<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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
AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value per share..................... $86,250,000 $22,770
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------
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.
- --------------------------------------------------------------------------------
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<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 JANUARY 27, 2000.
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 $ and $ . 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 shares of
common stock, the underwriters have the option to purchase up to an additional
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 ALEX. BROWN
J.P. MORGAN & CO.
------------------------
Prospectus dated , 2000.
<PAGE> 3
[ARTWORK]
[Description of inside front cover graphic: graphic depicts ArrowPoint's two web
switches. Graphic contains our name and logo at the top 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.................... shares
Shares outstanding after the
offering.................... 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 25, 2000. This number
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. This number also does not include an aggregate of
12,767,634 additional shares reserved for future issuance under ArrowPoint's
stock option and purchase plans as of December 31, 1999, after giving effect to
stock plans amended and adopted in January 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
(APRIL 14, 1997) TO YEAR ENDED 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
shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting the estimated
underwriting discount and offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
------ --------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $10,731 $24,586
Working capital......................................... 10,350 24,206
Total assets............................................ 23,206 37,061
Long-term liabilities................................... -- --
Redeemable preferred stock.............................. 34,534 --
Total stockholders' equity (deficit).................... (19,858) 28,531
</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. If any of the following
risks actually occurs, our business could be harmed. In that case, the trading
price of our common stock could decline, and you might lose all or part of your
investment.
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
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,
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<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, IT WOULD ADVERSELY AFFECT OUR BUSINESS
AND FINANCIAL PERFORMANCE
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 negatively impact our business and financial
performance in a number of ways, including:
- - diverting sales from us;
- - forcing us to charge lower prices, which is likely to adversely impact our
revenue and gross margin; and
- - adversely affecting our strategic relationships with manufacturers, resellers
and others.
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
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 products. Moreover, even if supply is available, our inability to
accurately forecast the
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<PAGE> 9
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 adversely affect our operating results.
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
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
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<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 and our
business 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.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO INTRODUCE NEW PRODUCTS AND FEATURES
ON A TIMELY BASIS OR IF OUR NEW PRODUCTS ARE UNSUCCESSFUL
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 financial results and our corporate reputation.
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 business and financial performance. In addition, Mr. Wu and Mr. Volpe have
been working together only
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<PAGE> 11
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 business and financial performance.
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 business.
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 our products.
Among the factors that could disrupt Internet usage are:
- - security concerns;
- - user dissatisfaction due to network problems or service disruptions that pre-
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<PAGE> 12
vent 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 INCUR
DAMAGE TO OUR BUSINESS AND 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 DAMAGE OUR BUSINESS AND SUBJECT US TO MONETARY LIABILITY
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 have an adverse impact on our operating results and
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 BUSINESS AND 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.
WE ARE INVOLVED IN LITIGATION WITH ARROW ELECTRONICS OVER OUR USE OF THE NAME
ARROWPOINT, AND AN ADVERSE OUTCOME IN THIS LITIGATION COULD DAMAGE OUR BUSINESS
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
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<PAGE> 13
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 % 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 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;
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<PAGE> 14
- - 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.
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<PAGE> 15
USE OF PROCEEDS
We estimate the net proceeds to us from the sale of the shares of
common stock in this offering will be approximately $ at an assumed
initial public offering price of $ 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
$ .
The principal purposes of this offering are to raise money to fund our
growth and to create a public market for our common stock. 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 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.
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<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 shares
of common stock in this offering at an assumed initial public offering price
of $ 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,
shares issued, pro forma as adjusted... 8 29
Additional paid-in capital............................ 20,483 75,424
Treasury stock........................................ (36) (36)
Deferred compensation................................. (15,300) (15,300)
Accumulated deficit................................... (25,013) (31,586)
-------- -------- --------
Total stockholders' equity (deficit)............. (19,858) 28,531
-------- -------- --------
Total capitalization........................ $ 14,676 $ 28,531 $
======== ======== ========
</TABLE>
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<PAGE> 17
DILUTION
Our pro forma net tangible book value at December 31, 1999 was $28.5
million, or $0.97 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 shares of common stock in this
offering at an assumed initial public offering price of $ 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
$ , or $ per share. This represents an immediate increase in pro
forma net tangible book value of $ per share to existing stockholders and an
immediate dilution of $ 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............. $
Pro forma net tangible book value per share at December 31,
1999...................................................... $ 0.97
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution per share to new investors......................... $
========
</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 $ , or $ per share, representing an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ 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 $ 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 % $51,240,622 % $1.76
New investors.................
---------- ------- ----------- ------- -----
Totals................... % $ % $
========== ======= =========== ======= =====
</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.
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<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>
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<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. This discussion and analysis contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of
certain factors including, but not limited to, those set forth under "Risk
Factors" and 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 our product sales to end users, resellers and
OEMs upon product shipment provided that there are no uncertainties regarding
customer acceptance and collection is probable. If uncertainties exist, we
recognize revenue when those uncertainties are resolved. We recognize revenue on
product sales to distributors when the product is sold to an end user. We
recognize revenue from our technical support contracts ratably over the terms of
the contracts. 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 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 or our failure to properly estimate the deemed fair market value of our
common stock in calculating our deferred stock compensation.
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<PAGE> 20
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.
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, travel expenses, and
increased marketing activities, including public relations, literature and other
promotional expenses. 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,
partially offset by a reduction in spending for prototype materials from 1998 to
1999. Research and development expenses were 52% of revenue in 1999. We believe
continued investment in research and development 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,
increased depreciation expense and
19
<PAGE> 21
increased professional fees. 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, recruiting fees, travel expenses, and increased marketing activities,
including advertising, trade shows and other promotional expenses.
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, prototyping
materials and other related expenses.
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, insurance
costs and professional fees.
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.
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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 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 some financial and restrictive covenants.
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
from operating losses as well as increases in accounts receivable and
inventories due to increased sales. These were partially offset by increases in
accounts payable, accrued liabilities and deferred revenue.
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
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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.
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
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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.
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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, 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
International Data Corporation, 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
International Data Corporation, 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
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infrastructure products and 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
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pressure on companies to develop new Web 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 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 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
provide 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
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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 companies 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
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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 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
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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 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
forward-
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ing. 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, installation, training and other
services are critical factors in a customer's decision to purchase a Web
switching solution. Accordingly, we devote significant resources to ensure that
we deliver high-quality support and other services 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.
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 provide 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.
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<PAGE> 32
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, 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 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
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<PAGE> 33
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 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
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<PAGE> 34
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 -- including critical network
processors and power supply devices -- are currently available from only single
vendors. 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
- - the ratio of performance to price for our products.
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. 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
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<PAGE> 35
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 and in some cases
have obtained rights to the source code for the licensed software.
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 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.
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<PAGE> 36
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.
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<PAGE> 37
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 in October 1995
and served as its Vice President, Sales and Marketing 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 a 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.
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<PAGE> 38
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 -- $ --
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, $ ; Mr.
Volpe: 1,100,000 shares, $ ; Ms. Deysher: 300,000 shares,
$ ; Mr. Lynch: 400,000 shares, $ ; and Mr. Piscia: 140,000
shares, $ . 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.
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<PAGE> 39
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 $ 269,418 $ 682,759
200,000 6.6 3.50 11/19/09 1,063,461 2,695,019
Louis J. Volpe........... -- -- -- -- -- --
Cynthia M. Deysher....... 60,000 2.0 1.25 6/10/09 115,465 292,611
Christopher P. Lynch..... 90,000 3.0 1.25 6/10/09 173,198 438,917
Peter M. Piscia.......... 80,000 2.7 1.25 6/10/09 153,953 390,148
</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 market value of our common stock on the date of option grant 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.
