversion rate, and (ii) all references
herein to the Series B Preferred Stock shall be deleted and shall be of no
further force or effect.
(c) All holders of record of shares of Series A Preferred Stock
shall be given written notice of the Series A Mandatory Conversion Date and the
place designated for mandatory conversion of all such shares of Series A
Preferred Stock, pursuant to this Section 5; and all holders of record of shares
of Series B Preferred Stock shall be given written notice of the Series B
Mandatory Conversion Date and the place designated for mandatory conversion of
all such shares of Series B Preferred Stock, pursuant to this Section 5. Such
notice need not be given in advance of the occurrence of the applicable
Mandatory Conversion Date. Such notice shall be sent by first class or
registered mail, postage prepaid, to each record holder of Series A Preferred
Stock or Series B Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series A Preferred Stock or Series B
Preferred Stock, as the case may be (or the records of the Corporation, if it
serves as its own transfer agent). Upon receipt of such
- 16 -
<PAGE> 54
notice, each holder of shares of Series A Preferred Stock or Series B
Preferred Stork shall surrender his or its certificate or certificates for all
such shares to the Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of Common Stock to
which such holder is entitled pursuant to this Section 5. On the Series A
Mandatory Conversion Date, all rights with respect to the Series A Preferred
Stock so converted, including the rights, if any, to receive notices and vote
(other than as a holder of Common Stock) will terminate, except only the rights
of the holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock into
which such Series A Preferred Stock has been converted, and payment of any
declared but unpaid dividends thereon. On the Series B Mandatory Conversion
Date, all rights with respect to the Series B Preferred Stock so converted,
including the rights, if any, to receive notices and vote (other than as a
holder of Common Stock) will terminate, except only the rights of the holders
thereof, upon surrender of their certificate or certificates therefor, to
receive certificates for the number of shares of Common Stock into which such
Series B Preferred Stock has been converted, and payment of any declared but
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the applicable Mandatory Conversion
Date and the surrender of the certificate or certificates for Series A Preferred
Stock or Series B Preferred Stock, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
Subsection 4(b) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
(d) All certificates evidencing shares of Series A Preferred Stock
and Series B Preferred Stock which are required to be surrendered for conversion
in accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and cancelled and the shares of
Series A Preferred Stock or Series B Preferred Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to such
date. The Corporation may thereafter take such appropriate action (without the
need for stockholder action) as may be necessary to reduce the authorized Series
A Preferred Stock or Series B Preferred Stock, accordingly.
6. REDEMPTION.
(a) The Corporation will, subject to the conditions set forth
below, on February 5, 2003, February 5, 2004 and February 5, 2005 (each, a
"Mandatory Redemption Date"), upon receipt not less than 30 nor more than 120
days prior to the applicable Mandatory Redemption Date of written request(s) for
redemption from holders of at least a majority of the shares of Series A
Preferred Stock then outstanding (a "Series A Redemption Request"), redeem from
each holder of shares of Series A Preferred Stock, at a price equal to $1.00 per
share (subject to appropriate adjustment in the event of any dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any declared but unpaid dividends thereon (the "Series A Mandatory
Redemption Price"), the following respective portions of the number
- 17 -
<PAGE> 55
of shares of Series A Preferred Stock held by such holder set forth opposite
the applicable Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series A Preferred
Mandatory Redemption Date Stock to be Redeemed
------------------------- ----------------------------
February 5, 2003 33 1/3%
February 5, 2004 50%
February 5, 2005 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series A Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series A Redemption Request, specifying the time and place
of redemption and the Series A Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series A Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not less than 20 days prior to the Mandatory Redemption Date.
(b) The Corporation will on each Mandatory Redemption Date, upon
receipt not less than 30 nor more than 120 days prior to the applicable
Mandatory Redemption Date of written request(s) for redemption from holders of
at least a majority of the shares of Series B Preferred Stock then outstanding
(a "Series B Redemption Request"), redeem from each holder of shares of Series B
Preferred Stock, at a price equal to $4.63 per share (subject to appropriate
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any declared but unpaid
dividends thereon (the "Series B Mandatory Redemption Price"), the following
respective portions of the number of shares of Series B Preferred Stock held by
such holder set forth opposite the applicable Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series B Preferred
Mandatory Redemption Date Stock to be Redeemed
------------------------- ----------------------------
February 5, 2003 33 1/3%
February 5, 2004 50%
February 5, 2005 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series B Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series B Redemption Request, specifying the time and place
of redemption and the
- 18 -
<PAGE> 56
Series B Mandatory Redemption Price, by first class or registered mail,
postage prepaid, to each holder of record of Series B Preferred Stock at
the address for such holder last shown on the records of the transfer agent
therefor (or the records of the Corporation, if it serves as its own transfer
agent), not less than 20 days prior to the Mandatory Redemption Date.
(c) If the funds of the Corporation legally available for
redemption of Series A Preferred Stock and Series B Preferred Stock on any
Mandatory Redemption Date are insufficient to redeem the number of shares of
Series A Preferred Stock and Series B Preferred Stock required under this
Section 6 to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares ratably on the
basis of the number of shares of each such series which would be redeemed on
such date if the funds of the Corporation legally available therefor had been
sufficient to redeem all shares required to be redeemed on such date. At any
time thereafter when additional funds of the Corporation become legally
available for the redemption of Series A Preferred Stock and Series B Preferred
Stock, such funds will be used, at the end of the next succeeding fiscal
quarter, to redeem, to the extent of the available funds, the balance of the
shares which the Corporation was theretofore obligated to redeem.
(d) Unless there shall have been a default in payment of the
Mandatory Redemption Price, on such Mandatory Redemption Date all rights of each
holder of shares of Series A Preferred Stock or Series B Preferred Stock as a
stockholder of the Corporation by reason of the ownership of such shares will
cease, except the right to receive the Mandatory Redemption Price for such
shares, without interest, upon presentation and surrender of the certificate
representing such shares, and such shares will not from and after such Mandatory
Redemption Date be deemed to be outstanding.
(e) Any Series A Preferred Stock or Series B Preferred Stock
redeemed pursuant to this Section 6 will be cancelled and will not under any
circumstances be reissued, sold or transferred and the Corporation may from time
to time take such appropriate action as may be necessary to reduce the
authorized number of shares of Series A Preferred Stock or Series B Preferred
Stock accordingly.
7. NEGATIVE COVENANTS.
(a) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock and the
authorization of any shares of capital stock on a parity with Series A Preferred
Stock as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely the Series A Preferred Stock.
- 19 -
<PAGE> 57
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series B Preferred Stock so
as to affect adversely the Series B Preferred Stock, without the written consent
or affirmative vote of the holders of 66 2/3% of the then outstanding shares of
Series B Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series B Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series B Preferred Stock and the authorization of any
shares of capital stock on a parity with Series B Preferred Stock as to the
right to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall not be deemed to affect
adversely the Series B Preferred Stock.
(c) So long as at least either 1,400,000 shares of Series A
Preferred Stock or 553,457 shares of Series B Preferred Stock (subject to
appropriate adjustment in the event of any dividend, stock split, combination or
other similar recapitalization affecting such shares) are outstanding, the
Corporation shall not, without the prior written consent of the holders of
shares of Series A Preferred Stock and/or Series B Preferred Stock representing
at least 66 2/3% of the combined votes represented by the outstanding shares of
Series A Preferred Stock and Series B Preferred Stock, voting as a single class:
(i) amend the Corporation's Certificate of Incorporation,
(ii) amend the Corporation's By-laws in a manner adverse to
either the holders of Series A Preferred Stock, the holders of Series B
Preferred Stock or the directors of the Corporation;
(iii) declare of pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) repurchase shares of Common Stock at a price greater than
the price at which they were originally issued;
(v) liquidate, dissolve or wind-up the Corporation;
(vi) make (or permit any subsidiary to make) any loan or
advance to any person, including without limitation, any employee or director of
the Corporation or any subsidiary, except (A) advances and similar expenditures
in the ordinary course of business or (B) as approved by the Board of Directors
under the terms of an employee stock or option plan;
(vii) (A) merge with or into or consolidate with any other
corporation, (B) sell, lease, or otherwise dispose of all or substantially all,
or a significant portion, of its properties or assets, or (C) acquire all or
substantially all of the properties or assets of any other corporation or entity
(except for consideration of less than 20% of the Corporation's consolidated net
worth as of the end of the prior fiscal quarter); or
(viii) incur or guaranty indebtedness for borrowed money in an
aggregate amount in excess of $1,000,000.
- 20 -
<PAGE> 58
8. WAIVER. Any of the rights of the holders of Series A
Preferred Stock or Series B Preferred Stock set forth herein may be waived by
the affirmative vote of the holders of more than 66 2/3% of the shares of such
series of Preferred Stock then outstanding.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President this 4th day of February, 1998.
ARROWPOINT COMMUNICATIONS, INC.
By: /s/ Chin-Cheng Wu
---------------------------------------
Chin-Cheng Wu
President
- 21 -
<PAGE> 59
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARROWPOINT COMMUNICATIONS, INC.
ArrowPoint Communications, Inc. (the "Corporation"), organized and
existing under and by virtue of the General Law of the State of Delaware, does
hereby certify as follows:
The Board of Directors of the Corporation duly adopted, pursuant to
Section 242 of the General Corporation Law of Delaware, a resolution setting
forth an amendment to the Certificate of Incorporation of the Corporation and
declaring said amendment to be advisable. The stockholders of the Corporation
duly approved said proposed amendment in accordance with Section 242 of the
General Corporation Law of the State of Delaware by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware, and written notice of such consent has been given to all
stockholders who have not consented in writing to said amendment. The resolution
setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 30,000,000 shares, consisting of
(i) 20,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 10,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), 5,750,000 shares of which have been designated as Series A
Convertible Preferred Stock ("Series A Preferred Stock"), 2,213,828 shares of
which have been designated as Series B Convertible Preferred Stock ("Series B
Preferred Stock"), and 278,464 shares of which have been designated as Series C
Convertible Preferred Stock ("Series C Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of
<PAGE> 60
any series as may be designated by the Board of Directors upon any issuance of
the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Certificate of Incorporation, no vote of the holders
of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
- 2 -
<PAGE> 61
C. SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK AND SERIES C
PREFERRED STOCK.
1. DIVIDENDS.
(a) The Corporation shall not declare or pay any dividends or
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock then outstanding shall have first received, or simultaneously receive, a
like distribution on each outstanding share of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock, in an amount at least equal to
the product of (i) the per share amount, if any, of the dividends or
distributions to be declared, paid or set aside for the Common Stock, multiplied
by (ii) the number of whole shares of Common Stock into which such share of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
as the case may be, is convertible as of the record date for such dividend or
distribution.
(b) For purposes of this Section 1, "distribution" shall mean the
transfer of cash or property without consideration, whether by way of dividend
or otherwise, payable other than in Common Stock or other securities of the
Corporation, or the purchase or redemption of shares of the Corporation (other
than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation upon termination of their employment or services
pursuant to agreements approved by the Board of Directors providing for such
repurchase at a price equal to the original issue price of such shares) for cash
or property, including any such transfer, purchase or redemption by a subsidiary
of the Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, after and subject to the payment
in full of all amounts required to be distributed to the holders of any other
class or series of stock of the Corporation ranking on liquidation prior and in
preference to the Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock, but before any payment shall be made to the holders of Common
Stock or any other class or series of stock ranking on liquidation junior to the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
by reason of their ownership thereof, an amount equal to $1.00 per share, in the
case of Series A Preferred Stock, $4.63 per share, in the case of Series B
Preferred Stock, and $7.86 per share, in the case of Series C Preferred Stock
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any dividends declared but unpaid on such shares. If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock the full amount to which they shall
be entitled, the holders of shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock and any class or series of stock
ranking on liquidation on a parity with the Series A Preferred Stock, Series B
Preferred Stock and Series C
- 3 -
<PAGE> 62
Preferred Stock shall share ratably in any distribution of the remaining
assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of any class or series of stock of the Corporation ranking
on liquidation prior to and in preference to the Common Stock, upon the
dissolution, liquidation or winding up of the Corporation, the remaining assets
and funds of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock, pro rata based upon the number of
shares of Common Stock held by each such stockholder (after giving effect to the
conversion into Common Stock of all Series A Preferred Stock and Series B
Preferred Stock).
(c) Any (i) merger or consolidation which results in the voting
securities of the Corporation outstanding immediately prior thereto representing
immediately thereafter (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than a
majority of the combined voting power voting securities of the Corporation or
such surviving or acquiring entity outstanding immediately after such merger or
consolidation, (ii) sale of all or substantially all or a significant portion of
the assets of the Corporation or (iii) sale of shares of capital stock of the
Corporation, in a single transaction or series of related transactions,
representing at least 80% of the of the voting power of the voting securities of
the Corporation, shall be deemed to be a liquidation of the Corporation, and all
consideration payable to the stockholders of the Corporation (in the case of a
merger or consolidation), or all consideration payable to the Corporation (net
of obligations owed by the Corporation), together with all other available
assets of the Corporation (in the case of an asset sale), shall be distributed
to the holders of capital stock of the Corporation in accordance with
Subsections 2(a) and 2(b) above. The Corporation shall promptly provide to the
holders of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock. If applicable, the Corporation
shall cause the agreement or plan of merger or consolidation to provide for a
rate at which the shares of capital stock of the Corporation are converted into
or exchanged for cash, new securities or other property which gives effect to
this provision. The amount deemed distributed to the holders of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock upon any
such merger or consolidation shall be the cash or the value of the property,
rights or securities distributed to such holders by the Corporation and/or by
the acquiring person, firm or other entity. The value of such property, rights
or other securities shall be determined in good faith by the Board of Directors
of the Corporation.
3. VOTING. Each holder of outstanding shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall be entitled
to the number of votes equal to the number of whole shares of Common Stock into
which the shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock held by such holder are convertible (as adjusted from
time to time pursuant to Section 4 hereof) as of the record date, at each
meeting of stockholders of the Corporation (and written actions of stockholders
in lieu of meetings) with
- 4 -
<PAGE> 63
respect to any and all matters presented to the stockholders of the
Corporation for their action or consideration. Except as provided by law or by
the provisions of Section 7 below or by the provisions establishing any other
series of stock, holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and of any other outstanding series of stock shall vote
together with the holders of Common Stock as a single class.
4. OPTIONAL CONVERSION. The holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $1.00 by the Series A Conversion Price (as defined below)
in effect at the time of conversion. The "Series A Conversion Price" shall
initially be $1.00. Such Series A Conversion Price, and the rate at which shares
of Series A Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below.
(ii) Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $4.63 by the Series B Conversion Price (as defined below)
in effect at the time of conversion. The "Series B Conversion Price" shall
initially be $4.63. Such Series B Conversion Price, and the rate at which shares
of Series B Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below.
(iii) Each share of Series C Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $7.86 by the Series C Conversion Price (as defined below)
in effect at the time of conversion. The "Series C Conversion Price" shall
initially be $7.86. Such Series C Conversion Price, and the rate at which shares
of Series C Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock pursuant
to Section 6 hereof, the Conversion Right of the shares designated for
redemption shall terminate at the close of business on the first full day
preceding the date fixed for redemption, unless the redemption price is not paid
when due, in which case the Conversion Right for such shares shall continue
until such price is paid in full. In the event of a liquidation of the
Corporation (or deemed liquidation under Section 2(c) hereof), the Conversion
Right shall terminate at the close of business on the first full business day
- 5 -
<PAGE> 64
preceding the date fixed for the payment of any amounts distributable on
liquidation (or deemed liquidation under Section 2(c) hereof) to the holders of
such series of Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock. In lieu of any fractional shares to which the
holder would otherwise be entitled, the Corporation shall pay cash equal to such
fraction multiplied by the then effective Series A Conversion Price, Series B
Conversion Price or Series C Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock to convert shares of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock into
shares of Common Stock, such holder shall surrender the certificate or
certificates for such shares of Preferred Stock, at the office of the transfer
agent for the Preferred Stock (or at the principal office of the Corporation if
the Corporation serves as its own transfer agent), together with written notice
that such holder elects to convert all or any number of the shares of the Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
represented by such certificate or certificates. Such notice shall state such
holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If required
by the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, or to his
or its nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled, together with cash in lieu
of any fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock shall be
outstanding, reserve and keep available out of its authorized but unissued
stock, for the purpose of effecting the conversion of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, such number of its
duly authorized shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock. Before taking any action which
would cause an adjustment reducing the Series A Conversion Price, Series B
Conversion Price or Series C Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, the Corporation will take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Series A Conversion Price,
Series B Conversion Price or Series C Conversion Price.
- 6 -
<PAGE> 65
(iii) Upon any such conversion, no adjustment to the Series A
Conversion Price, Series B Conversion Price or Series C Conversion Price shall
be made for any declared but unpaid dividends on the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock surrendered for conversion
or on the Common Stock delivered upon conversion.
(iv) All shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock which shall have been surrendered for
conversion as herein provided shall no longer be deemed to be outstanding and
all rights with respect to such shares, including the rights, if any, to receive
notices and to vote, shall immediately cease and terminate on the Conversion
Date, except only the right of the holders thereof to receive shares of Common
Stock in exchange therefor and payment of any dividends declared but unpaid
thereon. Any shares of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock so converted shall be retired and cancelled and shall
not be reissued, and the Corporation (without the need for stockholder action)
may from time to time take such appropriate action as may be necessary to reduce
the authorized number of shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock pursuant to this Section 4. The Corporation
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of shares of Common Stock
in a name other than that in which the shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock so converted were
registered, and no such issuance or delivery shall be made unless and until the
person or entity requesting such issuance has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "SERIES A ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series A Preferred Stock was first issued.
(C) "SERIES B ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series B Preferred Stock was first issued.
(D) "SERIES C ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series C Preferred Stock was first issued.
- 7 -
<PAGE> 66
(E) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(F) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than:
(I) shares of Common Stock issued or issuable as a
dividend or other distribution on Series A
Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock;
(II) shares of Common Stock issued or issuable by
reason of a dividend or other distribution on
shares of Common Stock that is covered by
Subsection 4(e) or 4(f) below;
(III) shares of Common Stock issued or issuable upon
conversion of those shares of Series A Preferred
Stock, Series B Preferred Stock or Series C
Preferred Stock outstanding at the close of
business on the Series A Original Issue Date, the
Series B Original Issue Date or the Series C
Original Issue Date, respectively;
(IV) 3,506,850 shares of Common Stock (including
issuances prior to the Series A Original Issue
Date, Series B Original Issue Date or Series C
Original Issue Date) (subject to appropriate
adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations
affecting such shares) issued in the form of
restricted stock awards approved by both the
Board of Directors of the Corporation and a
majority of the non-employee directors of the
Corporation; or
(V) up to 993,150 shares of Common Stock (including
issuances prior to the Series A Original Issue
Date, Series B Original Issue Date or Series C
Original Issue Date) (subject to appropriate
adjustment for stock splits, stock dividends,
combinations and other similar recapitalizations
affecting such shares), plus such additional
number of shares as may be approved by both the
Board of Directors of the Corporation and a
majority of the non-employee directors of the
Corporation, issued or issuable to
- 8 -
<PAGE> 67
employees or directors of, or consultants to, the
Corporation pursuant to plans adopted by the
Board of Directors of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
number of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made (a) unless the consideration per share (determined
pursuant to Subsection 4(d)(v)) for an Additional Share of Common Stock issued
or deemed to be issued by the Corporation is less than the applicable Series A
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Shares, or (b) if prior to or within 60 days subsequent to
such issuance, the Corporation receives written notice from the holders of at
least 66 2/3% of the then outstanding shares of Series A Preferred Stock,
agreeing that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock. No adjustment in the number of shares of
Common Stock into which the Series B Preferred Stock is convertible shall be
made (a) unless the consideration per share (determined pursuant to Subsection
4(d)(v)) for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is less than the applicable Series B Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) if prior to or within 60 days subsequent to such issuance, the
Corporation receives written notice from the holders of at least 66 2/3% of the
then outstanding shares of Series B Preferred Stock, agreeing that no such
adjustment shall be made as the result of the issuance of Additional Shares of
Common Stock. No adjustment in the number of shares of Common Stock into which
the Series C Preferred Stock is convertible shall be made (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series C Conversion Price in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to or within 60 days subsequent to such issuance, the Corporation
receives written notice from the holders of at least 66 2/3% of the then
outstanding shares of Series C Preferred Stock, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of Common
Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK.
If the Corporation at any time or from time to time after the Series A
Original Issue Date, Series B Original Issue Date or Series C Original Issue
Date, as applicable, shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the maximum
number of shares of Common Stock (as set forth in the instrument relating
thereto without regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date, provided
that (x) for the purposes of adjusting the Series A Conversion Price, Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Subsection 4(d)(v) hereof) of
such Additional Shares of Common Stock would be less than the applicable Series
A Conversion Price in effect on the date of and immediately prior to such issue,
- 9 -
<PAGE> 68
or such record date, as the case may be, (y) for the purposes of adjusting the
Series B Conversion Price, additional Shares of Common Stock shall not be deemed
to have been issued unless the consideration per share (determined pursuant to
Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock would be
less than the applicable Series B Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
(z) for the purposes of adjusting the Series C Conversion Price, additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Subsection 4(d)(v) hereof) of
such Additional Shares of Common Stock would be less than the applicable Series
C Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Series A Conversion
Price, Series B Conversion Price or Series C Conversion Price shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Series A Conversion Price, Series B Conversion Price or
Series C Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase becoming effective, be
recomputed to reflect such increase insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Series A Conversion Price, Series B Conversion Price and Series C
Conversion Price shall not be readjusted, but the Additional Shares of Common
Stock deemed issued as the result of the original issue of such Option shall not
be deemed issued for the purposes of any subsequent adjustment of the Series A
Conversion Price, Series B Conversion Price or Series C Conversion Price;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Series A Conversion Price, Series B
Conversion Price and Series C Conversion Price then in effect shall forthwith be
readjusted to such Series A Conversion Price, Series B Conversion Price or
Series C Conversion Price as would have obtained had the adjustment which was
made upon the issuance of such Option or Convertible Security not exercised or
converted prior to such change been made upon the basis of such change; and
(E) No readjustment pursuant to clause (B) or (D) above
shall have the effect of increasing the Series A Conversion Price, Series B
Conversion Price or Series C Conversion Price to an amount which exceeds the
lower of (i) the Series A Conversion Price. Series B Conversion Price or Series
C Conversion Price on the original adjustment date, or (ii) the Series A
Conversion Price, Series B Conversion Price or Series C Conversion Price, as the
- 10 -
<PAGE> 69
case may be, that would have resulted from any issuances of Additional Shares of
Common Stock between the original adjustment date and such readjustment date.
In the event the Corporation, after the Series A Original Issue Date,
the Series B Original Issue Date or the Series C Original Issue Date, amends any
Options or Convertible Securities (whether such Options or Convertible
Securities were outstanding on such Original Issue Date or were issued after
such Original Issue Date) to increase the number of shares issuable thereunder
or decrease the consideration to be paid upon exercise or conversion thereof,
then such Options or Convertible Securities, as so amended, shall be deemed to
have been issued after such Original Issue Date and the provisions of this
Subsection 4(d)(iii) shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK.
(A) In the event the Corporation shall at any time after
the Series A Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series A Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series A
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series A
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series A Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(B) In the event the Corporation shall at any time after
the Series B Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series B Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series B
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2)
- 11 -
<PAGE> 70
the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series B Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; PROVIDED THAT, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(C) In the event the Corporation shall at any time after
the Series C Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series C Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series C
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series C
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series C Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; provided that, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed at
the aggregate of cash received by the
Corporation, excluding amounts paid or payable
for accrued interest;
- 12 -
<PAGE> 71
(II) insofar as it consists of property other than
cash, be computed at the fair market value
thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or
securities or other assets of the Corporation for
consideration which covers both, be the
proportion of such consideration so received,
computed as provided in clauses (I) and (II)
above, as determined in good faith by the Board
of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 4(d)(iii), relating to Options
and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation shall
issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Convertible Securities, and
such issuance dates occur within a period of no more than 120 days, then, upon
the final such issuance, the Series A Conversion Price, the Series B Conversion
Price and the Series C Conversion Price shall be adjusted to give effect to all
such issuances as if they occurred on the date of the final such issuance (and
without giving effect to any adjustments as a result of such prior issuances
within such period).
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Series A Original
Issue Date, the Series B Original Issue Date or the Series C Original Issue Date
effect a subdivision of the outstanding Common Stock, the Series A Conversion
Price, Series B Conversion Price and/or Series C Conversion Price then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Series A Original
Issue Date, the Series B Original Issue Date and/or the Series C Original Issue
Date, as the case may be,
- 13 -
<PAGE> 72
combine the outstanding shares of Common Stock, the Series A Conversion
Price, Series B Conversion Price and/or Series C Conversion Price, as
the case may be, then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Series A
Original Issue Date, the Series B Original Issue Date and/or the Series C
Original Issue Date, as the case may be, shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of Common Stock,
then and in each such event the Series A Conversion Price, Series B Conversion
Price and/or Series C Conversion Price, as the case may be, then in effect shall
be decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price, Series B Conversion Price and/or
Series C Conversion Price, as the case may be, then in effect by a fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price, Series B Conversion Price and/or Series
C Conversion Price shall be recomputed accordingly as of the close of business
on such record date and thereafter the Series A Conversion Price, Series B
Conversion Price and/or Series C Conversion Price, as the case may be, shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock, Series B
Preferred Stock and/or Series C Preferred Stock simultaneously receive (i) a
dividend or other distribution of shares of Common Stock in a number equal to
the number of shares of Common Stock as they would have received if all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and/or
Series C Preferred Stock had been converted into Common Stock on the date of
such event or (ii) a dividend or other distribution of shares of such series of
Preferred Stock which are convertible, as of the date of such event, into the
number of shares of Common Stock as is equal to the number of additional shares
of Common Stock being issued with respect to each share of Common Stock in such
dividend or distribution.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Series A Original
Issue Date, the Series B Original Issue Date or the Series C Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other
- 14 -
<PAGE> 73
distribution payable in securities of the Corporation other than shares
of Common Stock, then and in each such event provision shall be made so that
the holders of the Series A Preferred Stock, Series B Preferred Stock
and/or Series C Preferred Stock, as the case may be, shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation that they
would have received had the Series A Preferred Stock, Series B Preferred Stock
and/or Series C Preferred Stock, as the case may be, been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of the Series A Preferred
Stock, Series B Preferred Stock and/or Series C Preferred Stock, as the case may
be; and provided further, however, that no such adjustment shall be made if the
holders of Series A Preferred Stock, Series B Preferred Stock and/or Series C
Preferred Stock, as the case may be, simultaneously receive a dividend or other
distribution of such securities in an amount equal to the amount of such
securities as they would have received if all outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and/or Series C Preferred Stock, as
the case may be, had been converted into Common Stock on the date of such event.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall be changed into the
same or a different number of shares of any class or classes of stock, whether
by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation, or sale of assets provided for below),
then and in each such event the holder of each such share of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable, upon such reorganization,
reclassification, or other change, by holders of the number of shares of Common
Stock into which such shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock shall thereafter be convertible (or shall be
converted into a security which shall be convertible) into the kind and amount
of shares of stock or other securities or property to which a holder of the
number of shares of Common Stock of the Corporation deliverable upon conversion
of such Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of the provisions in
this Section 4 set forth with respect to the rights and interest thereafter of
the holders of the Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock, to the end that the provisions set forth in this Section 4
(including provisions with respect to
- 15 -
<PAGE> 74
changes in and other adjustments of the Series A Conversion Price, Series
B Conversion Price and Series C Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, as the
case may be.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price or Series C Conversion Price pursuant to this Section 4, the Corporation
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of Series A
Preferred Stock, Series B Preferred Stock and/or Series C Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, furnish or cause to
be furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Series A Conversion Price, Series B
Conversion Price or Series C Conversion Price then in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
then would be received upon the conversion of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, as the case may be.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
- 16 -
<PAGE> 75
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, and shall cause to be mailed to the holders
of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock at their last addresses as shown on the records of the Corporation or such
transfer agent, at least ten days prior to the date specified in (A) below or
twenty days before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to
be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation
or winding up is expected to become effective, and
the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other
property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding
up.
5. MANDATORY CONVERSION.
(a) Upon the closing of the sale of shares of Common Stock, at a
price of at least $16.00 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $10,000,000 of proceeds to the
Corporation (net of the underwriting discounts or commissions and offering
expenses)(the "Series A Mandatory Conversion Date"), (i) all outstanding shares
of Series A Preferred Stock shall automatically be converted into shares of
Common Stock, at the then effective conversion rate, and (ii) all references
herein to the Series A Preferred Stock shall be deleted and shall be of no
further force or effect.
(b) Upon the closing of the sale of shares of Common Stock, at a
price of at least $16.00 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $10,000,000 of proceeds to the
Corporation (net of the underwriting discounts or commissions and offering
expenses)(the "Series B Mandatory Conversion Date"), (i) all outstanding shares
of Series B Preferred Stock shall automatically be converted into shares of
Common Stock, at the then effective conversion rate, and (ii) all references
herein to the Series B Preferred Stock shall be deleted and shall be of no
further force or effect.
(c) Upon the closing of the sale of shares of Common Stock, at a
price of at least $16.00 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities
- 17 -
<PAGE> 76
Act of 1933, as amended, resulting in at least $10,000,000 of proceeds to the
Corporation (net of the underwriting discounts or commissions and offering
expenses)(the "Series C Mandatory Conversion Date"), (i) all outstanding shares
of Series C Preferred Stock shall automatically be converted into shares of
Common Stock, at the then effective conversion rate, and (ii) all references
herein to the Series C Preferred Stock shall be deleted and shall be of no
further force or effect.
(d) All holders of record of shares of Series A Preferred Stock
shall be given written notice of the Series A Mandatory Conversion Date and the
place designated for mandatory conversion of all such shares of Series A
Preferred Stock, pursuant to this Section 5; all holders of record of shares of
Series B Preferred Stock shall be given written notice of the Series B Mandatory
Conversion Date and the place designated for mandatory conversion of all such
shares of Series B Preferred Stock, pursuant to this Section 5; and all holders
of record of shares of Series C Preferred Stock shall be given written notice of
the Series C Mandatory Conversion Date and the place designated for mandatory
conversion of all such shares of Series C Preferred Stock, pursuant to this
Section 5. Such notice need not be given in advance of the occurrence of the
applicable Mandatory Conversion Date. Such notice shall be sent by first class
or registered mail, postage prepaid, to each record holder of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock at such holder's
address last shown on the records of the transfer agent for the Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the
case may be (or the records of the Corporation, if it serves as its own transfer
agent). Upon receipt of such notice, each holder of shares of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock shall surrender his
or its certificate or certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive certificates for
the number of shares of Common Stock to which such holder is entitled pursuant
to this Section 5. On the Series A Mandatory Conversion Date, all rights with
respect to the Series A Preferred Stock so converted, including the rights, if
any, to receive notices and vote (other than as a holder of Common Stock) will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted, and payment of any declared but unpaid dividends thereon. On the
Series B Mandatory Conversion Date, all rights with respect to the Series B
Preferred Stock so converted, including the rights, if any, to receive notices
and vote (other than as a holder of Common Stock) will terminate, except only
the rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares of
Common Stock into which such Series B Preferred Stock has been converted, and
payment of any declared but unpaid dividends thereon. On the Series C Mandatory
Conversion Date, all rights with respect to the Series C Preferred Stock so
converted, including the rights, if any, to receive notices and vote (other than
as a holder of Common Stock) will terminate, except only the rights of the
holders thereof, upon surrender of their certificate or certificates therefor,
to receive certificates for the number of shares of Common Stock into which such
Series C Preferred Stock has been converted, and payment of any declared but
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the applicable Mandatory Conversion
Date and the surrender of the certificate or certificates for Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock,
- 18 -
<PAGE> 77
the Corporation shall cause to be issued and delivered to such holder,
or on his or its written order, a certificate or certificates for the number
of full shares of Common Stock issuable on such conversion in accordance
with the provisions hereof and cash as provided in Subsection 4(b) in respect of
any fraction of a share of Common Stock otherwise issuable upon such conversion.
(e) All certificates evidencing shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock which are required to be
surrendered for conversion in accordance with the provisions hereof shall, from
and after the Mandatory Conversion Date, be deemed to have been retired and
cancelled and the shares of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock represented thereby converted into Common Stock for
all purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock, accordingly.
6. REDEMPTION.
(a) The Corporation will, subject to the conditions set forth
below, on September 30, 2003, September 30, 2004 and September 30, 2005 (each, a
"Mandatory Redemption Date"), upon receipt not less than 30 nor more than 120
days prior to the applicable Mandatory Redemption Date of written request(s) for
redemption from holders of at least a majority of the shares of Series A
Preferred Stock then outstanding (a "Series A Redemption Request"), redeem from
each holder of shares of Series A Preferred Stock, at a price equal to $1.00 per
share (subject to appropriate adjustment in the event of any dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any declared but unpaid dividends thereon (the "Series A Mandatory
Redemption Price"), the following respective portions of the number of shares of
Series A Preferred Stock held by such holder set forth opposite the applicable
Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series A Preferred
Mandatory Redemption Date Stock to be Redeemed
------------------------- ----------------------------
September 30, 2003 33 1/3%
September 30, 2004 50%
September 30, 2005 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series A Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series A Redemption Request, specifying the time and place
of redemption and the Series A Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series A Preferred
Stock at the address for such holder last shown on the records of
- 19 -
<PAGE> 78
the transfer agent therefor (or the records of the Corporation, if it serves
as its own transfer agent), not less than 20 days prior to the Mandatory
Redemption Date.
(b) The Corporation will on each Mandatory Redemption Date, upon
receipt not less than 30 nor more than 120 days prior to the applicable
Mandatory Redemption Date of written request(s) for redemption from holders of
at least a majority of the shares of Series B Preferred Stock then outstanding
(a "Series B Redemption Request"), redeem from each holder of shares of Series B
Preferred Stock, at a price equal to $4.63 per share (subject to appropriate
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any declared but unpaid
dividends thereon (the "Series B Mandatory Redemption Price"), the following
respective portions of the number of shares of Series B Preferred Stock held by
such holder set forth opposite the applicable Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series B Preferred
Mandatory Redemption Date Stock to be Redeemed
------------------------- ----------------------------
September 30, 2003 33 1/3%
September 30, 2004 50%
September 30, 2005 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series B Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series B Redemption Request, specifying the time and place
of redemption and the Series B Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series B Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not less than 20 days prior to the Mandatory Redemption Date.
(c) The Corporation will on each Mandatory Redemption Date, upon
receipt not less than 30 nor more than 120 days prior to the applicable
Mandatory Redemption Date of written request(s) for redemption from holders of
at least a majority of the shares of Series C Preferred Stock then outstanding
(a "Series C Redemption Request"), redeem from each holder of shares of Series C
Preferred Stock, at a price equal to $7.86 per share (subject to appropriate
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any declared but unpaid
dividends thereon (the "Series C Mandatory Redemption Price"), the following
respective portions of the number of shares of Series C Preferred Stock held by
such holder set forth opposite the applicable Mandatory Redemption Date:
- 20 -
<PAGE> 79
Portion of then Outstanding
Shares of Series C Preferred
Mandatory Redemption Date Stock to be Redeemed
------------------------- ----------------------------
September 30, 2003 33 1/3%
September 30, 2004 50%
September 30, 2005 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series C Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series C Redemption Request, specifying the time and place
of redemption and the Series C Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series C Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not less than 20 days prior to the Mandatory Redemption Date.
(d) If the funds of the Corporation legally available for
redemption of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock on any Mandatory Redemption Date are insufficient to redeem the
number of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock required under this Section 6 to be redeemed on such
date, those funds which are legally available will be used to redeem the maximum
possible number of such shares ratably on the basis of the number of shares of
each such series which would be redeemed on such date if the funds of the
Corporation legally available therefor had been sufficient to redeem all shares
required to be redeemed on such date. At any time thereafter when additional
funds of the Corporation become legally available for the redemption of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem,
to the extent of the available funds, the balance of the shares which the
Corporation was theretofore obligated to redeem.
(e) Unless there shall have been a default in payment of the
Mandatory Redemption Price, on such Mandatory Redemption Date all rights of each
holder of shares of Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock as a stockholder of the Corporation by reason of the ownership
of such shares will cease, except the right to receive the Mandatory Redemption
Price for such shares, without interest, upon presentation and surrender of the
certificate representing such shares, and such shares will not from and after
such Mandatory Redemption Date be deemed to be outstanding.
(f) Any Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock redeemed pursuant to this Section 6 will be cancelled
and will not under any circumstances be reissued, sold or transferred and the
Corporation may from time to time take such appropriate action as may be
necessary to reduce the authorized number of shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock accordingly.
- 21 -
<PAGE> 80
7. NEGATIVE COVENANTS.
(a) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock and the
authorization of any shares of capital stock on a parity with Series A Preferred
Stock as to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall not be deemed to
affect adversely the Series A Preferred Stock.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series B Preferred Stock so
as to affect adversely the Series B Preferred Stock, without the written consent
or affirmative vote of the holders of 66 2/3% of the then outstanding shares of
Series B Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series B Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series B Preferred Stock and the authorization of any
shares of capital stock on a parity with Series B Preferred Stock as to the
right to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall not be deemed to affect
adversely the Series B Preferred Stock.
(c) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series C Preferred Stock so
as to affect adversely the Series C Preferred Stock, without the written consent
or affirmative vote of the holders of 66 2/3% of the then outstanding shares of
Series C Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series C Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series C Preferred Stock and the authorization of any
shares of capital stock on a parity with Series C Preferred Stock as to the
right to receive either dividends or amounts distributable upon liquidation,
dissolution or winding up of the Corporation shall not be deemed to affect
adversely the Series C Preferred Stock.
(d) So long as at least either 1,400,000 shares of Series A
Preferred Stock or 553,457 shares of Series B Preferred Stock (subject to
appropriate adjustment in the event of any dividend, stock split, combination or
other similar recapitalization affecting such shares) are outstanding, the
Corporation shall not, without the prior written consent of the holders of
shares of Series A Preferred Stock, Series B Preferred Stock and/or Series C
Preferred Stock representing at least 66 2/3% of the combined votes represented
by the outstanding shares of
- 22 -
<PAGE> 81
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
voting as a single class:
(i) amend the Corporation's Certificate of Incorporation;
(ii) amend the Corporation's By-laws in a manner adverse to
either the holders of Series A Preferred Stock, the holders of Series B
Preferred Stock, the holders of Series C Preferred Stock or the directors of the
Corporation;
(iii) declare or pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) repurchase shares of Common Stock at a price greater than
the price at which they were originally issued;
(v) liquidate, dissolve or wind-up the Corporation;
(vi) make (or permit any subsidiary to make) any loan or
advance to any person, including without limitation, any employee or director of
the Corporation or any subsidiary, except (A) advances and similar expenditures
in the ordinary course of business or (B) as approved by the Board of Directors
under the terms of an employee stock or option plan;
(vii) (A) merge with or into or consolidate with any other
corporation, (B) sell, lease, or otherwise dispose of all or substantially all,
or a significant portion, of its properties or assets, or (C) acquire all or
substantially all of the properties or assets of any other corporation or entity
(except for consideration of less than 20% of the Corporation's consolidated net
worth as of the end of the prior fiscal quarter); or
(viii) incur or guaranty indebtedness for borrowed money in an
aggregate amount in excess of $1,000,000.
8. WAIVER. Any of the rights of the holders of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock set forth herein may
be waived by the affirmative vote of the holders of more than 66 2/3% of the
shares of such series of Preferred Stock then outstanding.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President this 29th day of September, 1998.
ARROWPOINT COMMUNICATIONS, INC.
By: /s/ Chin-Cheng Wu
--------------------------------------
Chin-Cheng Wu
President
- 23 -
<PAGE> 82
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARROWPOINT COMMUNICATIONS, INC.
ArrowPoint Communications, Inc. (the "Corporation"), organized and existing
under and by virtue of the General Law of the State of Delaware, does hereby
certify as follows:
The Board of Directors of the Corporation duly adopted, pursuant to Section 242
of the General Corporation Law of Delaware, a resolution setting forth an
amendment to the Certificate of Incorporation of the Corporation and declaring
said amendment to be advisable. The stockholders of the Corporation duly
approved said proposed amendment in accordance with Section 242 of the General
Corporation Law of the State of Delaware by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware,
and written notice of such consent has been given to all stockholders who have
not consented in writing to said amendment. The resolution setting forth the
amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 37,500,000 shares, consisting of (i) 25,000,000
shares of Common Stock, $.001 par value per share ("Common Stock"), and (ii)
12,500,000 shares of Preferred Stock, $.01 par value per share ("Preferred
Stock"), 5,750,000 shares of which have been designated as Series A Convertible
Preferred Stock ("Series A Preferred Stock"), 2,213,828 shares of which have
been designated as Series B Convertible Preferred Stock ("Series B Preferred
Stock"), 278,464 shares of which have been designated as Series C Convertible
Preferred Stock ("Series C Preferred Stock"), and 1,502,443 shares of which have
been designated as Series D Convertible Preferred Stock ("Series D Preferred
Stock").