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<PAGE> 40
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 $ $
Louis J. Volpe...................... -- --
Cynthia M. Deysher.................. -- 60,000
Christopher P. Lynch................ -- 90,000
Peter M. Piscia..................... 22,732 157,268
</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 $ 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
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<PAGE> 41
- - 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
40
<PAGE> 42
under the Purchase Plan, an employee must authorize us to deduct from one to ten
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,
41
<PAGE> 43
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 25, 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 share 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.
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<PAGE> 44
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of January 25, 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 25, 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 25, 2000, but
excludes shares of common stock underlying options held by any other person.
Percentage ownership calculations are based on 29,210,864 shares of common stock
outstanding as of January 25, 2000, and the additional 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 19.12%
Matrix Partners(2).................................... 7,684,806 26.31
Accel Partners(3)..................................... 2,428,684 8.31
Chin-Cheng Wu(4)...................................... 2,581,600 8.84
Louis J. Volpe........................................ 1,300,000 4.45
Cynthia M. Deysher(5)................................. 371,600 1.27
Christopher P. Lynch(6)............................... 400,000 1.37
Peter M. Piscia(7).................................... 166,066 *
Paul J. Ferri(8)...................................... 7,684,806 26.31
Edward T. Anderson(9)................................. 5,585,190 19.12
James A. Dolce, Jr.(10)............................... 68,920 *
All executive officers and directors as a group (eight
persons)............................................ 18,158,182 62.11
</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. The address
of North Bridge Venture Partners, L.P. is 950 Winter Street, Suite 4600,
Waltham, MA 02451.
(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. 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
43
<PAGE> 45
Investors '97 L.P. and 53,430 shares held by Ellmore C. Patterson Partners.
The address of Accel Partners is One Palmer Square, Princeton, New Jersey
08542.
(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 26,066 shares issuable upon the exercise of options exercisable
within 60 days after January 25, 2000.
(8) 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. Mr. Ferri
is a general partner of Matrix IV Management Co., L.P., which is a general
partner of each of Matrix Partners IV, L.P. and Matrix IV Entrepreneurs
Fund, L.P. Mr. Ferri is a member of Matrix VI Management Co., L.L.C., which
is the general partner of Matrix Partners VI, L.P. Mr. Ferri is also an
authorized signatory for Weston & Co.
(9) Composed of 5,303,206 shares held by North Bridge Venture Partners II,
L.P., 191,156 held by North Bridge Venture Partners IV-A, L.P. and 90,828
shares held by North Bridge Venture Partners IV-B, L.P. Mr. Anderson is a
general partner of North Bridge Venture Management II, L.P., which is the
general partner of North Bridge Venture Partners II, L.P. Mr. Anderson is
also a general partner of North Bridge Venture Management IV, L.P., which
is the general partner of each of North Bridge Venture Partners IV-A, L.P.
and North Bridge Venture Partners IV-B, L.P.
(10) 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.
44
<PAGE> 46
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 25,
2000, there were outstanding
- - 8,206,868 shares of common stock held by 80 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 6,024,396 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
45
<PAGE> 47
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.
46
<PAGE> 48
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 shares of common stock,
based upon shares outstanding as of January 25, 2000, assuming no exercise of
the underwriters' over-allotment option and no exercise of outstanding options
after January 25, 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 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 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 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.
Taking into account the lock-up agreements, the number of 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 SHARES
- ----------------------------- ---------
<S> <C>
On the date of this prospectus..............................
90 days after the date of this prospectus...................
Two days after ArrowPoint releases its operating results for
the quarter ended June 30, 2000...........................
30 days after ArrowPoint releases its operating results for
the quarter ended June 30, 2000...........................
180 days after the date of this prospectus..................
</TABLE>
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
47
<PAGE> 49
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
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.
48
<PAGE> 50
UNDERWRITING
ArrowPoint and the underwriters named below have entered into an
underwriting agreement concerning 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.............................................
========
</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
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 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 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 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
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 assurance that any of the reserved
shares will be so purchased. The number of shares of common stock available
49
<PAGE> 51
for sale to the general public in the public offering will be reduced to the
extent these persons purchase these reserved shares. Any reserved shares not so
purchased will be offered to the general public on the same basis as the other
shares offered hereby.
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.
ArrowPoint estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $ .
ArrowPoint has agreed to indemnify the underwriters against various
liabilities, including liabilities under the Securities Act of 1933.
50
<PAGE> 52
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. Certain legal
matters 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.
51
<PAGE> 53
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> 54
After the two-for-one stock split discussed in Note (7) to the Company's
consolidated financial statements is effected, we expect to be in a position to
render the following audit report.
Arthur Andersen LLP
Boston, Massachusetts
January 26, 2000
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
January 26, 2000, except with respect to
the matters discussed in
Note 7(a), as to which
the date is February ,
2000.
F-2
<PAGE> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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 recognizes revenue on product sales to
distributors when the product is sold to an end user, provided that collection
of the receivable from the distributor is probable. Revenue from technical
support contracts is recognized ratably over the terms of the contracts. Amounts
collected or billed prior to satisfying the above revenue recognition criteria
are reflected as deferred revenue.
(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 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.
F-8
<PAGE> 61
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 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. 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.
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
F-9
<PAGE> 62
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
(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.
F-10
<PAGE> 63
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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%.
F-11
<PAGE> 64
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 certain financial and restrictive covenants, as defined. As of December 31,
1999, the Company was out of compliance with one covenant. The Company has
received a waiver from the bank for this covenant violation.
(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. 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. The Company believes that this suit will not have a
material impact on its financial condition.
The Company is not currently a party to any other legal proceedings.
F-12
<PAGE> 65
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) STOCKHOLDERS' EQUITY (DEFICIT)
(a) BOARD OF DIRECTORS' AND STOCKHOLDERS' ACTIONS
On January 25, 2000, the Company's Board of Directors approved the
following subject to stockholder approval:
- 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;
- 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;
- 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
- 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.
All share and per share amounts for all periods presented have been
retroactively adjusted to reflect the two-for-one stock split referred to above.
Also on January 25, 2000, the Company's Board of Directors approved,
subject to stockholder approval, 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
F-13
<PAGE> 66
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.)
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.
F-14
<PAGE> 67
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 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
F-15
<PAGE> 68
ARROWPOINT COMMUNICATIONS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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-16
<PAGE> 69
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-17
<PAGE> 70
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-18
<PAGE> 71
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-19
<PAGE> 72
[ARTWORK]
[Description of inside back cover graphic: graphic depicts four columns of
ArrowPoint customers. The caption across the top of the page states ArrowPoint
Customers. The column on the far right has the caption "Web Application Hosting
Providers" and lists the following customers and their logos: Exodus, Navisite,
Global Crossing, EMC2 and World Online. The next column is titled E-commerce and
lists the following customers and their logos: Delta AirLines, Staples, Lucent
Technologies, netgrocer.com, toysmart.com, MotherNature.com and Raging Bull. The
column second from the right, entitled ISPs, lists the following companies and
their logos: Road Runner, Splitrock, spinway.com, T Online, Telefonica and
Infostrada. The column on the far right, with the caption Other, lists the
following companies: nettaxi.com, abuzz, Lycos, terra and excite.]
<PAGE> 73
- -------------------------------------------------------
- -------------------------------------------------------
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>
<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.............................. 35
Transactions with Affiliates............ 41
Principal Stockholders.................. 43
Description of Capital Stock............ 45
Shares Eligible for Future Sale......... 47
Underwriting............................ 49
Legal Matters........................... 51
Experts................................. 51
Where You Can Find More Information..... 51
Index to Financial Statements........... F-1
</TABLE>
------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as an underwriter and with respect to an unsold allotment or
subscription.
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
Shares
ARROWPOINT
COMMUNICATIONS, INC.
Common Stock
------------------
[ARROWPOINT COMMUNICATIONS LOGO]
------------------
GOLDMAN, SACHS & CO.
DEUTSCHE BANC ALEX. BROWN
J.P. MORGAN & CO.
Representatives of the Underwriters
- -------------------------------------------------------
- -------------------------------------------------------
<PAGE> 74
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........................................ $22,770
NASD filing fee............................................. 9,125
Nasdaq National Market listing fee.......................... 90,000
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer agent and registrar fees and expenses..............
Miscellaneous...............................................
-------
Total............................................. $
=======
</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> 75
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 25, 2000, ArrowPoint issued and sold
an aggregate of 657,263 shares of its Series E preferred stock to 42 purchasers
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 January 25, 2000, ArrowPoint has issued and sold
a total of 8,431,202 shares of its common stock to 70 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).
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.
</TABLE>
II-2
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
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 7, 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.
21.01 Subsidiaries.
23.01* Consent of Hale and Dorr LLP (included in Exhibit 5.01).
23.02 Consent of Arthur Andersen LLP.
24.01 Power of Attorney (included on Page II-5).
27.01 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ 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
II-3
<PAGE> 77
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> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Acton, Massachusetts on
January 27, 2000.
ARROWPOINT COMMUNICATIONS, INC.
By: /s/ CHIN-CHENG WU
------------------------------------
Chin-Cheng Wu
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
AND SIGNATURES
We, the undersigned officers and directors of ArrowPoint Communications,
Inc., hereby severally constitute and appoint Chin-Cheng Wu, Cynthia M. Deysher
and Patrick J. Rondeau and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, with full powers of
substitution and resubstitution, to sign for us and in our names in the
capacities indicated below, the Registration statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement on Form S-1 filed herewith and any and all pre-effective
and post effective amendment to said Registration Statement, and any subsequent
Registration statement for the same offering which may be filed under Rule
462(b), and generally to do all such things in our names and on our behalf in
our capacities as officers and directors to enable ArrowPoint Communications,
Inc. to comply with the provision of the Securities Act of 1933, as amended, and
all requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorney, or any of
them, or their substitute or substitutes, to said Registration Statement and any
and all amendments thereto or to any subsequent Registration Statement for the
same offering which may be filed under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman and Chief Executive Officer
(principal executive officer)
/s/ CHIN-CHENG WU January 27, 2000
- ---------------------------------------
Chin-Cheng Wu
Chief Financial Officer (principal
financial and accounting officer)
/s/ CYNTHIA M. DEYSHER January 27, 2000
- ---------------------------------------
Cynthia M. Deysher
Director
/s/ EDWARD T. ANDERSON January 27, 2000
- ---------------------------------------
Edward T. Anderson
Director
/s/ JAMES A. DOLCE, JR. January 27, 2000
- ---------------------------------------
James A. Dolce, Jr.
Director
/s/ PAUL J. FERRI January 27, 2000
- ---------------------------------------
Paul J. Ferri
Director
/s/ LOUIS J. VOLPE January 27, 2000
- ---------------------------------------
Louis J. Volpe
</TABLE>
II-5
<PAGE> 79
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 7, 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.
21.01 Subsidiaries.
23.01* Consent of Hale and Dorr LLP (included in Exhibit 5.01).
23.02 Consent of Arthur Andersen LLP.
24.01 Power of Attorney (included on Page II-5).
27.01 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the Commission.
<PAGE> 1
Exhibit 1.01
ARROWPOINT COMMUNICATIONS, INC.
COMMON STOCK, $.001 PAR VALUE PER SHARE
----------------
UNDERWRITING AGREEMENT
_____________, 2000
Goldman, Sachs & Co.,
Deutsche Banc Alex. Brown
J.P. Morgan & Co.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
125 High street, 17th Floor
Boston, MA 02110-2704
Ladies and Gentlemen:
ArrowPoint Communications, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of ........ shares (the "Firm Shares") and, at the election of the Underwriters,
up to ........ additional shares (the "Optional Shares") of Common Stock, $.001
par value per share ("Stock") of the Company (the Firm Shares and the Optional
Shares that the Underwriters elect to purchase pursuant to Section 2 hereof
being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-....) (the "Initial
Registration Statement") in respect of the Shares has been filed with the
Securities and Exchange Commission (the "Commission"); the Initial Registration
Statement and any post-effective amendment thereto, each in the form heretofore
delivered to you, and, excluding exhibits thereto, to you for each of the other
Underwriters, have been declared effective by the Commission in such form; other
than a registration statement, if any, increasing the size of the offering (a
"Rule 462(b) Registration Statement"), filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended (the "Act"), which became effective upon
filing, no other document with respect to the Initial Registration Statement has
heretofore been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has been
issued and no proceeding for that purpose has been initiated or threatened by
the Commission (any preliminary prospectus included in the Initial Registration
<PAGE> 2
Statement or filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a "Preliminary
Prospectus"; the various parts of the Initial Registration Statement and the
Rule 462(b) Registration Statement, if any, including all exhibits thereto and
including the information contained in the form of final prospectus filed with
the Commission pursuant to Rule 424(b) under the Act in accordance with Section
5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the
Initial Registration Statement at the time it was declared effective, each as
amended at the time such part of the Initial Registration Statement became
effective or such part of the Rule 462(b) Registration Statement, if any, became
or hereafter becomes effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto, and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided, however, that
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus; and, since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
there has not been any change in the capital stock (other than pursuant to the
grant or exercise of options) or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus;
(e) The Company and its subsidiaries do not own any real property and have
good and marketable title to all personal property owned by them, free and clear
of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property by the
Company and its
-2-
<PAGE> 3
subsidiaries; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware with power
and authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus, and has been duly qualified as a
foreign corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, except where the
failure to be so qualified would not reasonably be likely to have a material
adverse effect on the business, financial condition, prospects or results of
operations of the Company and its subsidiaries, as a whole (a "Material Adverse
Effect"); and each subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of each subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and (except for directors' qualifying shares and except as set forth in the
Prospectus) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims;
(h) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company and the compliance by
the Company with all of the provisions of this Agreement and the consummation of
the transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries is
subject, other than conflicts, breaches or violations that would not reasonably
be likely to have a Material Adverse Effect, nor will such action result in any
violation of the provisions of the Certificate of Incorporation or By-laws of
the Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of their properties (and, in the case of an order, that
specifically names the Company or any of its subsidiaries); and no consent,
approval, authorization, order, registration or qualification of or with any
such court or governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions contemplated
by this Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
-3-
<PAGE> 4
(j) Neither the Company nor any of its subsidiaries is (i) in violation of
its Certificate of Incorporation or By-laws or (ii) in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound, except in the case of clause (ii) above, for such
defaults as are not reasonably likely to have a Material Adverse Effect;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock, and under the caption "Underwriting", insofar as they
purport to describe the provisions of the laws and documents referred to
therein, are accurate, complete and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate be reasonably likely to
have a Material Adverse Effect; and, to the Company's knowledge, no such
proceedings are threatened by governmental authorities or others;
(m) The Company is not and, immediately after giving effect to the
offering and sale of the Shares, will not be an "investment company", as such
term is defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act");
(n) Arthur Andersen LLP, who have certified certain financial statements
of the Company and its subsidiaries, are independent public accountants as
required by the Act and the rules and regulations of the Commission thereunder;
(o) The Company has reviewed its operations and that of its subsidiaries
and any third parties with which the Company or any of its subsidiaries has a
material relationship to evaluate the extent to which the business or operations
of the Company or any of its subsidiaries has been or will be affected by the
Year 2000 Problem. As a result of such review, the Company has no reason to
believe, and does not believe, that the Year 2000 Problem has had or will
reasonably be likely to have a Material Adverse Effect or in any material loss
or interference with the Company's business or operations. The "Year 2000
Problem" as used herein means any significant risk that computer hardware or
software used in the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind is not functioning or will not
reasonably be likely to function, in the case of dates or time periods occurring
after December 31, 1999, at least as effectively as on December 31, 1999; and
(p) (i) Other than as set forth in the Prospectus, the Company and its
subsidiaries own or have the right to use pursuant to license, sublicense,
agreement, or permission all patents, patent applications, trademarks, service
marks, trade names, copyrights, trade secrets, confidential information,
proprietary rights and processes ("Intellectual Property") necessary for the
operation of the business of the Company and its subsidiaries as described in
the Prospectus and have taken all steps reasonably necessary to secure
assignments of such Intellectual Property from its employees and contractors; to
the knowledge of the Company none of the technology employed by the Company or
its subsidiaries has been obtained or is being
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<PAGE> 5
used by the Company or its subsidiaries in violation of any contractual or
fiduciary obligation binding on the Company, its subsidiaries or any of their
respective directors or executive officers or, to the Company's knowledge, any
of their respective employees or consultants; and the Company and its
subsidiaries have taken and will maintain reasonable measures to prevent the
unauthorized dissemination or publication of its confidential information.