The following is a statement of the designations and the powers, privileges and
rights, and the qualifications, limitations or restrictions thereof in respect
of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
- 24 -
<PAGE> 83
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the stock of the Corporation entitled to
vote, irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series, each of
such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time to
time to issue the Preferred Stock in one or more series, and in connection with
the creation of any such series, by resolution or resolutions providing for the
issue of the shares thereof, to determine and fix such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided in this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any shares of any
series of the Preferred Stock authorized by and complying with the conditions of
this Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the
Corporation.
C. SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK, SERIES C PREFERRED
STOCK AND SERIES D PREFERRED STOCK.
1. DIVIDENDS.
(a) The Corporation shall not declare or pay any dividends or
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock,
- 25 -
<PAGE> 84
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock then outstanding shall have first received, or simultaneously
receive, a like distribution on each outstanding share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, in an amount at least equal to the product of (i) the per share amount,
if any, of the dividends or distributions to be declared, paid or set aside for
the Common Stock, multiplied by (ii) the number of whole shares of Common Stock
into which such share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock, as the case may be, is
convertible as of the record date for such dividend or distribution.
(b) For purposes of this Section 1, "distribution" shall mean
the transfer of cash or property without consideration, whether by way of
dividend or otherwise, payable other than in Common Stock or other securities of
the Corporation, or the purchase or redemption of shares of the Corporation
(other than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation upon termination of their employment or services
pursuant to agreements approved by the Board of Directors providing for such
repurchase at a price equal to the original issue price of such shares) for cash
or property, including any such transfer, purchase or redemption by a subsidiary
of the Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS, CONSOLIDATIONS
AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, but
before any payment shall be made to the holders of Common Stock or any other
class or series of stock ranking on liquidation junior to the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock by reason of their ownership thereof, an amount equal to $1.00 per share,
in the case of Series A Preferred Stock, $4.63 per share, in the case of Series
B Preferred Stock, $7.86 per share, in the case of Series C Preferred Stock, and
$10.20 per share, in the case of Series D Preferred Stock (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), plus any
dividends declared but unpaid on such shares. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
and any class or series of stock ranking on liquidation on a parity with the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
- 26 -
<PAGE> 85
(b) After the payment of all preferential amounts required to
be paid to the holders of any class or series of stock of the Corporation
ranking on liquidation prior to and in preference to the Common Stock, upon the
dissolution, liquidation or winding up of the Corporation, the remaining assets
and funds of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock, pro rata based upon the number of
shares of Common Stock held by each such stockholder (after giving effect to the
conversion into Common Stock of all Series A Preferred Stock and Series B
Preferred Stock).
(c) Any (i) merger or consolidation which results in the
voting securities of the Corporation outstanding immediately prior thereto
representing immediately thereafter (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity) less than
a majority of the combined voting power of the voting securities of the
Corporation or such surviving or acquiring entity outstanding immediately after
such merger or consolidation, (ii) sale of all or substantially all or a
significant portion of the assets of the Corporation or (iii) sale of shares of
capital stock of the Corporation, in a single transaction or series of related
transactions, representing at least 80% of the of the voting power of the voting
securities of the Corporation, shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation (net of obligations owed by the Corporation),
together with all other available assets of the Corporation (in the case of an
asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with Subsections 2(a) and 2(b) above. The Corporation
shall promptly provide to the holders of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
such information concerning the terms of such merger, consolidation or asset
sale and the value of the assets of the Corporation as may reasonably be
requested by the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock. If applicable, the
Corporation shall cause the agreement or plan of merger or consolidation to
provide for a rate at which the shares of capital stock of the Corporation are
converted into or exchanged for cash, new securities or other property which
gives effect to this provision. The amount deemed distributed to the holders of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock upon any such merger or consolidation shall be the cash
or the value of the property, rights or securities distributed to such holders
by the Corporation and/or by the acquiring person, firm or other entity. The
value of such property, rights or other securities shall be determined in good
faith by the Board of Directors of the Corporation.
3. VOTING. Each holder of outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock held by
such holder are convertible (as adjusted from time to time pursuant to Section 4
hereof) as of the record date, at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of meetings) with
respect to any and all matters presented to the stockholders of the Corporation
for their action or consideration. Except as provided by law or by the
provisions of Section 7 below or by the provisions establishing any other series
of stock, holders of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock,
- 27 -
<PAGE> 86
Series D Preferred Stock and of any other outstanding series of stock shall
vote together with the holders of Common Stock as a single class.
4. OPTIONAL CONVERSION. The holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $1.00 by the Series A Conversion Price (as defined below)
in effect at the time of conversion. The "Series A Conversion Price" shall
initially be $1.00. Such Series A Conversion Price, and the rate at which shares
of Series A Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below.
(ii) Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $4.63 by the Series B Conversion Price (as defined below)
in effect at the time of conversion. The "Series B Conversion Price" shall
initially be $4.63. Such Series B Conversion Price, and the rate at which shares
of Series B Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below.
(iii) Each share of Series C Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $7.86 by the Series C Conversion Price (as defined below)
in effect at the time of conversion. The "Series C Conversion Price" shall
initially be $7.86. Such Series C Conversion Price, and the rate at which shares
of Series C Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below.
(iv) Each share of Series D Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $10.20 by the Series D Conversion Price (as defined
below) in effect at the time of conversion. The "Series D Conversion Price"
shall initially be $10.20. Such Series D Conversion Price, and the rate at which
shares of Series D Preferred Stock may be converted into shares of Common Stock,
shall be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock pursuant to Section 6
- 28 -
<PAGE> 87
hereof, the Conversion Right of the shares designated for redemption
shall terminate at the close of business on the first full day preceding
the date fixed for redemption, unless the redemption price is not paid
when due, in which case the Conversion Right for such shares shall continue
until such price is paid in full. In the event of a liquidation of the
Corporation (or deemed liquidation under Section 2(c) hereof), the Conversion
Right shall terminate at the close of business on the first full business day
preceding the date fixed for the payment of any amounts distributable on
liquidation (or deemed liquidation under Section 2(c) hereof) to the holders of
such series of Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock. In lieu
of any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
to convert shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of
Preferred Stock, at the office of the transfer agent for the Preferred Stock (or
at the principal office of the Corporation if the Corporation serves as its own
transfer agent), together with written notice that such holder elects to convert
all or any number of the shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
represented by such certificate or certificates. Such notice shall state such
holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If required
by the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D
- 29 -
<PAGE> 88
Preferred Stock. Before taking any action which would cause an adjustment
reducing the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price or Series D Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
the Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
or Series D Conversion Price.
(iii) Upon any such conversion, no adjustment to the Series
A Conversion Price, Series B Conversion Price, Series C Conversion Price or
Series D Conversion Price shall be made for any declared but unpaid dividends on
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock which
shall have been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares, including
the rights, if any, to receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders thereof
to receive shares of Common Stock in exchange therefor and payment of any
dividends declared but unpaid thereon. Any shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
so converted shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized number of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock pursuant
to this Section 4. The Corporation shall not, however, be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Subsection
4(d), the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
- 30 -
<PAGE> 89
(B) "SERIES A ORIGINAL ISSUE DATE" shall mean the date
on which a share of Series A Preferred Stock was first issued.
(C) "SERIES B ORIGINAL ISSUE DATE" shall mean the date
on which a share of Series B Preferred Stock was first issued.
(D) "SERIES C ORIGINAL ISSUE DATE" shall mean the date
on which a share of Series C Preferred Stock was first issued.
(E) "SERIES D ORIGINAL ISSUE DATE" shall mean the date
on which a share of Series D Preferred Stock was first issued.
(F) "CONVERTIBLE SECURITIES" shall mean any evidences
of indebtedness, shares or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(G) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than:
(I) shares of Common Stock issued or issuable as
a dividend or other distribution on Series A
Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D
Preferred Stock;
(II) shares of Common Stock issued or issuable by
reason of a dividend or other distribution on
shares of Common Stock that is covered by
Subsection 4(e) or 4(f) below;
(III) shares of Common Stock issued or issuable
upon conversion of those shares of Series A
Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D
Preferred Stock outstanding at the close of
business on the Series D Original Issue Date;
(IV) up to 4,500,000 shares of Common Stock
(including issuances prior to the Series D
Original Issue Date) (subject to appropriate
adjustment for stock splits, stock dividends,
combinations and other similar
recapitalizations affecting such shares),
plus such additional number of shares as may
be approved by both the Board of Directors of
the Corporation and a majority of the
non-employee directors of the Corporation,
issued or issuable to employees or directors
of, or consultants to, the Corporation
pursuant to plans or restricted stock awards
- 31 -
<PAGE> 90
approved by the Board of Directors of the
Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in
the number of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made (a) unless the consideration per share (determined
pursuant to Subsection 4(d)(v)) for an Additional Share of Common Stock issued
or deemed to be issued by the Corporation is less than the applicable Series A
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Shares, or (b) if prior to or within 60 days subsequent to
such issuance, the Corporation receives written notice from the holders of at
least 66 2/3% of the then outstanding shares of Series A Preferred Stock,
agreeing that no such adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock. No adjustment in the number of shares of
Common Stock into which the Series B Preferred Stock is convertible shall be
made (a) unless the consideration per share (determined pursuant to Subsection
4(d)(v)) for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is less than the applicable Series B Conversion Price in
effect on the date of, and immediately prior to, the issue of such Additional
Shares, or (b) if prior to or within 60 days subsequent to such issuance, the
Corporation receives written notice from the holders of at least 66 2/3% of the
then outstanding shares of Series B Preferred Stock, agreeing that no such
adjustment shall be made as the result of the issuance of Additional Shares of
Common Stock. No adjustment in the number of shares of Common Stock into which
the Series C Preferred Stock is convertible shall be made (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series C Conversion Price in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to or within 60 days subsequent to such issuance, the Corporation
receives written notice from the holders of at least 66 2/3% of the then
outstanding shares of Series C Preferred Stock, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of Common
Stock. No adjustment in the number of shares of Common Stock into which the
Series D Preferred Stock is convertible shall be made (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series D Conversion Price in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to or within 60 days subsequent to such issuance, the Corporation
receives written notice from the holders of at least 66 2/3% of the then
outstanding shares of Series D Preferred Stock, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of Common
Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES
OF COMMON STOCK.
If the Corporation at any time or from time to time after the Series A Original
Issue Date, Series B Original Issue Date, Series C Original Issue Date or Series
D Original Issue Date, as applicable, shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares of Common Stock (as set forth in
the instrument relating thereto without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or, in the case of
- 32 -
<PAGE> 91
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that (w)
for the purposes of adjusting the Series A Conversion Price, Additional Shares
of Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Subsection 4(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the applicable Series A Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be, (x) for the purposes of adjusting the Series B
Conversion Price, Additional Shares of Common Stock shall not be deemed to have
been issued unless the consideration per share (determined pursuant to
Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock would be
less than the applicable Series B Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, (y)
for the purposes of adjusting the Series C Conversion Price, Additional Shares
of Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Subsection 4(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the applicable Series C Conversion
Price in effect on the date of and immediately prior to such issue, or such
record date, as the case may be, (z) for the purposes of adjusting the Series D
Conversion Price, Additional Shares of Common Stock shall not be deemed to have
been issued unless the consideration per share (determined pursuant to
Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock would be
less than the applicable Series D Conversion Price in effect on the date of and
immediately prior to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) No further adjustment in the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price or Series D
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price or Series D Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase becoming effective, be recomputed to reflect such increase insofar as
it affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) Upon the expiration or termination of any
unexercised Option, the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price and Series D Conversion Price shall not be readjusted,
but the Additional Shares of Common Stock deemed issued as the result of the
original issue of such Option shall not be deemed issued for the purposes of any
subsequent adjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price or Series D Conversion Price;
(D) In the event of any change in the number of
shares of Common Stock issuable upon the exercise, conversion or exchange of any
Option or Convertible
- 33 -
<PAGE> 92
Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price and Series D Conversion Price then
in effect shall forthwith be readjusted to such Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price or Series D Conversion
Price as would have obtained had the adjustment which was made upon the issuance
of such Option or Convertible Security not exercised or converted prior to such
change been made upon the basis of such change; and
(E) No readjustment pursuant to clause (B) or (D)
above shall have the effect of increasing the Series A Conversion Price, Series
B Conversion Price, Series C Conversion Price or Series D Conversion Price to an
amount which exceeds the lower of (i) the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price on the
original adjustment date, or (ii) the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price or Series D Conversion Price, as the
case may be, that would have resulted from any issuances of Additional Shares of
Common Stock between the original adjustment date and such readjustment date.
In the event the Corporation, after the Series A Original Issue Date, the Series
B Original Issue Date, the Series C Original Issue Date or the Series D Original
Issue Date, amends any Options or Convertible Securities (whether such Options
or Convertible Securities were outstanding on such Original Issue Date or were
issued after such Original Issue Date) to increase the number of shares issuable
thereunder or decrease the consideration to be paid upon exercise or conversion
thereof, then such Options or Convertible Securities, as so amended, shall be
deemed to have been issued after such Original Issue Date and the provisions of
this Subsection 4(d)(iii) shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK.
(A) In the event the Corporation shall at any time
after the Series A Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series A Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series A
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series A
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series A Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; PROVIDED THAT, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of
- 34 -
<PAGE> 93
shares of Common Stock deemed issuable upon conversion of such outstanding
Convertible Securities shall not give effect to any adjustments to the
conversion price or conversion rate of such Convertible Securities resulting
from the issuance of Additional Shares of Common Stock that is the subject
of this calculation.
(B) In the event the Corporation shall at any time
after the Series B Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series B Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series B
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series B Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; PROVIDED THAT, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(C) In the event the Corporation shall at any time
after the Series C Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series C Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series C
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series C
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series C Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; PROVIDED THAT, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible
- 35 -
<PAGE> 94
Securities shall not give effect to any adjustments to the conversion price or
conversion rate of such Convertible Securities resulting from the issuance of
Additional Shares of Common Stock that is the subject of this calculation.
(D) In the event the Corporation shall at any time
after the Series D Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series D Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series D
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series D
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series D Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; PROVIDED THAT, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed at
the aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
- 36 -
<PAGE> 95
(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) MULTIPLE CLOSING DATES. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Convertible Securities, and
such issuance dates occur within a period of no more than 120 days, then, upon
the final such issuance, the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price and the Series D Conversion Price shall be
adjusted to give effect to all such issuances as if they occurred on the date of
the final such issuance (and without giving effect to any adjustments as a
result of such prior issuances within such period); provided, however, that the
adjustment of the Series A Conversion Price, the Series B Conversion Price, the
Series C Conversion Price and the Series D Conversion Price shall occur
immediately if a vote of stockholders or a conversion of Preferred Stock
(including both an actual conversion or an assumed conversion done for the
purpose of making another calculation, such as, but not limited to, calculating
the pro-rata share of future equity financings that holders of Preferred Stock
may purchase pursuant to their right of first refusal) is required during such
period.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Series A Original
Issue Date, the Series B Original Issue Date, the Series C Original Issue Date
or the Series D Original Issue Date effect a subdivision of the outstanding
Common Stock, the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price and/or Series D Conversion Price then in effect immediately
before that subdivision shall be proportionately decreased. If the Corporation
shall at any time or from time to time after the Series A Original Issue Date,
the Series B Original Issue Date, the Series C Original Issue Date and/or the
Series D Original Issue Date, as the case may be, combine the outstanding shares
of Common Stock, the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price and/or Series D Conversion Price, as the case may be,
then in effect immediately before the combination shall be proportionately
increased. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective.
- 37 -
<PAGE> 96
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Series A
Original Issue Date, the Series B Original Issue Date, the Series C Original
Issue Date and/or the Series D Original Issue Date, as the case may be, shall
make or issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price and/or
Series D Conversion Price, as the case may be, then in effect shall be decreased
as of the time of such issuance or, in the event such a record date shall have
been fixed, as of the close of business on such record date, by multiplying the
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
and/or Series D Conversion Price, as the case may be, then in effect by a
fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price and/or Series D Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price
and/or Series D Conversion Price, as the case may be, shall be adjusted pursuant
to this paragraph as of the time of actual payment of such dividends or
distributions; and provided further, however, that no such adjustment shall be
made if the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and/or Series D Preferred Stock simultaneously receive
(i) a dividend or other distribution of shares of Common Stock in a number equal
to the number of shares of Common Stock as they would have received if all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and/or Series D Preferred Stock had been converted into Common
Stock on the date of such event or (ii) a dividend or other distribution of
shares of such series of Preferred Stock which are convertible, as of the date
of such event, into the number of shares of Common Stock as is equal to the
number of additional shares of Common Stock being issued with respect to each
share of Common Stock in such dividend or distribution.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Series A Original
Issue Date, the Series B Original Issue Date, the Series C Original Issue Date
or the Series D Original Issue Date shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in securities of the Corporation other than shares
of Common Stock, then and in each such event provision shall be made so that the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and/or Series D Preferred Stock, as the case may be, shall
receive upon conversion thereof in addition to the
- 38 -
<PAGE> 97
number of shares of Common Stock receivable thereupon, the amount of securities
of the Corporation that they would have received had the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D
Preferred Stock, as the case may be, been converted into Common Stock on the
date of such event and had they thereafter, during the period from the date of
such event to and including the conversion date, retained such securities
receivable by them as aforesaid during such period, giving application to all
adjustments called for during such period under this paragraph with respect to
the rights of the holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and/or Series D Preferred Stock, as the case may
be; and provided further, however, that no such adjustment shall be made if the
holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and/or Series D Preferred Stock, as the case may be,
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and/or Series D Preferred Stock, as the case may be, had been
converted into Common Stock on the date of such event.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable, upon such reorganization, reclassification, or other
change, by holders of the number of shares of Common Stock into which such
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price and
Series D
- 39 -
<PAGE> 98
Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be, in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock,
as the case may be.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price or Series D Conversion Price pursuant to this
Section 4, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and/or Series D Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price or Series D Conversion Price then in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which then would be received upon the conversion of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock,
as the case may be.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or
any other distribution) on its Common Stock
payable in Common Stock or other securities
of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock
of the Corporation (other than a subdivision
or combination of its outstanding shares of
Common Stock or a stock dividend or stock
distribution thereon), or of any
consolidation or merger of the Corporation
into or with another corporation, or of the
sale of all or substantially all of the
assets of the Corporation; or
- 40 -
<PAGE> 99
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock at their last
addresses as shown on the records of the Corporation or such transfer agent, at
least ten days prior to the date specified in (A) below or twenty days before
the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to
be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation
or winding up is expected to become effective, and
the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other
property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding
up.
5. MANDATORY CONVERSION.
(a) Upon the closing of the sale of shares of Common Stock, at a
price of at least $16.50 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $10,000,000 of proceeds to the
Corporation (net of the underwriting discounts or commissions and offering
expenses) (the "Mandatory Conversion Date"), (i) all outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock shall automatically be converted into shares of Common
Stock, at the then effective applicable conversion rate, and (ii) all references
herein to the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall be deleted and shall be of no
further force or effect.
(b) All holders of record of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
shall be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock pursuant to this Section 5. Such notice need not be given in advance of
the occurrence of the Mandatory Conversion Date. Such notice shall be sent by
first class or registered mail, postage prepaid, to each record holder of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series
D Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock or Series D Preferred Stock, as the case may be (or the
- 41 -
<PAGE> 100
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock
shall surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Section 5. On the Mandatory Conversion Date,
all rights with respect to the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock so converted,
including the rights, if any, to receive notices and vote (other than as a
holder of Common Stock) will terminate, except only the rights of the holders
thereof, upon surrender of their certificate or certificates therefor, to
receive certificates for the number of shares of Common Stock into which such
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock has been converted, and payment of any declared but
unpaid dividends thereon. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock,
the Corporation shall cause to be issued and delivered to such holder, or on his
or its written order, a certificate or certificates for the number of full
shares of Common Stock issuable on such conversion in accordance with the
provisions hereof and cash as provided in Subsection 4(b) in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(f) All certificates evidencing shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock, accordingly.
6. REDEMPTION.
(a) The Corporation will, subject to the conditions set forth
below, on February 16, 2004, February 16, 2005 and February 16, 2006 (each, a
"Mandatory Redemption Date"), upon receipt not less than 30 nor more than 120
days prior to the applicable Mandatory Redemption Date of written request(s) for
redemption from holders of at least a majority of the shares of Series A
Preferred Stock then outstanding (a "Series A Redemption Request"), redeem from
each holder of shares of Series A Preferred Stock, at a price equal to $1.00 per
share (subject to appropriate adjustment in the event of any dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any declared but unpaid dividends thereon (the "Series A Mandatory
Redemption Price"), the following respective portions of the number
- 42 -
<PAGE> 101
of shares of Series A Preferred Stock held by such holder set forth opposite
the applicable Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series A Preferred
Mandatory Redemption Date Stock To Be Redeemed
------------------------- ----------------------------
February 16, 2004 33 1/3%
February 16, 2005 50%
February 16, 2006 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series A Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series A Redemption Request, specifying the time and place
of redemption and the Series A Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series A Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not less than 20 days prior to the Mandatory Redemption Date.
(b) The Corporation will on each Mandatory Redemption Date, upon
receipt not less than 30 nor more than 120 days prior to the applicable
Mandatory Redemption Date of written request(s) for redemption from holders of
at least a majority of the shares of Series B Preferred Stock then outstanding
(a "Series B Redemption Request"), redeem from each holder of shares of Series B
Preferred Stock, at a price equal to $4.63 per share (subject to appropriate
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any declared but unpaid
dividends thereon (the "Series B Mandatory Redemption Price"), the following
respective portions of the number of shares of Series B Preferred Stock held by
such holder set forth opposite the applicable Mandatory Redemption Date
Portion of then Outstanding
Shares of Series B Preferred
Mandatory Redemption Date Stock To Be Redeemed
------------------------- ----------------------------
February 16, 2004 33 1/3%
February 16, 2005 50%
February 16, 2006 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series B Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice
- 43 -
<PAGE> 102
of any Series B Redemption Request, specifying the time and place of
redemption and the Series B Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series B Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not less than 20 days prior to the Mandatory Redemption Date.
(c) The Corporation will on each Mandatory Redemption Date, upon
receipt not less than 30 nor more than 120 days prior to the applicable
Mandatory Redemption Date of written request(s) for redemption from holders of
at least a majority of the shares of Series C Preferred Stock then outstanding
(a "Series C Redemption Request"), redeem from each holder of shares of Series C
Preferred Stock, at a price equal to $7.86 per share (subject to appropriate
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any declared but unpaid
dividends thereon (the "Series C Mandatory Redemption Price"), the following
respective portions of the number of shares of Series C Preferred Stock held by
such holder set forth opposite the applicable Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series C Preferred
Mandatory Redemption Date Stock To Be Redeemed
------------------------- ----------------------------
February 16, 2004 33 1/3%
February 16, 2005 50%
February 16, 2006 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series C Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series C Redemption Request, specifying the time and place
of redemption and the Series C Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series C Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not less than 20 days prior to the Mandatory Redemption Date.
(d) The Corporation will on each Mandatory Redemption Date, upon
receipt not less than 30 nor more than 120 days prior to the applicable
Mandatory Redemption Date of written request(s) for redemption from holders of
at least a majority of the shares of Series D Preferred Stock then outstanding
(a "Series D Redemption Request"), redeem from each holder of shares of Series D
Preferred Stock, at a price equal to $10.20 per share (subject to appropriate
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any declared but unpaid
dividends thereon (the "Series D Mandatory Redemption Price"), the following
respective portions of the number of shares of Series D Preferred Stock held by
such holder set forth opposite the applicable Mandatory Redemption Date:
- 44 -
<PAGE> 103
Portion of then Outstanding
Shares of Series D Preferred
Mandatory Redemption Date Stock To Be Redeemed
------------------------- ----------------------------
February 16, 2004 33 1/3%
February 16, 2005 50%
February 16, 2006 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series D Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series D Redemption Request, specifying the time and place
of redemption and the Series D Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series D Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not less than 20 days prior to the Mandatory Redemption Date.
(e) If the funds of the Corporation legally available for
redemption of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock on any Mandatory Redemption Date
are insufficient to redeem the number of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
required under this Section 6 to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably on the basis of the number of shares of each such series which
would be redeemed on such date if the funds of the Corporation legally available
therefor had been sufficient to redeem all shares required to be redeemed on
such date. At any time thereafter when additional funds of the Corporation
become legally available for the redemption of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem,
to the extent of the available funds, the balance of the shares which the
Corporation was theretofore obligated to redeem.
(f) Unless there shall have been a default in payment of the
Mandatory Redemption Price, on such Mandatory Redemption Date all rights of each
holder of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock as a stockholder of the Corporation
by reason of the ownership of such shares will cease, except the right to
receive the Mandatory Redemption Price for such shares, without interest, upon
presentation and surrender of the certificate representing such shares, and such
shares will not from and after such Mandatory Redemption Date be deemed to be
outstanding.
(g) Any Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock redeemed pursuant to this Section
6 will be cancelled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock accordingly.
- 45 -
<PAGE> 104
7. NEGATIVE COVENANTS.
(a) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed to affect adversely the Series A Preferred Stock and the
authorization of any shares of capital stock on a parity with Series A Preferred
Stock as to the right to receive either dividends, redemption payments or
amounts distributable upon liquidation, dissolution or winding up of the
Corporation or with superior redemption rights shall not be deemed to affect
adversely the Series A Preferred Stock.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series B Preferred Stock so
as to affect adversely the Series B Preferred Stock, without the written consent
or affirmative vote of the holders of 66 2/3% of the then outstanding shares of
Series B Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series B Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series B Preferred Stock and the authorization of any
shares of capital stock on a parity with Series B Preferred Stock as to the
right to receive either dividends, redemption payments or amounts distributable
upon liquidation, dissolution or winding up of the Corporation or with superior
redemption rights shall not be deemed to affect adversely the Series B Preferred
Stock.
(c) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series C Preferred Stock so
as to affect adversely the Series C Preferred Stock, without the written consent
or affirmative vote of the holders of 66 2/3% of the then outstanding shares of
Series C Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series C Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series C Preferred Stock and the authorization of any
shares of capital stock on a parity with Series C Preferred Stock as to the
right to receive either dividends, redemption payments or amounts distributable
upon liquidation, dissolution or winding up of the Corporation or with superior
redemption rights shall not be deemed to affect adversely the Series C Preferred
Stock.
(d) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series D Preferred Stock so
as to affect adversely the Series D Preferred Stock, without the written consent
or affirmative vote of the holders of 66 2/3% of the
- 46 -
<PAGE> 105
then outstanding shares of Series D Preferred Stock, given in writing or by vote
at a meeting, consenting or voting (as the case may be) separately as a class.
For this purpose, without limiting the generality of the foregoing, the
authorization of any shares of capital stock with preference or priority over
the Series D Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up of the
Corporation shall be deemed to affect adversely the Series D Preferred Stock and
the authorization of any shares of capital stock on a parity with Series D
Preferred Stock as to the right to receive either dividends, redemption payments
or amounts distributable upon liquidation, dissolution or winding up of the
Corporation or with superior redemption rights shall not be deemed to affect
adversely the Series D Preferred Stock.
(e) So long as at least 25% of the number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock initially issued by the Company (subject to appropriate
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares) are outstanding, the Corporation
shall not, without the prior written consent of the holders of shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or
Series D Preferred Stock representing at least 66 2/3% of the combined votes
represented by the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock voting as
a single class:
(i) amend the Corporation's Certificate of Incorporation;
(ii) amend the Corporation's By-laws in a manner adverse to
either the holders of Series A Preferred Stock, the holders of Series B
Preferred Stock, the holders of Series C Preferred Stock, the holders of Series
D Preferred Stock or the directors of the Corporation;
(iii) declare or pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) redeem, repurchase or otherwise acquire (or establish or
set aside a sinking fund for such purpose) shares of Common Stock or Preferred
Stock at a price greater than the price at which they were originally issued;
(v) liquidate, dissolve or wind-up the Corporation;
(vi) make (or permit any subsidiary to make) any loan or
advance to any person, including without limitation, any employee or director of
the Corporation or any subsidiary, except (A) advances and similar expenditures
in the ordinary course of business or (B) as approved by the Board of Directors
under the terms of an employee stock or option plan;
(vii) (A) merge with or into or consolidate with any other
corporation, (B) sell, lease, or otherwise dispose of all or substantially all,
or a significant portion, of its properties or assets, or (C) acquire all or
substantially all of the properties or assets of any other corporation or entity
(except for consideration of less than 20% of the Corporation's consolidated net
worth as of the end of the prior fiscal quarter);
- 47 -
<PAGE> 106
(viii) incur or guaranty indebtedness for borrowed money in an
aggregate amount in excess of $1,000,000;
(ix) materially change the business of the Corporation from the
business in which the Corporation is engaged as of the Series D Original Issue
Date; or
(x) pay or declare any dividend or other distribution (other
than as permitted by clause (iii) above) to holders of any class of shares other
than Series D Preferred Stock unless the holders of Series D Preferred Stock
receive the same dividend or distribution.
8. WAIVER. Any of the rights of the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock set forth herein may be waived by the affirmative vote of the holders of
more than 66 2/3% of the shares of such series of Preferred Stock then
outstanding.
- 48 -
<PAGE> 107
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to
be signed by its President this 16th day of February, 1999.
ARROWPOINT COMMUNICATIONS, INC.
By: /s/ Chin-Cheng Wu
--------------------------------------
Chin-Cheng Wu
President
- 49 -
<PAGE> 108
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARROWPOINT COMMUNICATIONS, INC.
ArrowPoint Communications, Inc. (the "Corporation"), organized and existing
under and by virtue of the General Law of the State of Delaware, does hereby
certify as follows:
The Board of Directors of the Corporation duly adopted, pursuant to Section 242
of the General Corporation Law of Delaware, a resolution setting forth an
amendment to the Certificate of Incorporation of the Corporation and declaring
said amendment to be advisable. The stockholders of the Corporation duly
approved said proposed amendment in accordance with Section 242 of the General
Corporation Law of the State of Delaware by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware,
and written notice of such consent has been given to all stockholders who have
not consented in writing to said amendment. The resolution setting forth the
amendment is as follows:
RESOLVED: That the first paragraph of Article FOURTH of the Certificate of
Incorporation of the Corporation be and hereby is deleted in its entirety and
the following first paragraph of Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 37,500,000 shares, consisting of (i) 25,000,000
shares of Common Stock, $.001 par value per share ("Common Stock"), and (ii)
12,500,000 shares of Preferred Stock, $.01 par value per share ("Preferred
Stock"), 5,750,000 shares of which have been designated as Series A Convertible
Preferred Stock ("Series A Preferred Stock"), 2,213,828 shares of which have
been designated as Series B Convertible Preferred Stock ("Series B Preferred
Stock"), 278,464 shares of which have been designated as Series C Convertible
Preferred Stock ("Series C Preferred Stock"), and 1,602,443 shares of which have
been designated as Series D Convertible Preferred Stock ("Series D Preferred
Stock").
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to
be signed by its President this 24th day of November, 1999.
ARROWPOINT COMMUNICATIONS, INC.
By: /s/ Chin-Cheng Wu
-----------------------------------------
Chin-Cheng Wu
President
- 50 -
<PAGE> 109
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARROWPOINT COMMUNICATIONS, INC.
ArrowPoint Communications, Inc. (the "Corporation"), organized and existing
under and by virtue of the General Law of the State of Delaware, does hereby
certify as follows:
The Board of Directors of the Corporation duly adopted, pursuant to Section 242
of the General Corporation Law of Delaware, a resolution setting forth an
amendment to the Certificate of Incorporation of the Corporation and declaring
said amendment to be advisable. The stockholders of the Corporation duly
approved said proposed amendment in accordance with Section 242 of the General
Corporation Law of the State of Delaware by written consent in accordance with
Sections 228 and 242 of the General Corporation Law of the State of Delaware,
and written notice of such consent has been given to all stockholders who have
not consented in writing to said amendment. The resolution setting forth the
amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 37,500,000 shares, consisting of (i) 25,000,000
shares of Common Stock, $.001 par value per share ("Common Stock"), and (ii)
12,500,000 shares of Preferred Stock, $.01 par value per share ("Preferred
Stock"), 5,750,000 shares of which have been designated as Series A Convertible
Preferred Stock ("Series A Preferred Stock"), 2,213,828 shares of which have
been designated as Series B Convertible Preferred Stock ("Series B Preferred
Stock"), 278,464 shares of which have been designated as Series C Convertible
Preferred Stock ("Series C Preferred Stock"), 1,602,443 shares of which have
been designated as Series D Convertible Preferred Stock ("Series D Preferred
Stock"), and 699,837 shares of which have been designated as Series E
Convertible Preferred Stock ("Series E Preferred Stock").
The following is a statement of the designations and the powers, privileges and
rights, and the qualifications, limitations or restrictions thereof in respect
of each class of capital stock of the Corporation.
- 51 -
<PAGE> 110
A. COMMON STOCK.
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the stock of the Corporation entitled to
vote, irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series, each of
such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time to
time to issue the Preferred Stock in one or more series, and in connection with
the creation of any such series, by resolution or resolutions providing for the
issue of the shares thereof, to determine and fix such voting powers, full or
limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided in this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of any
- 52 -
<PAGE> 111
shares of any series of the Preferred Stock authorized by and complying with the
conditions of this Certificate of Incorporation, the right to have such vote
being expressly waived by all present and future holders of the capital stock of
the Corporation.
C. SERIES A PREFERRED STOCK, SERIES B PREFERRED STOCK, SERIES C PREFERRED
STOCK, SERIES D PREFERRED STOCK AND SERIES E PREFERRED STOCK.
1. DIVIDENDS.
(a) The Corporation shall not declare or pay any dividends or
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock then outstanding
shall have first received, or simultaneously receive, a like distribution on
each outstanding share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock,
in an amount at least equal to the product of (i) the per share amount, if any,
of the dividends or distributions to be declared, paid or set aside for the
Common Stock, multiplied by (ii) the number of whole shares of Common Stock into
which such share of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the
case may be, is convertible as of the record date for such dividend or
distribution.
(b) For purposes of this Section 1, "distribution" shall mean
the transfer of cash or property without consideration, whether by way of
dividend or otherwise, payable other than in Common Stock or other securities of
the Corporation, or the purchase or redemption of shares of the Corporation
(other than repurchases of Common Stock held by employees or directors of, or
consultants to, the Corporation upon termination of their employment or services
pursuant to agreements approved by the Board of Directors providing for such
repurchase at a price equal to the original issue price of such shares) for cash
or property, including any such transfer, purchase or redemption by a subsidiary
of the Corporation.
2. LIQUIDATION, DISSOLUTION OR WINDING UP; CERTAIN MERGERS,
CONSOLIDATIONS AND ASSET SALES.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Corporation available for distribution to
its stockholders, after and subject to the payment in full of all amounts
required to be distributed to the holders of any other class or series of stock
of the Corporation ranking on liquidation prior and in preference to the Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, but before any payment shall be
made to the holders of Common Stock or any other class or series of stock
ranking on liquidation junior to the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock by reason of their ownership thereof, an amount equal to $1.00
per share, in the case of Series A Preferred Stock, $4.63 per share, in the case
of Series B Preferred Stock, $7.86 per share, in the case of Series C Preferred
Stock, $10.20 per share, in the case of Series D Preferred Stock, and $21.14 per
share,
- 53 -
<PAGE> 112
in the case of Series E Preferred Stock (subject to appropriate adjustment in
the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares), plus any dividends declared but unpaid
on such shares. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock the full amount to which they shall
be entitled, the holders of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of any class or series of stock of the Corporation ranking
on liquidation prior to and in preference to the Common Stock, upon the
dissolution, liquidation or winding up of the Corporation, the remaining assets
and funds of the Corporation available for distribution to its stockholders
shall be distributed among the holders of shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock, pro rata based upon the number of
shares of Common Stock held by each such stockholder (after giving effect to the
conversion into Common Stock of all Series A Preferred Stock and Series B
Preferred Stock).
(c) Any (i) merger or consolidation which results in the voting
securities of the Corporation outstanding immediately prior thereto representing
immediately thereafter (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than a
majority of the combined voting power of the voting securities of the
Corporation or such surviving or acquiring entity outstanding immediately after
such merger or consolidation, (ii) sale of all or substantially all or a
significant portion of the assets of the Corporation or (iii) sale of shares of
capital stock of the Corporation, in a single transaction or series of related
transactions, representing at least 80% of the of the voting power of the voting
securities of the Corporation, shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation (net of obligations owed by the Corporation),
together with all other available assets of the Corporation (in the case of an
asset sale), shall be distributed to the holders of capital stock of the
Corporation in accordance with Subsections 2(a) and 2(b) above. The Corporation
shall promptly provide to the holders of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock. If applicable, the Corporation shall cause the agreement or
plan of merger or consolidation to provide for a rate at which the shares of
capital stock of the Corporation are converted into or exchanged for cash, new
securities or other property which gives effect to this provision. The amount
deemed distributed to the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C
- 54 -
<PAGE> 113
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
upon any such merger or consolidation shall be the cash or the value of
the property, rights or securities distributed to such holders by the
Corporation and/or by the acquiring person, firm or other entity. The value of
such property, rights or other securities shall be determined in good faith by
the Board of Directors of the Corporation.
3. VOTING. Each holder of outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to the number of votes
equal to the number of whole shares of Common Stock into which the shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock held by such holder are
convertible (as adjusted from time to time pursuant to Section 4 hereof) as of
the record date, at each meeting of stockholders of the Corporation (and written
actions of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law or by the provisions of Section 7 below
or by the provisions establishing any other series of stock, holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and of any other outstanding series of
stock shall vote together with the holders of Common Stock as a single class.
4. OPTIONAL CONVERSION. The holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $1.00 by the Series A Conversion Price (as defined below)
in effect at the time of conversion. The "Series A Conversion Price" shall
initially be $1.00. Such Series A Conversion Price, and the rate at which shares
of Series A Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below.
(ii) Each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $4.63 by the Series B Conversion Price (as defined below)
in effect at the time of conversion. The "Series B Conversion Price" shall
initially be $4.63. Such Series B Conversion Price, and the rate at which shares
of Series B Preferred Stock may be converted into shares of Common Stock, shall
be subject to adjustment as provided below.
(iii) Each share of Series C Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable
- 55 -
<PAGE> 114
shares of Common Stock as is determined by dividing $7.86 by the Series C
Conversion Price (as defined below) in effect at the time of conversion. The
"Series C Conversion Price" shall initially be $7.86. Such Series C Conversion
Price, and the rate at which shares of Series C Preferred Stock may be
converted into shares of Common Stock, shall be subject to adjustment as
provided below.
(iv) Each share of Series D Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $10.20 by the Series D Conversion Price (as defined
below) in effect at the time of conversion. The "Series D Conversion Price"
shall initially be $10.20. Such Series D Conversion Price, and the rate at which
shares of Series D Preferred Stock may be converted into shares of Common Stock,
shall be subject to adjustment as provided below.
(v) Each share of Series E Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $21.14 by the Series E Conversion Price (as defined
below) in effect at the time of conversion. The "Series E Conversion Price"
shall initially be $21.14. Such Series E Conversion Price, and the rate at which
shares of Series E Preferred Stock may be converted into shares of Common Stock,
shall be subject to adjustment as provided below.
In the event of a notice of redemption of any shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock pursuant to Section 6 hereof, the Conversion Right of the shares
designated for redemption shall terminate at the close of business on the first
full day preceding the date fixed for redemption, unless the redemption price is
not paid when due, in which case the Conversion Right for such shares shall
continue until such price is paid in full. In the event of a liquidation of the
Corporation (or deemed liquidation under Section 2(c) hereof), the Conversion
Right shall terminate at the close of business on the first full business day
preceding the date fixed for the payment of any amounts distributable on
liquidation (or deemed liquidation under Section 2(c) hereof) to the holders of
such series of Preferred Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock. In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Series A Conversion Price, Series B Conversion Price, Series
C Conversion Price, Series D Conversion Price or Series E Conversion Price.
(c) MECHANICS OF CONVERSION.
(i) In order for a holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock to convert shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock,
- 56 -
<PAGE> 115
Series D Preferred Stock or Series E Preferred Stock into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares of Preferred Stock, at the office of the transfer agent for the Preferred
Stock (or at the principal office of the Corporation if the Corporation serves
as its own transfer agent), together with written notice that such holder elects
to convert all or any number of the shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock represented by such certificate or certificates. Such
notice shall state such holder's name or the names of the nominees in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued. If required by the Corporation, certificates surrendered for conversion
shall be endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or his or its attorney duly authorized in writing. The date of
receipt of such certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) shall be the
conversion date ("Conversion Date"). The Corporation shall, as soon as
practicable after the Conversion Date, issue and deliver at such office to such
holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock, or to his or its
nominees, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled, together with cash in lieu of any
fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock. Before taking any action which
would cause an adjustment reducing the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price or Series
E Conversion Price below the then par value of the shares of Common Stock
issuable upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price or Series E Conversion Price.
(iii) Upon any such conversion, no adjustment to the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D
Conversion Price or Series E Conversion Price shall be made for any declared but
unpaid dividends on the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
surrendered for conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock which shall have
- 57 -
<PAGE> 116
been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive notices and to vote, shall immediately
cease and terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor and payment of
any dividends declared but unpaid thereon. Any shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock so converted shall be retired and cancelled
and shall not be reissued, and the Corporation (without the need for stockholder
action) may from time to time take such appropriate action as may be necessary
to reduce the authorized number of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock pursuant to this Section 4. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of shares of Common Stock in a name other than that
in which the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
so converted were registered, and no such issuance or delivery shall be made
unless and until the person or entity requesting such issuance has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(B) "SERIES A ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series A Preferred Stock was first issued.