(ii) Other than as set forth in the Prospectus, (a) to the Company's
knowledge, neither the Company nor any of its subsidiaries have interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and (b) the Company and its
subsidiaries have not received any written charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Company or any of its subsidiaries must
license or refrain from using any intellectual property rights of any third
party) which, if the subject of any unfavorable decision, ruling or finding
would, individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect;
(iii) To the Company's knowledge, neither the Registration Statement nor
the Prospectus (A) contains any untrue statement of material fact with respect
to trademarks, trade names patents, mask works, copyrights, licenses, trade
secrets or other Intellectual Property rights owned by the Company or any of its
subsidiaries or (B) omits to state any material fact relating to trademarks,
trade names, patents, mask works, copyrights, licenses, trade secrets or other
Intellectual Property rights owned by the Company or any of its subsidiaries or
any allegation that is necessary to make the statement in the Registration
Statement or the Prospectus not misleading as to any such Intellectual Property
rights owned by the Company or any of its subsidiaries.
(iv) Other than as set forth in the Prospectus, to the Company's
knowledge, (a) there are no legal or governmental proceedings pending relating
to trademarks, trade names, patent rights, mask works, copy rights, licenses,
trade secrets or other Intellectual Property rights of the Company or any of its
subsidiaries other than the prosecution by the Company and it subsidiaries of
their patent applications before the United States Patent Office and appropriate
foreign government agencies, and (b) no proceedings are threatened by
governmental authorities or others relating to trademarks, trade names, patent
rights, mask works, copyrights, licenses or other Intellectual Property rights
of the Company or its subsidiaries.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
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<PAGE> 6
The Company hereby grants to the Underwriters the right to purchase at
their election up to ................... Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
sales of shares in excess of the number of Firm Shares. Any such election to
purchase Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be purchased
and the date on which such Optional Shares are to be delivered, as determined by
you but in no event earlier than the First Time of Delivery (as defined in
Section 4 hereof) or, unless you and the Company otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by wire transfer of Federal
(same-day) funds to the account specified by the Company to Goldman, Sachs & Co.
at least forty-eight hours in advance. The Company will cause the certificates
representing the Shares to be made available for checking and packaging at least
twenty-four hours prior to the Time of Delivery (as defined below) with respect
thereto at the office of DTC or its designated custodian (the "Designated
Office"). The time and date of such delivery and payment shall be, with respect
to the Firm Shares, 9:30 a.m., New York City time, on ............., 2000 or
such other time and date as Goldman, Sachs & Co. and the Company may agree upon
in writing, and, with respect to the Optional Shares, 9:30 a.m., New York time,
on the date specified by Goldman, Sachs & Co. in the written notice given by
Goldman, Sachs & Co. of the Underwriters' election to purchase such Optional
Shares, or such other time and date as Goldman, Sachs & Co. and the Company may
agree upon in writing. Such time and date for delivery of the Firm Shares is
herein called the "First Time of Delivery", such time and date for delivery of
the Optional Shares, if not the First Time of Delivery, is herein called the
"Second Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the cross
receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(m) hereof, will be delivered at the offices
of Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location
at.......p.m., New York City time, on the New York Business Day next preceding
such Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
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<PAGE> 7
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus which shall be
disapproved by you promptly after reasonable notice thereof; to advise you,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish you with
copies thereof; to advise you, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus, of the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction, of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or supplementing
of the Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or suspending any
such qualification, promptly to use its best efforts to obtain the withdrawal of
such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as you may reasonably request, and, if the delivery of a prospectus is required
at any time prior to the expiration of nine months after the time of issue of
the Prospectus in connection with the offering or sale of the Shares and if at
such time any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such period to amend or supplement the Prospectus
in order to comply with the Act, to notify you and upon your request to prepare
and furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such statement
or omission or effect such compliance, and in case any Underwriter is required
to deliver a prospectus in connection with sales of any of the Shares at any
time nine months or more after the time of issue of the Prospectus, upon your
request but at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its security holders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule
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<PAGE> 8
158(c) under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations thereunder (including, at the option of the Company, Rule
158);
(e) During the period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to benefit plans existing
on, or upon the conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement), other than to purchasers who
agree to be subject to an agreement covering the matters addressed in this
paragraph (e) for the time periods described in Section 7(k) hereof, without
your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration Statement), to make available to its stockholders consolidated
summary financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National Market
System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or Form 10-K
as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Act.