(C) "SERIES B ORIGINAL ISSUE DATE" shall mean the date on
which
a share of Series B Preferred Stock was first issued.
(D) "SERIES C ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series C Preferred Stock was first issued.
(E) "SERIES D ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series D Preferred Stock was first issued.
(F) "SERIES E ORIGINAL ISSUE DATE" shall mean the date on
which a share of Series E Preferred Stock was first issued.
- 58 -
<PAGE> 117
(G) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(H) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than:
(I) shares of Common Stock issued or issuable as a
dividend or other distribution on Series A
Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock;
(II) shares of Common Stock issued or issuable by
reason of a dividend or other distribution on
shares of Common Stock that is covered by
Subsection 4(e) or 4(f) below;
(III) shares of Common Stock issued or issuable upon
conversion of those shares of Series A Preferred
Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock outstanding at the close
of business on the Series E Original Issue Date;
(IV) up to 4,500,000 shares of Common Stock (including
issuances prior to the Series E Original Issue
Date) (subject to appropriate adjustment for
stock splits, stock dividends, combinations and
other similar recapitalizations affecting such
shares), plus such additional number of shares as
may be approved by both the Board of Directors of
the Corporation and a majority of the
non-employee directors of the Corporation, issued
or issuable to employees or directors of, or
consultants to, the Corporation pursuant to plans
or restricted stock awards approved by the Board
of Directors of the Corporation.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
number of shares of Common Stock into which the Series A Preferred Stock is
convertible shall be made (a) unless the consideration per share (determined
pursuant to Subsection 4(d)(v)) for an Additional Share of Common Stock issued
or deemed to be issued by the Corporation is less than the applicable Series A
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Shares, or (b) if prior to or within 60 days subsequent to
such issuance, the Corporation receives written notice from the holders of at
least 66 2/3% of the then
- 59 -
<PAGE> 118
outstanding shares of Series A Preferred Stock, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of Common
Stock. No adjustment in the number of shares of Common Stock into which the
Series B Preferred Stock is convertible shall be made (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series B Conversion Price in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to or within 60 days subsequent to such issuance, the Corporation
receives written notice from the holders of at least 66 2/3% of the then
outstanding shares of Series B Preferred Stock, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of Common
Stock. No adjustment in the number of shares of Common Stock into which the
Series C Preferred Stock is convertible shall be made (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series C Conversion Price in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to or within 60 days subsequent to such issuance, the Corporation
receives written notice from the holders of at least 66 2/3% of the then
outstanding shares of Series C Preferred Stock, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of Common
Stock. No adjustment in the number of shares of Common Stock into which the
Series D Preferred Stock is convertible shall be made (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series D Conversion Price in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to or within 60 days subsequent to such issuance, the Corporation
receives written notice from the holders of at least 66 2/3% of the then
outstanding shares of Series D Preferred Stock, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of Common
Stock. No adjustment in the number of shares of Common Stock into which the
Series E Preferred Stock is convertible shall be made (a) unless the
consideration per share (determined pursuant to Subsection 4(d)(v)) for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the applicable Series E Conversion Price in effect on
the date of, and immediately prior to, the issue of such Additional Shares, or
(b) if prior to or within 60 days subsequent to such issuance, the Corporation
receives written notice from the holders of at least 66 2/3% of the then
outstanding shares of Series E Preferred Stock, agreeing that no such adjustment
shall be made as the result of the issuance of Additional Shares of Common
Stock.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF
COMMON STOCK.
If the Corporation at any time or from time to time after the Series A Original
Issue Date, Series B Original Issue Date, Series C Original Issue Date, Series D
Original Issue Date or Series E Original Issue Date, as applicable, shall issue
any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
- 60 -
<PAGE> 119
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that (v) for the purposes of adjusting
the Series A Conversion Price, Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share (determined
pursuant to Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock
would be less than the applicable Series A Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, (w) for the purposes of adjusting the Series B Conversion Price,
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Series B Conversion Price in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, (x) for the purposes of
adjusting the Series C Conversion Price, Additional Shares of Common Stock shall
not be deemed to have been issued unless the consideration per share (determined
pursuant to Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock
would be less than the applicable Series C Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, (y) for the purposes of adjusting the Series D Conversion Price,
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Series D Conversion Price in effect on the date of and immediately prior to such
issue, or such record date, as the case may be, and (z) for the purposes of
adjusting the Series E Conversion Price, Additional Shares of Common Stock shall
not be deemed to have been issued unless the consideration per share (determined
pursuant to Subsection 4(d)(v) hereof) of such Additional Shares of Common Stock
would be less than the applicable Series E Conversion Price in effect on the
date of and immediately prior to such issue, or such record date, as the case
may be, and provided further that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(A) No further adjustment in the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion
Price or Series E Conversion Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Series A Conversion Price, Series B Conversion Price,
Series C Conversion Price, Series D Conversion Price or Series E Conversion
Price computed upon the original issue thereof (or upon the occurrence of a
record date with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase becoming effective, be recomputed to reflect such
increase insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price and Series E Conversion Price shall
not be readjusted, but the Additional Shares of Common Stock deemed issued as
the result of the original issue of such Option shall not be deemed issued for
the purposes of any subsequent adjustment of the Series A
- 61 -
<PAGE> 120
Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series D Conversion Price or Series E Conversion Price;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or exchange of any Option or
Convertible Security, including, but not limited to, a change resulting from the
anti-dilution provisions thereof, the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price and
Series E Conversion Price then in effect shall forthwith be readjusted to such
Series A Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series D Conversion Price or Series E Conversion Price as would have obtained
had the adjustment which was made upon the issuance of such Option or
Convertible Security not exercised or converted prior to such change been made
upon the basis of such change; and
(E) No readjustment pursuant to clause (B) or (D) above
shall have the effect of increasing the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price or Series
E Conversion Price to an amount which exceeds the lower of (i) the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D
Conversion Price or Series E Conversion Price on the original adjustment date,
or (ii) the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price or Series E Conversion Price, as the
case may be, that would have resulted from any issuances of Additional Shares of
Common Stock between the original adjustment date and such readjustment date.
In the event the Corporation, after the Series A Original Issue Date, the Series
B Original Issue Date, the Series C Original Issue Date, the Series D Original
Issue Date or the Series E Original Issue Date, amends any Options or
Convertible Securities (whether such Options or Convertible Securities were
outstanding on such Original Issue Date or were issued after such Original Issue
Date) to increase the number of shares issuable thereunder or decrease the
consideration to be paid upon exercise or conversion thereof, then such Options
or Convertible Securities, as so amended, shall be deemed to have been issued
after such Original Issue Date and the provisions of this Subsection 4(d)(iii)
shall apply.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK.
(A) In the event the Corporation shall at any time after
the Series A Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series A Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series A
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series A
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so
- 62 -
<PAGE> 121
issued would purchase at such Series A Conversion Price; and (B) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; PROVIDED THAT, (i) for the purpose of this Subsection 4(d)(iv), all
shares of Common Stock issuable upon exercise or conversion of Options or
Convertible Securities outstanding immediately prior to such issue shall be
deemed to be outstanding, and (ii) for the purpose of this Subsection 4(d)(iv),
the number of shares of Common Stock deemed issuable upon conversion of such
outstanding Convertible Securities shall not give effect to any adjustments to
the conversion price or conversion rate of such Convertible Securities resulting
from the issuance of Additional Shares of Common Stock that is the subject of
this calculation.
(B) In the event the Corporation shall at any time after
the Series B Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series B Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series B
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series B
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series B Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; PROVIDED THAT, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(C) In the event the Corporation shall at any time after
the Series C Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series C Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series C
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series C
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series C Conversion
Price; and (B) the denominator of which
- 63 -
<PAGE> 122
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued;
PROVIDED THAT, (i) for the purpose of this Subsection 4(d)(iv), all shares of
Common Stock issuable upon exercise or conversion of Options or Convertible
Securities outstanding immediately prior to such issue shall be deemed to be
outstanding, and (ii) for the purpose of this Subsection 4(d)(iv), the number of
shares of Common Stock deemed issuable upon conversion of such outstanding
Convertible Securities shall not give effect to any adjustments to the
conversion price or conversion rate of such Convertible Securities resulting
from the issuance of Additional Shares of Common Stock that is the subject of
this calculation.
(D) In the event the Corporation shall at any time after
the Series D Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series D Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series D
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series D
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series D Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; PROVIDED THAT, (i) for the purpose
of this Subsection 4(d)(iv), all shares of Common Stock issuable upon exercise
or conversion of Options or Convertible Securities outstanding immediately prior
to such issue shall be deemed to be outstanding, and (ii) for the purpose of
this Subsection 4(d)(iv), the number of shares of Common Stock deemed issuable
upon conversion of such outstanding Convertible Securities shall not give effect
to any adjustments to the conversion price or conversion rate of such
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
(E) In the event the Corporation shall at any time after
the Series E Original Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Subsection 4(d)(iii), but excluding shares issued as a stock split or
combination as provided in Subsection 4(e) or upon a dividend or distribution as
provided in Subsection 4(f)), without consideration or for a consideration per
share less than the applicable Series E Conversion Price in effect on the date
of and immediately prior to such issue, then and in such event, such Series E
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Series E
Conversion Price by a fraction, (A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
plus (2) the number of shares of Common Stock which the aggregate consideration
received or to be received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series E Conversion
Price; and (B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus
- 64 -
<PAGE> 123
the number of such Additional Shares of Common Stock so issued; PROVIDED THAT,
(i) for the purpose of this Subsection 4(d)(iv), all shares of Common Stock
issuable upon exercise or conversion of Options or Convertible Securities
outstanding immediately prior to such issue shall be deemed to be outstanding,
and (ii) for the purpose of this Subsection 4(d)(iv), the number of shares of
Common Stock deemed issuable upon conversion of such outstanding Convertible
Securities shall not give effect to any adjustments to the conversion price or
conversion rate of such Convertible Securities resulting from the issuance of
Additional Shares of Common Stock that is the subject of this calculation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Subsection 4(d)(iii), relating to
Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
- 65 -
<PAGE> 124
(vi) MULTIPLE CLOSING DATES. In the event the Corporation shall
issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Convertible Securities, and
such issuance dates occur within a period of no more than 120 days, then, upon
the final such issuance, the Series A Conversion Price, the Series B Conversion
Price, the Series C Conversion Price, the Series D Conversion Price and the
Series E Conversion Price shall be adjusted to give effect to all such issuances
as if they occurred on the date of the final such issuance (and without giving
effect to any adjustments as a result of such prior issuances within such
period); provided, however, that the adjustment of the Series A Conversion
Price, the Series B Conversion Price, the Series C Conversion Price, the Series
D Conversion Price and the Series E Conversion Price shall occur immediately if
a vote of stockholders or a conversion of Preferred Stock (including both an
actual conversion or an assumed conversion done for the purpose of making
another calculation, such as, but not limited to, calculating the pro-rata share
of future equity financings that holders of Preferred Stock may purchase
pursuant to their right of first refusal) is required during such period.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Series A Original
Issue Date, the Series B Original Issue Date, the Series C Original Issue Date,
the Series D Original Issue Date or the Series E Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price, Series D Conversion Price
and/or Series E Conversion Price then in effect immediately before that
subdivision shall be proportionately decreased. If the Corporation shall at any
time or from time to time after the Series A Original Issue Date, the Series B
Original Issue Date, the Series C Original Issue Date, the Series D Original
Issue Date and/or Series E Original Issue Date, as the case may be, combine the
outstanding shares of Common Stock, the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price and/or
Series E Conversion Price, as the case may be, then in effect immediately before
the combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Series A
Original Issue Date, the Series B Original Issue Date, the Series C Original
Issue Date, the Series D Original Issue Date and/or the Series E Original Issue
Date, as the case may be, shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in additional shares of Common Stock, then and in
each such event the Series A Conversion Price, Series B Conversion Price, Series
C Conversion Price, Series D Conversion Price and/or Series E Conversion Price,
as the case may be, then in effect shall be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by multiplying the Series A Conversion
Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion
Price and/or Series E Conversion Price, as the case may be, then in effect by a
fraction:
(1) the numerator of which shall be the total number
of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on
such record date, and
- 66 -
<PAGE> 125
(2) the denominator of which shall be the total
number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of
business on such record date plus the number of shares of
Common Stock issuable in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price, Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price and/or Series E Conversion Price
shall be recomputed accordingly as of the close of business on such record date
and thereafter the Series A Conversion Price, Series B Conversion Price, Series
C Conversion Price, Series D Conversion Price and/or Series E Conversion Price,
as the case may be, shall be adjusted pursuant to this paragraph as of the time
of actual payment of such dividends or distributions; and provided further,
however, that no such adjustment shall be made if the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and/or Series E Preferred Stock simultaneously receive (i) a
dividend or other distribution of shares of Common Stock in a number equal to
the number of shares of Common Stock as they would have received if all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock had
been converted into Common Stock on the date of such event or (ii) a dividend or
other distribution of shares of such series of Preferred Stock which are
convertible, as of the date of such event, into the number of shares of Common
Stock as is equal to the number of additional shares of Common Stock being
issued with respect to each share of Common Stock in such dividend or
distribution.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event
the Corporation at any time or from time to time after the Series A Original
Issue Date, the Series B Original Issue Date, the Series C Original Issue Date,
the Series D Original Issue Date or the Series E Original Issue Date shall make
or issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock
and/or Series E Preferred Stock as the case may be, shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation that they
would have received had the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred
Stock, as the case may be, been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock, as
the case may be; and provided further, however, that no such adjustment shall be
made if the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred
Stock, as the case may be, simultaneously receive a dividend or other
distribution of such securities in an amount equal to the amount of such
securities as they would have received if all outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
- 67 -
<PAGE> 126
Preferred Stock and/or Series E Preferred Stock, as the case may be, had been
converted into Common Stock on the date of such event.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall be changed into the same or a different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each such share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable,
upon such reorganization, reclassification, or other change, by holders of the
number of shares of Common Stock into which such shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock might have been converted immediately prior
to such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) ADJUSTMENT FOR MERGER OR REORGANIZATION, ETC. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock shall thereafter be convertible (or shall be converted into a security
which shall be convertible) into the kind and amount of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock would have been entitled upon such consolidation,
merger or sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and interest
thereafter of the holders of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D
Conversion Price and Series E Conversion Price) shall thereafter be applicable,
as nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock, as the case may be.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
- 68 -
<PAGE> 127
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price or Series E
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and/or
Series E Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, furnish
or cause to be furnished to such holder a similar certificate setting forth (i)
such adjustments and readjustments, (ii) the Series A Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price or Series
E Conversion Price then in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which then would be received
upon the conversion of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
as the case may be.
(l) NOTICE OF RECORD DATE. In the event:
(i) that the Corporation declares a dividend (or
any other distribution) on its Common Stock
payable in Common Stock or other securities
of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock
of the Corporation (other than a subdivision
or combination of its outstanding shares of
Common Stock or a stock dividend or stock
distribution thereon), or of any
consolidation or merger of the Corporation
into or with another corporation, or of the
sale of all or substantially all of the
assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, and shall cause to be mailed to the holders of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock at their last addresses as shown on the
records of the Corporation or such transfer agent, at least ten days prior to
the date specified in (A) below or twenty days before the date specified in (B)
below, a notice stating
- 69 -
<PAGE> 128
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to
be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be
determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation
or winding up is expected to become effective, and
the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other
property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding
up.
5. MANDATORY CONVERSION.
(a) Upon the closing of the sale of shares of Common Stock, at a
price of at least $25.00 per share (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares), in a firm commitment underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, resulting in at least $10,000,000 of proceeds to the
Corporation (net of the underwriting discounts or commissions and offering
expenses) (the "Mandatory Conversion Date"), (i) all outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock shall automatically be
converted into shares of Common Stock, at the then effective applicable
conversion rate, and (ii) all references herein to the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall be deleted and shall be of no further force or
effect.
(b) All holders of record of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock shall be given written notice of the Mandatory
Conversion Date and the place designated for mandatory conversion of all such
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock pursuant to this
Section 5. Such notice need not be given in advance of the occurrence of the
Mandatory Conversion Date. Such notice shall be sent by first class or
registered mail, postage prepaid, to each record holder of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, as the case may be (or the records of the Corporation, if it
serves as its own transfer agent). Upon receipt of such notice, each holder of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock shall surrender his
or its certificate or certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive certificates for
the number of shares of Common Stock to which such holder is entitled pursuant
to this Section 5. On the Mandatory Conversion Date, all rights with respect to
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock so converted,
including the rights, if any, to receive notices and vote (other than as a
holder of Common Stock) will terminate,
- 70 -
<PAGE> 129
except only the rights of the holders thereof, upon surrender of their
certificate or certificates therefor, to receive certificates for the number of
shares of Common Stock into which such Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock has been converted, and payment of any declared but unpaid
dividends thereon. If so required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or by his or its attorney duly authorized in writing.
As soon as practicable after the Mandatory Conversion Date and the surrender of
the certificate or certificates for Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock, the Corporation shall cause to be issued and delivered to such holder, or
on his or its written order, a certificate or certificates for the number of
full shares of Common Stock issuable on such conversion in accordance with the
provisions hereof and cash as provided in Subsection 4(b) in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(f) All certificates evidencing shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and cancelled and the shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to such
date. The Corporation may thereafter take such appropriate action (without the
need for stockholder action) as may be necessary to reduce the authorized Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, accordingly.
6. REDEMPTION.
(a) The Corporation will, subject to the conditions set forth
below, on February 16, 2004, February 16, 2005 and February 16, 2006 (each, a
"Mandatory Redemption Date"), upon receipt not less than 30 nor more than 120
days prior to the applicable Mandatory Redemption Date of written request(s) for
redemption from holders of at least a majority of the shares of Series A
Preferred Stock then outstanding (a "Series A Redemption Request"), redeem from
each holder of shares of Series A Preferred Stock, at a price equal to $1.00 per
share (subject to appropriate adjustment in the event of any dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any declared but unpaid dividends thereon (the "Series A Mandatory
Redemption Price"), the following respective portions of the number of shares of
Series A Preferred Stock held by such holder set forth opposite the applicable
Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series A Preferred
Mandatory Redemption Date Stock To Be Redeemed
------------------------- ----------------------------
February 16, 2004 33 1/3%
February 16, 2005 50%
- 71 -
<PAGE> 130
February 16, 2006 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series A Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series A Redemption Request, specifying the time and place
of redemption and the Series A Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series A Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not less than 20 days prior to the Mandatory Redemption Date.
(b) The Corporation will on each Mandatory Redemption Date, upon
receipt not less than 30 nor more than 120 days prior to the applicable
Mandatory Redemption Date of written request(s) for redemption from holders of
at least a majority of the shares of Series B Preferred Stock then outstanding
(a "Series B Redemption Request"), redeem from each holder of shares of Series B
Preferred Stock, at a price equal to $4.63 per share (subject to appropriate
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any declared but unpaid
dividends thereon (the "Series B Mandatory Redemption Price"), the following
respective portions of the number of shares of Series B Preferred Stock held by
such holder set forth opposite the applicable Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series B Preferred
Mandatory Redemption Date Stock To Be Redeemed
------------------------- ----------------------------
February 16, 2004 33 1/3%
February 16, 2005 50%
February 16, 2006 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series B Preferred Stock at the address for such holder last shown on
the records of the transfer agent therefor (or the records of the Corporation,
if it serves as its own transfer agent), not less than 120 nor more than 180
days prior to the applicable Mandatory Redemption Date. The Corporation shall
provide notice of any Series B Redemption Request, specifying the time and place
of redemption and the Series B Mandatory Redemption Price, by first class or
registered mail, postage prepaid, to each holder of record of Series B Preferred
Stock at the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its own
transfer agent), not less than 20 days prior to the Mandatory Redemption Date.
(c) The Corporation will on each Mandatory Redemption Date, upon
receipt not less than 30 nor more than 120 days prior to the applicable
Mandatory Redemption Date of written request(s) for redemption from holders of
at least a majority of the shares of Series C Preferred Stock then outstanding
(a "Series C Redemption Request"), redeem from each holder
- 72 -
<PAGE> 131
of shares of Series C Preferred Stock, at a price equal to $7.86 per share
(subject to appropriate adjustment in the event of any dividend, stock
split, combination or other similar recapitalization affecting such shares),
plus any declared but unpaid dividends thereon (the "Series C Mandatory
Redemption Price"), the following respective portions of the number of shares of
Series C Preferred Stock held by such holder set forth opposite the applicable
Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series C Preferred
Mandatory Redemption Date Stock To Be Redeemed
------------------------- ----------------------------
February 16, 2004 33 1/3%
February 16, 2005 50%
February 16, 2006 All Shares then held
The Corporation shall provide notice of its redemption obligations under
this Section 6, by first class or registered mail, postage prepaid, to
each holder of record of Series C Preferred Stock at the address for such holder
last shown on the records of the transfer agent therefor (or the records of the
Corporation, if it serves as its own transfer agent), not less than 120 nor more
than 180 days prior to the applicable Mandatory Redemption Date. The Corporation
shall provide notice of any Series C Redemption Request, specifying the time and
place of redemption and the Series C Mandatory Redemption Price, by first class
or registered mail, postage prepaid, to each holder of record of Series C
Preferred Stock at the address for such holder last shown on the records of the
transfer agent therefor (or the records of the Corporation, if it serves as its
own transfer agent), not less than 20 days prior to the Mandatory Redemption
Date.
(d) The Corporation will on each Mandatory Redemption Date, upon
receipt not less than 30 nor more than 120 days prior to the applicable
Mandatory Redemption Date of written request(s) for redemption from holders of
at least a majority of the shares of Series D Preferred Stock then outstanding
(a "Series D Redemption Request"), redeem from each holder of shares of Series D
Preferred Stock, at a price equal to $10.20 per share (subject to appropriate
adjustment in the event of any dividend, stock split, combination or other
similar recapitalization affecting such shares), plus any declared but unpaid
dividends thereon (the "Series D Mandatory Redemption Price"), the following
respective portions of the number of shares of Series D Preferred Stock held by
such holder set forth opposite the applicable Mandatory Redemption Date:
Portion of then Outstanding
Shares of Series D Preferred
Mandatory Redemption Date Stock To Be Redeemed
------------------------- ----------------------------
February 16, 2004 33 1/3%
February 16, 2005 50%
February 16, 2006 All Shares then held
The Corporation shall provide notice of its redemption obligations under this
Section 6, by first class or registered mail, postage prepaid, to each holder of
record of Series D Preferred Stock at
- 73 -
<PAGE> 132
the address for such holder last shown on the records of the transfer
agent therefor (or the records of the Corporation, if it serves as its
own transfer agent), not less than 120 nor more than 180 days prior to the
applicable Mandatory Redemption Date. The Corporation shall provide notice of
any Series D Redemption Request, specifying the time and place of redemption and
the Series D Mandatory Redemption Price, by first class or registered mail,
postage prepaid, to each holder of record of Series D Preferred Stock at the
address for such holder last shown on the records of the transfer agent therefor
(or the records of the Corporation, if it serves as its own transfer agent), not
less than 20 days prior to the Mandatory Redemption Date.
(e) If the funds of the Corporation legally available for
redemption of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock on any Mandatory Redemption Date
are insufficient to redeem the number of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
required under this Section 6 to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably on the basis of the number of shares of each such series which
would be redeemed on such date if the funds of the Corporation legally available
therefor had been sufficient to redeem all shares required to be redeemed on
such date. At any time thereafter when additional funds of the Corporation
become legally available for the redemption of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem,
to the extent of the available funds, the balance of the shares which the
Corporation was theretofore obligated to redeem.
(f) Unless there shall have been a default in payment of the
Mandatory Redemption Price, on such Mandatory Redemption Date all rights of each
holder of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock as a stockholder of the Corporation
by reason of the ownership of such shares will cease, except the right to
receive the Mandatory Redemption Price for such shares, without interest, upon
presentation and surrender of the certificate representing such shares, and such
shares will not from and after such Mandatory Redemption Date be deemed to be
outstanding.
(g) Any Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock or Series D Preferred Stock redeemed pursuant to this Section
6 will be cancelled and will not under any circumstances be reissued, sold or
transferred and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock accordingly.
7. NEGATIVE COVENANTS.
(a) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series A Preferred Stock so
as to affect adversely the Series A Preferred Stock, without the written consent
or affirmative vote of the holders of a majority of the then outstanding shares
of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a class. For this
purpose, without limiting the generality of the foregoing, the authorization of
any shares of capital stock with preference or priority over the Series A
Preferred Stock as to the right to receive either dividends
- 74 -
<PAGE> 133
or amounts distributable upon liquidation, dissolution or winding up of the
Corporation shall be deemed to affect adversely the Series A Preferred Stock
and the authorization of any shares of capital stock on a parity with Series A
Preferred Stock as to the right to receive either dividends, redemption payments
or amounts distributable upon liquidation, dissolution or winding up of the
Corporation or with superior redemption rights shall not be deemed to affect
adversely the Series A Preferred Stock.
(b) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series B Preferred Stock so
as to affect adversely the Series B Preferred Stock, without the written consent
or affirmative vote of the holders of 66 2/3% of the then outstanding shares of
Series B Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series B Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series B Preferred Stock and the authorization of any
shares of capital stock on a parity with Series B Preferred Stock as to the
right to receive either dividends, redemption payments or amounts distributable
upon liquidation, dissolution or winding up of the Corporation or with superior
redemption rights shall not be deemed to affect adversely the Series B Preferred
Stock.
(c) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series C Preferred Stock so
as to affect adversely the Series C Preferred Stock, without the written consent
or affirmative vote of the holders of 66 2/3% of the then outstanding shares of
Series C Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series C Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series C Preferred Stock and the authorization of any
shares of capital stock on a parity with Series C Preferred Stock as to the
right to receive either dividends, redemption payments or amounts distributable
upon liquidation, dissolution or winding up of the Corporation or with superior
redemption rights shall not be deemed to affect adversely the Series C Preferred
Stock.
(d) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series D Preferred Stock so
as to affect adversely the Series D Preferred Stock, without the written consent
or affirmative vote of the holders of 66 2/3% of the then outstanding shares of
Series D Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series D Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series D Preferred Stock and the authorization of any
shares of capital stock on a parity with Series D Preferred Stock as to the
right to receive either dividends, redemption payments or amounts distributable
upon liquidation, dissolution or winding up of the
- 75 -
<PAGE> 134
Corporation or with superior redemption rights shall not be deemed to affect
adversely the Series D Preferred Stock.
(e) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series E Preferred Stock so
as to affect adversely the Series E Preferred Stock, without the written consent
or affirmative vote of the holders of 66 2/3% of the then outstanding shares of
Series E Preferred Stock, given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a class. For this purpose, without
limiting the generality of the foregoing, the authorization of any shares of
capital stock with preference or priority over the Series E Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Corporation shall be deemed to
affect adversely the Series E Preferred Stock and the authorization of any
shares of capital stock on a parity with Series E Preferred Stock as to the
right to receive either dividends, redemption payments or amounts distributable
upon liquidation, dissolution or winding up of the Corporation or with superior
redemption rights shall not be deemed to affect adversely the Series E Preferred
Stock.
(f) So long as at least 25% of the number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock initially issued by the Company
(subject to appropriate adjustment in the event of any dividend, stock split,
combination or other similar recapitalization affecting such shares) are
outstanding, the Corporation shall not, without the prior written consent of the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock
representing at least 66 2/3% of the combined votes represented by the
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock voting
as a single class:
(i) amend the Corporation's Certificate of Incorporation;
(ii) amend the Corporation's By-laws in a manner adverse to
either the holders of Series A Preferred Stock, the holders of Series B
Preferred Stock, the holders of Series C Preferred Stock, the holders of Series
D Preferred Stock, the holders of Series E Preferred Stock or the directors of
the Corporation;
(iii) declare or pay any dividends on Common Stock other than
dividends payable solely in Common Stock;
(iv) redeem, repurchase or otherwise acquire (or establish or
set aside a sinking fund for such purpose) shares of Common Stock or Preferred
Stock at a price greater than the price at which they were originally issued;
(v) liquidate, dissolve or wind-up the Corporation;
(vi) make (or permit any subsidiary to make) any loan or
advance to any person, including without limitation, any employee or director of
the Corporation or any subsidiary, except (A) advances and similar expenditures
in the ordinary course of business or (B) as approved by the Board of Directors
under the terms of an employee stock or option plan;
- 76 -
<PAGE> 135
(vii) (A) merge with or into or consolidate with any other
corporation, (B) sell, lease, or otherwise dispose of all or substantially all,
or a significant portion, of its properties or assets, or (C) acquire all or
substantially all of the properties or assets of any other corporation or entity
(except for consideration of less than 20% of the Corporation's consolidated net
worth as of the end of the prior fiscal quarter);
(viii) incur or guaranty indebtedness for borrowed money in an
aggregate amount in excess of $7,000,000;
(ix) materially change the business of the Corporation from the
business in which the Corporation is engaged as of the Series E Original Issue
Date; or
(x) pay or declare any dividend or other distribution (other
than as permitted by clause (iii) above) to holders of any class of shares other
than Series E Preferred Stock unless the holders of Series E Preferred Stock
receive the same dividend or distribution.
8. WAIVER. Any of the rights of the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock set forth herein may be waived by the
affirmative vote of the holders of more than 66 2/3% of the shares of such
series of Preferred Stock then outstanding.
- 77 -
<PAGE> 136
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to
be signed by its Chief Executive Officer this 4th day of January, 2000.
ARROWPOINT COMMUNICATIONS, INC.
By: /s/ Chin-Cheng Wu
------------------------------------
Chin-Cheng Wu
Chairman of the Board and
Chief Executive Officer
- 78 -
<PAGE> 1
March 9, 2000
ArrowPoint Communications, Inc.
50 Nagog Park
Acton, MA 07120
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-95509) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of 5,750,000 shares of Common Stock, $.001 par value per share (the "Shares"),
of ArrowPoint Communications, Inc., a Delaware corporation (the "Company"),
including 750,000 Shares issuable upon exercise of an over-allotment option
granted by the Company.
The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company and Goldman, Sachs & Co., Deutsche Banc Alex. Brown and J.P. Morgan &
Co. as representatives of the several underwriters named in the Underwriting
Agreement, the form of which has been filed as Exhibit 1.01 to the Registration
Statement.
We are acting as counsel for the Company in connection with the issue
and sale by the Company of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon the draft Underwriting Agreement, minutes of meetings of the
stockholders and the Board of Directors of the Company as provided to us by the
Company, stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and By-Laws of the Company, each as restated and/or
amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer
and sale of the Shares in accordance with the Underwriting Agreement, to
register and qualify the Shares for sale under all applicable state securities
or "blue sky" laws.
We express no opinion herein as to the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts, the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America.
<PAGE> 2
ArrowPoint Communications, Inc.
March 9, 2000
Page 2
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when the Shares are issued
and paid for in accordance with the terms and conditions of the Underwriting
Agreement, the Shares will be validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters. This
opinion is based upon currently existing statutes, rules, regulations and
judicial decisions, and we disclaim any obligation to advise you of any change
in any of these sources of law or subsequent legal or factual developments which
might affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
HALE AND DORR LLP
<PAGE> 1
Exhibit 10.04
STOCK RESTRICTION AGREEMENT
This Agreement is made this 29th day of November, 1999, between
ArrowPoint Communications, Inc., a Delaware corporation (the "Company"), and
Louis Volpe (the "Employee").
In consideration of the mutual promises and covenants contained in this
Agreement and for other valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. PURCHASE OF SHARES. The Company shall issue and sell to the
Employee, and the Employee shall purchase from the Company, subject to the terms
and conditions set forth in this Agreement, 550,000 shares (the "Shares") of
common stock, $.001 par value, of the Company ("Common Stock"), at a purchase
price of $4.50 per share. The aggregate purchase price for the Shares shall be
paid by the Employee by check payable to the order of the Company or such other
method as may be acceptable to the Company. Upon receipt of payment by the
Company for the Shares, the Company shall issue to the Employee one or more
certificates in the name of the Employee for that number of Shares purchased by
the Employee. The shares are issued pursuant to the terms of the 1997 Stock
Incentive Plan of the Company and are subject to the terms thereof.
2. PURCHASE OPTION.
(a) In the event that the Employee ceases to be employed by the
Company for any reason prior to May 31, 2004, the Company shall have the right
and option (the "Purchase Option") to purchase from the Employee, for the sum of
$4.50 per share (the "Option Price"), up to the total number of Shares that have
not vested according to the vesting schedule in Section 3 (the "Vesting
Schedule").
(b) For purposes of this Agreement, employment with the Company
shall include employment with a parent or subsidiary of the Company.
3. VESTING.
(a) The Shares shall vest in the amount of 25% of the total number
of Shares on May 29, 2000 and on the last day of each full month thereafter
(beginning with June 2000) in the amount of 1.5625% of the total number of
Shares.
(b) In the event of as Acquisition (as defined below), then 50% of
the number of Shares which are not then vested shall become vested immediately
prior to the closing of the Acquisition.
(c) For the purposes of this Agreement, "Acquisition" shall mean any
(i) merger or consolidation which results in the voting securities of the
Company outstanding immediately prior thereto representing immediately
thereafter (either by remaining outstanding or by being converted into voting
securities of the surviving or acquiring entity) less than a
<PAGE> 2
majority of the combined voting power of the voting securities of the
Company or such surviving or acquiring entity outstanding immediately after
such merger or consolidation, (ii) sale of all or substantially all the assets
of the Company or (iii) sale of shares of capital stock of the Company, in a
single transaction or series of related transactions, representing at least 80%
of the voting power of the voting securities of the Company.
(d) The Company may in its discretion accelerate the Vesting
Schedule at any time.
4. EXERCISE OF PURCHASE OPTION AND CLOSING.
(a) The Company may exercise the Purchase Option by sending to the
Employee (or his estate), within 60 days after the termination of the employment
of the Employee with the Company, a written notice of exercise of the Purchase
Option. Such notice shall specify the number of Shares to be purchased. If and
to the extent the Purchase Option is not so exercised by the giving of such a
notice within such 60-day period, the Purchase Option shall automatically expire
and terminate effective upon the expiration of such 60-day period.
(b) Within 10 days after his receipt of the Company's notice of the
exercise of the Purchase Option pursuant to subsection (a) above, the Employee
(or his estate) shall (in accordance with the provisions of the joint Escrow
Instructions attached hereto) tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Employee or with duly
endorsed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such certificate or
certificates, the Company shall deliver or mail to the Employee a check in the
amount of the aggregate Option Price therefor.
(c) After the time at which any Shares are required to be delivered
to the Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Employee on account of such Shares or
permit the Employee to exercise any of the privileges or rights of a stockholder
with respect to such Shares, but shall, in so far as permitted by law, treat the
Company as the owner of such Shares.
(d) The Option Price may be payable, at the option of the Company,
in cancellation of all or a portion of any outstanding indebtedness of the
Employee to the Company or in cash (by check) or both.
(e) The Company shall not purchase any fraction of a Share upon
exercise of the Purchase Option, and any fraction of a Share resulting from a
computation made pursuant to Section 4 of this Agreement shall be rounded to the
nearest whole Share (with any one-half Share being rounded upward).
5. RESTRICTIONS ON TRANSFER.
(a) Except as otherwise provided in subsection (b) below, the
Employee shall not, during the term of the Purchase Option, sell, assign,
transfer, pledge, hypothecate or otherwise dispose of, by operation of law or
otherwise (collectively "transfer"), any of
2
<PAGE> 3
the Shares, or any interest therein, unless and until such Shares are no
longer subject to the Purchase Option.
(b) Notwithstanding the foregoing, the Employee may transfer (i) any
or all of his Shares to his spouse or children or to a trust established for the
benefit of his spouse, children or himself or (ii) any or all of his Shares
under his will, PROVIDED that such Shares shall remain subject to this Agreement
(including without limitation the restrictions on transfer set forth in this
Section 5 and the Purchase Option) and such permitted transferee shall, as a
condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Agreement.
6. ESCROW. The Employee and the Company shall, upon the execution of
this Agreement, execute joint Escrow Instructions in the form appended hereto.
The joint Escrow Instructions shall be delivered to the Secretary of the
Company, as escrow agent thereunder. The Employee shall deliver to such escrow
agent the certificate(s) evidencing the Shares and a stock assignment duly
endorsed in blank. Such materials shall be held by such escrow agent pursuant to
the terms of such joint Escrow Instructions.
7. EFFECT OF PROHIBITED TRANSFER. The Company shall not be required
(a) to transfer on its books any of the Shares which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement,
or (b) to treat as owner of such Shares or to pay dividends to any transferee to
whom any such Shares shall have been so sold or transferred.
8. RESTRICTIVE LEGEND. All certificates representing the Shares
shall have affixed thereto the following legend, in addition to any other
legends that may be required under federal or state securities laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Stock Restriction Agreement between the Corporation and the
registered owner of these shares (or his predecessor in interest), and
such Agreement is available for inspection without charge at the office
of the Secretary of the Corporation."
9. INVESTMENT REPRESENTATIONS. The Employee represents, warrants and
covenants as follows:
(a) The Employee is purchasing the Shares for his own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act of 1933 (the
"Securities Act"), or any rule or regulation under the Securities Act.
(b) The Employee has had such opportunity as he has deemed adequate
to obtain from representatives of the Company such information as is necessary
to permit him to evaluate the merits and risks of his investment in the Company.
3
<PAGE> 4
(c) The Employee has sufficient experience in business, financial
and investment matters to be able to evaluate the risks involved in the purchase
of the Shares and to make an informed investment decision with respect to such
purchase.
(d) The Employee can afford a complete loss of the value of the
Shares and is able to bear the economic risk of holding such Shares for an
indefinite period.
(e) The Employee understands that (i) the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available;
(iii) in any event, the exemption from registration under Rule 144 will not be
available for at least one year and even then will not be available unless a
public market then exists for the Common Stock, adequate information concerning
the Company is then available to the public, and other terms and conditions of
Rule 144 are complied with; and (iv) there is now no registration statement on
file with the Securities and Exchange Commission with respect to any stock of
the Company and the Company has no obligation or current intention to register
the Shares under the Securities Act.
(f) A legend substantially in the following form will be placed on
the certificate representing the Shares:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, transferred or otherwise disposed of in the
absence of an effective registration statement under such Act
or an opinion of counsel satisfactory to the corporation to
the effect that such registration is not required."
10. ADJUSTMENTS FOR STOCK SPLITS, STOCK DIVIDENDS, ETC.
(a) If from time to time during the term of the Purchase Option
there is any stock split-up, stock dividend, stock distribution or other
reclassification of the Common Stock of the Company, any and all new,
substituted or additional securities to which the Employee is entitled by reason
of his ownership of the Shares shall be immediately subject to the Purchase
Option, the restrictions on transfer and other provisions of this Agreement in
the same manner and to the same extent as the Shares, and the Option Price shall
be appropriately adjusted.
(b) If the Shares are converted into or exchanged for, or
stockholders of the Company receive by reason of any distribution in total or
partial liquidation, securities of another corporation, or other property
(including cash), pursuant to an Acquisition, then the rights of the Company
under this Agreement shall inure to the benefit of the Company's successor and
this Agreement shall apply to the securities or other property received upon
such conversion, exchange or distribution in the same manner and to the same
extent as the Shares provided that (i) to account for the acceleration of
vesting under Section 3(b) above, on each vesting date subsequent to the
Acquisition, one-half of the amount of securities or other property that would
have otherwise vested in accordance with the original Vesting Schedule shall
become vested and
4
<PAGE> 5
(ii) the Vesting Schedule shall be subject to further acceleration following
the Acquisition pursuant to Section 3(d).
11. WITHHOLDING TAXES. If the Employee elects, in accordance with
Section 83(b) of the Internal Revenue Code of 1986, as amended, to recognize
ordinary income in the year of acquisition of the Shares, the Company will
require at the time of such election an additional payment for withholding tax
purposes based on the difference, if any, between the purchase price for such
Shares and the fair market value of such Shares as of the day immediately
preceding the date of the purchase of such Shares by the Employee.
12. MISCELLANEOUS.
(a) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and each other provision of this
Agreement shall be severable and enforceable to the extent permitted by law.
(b) WAIVER. Any provision contained in this Agreement may be waived,
either generally or in any particular instance, by the Board of Directors of the
Company; provided that the Company may not waive, or otherwise limit or reduce
its rights under, the Purchase Option or accelerate the Vesting Schedule without
the consent of the holders of a majority of the then outstanding shares of
Series A Convertible Preferred Stock of the Company (if any).
(c) BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company and the Employee and their respective heirs,
executors, administrators, legal representatives, successors and assigns,
subject to the restrictions on transfer set forth in Section 5 of this
Agreement.
(d) NO RIGHTS TO EMPLOYMENT. Nothing contained in this Agreement
shall be construed as giving the Employee any right to be retained, in any
position, as an employee of the Company.
(e) NOTICE. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, sent via a reputable nationwide overnight courier service or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid, to the Company or the Employee at their addresses set forth on the
signature page hereto. Notices provided in accordance with this Section 12 shall
be deemed delivered upon personal delivery, one business day after being sent
via a reputable nationwide overnight courier service, or two business days after
deposit in the mail.
(f) PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(g) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties, and supersedes all prior agreements and
understandings, relating to the subject matter of this Agreement.
5
<PAGE> 6
(h) AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
(i) GOVERNING LAW. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ArrowPoint Communications, Inc.
By: /s/Chin-Chen Wu
--------------------------------
Chin-Cheng Wu
President
Address: 50 Nagog Park
Acton, MA 01720
Louis Volpe
/s/Louis Volpe
------------------------------------
Address: 208 Chapman Street
Canton, MA 02021
6
<PAGE> 1
Exhibit 10.05
STOCK RESTRICTION AGREEMENT
This Agreement is made this 31st day of December, 1997, between
ArrowPoint Communications, Inc., a Delaware corporation (the "Company"), and
Cynthia M. Deysher (the "Employee").
In consideration of the mutual promises and covenants contained in this
Agreement and for other valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. PURCHASE OF SHARES. The Company shall issue and sell to the
Employee, and the Employee shall purchase from the Company, subject to the terms
and conditions set forth in this Agreement, 150,000 shares (the "Shares") of
common stock, $.001 par value, of the Company ("Common Stock"), at a purchase
price of $.05 per share. The aggregate purchase price for the Shares shall be
paid by the Employee by check payable to the order of the Company or such other
method as may be acceptable to the Company. Upon receipt of payment by the
Company for the Shares, the Company shall issue to the Employee one or more
certificates in the name of the Employee for that number of Shares purchased by
the Employee. The Employee agrees that the Shares shall be subject to the
Purchase Option set forth in Section 2 of this Agreement and the restrictions on
transfer set forth in Section 5 of this Agreement. The Shares are issued
pursuant to the terms of the 1997 Stock Incentive Plan of the Company and are
subject to the terms thereof.
2. PURCHASE OPTION.
(a) In the event that the Employee ceases to be employed by the
Company for any reason prior to January 31, 2003, the Company shall have the
right and option (the "Purchase Option") to purchase from the Employee, for the
sum of $0.05 per share (the "Option Price"), up to the total number of Shares
that have not vested according to the vesting schedule in Section 3 (the
"Vesting Schedule").
(b) For purposes of this Agreement, employment with the Company
shall include
employment with a parent or subsidiary of the Company.
3. VESTING.
(a) The Shares shall vest in the amount of 1.6667% of the total
number of Shares on January 31, 1998 and on the last day of each full month
thereafter in the amount of 1.6667% of the total number of Shares.
(b) In the event of as Acquisition (as defined below), then 50% of
the number of Shares which are not then vested shall become vested immediately
prior to the closing of the Acquisition.
(c) For the purposes of this Agreement, "Acquisition" shall mean any
(i) merger or consolidation which results in the voting securities of the
Company outstanding
<PAGE> 2
immediately prior thereto representing immediately thereafter (either by
remaining outstanding or by being converted into voting securities of the
surviving or acquiring entity) less than a majority of the combined
voting power of the voting securities of the Company or such surviving or
acquiring entity outstanding immediately after such merger or consolidation,
(ii) sale of all or substantially all the assets of the Company or (iii) sale of
shares of capital stock of the Company, in a single transaction or series of
related transactions, representing at least 80% of the voting power of the
voting securities of the Company.
(d) The Company may in its discretion accelerate the Vesting
Schedule at any time.
4. EXERCISE OF PURCHASE OPTION AND CLOSING.
(a) The Company may exercise the Purchase Option by sending to the
Employee (or his estate), within 60 days after the termination of the employment
of the Employee with the Company, a written notice of exercise of the Purchase
Option. Such notice shall specify the number of Shares to be purchased. If and
to the extent the Purchase Option is not so exercised by the giving of such a
notice within such 60-day period, the Purchase Option shall automatically expire
and terminate effective upon the expiration of such 60-day period.
(b) Within 10 days after his receipt of the Company's notice of the
exercise of the Purchase Option pursuant to subsection (a) above, the Employee
(or his estate) shall (in accordance with the provisions of the joint Escrow
Instructions attached hereto) tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Employee or with duly
endorsed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such certificate or
certificates, the Company shall deliver or mail to the Employee a check in the
amount of the aggregate Option Price therefor.
(c) After the time at which any Shares are required to be delivered
to the Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Employee on account of such Shares or
permit the Employee to exercise any of the privileges or rights of a stockholder
with respect to such Shares, but shall, in so far as permitted by law, treat the
Company as the owner of such Shares.
(d) The Option Price may be payable, at the option of the Company,
in cancellation of all or a portion of any outstanding indebtedness of the
Employee to the Company or in cash (by check) or both.
(e) The Company shall not purchase any fraction of a Share upon
exercise of the Purchase Option, and any fraction of a Share resulting from a
computation made pursuant to Section 4 of this Agreement shall be rounded to the
nearest whole Share (with any one-half Share being rounded upward).
5. RESTRICTIONS ON TRANSFER.
(a) Except as otherwise provided in subsection (b) below, the
Employee shall not, during the term of the Purchase Option, sell, assign,
transfer, pledge, hypothecate or
2
<PAGE> 3
otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any of the Shares, or any interest therein, unless and until
such Shares are no longer subject to the Purchase Option.
(b) Notwithstanding the foregoing, the Employee may transfer (i) any
or all of his Shares to his spouse or children or to a trust established for the
benefit of his spouse, children or himself or (ii) any or all of his Shares
under his will, provided that such Shares shall remain subject to this Agreement
(including without limitation the restrictions on transfer set forth in this
Section 5 and the Purchase Option) and such permitted transferee shall, as a
condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Agreement.
6. ESCROW. The Employee and the Company shall, upon the execution of
this Agreement, execute joint Escrow Instructions in the form appended hereto.
The joint Escrow Instructions shall be delivered to the Secretary of the
Company, as escrow agent thereunder. The Employee shall deliver to such escrow
agent the certificate(s) evidencing the Shares and a stock assignment duly
endorsed in blank. Such materials shall be held by such escrow agent pursuant to
the terms of such joint Escrow Instructions.
7. EFFECT OF PROHIBITED TRANSFER. The Company shall not be required
(a) to transfer on its books any of the Shares which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement,
or (b) to treat as owner of such Shares or to pay dividends to any transferee to
whom any such Shares shall have been so sold or transferred.
8. RESTRICTIVE LEGEND. All certificates representing the Shares
shall have affixed thereto the following legend, in addition to any other
legends that may be required under federal or state securities laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Stock Restriction Agreement between the Corporation and the
registered owner of these shares (or his predecessor in interest), and
such Agreement is available for inspection without charge at the office
of the Secretary of the Corporation."
9. Investment Representations. The Employee represents, warrants and
covenants as follows:
(a) The Employee is purchasing the Shares for his own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act of 1933 (the
"Securities Act"), or any rule or regulation under the Securities Act.
(b) The Employee has had such opportunity as he has deemed adequate
to obtain from representatives of the Company such information as is necessary
to permit him to evaluate the merits and risks of his investment in the Company.
3
<PAGE> 4
(c) The Employee has sufficient experience in business, financial
and investment matters to be able to evaluate the risks involved in the purchase
of the Shares and to make an informed investment decision with respect to such
purchase.
(d) The Employee can afford a complete loss of the value of the
Shares and is able to bear the economic risk of holding such Shares for an
indefinite period.
(e) The Employee understands that (i) the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available;
(iii) in any event, the exemption from registration under Rule 144 will not be
available for at least one year and even then will not be available unless a
public market then exists for the Common Stock, adequate information concerning
the Company is then available to the public, and other terms and conditions of
Rule 144 are complied with; and (iv) there is now no registration statement on
file with the Securities and Exchange Commission with respect to any stock of
the Company and the Company has no obligation or current intention to register
the Shares under the Securities Act.
(f) A legend substantially in the following form will be placed on
the certificate representing the Shares:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, transferred or otherwise disposed of in the
absence of an effective registration statement under such Act
or an opinion of counsel satisfactory to the corporation to
the effect that such registration is not required."
10. ADJUSTMENTS FOR STOCK SPLITS, STOCK DIVIDENDS, ETC.
(a) If from time to time during the term of the Purchase Option
there is any stock split-up, stock dividend, stock distribution or other
reclassification of the Common Stock of the Company, any and all new,
substituted or additional securities to which the Employee is entitled by reason
of his ownership of the Shares shall be immediately subject to the Purchase
Option, the restrictions on transfer and other provisions of this Agreement in
the same manner and to the same extent as the Shares, and the Option Price shall
be appropriately adjusted.
(b) If the Shares are converted into or exchanged for, or
stockholders of the Company receive by reason of any distribution in total or
partial liquidation, securities of another corporation, or other property
(including cash), pursuant to an Acquisition, then the rights of the Company
under this Agreement shall inure to the benefit of the Company's successor and
this Agreement shall apply to the securities or other property received upon
such conversion, exchange or distribution in the same manner and to the same
extent as the Shares provided that (i) to account for the acceleration of
vesting under Section 3(b) above, on each vesting date subsequent to the
Acquisition, one-half of the amount of securities or other property that would
have otherwise vested in accordance with the original Vesting Schedule shall
become vested and
4
<PAGE> 5
(ii) the Vesting Schedule shall be subject to further acceleration following
the Acquisition pursuant to Section 3(d).
11. WITHHOLDING TAXES. If the Employee elects, in accordance with
Section 83(b) of the Internal Revenue Code of 1986, as amended, to recognize
ordinary income in the year of acquisition of the Shares, the Company will
require at the time of such election an additional payment for withholding tax
purposes based on the difference, if any, between the purchase price for such
Shares and the fair market value of such Shares as of the day immediately
preceding the date of the purchase of such Shares by the Employee.
12. MISCELLANEOUS.
(a) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and each other provision of this
Agreement shall be severable and enforceable to the extent permitted by law.
(b) WAIVER. Any provision contained in this Agreement may be waived,
either generally or in any particular instance, by the Board of Directors of the
Company; provided that the Company may not waive, or otherwise limit or reduce
its rights under, the Purchase Option or accelerate the Vesting Schedule without
the consent of the holders of a majority of the then outstanding shares of
Series A Convertible Preferred Stock of the Company (if any).
(c) BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company and the Employee and their respective heirs,
executors, administrators, legal representatives, successors and assigns,
subject to the restrictions on transfer set forth in Section 5 of this
Agreement.
(d) NO RIGHTS TO EMPLOYMENT. Nothing contained in this Agreement
shall be construed as giving the Employee any right to be retained, in any
position, as an employee of the Company.
(e) NOTICE. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, sent via a reputable nationwide overnight courier service or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid, to the Company or the Employee at their addresses set forth on the
signature page hereto. Notices provided in accordance with this Section 12 shall
be deemed delivered upon personal delivery, one business day after being sent
via a reputable nationwide overnight courier service, or two business days after
deposit in the mail.
(f) PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(g) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties, and supersedes all prior agreements and
understandings, relating to the subject matter of this Agreement.
5
<PAGE> 6
(h) AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
(i) GOVERNING LAW. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ArrowPoint Communications, Inc.
By: /s/Chin-Cheng Wu
--------------------------------
Chin-Cheng Wu
President
Address: 235 Littleton Road
Westford, MA 01886
Cynthia M. Deysher
/s/Cynthia M. Deysher
-----------------------------------
Address: 28 Guzzle Brook Drive
Sudbury, MA 01776
6
<PAGE> 1
Exhibit 10.06
STOCK RESTRICTION AGREEMENT
This Agreement is made this 9th day of March, 1998, between ArrowPoint
Communications, Inc., a Delaware corporation (the "Company"), and Christopher P.
Lynch (the "Employee").
In consideration of the mutual promises and covenants contained in this
Agreement and for other valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. PURCHASE OF SHARES. The Company shall issue and sell to the
Employee, and the Employee shall purchase from the Company, subject to the terms
and conditions set forth in this Agreement, 200,000 shares (the "Shares") of
common stock, $.001 par value, of the Company ("Common Stock"), at a purchase
price of $.50 per share. The aggregate purchase price for the Shares shall be
paid by the Employee by check payable to the order of the Company or such other
method as may be acceptable to the Company. Upon receipt of payment by the
Company for the Shares, the Company shall issue to the Employee one or more
certificates in the name of the Employee for that number of Shares purchased by
the Employee. The Employee agrees that the Shares shall be subject to the
Purchase Option set forth in Section 2 of this Agreement and the restrictions on
transfer set forth in Section 5 of this Agreement. The Shares are issued
pursuant to the terms of the 1997 Stock Incentive Plan of the Company and are
subject to the terms thereof.
2. PURCHASE OPTION.
(a) In the event that the Employee ceases to be employed by the
Company for any reason prior to March 31, 2003, the Company shall have the right
and option (the "Purchase Option") to purchase from the Employee, for the sum of
$0.50 per share (the "Option Price"), up to the total number of Shares that have
not vested according to the vesting schedule in Section 3 (the "Vesting
Schedule").
(b) For purposes of this Agreement, employment with the Company
shall include employment with a parent or subsidiary of the Company.
3. VESTING.
(a) The Shares shall vest in the amount of 1.6667% of the total
number of Shares on March 31, 1998 and on the last day of each full month
thereafter in the amount of 1.6667% of the total number of Shares.
(b) In the event of as Acquisition (as defined below), then 50% of
the number of Shares which are not then vested shall become vested immediately
prior to the closing of the Acquisition.
(c) For the purposes of this Agreement, "Acquisition" shall mean any
(i) merger or consolidation which results in the voting securities of the
Company outstanding
<PAGE> 2
immediately prior thereto representing immediately thereafter (either
by remaining outstanding or by being converted into voting securities of
the surviving or acquiring entity) less than a majority of the combined voting
power of the voting securities of the Company or such surviving or acquiring
entity outstanding immediately after such merger or consolidation, (ii) sale of
all or substantially all the assets of the Company or (iii) sale of shares of
capital stock of the Company, in a single transaction or series of related
transactions, representing at least 80% of the voting power of the voting
securities of the Company.
(d) The Company may in its discretion accelerate the Vesting
Schedule at any time.
4. EXERCISE OF PURCHASE OPTION AND CLOSING.
(a) The Company may exercise the Purchase Option by sending to the
Employee (or his estate), within 60 days after the termination of the employment
of the Employee with the Company, a written notice of exercise of the Purchase
Option. Such notice shall specify the number of Shares to be purchased. If and
to the extent the Purchase Option is not so exercised by the giving of such a
notice within such 60-day period, the Purchase Option shall automatically expire
and terminate effective upon the expiration of such 60-day period.
(b) Within 10 days after his receipt of the Company's notice of the
exercise of the Purchase Option pursuant to subsection (a) above, the Employee
(or his estate) shall (in accordance with the provisions of the joint Escrow
Instructions attached hereto) tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Employee or with duly
endorsed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such certificate or
certificates, the Company shall deliver or mail to the Employee a check in the
amount of the aggregate Option Price therefor.
(c) After the time at which any Shares are required to be delivered
to the Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Employee on account of such Shares or
permit the Employee to exercise any of the privileges or rights of a stockholder
with respect to such Shares, but shall, in so far as permitted by law, treat the
Company as the owner of such Shares.
(d) The Option Price may be payable, at the option of the Company,
in cancellation of all or a portion of any outstanding indebtedness of the
Employee to the Company or in cash (by check) or both.
(e) The Company shall not purchase any fraction of a Share upon
exercise of the Purchase Option, and any fraction of a Share resulting from a
computation made pursuant to Section 4 of this Agreement shall be rounded to the
nearest whole Share (with any one-half Share being rounded upward).
5. RESTRICTIONS ON TRANSFER.
(a) Except as otherwise provided in subsection (b) below, the
Employee shall not, during the term of the Purchase Option, sell, assign,
transfer, pledge, hypothecate or
2
<PAGE> 3
otherwise dispose of, by operation of law or otherwise (collectively
"transfer"), any of the Shares, or any interest therein, unless and until
such Shares are no longer subject to the Purchase Option.
(b) Notwithstanding the foregoing, the Employee may transfer (i) any
or all of his Shares to his spouse or children or to a trust established for the
benefit of his spouse, children or himself or (ii) any or all of his Shares
under his will, PROVIDED that such Shares shall remain subject to this Agreement
(including without limitation the restrictions on transfer set forth in this
Section 5 and the Purchase Option) and such permitted transferee shall, as a
condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Agreement.
6. ESCROW. The Employee and the Company shall, upon the execution of
this Agreement, execute joint Escrow Instructions in the form appended hereto.
The joint Escrow Instructions shall be delivered to the Secretary of the
Company, as escrow agent thereunder. The Employee shall deliver to such escrow
agent the certificate(s) evidencing the Shares and a stock assignment duly
endorsed in blank. Such materials shall be held by such escrow agent pursuant to
the terms of such joint Escrow Instructions.
7. EFFECT OF PROHIBITED TRANSFER. The Company shall not be required
(a) to transfer on its books any of the Shares which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement,
or (b) to treat as owner of such Shares or to pay dividends to any transferee to
whom any such Shares shall have been so sold or transferred.
8. RESTRICTIVE LEGEND. All certificates representing the Shares
shall have affixed thereto the following legend, in addition to any other
legends that may be required under federal or state securities laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Stock Restriction Agreement between the Corporation and the
registered owner of these shares (or his predecessor in interest), and
such Agreement is available for inspection without charge at the office
of the Secretary of the Corporation."
9. INVESTMENT REPRESENTATIONS. The Employee represents, warrants and
covenants as follows:
(a) The Employee is purchasing the Shares for his own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act of 1933 (the
"Securities Act"), or any rule or regulation under the Securities Act.
(b) The Employee has had such opportunity as he has deemed adequate
to obtain from representatives of the Company such information as is necessary
to permit him to evaluate the merits and risks of his investment in the Company.
3
<PAGE> 4
(c) The Employee has sufficient experience in business, financial
and investment matters to be able to evaluate the risks involved in the purchase
of the Shares and to make an informed investment decision with respect to such
purchase.
(d) The Employee can afford a complete loss of the value of the
Shares and is able to bear the economic risk of holding such Shares for an
indefinite period.
(e) The Employee understands that (i) the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available;
(iii) in any event, the exemption from registration under Rule 144 will not be
available for at least one year and even then will not be available unless a
public market then exists for the Common Stock, adequate information concerning
the Company is then available to the public, and other terms and conditions of
Rule 144 are complied with; and (iv) there is now no registration statement on
file with the Securities and Exchange Commission with respect to any stock of
the Company and the Company has no obligation or current intention to register
the Shares under the Securities Act.
(f) A legend substantially in the following form will be placed on
the certificate representing the Shares:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, transferred or otherwise disposed of in the
absence of an effective registration statement under such Act
or an opinion of counsel satisfactory to the corporation to
the effect that such registration is not required."
10. ADJUSTMENTS FOR STOCK SPLITS, STOCK DIVIDENDS, ETC.
(a) If from time to time during the term of the Purchase Option
there is any stock split-up, stock dividend, stock distribution or other
reclassification of the Common Stock of the Company, any and all new,
substituted or additional securities to which the Employee is entitled by reason
of his ownership of the Shares shall be immediately subject to the Purchase
Option, the restrictions on transfer and other provisions of this Agreement in
the same manner and to the same extent as the Shares, and the Option Price shall
be appropriately adjusted.
(b) If the Shares are converted into or exchanged for, or
stockholders of the Company receive by reason of any distribution in total or
partial liquidation, securities of another corporation, or other property
(including cash), pursuant to an Acquisition, then the rights of the Company
under this Agreement shall inure to the benefit of the Company's successor and
this Agreement shall apply to the securities or other property received upon
such conversion, exchange or distribution in the same manner and to the same
extent as the Shares provided that (i) to account for the acceleration of
vesting under Section 3(b) above, on each vesting date subsequent to the
Acquisition, one-half of the amount of securities or other property that would
have otherwise vested in accordance with the original Vesting Schedule shall
become vested and
4
<PAGE> 5
(ii) the Vesting Schedule shall be subject to further acceleration following
the Acquisition pursuant to Section 3(d).
11. WITHHOLDING TAXES. If the Employee elects, in accordance with
Section 83(b) of the Internal Revenue Code of 1986, as amended, to recognize
ordinary income in the year of acquisition of the Shares, the Company will
require at the time of such election an additional payment for withholding tax
purposes based on the difference, if any, between the purchase price for such
Shares and the fair market value of such Shares as of the day immediately
preceding the date of the purchase of such Shares by the Employee.
12. MISCELLANEOUS.
(a) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and each other provision of this
Agreement shall be severable and enforceable to the extent permitted by law.
(b) WAIVER. Any provision contained in this Agreement may be waived,
either generally or in any particular instance, by the Board of Directors of the
Company; provided that the Company may not waive, or otherwise limit or reduce
its rights under, the Purchase Option or accelerate the Vesting Schedule without
the consent of the holders of a majority of the then outstanding shares of
Series A Convertible Preferred Stock of the Company (if any).
(c) BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company and the Employee and their respective heirs,
executors, administrators, legal representatives, successors and assigns,
subject to the restrictions on transfer set forth in Section 5 of this
Agreement.
(d) NO RIGHTS TO EMPLOYMENT. Nothing contained in this Agreement
shall be construed as giving the Employee any right to be retained, in any
position, as an employee of the Company.
(e) NOTICE. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, sent via a reputable nationwide overnight courier service or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid, to the Company or the Employee at their addresses set forth on the
signature page hereto. Notices provided in accordance with this Section 12 shall
be deemed delivered upon personal delivery, one business day after being sent
via a reputable nationwide overnight courier service, or two business days after
deposit in the mail.
(f) PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(g) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties, and supersedes all prior agreements and
understandings, relating to the subject matter of this Agreement.
5
<PAGE> 6
(h) AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
(i) GOVERNING LAW. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ArrowPoint Communications, Inc.
By: /s/Cynthia Deysher
---------------------------------------
Cynthia Deysher
Vice President, Chief Financial Officer
Address: 235 Littleton Road
Westford, MA 01886
Christopher P. Lynch
/s/Christopher P. Lynch
------------------------------------------
Address: 41 Louise Road
Belmont, MA 02178
6
<PAGE> 1
Exhibit 10.07
STOCK RESTRICTION AGREEMENT
This Agreement is made this 10th day of October, 1997, between
ArrowPoint Communications, Inc., a Delaware corporation (the "Company"), and
Peter Piscia (the "Employee").
In consideration of the mutual promises and covenants contained in this
Agreement and for other valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. PURCHASE OF SHARES. The Company shall issue and sell to the
Employee, and the Employee shall purchase from the Company, subject to the terms
and conditions set forth in this Agreement, 70,000 shares (the "Shares") of
common stock, $.001 par value, of the Company ("Common Stock"), at a purchase
price of $.01 per share. The aggregate purchase price for the Shares shall be
paid by the Employee by check payable to the order of the Company or such other
method as may be acceptable to the Company. Upon receipt of payment by the
Company for the Shares, the Company shall issue to the Employee one or more
certificates in the name of the Employee for that number of Shares purchased by
the Employee. The Employee agrees that the Shares shall be subject to the
Purchase Option set forth in Section 2 of this Agreement and the restrictions on
transfer set forth in Section 5 of this Agreement. The Shares are issued
pursuant to the terms of the 1997 Stock Incentive Plan of the Company and are
subject to the terms thereof.
2. PURCHASE OPTION.
(a) In the event that the Employee ceases to be employed by the
Company for any reason prior to August 31, 2002, the Company shall have the
right and option (the "Purchase Option") to purchase from the Employee, for the
sum of $0.01 per share (the "Option Price"), up to the total number of Shares
that have not vested according to the vesting schedule in Section 3 (the
"Vesting Schedule").
(b) For purposes of this Agreement, employment with the Company
shall include employment with a parent or subsidiary of the Company.
3. VESTING.
(a) The Shares shall vest in the amount of 20% of the total number
of Shares on August 31, 1998 and on the last day of each full month thereafter
in the amount of 1.6667% of the total number of Shares.
(b) In the event of as Acquisition (as defined below), then 50% of
the number of Shares which are not then vested shall become vested immediately
prior to the closing of the Acquisition.
(c) For the purposes of this Agreement, "Acquisition" shall mean any
(i) merger or consolidation which results in the voting securities of the
Company outstanding
<PAGE> 2
immediately prior thereto representing immediately thereafter (either
by remaining outstanding or by being converted into voting securities of
the surviving or acquiring entity) less than a majority of the combined voting
power of the voting securities of the Company or such surviving or acquiring
entity outstanding immediately after such merger or consolidation, (ii) sale of
all or substantially all the assets of the Company or (iii) sale of shares of
capital stock of the Company, in a single transaction or series of related
transactions, representing at least 80% of the voting power of the voting
securities of the Company.
(d) The Company may in its discretion accelerate the Vesting
Schedule at any time.
4. EXERCISE OF PURCHASE OPTION AND CLOSING.
(a) The Company may exercise the Purchase Option by sending to the
Employee (or his estate), within 60 days after the termination of the employment
of the Employee with the Company, a written notice of exercise of the Purchase
Option. Such notice shall specify the number of Shares to be purchased. If and
to the extent the Purchase Option is not so exercised by the giving of such a
notice within such 60-day period, the Purchase Option shall automatically expire
and terminate effective upon the expiration of such 60-day period.
(b) Within 10 days after his receipt of the Company's notice of the
exercise of the Purchase Option pursuant to subsection (a) above, the Employee
(or his estate) shall (in accordance with the provisions of the joint Escrow
Instructions attached hereto) tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Employee or with duly
endorsed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such certificate or
certificates, the Company shall deliver or mail to the Employee a check in the
amount of the aggregate Option Price therefor.
(c) After the time at which any Shares are required to be delivered
to the Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Employee on account of such Shares or
permit the Employee to exercise any of the privileges or rights of a stockholder
with respect to such Shares, but shall, in so far as permitted by law, treat the
Company as the owner of such Shares.
(d) The Option Price may be payable, at the option of the Company,
in cancellation of all or a portion of any outstanding indebtedness of the
Employee to the Company or in cash (by check) or both.
(e) The Company shall not purchase any fraction of a Share upon
exercise of the Purchase Option, and any fraction of a Share resulting from a
computation made pursuant to Section 4 of this Agreement shall be rounded to the
nearest whole Share (with any one-half Share being rounded upward).
5. RESTRICTIONS ON TRANSFER.
2
<PAGE> 3
(a) Except as otherwise provided in subsection (b) below, the
Employee shall not, during the term of the Purchase Option, sell, assign,
transfer, pledge, hypothecate or otherwise dispose of, by operation of law or
otherwise (collectively "transfer"), any of the Shares, or any interest therein,
unless and until such Shares are no longer subject to the Purchase Option.
(b) Notwithstanding the foregoing, the Employee may transfer (i) any
or all of his Shares to his spouse or children or to a trust established for the
benefit of his spouse, children or himself or (ii) any or all of his Shares
under his will, PROVIDED that such Shares shall remain subject to this Agreement
(including without limitation the restrictions on transfer set forth in this
Section 5 and the Purchase Option) and such permitted transferee shall, as a
condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Agreement.
6. ESCROW. The Employee and the Company shall, upon the execution of
this Agreement, execute joint Escrow Instructions in the form appended hereto.
The joint Escrow Instructions shall be delivered to the Secretary of the
Company, as escrow agent thereunder. The Employee shall deliver to such escrow
agent the certificate(s) evidencing the Shares and a stock assignment duly
endorsed in blank. Such materials shall be held by such escrow agent pursuant to
the terms of such joint Escrow Instructions.
7. EFFECT OF PROHIBITED TRANSFER. The Company shall not be required
(a) to transfer on its books any of the Shares which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement,
or (b) to treat as owner of such Shares or to pay dividends to any transferee to
whom any such Shares shall have been so sold or transferred.
8. RESTRICTIVE LEGEND. All certificates representing the Shares
shall have affixed thereto the following legend, in addition to any other
legends that may be required under federal or state securities laws:
"The shares of stock represented by this certificate are subject to
restrictions on transfer and an option to purchase set forth in a
certain Stock Restriction Agreement between the Corporation and the
registered owner of these shares (or his predecessor in interest), and
such Agreement is available for inspection without charge at the office
of the Secretary of the Corporation."
9. INVESTMENT REPRESENTATIONS. The Employee represents, warrants and
covenants as follows:
(a) The Employee is purchasing the Shares for his own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act of 1933 (the
"Securities Act"), or any rule or regulation under the Securities Act.
(b) The Employee has had such opportunity as he has deemed adequate
to obtain from representatives of the Company such information as is necessary
to permit him to evaluate the merits and risks of his investment in the Company.
3
<PAGE> 4
(c) The Employee has sufficient experience in business, financial
and investment matters to be able to evaluate the risks involved in the purchase
of the Shares and to make an informed investment decision with respect to such
purchase.
(d) The Employee can afford a complete loss of the value of the
Shares and is
able to bear the economic risk of holding such Shares for an indefinite period.
(e) The Employee understands that (i) the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available;
(iii) in any event, the exemption from registration under Rule 144 will not be
available for at least one year and even then will not be available unless a
public market then exists for the Common Stock, adequate information concerning
the Company is then available to the public, and other terms and conditions of
Rule 144 are complied with; and (iv) there is now no registration statement on
file with the Securities and Exchange Commission with respect to any stock of
the Company and the Company has no obligation or current intention to register
the Shares under the Securities Act.
(f) A legend substantially in the following form will be placed on
the certificate representing the Shares:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be sold, transferred or otherwise disposed of in the
absence of an effective registration statement under such Act
or an opinion of counsel satisfactory to the corporation to
the effect that such registration is not required."
10. ADJUSTMENTS FOR STOCK SPLITS, STOCK DIVIDENDS, ETC.
(a) If from time to time during the term of the Purchase Option
there is any stock split-up, stock dividend, stock distribution or other
reclassification of the Common Stock of the Company, any and all new,
substituted or additional securities to which the Employee is entitled by reason
of his ownership of the Shares shall be immediately subject to the Purchase
Option, the restrictions on transfer and other provisions of this Agreement in
the same manner and to the same extent as the Shares, and the Option Price shall
be appropriately adjusted.
(b) If the Shares are converted into or exchanged for, or
stockholders of the Company receive by reason of any distribution in total or
partial liquidation, securities of another corporation, or other property
(including cash), pursuant to an Acquisition, then the rights of the Company
under this Agreement shall inure to the benefit of the Company's successor and
this Agreement shall apply to the securities or other property received upon
such conversion, exchange or distribution in the same manner and to the same
extent as the Shares provided that (i) to account for the acceleration of
vesting under Section 3(b) above, on each vesting date subsequent to the
Acquisition, one-half of the amount of securities or other property that would
have otherwise vested in accordance with the original Vesting Schedule shall
become vested and
4
<PAGE> 5
(ii) the Vesting Schedule shall be subject to further acceleration following
the Acquisition pursuant to Section 3(d).
11. WITHHOLDING TAXES. If the Employee elects, in accordance with
Section 83(b) of the Internal Revenue Code of 1986, as amended, to recognize
ordinary income in the year of acquisition of the Shares, the Company will
require at the time of such election an additional payment for withholding tax
purposes based on the difference, if any, between the purchase price for such
Shares and the fair market value of such Shares as of the day immediately
preceding the date of the purchase of such Shares by the Employee.
12. MISCELLANEOUS.
(a) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and each other provision of this
Agreement shall be severable and enforceable to the extent permitted by law.
(b) WAIVER. Any provision contained in this Agreement may be waived,
either generally or in any particular instance, by the Board of Directors of the
Company; provided that the Company may not waive, or otherwise limit or reduce
its rights under, the Purchase Option or accelerate the Vesting Schedule without
the consent of the holders of a majority of the then outstanding shares of
Series A Convertible Preferred Stock of the Company (if any).
(c) BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company and the Employee and their respective heirs,
executors, administrators, legal representatives, successors and assigns,
subject to the restrictions on transfer set forth in Section 5 of this
Agreement.
(d) NO RIGHTS TO EMPLOYMENT. Nothing contained in this Agreement
shall be construed as giving the Employee any right to be retained, in any
position, as an employee of the Company.
(e) NOTICE. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, sent via a reputable nationwide overnight courier service or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid, to the Company or the Employee at their addresses set forth on the
signature page hereto. Notices provided in accordance with this Section 12 shall
be deemed delivered upon personal delivery, one business day after being sent
via a reputable nationwide overnight courier service, or two business days after
deposit in the mail.
(f) PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(g) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties, and supersedes all prior agreements and
understandings, relating to the subject matter of this Agreement.
5
<PAGE> 6
(h) Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
(i) Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
ArrowPoint Communications, Inc.
By: /s/Chin-Cheng Wu
---------------------------------
Chin-Cheng Wu
President
Address: 235 Littleton Road
Westford, MA 01886
Peter Piscia
/s/Peter Piscia
-------------------------------------
Address: 9 Liberty Road
Medway, MA 02053
6
<PAGE> 1
Exhibit 10.14
ArrowPoint Communications, Inc.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
February 5, 1998
<PAGE> 2
TABLE OF CONTENTS
PAGE
Disclosure Schedule
Exhibit A Certificate of Amendment
Exhibit B Opinion of Hale and Dorr LLP
Exhibit C Investor Rights Agreement
Exhibit D Right of First Refusal and Co-Sale Agreement
-2-
<PAGE> 3
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of February 5, 1998 is entered into by and among
ArrowPoint Communications, Inc., a Delaware corporation (the "Company"),
Chin-Cheng Wu (the "Founder"), and the persons and entities listed on SCHEDULE I
attached hereto (individually, a "Purchaser" and, collectively, the
"Purchasers")
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has duly authorized the
sale and issuance, pursuant to the terms of this Agreement, of 2,213,828 shares
of its Series B Convertible Preferred Stock, $0.01 par value per share (the
"Series B Preferred Stock"), having the rights, restrictions, privileges and
preferences set forth in the Certificate of Amendment attached hereto as EXHIBIT
A (the "Certificate of Amendment"). The Company has adopted and filed the
Certificate of Amendment with the Secretary of State of the State of Delaware.
1.2 SALE OF SHARES. Subject to the terms and conditions of
this Agreement, at the Closing (as defined below) the Company will issue and
sell to each Purchaser, and each Purchaser will purchase, for a purchase price
of $4.63 per share, such number of shares of Series B Preferred Stock as is set
forth opposite such Purchaser's name on SCHEDULE I attached hereto. The shares
of Series B Preferred Stock being sold under this Agreement are referred to as
the "Shares."
1.3 USE OF PROCEEDS. The Company will use the proceeds
from the sale of the Shares for working capital purposes.
2. THE CLOSING. The closing ("Closing") of the sale and purchase
of the Shares under this Agreement shall take place at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts at 9:00 a.m. on the date of
this Agreement, or at such other time, date and place as are mutually agreeable
to the Company and the Purchasers. The date of the Closing is hereinafter
referred to as the "Closing Date." At the Closing:
-5-
<PAGE> 4
(a) the Company shall deliver to the Purchasers a
certificate, as of the most recent practicable date, as to the corporate good
standing of the Company issued by the Secretary of State of the State of
Delaware;
(b) the Company shall deliver to the Purchasers the
Certificate of Incorporation of the Company, as amended and in effect as of the
Closing Date (including the Certificate of Amendment), certified by the
Secretary of State of the State of Delaware;
(c) the Company shall deliver to the Purchasers a
Certificate of the Secretary of the Company attesting as to (i) the By-laws of
the Company, and (ii) resolutions of the Board of Directors and stockholders of
the Company authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby.
(d) Hale and Dorr LLP, counsel for the Company, shall
deliver to the Purchasers an opinion, dated the Closing Date, in the form
attached hereto as EXHIBIT B;
(e) the Company, the Founder and the Purchasers shall
execute and deliver the Investor Rights Agreement in the form attached hereto as
EXHIBIT C (the "Investor Agreement");
(f) the Company, the Founding Stockholders (as defined
therein) and the Purchasers shall execute and deliver the Right of First Refusal
and Co-Sale Agreement in the form attached hereto as EXHIBIT D (the "Right of
First Refusal Agreement");
(g) the Company shall deliver to each Purchaser a
certificate for the number of Shares being purchased by such Purchaser,
registered in the name of such Purchaser;
(h) each Purchaser shall pay to the Company the purchase
price for the Shares being purchased by such Purchaser, by wire transfer or
certified check; and
(i) the Company and the Purchasers shall execute and
deliver a Cross-Receipt.
3. REPRESENTATIONS OF THE COMPANY. Subject to and except as
disclosed by the Company in the Disclosure Schedule attached hereto (the
"Disclosure Schedule"), the Company hereby represents and warrants to the
Purchasers as follows:
-6-
<PAGE> 5
3.1 ORGANIZATION AND STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified to do business as
a foreign corporation and is in good standing in the Commonwealth of
Massachusetts and in any other jurisdiction in which the failure to so qualify
would have a material adverse effect on the operations or financial condition of
the Company. The Company has furnished to special counsel to the Purchasers true
and complete copies of its Certificate of Incorporation and By-laws, each as
amended to date and presently in effect.
3.2 CAPITALIZATION. The authorized capital stock of the
Company (immediately prior to the Closing) consists of (a) 20,000,000 shares of
common stock, $0.001 par value per share (the "Common Stock"), of which
3,128,850 shares are issued and outstanding, 1,371,150 shares have been reserved
for issuance pursuant to the Company's 1997 Stock Incentive Plan, 5,750,000
shares have been reserved for issuance upon the conversion of the outstanding
shares of Series A Convertible Preferred Stock ("Series A Preferred Stock") and
2,213,828 shares have been reserved for issuance upon conversion of the Shares,
and (b) 10,000,000 shares of preferred stock, $0.01 par value per share, of
which (i) 5,750,000 shares have been designated as Series A Preferred Stock, all
of which are issued and outstanding, and (ii) 2,213,828 shares have been
designated as Series B Preferred Stock, none of which are issued or outstanding.
At the Closing, the Common Stock, the Series A Preferred Stock and the Series B
Preferred Stock will have the voting powers, designations, preferences, rights
and qualifications, and limitations or restrictions set forth in the Certificate
of Incorporation, as amended by the Certificate of Amendment. All of the issued
and outstanding shares of Common Stock and Series A Preferred Stock have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as contemplated by this Agreement or set forth in the Disclosure Schedule, (i)
no subscription, warrant, option, convertible security or other right
(contingent or otherwise) to purchase or acquire any shares of capital stock of
the Company is authorized or outstanding, (ii) the Company has no obligation
(contingent or otherwise) to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets of the
Company, and (iii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. All of the issued and outstanding shares of capital stock of
the Company have been offered, issued and sold by the Company in compliance with
applicable Federal and state securities laws.
-7-
<PAGE> 6
3.3 SUBSIDIARIES, ETC. The Company has no subsidiaries and
does not own or control, directly or indirectly, any shares of capital stock of
any other corporation or any interest in any partnership, joint venture or other
non-corporate business enterprise.
3.4 STOCKHOLDER LIST AND AGREEMENTS. Section 3.4 of the
Disclosure Schedule sets forth a true and complete list of the stockholders of
the Company, showing the number of shares and class or series of capital stock
or other securities of the Company held by each stockholder immediately prior to
the execution of this Agreement and the consideration paid to the Company
therefor. Except as listed in Section 3.4 of the Disclosure Schedule or as
contemplated by this Agreement, there are no agreements, written or oral,
between the Company and any holder of its capital stock, or, to the best of the
Company's knowledge, among any holders of its capital stock, relating to the
future acquisition (including without limitation rights of first refusal or
pre-emptive rights), disposition, registration under the Securities Act of 1933,
as amended (the "Securities Act"), or voting of the capital stock of the
Company.
3.5 ISSUANCE OF SHARES. The issuance, sale and delivery of
the Shares in accordance with this Agreement, and the issuance and delivery of
the shares of Common Stock issuable upon conversion of the Shares, have been
duly authorized by all necessary corporate action on the part of the Company,
and all such shares have been duly reserved for issuance. The Shares when so
issued, sold and delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of Common Stock issuable upon
conversion of the Shares, when issued upon such conversion, will be duly and
validly issued, fully paid and non-assessable.
3.6 AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement and all other agreements required
to be executed by the Company at the Closing pursuant to Section 2 (the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action. This Agreement and the Ancillary Agreements have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms. The execution of and performance of the transactions contemplated by this
Agreement and the Ancillary Agreements and compliance with their provisions by
the Company will not violate any provision of law and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under, or require a consent or waiver under, its
Certificate of Incorporation or By-laws (each as amended to date) or any
indenture, lease, agreement or other instrument to which the Company is a party
or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
-8-
<PAGE> 7
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale and delivery of the Shares, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing. Based on the representations made by the Purchasers in Section 5 of
this Agreement, the offer and sale of the Shares to the Purchasers will be
exempt from the registration requirements of applicable Federal and state
securities laws.
3.8 LITIGATION. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company or the
Founder, which questions the validity of this Agreement or the right of the
Company or the Founder to enter into it, or which might result, either
individually or in the aggregate, in any material adverse change in the
business, prospects, assets or condition, financial or otherwise, of the
Company, nor is there any litigation pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company or the
Founder by reason of the past employment relationships of the Founder, the
proposed activities of the Company, or negotiations by the Company and/or the
Founder with possible investors in the Company.
3.9 FINANCIAL STATEMENTS. The Company has furnished to
each of the Purchasers a complete and correct copy of the unaudited balance
sheet (the "Balance Sheet") of the Company as at December 31, 1997 (the "Balance
Sheet Date") and the related unaudited statement of operations and cash flow for
the year then ended (collectively, the "Financial Statements"). The Financial
Statements are complete and correct in all material respects, are in accordance
with the books and records of the Company and present fairly the financial
condition and results of operations of the Company, as at the dates and for the
periods indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except that the Financial Statements
have been prepared for the internal use of management and may not be in
accordance with generally accepted accounting principles because of the absence
of footnotes normally contained therein and are subject to normal year-end audit
adjustments which in the aggregate will not be material.