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<PAGE> 9
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the Blue Sky Memorandum, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Shares; (iii) all expenses in
connection with the qualification of the Shares for offering and sale under
state securities laws as provided in Section 5(b) hereof, including the fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on NASDAQ; (v) the filing fees
incident to, and the fees and disbursements of counsel for the Underwriters in
connection with, securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Shares; (vi) the cost
of preparing stock certificates; (vii) the cost and charges of any transfer
agent or registrar; and (viii) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. It is understood, however, that, except as
provided in this Section, and Sections 8 and 11 hereof, the Underwriters will
pay all of their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on the
part of the Commission shall have been complied with to your reasonable
satisfaction;
(b) Ropes & Gray, counsel for the Underwriters, shall have furnished to
you such written opinion or opinions (a draft of each such opinion is attached
as Annex II(a) hereto), dated such Time of Delivery, with respect to the matters
covered in paragraphs (i), (ii), (vii), (x) and (xii) of subsection (c) below as
well as such other related matters as you may reasonably request, and such
counsel shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
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<PAGE> 10
(c) Hale and Dorr LLP, counsel for the Company, shall have furnished to
you their written opinion (a draft of such opinion is attached as Annex II(b)
hereto), dated such Time of Delivery, in form and substance satisfactory to you,
to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and are fully paid and
non-assessable; and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws of
each other jurisdiction in which it owns or leases properties or conducts
any business so as to require such qualification or is subject to no
material liability or disability by reason of failure to be so qualified
in any such jurisdiction (such counsel being entitled to rely in respect
of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that they believe that both you and
they are justified in relying upon such opinions and certificates);
(iv) Each subsidiary of the Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation; and all of the issued shares of capital
stock of each such subsidiary have been duly and validly authorized and
issued, are fully paid and non-assessable, and (except for directors'
qualifying shares and except as otherwise set forth in the Prospectus) are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel and
in respect to matters of fact upon certificates of officers of the Company
or its subsidiaries, provided that such counsel shall state that they
believe that both you and they are justified in relying upon such opinions
and certificates);
(v) Any real property and buildings held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries (in giving the opinion in
this clause, such counsel may state that they are relying upon opinions of
counsel to the lessors of such property and, in respect to matters of
fact, upon certificates of officers of the Company or its subsidiaries,
provided that such counsel shall state that they believe that both you and
they are justified in relying upon such opinions, abstracts, reports,
policies and certificates);
(vi) To such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to
which the Company or any of its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries is the subject which,
if determined adversely to the Company or any of its subsidiaries, would
individually or in the
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<PAGE> 11
aggregate be reasonably likely to have a Material Adverse Effect; and, to
such counsel's knowledge, no such proceedings are threatened by
governmental authorities or others;
(vii) This Agreement has been duly authorized, executed and
delivered by the Company;
(viii)The issue and sale of the Shares being delivered at such Time
of Delivery by the Company and the compliance by the Company with all of
the provisions of this Agreement and the consummation of the transactions
herein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument that is filed as an exhibit to the Registration
Statement, nor will such action result in any violation of the provisions
of the Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their properties;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(x) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair;
(xi) The Company is not an "investment company", as such term is
defined in the Investment Company Act; and
(xii) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules
therein, and the other financial data included in the Prospectus, as to
which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the rules and
regulations thereunder; although they do not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to in
the opinion in subsection (x) of this section 7(c), nothing has come to
their attention that has caused them to believe that, as of its effective
date, the Registration Statement or any further amendment thereto made by
the Company prior to such Time of Delivery (other than the financial
statements and related schedules therein and the other financial data
included in the Prospectus, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements and related schedules therein and
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<PAGE> 12
the other financial data included in the Prospectus, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules therein and the
other financial data included in the Prospectus, as to which such counsel
need express no opinion) contains an untrue statement of a material fact
or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and they do not know of any amendment to the Registration
Statement required to be filed or of any contracts or other documents of a
character required to be filed as an exhibit to the Registration Statement
or required to be described in the Registration Statement or the
Prospectus which are not filed or described as required;
(d) Fish & Richardson, intellectual property counsel for the Company,
shall have furnished to you their written opinion, dated such Time of Delivery,
in form and substance satisfactory to you, with respect to such matters as you
may reasonably request.
(e) [___________, foreign counsel for the Company, shall have furnished to
you their written opinion, dated such Time of Delivery, in form and substance
satisfactory to you, with respect to such matters as you may reasonably
request.]
(f) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Arthur Andersen LLP
shall have furnished to you a letter or letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, to the effect set
forth in Annex I hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex I(a) hereto and a draft of the
form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(g) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
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<PAGE> 13
(h) On or after the date hereof (i) no downgrading shall have occurred in
the rating accorded the Company's debt securities or preferred stock by any
"nationally recognized statistical rating organization", as that term is defined
by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities or preferred stock;
(i) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on NASDAQ; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York or Massachusetts State authorities; or (iv) the outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war, if the effect of any such event
specified in this clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(j) The Shares to be sold at such Time of Delivery shall have been duly
listed for quotation on NASDAQ;
(k) The Company has obtained and delivered to the Underwriters executed
copies of agreements from stockholders of the Company holding in aggregate in
excess of 95% of the shares of capital stock outstanding on the date of this
Agreement, in form and substance satisfactory to you, to the effect that during
the period beginning from the date of the Prospectus and continuing to and
including the date 180 days after the date of such Prospectus, each such
stockholder will not offer, sell, contract to sell, pledge, grant any option to
purchase, make any short sale or otherwise dispose of any shares of Stock, or
any options or warrants to purchase any shares of Stock, or any securities
convertible into, exchangeable for or that represent the right to receive shares
of Stock, whether now owned or hereinafter acquired, owned directly by such
stockholder (including holding as a custodian) or with respect to which such
stockholder has beneficial ownership within the rules and regulations of the
Commission (collectively the "Locked Up Shares"); provided however that (a) two
days after the Company publicly releases its operating results for the quarter
ended June 30, 2000, fifteen percent (15%) of the Locked Up Shares shall be
released from the foregoing restrictions, and (b) thirty days after the Company
releases its operating results for the quarter ended June 30, 2000, another
twenty-five (25%) of the Locked Up Shares shall be released from the foregoing
restrictions.
(l) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(m) The Company shall have furnished or caused to be furnished to you at
such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (g) of this Section
and as to such other matters as you may reasonably request.
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<PAGE> 14
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution
-14-
<PAGE> 15
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Underwriters
agree that it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may
-15-
<PAGE> 16
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company (including any person who, with his or her
consent, is named in the Registration Statement as about to become a director of
the Company) and to each person, if any, who controls the Company within the
meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
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<PAGE> 17
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 9th Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail to the
address of the Company set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex constituting such Questionnaire, which address will be
supplied to the Company by you upon request. Any such statements, requests,
notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
-17-
<PAGE> 18
If the foregoing is in accordance with your understanding, please sign and
return to us six counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
ARROWPOINT COMMUNICATIONS, INC.
By:______________________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Deutsche Banc Alex. Brown
JP Morgan & Company
By:_____________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-18-
<PAGE> 19
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co.......................
Deutsche Banc Alex. Brown.................
J.P. Morgan & Co..........................
[Names of other Underwriters].............
---------- --------------
Total.............
========== ==============
</TABLE>
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<PAGE> 20
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of the Act and the applicable
published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial forecasts
and/or pro forma financial information) examined by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the related
published rules and regulations thereunder; and, if applicable, they have made a
review in accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim financial
statements, selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter, as indicated
in their reports thereon, copies of which have been furnished to the
representatives of the Underwriters (the "Representatives") and are attached
hereto;
(iii) They have made a review in accordance with standards established by
the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus as indicated in
their reports thereon copies of which are attached hereto and on the basis of
specified procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in paragraph
(v)(A)(i) below comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations, nothing came to their attention that cause them to believe that the
unaudited condensed consolidated financial statements do not comply as to form
in all material respects with the applicable accounting requirements of the Act
and the related published rules and regulations;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the basis of
limited procedures specified in such letter nothing came to their attention as a
result of the foregoing procedures that caused them to believe that this
information does not conform in all material respects with the disclosure
requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information referred to
below, a reading of the latest available interim financial statements of the
Company and its subsidiaries, inspection of the minute books of the Company and
its subsidiaries since the date of the latest audited financial statements
included in the Prospectus, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding items
in the unaudited consolidated financial statements from
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<PAGE> 21
which such data and items were derived, and any such unaudited data and
items were not determined on a basis substantially consistent with the
basis for the corresponding amounts in the audited consolidated financial
statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed
financial statements referred to in clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and
referred to in clause (B) were not determined on a basis substantially
consistent with the basis for the audited consolidated financial
statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in
the compilation of those statements;
(E) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the consolidated capital
stock (other than issuances of capital stock upon exercise of options and
stock appreciation rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were outstanding
on the date of the latest financial statements included in the Prospectus)
or any increase in the consolidated long-term debt of the Company and its
subsidiaries, or any decreases in consolidated net current assets or
stockholders' equity or other items specified by the Representatives, or
any increases in any items specified by the Representatives, in each case
as compared with amounts shown in the latest balance sheet included in the
Prospectus, except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which are described
in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in clause (E)
there were any decreases in consolidated net revenues or operating profit
or the total or per share amounts of consolidated net income or other
items specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in each case
for decreases or increases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and (v)
above, they have carried out certain specified procedures, not constituting an
examination in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified by
the Representatives, which are derived from the general accounting records of
the Company and its subsidiaries, which appear in the Prospectus, or in Part II
of, or in exhibits and schedules to, the Registration Statement specified by the
Representatives, and have compared certain of such amounts, percentages and
financial information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
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<PAGE> 1
Exhibit 3.02
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ARROWPOINT COMMUNICATIONS, INC.
Pursuant to Section 242 of the General Corporation Law of
the State of Delaware
-----------------------------------------------------------
ArrowPoint Communications, Inc. (hereinafter called the "Corporation"),
a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
FIRST: At a meeting of the Board of Directors of the Corporation a
resolution was duly adopted, pursuant to Section 242 of the General Corporation
Law of the State of Delaware, proposing and declaring advisable the following
amendment to the Certificate of Incorporation of the Corporation:
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 is inserted in lieu thereof:
"The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 215,501,998 shares, consisting of
(i) 200,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 15,501,998 shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), of which 5,750,000 shares shall be designated as Series A
Preferred Stock, 2,213,828 shall be designated as Series B Preferred Stock,
278,464 shall be designated as Series C Preferred Stock, 1,602,443 shall be
designated as Series D Preferred Stock, 657,263 shall be designated as Series E
Preferred Stock and 5,000,000 shares shall initially be undesignated.
<PAGE> 2
RESOLVED: That Article EIGHTH and Article NINTH of the Certificate of
Incorporation are hereby deleted in their entirety and the
following is inserted in lieu thereof:
EIGHTH. 1. Actions, Suits and Proceedings Other than by or in the Right
of the Corporation. The Corporation shall 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 (other than an action by or in the right of the Corporation), 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, partner, employee 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 him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted 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 termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which 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 reasonable cause to believe that his conduct
was unlawful.
2. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor 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, partner, employee or trustee
of, or in a similar capacity with, another corporation, partnership, joint
venture, trust or other enterprise (including any employee benefit plan), or by
reason of any action alleged to have been taken or omitted in such capacity,
against all expenses (including attorneys' fees) and, to the extent permitted by
law, amounts paid in settlement actually and reasonably incurred by him or on
his behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim,
-2-
<PAGE> 3
issue or matter as to which such person shall have been adjudged to be liable to
the Corporation unless and only to the extent that the Court of Chancery of
Delaware shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses (including
attorneys' fees) which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article EIGHTH, or in defense
of any claim, issue or matter therein, or on appeal from any such action, suit
or proceeding, he shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him or on his behalf in
connection therewith. Without limiting the foregoing, if any action, suit or
proceeding is disposed of, on the merits or otherwise (including a disposition
without prejudice), without (i) the disposition being adverse to the Indemnitee,
(ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a
plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication 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 (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. 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. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such action,
suit, proceeding or investigation, other than as provided below in this Section
4. The Indemnitee shall have the right to employ his own counsel in connection
with such action, suit, proceeding or investigation, but the fees and expenses
of such counsel incurred after notice from the Corporation of its assumption of
the defense thereof shall be at the expense of the Indemnitee unless (i) the
employment of counsel by the Indemnitee has been authorized by the Corporation,
(ii) counsel to the Indemnitee shall have reasonably concluded that there may be
a conflict of interest or position on any
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<PAGE> 4
significant issue between the Corporation and the Indemnitee in the conduct of
the defense of such action, suit, proceeding or investigation or (iii) the
Corporation shall not in fact have employed counsel to assume the defense of
such action, suit, proceeding or investigation, in each of which cases the fees
and expenses of counsel for the Indemnitee shall be at the expense of the
Corporation, except as otherwise expressly provided by this Article. The
Corporation shall not be entitled, without the consent of the Indemnitee, to
assume the defense of any claim brought by or in the right of the Corporation or
as to which counsel for the Indemnitee shall have reasonably made the conclusion
provided for in clause (ii) above. The Corporation shall not be required to
indemnify the Indemnitee under this Article for any amounts paid in settlement
of any action, suit, proceeding or investigation effected without its written
consent. The Corporation shall not settle any action, suit, proceeding or
investigation in any manner which would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. Neither the Corporation nor
the Indemnitee will unreasonably withhold or delay its consent to any proposed
settlement.
5. Advance of Expenses. Subject to the provisions of Section 6 of this
Article EIGHTH, in the event that the Corporation does not assume the defense
pursuant to Section 4 of this Article EIGHTH of any action, suit, proceeding or
investigation of which the Corporation receives notice under this Article, any
expenses (including attorneys' fees) incurred by an Indemnitee in defending a
civil or criminal action, suit, proceeding or investigation or any appeal
therefrom shall be paid by the Corporation in advance of the final disposition
of such matter; provided, however, that the payment of such expenses incurred by
the 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; and further provided that no such advancement of
expenses shall be made if it is determined (in the manner described in Section
6) that (i) 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, or (ii) with respect to any criminal action or proceeding, the
Indemnitee had reasonable cause to believe his conduct was unlawful. Such
undertaking shall be accepted without reference to the financial ability of the
Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article EIGHTH,
the Indemnitee shall submit to the Corporation a written request, including in
such request such documentation and information as is reasonably available to
the Indemnitee and is reasonably necessary to determine whether and to what
extent the Indemnitee is
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entitled to indemnification or advancement of expenses. Any such advancement of
expenses shall be made promptly, and in any event within 60 days after receipt
by the Corporation of the written request of the Indemnitee, unless with respect
to requests under Section 1, 2 or 5 of this Article EIGHTH the Corporation
determines within such 60-day period that the Indemnitee did not meet the
applicable standard of conduct set forth in Section 1, 2 or 5 of this Article
EIGHTH, as the case may be. Any such indemnification, unless ordered by a court,
shall be made with respect to requests under Section 1 or 2 only as authorized
in the specific case upon a determination by the Corporation that the
indemnification of the Indemnitee is proper because the Indemnitee has met the
applicable standard of conduct set forth in Section 1 or 2, as the case may be.
Such determination shall be made in each instance (a) by 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) by a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c), if there are no disinterested directors, or if
disinterested directors so direct, by independent legal counsel (who may, to the
extent permitted by law, be regular legal counsel to the Corporation) in a
written opinion, or (d) by the stockholders of the Corporation.