-9-
<PAGE> 8
3.10 ABSENCE OF LIABILITIES. Except as set forth in
Section 3.10 of the Disclosure Schedule, the Company did not have, at the
Balance Sheet Date, any liabilities of any type which in the aggregate exceeded
$10,000, whether absolute or contingent, which were not fully reflected on the
Balance Sheet, and, since the Balance Sheet Date, the Company has not incurred
or otherwise become subject to any such liabilities or obligations except in the
ordinary course of business.
3.11 TAXES. The amount shown on the Balance Sheet as
provision for taxes is sufficient in all material respects for payment of all
accrued and unpaid Federal, state, county, local and foreign taxes for the
period then ended and all prior periods. The Company has filed or has obtained
presently effective extensions with respect to all Federal, state, county, local
and foreign tax returns which are required to be filed by it, such returns are
true and correct in all material respects and all taxes shown thereon to be due
have been timely paid with exceptions not material to the Company. Neither the
Company nor any of its stockholders has ever filed (a) an election pursuant to
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that
the Company be taxed as an S Corporation, or (b) consent pursuant to Section
341(f) of the Code relating to collapsible corporations.
3.12 PROPERTY AND ASSETS. The Company has good title to
all of its material properties and assets, including all properties and assets
reflected in the Balance Sheet, except those disposed of since the date thereof
in the ordinary course of business, and none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, lease, charge or
encumbrance other than those the material terms of which are described in
Section 3.12 of the Disclosure Schedule.
3.13 INTELLECTUAL PROPERTY.
(a) To the best of the Company's knowledge, no
third party has claimed or has reason to claim that any person employed by or
affiliated with the Company, in connection with his or her employment by or
affiliation with the Company, (i) has violated or is violating any of the terms
or conditions of his employment, non-competition or non-disclosure agreement
with such third party, (ii) has disclosed or is disclosing or has utilized or is
utilizing any trade secret or proprietary information or documentation of such
third party or (iii) has interfered or is interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Company which
suggests that such a claim might be contemplated. To the best of the Company's
knowledge, no person employed by or affiliated with the Company has employed or
proposes to
-10-
<PAGE> 9
employ any trade secret or any information or documentation proprietary to any
former employer, and to the best of the Company's knowledge, no person employed
by or affiliated with the Company has violated any confidential relationship
which such person may have had with any third party, in connection with the
development, manufacture or sale or any product or proposed product or the
development or sale of any service or proposed service of the Company, and the
Company has no reason to believe there will be any such employment or violation.
To the best of the Company's knowledge, none of the execution or delivery of
this Agreement, or the carrying on of business of the Company as officers,
employees or agents by any officer, director or key employee of the Company, or
the conduct or proposed conduct of the business of the Company, will conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument under which any
such person is obligated.
(b) Set forth in Section 3.13 of the Disclosure
Schedule is a list of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names and copyrights, and all applications for such which
are in the process of being prepared, owned by or registered in the name of the
Company, or of which the Company is a licensor or licensee or in which the
Company has any right, and in each case a brief description of the nature of
such right. The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know-how (collectively,
"Intellectual Property") necessary for the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any other person under any
Intellectual Property, and, to the best of the Company's knowledge, there is no
basis for any such claim (whether or not pending or threatened). No claim is
pending or threatened to the effect that any such Intellectual Property owned or
licensed by the Company, or which the Company otherwise has the right to use, is
invalid or unenforceable by the Company, and, to the best of the Company's
knowledge, there is no basis for any such claim (whether or not pending or
threatened). To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential. The Company has not granted or assigned to any other person
or entity any right to manufacture, have manufactured, assemble or sell the
products or proposed products or to provide the services or proposed services of
the Company.
-11-
<PAGE> 10
3.14 MATERIAL CONTRACTS AND OBLIGATIONS. Except as
contemplated by this Agreement or as listed in the Disclosure Schedule, the
Company is not a party to any material agreement or commitment of any nature,
including without limitation (a) any agreement which requires future
expenditures by the Company in excess of $100,000, (b) any employment or
consulting agreement, employee benefit, bonus, pension, profit-sharing, stock
option, stock purchase or similar plan or arrangement, or distributor or sales
representative agreement, (c) any agreement with any stockholder, officer or
director of the Company, or any "affiliate" or "associate" of such persons (as
such terms are defined in the rules and regulations promulgated under the
Securities Act), including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal property
from, or otherwise requiring payments to, any such person or entity or (d) any
agreement relating to the intellectual property rights of the Company.
3.15 COMPLIANCE. The Company has, in all material
respects, complied with all laws, regulations and orders applicable to its
present and proposed business and has all material permits and licenses
required thereby. There is no term or provision of any mortgage, indenture,
contract, agreement or instrument to which the Company is a party or by which
it is bound, or, to the best of the Company's knowledge, of any provision of
any state or Federal judgment, decree, order, statute, rule or regulation
applicable to or binding upon the Company, which materially adversely affects
or, so far as the Company may now foresee, in the future is reasonably likely
to materially adversely affect, the business, prospects, assets or condition,
financial or otherwise, of the Company. To the best of the Company's knowledge,
neither the Founder nor any other employee of the Company is in violation of
any term of any contract or covenant (either with the Company or with another
entity) relating to employment, patents, proprietary information disclosure,
non-competition or non-solicitation.
3.16 EMPLOYEES AND FOUNDER.
(a) The Founder and the other holders of Common
Stock have executed and delivered to the Company a Stock Restriction Agreement,
copies of which have been made available to the Purchasers, and all of such
agreements are in full force and effect.
(b) Each employee of the Company (including the
Founder) who is at or above the director level or who holds at least 100,000
shares of Common Stock (or options exercisable therefor) (as adjusted for stock
splits, stock dividends, recapitalizations and similar events) has executed and
delivered to the Company a Noncompetition and Confidentiality Agreement covering
a period of one year following the termination of such employee's
-12-
<PAGE> 11
employment with the Company, copies of which have been made available to the
Purchasers. Each employee of the Company not covered by the foregoing sentence
has executed and delivered to the Company a Confidentiality Agreement, copies of
which have been made available to the Purchasers. All of such agreements are in
full force and effect.
(c) None of the employees of the Company is
represented by any labor union, and there is no labor strike or other labor
trouble pending with respect to the Company (including, without limitation, any
organizational drive) or, to the best of the Company's knowledge, threatened.
3.17 ERISA. Except as described in the Disclosure
Schedule, the Company does not have or otherwise contribute to or participate in
any employee benefit plan subject to the Employee Retirement Income Security Act
of 1974.
3.18 BOOKS AND RECORDS. The minute books of the Company
contain complete and accurate records of all meetings and other corporate
actions of its stockholders and its Board of Directors and committees thereof.
The stock ledger of the Company is complete and reflects all issuances,
transfers, repurchases and cancellations of shares of capital stock of the
Company.
3.19 BOARD OF DIRECTORS. The Board of Directors is
comprised of four members, and consists of Chin-Cheng Wu, Edward T. Anderson,
Paul J. Ferri and Bruce I. Sachs.
3.20 U.S. REAL PROPERTY HOLDING CORPORATION. The Company
is not now and has never been a "United States Real Property Holding
Corporation" as defined in Section 897(c)(2) of the Code and Section 1.897-2(b)
of the Regulations promulgated by the Internal Revenue Service.
3.21 DISCLOSURES. Neither this Agreement nor any Schedule
or Exhibit hereto, nor any certificate or instrument furnished to the Purchasers
at the Closing or as required by the terms of this Agreement, when read
together, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
4. REPRESENTATIONS OF FOUNDER. The Founder represents and
warrants to the Purchasers as follows:
-13-
<PAGE> 12
4.1 CONFLICTING AGREEMENTS. The Founder is not, as a
result of the nature of the business conducted or proposed to be conducted by
the Company, in violation of (i) any fiduciary or confidential relationship,
(ii) any term of any contract or covenant (either with the Company or with
another entity) relating to employment, patents, proprietary information
disclosure, non-competition or non-solicitation, or (iii) any other contract or
agreement, or any judgment, decree or order of any court or administrative
agency relating to or affecting the right of the Founder to be employed by the
Company.
4.2 LITIGATION. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending or, to the knowledge of the
Founder, threatened against the Founder.
4.3 STOCKHOLDER AGREEMENTS. Except as contemplated by or
disclosed in this Agreement, the Founder is not a party to any agreements,
written or oral, relating to the acquisition, disposition, registration under
the Securities Act, or voting of the capital stock of the Company.
4.4 DISCLOSURE. To the knowledge of the Founder, neither
this Agreement nor any Schedule or Exhibit hereto, nor any certificate or
instrument furnished to the Purchasers at the Closing or as required by the
terms of this Agreement, when read together, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances under which they were made, not misleading.
5. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser represents
and warrants to the Company as follows:
5.1 INVESTMENT. Such Purchaser is acquiring the Shares,
and the shares of Common Stock into which the Shares may be converted, for its
or his own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same; and such Purchaser has no present or
contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof. Such Purchaser acknowledges
that the Shares are restricted securities as defined under the Securities Act
and shall bear the legends set forth in Section 7.3 hereof.
5.2 AUTHORITY. Such Purchaser has full power and authority
to enter into and to perform this Agreement in accordance with its terms. Such
Purchaser represents that it has
-14-
<PAGE> 13
not been organized, reorganized or recapitalized specifically for the purpose of
investing in the Company. This Agreement and the Ancillary Agreement to be
executed by such Purchaser have been duly executed and delivered by such
Purchaser and constitute valid and binding obligations of such Purchaser
enforceable in accordance with their respective terms. The execution of and
performance of the transactions contemplated by this Agreement and the Ancillary
Agreements to be executed by such Purchaser and compliance with their provisions
by such Purchaser will not violate any provision of law and will not conflict
with or result in any breach of any of the terms, conditions or provisions of,
or constitute a default under, or require a consent or waiver under, its
organizational documents (each as amended to date) or any indenture, lease,
agreement or other instrument to which the Purchaser is a party or by which it
or any of its properties is bound, or any decree, judgment, order, statute, rule
or regulation applicable to such Purchaser.
5.3 EXPERIENCE. Such Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have made available to such Purchaser any and all
written information which it has requested and have answered to such Purchaser's
satisfaction all inquiries made by such Purchaser; and such Purchaser has
sufficient knowledge and experience in investing in companies similar to the
Company so as to be able to evaluate the risks and merits of its investment in
the Company and is able financially to bear the risks thereof, including a
complete loss of its investment. Such Purchaser understands that an investment
in the Company involves a high degree of risk in view of the fact that the
Company is a start-up enterprise with no operating history, and there may never
be an established market for the Company's capital stock.
5.4 STATUS. Such Purchaser is an "accredited Investor" as
that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act.
6. COVENANTS OF THE COMPANY.
6.1 INSPECTION. The Company shall permit each Purchaser,
or any authorized representative thereof, to visit and inspect the properties of
the Company, including its corporate and financial records, and to discuss its
business and finances with officers of the Company, during normal business hours
following reasonable notice and as often as may be reasonably requested, without
interruption of the business of the Company and subject to the confidentiality
obligations of Section 8.2 hereof.
-15-
<PAGE> 14
6.2 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) So long as a Purchaser (or any of its
affiliates) holds shares of Series A Preferred Stock or Series B Preferred
Stock, the Company shall deliver to such Purchaser:
(i) within 120 days after the end of
each fiscal year of the Company, an audited balance sheet of the Company as at
the end of such year, and audited statements of income and of cash flows of the
Company for such year, certified by certified public accountants of established
national reputation selected by the Company, and prepared in accordance with
generally accepted accounting principles; and
(ii) within 45 days after the end of each
fiscal quarter of the Company, an unaudited balance sheet of the Company as at
the end of such quarter, and unaudited statements of income and of cash flows of
the Company for such fiscal quarter and for the current fiscal year to the end
of such fiscal quarter.
(b) So long as a Purchaser (or any of its
affiliates) holds at least 300,000 shares of Series A Preferred Stock or 100,000
shares of Series B Preferred Stock (as adjusted for stock splits, stock
dividends, recapitalizations and similar events), the Company shall deliver to
such Purchaser:
(i) as soon as available, but in any
event within 30 days after commencement of each new fiscal year, a budget,
consisting of a business plan and projected financial statements for such fiscal
year; and
(ii) with reasonable promptness, such other
notices, information and data with respect to the Company as the Company
delivers to the holders of its Common Stock, and such other information and data
as such Purchaser may from time to time reasonably request.
(c) The foregoing financial statements shall be
prepared on a consolidated basis if the Company then has any subsidiaries. The
financial statements delivered pursuant to clause (ii) of paragraph (a) and
clause (i) of paragraph (b) shall be accompanied by a certificate of the chief
financial officer of the Company stating that such statements have been prepared
in accordance with generally accepted accounting principles consistently applied
(except as noted) and fairly present the financial condition and results of
operations of the Company at the date thereof and for the periods covered
thereby.
-16-
<PAGE> 15
6.3 MATERIAL CHANGES AND LITIGATION. The Company shall
promptly notify the Purchasers of any material adverse change in the business,
prospects, assets or condition, financial or otherwise, of the Company and of
any litigation or governmental proceeding or investigation brought or, to the
best of the Company's knowledge, threatened against the Company, or against the
Founder or an officer, director, key employee or principal stockholder of the
Company materially adversely affecting or which, if adversely determined, would
materially adversely affect its business, prospects, assets or condition,
financial or otherwise.
6.4 INSURANCE.
(a) The Company shall maintain, for a period of five
years from April 17, 1997, term life insurance upon the life of the Founder, in
the amount of $1,000,000, with the proceeds payable to the Company.
(b) The Company shall maintain in effect policies of
workers' compensation insurance and of insurance with respect to its properties
and business of the kinds and in the amounts not less than is customarily
obtained by corporations engaged in the same or similar business and similarly
situated, including, without limitation, insurance against loss, damage, fire,
theft, public liability and other risks.
6.5 EMPLOYEE AGREEMENTS. The Company shall require all
employees hereafter employed or engaged by the Company who are at or above the
director level or who holds at least 100,000 shares of Common Stock (or options
exercisable therefor) (as adjusted for stock splits, stock dividends,
recapitalizations and similar events) to enter into a Noncompetition and
Confidentiality Agreement covering a period of one year following the
termination of such employee's employment with the Company, in the form approved
by the Board of Directors. The Company shall require all employees not covered
by the foregoing sentence to enter into a Confidentiality Agreement in the form
approved by the Board of Directors.
6.6 RELATED PARTY TRANSACTIONS. The Company shall not
enter into any agreement with any stockholder, officer or director of the
Company, or any "affiliate" or "associate" of such persons (as such terms are
defined in the rules and regulations promulgated under the Securities Act),
including without limitation any agreement or other arrangement providing for
the furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity, without the consent
of at least a majority of the members of the Company's Board of Directors having
no interest in such agreement or arrangement.
-17-
<PAGE> 16
6.7 DIRECTORS. The Company shall promptly reimburse in
full each director of the Company who is not an employee of the Company and who
was elected as a director solely by the holders of the Series A Preferred Stock
for all of his reasonable out-of-pocket expenses incurred in attending each
meeting of the Board of Directors of the Company or any committee thereof.
6.8 OPTION SHARES AND RESTRICTED STOCK. The Company has
reserved an aggregate of 1,371,150 shares of Common Stock for future issuance to
employees and consultants of the Company pursuant to the 1997 Stock Incentive
Plan of the Company. Unless otherwise agreed by the Board of Directors, all
options or restricted stock awards granted under such Plan shall vest at the
rate of 20% on the first anniversary of grant and 1.667% per month thereafter
over the subsequent four years so long as the optionee or stockholder continues
to be an employee or consultant of the Company, subject to acceleration of 50%
of the unvested portion of such options in the event of an Acquisition Event (as
defined in the standard form of agreements for use under such Plan).
6.9 RESERVATION OF COMMON STOCK. The Company shall
reserve and maintain a sufficient number of shares of Common Stock for issuance
upon conversion of all of the outstanding shares of Series A Preferred Stock and
all of the outstanding Shares.
6.10 TERMINATION OF COVENANTS. The covenants of the
Company contained in Sections 6.1 through 6.9 shall terminate, and be of no
further force or effect, upon the effective date of a registration statement
filed by the Company under the Securities Act covering the Company's first
offering of Common Stock, resulting in net proceeds to the Company of at least
$10,000,000, and at a price per share of at least $14.00 (as adjusted for stock
splits, stock dividends, recapitalizations and similar events) or at such time
as the Purchasers (together with any affiliated entities to whom Shares have
been transferred) own less than an aggregate of 1,953,457 shares of Series A
Preferred Stock or Series B Preferred Stock combined (as adjusted for stock
splits, stock dividends, recapitalizations and similar events).
6.11 TERMINATION OF PRIOR COVENANTS.
(a) The Series A Preferred Stock Purchase
Agreement among the Company, the Founder (as defined therein) and certain of the
Purchasers dated April 17, 1997 (the "Series A Agreement") is hereby amended by
deleting Section 6 thereof in its entirety.
-18-
<PAGE> 17
(b) Each of Yeh-Tsong Wen, James A. Dolce, Jr.,
Rubin Gruber, Harry Daniel Lowe and Bruce I. Sachs, who are parties to the
Series A Agreement, shall be deemed a Purchaser for purposes of Sections 6, 8.1,
8.2 and 8.8 of this Agreement and shall have all rights and obligations of a
Purchaser under such Sections.
6.12 QUALIFIED SMALL BUSINESS STOCK. The Company shall
submit to its stockholders (including the Purchasers) and to the Internal
Revenue Service any reports that may be required under Section 1202(d)(1)(C) of
the Code and the Regulations promulgated thereunder. In addition, within ten
days after a Purchaser's written request therefor, the Company shall deliver to
such Purchaser a written statement indicating whether such Purchaser's interest
in the Company constitutes "qualified small business stock" as defined in
Section 1202(c) of the Code.
7. TRANSFER OF SHARES.
7.1 RESTRICTED SHARES. "Restricted Shares" means (i) the
Shares, (ii) the shares of Common Stock issued or issuable upon conversion of
the Shares, (iii) any shares of capital stock of the Company acquired by a
Purchaser pursuant to the Investor Agreement or the Right of First Refusal
Agreement, and (iv) any other shares of capital stock of the Company issued in
respect of such shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER,
that shares of Common Stock which are Restricted Shares shall cease to be
Restricted Shares (i) upon any sale pursuant to a registration statement under
the Securities Act, Section 4(1) of the Securities Act or Rule 144 under the
Securities Act, or (ii) at such time as they become eligible for sale under Rule
144(k) under the Securities Act.
7.2 REQUIREMENTS FOR TRANSFER.
(a) Restricted Shares shall not be sold or
transferred unless (1) either (i) they first shall have been registered under
the Securities Act, or (ii) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company, to the effect
that such sale or transfer is exempt from the registration requirements of the
Securities Act and (2) such actions are in compliance with applicable state
securities laws.
(b) Notwithstanding the foregoing, no
registration or opinion of counsel shall be required for (i) a transfer by a
Purchaser which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to
-19-
<PAGE> 18
the estate of any such partner or retired partner, if the transferee agrees in
writing to be subject to the terms of this Section 7 to the same extent as if he
were an original Purchaser hereunder, or (ii) a transfer made in accordance with
Rule 144 under the Securities Act.
7.3 LEGEND. Each certificate representing Restricted
Shares shall bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and until
such shares are registered under such Act or an opinion of counsel
satisfactory to the Company is obtained to the effect that such
registration is not required."
The foregoing legend shall be removed from the certificates representing any
Restricted Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Securities Act.
7.4 RULE 144A INFORMATION. The Company shall, at all
times during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, upon the written request of a Purchaser, provide in writing to
such Purchaser, and to any prospective transferee of any Restricted Shares of
such Purchaser, the information concerning the Company described in Rule
144A(d)(4) under the Securities Act ("Rule 144A Information"). The Company also
shall, upon the written request of a Purchaser, cooperate with and assist such
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Restricted Shares for trading through PORTAL. The Company's obligations
under this Section 7.4 shall at all times be contingent upon receipt from the
prospective transferee of Restricted Shares of a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from disclosure to
anyone other than persons who will assist such transferee in evaluating the
purchase of any Restricted Shares and to use such Rule 144A Information only for
such evaluation purposes.
8. MISCELLANEOUS.
8.1 SUCCESSORS AND ASSIGNS. This Agreement, and the
rights and obligations of a Purchaser hereunder, may be assigned by such
Purchaser to any person or entity to which at
-20-
<PAGE> 19
least 100,000 Shares (or 100% of the Shares originally purchased hereunder by
such Purchaser, if less than 100,000 Shares) or (with respect to the assignment
of rights under Section 6 hereof) 300,000 shares of Series A Preferred Stock (or
100% of the shares of Series A Preferred Stock originally purchased under the
Series A Agreement by such Purchaser, if less than 300,000 Shares), in each case
as adjusted for stock splits, stock dividends, recapitalizations and similar
events, are transferred by such Purchaser, and such transferee shall be deemed a
"Purchaser" for purposes of this Agreement; provided that the transferee
provides written notice of such assignment to the Company and agrees to be bound
by the terms and conditions set forth herein.
8.2 CONFIDENTIALITY. The Purchasers agree that they will
keep confidential and will not disclose or divulge any confidential, proprietary
or secret information which they may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
the Purchasers pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder, unless such information is known, or until
such information becomes known, to the public; PROVIDED, HOWEVER, that a
Purchaser may disclose such information (i) to its attorneys, accountants,
consultants, and other professionals to the extent necessary to obtain their
services in connection with its investment in the Company, (ii) to any
prospective purchaser of any Shares from such Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section, or (iii) to any affiliate of such Purchaser or to a partner,
shareholder or subsidiary of such Purchaser; subject to the agreement of such
party to keep such information confidential as set forth herein.
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
agreements, representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the closing of the transactions
contemplated hereby.
8.4 EXPENSES. The Company shall pay, at the Closing, the
reasonable costs and expenses of Testa, Hurwitz & Thibeault, LLP, counsel to the
Purchasers, in connection with the preparation of this Agreement and the other
agreements and documents contemplated hereby and the closing of the transactions
contemplated hereby, up to a maximum amount of $10,000.
8.5 NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, sent via a reputable nationwide overnight courier service or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid:
-21-
<PAGE> 20
If to the Company, at ArrowPoint Communications, Inc., 235 Littleton Road,
Westford, MA 01886, Attn: President, or at such other address or addresses as
may have been furnished in writing by the Company to the Purchasers, with a copy
to Hale and Dorr LLP, Boston, MA 02109, Attn: Patrick J. Rondeau, Esq.;
If to a Purchaser, at its address as set forth on SCHEDULE I attached hereto, or
at such other address or addresses as may have been furnished to the Company in
writing by such Purchaser.
If to the Founder, at 3 Coburn Road, Hopkinton, MA 01748, or at such other
address or addresses as may have been furnished in writing by the Founder to the
Company and the Purchasers.
Notices provided in accordance with this Section 8.5 shall be deemed delivered
upon personal delivery, one business day after being sent via a reputable
nationwide overnight courier service, or two business days after deposit in the
mail.
8.6 BROKERS. The Company, the Founder and the Purchasers
each (i) represents and warrants to the other parties hereto that he, she or it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) will indemnify and save the other
parties harmless from and against any and all claims, liabilities or obligations
with respect to brokerage or finders' fees or commissions in connection with the
transactions contemplated by this Agreement asserted by any person on the basis
of any agreement, statement or representation alleged to have been made by such
indemnifying party.
8.7 ENTIRE AGREEMENT. This Agreement and the Ancillary
Agreements embody the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.
8.8 AMENDMENTS AND WAIVERS. Except as otherwise expressly
set forth in this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least 66 2/3% of the shares of
Common Stock issued or issuable upon conversion of the Shares; provided that an
amendment or waiver with respect to Section 6 hereof shall instead require the
written consent of the holders of at least 66 2/3% of the shares of Common Stock
issued or issuable upon conversion of the Shares and the shares of Series A
Preferred Stock, taken together. Any
-22-
<PAGE> 21
amendment or waiver effected in accordance with this Section 8.8 shall be
binding upon each holder of any Shares or shares of Series A Preferred Stock
(including shares of Common Stock into which such Shares or shares of Series A
Preferred Stock have been converted), each future holder of all such securities
and the Company. No waivers of or exceptions to any term, condition or provision
of this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision. No amendment shall increase any obligation of the Founder hereunder
without the express written consent of the Founder. No waivers of or exceptions
to any term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
8.9 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
8.10 SECTION HEADINGS. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
8.11 SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
8.12 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
-23-
<PAGE> 22
[Preferred Stock Purchase Agreement}
Executed as of the date first written above.
ARROWPOINT COMMUNICATIONS, INC.
By:
-------------------------------
Chin-Cheng Wu
President
PURCHASERS:
Accel V L.P.
By: Accel V Associates L.L.C.
its General Partner
By:
----------------------------
Managing Member
Accel Internet/Strategic Technology
Fund L.P.
By: Accel Internet/Strategic
Technology Fund Associates L.L.C.
its General Partner
By:
----------------------------
Managing Member
Accel Keiretsu V L.P.
By: Accel Keiretsu V Associates L.L.C.
its General Partner
By:
----------------------------
Managing Member
-24-
<PAGE> 23
Accel Investors `97 L.P.
By:
----------------------------
General Partner
Ellmore C. Patterson Partners
By:
----------------------------
General Partner
North Bridge Venture Partners II, L.P.
By: North Bridge Venture Management II, L.P.,
its General Partner
By:
------------------------
Edward T. Anderson
General Partner
Matrix Partners IV, L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
By:
------------------------
Paul J. Ferri
General Partner
Matrix IV Entrepreneurs Fund, L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
By:
------------------------
Paul J. Ferri
General Partner
------------------------------------
Chin-Cheng Wu
-25-
<PAGE> 24
------------------------------------
John Prendergast
--------------------------------------
Brian Walck
--------------------------------------
Cynthia Deysher
--------------------------------------
Cynthia Deysher, as Custodian for Laura
Deysher under the Massachusetts
Uniform Transfers to Minors Act
--------------------------------------
Cynthia Deysher, as Custodian for Jacqueline
Deysher under the Massachusetts
Uniform Transfers to Minors Act
--------------------------------------
Gary Bowen
--------------------------------------
Stephen Van Beaver
Solely as to Sections 6, 8.1, 8.2 and 8.8
-------------------------------------
Yeh-Tsong Wen
-------------------------------------
Bruce I. Sachs
-26-
<PAGE> 25
-------------------------------------
James A. Dolce, Jr.
-------------------------------------
Rubin Gruber
-------------------------------------
Harry Daniel Lowe
FOUNDER:
--------------------------------------
Chin-Cheng Wu
-27-
<PAGE> 26
SCHEDULE I
----------
Name and Address No. of Shares of Aggregate
of Purchaser Series B Preferred Purchase Price
- ---------------- ------------------ --------------
Accel V L.P. 847,733 $3,925,003.79
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Internet/Strategic Technology 112,311 519,999.93
Fund L.P.
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Keiretsu V L.P. 44,276 204,997.88
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Investors `97 L.P. 51,836 240,000.68
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Ellmore C. Patterson Partners 23,758 109,999.54
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
North Bridge Venture 453,564 2,100,001.32
Partners II, L.P.
404 Wyman Street
Waltham, MA 02154
Matrix Partners IV, L.P. 595,033 2,755,002.79
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
-28-
<PAGE> 27
Matrix IV Entrepreneurs Fund, L.P. 31,317 144,997.71
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
Chin-Cheng Wu 10,800 50,004.00
3 Coburn Road
Hopkinton, MA 01748
John Prendergast 10,800 50,004.00
4 Deer Hill Farm
Essex, MA 01929
Brian Walck 10,800 50,004.00
1 Magnolia Road
Windham, NH 03087
Cynthia Deysher 2,800 12,964.00
28 Guzzle Brook Drive
Sudbury, MA 01776
Cynthia Deysher as Custodian 4,000 18,520.00
for Lauren Deysher under the
Massachusetts Uniform Transfer
to Minors Act
28 Guzzle Brook Drive
Sudbury, MA 01776
Cynthia Deysher as Custodian 4,000 18,520.00
for Jacqueline Deysher under the
Massachusetts Uniform Transfer
to Minors Act
28 Guzzle Brook Drive
Sudbury, MA 01776
Gary Bowen 5,400 25,002.00
90 Marlboro Street #7
Boston, MA 02116
Stephen Van Beaver 5,400 25,002.00
6 Laurel Road
N. Reading, MA 01864
2,213,828 $10,250,023.64
-29-
<PAGE> 1
Exhibit 10.15
ARROWPOINT COMMUNICATIONS, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
September 30, 1998
<PAGE> 2
TABLE OF CONTENTS
PAGE
Disclosure Schedule
Exhibit A Certificate of Amendment
Exhibit B Opinion of Hale and Dorr LLP
Exhibit C Investor Rights Agreement
Exhibit D Right of First Refusal and Co-Sale Agreement
-2-
<PAGE> 3
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of September 30, 1998 is entered into by and among
ArrowPoint Communications, Inc., a Delaware corporation (the "Company"), and the
persons and entities listed on SCHEDULE I attached hereto (individually, a
"Purchaser" and, collectively, the "Purchasers")
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has duly authorized the
sale and issuance, pursuant to the terms of this Agreement, of 278,464 shares of
its Series C Convertible Preferred Stock, $0.01 par value per share (the "Series
C Preferred Stock"), having the rights, restrictions, privileges and preferences
set forth in the Certificate of Amendment attached hereto as EXHIBIT A (the
"Certificate of Amendment"). The Company has adopted and filed the Certificate
of Amendment with the Secretary of State of the State of Delaware.
1.2 SALE OF SHARES. Subject to the terms and conditions
of this Agreement, at the Closing (as defined below) the Company will issue and
sell to each Purchaser, and each Purchaser will purchase, for a purchase price
of $7.86 per share, such number of shares of Series C Preferred Stock as is set
forth opposite such Purchaser's name on SCHEDULE I attached hereto. The shares
of Series C Preferred Stock being sold under this Agreement are referred to as
the "Shares."
1.3 USE OF PROCEEDS. The Company will use the proceeds
from the sale of the Shares for working capital purposes.
2. THE CLOSING. The closing ("Closing") of the sale and purchase
of the Shares under this Agreement shall take place at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts at 9:00 a.m. on the date of
this Agreement, or at such other time, date and place as are mutually agreeable
to the Company and the Purchasers. The date of the Closing is hereinafter
referred to as the "Closing Date." At the Closing:
-4-
<PAGE> 4
(a) the Company shall deliver to the Purchasers a
certificate, as of the most recent practicable date, as to the corporate good
standing of the Company issued by the Secretary of State of the State of
Delaware;
(b) the Company shall deliver to the Purchasers the
Certificate of Incorporation of the Company, as amended and in effect as of the
Closing Date (including the Certificate of Amendment), certified by the
Secretary of State of the State of Delaware;
(c) the Company shall deliver to the Purchasers a
Certificate of the Secretary of the Company attesting as to (i) the By-laws of
the Company, and (ii) resolutions of the Board of Directors and stockholders of
the Company authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby.
(d) Hale and Dorr LLP, counsel for the Company, shall
deliver to the Purchasers an opinion, dated the Closing Date, in the form
attached hereto as EXHIBIT B;
(e) the Company, Chin-Cheng Wu (the "Founder") and the
Purchasers shall execute and deliver the Investor Rights Agreement in the form
attached hereto as EXHIBIT C (the "Investor Agreement");
(f) the Company, the Founding Stockholders (as defined
therein) and the Purchasers shall execute and deliver the Right of First Refusal
and Co-Sale Agreement in the form attached hereto as EXHIBIT D (the "Right of
First Refusal Agreement");
(g) the Company shall deliver to each Purchaser a
certificate for the number of Shares being purchased by such Purchaser,
registered in the name of such Purchaser;
(h) each Purchaser shall pay to the Company the purchase
price for the Shares being purchased by such Purchaser, by wire transfer or
certified check; and
(i) the Company and the Purchasers shall execute and
deliver a Cross-Receipt.
3. REPRESENTATIONS OF THE COMPANY. Subject to and except as
disclosed by the Company in the Disclosure Schedule attached hereto (the
"Disclosure Schedule"), the Company hereby represents and warrants to the
Purchasers as follows:
-5-
<PAGE> 5
3.1 ORGANIZATION AND STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified to do business as
a foreign corporation and is in good standing in the Commonwealth of
Massachusetts and in any other jurisdiction in which the failure to so qualify
would have a material adverse effect on the operations or financial condition of
the Company. The Company has furnished to special counsel to the Purchasers true
and complete copies of its Certificate of Incorporation and By-laws, each as
amended to date and presently in effect.
3.2 CAPITALIZATION. The authorized capital stock of the
Company (immediately prior to the Closing) consists of (a) 20,000,000 shares of
common stock, $0.001 par value per share (the "Common Stock"), of which
3,496,850 shares are issued and outstanding, 993,150 shares have been reserved
for issuance pursuant to the Company's 1997 Stock Incentive Plan, 5,750,000
shares have been reserved for issuance upon the conversion of the outstanding
shares of Series A Convertible Preferred Stock ("Series A Preferred Stock"),
2,213,828 shares have been reserved for issuance upon conversion of the
outstanding shares of Series B Convertible Preferred Stock ("Series B Preferred
Stock"), and 278,464 shares have been reserved for issuance upon conversion of
the Shares and (b) 10,000,000 shares of preferred stock, $0.01 par value per
share, of which (i) 5,750,000 shares have been designated as Series A Preferred
Stock, all of which are issued and outstanding, (ii) 2,213,828 shares have been
designated as Series B Preferred Stock, all of which are issued and outstanding,
and (iii) 278,464 shares have been designated as Series C Preferred Stock, none
of which are issued or outstanding. At the Closing, the Common Stock, the Series
A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
will have the voting powers, designations, preferences, rights and
qualifications, and limitations or restrictions set forth in the Certificate of
Incorporation, as amended by the Certificate of Amendment. All of the issued and
outstanding shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock have been duly authorized and validly issued and are fully paid
and nonassessable. Except as contemplated by this Agreement or set forth in the
Disclosure Schedule, (i) no subscription, warrant, option, convertible security
or other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, (ii) the Company has
no obligation (contingent or otherwise) to issue any subscription, warrant,
option, convertible security or other such right or to issue or distribute to
holders of any shares of its capital stock any evidences of indebtedness or
assets of the Company, and (iii) the Company has no obligation (contingent or
otherwise) to purchase, redeem
-6-
<PAGE> 6
or otherwise acquire any shares of its capital stock or any interest therein or
to pay any dividend or make any other distribution in respect thereof. All of
the issued and outstanding shares of capital stock of the Company have been
offered, issued and sold by the Company in compliance with applicable Federal
and state securities laws.
3.3 SUBSIDIARIES, ETC. The Company has no subsidiaries
and does not own or control, directly or indirectly, any shares of capital stock
of any other corporation or any interest in any partnership, joint venture or
other non-corporate business enterprise.
3.4 STOCKHOLDER LIST AND AGREEMENTS. Section 3.4 of the
Disclosure Schedule sets forth a true and complete list of the stockholders of
the Company, showing the number of shares and class or series of capital stock
or other securities of the Company held by each stockholder immediately prior to
the execution of this Agreement and the consideration paid to the Company
therefor. Except as listed in Section 3.4 of the Disclosure Schedule or as
contemplated by this Agreement, there are no agreements, written or oral,
between the Company and any holder of its capital stock, or, to the best of the
Company's knowledge, among any holders of its capital stock, relating to the
future acquisition (including without limitation rights of first refusal or
pre-emptive rights), disposition, registration under the Securities Act of 1933,
as amended (the "Securities Act"), or voting of the capital stock of the
Company.
3.5 ISSUANCE OF SHARES. The issuance, sale and delivery
of the Shares in accordance with this Agreement, and the issuance and delivery
of the shares of Common Stock issuable upon conversion of the Shares, have been
duly authorized by all necessary corporate action on the part of the Company,
and all such shares have been duly reserved for issuance. The Shares when so
issued, sold and delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of Common Stock issuable upon
conversion of the Shares, when issued upon such conversion, will be duly and
validly issued, fully paid and non-assessable.
3.6 AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement and all other agreements required
to be executed by the Company at the Closing pursuant to Section 2 (the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action. This Agreement and the Ancillary Agreements have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms. The execution of and performance of the transactions contemplated by this
Agreement and the Ancillary Agreements
-7-
<PAGE> 7
and compliance with their provisions by the Company will not violate any
provision of law and will not conflict with or result in any breach of any of
the terms, conditions or provisions of, or constitute a default under, or
require a consent or waiver under, its Certificate of Incorporation or By-laws
(each as amended to date) or any indenture, lease, agreement or other instrument
to which the Company is a party or by which it or any of its properties is
bound, or any decree, judgment, order, statute, rule or regulation applicable to
the Company.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale and delivery of the Shares, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing. Based on the representations made by the Purchasers in Section 5 of
this Agreement, the offer and sale of the Shares to the Purchasers will be
exempt from the registration requirements of applicable Federal and state
securities laws.
3.8 LITIGATION. There is no action, suit or proceeding,
or governmental inquiry or investigation, pending, or, to the best of the
Company's knowledge, any basis therefor or threat thereof, against the Company
or the Founder, which questions the validity of this Agreement or the right of
the Company or the Founder to enter into it, or which might result, either
individually or in the aggregate, in any material adverse change in the
business, prospects, assets or condition, financial or otherwise, of the
Company, nor is there any litigation pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company or the
Founder by reason of the past employment relationships of the Founder, the
proposed activities of the Company, or negotiations by the Company and/or the
Founder with possible investors in the Company.
3.9 FINANCIAL STATEMENTS. The Company has furnished to
each of the Purchasers a complete and correct copy of the audited balance sheet
(the "Balance Sheet") of the Company as at December 31, 1997 and the related
audited statement of operations and cash flow for the year then ended and the
unaudited balance sheet (the "Unaudited Balance Sheet") of the Company as of
June 30, 1998 (the "Balance Sheet Date") and the related unaudited statement of
income for the six months then ended (collectively, the "Financial Statements").
The Financial Statements are complete and correct in all material respects, are
in accordance with the books and records of the Company and present fairly the
financial condition and results of operations of
-8-
<PAGE> 8
the Company, as at the dates and for the periods indicated, and have been
prepared in accordance with generally accepted accounting principles
consistently applied, except that the Financial Statements have been prepared
for the internal use of management and may not be in accordance with generally
accepted accounting principles because of the absence of footnotes normally
contained therein and are subject to normal year-end audit adjustments which in
the aggregate will not be material.
3.10 ABSENCE OF LIABILITIES. Except as set forth in
Section 3.10 of the Disclosure Schedule, the Company did not have, at the
Balance Sheet Date, any liabilities of any type which in the aggregate exceeded
$25,000, whether absolute or contingent, which were not fully reflected on the
Balance Sheet, and, since the Balance Sheet Date, the Company has not incurred
or otherwise become subject to any such liabilities or obligations except in the
ordinary course of business.
3.11 TAXES. The amount shown on the Balance Sheet as
provision for taxes is sufficient in all material respects for payment of all
accrued and unpaid Federal, state, county, local and foreign taxes for the
period then ended and all prior periods. The Company has filed or has obtained
presently effective extensions with respect to all Federal, state, county, local
and foreign tax returns which are required to be filed by it, such returns are
true and correct in all material respects and all taxes shown thereon to be due
have been timely paid with exceptions not material to the Company. Neither the
Company nor any of its stockholders has ever filed (a) an election pursuant to
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that
the Company be taxed as an S Corporation, or (b) consent pursuant to Section
341(f) of the Code relating to collapsible corporations.
3.12 PROPERTY AND ASSETS. The Company has good title to
all of its material properties and assets, including all properties and assets
reflected in the Balance Sheet, except those disposed of since the date thereof
in the ordinary course of business, and none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, lease, charge or
encumbrance other than those the material terms of which are described in
Section 3.12 of the Disclosure Schedule.
3.13 INTELLECTUAL PROPERTY.
(a) To the best of the Company's knowledge, no
third party has claimed or has reason to claim that any person employed by or
affiliated with the Company, in connection with his or her employment by or
affiliation with the Company, (i) has violated or is
-9-
<PAGE> 9
violating any of the terms or conditions of his employment, non-competition or
non-disclosure agreement with such third party, (ii) has disclosed or is
disclosing or has utilized or is utilizing any trade secret or proprietary
information or documentation of such third party or (iii) has interfered or is
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the best
of the Company's knowledge, no person employed by or affiliated with the Company
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship which such person may have had with any
third party, in connection with the development, manufacture or sale or any
product or proposed product or the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of business of the Company as officers, employees or agents by any officer,
director or key employee of the Company, or the conduct or proposed conduct of
the business of the Company, will conflict with or result in a breach of the
terms, conditions or provisions of or constitute a default under any contract,
covenant or instrument under which any such person is obligated.