7. Remedies. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction. Neither the failure of the Corporation to have made a
determination prior to the commencement of such action that indemnification is
proper in the circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Corporation pursuant to
Section 6 of this Article EIGHTH that the Indemnitee has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Indemnitee has not met the applicable standard of conduct. The
Indemnitee's expenses (including attorneys' fees) incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such proceeding shall also be indemnified by the Corporation.
8. Limitations. Notwithstanding anything to the contrary in this
Article, except as set forth in Section 7 of the Article EIGHTH, the Corporation
shall not indemnify an Indemnitee in connection with a proceeding (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the Board of Directors of the Corporation. Notwithstanding anything to the
contrary in this Article, the Corporation shall not indemnify an Indemnitee to
the extent such Indemnitee is reimbursed from the proceeds 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
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such indemnification payments to the Corporation to the extent of such insurance
reimbursement.
9. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
10. Other Rights. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, 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.
11. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
12. Insurance. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the
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Corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of Delaware.
13. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
14. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
15. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
16. Subsequent Legislation. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. Number of Directors; Election of Directors. The number of directors
of the Corporation shall not be less than three. The exact number of directors
within the limitations specified in the preceding sentence shall be fixed from
time to time by, or in the manner provided in, the Corporation's By-Laws.
Election of directors need not be by written ballot, except as and to the extent
provided in the By-Laws of the Corporation.
2. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at
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by dividing the designated number of directors by three, then, if such fraction
is one-third, the extra director shall be a member of Class I, and if such
fraction is two-thirds, one of the extra directors shall be a member of Class I
and one of the extra directors shall be a member of Class II, unless otherwise
provided from time to time by resolution adopted by the Board of Directors.
3. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which such director was elected; provided, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting in 2001; each
initial director in Class II shall serve for a term ending on the date of the
annual meeting in 2002; and each initial director in Class III shall serve for a
term ending on the date of the annual meeting in 2003; and provided further,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
4. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member (subject to Section 3 above) and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class.
5. Quorum; Action at Meeting. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third of the number
of directors then in office constitute a quorum. If at any meeting of the Board
of Directors there shall be less than such a quorum, a majority of those present
may adjourn the meeting from time to time. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors unless a greater
number is required by law, by the By-Laws of the Corporation or by this
Certificate of Incorporation.
6. Removal. Directors of the Corporation may be removed by the
stockholders only for cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (662/3%) of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors.
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7. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
8. Stockholder Nominations and Introduction of Business, Etc. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
9. Amendments to Article. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
NINTH.
TENTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TENTH.
ELEVENTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the President or the Board of
Directors. Notwithstanding any other provision of law, this Certificate of
Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the votes
which all the stockholders would be entitled to cast in any annual election of
directors or class of directors shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article ELEVENTH.
TWELFTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or
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hereafter prescribed by statute and this Certificate of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
SECOND: The stockholders of the Corporation have duly adopted said
amendment in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its President this ____ day of _________, 2000.
ARROWPOINT COMMUNICATIONS, INC.
By:__________________________________
Louis J. Volpe
President
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<PAGE> 1
Exhibit 3.03
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ARROWPOINT COMMUNICATIONS, INC.
ArrowPoint Communications, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of the State of Delaware on April 14, 1997.
2. At a duly called meeting of the Board of Directors of the Corporation
at which a quorum was present at all times, a resolution was duly adopted,
pursuant to Sections 242 and 245 of the General Corporation Law of the State of
Delaware, setting forth an Amended and Restated Certificate of Incorporation of
the Corporation and declaring said Amended and Restated Certificate of
Incorporation advisable. The stockholders of the Corporation duly approved said
proposed Amended and Restated Certificate of Incorporation in accordance with
Sections 242 and 245 of the General Corporation Law of the State of Delaware.
The resolution setting forth the Amended and Restated Certificate of
Incorporation is as follows:
RESOLVED: That the Amended and Restated Certificate of Incorporation of
the Corporation, as amended to date, be and hereby is further
amended and restated in its entirety so that the same shall
read as follows:
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:
<PAGE> 2
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 205,000,000 shares, consisting of
(i) 200,000,000 shares of Common Stock, $.001 par value per share ("Common
Stock"), and (ii) 5,000,000 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.
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.
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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.
FIFTH. The Corporation shall have a perpetual existence.
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 in expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
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<PAGE> 4
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. 1. Actions, Suits and Proceedings Other than by or in the Right of
the Corporation. The Corporation shall 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 (other than an action by or in the right of the Corporation), 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, partner, employee 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 him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom, if he
acted 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 termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which 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 reasonable cause to believe that his conduct
was unlawful.
2. Actions or Suits by or in the Right of the Corporation. The Corporation
shall indemnify any Indemnitee who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor 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, partner, employee or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
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<PAGE> 5
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article EIGHTH, or in defense
of any claim, issue or matter therein, or on appeal from any such action, suit
or proceeding, he shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him or on his behalf in
connection therewith. Without limiting the foregoing, if any action, suit or
proceeding is disposed of, on the merits or otherwise (including a disposition
without prejudice), without (i) the disposition being adverse to the Indemnitee,
(ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a
plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication 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 (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. 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. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such action,
suit, proceeding or investigation, other than as provided below in this Section
4. The Indemnitee shall have the right to employ his own counsel in connection
with such
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action, suit, proceeding or investigation, but the fees and expenses of such
counsel incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of the Indemnitee unless (i) the
employment of counsel by the Indemnitee has been authorized by the Corporation,
(ii) counsel to the Indemnitee shall have reasonably concluded that there may be
a conflict of interest or position on any significant issue between the
Corporation and the Indemnitee in the conduct of the defense of such action,
suit, proceeding or investigation or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such action, suit, proceeding or
investigation, in each of which cases the fees and expenses of counsel for the
Indemnitee shall be at the expense of the Corporation, except as otherwise
expressly provided by this Article. The Corporation shall not be entitled,
without the consent of the Indemnitee, to assume the defense of any claim
brought by or in the right of the Corporation or as to which counsel for the
Indemnitee shall have reasonably made the conclusion provided for in clause (ii)
above. The Corporation shall not be required to indemnify the Indemnitee under
this Article for any amounts paid in settlement of any action, suit, proceeding
or investigation effected without its written consent. The Corporation shall not
settle any action, suit, proceeding or investigation in any manner which would
impose any penalty or limitation on the Indemnitee without the Indemnitee's
written consent. Neither the Corporation nor the Indemnitee will unreasonably
withhold or delay its consent to any proposed settlement.
5. Advance of Expenses. Subject to the provisions of Section 6 of this
Article EIGHTH, in the event that the Corporation does not assume the defense
pursuant to Section 4 of this Article EIGHTH of any action, suit, proceeding or
investigation of which the Corporation receives notice under this Article, any
expenses (including attorneys' fees) incurred by an Indemnitee in defending a
civil or criminal action, suit, proceeding or investigation or any appeal
therefrom shall be paid by the Corporation in advance of the final disposition
of such matter; provided, however, that the payment of such expenses incurred by
the 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; and further provided that no such advancement of
expenses shall be made if it is determined (in the manner described in Section
6) that (i) 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, or (ii) with respect to any criminal action or proceeding, the
Indemnitee had reasonable cause to believe his conduct was unlawful. Such
undertaking shall be accepted without reference to the financial ability of the
Indemnitee to make such repayment.