(b) Set forth in Section 3.13 of the Disclosure
Schedule is a list of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names and copyrights, and all applications for such which
are in the process of being prepared, owned by or registered in the name of the
Company, or of which the Company is a licensor or licensee or in which the
Company has any right, and in each case a brief description of the nature of
such right. The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know-how (collectively,
"Intellectual Property") necessary for the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any other person under any
Intellectual Property, and, to the best of the Company's knowledge, there is no
basis for any such claim (whether or not pending or threatened). No claim is
pending or threatened to the effect that any such Intellectual Property owned or
licensed by the Company, or which the Company otherwise has the right to use, is
-10-
<PAGE> 10
invalid or unenforceable by the Company, and, to the best of the Company's
knowledge, there is no basis for any such claim (whether or not pending or
threatened). To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential. The Company has not granted or assigned to any other person
or entity any right to manufacture, have manufactured, assemble or sell the
products or proposed products or to provide the services or proposed services of
the Company.
3.14 MATERIAL CONTRACTS AND OBLIGATIONS. Except as
contemplated by this Agreement or as listed in the Disclosure Schedule, the
Company is not a party to any material agreement or commitment of any nature,
including without limitation (a) any agreement which requires future
expenditures by the Company in excess of $250,000, (b) any employment or
consulting agreement, employee benefit, bonus, pension, profit-sharing, stock
option, stock purchase or similar plan or arrangement, or distributor or sales
representative agreement, (c) any agreement with any stockholder, officer or
director of the Company, or any "affiliate" or "associate" of such persons (as
such terms are defined in the rules and regulations promulgated under the
Securities Act), including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal property
from, or otherwise requiring payments to, any such person or entity or (d) any
agreement relating to the intellectual property rights of the Company.
3.15 COMPLIANCE. The Company has, in all material
respects, complied with all laws, regulations and orders applicable to its
present and proposed business and has all material permits and licenses required
thereby. There is no term or provision of any mortgage, indenture, contract,
agreement or instrument to which the Company is a party or by which it is bound,
or, to the best of the Company's knowledge, of any provision of any state or
Federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon the Company, which materially adversely affects or, so far as the
Company may now foresee, in the future is reasonably likely to materially
adversely affect, the business, prospects, assets or condition, financial or
otherwise, of the Company. To the best of the Company's knowledge, neither the
Founder nor any other employee of the Company is in violation of any term of any
contract or covenant (either with the Company or with another entity) relating
to employment, patents, proprietary information disclosure, non-competition or
non-solicitation.
-11-
<PAGE> 11
3.16 EMPLOYEES AND FOUNDER.
(a) The Founder and the other holders of Common
Stock have executed and delivered to the Company a Stock Restriction Agreement,
copies of which have been made available to the Purchasers, and all of such
agreements are in full force and effect.
(b) Each employee of the Company (including the
Founder) who is at or above the director level or who holds at least 100,000
shares of Common Stock (or options exercisable therefor) (as adjusted for stock
splits, stock dividends, recapitalizations and similar events) has executed and
delivered to the Company a Noncompetition and Confidentiality Agreement covering
a period of one year following the termination of such employee's employment
with the Company, copies of which have been made available to the Purchasers.
Each employee of the Company not covered by the foregoing sentence has executed
and delivered to the Company a Confidentiality Agreement, copies of which have
been made available to the Purchasers. All of such agreements are in full force
and effect.
(c) None of the employees of the Company is
represented by any labor union, and there is no labor strike or other labor
trouble pending with respect to the Company (including, without limitation, any
organizational drive) or, to the best of the Company's knowledge, threatened.
3.17 ERISA. Except as described in the Disclosure
Schedule, the Company does not have or otherwise contribute to or participate in
any employee benefit plan subject to the Employee Retirement Income Security Act
of 1974.
3.18 BOOKS AND RECORDS. The minute books of the Company
contain complete and accurate records of all meetings and other corporate
actions of its stockholders and its Board of Directors and committees thereof.
The stock ledger of the Company is complete and reflects all issuances,
transfers, repurchases and cancellations of shares of capital stock of the
Company.
3.19 BOARD OF DIRECTORS. The Board of Directors is
comprised of four members, and consists of Chin-Cheng Wu, Edward T. Anderson,
Paul J. Ferri and Bruce I. Sachs.
3.20 U.S. REAL PROPERTY HOLDING CORPORATION. The Company
is not now and has never been a "United States Real Property Holding
Corporation" as defined in Section 897(c)(2) of the Code and Section 1.897-2(b)
of the Regulations promulgated by the Internal Revenue Service.
-12-
<PAGE> 12
3.21 DISCLOSURES. Neither this Agreement nor any Schedule
or Exhibit hereto, nor any certificate or instrument furnished to the Purchasers
at the Closing or as required by the terms of this Agreement, when read
together, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
4. [Intentionally omitted]
5. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser represents
and warrants to the Company as follows:
5.1 INVESTMENT. Such Purchaser is acquiring the Shares,
and the shares of Common Stock into which the Shares may be converted, for its
or his own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same; and such Purchaser has no present or
contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof. Such Purchaser acknowledges
that the Shares are restricted securities as defined under the Securities Act
and shall bear the legends set forth in Section 7.3 hereof.
5.2 AUTHORITY. Such Purchaser has full power and
authority to enter into and to perform this Agreement in accordance with its
terms. Such Purchaser represents that it has not been organized, reorganized or
recapitalized specifically for the purpose of investing in the Company. This
Agreement and the Ancillary Agreement to be executed by such Purchaser have been
duly executed and delivered by such Purchaser and constitute valid and binding
obligations of such Purchaser enforceable in accordance with their respective
terms. The execution of and performance of the transactions contemplated by this
Agreement and the Ancillary Agreements to be executed by such Purchaser and
compliance with their provisions by such Purchaser will not violate any
provision of law and will not conflict with or result in any breach of any of
the terms, conditions or provisions of, or constitute a default under, or
require a consent or waiver under, its organizational documents (each as amended
to date) or any indenture, lease, agreement or other instrument to which the
Purchaser is a party or by which it or any of its properties is bound, or any
decree, judgment, order, statute, rule or regulation applicable to such
Purchaser.
5.3 EXPERIENCE. Such Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning
-13-
<PAGE> 13
the Company, its business and its personnel; the officers of the Company have
made available to such Purchaser any and all written information which it has
requested and have answered to such Purchaser's satisfaction all inquiries made
by such Purchaser; and such Purchaser has sufficient knowledge and experience in
investing in companies similar to the Company so as to be able to evaluate the
risks and merits of its investment in the Company and is able financially to
bear the risks thereof, including a complete loss of its investment. Such
Purchaser understands that an investment in the Company involves a high degree
of risk in view of the fact that the Company is a start-up enterprise with no
operating history, and there may never be an established market for the
Company's capital stock.
5.4 STATUS. Such Purchaser is an "accredited Investor"
as that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act.
6. COVENANTS OF THE COMPANY.
6.1 INSPECTION. The Company shall permit each Purchaser,
or any authorized representative thereof, to visit and inspect the properties of
the Company, including its corporate and financial records, and to discuss its
business and finances with officers of the Company, during normal business hours
following reasonable notice and as often as may be reasonably requested, without
interruption of the business of the Company and subject to the confidentiality
obligations of Section 8.2 hereof.
6.2 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) So long as a Purchaser (or any of its
affiliates) holds shares of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock, the Company shall deliver to such Purchaser:
(i) within 120 days after the end of
each fiscal year of the Company, an audited balance sheet of the Company as at
the end of such year, and audited statements of income and of cash flows of the
Company for such year, certified by certified public accountants of established
national reputation selected by the Company, and prepared in accordance with
generally accepted accounting principles; and
(ii) within 45 days after the end of each
fiscal quarter of the Company,
an unaudited balance sheet of the Company as at the end of such quarter, and
-14-
<PAGE> 14
unaudited statements of income and of cash flows of the Company for such fiscal
quarter and for the current fiscal year to the end of such fiscal quarter.
(b) So long as a Purchaser (or any of its
affiliates) holds shares of Series A Preferred Stock, Series B Preferred Stock
or Series C Preferred Stock convertible into at least 300,000 shares of Common
Stock (as adjusted for stock splits, stock dividends, recapitalizations and
similar events), the Company shall deliver to such Purchaser:
(i) as soon as available, but in any
event within 30 days after commencement of each new fiscal year, a budget,
consisting of a business plan and projected financial statements for such fiscal
year; and
(ii) with reasonable promptness, such
other notices, information and data with respect to the Company as the Company
delivers to the holders of its Common Stock, and such other information and data
as such Purchaser may from time to time reasonably request.
(c) The foregoing financial statements shall be
prepared on a consolidated basis if the Company then has any subsidiaries.
6.3 MATERIAL CHANGES AND LITIGATION. The Company shall
promptly notify the Purchasers of any material adverse change in the business,
prospects, assets or condition, financial or otherwise, of the Company and of
any litigation or governmental proceeding or investigation brought or, to the
best of the Company's knowledge, threatened against the Company, or against the
Founder or an officer, director, key employee or principal stockholder of the
Company materially adversely affecting or which, if adversely determined, would
materially adversely affect its business, prospects, assets or condition,
financial or otherwise.
6.4 INSURANCE.
(a) The Company shall maintain, for a period of five
years from April 17, 1997, term
life insurance upon the life of the Founder, in the amount of $1,000,000, with
the proceeds payable to the Company.
(b) The Company shall maintain in effect policies of
workers' compensation insurance
and of insurance with respect to its properties and business of the kinds and in
the amounts not less than is customarily obtained by corporations engaged in the
same or
-15-
<PAGE> 15
similar business and similarly situated, including, without limitation,
insurance against loss, damage, fire, theft, public liability and other risks.
6.5 EMPLOYEE AGREEMENTS. The Company shall require all
employees hereafter employed or engaged by the Company who are at or above the
director level or who holds at least 100,000 shares of Common Stock (or options
exercisable therefor) (as adjusted for stock splits, stock dividends,
recapitalizations and similar events) to enter into a Noncompetition and
Confidentiality Agreement covering a period of one year following the
termination of such employee's employment with the Company, in the form approved
by the Board of Directors. The Company shall require all employees not covered
by the foregoing sentence to enter into a Confidentiality Agreement in the form
approved by the Board of Directors.
6.6 RELATED PARTY TRANSACTIONS. The Company shall not
enter into any agreement with any stockholder, officer or director of the
Company, or any "affiliate" or "associate" of such persons (as such terms are
defined in the rules and regulations promulgated under the Securities Act),
including without limitation any agreement or other arrangement providing for
the furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity, without the consent
of at least a majority of the members of the Company's Board of Directors having
no interest in such agreement or arrangement.
6.7 DIRECTORS. The Company shall promptly reimburse in
full each director of the Company who is not an employee of the Company and who
was elected as a director solely by the holders of the Series A Preferred Stock
for all of his reasonable out-of-pocket expenses incurred in attending each
meeting of the Board of Directors of the Company or any committee thereof.
6.8 OPTION SHARES AND RESTRICTED STOCK. The Company has
reserved an aggregate of 993,150 shares of Common Stock for future issuance to
employees and consultants of the Company pursuant to the 1997 Stock Incentive
Plan of the Company. Unless otherwise agreed by the Board of Directors, all
options or restricted stock awards granted under such Plan shall vest at the
rate of 20% on the first anniversary of grant and 1.667% per month thereafter
over the subsequent four years so long as the optionee or stockholder continues
to be an employee or consultant of the Company, subject to acceleration of 50%
of the unvested portion of such options in the event of an Acquisition Event (as
defined in the standard form of agreements for use under such Plan).
-16-
<PAGE> 16
6.9 RESERVATION OF COMMON STOCK. The Company shall
reserve and maintain a sufficient number of shares of Common Stock for issuance
upon conversion of all of the outstanding shares of Series A Preferred Stock,
Series B Preferred Stock and all of the outstanding Shares.
6.10 TERMINATION OF COVENANTS. The covenants of the
Company contained in Sections 6.1 through 6.9 shall terminate, and be of no
further force or effect, upon the effective date of a registration statement
filed by the Company under the Securities Act covering the Company's first
offering of Common Stock, resulting in net proceeds to the Company of at least
$10,000,000, and at a price per share of at least $16.00 (as adjusted for stock
splits, stock dividends, recapitalizations and similar events) or at such time
as the aggregate number of shares of Common Stock into which all shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
owned by the Purchasers (together with any affiliated entities to whom Shares
have been transferred) is less than 2,060,573 (as adjusted for stock splits,
stock dividends, recapitalizations and similar events).
6.11 TERMINATION OF PRIOR COVENANTS.
(a) The Series B Preferred Stock Purchase
Agreement among the Company, the Founder, certain of the Purchasers and certain
other parties dated February 5, 1998 (the "Series B Agreement") is hereby
amended by deleting Section 6 thereof in its entirety.
(b) Each of Yeh-Tsong Wen, James A. Dolce, Jr.,
Rubin Gruber, Harry Daniel Lowe and Bruce I. Sachs, North Bridge Venture
Partners II, L.P., Matrix Partners IV, L.P., Matrix IV Entrepreneurs Fund, L.P.,
Chin-Cheng Wu, John Prendergast, Brian Walck, Cynthia Deysher (as an individual
and as Custodian), Gary Bowen and Stephen Van Beaver, who are parties to the
Series B Agreement, shall be deemed a Purchaser for purposes of Sections 6, 8.1,
8.2 and 8.8 of this Agreement and shall have all rights and obligations of a
Purchaser under such Sections.
6.12 QUALIFIED SMALL BUSINESS STOCK. The Company shall
submit to its stockholders (including the Purchasers) and to the Internal
Revenue Service any reports that may be required under Section 1202(d)(1)(C) of
the Code and the Regulations promulgated thereunder. In addition, within ten
days after a Purchaser's written request therefor, the Company shall deliver to
such Purchaser a written statement indicating whether such Purchaser's interest
in the Company constitutes "qualified small business stock" as defined in
Section 1202(c) of the Code.
-17-
<PAGE> 17
7. TRANSFER OF SHARES.
7.1 RESTRICTED SHARES. "Restricted Shares" means (i) the
Shares, (ii) the shares of Common Stock issued or issuable upon conversion of
the Shares, (iii) any shares of capital stock of the Company acquired by a
Purchaser pursuant to the Investor Agreement or the Right of First Refusal
Agreement, and (iv) any other shares of capital stock of the Company issued in
respect of such shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER,
that shares of Common Stock which are Restricted Shares shall cease to be
Restricted Shares (i) upon any sale pursuant to a registration statement under
the Securities Act, Section 4(1) of the Securities Act or Rule 144 under the
Securities Act, or (ii) at such time as they become eligible for sale under Rule
144(k) under the Securities Act.
7.2 REQUIREMENTS FOR TRANSFER.
(a) Restricted Shares shall not be sold or
transferred unless (1) either (i) they first shall have been registered under
the Securities Act, or (ii) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company, to the effect
that such sale or transfer is exempt from the registration requirements of the
Securities Act and (2) such actions are in compliance with applicable state
securities laws.
(b) Notwithstanding the foregoing, no
registration or opinion of counsel shall be required for (i) a transfer by a
Purchaser which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner, if the transferee agrees in writing to
be subject to the terms of this Section 7 to the same extent as if he were an
original Purchaser hereunder, or (ii) a transfer made in accordance with Rule
144 under the Securities Act.
7.3 LEGEND. Each certificate representing Restricted
Shares shall bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and until
such shares are registered under such Act or an opinion of counsel
satisfactory to the Company is obtained to the effect that such
registration is not required."
-18-
<PAGE> 18
The foregoing legend shall be removed from the certificates representing any
Restricted Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Securities Act.
7.4 RULE 144A INFORMATION. The Company shall, at all
times during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, upon the written request of a Purchaser, provide in writing to
such Purchaser, and to any prospective transferee of any Restricted Shares of
such Purchaser, the information concerning the Company described in Rule
144A(d)(4) under the Securities Act ("Rule 144A Information"). The Company also
shall, upon the written request of a Purchaser, cooperate with and assist such
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Restricted Shares for trading through PORTAL. The Company's obligations
under this Section 7.4 shall at all times be contingent upon receipt from the
prospective transferee of Restricted Shares of a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from disclosure to
anyone other than persons who will assist such transferee in evaluating the
purchase of any Restricted Shares and to use such Rule 144A Information only for
such evaluation purposes.
8. MISCELLANEOUS.
8.1 SUCCESSORS AND ASSIGNS. This Agreement, and the
rights and obligations of a Purchaser hereunder, may be assigned by such
Purchaser to any person or entity to which at least 100,000 Shares (or 100% of
the Shares originally purchased hereunder by such Purchaser, if less than
100,000 Shares) or (with respect to the assignment of rights under Section 6
hereof by a party other than a Purchaser of the Shares) 300,000 shares of Series
A Preferred Stock or 100,000 shares of Series B Preferred Stock (or 100% of the
shares of Series A Preferred Stock or Series B Preferred Stock originally
purchased under the Series A Agreement or Series B Agreement by such Purchaser,
if less than 300,000 or 100,000 shares, respectively), in each case as adjusted
for stock splits, stock dividends, recapitalizations and similar events, are
transferred by such Purchaser, and such transferee shall be deemed a "Purchaser"
for purposes of this Agreement; provided that the transferee provides written
notice of such assignment to the Company and agrees to be bound by the terms and
conditions set forth herein and the transferee is not a company that the Company
reasonably considers to be a competitor.
-19-
<PAGE> 19
8.2 CONFIDENTIALITY. The Purchasers agree that they will
keep confidential and will not disclose or divulge any confidential, proprietary
or secret information which they may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
the Purchasers pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder, unless such information is known, or until
such information becomes known, to the public; PROVIDED, HOWEVER, that a
Purchaser may disclose such information (i) to its attorneys, accountants,
consultants, and other professionals to the extent necessary to obtain their
services in connection with its investment in the Company, (ii) to any
prospective purchaser of any Shares from such Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section, or (iii) to any affiliate of such Purchaser or to a partner,
shareholder or subsidiary of such Purchaser; subject to the agreement of such
party to keep such information confidential as set forth herein.
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
agreements, representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the closing of the transactions
contemplated hereby.
8.4 [Intentionally omitted]
8.5 NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, sent via a reputable nationwide overnight courier service or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid:
If to the Company, at ArrowPoint Communications, Inc., 235 Littleton Road,
Westford, MA 01886, Attn: President, or at such other address or addresses as
may have been furnished in writing by the Company to the Purchasers, with a copy
to Hale and Dorr LLP, Boston, MA 02109, Attn: Patrick J. Rondeau, Esq.;
If to a Purchaser, at its address as set forth on SCHEDULE I attached hereto, or
at such other address or addresses as may have been furnished to the Company in
writing by such Purchaser.
Notices provided in accordance with this Section 8.5 shall be deemed delivered
upon personal delivery, one business day after being sent via a reputable
nationwide overnight courier service, or two business days after deposit in the
mail.
-20-
<PAGE> 20
8.6 BROKERS. The Company, the Founder and the Purchasers
each (i) represents and warrants to the other parties hereto that he, she or it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) will indemnify and save the other
parties harmless from and against any and all claims, liabilities or obligations
with respect to brokerage or finders' fees or commissions in connection with the
transactions contemplated by this Agreement asserted by any person on the basis
of any agreement, statement or representation alleged to have been made by such
indemnifying party.
8.7 ENTIRE AGREEMENT. This Agreement and the Ancillary
Agreements embody the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.
8.8 AMENDMENTS AND WAIVERS. Except as otherwise expressly
set forth in this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least 66 2/3% of the shares of
Common Stock issued or issuable upon conversion of the Shares; provided that an
amendment or waiver with respect to Section 6 hereof shall instead require the
written consent of the holders of at least 66 2/3% of the shares of Common Stock
issued or issuable upon conversion of the Shares, the shares of Series B
Preferred Stock and the shares of Series A Preferred Stock, taken together. Any
amendment or waiver effected in accordance with this Section 8.8 shall be
binding upon each holder of any Shares, shares of Series B Preferred Stock or
shares of Series A Preferred Stock (including shares of Common Stock into which
such Shares, shares of Series B Preferred Stock or shares of Series A Preferred
Stock have been converted), each future holder of all such securities and the
Company. No waivers of or exceptions to any term, condition or provision of this
Agreement, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision. No
amendment shall increase any obligation of the Founder hereunder without the
express written consent of the Founder. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
8.9 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
-21-
<PAGE> 21
8.10 SECTION HEADINGS. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
8.11 SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
8.12 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
-22-
<PAGE> 22
[Preferred Stock Purchase Agreement}
Executed as of the date first written above.
ARROWPOINT COMMUNICATIONS, INC.
By:
-------------------------------
Chin-Cheng Wu
President
PURCHASERS:
Accel V L.P.
By: Accel V Associates L.L.C.
its General Partner
By:
----------------------------
Managing Member
Accel Internet/Strategic Technology
Fund L.P.
By: Accel Internet/Strategic
Technology Fund Associates L.L.C.
its General Partner
By:
----------------------------
Managing Member
Accel Keiretsu V L.P.
By: Accel Keiretsu V Associates L.L.C.
its General Partner
By:
----------------------------
Managing Member
-23-
<PAGE> 23
Accel Investors `97 L.P.
By:
----------------------------
General Partner
Ellmore C. Patterson Partners
By:
----------------------------
General Partner
Net One Systems Co., Ltd.
By:
----------------------------
Westcon Group, Inc.
By:
----------------------------
Solely as to Sections 6, 8.1, 8.2 and 8.8
-------------------------------------
Yeh-Tsong Wen
-------------------------------------
James A. Dolce, Jr.
-------------------------------------
Rubin Gruber
-------------------------------------
Harry Daniel Lowe
-24-
<PAGE> 24
-------------------------------------
Bruce I. Sachs
North Bridge Venture Partners II, L.P.
By: North Bridge Venture Management II, L.P.,
its General Partner
By:
------------------------
Edward T. Anderson
General Partner
Matrix Partners IV, L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
By:
------------------------
Paul J. Ferri
General Partner
Matrix IV Entrepreneurs Fund, L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
By:
------------------------
Paul J. Ferri
General Partner
------------------------------------
Chin-Cheng Wu
-25-
<PAGE> 25
------------------------------------
John Prendergast
--------------------------------------
Brian Walck
--------------------------------------
Cynthia Deysher
--------------------------------------
Cynthia Deysher, as Custodian for Lauren
Deysher under the Massachusetts
Uniform Transfers to Minors Act
--------------------------------------
Cynthia Deysher, as Custodian for Jacqueline
Deysher under the Massachusetts
Uniform Transfers to Minors Act
--------------------------------------
Gary Bowen
--------------------------------------
Stephen Van Beaver
-26-
<PAGE> 26
SCHEDULE I
----------
Name and Address No. of Shares of Aggregate
of Purchaser Series C Preferred Purchase Price
- ---------------- ------------------ --------------
Accel V L.P. 18,919 $148,703.34
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Internet/Strategic Technology 2,506 19,697.16
Fund L.P.
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Keiretsu V L.P. 988 7,765.68
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Investors `97 L.P. 1,157 9,094.02
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Ellmore C. Patterson Partners 530 4,165.80
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Net One Systems Co., Ltd. 127,182 999,650.52
2-2-8 Higashi-Shinagawa
Shinagawa, Tokyo 140
Japan
Westcon Group, Inc. 127,182 999,650.52
150 Main Street
Eastchester, NY 10707
278,464 $2,188,727.04
-27-
<PAGE> 1
Exhibit 10.16
ARROWPOINT COMMUNICATIONS, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
February 16, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Disclosure Schedule
Exhibit A Certificate of Amendment
Exhibit B Opinion of Hale and Dorr LLP
Exhibit C Investor Rights Agreement
Exhibit D Right of First Refusal and Co-Sale Agreement
</TABLE>
-2-
<PAGE> 3
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of February 16, 1999 is entered into by and among
ArrowPoint Communications, Inc., a Delaware corporation (the "Company"), and the
persons and entities listed on SCHEDULE I attached hereto (individually, a
"Purchaser" and, collectively, the "Purchasers")
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has duly authorized the
sale and issuance, pursuant to the terms of this Agreement, of 1,502,443 shares
of its Series D Convertible Preferred Stock, $0.01 par value per share (the
"Series D Preferred Stock"), having the rights, restrictions, privileges and
preferences set forth in the Certificate of Amendment attached hereto as EXHIBIT
A (the "Certificate of Amendment"). The Company has adopted and filed the
Certificate of Amendment with the Secretary of State of the State of Delaware.
1.2 SALE OF SHARES. Subject to the terms and conditions
of this Agreement, at the Closing (as defined below) the Company will issue and
sell to each Purchaser, and each Purchaser will purchase, for a purchase price
of $10.20 per share, such number of shares of Series D Preferred Stock as is set
forth opposite such Purchaser's name on SCHEDULE I attached hereto. The shares
of Series D Preferred Stock being sold under this Agreement are referred to as
the "Shares."
1.3 USE OF PROCEEDS. The Company will use the proceeds
from the sale of the Shares for working capital purposes.
2. THE CLOSING. The closing ("Closing") of the sale and purchase
of the Shares under this Agreement shall take place at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts at 9:00 a.m. on the date of
this Agreement, or at such other time, date and place as are mutually agreeable
to the Company and the Purchasers. The date of the Closing is hereinafter
referred to as the "Closing Date." At the Closing:
-3-
<PAGE> 4
(a) the Company shall deliver to the Purchasers
certificates, as of the most recent practicable date, as to (i) the corporate
good standing of the Company issued by the Secretary of State of the State of
Delaware and (ii) the due qualification of the Company as a foreign corporation
from the Secretary of State of each state in which the Company is so qualified;
(b) the Company shall deliver to the Purchasers the
Certificate of Incorporation of the Company, as amended and in effect as of the
Closing Date (including the Certificate of Amendment), certified by the
Secretary of State of the State of Delaware;
(c) the Company shall deliver to the Purchasers a
Certificate of the Secretary of the Company attesting as to (i) the By-laws of
the Company, and (ii) resolutions of the Board of Directors and stockholders of
the Company authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby.
(d) Hale and Dorr LLP, counsel for the Company, shall
deliver to the Purchasers an opinion, dated the Closing Date, in the form
attached hereto as EXHIBIT B;
(e) the Company, Chin-Cheng Wu (the "Founder") and the
Purchasers shall execute and deliver the Investor Rights Agreement in the form
attached hereto as EXHIBIT C (the "Investor Agreement");
(f) the Company, the Founding Stockholders (as defined
therein) and the Purchasers shall execute and deliver the Right of First Refusal
and Co-Sale Agreement in the form attached hereto as EXHIBIT D (the "Right of
First Refusal Agreement");
(g) the Company shall deliver to each Purchaser a
certificate for the number of Shares being purchased by such Purchaser,
registered in the name of such Purchaser;
(h) each Purchaser shall pay to the Company the purchase
price for the Shares being purchased by such Purchaser, by wire transfer or
certified check; and
(i) the Company and the Purchasers shall execute and
deliver a Cross-Receipt.
-4-
<PAGE> 5
3. REPRESENTATIONS OF THE COMPANY. Subject to and except as
disclosed by the Company in the Disclosure Schedule attached hereto (the
"Disclosure Schedule"), the Company hereby represents and warrants to the
Purchasers as follows:
3.1 ORGANIZATION AND STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified to do business as
a foreign corporation and is in good standing in the Commonwealth of
Massachusetts and in any other jurisdiction in which the failure to so qualify
would have a material adverse effect on the operations or financial condition of
the Company. The Company has furnished to special counsel to the Purchasers true
and complete copies of its Certificate of Incorporation and By-laws, each as
amended to date and presently in effect.
3.2 CAPITALIZATION. The authorized capital stock of the
Company (immediately prior to the Closing) consists of (a) 25,000,000 shares of
common stock, $0.001 par value per share (the "Common Stock"), of which
3,471,750 shares are issued and outstanding, 1,028,250 shares have been reserved
for issuance pursuant to the Company's 1997 Stock Incentive Plan, 5,750,000
shares have been reserved for issuance upon the conversion of the outstanding
shares of Series A Convertible Preferred Stock ("Series A Preferred Stock"),
2,213,828 shares have been reserved for issuance upon conversion of the
outstanding shares of Series B Convertible Preferred Stock ("Series B Preferred
Stock"), 278,464 shares have been reserved for issuance upon conversion of the
outstanding shares of Series C Preferred Stock ("Series C Preferred Stock") and
1,502,443 shares have been reserved for issuance upon conversion of the Shares
and (b) 12,500,000 shares of preferred stock, $0.01 par value per share, of
which (i) 5,750,000 shares have been designated as Series A Preferred Stock, all
of which are issued and outstanding, (ii) 2,213,828 shares have been designated
as Series B Preferred Stock, all of which are issued and outstanding, (iii)
278,464 shares have been designated as Series C Preferred Stock, all of which
are issued and outstanding, and (iv) 1,502,443 shares have been designated as
Series D Preferred Stock, none of which are issued or outstanding. At the
Closing, the Common Stock, the Series A Preferred Stock, the Series B Preferred
Stock, the Series C Preferred Stock and the Series D Preferred Stock will have
the voting powers, designations, preferences, rights and qualifications, and
limitations or restrictions set forth in the Certificate of Incorporation, as
amended by the Certificate of Amendment. All of the issued and outstanding
shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock have been duly
-5-
<PAGE> 6
authorized and validly issued and are fully paid and nonassessable. Except as
contemplated by this Agreement or set forth in the Disclosure Schedule, (i) no
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of capital stock of the Company
is authorized or outstanding, (ii) the Company has no obligation (contingent or
otherwise) to issue any subscription, warrant, option, convertible security or
other such right or to issue or distribute to holders of any shares of its
capital stock any evidences of indebtedness or assets of the Company, and (iii)
the Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof. All of the
issued and outstanding shares of capital stock of the Company have been offered,
issued and sold by the Company in compliance with applicable Federal and state
securities laws.
3.3 SUBSIDIARIES, ETC. The Company has no subsidiaries
and does not own or control, directly or indirectly, any shares of capital stock
of any other corporation or any interest in any partnership, joint venture or
other non-corporate business enterprise.
3.4 STOCKHOLDER LIST AND AGREEMENTS. Section 3.4 of the
Disclosure Schedule sets forth a true and complete list of the stockholders of
the Company, showing the number of shares and class or series of capital stock
or other securities of the Company held by each stockholder immediately prior to
the execution of this Agreement and the consideration paid to the Company
therefor. Except as listed in Section 3.4 of the Disclosure Schedule or as
contemplated by this Agreement, there are no agreements, written or oral,
between the Company and any holder of its capital stock, or, to the best of the
Company's knowledge, among any holders of its capital stock, relating to the
future acquisition (including without limitation rights of first refusal or
pre-emptive rights), disposition, registration under the Securities Act of 1933,
as amended (the "Securities Act"), or voting of the capital stock of the
Company.
3.5 ISSUANCE OF SHARES. The issuance, sale and delivery
of the Shares in accordance with this Agreement, and the issuance and delivery
of the shares of Common Stock issuable upon conversion of the Shares, have been
duly authorized by all necessary corporate action on the part of the Company,
and all such shares have been duly reserved for issuance. The Shares when so
issued, sold and delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of Common Stock issuable upon
conversion of the Shares, when issued upon such conversion, will be duly and
validly issued, fully paid and non-assessable.
-6-
<PAGE> 7
3.6 AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement and all other agreements required
to be executed by the Company at the Closing pursuant to Section 2 (the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action. This Agreement and the Ancillary Agreements have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms. The execution of and performance of the transactions contemplated by this
Agreement and the Ancillary Agreements and compliance with their provisions by
the Company will not violate any provision of law and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under, or require a consent or waiver under, its
Certificate of Incorporation or By-laws (each as amended to date) or any
indenture, lease, agreement or other instrument to which the Company is a party
or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale and delivery of the Shares, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing. Based on the representations made by the Purchasers in Section 5 of
this Agreement, the offer and sale of the Shares to the Purchasers will be
exempt from the registration requirements of applicable Federal and state
securities laws.
3.8 LITIGATION. There is no action, suit or proceeding,
or governmental inquiry or investigation, pending, or, to the best of the
Company's knowledge, any basis therefor or threat thereof, against the Company
or the Founder, which questions the validity of this Agreement or the right of
the Company or the Founder to enter into it, or which might result, either
individually or in the aggregate, in any material adverse change in the
business, prospects, assets or condition, financial or otherwise, of the
Company, nor is there any litigation pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company or the
Founder by reason of the past employment relationships of the Founder, the
proposed activities of the Company, or negotiations by the Company and/or the
Founder with possible investors in the Company.
-7-
<PAGE> 8
3.9 FINANCIAL STATEMENTS. The Company has furnished to
each of the Purchasers a complete and correct copy of the unaudited balance
sheet (the "Balance Sheet") of the Company as at December 31, 1998 (the "Balance
Sheet Date") and the related unaudited statement of operations and cash flow for
the year then ended (collectively, the "Financial Statements"). Since December
31, 1998, there has been no material adverse change in the business or
operations of the Company. The Financial Statements are complete and correct in
all material respects, are in accordance with the books and records of the
Company and present fairly the financial condition and results of operations of
the Company, as at the dates and for the periods indicated, and have been
prepared in accordance with generally accepted accounting principles
consistently applied, except that the Financial Statements have been prepared
for the internal use of management and may not be in accordance with generally
accepted accounting principles because of the absence of footnotes normally
contained therein and are subject to normal year-end audit adjustments which in
the aggregate will not be material.
3.10 ABSENCE OF LIABILITIES. Except as set forth in
Section 3.10 of the Disclosure Schedule, the Company did not have, at the
Balance Sheet Date, any liabilities of any type which in the aggregate exceeded
$50,000, whether absolute or contingent, which were not fully reflected on the
Balance Sheet, and, since the Balance Sheet Date, the Company has not incurred
or otherwise become subject to any such liabilities or obligations except in the
ordinary course of business.
3.11 TAXES. The amount shown on the Balance Sheet as
provision for taxes is sufficient in all material respects for payment of all
accrued and unpaid Federal, state, county, local and foreign taxes for the
period then ended and all prior periods. The Company has filed or has obtained
presently effective extensions with respect to all Federal, state, county, local
and foreign tax returns which are required to be filed by it, such returns are
true and correct in all material respects and all taxes shown thereon to be due
have been timely paid with exceptions not material to the Company. Neither the
Company nor any of its stockholders has ever filed (a) an election pursuant to
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that
the Company be taxed as an S Corporation, or (b) consent pursuant to Section
341(f) of the Code relating to collapsible corporations.
3.12 PROPERTY AND ASSETS. The Company has good title to
all of its material properties and assets, including all properties and assets
reflected in the Balance Sheet, except those disposed of since the date thereof
in the ordinary course of business, and none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, lease, charge or
-8-
<PAGE> 9
encumbrance other than those the material terms of which are described in
Section 3.12 of the Disclosure Schedule.
3.13 INTELLECTUAL PROPERTY.
(a) To the best of the Company's knowledge, no
third party has claimed or has reason to claim that any person employed by or
affiliated with the Company, in connection with his or her employment by or
affiliation with the Company, (i) has violated or is violating any of the terms
or conditions of his employment, non-competition or non-disclosure agreement
with such third party, (ii) has disclosed or is disclosing or has utilized or is
utilizing any trade secret or proprietary information or documentation of such
third party or (iii) has interfered or is interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Company which
suggests that such a claim might be contemplated. To the best of the Company's
knowledge, no person employed by or affiliated with the Company has employed or
proposes to employ any trade secret or any information or documentation
proprietary to any former employer, and to the best of the Company's knowledge,
no person employed by or affiliated with the Company has violated any
confidential relationship which such person may have had with any third party,
in connection with the development, manufacture or sale or any product or
proposed product or the development or sale of any service or proposed service
of the Company, and the Company has no reason to believe there will be any such
employment or violation. To the best of the Company's knowledge, none of the
execution or delivery of this Agreement, or the carrying on of business of the
Company as officers, employees or agents by any officer, director or key
employee of the Company, or the conduct or proposed conduct of the business of
the Company, will conflict with or result in a breach of the terms, conditions
or provisions of or constitute a default under any contract, covenant or
instrument under which any such person is obligated.
(b) Set forth in Section 3.13 of the Disclosure
Schedule is a list of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names and copyrights, and all applications for such which
are in the process of being prepared, owned by or registered in the name of the
Company, or of which the Company is a licensor or licensee or in which the
Company has any right, and in each case a brief description of the nature of
such right. The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade
-9-
<PAGE> 10
names, copyrights, manufacturing processes, formulae, trade secrets, customer
lists and know-how (collectively, "Intellectual Property") necessary for the
conduct of its business as conducted and as proposed to be conducted, and no
claim is pending or, to the best of the Company's knowledge, threatened to the
effect that the operations of the Company infringe upon or conflict with the
asserted rights of any other person under any Intellectual Property, and, to the
best of the Company's knowledge, there is no basis for any such claim (whether
or not pending or threatened). No claim is pending or threatened to the effect
that any such Intellectual Property owned or licensed by the Company, or which
the Company otherwise has the right to use, is invalid or unenforceable by the
Company, and, to the best of the Company's knowledge, there is no basis for any
such claim (whether or not pending or threatened). To the best of the Company's
knowledge, all technical information developed by and belonging to the Company
which has not been patented has been kept confidential. The Company has not
granted or assigned to any other person or entity any right to manufacture, have
manufactured, assemble or sell the products or proposed products or to provide
the services or proposed services of the Company.
3.14 MATERIAL CONTRACTS AND OBLIGATIONS. Except as
contemplated by this Agreement or as listed in the Disclosure Schedule, the
Company is not a party to any material agreement or commitment of any nature,
including without limitation (a) any agreement which requires future
expenditures by the Company in excess of $250,000, (b) any employment or
consulting agreement, employee benefit, bonus, pension, profit-sharing, stock
option, stock purchase or similar plan or arrangement, or distributor or sales
representative agreement, (c) any agreement with any stockholder, officer or
director of the Company, or any "affiliate" or "associate" of such persons (as
such terms are defined in the rules and regulations promulgated under the
Securities Act), including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal property
from, or otherwise requiring payments to, any such person or entity or (d) any
agreement relating to the intellectual property rights of the Company.
3.15 COMPLIANCE. The Company has, in all material
respects, complied with all laws, regulations and orders applicable to its
present and proposed business and has all material permits and licenses required
thereby. There is no term or provision of any mortgage, indenture, contract,
agreement or instrument to which the Company is a party or by which it is bound,
or, to the best of the Company's knowledge, of any provision of any state or
Federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon the Company, which materially adversely affects or, so far as the
Company may now foresee, in the future is reasonably likely to
-10-
<PAGE> 11
materially adversely affect, the business, prospects, assets or condition,
financial or otherwise, of the Company. To the best of the Company's knowledge,
neither the Founder nor any other employee of the Company is in violation of any
term of any contract or covenant (either with the Company or with another
entity) relating to employment, patents, proprietary information disclosure,
non-competition or non-solicitation.
3.16 EMPLOYEES AND FOUNDER.
(a) The Founder and the other holders of Common
Stock have executed and delivered to the Company a Stock Restriction Agreement,
copies of which have been made available to the Purchasers, and all of such
agreements are in full force and effect.
(b) Each employee of the Company (including the
Founder) who is at or above the director level or who holds at least 100,000
shares of Common Stock (or options exercisable therefor) (as adjusted for stock
splits, stock dividends, recapitalizations and similar events) has executed and
delivered to the Company a Noncompetition and Confidentiality Agreement covering
a period of one year following the termination of such employee's employment
with the Company, copies of which have been made available to the Purchasers.
Each employee of the Company not covered by the foregoing sentence has executed
and delivered to the Company a Confidentiality Agreement, copies of which have
been made available to the Purchasers. All of such agreements are in full force
and effect.
(c) None of the employees of the Company is
represented by any labor union, and there is no labor strike or other labor
trouble pending with respect to the Company (including, without limitation, any
organizational drive) or, to the best of the Company's knowledge, threatened.
3.17 ERISA. Except as described in the Disclosure
Schedule, the Company does not have or otherwise contribute to or participate in
any employee benefit plan subject to the Employee Retirement Income Security Act
of 1974.
3.18 BOOKS AND RECORDS. The minute books of the Company
contain complete and accurate records of all meetings and other corporate
actions of its stockholders and its Board of Directors and committees thereof.
The stock ledger of the Company is complete and reflects all issuances,
transfers, repurchases and cancellations of shares of capital stock of the
Company.
-11-
<PAGE> 12
3.19 BOARD OF DIRECTORS. The Board of Directors is
comprised of four members, and consists of Chin-Cheng Wu, Edward T. Anderson,
Paul J. Ferri and Bruce I. Sachs.
3.20 U.S. REAL PROPERTY HOLDING CORPORATION. The Company
is not now and has never been a "United States Real Property Holding
Corporation" as defined in Section 897(c)(2) of the Code and Section 1.897-2(b)
of the Regulations promulgated by the Internal Revenue Service.
3.21 RELATED PARTY TRANSACTIONS. To the best of the
Company's knowledge, except as set forth in the Disclosure Schedule, no
stockholder, executive officer or director of the Company or member of the
immediate family of any of the foregoing:
(a) owns or has owned, directly or indirectly,
any interest in (except for less than one percent stock holdings for investment
purposes in securities of publicly traded companies), or is an officer,
director, employee or consultant of, any entity which is a lessor, lessee,
supplier or customer of the Company;
(b) owns, directly or indirectly, as a whole or
in part, any material tangible or intangible property that the Company uses or
contemplates using in the conduct of its business; or
(c) has given the Company written notice of any
cause of action or other claim whatsoever against, or owes any amount to, the
Company, except for immaterial claims in the ordinary course of business such as
for accrued vacation pay, accrued benefits under employee benefit plans, and
medical, dental and other similar health benefit plans existing on the date
hereof.
3.22 DISCLOSURES. Neither this Agreement nor any Schedule
or Exhibit hereto, nor any certificate or instrument furnished to the Purchasers
at the Closing or as required by the terms of this Agreement, when read
together, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
4. [Intentionally omitted]
-12-
<PAGE> 13
5. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser represents
and warrants to the Company as follows:
5.1 INVESTMENT. Such Purchaser is acquiring the Shares,
and the shares of Common Stock into which the Shares may be converted, for its
or his own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same; and such Purchaser has no present or
contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof. Such Purchaser acknowledges
that the Shares are restricted securities as defined under the Securities Act
and shall bear the legends set forth in Section 7.3 hereof.
5.2 AUTHORITY. Such Purchaser has full power and
authority to enter into and to perform this Agreement in accordance with its
terms. Such Purchaser represents that it has not been organized, reorganized or
recapitalized specifically for the purpose of investing in the Company. This
Agreement and the Ancillary Agreement to be executed by such Purchaser have been
duly executed and delivered by such Purchaser and constitute valid and binding
obligations of such Purchaser enforceable in accordance with their respective
terms. The execution of and performance of the transactions contemplated by this
Agreement and the Ancillary Agreements to be executed by such Purchaser and
compliance with their provisions by such Purchaser will not violate any
provision of law and will not conflict with or result in any breach of any of
the terms, conditions or provisions of, or constitute a default under, or
require a consent or waiver under, its organizational documents (each as amended
to date) or any indenture, lease, agreement or other instrument to which the
Purchaser is a party or by which it or any of its properties is bound, or any
decree, judgment, order, statute, rule or regulation applicable to such
Purchaser.
5.3 EXPERIENCE. Such Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have made available to such Purchaser any and all
written information which it has requested and have answered to such Purchaser's
satisfaction all inquiries made by such Purchaser; and such Purchaser has
sufficient knowledge and experience in investing in companies similar to the
Company so as to be able to evaluate the risks and merits of its investment in
the Company and is able financially to bear the risks thereof, including a
complete loss of its investment. Such Purchaser understands that an investment
in the Company involves a high degree of risk in view of the fact that the
Company
-13-
<PAGE> 14
has a limited operating history, and there may never be an established market
for the Company's capital stock.
5.4 STATUS. Such Purchaser is an "accredited Investor" as
that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act.
6. COVENANTS OF THE COMPANY.
6.1 INSPECTION. The Company shall permit each Purchaser,
or any authorized representative thereof, to visit and inspect the properties of
the Company, including its corporate and financial records, and to discuss its
business and finances with officers of the Company, during normal business hours
following reasonable notice and as often as may be reasonably requested, without
interruption of the business of the Company and subject to the confidentiality
obligations of Section 8.2 hereof.
6.2 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) So long as a Purchaser (together with any of
its affiliates) holds shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock, the Company shall
deliver to such Purchaser:
(i) within 120 days after the end of
each fiscal year of the Company, an audited balance sheet of the Company as at
the end of such year, and audited statements of income and of cash flows of the
Company for such year, certified by certified public accountants of established
national reputation selected by the Company, and prepared in accordance with
generally accepted accounting principles; and
(ii) within 45 days after the end of each
fiscal quarter of the Company,
an unaudited balance sheet of the Company as at the end of such quarter, and
unaudited statements of income and of cash flows of the Company for such fiscal
quarter and for the current fiscal year to the end of such fiscal quarter.
(b) So long as a Purchaser (together with any of
its affiliates) holds shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D Preferred Stock convertible into at
least 300,000 shares of Common Stock (as adjusted for stock splits, stock
dividends, recapitalizations and similar events), the Company shall deliver to
such Purchaser:
-14-
<PAGE> 15
(i) as soon as available, but in any
event within 30 days after commencement of each new fiscal year, a budget,
consisting of a business plan and projected financial statements for such fiscal
year; and
(ii) with reasonable promptness, such
other notices, information and data with respect to the Company as the Company
delivers to the holders of its Common Stock, and such other information and data
as such Purchaser may from time to time reasonably request.
(c) The foregoing financial statements shall be
prepared on a consolidated basis if the Company then has any subsidiaries.
6.3 MATERIAL CHANGES AND LITIGATION. The Company shall
promptly notify the Purchasers of any material adverse change in the business,
prospects, assets or condition, financial or otherwise, of the Company and of
any litigation or governmental proceeding or investigation brought or, to the
best of the Company's knowledge, threatened against the Company, or against the
Founder or an officer, director, key employee or principal stockholder of the
Company materially adversely affecting or which, if adversely determined, would
materially adversely affect its business, prospects, assets or condition,
financial or otherwise.
6.4 INSURANCE.
(a) The Company shall maintain, for a period of five
years from April 17, 1997, term
life insurance upon the life of the Founder, in the amount of $1,000,000, with
the proceeds payable to the Company.
(b) The Company shall maintain in effect policies of
workers' compensation insurance
and of insurance with respect to its properties and business of the kinds and in
the amounts not less than is customarily obtained by corporations engaged in the
same or similar business and similarly situated, including, without limitation,
insurance against loss, damage, fire, theft, public liability and other risks.
6.5 EMPLOYEE AGREEMENTS. The Company shall require all
employees hereafter employed or engaged by the Company who are at or above the
director level or who holds at least 100,000 shares of Common Stock (or options
exercisable therefor) (as adjusted for stock splits, stock dividends,
recapitalizations and similar events) to enter into a Noncompetition and
Confidentiality Agreement covering a period of one year following the
termination of such
-15-
<PAGE> 16
employee's employment with the Company, in the form approved by the Board of
Directors. The Company shall require all employees and independent contractors
not covered by the foregoing sentence to enter into a Confidentiality Agreement
in the form approved by the Board of Directors.
6.6 RELATED PARTY TRANSACTIONS. The Company shall not
enter into any agreement with any stockholder, officer or director of the
Company, or any "affiliate" or "associate" of such persons (as such terms are
defined in the rules and regulations promulgated under the Securities Act),
including without limitation any agreement or other arrangement providing for
the furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity, without the consent
of at least a majority of the members of the Company's Board of Directors having
no interest in such agreement or arrangement.
6.7 DIRECTORS. The Company shall promptly reimburse in
full each director of the Company who is not an employee of the Company for all
of his reasonable out-of-pocket expenses incurred in attending each meeting of
the Board of Directors of the Company or any committee thereof.
6.8 OPTION SHARES AND RESTRICTED STOCK. The Company has
reserved an aggregate of 1,028,250 shares of Common Stock for future issuance to
employees and consultants of the Company pursuant to the 1997 Stock Incentive
Plan of the Company. Unless otherwise agreed by the Board of Directors, all
options or restricted stock awards granted under such Plan shall vest at the
rate of 20% on the first anniversary of grant and 1.667% per month thereafter
over the subsequent four years so long as the optionee or stockholder continues
to be an employee or consultant of the Company, subject to acceleration of 50%
of the unvested portion of such options in the event of an Acquisition Event (as
defined in the standard form of agreements for use under such Plan).
6.9 RESERVATION OF COMMON STOCK. The Company shall
reserve and maintain a sufficient number of shares of Common Stock for issuance
upon conversion of all of the outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and all of the outstanding
Shares.
6.10 TERMINATION OF COVENANTS. The covenants of the
Company contained in Sections 6.1 through 6.9 shall terminate, and be of no
further force or effect, upon the effective date of a registration statement
filed by the Company under the Securities Act covering the
-16-
<PAGE> 17
Company's first offering of Common Stock, resulting in net proceeds to the
Company of at least $10,000,000, and at a price per share of at least $16.50 (as
adjusted for stock splits, stock dividends, recapitalizations and similar
events) or at such time as the aggregate number of shares of Common Stock into
which all shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock owned by the Purchasers (together
with any affiliated entities to whom Shares have been transferred) is less than
25% of the aggregate number of such shares issued by the Company (as adjusted
for stock splits, stock dividends, recapitalizations and similar events).
6.11 TERMINATION OF PRIOR COVENANTS.
(a) The Series C Preferred Stock Purchase
Agreement among the Company, the Founder, certain of the Purchasers and certain
other parties dated September 30, 1998 (the "Series C Agreement") is hereby
amended by deleting Section 6 thereof in its entirety.
(b) Each of Yeh-Tsong Wen, James A. Dolce, Jr.,
Rubin Gruber, Harry Daniel Lowe, Bruce I. Sachs, Chin-Cheng Wu, John
Prendergast, Brian Walck, Cynthia Deysher (as an individual and as Custodian),
Gary J. Bowen, Stephen Van Beaver, Net One Systems Co., Ltd. and Westcon Group,
Inc., who are parties to the Series C Agreement, shall be deemed a Purchaser for
purposes of Sections 6, 8.1, 8.2 and 8.8 of this Agreement and shall have all
rights and obligations of a Purchaser under such Sections.
6.12 QUALIFIED SMALL BUSINESS STOCK. The Company shall
submit to its stockholders (including the Purchasers) and to the Internal
Revenue Service any reports that may be required under Section 1202(d)(1)(C) of
the Code and the Regulations promulgated thereunder. In addition, within ten
days after a Purchaser's written request therefor, the Company shall deliver to
such Purchaser a written statement indicating whether such Purchaser's interest
in the Company constitutes "qualified small business stock" as defined in
Section 1202(c) of the Code.
7. TRANSFER OF SHARES.
7.1 RESTRICTED SHARES. "Restricted Shares" means (i) the
Shares, (ii) the shares of Common Stock issued or issuable upon conversion of
the Shares, (iii) any shares of capital stock of the Company acquired by a
Purchaser pursuant to the Investor Agreement or the Right of First Refusal
Agreement, and (iv) any other shares of capital stock of the Company issued in
respect of such shares (as a result of stock splits, stock dividends,
reclassifications,
-17-
<PAGE> 18
recapitalizations, or similar events); PROVIDED, HOWEVER, that shares of Common
Stock which are Restricted Shares shall cease to be Restricted Shares (i) upon
any sale pursuant to a registration statement under the Securities Act, Section
4(1) of the Securities Act or Rule 144 under the Securities Act, or (ii) at such
time as they become eligible for sale under Rule 144(k) under the Securities
Act.
7.2 REQUIREMENTS FOR TRANSFER.
(a) Restricted Shares shall not be sold or
transferred unless (1) either (i) they first shall have been registered under
the Securities Act, or (ii) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company, to the effect
that such sale or transfer is exempt from the registration requirements of the
Securities Act and (2) such actions are in compliance with applicable state
securities laws.
(b) Notwithstanding the foregoing, no
registration or opinion of counsel shall be required for (i) a transfer by a
Purchaser which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner, if the transferee agrees in writing to
be subject to the terms of this Section 7 to the same extent as if he were an
original Purchaser hereunder, or (ii) a transfer made in accordance with Rule
144 under the Securities Act.
7.3 LEGEND. Each certificate representing Restricted
Shares shall bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered,
sold or otherwise transferred, pledged or hypothecated unless and until
such shares are registered under such Act or an opinion of counsel
satisfactory to the Company is obtained to the effect that such
registration is not required."
The foregoing legend shall be removed from the certificates representing any
Restricted Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Securities Act.
7.4 RULE 144A INFORMATION. The Company shall, at all
times during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), nor exempt from reporting pursuant to
-18-
<PAGE> 19
Rule 12g3-2(b) under the Exchange Act, upon the written request of a Purchaser,
provide in writing to such Purchaser, and to any prospective transferee of any
Restricted Shares of such Purchaser, the information concerning the Company
described in Rule 144A(d)(4) under the Securities Act ("Rule 144A Information").
The Company also shall, upon the written request of a Purchaser, cooperate with
and assist such Purchaser or any member of the National Association of
Securities Dealers, Inc. PORTAL system in applying to designate and thereafter
maintain the eligibility of the Restricted Shares for trading through PORTAL.
The Company's obligations under this Section 7.4 shall at all times be
contingent upon receipt from the prospective transferee of Restricted Shares of
a written agreement to take all reasonable precautions to safeguard the Rule
144A Information from disclosure to anyone other than persons who will assist
such transferee in evaluating the purchase of any Restricted Shares and to use
such Rule 144A Information only for such evaluation purposes.
8. MISCELLANEOUS.
8.1 SUCCESSORS AND ASSIGNS. This Agreement, and the
rights and obligations of a Purchaser hereunder, may be assigned by such
Purchaser to any person or entity to which at least 100,000 Shares (or 100% of
the Shares originally purchased hereunder by such Purchaser, if less than
100,000 Shares) or (with respect to the assignment of rights under Section 6
hereof by a party other than a Purchaser of the Shares) 300,000 shares of Series
A Preferred Stock, 100,000 shares of Series B Preferred Stock, or 100,000 shares
of Series C Preferred Stock (or 100% of the shares of Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock originally purchased under
the Series A Agreement, Series B Agreement or Series C Agreement by such
Purchaser, if less than 300,000, 100,000 or 100,000 shares, respectively), in
each case as adjusted for stock splits, stock dividends, recapitalizations and
similar events, are transferred by such Purchaser, and such transferee shall be
deemed a "Purchaser" for purposes of this Agreement; provided that the
transferee provides written notice of such assignment to the Company and agrees
to be bound by the terms and conditions set forth herein and the transferee is
not a company that the Company reasonably considers to be a competitor.
8.2 CONFIDENTIALITY. Except as otherwise required by law,
the Purchasers agree that they will keep confidential and will not disclose or
divulge any confidential, proprietary or secret information which they may
obtain from the Company pursuant to financial statements, reports and other
materials submitted by the Company to the Purchasers pursuant to this Agreement,
or pursuant to visitation or inspection rights granted hereunder, unless such
information is known, or until such information becomes known, to the public;
PROVIDED,
-19-
<PAGE> 20
HOWEVER, that a Purchaser may disclose such information (i) to its attorneys,
accountants, consultants, and other professionals to the extent necessary to
obtain their services in connection with its investment in the Company, (ii) to
any prospective purchaser of any Shares from such Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section, or (iii) to any affiliate of such Purchaser or to a partner,
shareholder or subsidiary of such Purchaser; subject to the agreement of such
party to keep such information confidential as set forth herein.
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
agreements, representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the closing of the transactions
contemplated hereby.
8.4 EXPENSES. The Company shall pay, at the Closing, the
reasonable costs and expenses of Shartsis, Friese & Ginsburg LLP, counsel to the
Purchasers, in connection with the preparation of this Agreement and other
agreements and documents contemplated hereby and the closing of transactions
contemplated hereby, up to a maximum amount of $10,000.
8.5 NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, sent via a reputable nationwide overnight courier service or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid:
If to the Company, at ArrowPoint Communications, Inc., 235 Littleton Road,
Westford, MA 01886, Attn: President, or at such other address or addresses as
may have been furnished in writing by the Company to the Purchasers, with a copy
to Hale and Dorr LLP, Boston, MA 02109, Attn: Patrick J. Rondeau, Esq.;
If to a Purchaser, at its address as set forth on SCHEDULE I attached hereto, or
at such other address or addresses as may have been furnished to the Company in
writing by such Purchaser.
Notices provided in accordance with this Section 8.5 shall be deemed delivered
upon personal delivery, one business day after being sent via a reputable
nationwide overnight courier service, or two business days after deposit in the
mail.
8.6 BROKERS. The Company, the Founder and the Purchasers
each (i) represents and warrants to the other parties hereto that he, she or it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) will
-20-
<PAGE> 21
indemnify and save the other parties harmless from and against any and all
claims, liabilities or obligations with respect to brokerage or finders' fees or
commissions in connection with the transactions contemplated by this Agreement
asserted by any person on the basis of any agreement, statement or
representation alleged to have been made by such indemnifying party.
8.7 ENTIRE AGREEMENT. This Agreement and the Ancillary
Agreements embody the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.
8.8 AMENDMENTS AND WAIVERS. Except as otherwise expressly
set forth in this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least 66 2/3% of the shares of
Common Stock issued or issuable upon conversion of the Shares; provided that an
amendment or waiver with respect to Section 6 hereof shall instead require the
written consent of the holders of at least 66 2/3% of the shares of Common Stock
issued or issuable upon conversion of the Shares, the shares of Series C
Preferred Stock, the shares of Series B Preferred Stock and the shares of Series
A Preferred Stock, taken together. Any amendment or waiver effected in
accordance with this Section 8.8 shall be binding upon each holder of any
Shares, shares of Series C Preferred Stock, shares of Series B Preferred Stock
or shares of Series A Preferred Stock (including shares of Common Stock into
which such Shares, shares of Series C Preferred Stock, shares of Series B
Preferred Stock or shares of Series A Preferred Stock have been converted), each
future holder of all such securities and the Company. No waivers of or
exceptions to any term, condition or provision of this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision. No amendment shall increase any
obligation of the Founder hereunder without the express written consent of the
Founder. No waivers of or exceptions to any term, condition or provision of this
Agreement, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such term, condition or provision.
8.9 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
-21-
<PAGE> 22
8.10 SECTION HEADINGS. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
8.11 SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
8.12 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
-22-
<PAGE> 23
[Preferred Stock Purchase Agreement}
Executed as of the date first written above.
ARROWPOINT COMMUNICATIONS, INC.
By:
-------------------------------
Chin-Cheng Wu
President
PURCHASERS:
North Bridge Venture Partners II, L.P.
By: North Bridge Venture Management II, L.P.,
its General Partner
By:
------------------------
Edward T. Anderson
General Partner
Matrix Partners IV, L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
By:
------------------------
Paul J. Ferri
General Partner
Matrix IV Entrepreneurs Fund, L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
-23-
<PAGE> 24
By:
------------------------
Paul J. Ferri
General Partner
Accel V L.P.
By: Accel V Associates L.L.C.
its General Partner
By:
---------------------------
Managing Member
Accel Internet/Strategic Technology
Fund L.P.
By: Accel Internet/Strategic
Technology Fund Associates L.L.C.
its General Partner
By:
---------------------------
Managing Member
Accel Keiretsu V L.P.
By: Accel Keiretsu V Associates L.L.C.
its General Partner
By:
---------------------------
Managing Member
Accel Investors `97 L.P.
By:
------------------------------------
General Partner
Ellmore C. Patterson Partners
By:
------------------------------------
General Partner
-24-
<PAGE> 25
Pequot Private Equity Fund, L.P.
By: Pequot Private Equity Partners, L.L.C.
its General Partner
By:
---------------------------
Pequot Offshore Private Equity Fund, Inc.
By: Pequot Private Equity Partners, L.L.C.
its General Partner
By:
---------------------------
Spinnaker Clipper Fund, LP
By:
------------------------------------
William J. Haggerty
Spinnaker Founders Fund, LP
By:
------------------------------------
William J. Haggerty
Spinnaker Offshore Founders Fund, Cayman Limited
By:
------------------------------------
William J. Haggerty
-26-
<PAGE> 26
Bayview Investors, Ltd.
By:
------------------------------------
BT Investment Partners, Inc.
By:
------------------------------------
H&D Investments 97
By:
------------------------------------
Paul P. Brountas
------------------------------------
David Bakstran
------------------------------------
Ari Daskalakis
------------------------------------
JoAnn Daskalakis
------------------------------------
Jan Bruggink
------------------------------------
Peter Danzig
-27-
<PAGE> 27
Solely as to Sections 6, 8.1, 8.2 and 8.8
Net One Systems Co., Ltd.
By:
----------------------------------
Westcon Group, Inc.
By:
----------------------------------
-------------------------------------
Chin-Cheng Wu
-------------------------------------
Yeh-Tsong Wen
-------------------------------------
James A. Dolce, Jr.
-------------------------------------
Rubin Gruber
-------------------------------------
Harry Daniel Lowe
-------------------------------------
Bruce I. Sachs
-28-
<PAGE> 28
------------------------------------
John Prendergast
--------------------------------------
Brian Walck
--------------------------------------
Cynthia Deysher
--------------------------------------
Cynthia Deysher, as Custodian for Lauren
Deysher under the Massachusetts
Uniform Transfers to Minors Act
--------------------------------------
Cynthia Deysher, as Custodian for Jacqueline
Deysher under the Massachusetts
Uniform Transfers to Minors Act
--------------------------------------
Gary J. Bowen
--------------------------------------
Stephen Van Beaver
-29-
<PAGE> 29
SCHEDULE I
Name and Address No. of Shares of Aggregate
of Purchaser Series D Preferred Purchase Price
- ---------------- ------------------ --------------
North Bridge Venture 98,039 $ 999,997.80
Partners II, L.P.
404 Wyman Street
Waltham, MA 02154
Attn: Edward T. Anderson
Matrix Partners IV, L.P. 139,705 $1,424,991.00
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
Attn: Paul J. Ferri
Matrix IV Entrepreneurs Fund, L.P. 7,353 $ 75,000.60
1000 Winter Street, Suite 4500
Waltham, MA 02154
Attn: Paul J. Ferri
Accel V L.P. 38,480 $ 392,496.00
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Internet/Strategic
Technology Fund L.P. 5,098 $ 51,999.60
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Keiretsu V L.P. 2,010 $ 20,502.00
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Investors `97 L.P. 2,353 $ 24,000.60
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Ellmore C. Patterson Partners 1,078 $ 10,995.60
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Pequot Private Equity Fund, L.P. 435,107 $4,438,091.40
500 Nyala Farm Road
Westport, CT 06880
Attn: Jeffrey Feldman
-30-
<PAGE> 30
Pequot Offshore Private Equity
Fund, Inc. 55,089 $ 561,907.80
500 Nyala Farm Road
Westport, CT 06880
Attn: Jeffrey Feldman
Spinnaker Clipper Fund, LP 39,215 $ 399,993.00
1875 South Grant Street
Suite 600
San Mateo, CA 94402
Attn: Matthew Cowan
Spinnaker Founders Fund, LP 372,010 $3,794,502.00
1875 South Grant Street
Suite 600
San Mateo, CA 94402
Attn: Matthew Cowan
Spinnaker Offshore Founders Fund, 177,010 $1,805,502.00
Cayman Limited
1875 South Grant Street
Suite 600
San Mateo, CA 94402
Attn: Matthew Cowan
Bayview Investors, Ltd. 19,607 $199,991.40
555 California Street
Suite 2600
San Francisco, CA 94104
BT Investment Partners, Inc. 73,529 $ 749,995.80
130 Liberty Street
29th Floor
NY, NY 10006
Attn: Christine Barbella-Foggia
H&D Investments 97 4,901 $ 49,990.20
60 State Street
Boston, MA 02109
Attn: Paul P. Brountas
David Bakstran 9,803 $ 99,990.60
7 Sarenstone Way
Southborough, MA 01772
Ari and JoAnn Daskalakis 9,803 $ 99,990.60
42 Pilgrim Road
Belmont, MA 02178
Jan Bruggink 9,803 $ 99,990.60
6 Garnet Field
Yateley Hampshire
UK GUY466FN
-31-
<PAGE> 31
Peter Danzig 2,450 $ 24,990.00
875 College Avenue
Menlo Park, CA 94025
1,502,443 $15,324,918.60
-32-
<PAGE> 1
Exhibit 10.17
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of November 4, 1999 is entered into between ArrowPoint
Communications, Inc., a Delaware corporation (the "Company") and Louis Volpe
(the "Purchaser").
In consideration of the mutual promises and covenants contained in this
Agreement, and for other valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. PURCHASE OF SHARES. Subject to the terms and conditions of
this Agreement, at the Closing (as defined below) the Company shall issue and
sell to the Purchaser, and the Purchaser shall purchase from the Company,
100,000 shares (the "Shares") of Series D Convertible Preferred Stock, $0.01 par
value per share (the "Series D Preferred Stock"), of the Company, at a purchase
price of $10.20 per share.
2. THE CLOSING. The closing ("Closing") of the sale and purchase
of the Shares under this Agreement shall take place on the date a Certificate of
Amendment to the Company's Certificate of Incorporation is filed, designating
100,000 additional shares of preferred stock as Series D Preferred Stock . At
the Closing:
(a) the Company shall deliver to the Purchaser a
certificate for the Shares, registered in the name of the Purchaser; and
(b) the Purchaser shall pay to the Company the purchase
price for the Shares being purchased by the Purchaser, by wire transfer or
check.
3. REPRESENTATIONS OF THE COMPANY. The Company hereby represents
and warrants to the Purchaser as follows:
3.1 ORGANIZATION AND STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified to do business as
a foreign corporation and is in good standing in the Commonwealth of
Massachusetts and in any other jurisdiction in which the failure to so qualify
would have a material adverse effect on the operations or financial condition of
the Company.
3.2 CAPITALIZATION. The authorized capital stock of the
Company (immediately prior to the Closing) consists of (a) 25,000,000 shares of
common stock, $0.001 par value per share (the "Common Stock"), of which
3,524,615 shares are issued and outstanding, 1,162,817 shares have been reserved
for future issuance pursuant to the Company's 1997 Stock Incentive Plan,
5,750,000 shares have been reserved for issuance upon the conversion of the
outstanding
<PAGE> 2
shares of Series A Convertible Preferred Stock ("Series A Preferred Stock"),
2,213,828 shares have been reserved for issuance upon conversion of the
outstanding shares of Series B Convertible Preferred Stock ("Series B Preferred
Stock"), 278,464 shares have been reserved for issuance upon conversion of the
outstanding shares of Series C Convertible Preferred Stock ("Series C Preferred
Stock") and 1,602,443 shares have been reserved for issuance upon conversion of
the Series D Preferred Stock and (b) 12,500,000 shares of preferred stock, $0.01
par value per share, of which (i) 5,750,000 shares have been designated as
Series A Preferred Stock, all of which are issued and outstanding, (ii)
2,213,828 shares have been designated as Series B Preferred Stock, all of which
are issued and outstanding, (iii) 278,464 shares have been designated as Series
C Preferred Stock, all of which are issued and outstanding, and (iv) 1,602,443
shares have been designated as Series D Preferred Stock, 1,502,443 of which are
issued and outstanding. At the Closing, the Common Stock, the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series
D Preferred Stock will have the voting powers, designations, preferences, rights
and qualifications, and limitations or restrictions set forth in the Certificate
of Incorporation, as amended by the Certificate of Amendment.
3.3 ISSUANCE OF SHARES. The issuance, sale and delivery
of the Shares in accordance with this Agreement, and the issuance and delivery
of the shares of Common Stock issuable upon conversion of the Shares, have been
duly authorized by all necessary corporate action on the part of the Company,
and all such shares have been duly reserved for issuance. The Shares when so
issued, sold and delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of Common Stock issuable upon
conversion of the Shares, when issued upon such conversion, will be duly and
validly issued, fully paid and non-assessable.
3.4 AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action. The execution of and performance of the transactions
contemplated by this Agreement and compliance with their provisions by the
Company will not violate any provision of law and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under, or require a consent or waiver under, its
Certificate of Incorporation or By-laws (each as amended to date) or any
indenture, lease, agreement or other instrument to which the Company is a party
or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company. Based on the
representations made by the Purchaser in Section 4 of this Agreement, the offer
and sale of the Shares to the Purchaser pursuant to this Agreement will be in
compliance with applicable federal and state securities laws.
4. INVESTMENT REPRESENTATIONS. The Purchaser represents, warrants
and covenants as follows:
(a) The Purchaser is purchasing the Shares for his own
account for investment only, and not with a view to, or for sale in connection
with, any distribution of the Shares in violation of the Securities Act of 1933
(the "Securities Act"), or any rule or regulation under the Securities Act.
-2-
<PAGE> 3
(b) The Purchaser has had such opportunity as he has
deemed adequate to obtain from representatives of the Company such information
as is necessary to permit him to evaluate the merits and risks of his investment
in the Company.
(c) The Purchaser has sufficient experience in business,
financial and investment matters to be able to evaluate the risks involved in
the purchase of the Shares and to make an informed investment decision with
respect to such purchase.
(d) The Purchaser can afford a complete loss of the value
of the Shares and is able to bear the economic risk of holding such Shares for
an indefinite period.
(e) The Purchaser understands that (i) the Shares have
not been registered under the Securities Act and are "restricted securities"
within the meaning of Rule 144 under the Securities Act, (ii) the Shares cannot
be sold, transferred or otherwise disposed of unless they are subsequently
registered under the Securities Act or an exemption from registration is then
available; (iii) in any event, the exemption from registration under Rule 144
will not be available for at least one year and even then will not be available
unless a public market then exists for the Common Stock, adequate information
concerning the Company is then available to the public, and other terms and
conditions of Rule 144 are complied with; and (iv) there is now no registration
statement on file with the Securities and Exchange Commission with respect to
any stock of the Company and the Company has no obligation or current intention
to register the Shares under the Securities Act.
(f) A legend substantially in the following form will be
placed on the certificate representing the Shares:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as
amended, and may not be sold, transferred or
otherwise disposed of in the absence of an effective
registration statement under such Act or an opinion
of counsel satisfactory to the corporation to the
effect that such registration is not required."
5. TRANSFER OF SHARES.
5.1 RESTRICTED SHARES. "Restricted Shares" means (i) the
Shares, (ii) the shares of Common Stock issued or issuable upon conversion of
the Shares, and (iii) any other shares of capital stock of the Company issued in
respect of such shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER,
that shares of Common Stock which are Restricted Shares shall cease to be
Restricted Shares (i) upon any sale pursuant to a registration statement under
the Securities Act, Section 4(1) of the Securities Act or Rule 144 under the
Securities Act, or (ii) at such time as they become eligible for sale under Rule
144(k) under the Securities Act.
5.2 REQUIREMENTS FOR TRANSFER. Restricted Shares shall
not be sold or transferred unless either (i) they first shall have been
registered under the Securities Act, or (ii) the Company first shall have been
furnished with an opinion of legal counsel, reasonably
-3-
<PAGE> 4
satisfactory to the Company, to the effect that such sale or transfer is exempt
from the registration requirements of the Securities Act.
5.3 RULE 144A INFORMATION. The Company shall, at all
times during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, upon the written request of the Purchaser, provide in writing to
the Purchaser, and to any prospective transferee of any Restricted Shares of the
Purchaser, the information concerning the Company described in Rule 144A(d)(4)
under the Securities Act ("Rule 144A Information"). The Company also shall, upon
the written request of the Purchaser, cooperate with and assist the Purchaser or
any member of the National Association of Securities Dealers, Inc. PORTAL system
in applying to designate and thereafter maintain the eligibility of the
Restricted Shares for trading through PORTAL. The Company's obligations under
this Section 5.4 shall at all times be contingent upon receipt from the
prospective transferee of Restricted Shares of a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from disclosure to
anyone other than persons who will assist such transferee in evaluating the
purchase of any Restricted Shares.
6. MISCELLANEOUS.
6.1 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
6.2 AMENDMENTS AND WAIVERS. Except as otherwise expressly
set forth in this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the Purchaser. No waivers of or exceptions to any
term, condition or provision of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
6.3 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
6.4 SECTION HEADINGS. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
6.5 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
-4-
<PAGE> 5
EXECUTED as of the date first written above.
ARROWPOINT COMMUNICATIONS, INC.
By:
------------------------------------
Chin-Cheng Wu
President
---------------------------------------
Louis Volpe
-5-
<PAGE> 1
Exhibit 10.18
================================================================================
ARROWPOINT COMMUNICATIONS, INC.
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
January 14, 2000
================================================================================
<PAGE> 2
TABLE OF CONTENTS
PAGE
1. Authorization and Sale of Shares..................................1
1.1 Authorization...........................................1
1.2 Sale of Shares..........................................1
1.3 Use of Proceeds.........................................1
2. The Closings......................................................1
2.1 The Closing ............................................2
2.2 Subsequent Closings.....................................3
3. Representations of the Company....................................3
3.1 Organization and Standing...............................3
3.2 Capitalization..........................................3
3.3 Subsidiaries, Etc.......................................4
3.4 Stockholder List and Agreements.........................5
3.5 Issuance of Shares......................................5
3.6 Authority for Agreement.................................5
3.7 Governmental Consents...................................6
3.8 Litigation..............................................6
3.9 Financial Statements....................................6
3.10 Absence of Liabilities..................................7
3.11 Taxes...................................................7
3.12 Property and Assets.....................................7
3.13 Intellectual Property...................................7
3.14 Material Contracts and Obligations......................9
3.15 Compliance..............................................9
3.16 Employees and Founder...................................9
3.17 ERISA..................................................10
3.18 Books and Records......................................10
3.19 Board of Directors.....................................10
3.20 U.S. Real Property Holding Corporation.................10
3.21 Related Party Transactions.............................10
3.22 Disclosures............................................11
4. [Intentionally omitted]..........................................11
5. Representations of the Purchasers................................11
-i-
<PAGE> 3
5.1 Investment.............................................11
5.2 Authority..............................................11
5.3 Experience.............................................12
5.4 Status.................................................12
6. Covenants of the Company.........................................12
6.1 Inspection.............................................12
6.2 Financial Statements and Other Information.............12
6.3 Material Changes and Litigation........................14
6.4 Insurance..............................................14
6.5 Employee Agreements....................................14
6.6 Related Party Transactions.............................14
6.7 Directors..............................................15
6.8 Option Shares and Restricted Stock.....................15
6.9 Reservation of Common Stock............................15
6.10 Termination of Covenants...............................15
6.11 Termination of Prior Covenants.........................15
6.12 Qualified Small Business Stock.........................16
7. Transfer of Shares...............................................16
7.1 Restricted Shares......................................16
7.2 Requirements for Transfer..............................16
7.3 Legend.................................................17
7.4 Rule 144A Information..................................17
8. Miscellaneous....................................................18
8.1 Successors and Assigns.................................18
8.2 Confidentiality........................................18
8.3 Survival of Representations and Warranties.............19
8.4 [Intentionally omitted]................................19
8.5 Notices................................................19
8.6 Brokers................................................19
8.7 Entire Agreement.......................................19
8.8 Amendments and Waivers.................................20
8.9 Counterparts...........................................20
8.10 Section Headings.......................................20
8.11 Severability...........................................20
8.12 Governing Law..........................................21
-ii-
<PAGE> 4
Disclosure Schedule
Exhibit A Certificate of Amendment
Exhibit B Opinion of Hale and Dorr LLP
Exhibit C Investor Rights Agreement
-iii-
<PAGE> 5
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of January 14, 2000 is entered into by and
among ArrowPoint Communications, Inc., a Delaware corporation (the "Company"),
and the persons and entities listed on SCHEDULE I attached hereto (individually,
a "Purchaser" and, collectively, the "Purchasers")
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. AUTHORIZATION AND SALE OF SHARES.
1.1 AUTHORIZATION. The Company has duly authorized the
sale and issuance, pursuant to the terms of this Agreement, of 699,837 shares of
its Series E Convertible Preferred Stock, $0.01 par value per share (the "Series
E Preferred Stock"), having the rights, restrictions, privileges and preferences
set forth in the Certificate of Amendment attached hereto as EXHIBIT A (the
"Certificate of Amendment"). The Company has adopted and filed the Certificate
of Amendment with the Secretary of State of the State of Delaware.
1.2 SALE OF SHARES. Subject to the terms and conditions
of this Agreement, at the Closing (as defined below) the Company will issue and
sell to each Purchaser, and each Purchaser will purchase, for a purchase price
of $21.14 per share, such number of shares of Series E Preferred Stock as is set
forth opposite such Purchaser's name on SCHEDULE I attached hereto. The shares
of Series E Preferred Stock being sold under this Agreement are referred to as
the "Shares."
1.3 USE OF PROCEEDS. The Company will use the proceeds
from the sale of the Shares for working capital purposes.
2. THE CLOSINGS.
-1-
<PAGE> 6
2.1 THE CLOSING. The closing ("Closing") of the sale and
purchase of the Shares under this Agreement shall take place at the offices of
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts at 9:00 a.m. on the
date of this Agreement, or at such other time, date and place as are mutually
agreeable to the Company and the Purchasers. The date of the Closing is
hereinafter referred to as the "Closing Date." At the Closing:
(a) the Company shall deliver to the Purchasers
certificates, as of the most recent practicable date, as to (i) the corporate
good standing of the Company issued by the Secretary of State of the State of
Delaware and (ii) the due qualification of the Company as a foreign corporation
from the Secretary of State of each state in which the Company is so qualified;
(b) the Company shall deliver to the Purchasers
the Certificate of Incorporation of the Company, as amended and in effect as of
the Closing Date (including the Certificate of Amendment), certified by the
Secretary of State of the State of Delaware;
(c) the Company shall deliver to the Purchasers
a Certificate of the Secretary of the Company attesting as to (i) the By-laws of
the Company, and (ii) resolutions of the Board of Directors and stockholders of
the Company authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby.
(d) Hale and Dorr LLP, counsel for the Company,
shall deliver to the Purchasers an opinion, dated the Closing Date, in the form
attached hereto as EXHIBIT B;
(e) the Company, Chin-Cheng Wu (the "Founder")
and the Purchasers shall execute and deliver the Investor Rights Agreement in
the form attached hereto as EXHIBIT C (the "Investor Agreement");
(f) the Company shall deliver to each Purchaser
a certificate for the number of Shares being purchased by such Purchaser,
registered in the name of such Purchaser;
(g) each Purchaser shall pay to the Company the
purchase price for the Shares being purchased by such Purchaser, by wire
transfer or certified check; and
(h) the Company and the Purchasers shall execute
and deliver a Cross-Receipt.
-2-
<PAGE> 7
2.2 SUBSEQUENT CLOSINGS. The Company may sell, at any
time prior to 14 days after the Closing, in one or more closings (each, a
"Subsequent Closing"), up to 246,198 additional Shares at the purchase price of
$21.14 per share, to such purchasers (each, an "Additional Purchaser") as may be
approved by the Board of Directors of the Company. At each Subsequent Closing,
(i) the Company and each Additional Purchaser shall execute and deliver a
counterpart signature page hereto, whereupon such Additional Purchaser shall
become a "Purchaser" hereunder and the Shares purchased by such Additional
Purchaser shall be deemed to be "Shares" for purposes of this Agreement, and
(ii) the Company shall cause Schedule I hereto to be amended to reflect the
purchases made by the Additional Purchasers at each Subsequent Closing. At each
Subsequent Closing, the Company shall deliver to each Additional Purchaser a
certificate for the number of Shares being purchased at the Subsequent Closing
by such Additional Purchaser, registered in the name of such Additional
Purchaser, against payment to the Company of the purchase price in the manner
specified above. The Company shall deliver to each Purchaser, within 15 days
after any Subsequent Closing, written notice of such Subsequent Closing (which
notice shall specify the names of each Additional Purchaser and the number of
shares of Series E Preferred Stock issued to each).
3. REPRESENTATIONS OF THE COMPANY. Subject to and except as
disclosed by the Company in the Disclosure Schedule attached hereto (the
"Disclosure Schedule"), the Company hereby represents and warrants to the
Purchasers as follows:
3.1 ORGANIZATION AND STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified to do business as
a foreign corporation and is in good standing in the Commonwealth of
Massachusetts and in any other jurisdiction in which the failure to so qualify
would have a material adverse effect on the operations or financial condition of
the Company. The Company has furnished to special counsel to the Purchasers true
and complete copies of its Certificate of Incorporation and By-laws, each as
amended to date and presently in effect.
3.2 CAPITALIZATION. The authorized capital stock of the
Company (immediately prior to the Closing) consists of (a) 25,000,000 shares of
common stock, $0.001 par value per share (the "Common Stock"), of which
4,113,235 shares are issued and outstanding, 3,886,615 shares have been reserved
for issuance pursuant to the Company's 1997 Stock Incentive Plan,
-3-
<PAGE> 8
5,750,000 shares have been reserved for issuance upon the conversion of the
outstanding shares of Series A Convertible Preferred Stock ("Series A Preferred
Stock"), 2,213,828 shares have been reserved for issuance upon conversion of the
outstanding shares of Series B Convertible Preferred Stock ("Series B Preferred
Stock"), 278,464 shares have been reserved for issuance upon conversion of the
outstanding shares of Series C Convertible Preferred Stock ("Series C Preferred
Stock"), 1,602,443 shares have been reserved for issuance upon conversion of the
outstanding shares of Series D Convertible Preferred Stock ("Series D Preferred
Stock") and 699,837 shares have been reserved for issuance upon conversion of
the Shares and (b) 12,500,000 shares of preferred stock, $0.01 par value per
share, of which (i) 5,750,000 shares have been designated as Series A Preferred
Stock, all of which are issued and outstanding, (ii) 2,213,828 shares have been
designated as Series B Preferred Stock, all of which are issued and outstanding,
(iii) 278,464 shares have been designated as Series C Preferred Stock, all of
which are issued and outstanding, (iv) 1,602,443 shares have been designated as
Series D Preferred Stock, all of which are issued and outstanding, and (v)
699,837 shares of Series E Preferred Stock, none of which are issued or
outstanding. At the Closing, the Common Stock, the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock will have the voting powers,
designations, preferences, rights and qualifications, and limitations or
restrictions set forth in the Certificate of Incorporation, as amended by the
Certificate of Amendment. All of the issued and outstanding shares of Common
Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock have been duly authorized and validly issued
and are fully paid and nonassessable. Except as contemplated by this Agreement
or set forth in the Disclosure Schedule, (i) no subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of the Company is authorized or outstanding,
(ii) the Company has no obligation (contingent or otherwise) to issue any
subscription, warrant, option, convertible security or other such right or to
issue or distribute to holders of any shares of its capital stock any evidences
of indebtedness or assets of the Company, and (iii) the Company has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any dividend
or make any other distribution in respect thereof. All of the issued and
outstanding shares of capital stock of the Company have been offered, issued and
sold by the Company in compliance with applicable Federal and state securities
laws.
3.3 SUBSIDIARIES, ETC. The Company has no subsidiaries
and does not own or control, directly or indirectly, any shares of capital stock
of any other corporation or any interest in any partnership, joint venture or
other non-corporate business enterprise.
-4-
<PAGE> 9
3.4 STOCKHOLDER LIST AND AGREEMENTS. Section 3.4 of the
Disclosure Schedule sets forth a true and complete list of the stockholders of
the Company, showing the number of shares and class or series of capital stock
or other securities of the Company held by each stockholder immediately prior to
the execution of this Agreement and the consideration paid to the Company
therefor. Except as listed in Section 3.4 of the Disclosure Schedule or as
contemplated by this Agreement, there are no agreements, written or oral,
between the Company and any holder of its capital stock, or, to the best of the
Company's knowledge, among any holders of its capital stock, relating to the
future acquisition (including without limitation rights of first refusal or
pre-emptive rights), disposition, registration under the Securities Act of 1933,
as amended (the "Securities Act"), or voting of the capital stock of the
Company.
3.5 ISSUANCE OF SHARES. The issuance, sale and delivery
of the Shares in accordance with this Agreement, and the issuance and delivery
of the shares of Common Stock issuable upon conversion of the Shares, have been
duly authorized by all necessary corporate action on the part of the Company,
and all such shares have been duly reserved for issuance. The Shares when so
issued, sold and delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of Common Stock issuable upon
conversion of the Shares, when issued upon such conversion, will be duly and
validly issued, fully paid and non-assessable.
3.6 AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement and all other agreements required
to be executed by the Company at the Closing pursuant to Section 2 (the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action. This Agreement and the Ancillary Agreements have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms. The execution of and performance of the transactions contemplated by this
Agreement and the Ancillary Agreements and compliance with their provisions by
the Company will not violate any provision of law and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under, or require a consent or waiver under, its
Certificate of Incorporation or By-laws (each as amended to date) or any
indenture, lease, agreement or other instrument to which the Company is a party
or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
-5-
<PAGE> 10
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale and delivery of the Shares, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing. Based on the representations made by the Purchasers in Section 5 of
this Agreement, the offer and sale of the Shares to the Purchasers will be
exempt from the registration requirements of applicable Federal and state
securities laws.
3.8 LITIGATION. There is no action, suit or proceeding,
or governmental inquiry or investigation, pending, or, to the best of the
Company's knowledge, any basis therefor or threat thereof, against the Company
or the Founder, which questions the validity of this Agreement or the right of
the Company or the Founder to enter into it, or which might result, either
individually or in the aggregate, in any material adverse change in the
business, prospects, assets or condition, financial or otherwise, of the
Company, nor is there any litigation pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company or the
Founder by reason of the past employment relationships of the Founder, the
proposed activities of the Company, or negotiations by the Company and/or the
Founder with possible investors in the Company.
3.9 FINANCIAL STATEMENTS. The Company has furnished to
each of the Purchasers a complete and correct copy of the unaudited balance
sheet (the "Balance Sheet") of the Company as at September 30, 1999 (the
"Balance Sheet Date") and the related unaudited statement of operations and cash
flow for the nine months ended September 30, 1999 (collectively, the "Financial
Statements"). Since September 30, 1999, there has been no material adverse
change in the business or operations of the Company. The Financial Statements
are complete and correct in all material respects, are in accordance with the
books and records of the Company and present fairly the financial condition and
results of operations of the Company, as at the dates and for the periods
indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except that the Financial Statements
have been prepared for the internal use of management and may not be in
accordance with generally accepted accounting principles because of the absence
of footnotes normally contained therein and are subject to normal year-end audit
adjustments which in the aggregate will not be material.
-6-
<PAGE> 11
3.10 ABSENCE OF LIABILITIES. Except as set forth in
Section 3.10 of the Disclosure Schedule, the Company did not have, at the
Balance Sheet Date, any liabilities of any type which in the aggregate exceeded
$50,000, whether absolute or contingent, which were not fully reflected on the
Balance Sheet, and, since the Balance Sheet Date, the Company has not incurred
or otherwise become subject to any such liabilities or obligations except in the
ordinary course of business.
3.11 TAXES. The amount shown on the Balance Sheet as
provision for taxes is sufficient in all material respects for payment of all
accrued and unpaid Federal, state, county, local and foreign taxes for the
period then ended and all prior periods. The Company has filed or has obtained
presently effective extensions with respect to all Federal, state, county, local
and foreign tax returns which are required to be filed by it, such returns are
true and correct in all material respects and all taxes shown thereon to be due
have been timely paid with exceptions not material to the Company. Neither the
Company nor any of its stockholders has ever filed (a) an election pursuant to
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that
the Company be taxed as an S Corporation, or (b) consent pursuant to Section
341(f) of the Code relating to collapsible corporations.
3.12 PROPERTY AND ASSETS. The Company has good title to
all of its material properties and assets, including all properties and assets
reflected in the Balance Sheet, except those disposed of since the date thereof
in the ordinary course of business, and none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, lease, charge or
encumbrance other than those the material terms of which are described in
Section 3.12 of the Disclosure Schedule.
3.13 INTELLECTUAL PROPERTY.
(a) To the best of the Company's knowledge, no third
party has claimed or has reason to claim that any person employed by or
affiliated with the Company, in connection with his or her employment by or
affiliation with the Company, (i) has violated or is violating any of the terms
or conditions of his employment, non-competition or non-disclosure agreement
with such third party, (ii) has disclosed or is disclosing or has utilized or is
utilizing any trade secret or proprietary information or documentation of such
third party or (iii) has interfered or is interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Company which
suggests that such a claim might be contemplated. To the best of the Company's
knowledge, no person employed by or affiliated with the Company has employed or
proposes to
-7-
<PAGE> 12
employ any trade secret or any information or documentation proprietary to any
former employer, and to the best of the Company's knowledge, no person employed
by or affiliated with the Company has violated any confidential relationship
which such person may have had with any third party, in connection with the
development, manufacture or sale or any product or proposed product or the
development or sale of any service or proposed service of the Company, and the
Company has no reason to believe there will be any such employment or violation.
To the best of the Company's knowledge, none of the execution or delivery of
this Agreement, or the carrying on of business of the Company as officers,
employees or agents by any officer, director or key employee of the Company, or
the conduct or proposed conduct of the business of the Company, will conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument under which any
such person is obligated.
(b) Set forth in Section 3.13 of the Disclosure
Schedule is a list of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names and copyrights, and all applications for such which
are in the process of being prepared, owned by or registered in the name of the
Company, or of which the Company is a licensor or licensee or in which the
Company has any right, and in each case a brief description of the nature of
such right. The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know-how (collectively,
"Intellectual Property") necessary for the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any other person under any
Intellectual Property, and, to the best of the Company's knowledge, there is no
basis for any such claim (whether or not pending or threatened). No claim is
pending or threatened to the effect that any such Intellectual Property owned or
licensed by the Company, or which the Company otherwise has the right to use, is
invalid or unenforceable by the Company, and, to the best of the Company's
knowledge, there is no basis for any such claim (whether or not pending or
threatened). To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential. The Company has not granted or assigned to any other person
or entity any right to manufacture, have manufactured, assemble or sell the
products or proposed products or to provide the services or proposed services of
the Company.
-8-
<PAGE> 13
3.14 MATERIAL CONTRACTS AND OBLIGATIONS. Except as
contemplated by this Agreement or as listed in the Disclosure Schedule, the
Company is not a party to any material agreement or commitment of any nature,
including without limitation (a) any agreement which requires future
expenditures by the Company in excess of $250,000, (b) any employment or
consulting agreement, employee benefit, bonus, pension, profit-sharing, stock
option, stock purchase or similar plan or arrangement, or distributor or sales
representative agreement, (c) any agreement with any stockholder, officer or
director of the Company, or any "affiliate" or "associate" of such persons (as
such terms are defined in the rules and regulations promulgated under the
Securities Act), including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal property
from, or otherwise requiring payments to, any such person or entity or (d) any
agreement relating to the intellectual property rights of the Company.
3.15 COMPLIANCE. The Company has, in all material
respects, complied with all laws, regulations and orders applicable to its
present and proposed business and has all material permits and licenses required
thereby. There is no term or provision of any mortgage, indenture, contract,
agreement or instrument to which the Company is a party or by which it is bound,
or, to the best of the Company's knowledge, of any provision of any state or
Federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon the Company, which materially adversely affects or, so far as the
Company may now foresee, in the future is reasonably likely to materially
adversely affect, the business, prospects, assets or condition, financial or
otherwise, of the Company. To the best of the Company's knowledge, neither the
Founder nor any other employee of the Company is in violation of any term of any
contract or covenant (either with the Company or with another entity) relating
to employment, patents, proprietary information disclosure, non-competition or
non-solicitation.
3.16 EMPLOYEES AND FOUNDER.
(a) The Founder and the certain other holders of
Common Stock have executed and delivered to the Company a Stock Restriction
Agreement, copies of which have been made available to the Purchasers, and all
of such agreements are in full force and effect.
(b) Each employee of the Company (including the
Founder) who is at or above the director level or who holds at least 100,000
shares of Common Stock (or options exercisable therefor) (as adjusted for stock
splits, stock dividends, recapitalizations and similar events) has executed and
delivered to the Company a Noncompetition and Confidentiality Agreement covering
a period of one year following the termination of such employee's
-9-
<PAGE> 14
employment with the Company, copies of which have been made available to the
Purchasers. Each employee of the Company not covered by the foregoing sentence
has executed and delivered to the Company a Confidentiality Agreement, copies of
which have been made available to the Purchasers. All of such agreements are in
full force and effect.
(c) None of the employees of the Company is
represented by any labor union, and there is no labor strike or other labor
trouble pending with respect to the Company (including, without limitation, any
organizational drive) or, to the best of the Company's knowledge, threatened.
3.17 ERISA. Except as described in the Disclosure
Schedule, the Company does not have or otherwise contribute to or participate in
any employee benefit plan subject to the Employee Retirement Income Security Act
of 1974.
3.18 BOOKS AND RECORDS. The minute books of the Company
contain complete and accurate records of all meetings and other corporate
actions of its stockholders and its Board of Directors and committees thereof.
The stock ledger of the Company is complete and reflects all issuances,
transfers, repurchases and cancellations of shares of capital stock of the
Company.
3.19 BOARD OF DIRECTORS. The Board of Directors is
comprised of four members, and consists of Chin-Cheng Wu, Edward T. Anderson,
Paul J. Ferri and Louis J. Volpe.
3.20 U.S. REAL PROPERTY HOLDING CORPORATION. The Company
is not now and has never been a "United States Real Property Holding
Corporation" as defined in Section 897(c)(2) of the Code and Section 1.897-2(b)
of the Regulations promulgated by the Internal Revenue Service.
3.21 RELATED PARTY TRANSACTIONS. To the best of the
Company's knowledge, except as set forth in the Disclosure Schedule, no
stockholder, executive officer or director of the Company or member of the
immediate family of any of the foregoing:
(a) owns or has owned, directly or indirectly,
any interest in (except for less than one percent stock holdings for investment
purposes in securities of publicly traded companies), or is an officer,
director, employee or consultant of, any entity which is a lessor, lessee,
supplier or customer of the Company;
-10-
<PAGE> 15
(b) owns, directly or indirectly, as a whole or
in part, any material tangible or intangible property that the Company uses or
contemplates using in the conduct of its business; or
(c) has given the Company written notice of any
cause of action or other claim whatsoever against, or owes any amount to, the
Company, except for immaterial claims in the ordinary course of business such as
for accrued vacation pay, accrued benefits under employee benefit plans, and
medical, dental and other similar health benefit plans existing on the date
hereof.
3.22 DISCLOSURES. Neither this Agreement nor any Schedule
or Exhibit hereto, nor any certificate or instrument furnished to the Purchasers
at the Closing or as required by the terms of this Agreement, when read
together, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.
4. [Intentionally omitted]
5. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser represents
and warrants to the Company as follows:
5.1 INVESTMENT. Such Purchaser is acquiring the Shares,
and the shares of Common Stock into which the Shares may be converted, for its
or his own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same; and such Purchaser has no present or
contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof. Such Purchaser acknowledges
that the Shares are restricted securities as defined under the Securities Act
and shall bear the legends set forth in Section 7.3 hereof.
5.2 AUTHORITY. Such Purchaser has full power and
authority to enter into and to perform this Agreement in accordance with its
terms. Such Purchaser represents that it has not been organized, reorganized or
recapitalized specifically for the purpose of investing in the Company. This
Agreement and the Ancillary Agreement to be executed by such Purchaser have been
duly executed and delivered by such Purchaser and constitute valid and binding
obligations of such Purchaser enforceable in accordance with their respective
terms. The execution of and
-11-
<PAGE> 16
performance of the transactions contemplated by this Agreement and the Ancillary
Agreements to be executed by such Purchaser and compliance with their provisions
by such Purchaser will not violate any provision of law and will not conflict
with or result in any breach of any of the terms, conditions or provisions of,
or constitute a default under, or require a consent or waiver under, its
organizational documents (each as amended to date) or any indenture, lease,
agreement or other instrument to which the Purchaser is a party or by which it
or any of its properties is bound, or any decree, judgment, order, statute, rule
or regulation applicable to such Purchaser.
5.3 EXPERIENCE. Such Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have made available to such Purchaser any and all
written information which it has requested and have answered to such Purchaser's
satisfaction all inquiries made by such Purchaser; and such Purchaser has
sufficient knowledge and experience in investing in companies similar to the
Company so as to be able to evaluate the risks and merits of its investment in
the Company and is able financially to bear the risks thereof, including a
complete loss of its investment. Such Purchaser understands that an investment
in the Company involves a high degree of risk in view of the fact that the
Company has a limited operating history, and there may never be an established
market for the Company's capital stock.
5.4 STATUS. Such Purchaser is an "accredited Investor" as
that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act.
6. COVENANTS OF THE COMPANY.
6.1 INSPECTION. The Company shall permit each Purchaser,
or any authorized representative thereof, to visit and inspect the properties of
the Company, including its corporate and financial records, and to discuss its
business and finances with officers of the Company, during normal business hours
following reasonable notice and as often as may be reasonably requested, without
interruption of the business of the Company and subject to the confidentiality
obligations of Section 8.2 hereof.
6.2 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) So long as a Purchaser (together with any of
its affiliates) holds shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock, the Company shall deliver to such Purchaser:
-12-
<PAGE> 17
(i) within 120 days after the end of
each fiscal year of the Company, an audited balance sheet of the Company as at
the end of such year, and audited statements of income and of cash flows of the
Company for such year, certified by certified public accountants of established
national reputation selected by the Company, and prepared in accordance with
generally accepted accounting principles; and
(ii) within 45 days after the end of
each fiscal quarter of the Company, an unaudited balance sheet of the Company as
at the end of such quarter, and unaudited statements of income and of cash flows
of the Company for such fiscal quarter and for the current fiscal year to the
end of such fiscal quarter.
(b) So long as a Purchaser (together with any of
its affiliates) holds shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, or Series E Preferred
Stock convertible into at least 300,000 shares of Common Stock (as adjusted for
stock splits, stock dividends, recapitalizations and similar events), the
Company shall deliver to such Purchaser:
(i) as soon as available, but in any
event within 30 days after commencement of each new fiscal year, a budget,
consisting of a business plan and projected financial statements for such fiscal
year; and
(ii) with reasonable promptness, such
other notices, information and data with respect to the Company as the Company
delivers to the holders of its Common Stock, and such other information and data
as such Purchaser may from time to time reasonably request.
(c) The foregoing financial statements shall be
prepared on a consolidated basis if the Company then has any subsidiaries.
-13-
<PAGE> 18
6.3 MATERIAL CHANGES AND LITIGATION. The Company shall
promptly notify the Purchasers of any material adverse change in the business,
prospects, assets or condition, financial or otherwise, of the Company and of
any litigation or governmental proceeding or investigation brought or, to the
best of the Company's knowledge, threatened against the Company, or against the
Founder or an officer, director, key employee or principal stockholder of the
Company materially adversely affecting or which, if adversely determined, would
materially adversely affect its business, prospects, assets or condition,
financial or otherwise.
6.4 INSURANCE.
(a) The Company shall maintain, for a period of
five years from April 17, 1997, term life insurance upon the life of the
Founder, in the amount of $1,000,000, with the proceeds payable to the Company.
(b) The Company shall maintain in effect
policies of workers' compensation insurance and of insurance with respect to its
properties and business of the kinds and in the amounts not less than is
customarily obtained by corporations engaged in the same or similar business and
similarly situated, including, without limitation, insurance against loss,
damage, fire, theft, public liability and other risks.
6.5 EMPLOYEE AGREEMENTS. The Company shall require all
employees hereafter employed or engaged by the Company who are at or above the
director level or who holds at least 100,000 shares of Common Stock (or options
exercisable therefor) (as adjusted for stock splits, stock dividends,
recapitalizations and similar events) to enter into a Noncompetition and
Confidentiality Agreement covering a period of one year following the
termination of such employee's employment with the Company, in the form approved
by the Board of Directors. The Company shall require all employees and
independent contractors not covered by the foregoing sentence to enter into a
Confidentiality Agreement in the form approved by the Board of Directors.
6.6 RELATED PARTY TRANSACTIONS. The Company shall not
enter into any agreement with any stockholder, officer or director of the
Company, or any "affiliate" or "associate" of such persons (as such terms are
defined in the rules and regulations promulgated under the Securities Act),
including without limitation any agreement or other arrangement providing for
the furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity, without the consent
of at least a majority of the
-14-
<PAGE> 19
members of the Company's Board of Directors having no interest in such agreement
or arrangement.
6.7 DIRECTORS. The Company shall promptly reimburse in
full each director of the Company who is not an employee of the Company for all
of his reasonable out-of-pocket expenses incurred in attending each meeting of
the Board of Directors of the Company or any committee thereof.
6.8 OPTION SHARES AND RESTRICTED STOCK. The Company has
reserved an aggregate of 3,886,615 shares of Common Stock for future issuance to
employees and consultants of the Company pursuant to the 1997 Stock Incentive
Plan of the Company. Unless otherwise agreed by the Board of Directors, all
options or restricted stock awards granted under such Plan shall vest at the
rate of 20% on the first anniversary of grant and 1.667% per month thereafter
over the subsequent four years so long as the optionee or stockholder continues
to be an employee or consultant of the Company, subject to acceleration of 50%
of the unvested portion of such options in the event of an Acquisition Event (as
defined in the standard form of agreements for use under such Plan).
6.9 RESERVATION OF COMMON STOCK. The Company shall
reserve and maintain a sufficient number of shares of Common Stock for issuance
upon conversion of all of the outstanding shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock.
6.10 TERMINATION OF COVENANTS. The covenants of the
Company contained in Sections 6.1 through 6.9 shall terminate, and be of no
further force or effect, upon the effective date of a registration statement
filed by the Company under the Securities Act covering the Company's first
offering of Common Stock, resulting in net proceeds to the Company of at least
$10,000,000, and at a price per share of at least $25.00 (as adjusted for stock
splits, stock dividends, recapitalizations and similar events) or at such time
as the aggregate number of shares of Common Stock into which all shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock owned by the Purchasers
(together with any affiliated entities to whom Shares have been transferred) is
less than 25% of the aggregate number of such shares issued by the Company (as
adjusted for stock splits, stock dividends, recapitalizations and similar
events).
-15-
<PAGE> 20
6.11 TERMINATION OF PRIOR COVENANTS.
(a) The Series D Preferred Stock Purchase
Agreement among the Company, the Founder, certain of the Purchasers and certain
other parties dated February 16, 1999 (the "Series D Agreement") is hereby
amended by deleting Section 6 thereof in its entirety.
(b) Each of Yeh-Tsong Wen, The Alexer Limited
Family Partnership, Rubin Gruber, Harry Daniel Lowe, Bruce I. Sachs, Chin-Cheng
Wu, John Prendergast, Brian Walck, Cynthia Deysher (as an individual and as
Custodian), Gary J. Bowen, Stephen M. Van Beaver, H&D Investments 97, David
Bakstran, Ari Daskalakis, JoAnn Daskalakis, Jan Bruggink, Peter Danzig,
Spinnaker Clipper Fund, L.P., North Bridge Venture Partners II, L.P., Matrix
Partners IV, L.P., Matrix IV Entrepreneurs Fund, L.P., Net One Systems Co., Ltd.
and Westcon Group, Inc., who are parties to the Series D Agreement, shall be
deemed a Purchaser for purposes of Sections 6, 8.1, 8.2 and 8.8 of this
Agreement and shall have all rights and obligations of a Purchaser under such
Sections.
6.12 QUALIFIED SMALL BUSINESS STOCK. The Company shall
submit to its stockholders (including the Purchasers) and to the Internal
Revenue Service any reports that may be required under Section 1202(d)(1)(C) of
the Code and the Regulations promulgated thereunder. In addition, within ten
days after a Purchaser's written request therefor, the Company shall deliver to
such Purchaser a written statement indicating whether such Purchaser's interest
in the Company constitutes "qualified small business stock" as defined in
Section 1202(c) of the Code.
7. TRANSFER OF SHARES.
7.1 RESTRICTED SHARES. "Restricted Shares" means (i) the
Shares, (ii) the shares of Common Stock issued or issuable upon conversion of
the Shares, (iii) any shares of capital stock of the Company acquired by a
Purchaser pursuant to the Investor Agreement or the Right of First Refusal
Agreement, and (iv) any other shares of capital stock of the Company issued in
respect of such shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER,
that shares of Common Stock which are Restricted Shares shall cease to be
Restricted Shares (i) upon any sale pursuant to a registration statement under
the Securities Act, Section 4(1) of the Securities Act or Rule 144 under the
Securities Act, or (ii) at such time as they become eligible for sale under Rule
144(k) under the Securities Act.
-16-
<PAGE> 21
7.2 REQUIREMENTS FOR TRANSFER.
(a) Restricted Shares shall not be sold or
transferred unless (1) either (i) they first shall have been registered under
the Securities Act, or (ii) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company, to the effect
that such sale or transfer is exempt from the registration requirements of the
Securities Act and (2) such actions are in compliance with applicable state
securities laws.
(b) Notwithstanding the foregoing, no
registration or opinion of counsel shall be required for (i) a transfer by a
Purchaser which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the estate
of any such partner or retired partner, if the transferee agrees in writing to
be subject to the terms of this Section 7 to the same extent as if he were an
original Purchaser hereunder, or (ii) a transfer made in accordance with Rule
144 under the Securities Act, or (iii) a transfer made between the funds
affiliated with North Bridge Venture Partners.
7.3 LEGEND. Each certificate representing Restricted
Shares shall bear a legend substantially in the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
offered, sold or otherwise transferred, pledged or hypothecated unless
and until such shares are registered under such Act or an opinion of
counsel satisfactory to the Company is obtained to the effect that such
registration is not required."
The foregoing legend shall be removed from the certificates
representing any Restricted Shares, at the request of the holder thereof, at
such time as they become eligible for resale pursuant to Rule 144(k) under the
Securities Act.
7.4 RULE 144A INFORMATION. The Company shall, at all
times during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, upon the written request of a Purchaser, provide in writing to
such Purchaser, and to any prospective transferee of any Restricted Shares of
such Purchaser, the information concerning the Company described in Rule
144A(d)(4) under the Securities Act ("Rule 144A Information"). The Company also
shall, upon the written request of a Purchaser, cooperate with and assist such
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Restricted Shares for trading through PORTAL. The Company's obligations
-17-
<PAGE> 22
under this Section 7.4 shall at all times be contingent upon receipt from the
prospective transferee of Restricted Shares of a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from disclosure to
anyone other than persons who will assist such transferee in evaluating the
purchase of any Restricted Shares and to use such Rule 144A Information only for
such evaluation purposes.
8. MISCELLANEOUS.
8.1 SUCCESSORS AND ASSIGNS. This Agreement, and the
rights and obligations of a Purchaser hereunder, may be assigned by such
Purchaser to any person or entity to which at least 100,000 Shares (or 100% of
the Shares originally purchased hereunder by such Purchaser, if less than
100,000 Shares) or (with respect to the assignment of rights under Section 6
hereof by a party other than a Purchaser of the Shares) 300,000 shares of Series
A Preferred Stock, 100,000 shares of Series B Preferred Stock, 100,000 shares of
Series C Preferred Stock or 100,000 shares of Series D Preferred Stock (or 100%
of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock or Series D Preferred Stock originally purchased under the
Series A Agreement, Series B Agreement, Series C Agreement or Series D Agreement
by such Purchaser, if less than 300,000, 100,000, 100,000 or 100,000 shares,
respectively), in each case as adjusted for stock splits, stock dividends,
recapitalizations and similar events, are transferred by such Purchaser, and
such transferee shall be deemed a "Purchaser" for purposes of this Agreement;
provided that the transferee provides written notice of such assignment to the
Company and agrees to be bound by the terms and conditions set forth herein and
the transferee is not a company that the Company reasonably considers to be a
competitor.
8.2 CONFIDENTIALITY. Except as otherwise required by law,
the Purchasers agree that they will keep confidential and will not disclose or
divulge any confidential, proprietary or secret information which they may
obtain from the Company pursuant to financial statements, reports and other
materials submitted by the Company to the Purchasers pursuant to this Agreement,
or pursuant to visitation or inspection rights granted hereunder, unless such
information is known, or until such information becomes known, to the public;
PROVIDED, HOWEVER, that a Purchaser may disclose such information (i) to its
attorneys, accountants, consultants, and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (ii) to any prospective purchaser of any Shares from such Purchaser as
long as such prospective purchaser agrees in writing to be bound by the
provisions of this Section, or (iii) to any affiliate of such Purchaser or to a
partner, shareholder or subsidiary
-18-
<PAGE> 23
of such Purchaser; subject to the agreement of such party to keep such
information confidential as set forth herein.
8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
agreements, representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the closing of the transactions
contemplated hereby.
8.4 [Intentionally omitted]
8.5 NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, sent via a reputable nationwide overnight courier service or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid:
If to the Company, at ArrowPoint Communications, Inc., 50 Nagog Park,
Acton, MA 01720, Attn: President, or at such other address or addresses as may
have been furnished in writing by the Company to the Purchasers, with a copy to
Hale and Dorr LLP, Boston, MA 02109, Attn: Patrick J. Rondeau, Esq.
If to a Purchaser, at its address as set forth on SCHEDULE I attached
hereto, or at such other address or addresses as may have been furnished to the
Company in writing by such Purchaser.
Notices provided in accordance with this Section 8.5 shall be deemed
delivered upon personal delivery, one business day after being sent via a
reputable nationwide overnight courier service, or two business days after
deposit in the mail.
8.6 BROKERS. The Company, the Founder and the Purchasers
each (i) represents and warrants to the other parties hereto that he, she or it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) will indemnify and save the other
parties harmless from and against any and all claims, liabilities or obligations
with respect to brokerage or finders' fees or commissions in connection with the
transactions contemplated by this Agreement asserted by any person on the basis
of any agreement, statement or representation alleged to have been made by such
indemnifying party.
8.7 ENTIRE AGREEMENT. This Agreement and the Ancillary
Agreements embody the entire agreement and understanding between the parties
hereto with respect to the
-19-
<PAGE> 24
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
8.8 AMENDMENTS AND WAIVERS. Except as otherwise expressly
set forth in this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least 66 2/3% of the shares of
Common Stock issued or issuable upon conversion of the Shares; provided that an
amendment or waiver with respect to Section 6 hereof shall instead require the
written consent of the holders of at least 66 2/3% of the shares of Common Stock
issued or issuable upon conversion of the Shares, the shares of Series D
Preferred Stock, the shares of Series C Preferred Stock, the shares of Series B
Preferred Stock and the shares of Series A Preferred Stock, taken together. Any
amendment or waiver effected in accordance with this Section 8.8 shall be
binding upon each holder of any Shares, shares of Series D Preferred Stock,
shares of Series C Preferred Stock, shares of Series B Preferred Stock or shares
of Series A Preferred Stock (including shares of Common Stock into which such
Shares, shares of Series D Preferred Stock, shares of Series C Preferred Stock,
shares of Series B Preferred Stock or shares of Series A Preferred Stock have
been converted), each future holder of all such securities and the Company. No
waivers of or exceptions to any term, condition or provision of this Agreement,
in any one or more instances, shall be deemed to be, or construed as, a further
or continuing waiver of any such term, condition or provision. No amendment
shall increase any obligation of the Founder hereunder without the express
written consent of the Founder. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
8.9 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.
8.10 SECTION HEADINGS. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
8.11 SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.
-20-
<PAGE> 25
8.12 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
-21-
<PAGE> 26
[Preferred Stock Purchase Agreement}
Executed as of the date first written above.
ARROWPOINT COMMUNICATIONS, INC.
By:
-------------------------------
Chin-Cheng Wu
President
PURCHASERS:
North Bridge Venture Partners IV-A, L.P.
By: North Bridge Venture Management IV, L.P.,
its General Partner
By:
------------------------
Edward T. Anderson
General Partner
North Bridge Venture Partners IV-B, L.P.
By: North Bridge Venture Management IV, L.P.,
its General Partner
By:
------------------------
Edward T. Anderson
General Partner
-22-
<PAGE> 27
Matrix Partners VI, L.P.
By: Matrix VI Management Co., L.L.C.,
its General Partner
By:
------------------------
Paul J. Ferri
Member
Accel V L.P.
By: Accel V Associates L.L.C.
its General Partner
By:
------------------------------
Name:
Managing Member
Accel Internet/Strategic Technology
Fund L.P.
By: Accel Internet/Strategic
Technology Fund Associates L.L.C.
its General Partner
By:
------------------------------
Name:
Managing Member
Accel Keiretsu V L.P.
By: Accel Keiretsu V Associates L.L.C.
its General Partner
By:
-------------------------
Name:
Managing Member
-23-
<PAGE> 28
Accel Investors `97 L.P.
By:
------------------------------
Name:
General Partner
Ellmore C. Patterson Partners
By:
------------------------------
Name:
General Partner
Pequot Private Equity Fund, L.P.
By: Pequot Capital Management, Inc. Investment Manager
By:
------------------------------
David J. Malat
Chief Financial Officer
Pequot Offshore Private Equity Fund, Inc.
By: Pequot Capital Management, Inc. Investment Adviser
By:
------------------------------
David J. Malat
Chief Financial Officer
-24-
<PAGE> 29
Spinnaker Founders Fund, L.P.
By: Bowman Capital Management, L.L.C.,
its General Partner
By:
------------------------------
Name:
Title:
Spinnaker Offshore Founders Fund, Cayman Limited
By: Bowman Capital Management, L.L.C.,
its Investment Adviser and Attorney-in-Fact
By:
------------------------------
Name:
Title:
Bayview Investors, Ltd.
By:
------------------------------
Name:
Title:
BT Investment Partners, Inc.
By:
------------------------------
Name:
Title:
-25-
<PAGE> 30
Matrix ______________
By:
------------------------------
By:
------------------------------
Name:
Title:
-------------------------------------
John Puckett
-------------------------------------
James Blom
-------------------------------------
Lee S. Weinstein
-------------------------------------
Timothy Reynders
-------------------------------------
[Corporate][Exodus]
-------------------------------------
Peter Biro
-------------------------------------
Joseph Stockwell
-26-
<PAGE> 31
-------------------------------------
Peter Fortenbaugh
-------------------------------------
Richard Stoltz
-------------------------------------
Don Detampel
-------------------------------------
Michael Hakimi
-------------------------------------
Paul Santinelli
-------------------------------------
James McInerney
-------------------------------------
Scott David
-------------------------------------
Sam Mohamad
-------------------------------------
John Calonico
-------------------------------------
Adam Wegner
-27-
<PAGE> 32
-------------------------------------
Barry Porter
-------------------------------------
David Lee
-------------------------------------
Robert Sanford
-------------------------------------
Stephen Van Beaver
-------------------------------------
Robert B. Eisenberg
-------------------------------------
Kenneth Hale
-------------------------------------
Dr. Luis Paz
-------------------------------------
Peter Herzog
-------------------------------------
Corporate [Lycos]
-------------------------------------
Bob Davis
-28-
<PAGE> 33
-------------------------------------
Jose Garcia
-------------------------------------
Lawrence Calcano
Solely as to Sections 6, 8.1, 8.2 and 8.8
-------------------------------------
Chin-Cheng Wu
-------------------------------------
Yeh-Tsong Wen
-------------------------------------
James A. Dolce, Jr.
-------------------------------------
Rubin Gruber
-------------------------------------
Harry Daniel Lowe
-------------------------------------
Bruce I. Sachs
------------------------------------
-29-
<PAGE> 34
John Prendergast
--------------------------------------
Brian Walck
--------------------------------------
Cynthia Deysher
--------------------------------------
Cynthia Deysher, as Custodian for Lauren
Deysher under the Massachusetts
Uniform Transfers to Minors Act
--------------------------------------
Cynthia Deysher, as Custodian for Jacqueline
Deysher under the Massachusetts
Uniform Transfers to Minors Act
--------------------------------------
Gary J. Bowen
-30-
<PAGE> 35
Spinnaker Clipper Fund, L.P.
By: Bowman Capital Management, L.L.C.,
its General Partner
By:
--------------------------------------
William J. Haggerty, Managing Director
of Operations of Bowman Capital Management, L.L.C.
North Bridge Venture Partners II, L.P.
By: North Bridge Venture Management II, L.P.,
its General Partner
By:
------------------------
Edward T. Anderson
General Partner
Matrix Partners IV, L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
By:
------------------------
Paul J. Ferri
General Partner
-31-
<PAGE> 36
Matrix IV Entrepreneurs Fund, L.P.
By: Matrix IV Management Co., L.P.,
its General Partner
By: ________________________
Paul J. Ferri
General Partner
H&D Investments 97
By:
---------------------------------
Paul P. Brountas
------------------------------------
David Bakstran
------------------------------------
Ari Daskalakis
------------------------------------
JoAnn Daskalakis
------------------------------------
Jan Bruggink
------------------------------------
Peter Danzig
-32-
<PAGE> 37
SCHEDULE I
Name and Address No. of Shares of Aggregate
of Purchaser Series E Preferred Purchase Price
- ---------------- ------------------ --------------
North Bridge Venture 95,578 $ 2,020,518.92
Partners IV-A, L.P.
950 Winter Street
Waltham, MA 02451
Attn: Edward T. Anderson
North Bridge Venture 45,414 $ 960,051.96
Partners IV-B, L.P.
950 Winter Street
Waltham, MA 02451
Attn: Edward T. Anderson
Matrix Partners VI, L.P. 166,836 $ 3,526,913.04
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
Attn: Paul J. Ferri
WESTON & CO., as 27,159 $ 574,141.26
Nominee
for certain persons
c/o Matrix Partners
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
Attn: Paul J. Ferri
Accel V L.P. 48,127 $ 1,017,404.78
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Internet/Strategic 6,376 $ 134,788.64
Technology
Fund L.P.
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
-33-
<PAGE> 38
Accel Keiretsu V L.P. 2,514 $ 53,145.96
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Accel Investors `97 L.P.
One Palmer Square 2,943 $ 62,215.02
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Ellmore C. Patterson Partners 1,349 $ 28,517.86
One Palmer Square
Princeton, NJ 08542
Attn: G. Carter Sednaoui
Pequot Private Equity Fund, L.P. 23,136 $ 489,095.04
500 Nyala Farm Road
Westport, CT 06880
Attn: David Malat
Pequot Offshore Private Equity 2,929 $ 61,919.06
Fund, Inc.
500 Nyala Farm Road
Westport, CT 06880
Attn: David Malat
Spinnaker Founders Fund, L.P. 19,038 $ 402,463.32
1875 South Grant Street
Suite 600
San Mateo, CA 94402
Attn: Spencer Punter
Spinnaker Offshore Founders 12,240 $ 258,753.60
Fund, Cayman Limited
1875 South Grant Street
Suite 600
San Mateo, CA 94402
Attn: Spencer Punter
Bayview Investors, Ltd. 1,042 $ 22,027.88
555 California Street
Suite 2600
San Francisco, CA 94104
Attn: Jennifer Sherrill
-34-
<PAGE> 39
BT Investment Partners, Inc. 3,909 $ 82,636.26
130 Liberty Street, 29th Floor
New York, NY 10006
Attn: Kristine Cicardo
John Puckett 2,365 $ 49,996.10
Toysmart.com
170 High Street
Waltham, MA 02453
Lee S. Weinstein 18,921 $ 399,989.94
11 Skyline Drive
Hawthorne, NY 10532
Exodus Communications, Inc. 23,652 $ 500,003.28
2831 Mission College Boulevard
Santa Clara, CA 95054
Attn: Adam Wegner
Timothy Reynders 2,365 $ 49,996.10
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
Peter Biro 3,548 $ 75,004.72
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
Peter Fortenbaugh 4,730 $ 99,992.20
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
Joseph Stockwell 9,461 $ 200,005.54
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
Richard Stoltz 15,374 $ 325,006.36
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
-35-
<PAGE> 40
Michael Hakimi 2,365 $ 49,996.10
Exodus Communications, Inc.
161 N. Clark Street
Suite 1350
Chicago, IL 60601
James McInerney 7,096 $ 150,009.44
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
Adam Wegner 4,730 $ 99,992.20
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
The Sanford Family Trust 4,730 $ 99,992.20
c/o Robert Sanford
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
James Blom 3,547 $ 74,983.58
Exodus Communications, Inc.
2831 Mission College Boulevard
Santa Clara, CA 95054
Don Detampel 4,730 $ 99,992.20
Global Center
141 Caspian Court
Sunnyvale, CA 94089
Paul Santinelli 2,365 $ 49,996.10
Global Center
141 Caspian Court
Sunnyvale, CA 94089
Scott Davis 2,365 $ 49,996.10
Global Center
141 Caspian Court
Sunnyvale, CA 94089
John Calonico 1,183 $ 25,008.62
301 Laurel Avenue
Millbrae, CA 94030
-36-
<PAGE> 41
Barry Porter 11,826 $ 250,001.64
c/o The Management Group
9100 Wilshire Boulevard
Suite 725E
Beverly Hills, CA 90212
David Lee 11,826 $ 250,001.64
c/o The Management Group
9100 Wilshire Boulevard
Suite 725E
Beverly Hills, CA 90212
Robert B. Eisenberg 11,826 $ 250,001.64
52 Louise Drive
Hollis, NH 03049
Kenneth Hale 4,730 $ 99,992.20
26 Whitehall Lane
Reading, MA 01867
Dr. Luis Paz 3,548 $ 75,004.72
Combox
212 Harvard Avenue E., #401
Seattle, WA 98102
Peter Herzog 3,548 $ 75,004.72
Combox
212 Harvard Avenue E., #401
Seattle, WA 98102
Bob Davis 11,826 $ 250,001.64
Lycos
400-2 Totten Pond Road
Waltham, MA 02451
Jose Garcia 11,826 $ 250,001.64
Case Technology
Isla del Hierro, n. 5
28700 San Sebastian
de los Reyes
Madrid, Spain
James A. Dolce, Jr. 9,460 $ 199,984.40
9 Stonegate Road
Hopkinton, MA 01748
-37-
<PAGE> 42
Lawrence Calcano 4,730 $ 99,992.20
Goldman Sachs
85 Broad Street, 14th Floor
New York, NY 10004
---------- --------------
Total 657,263 $13,894,539.82
-38-
<PAGE> 1
EXHIBIT 21.01
ARROWPOINT COMMUNICATIONS, INC.
Subsidiaries
<TABLE>
<CAPTION>
<S> <C>
Name State or Jurisdiction of Incorporation
- ---- --------------------------------------
ArrowPoint Communications Limited United Kingdom
ArrowPoint Communications International, Inc. Delaware
</TABLE>
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 7, 2000
<PAGE> 1
INTERNATIONAL DATA CORPORATION
- --------------------------------------------------------------------------------
ArrowPoint Communications, Inc.
50 Nagog Park
Acton, Massachusetts 02170
Attention: General Counsel
Re: Consent to Include Language
in Registration Statement on Form S-1
International Data Corporation ("IDC") hereby consents to the inclusion by
ArrowPoint Communications, Inc. ("ArrowPoint") of the following language and
data generated by IDC in ArrowPoint's Registration Statement on Form S-1 (File
No. 333-95509), as amended and filed with the Securities and Exchange
Commission, and the Prospectus included therein:
"According to IDC (International Data Corporation), an information
technology industry analyst, the number of e-commerce users with access to
the Web will grow from an estimated 142 million at the end of 1998 to 502
million by the end of 2003."
"According to a report by IDC, e-commerce revenue is expected to increase
from $50 billion in 1998 to over $1.3 trillion in 2003."
"According to IDC, the Web hosting market will expand from $823 million
during 1998 to $18.9 billion by 2003."
Sincerely,
INTERNATIONAL DATA CORPORATION
By: /s/ Mark Leary
---------------------------------
Print Name: Mark Leary
------------------------
Print Title: Vice President
-----------------------
5 Speen Street * Framingham, MA 01701
(508) 872-8200 * Fax (508) 935-4015
IDC
http://www.idc.com