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<PAGE> 7
6. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article EIGHTH,
the Indemnitee shall submit to the Corporation a written request, including in
such request such documentation and information as is reasonably available to
the Indemnitee and is reasonably necessary to determine whether and to what
extent the Indemnitee is entitled to indemnification or advancement of expenses.
Any such advancement of expenses shall be made promptly, and in any event within
60 days after receipt by the Corporation of the written request of the
Indemnitee, unless with respect to requests under Section 1, 2 or 5 of this
Article EIGHTH the Corporation determines within such 60-day period that the
Indemnitee did not meet the applicable standard of conduct set forth in Section
1, 2 or 5 of this Article EIGHTH, as the case may be. Any such indemnification,
unless ordered by a court, shall be made with respect to requests under Section
1 or 2 only as authorized in the specific case upon a determination by the
Corporation that the indemnification of the Indemnitee is proper because the
Indemnitee has met the applicable standard of conduct set forth in Section 1 or
2, as the case may be. Such determination shall be made in each instance (a) by
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) by a majority vote of
a committee of disinterested directors designated by majority vote of
disinterested directors, whether or not a quorum, (c), if there are no
disinterested directors, or if disinterested directors so direct, by independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation) in a written opinion, or (d) by the stockholders of the
Corporation.
7. Remedies. The right to indemnification or advances as granted by this
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction. Neither the failure of the Corporation to have made a
determination prior to the commencement of such action that indemnification is
proper in the circumstances because the Indemnitee has met the applicable
standard of conduct, nor an actual determination by the Corporation pursuant to
Section 6 of this Article EIGHTH that the Indemnitee has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Indemnitee has not met the applicable standard of conduct. The
Indemnitee's expenses (including attorneys' fees) incurred in connection with
successfully establishing his right to indemnification, in whole or in part, in
any such proceeding shall also be indemnified by the Corporation.
8. Limitations. Notwithstanding anything to the contrary in this Article,
except as set forth in Section 7 of the Article EIGHTH, the Corporation shall
not indemnify an Indemnitee in connection with a proceeding (or part thereof)
initiated by the Indemnitee unless the initiation thereof was approved by the
Board of Directors of the Corporation. Notwithstanding anything to the contrary
in this Article, the
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Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds 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.
9. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
10. Other Rights. The indemnification and advancement of expenses provided
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, 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.
11. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
12. Insurance. The Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
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Corporation or another corporation, partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by him in any such capacity, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation Law
of Delaware.
13. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
14. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
15. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
16. Subsequent Legislation. If the General Corporation Law of Delaware is
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
NINTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. Number of Directors; Election of Directors. The number of directors of
the Corporation shall not be less than three. The exact number of directors
within the limitations specified in the preceding sentence shall be fixed from
time to time by, or in the manner provided in, the Corporation's By-Laws.
Election of directors need not be by written ballot, except as and to the extent
provided in the By-Laws of the Corporation.
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2. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which such director was elected; provided, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting in 2001; each
initial director in Class II shall serve for a term ending on the date of the
annual meeting in 2002; and each initial director in Class III shall serve for a
term ending on the date of the annual meeting in 2003; and provided further,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
4. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member (subject to Section 3 above) and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class.
5. Quorum; Action at Meeting. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
then in office constitute a quorum. If at any meeting of the Board of Directors
there shall be less than such a quorum, a majority of those present may adjourn
the meeting from time to time. Every act or decision done or made by a majority
of the directors present at a meeting duly held at which a quorum is present
shall be regarded as the act of the Board of Directors unless a greater number
is required by law, by the By-Laws of the Corporation or by this Certificate of
Incorporation.
6. Removal. Directors of the Corporation may be removed by the
stockholders only for cause by the affirmative vote of the holders of at least
sixty-six
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and two-thirds percent (66 2/3%) of the votes which all the stockholders would
be entitled to cast in any annual election of directors or class of directors.
7. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
8. Stockholder Nominations and Introduction of Business, Etc. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
9. Amendments to Article. Notwithstanding any other provisions of law,
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66%) of the votes which all the stockholders would be entitled to cast in any
annual election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article NINTH.
TENTH. Stockholders of the Corporation may not take any action by written
consent in lieu of a meeting. Notwithstanding any other provisions of law, the
Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66 2/3%) of the votes which all the stockholders would be entitled to cast in
any annual election of directors or class of directors shall be required to
amend or repeal, or to adopt any provision inconsistent with, this Article
TENTH.
ELEVENTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the President or the Board of
Directors. Notwithstanding any other provision of law, this Certificate of
Incorporation or the By-Laws of the Corporation, and notwithstanding the fact
that a lesser percentage may be specified by law, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the votes
which all the stockholders would be entitled to cast in any annual election of
directors or class of directors shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article ELEVENTH.
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TWELFTH. 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.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Incorporation to be signed by its
President this _____ day of _________, 2000.
ARROWPOINT COMMUNICATIONS, INC.
By:__________________________________
Louis J. Volpe
President
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Exhibit 3.04
AMENDED AND RESTATED BY-LAWS
OF
ARROWPOINT COMMUNICATIONS, INC.
ARTICLE I. - Stockholders
1. Place of Meetings. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors, the Chairman of the Board or the President or,
if not so designated, at the registered office of the corporation.
2. Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors, the Chairman of the Board or the President (which date shall not be a
legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors, the Chairman of the Board or the
President and stated in the notice of the meeting. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as is convenient. If no annual meeting
is held in accordance with the foregoing provisions, a special meeting may be
held in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
3. Special Meetings. Special meetings of stockholders may be called at any
time only by the Chairman of the Board, the President or the Board of Directors.
Business transacted at any special meeting of stockholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
4. Notice of Meetings. Except as otherwise provided by law, written notice
of each meeting of stockholders, whether annual or special, shall be given not
less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notices of all meetings shall
state the place, date and hour of the meeting. The notice of a special meeting
shall state, in addition, the purpose or purposes for which the meeting is
called. If mailed, notice shall be deemed given
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when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
corporation.
5. Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
of the meeting, and may be inspected by any stockholder who is present.
6. Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business. A quorum, once established at a meeting,
shall not be broken by the withdrawal of enough votes to leave less than a
quorum.
7. Adjournments. Any meeting of stockholders may be adjourned to any other
time and to any other place at which a meeting of stockholders may be held under
these By-Laws by the stockholders present or represented at the meeting and
entitled to vote, although less than a quorum, or, if no stockholder is present,
by any officer entitled to preside at or to act as Secretary of such meeting. It
shall not be necessary to notify any stockholder of any adjournment of less than
30 days if the time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, unless after the adjournment a new record
date is fixed for the adjourned meeting. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
8. Voting and Proxies. Each stockholder shall have one vote for each share
of stock entitled to vote held of record by such stockholder and a proportionate
vote for each fractional share so held, unless otherwise provided by law, the
Certificate of Incorporation or these By-Laws. Each stockholder of record
entitled to vote at a meeting of stockholders may vote in person or may
authorize another person or persons to vote or act for him by proxy executed in
writing (or in such other manner as permitted under Delaware law) by the
stockholder or his authorized agent and
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delivered (including electronic transmission) to the Secretary of the
corporation. No such proxy shall be voted or acted upon after three years from
the date of its execution, unless the proxy expressly provides for a longer
period.
9. Action at Meeting. When a quorum is present at any meeting, any matter
to be voted upon by the stockholders at such meeting shall be decided by the
affirmative vote of the holders of a majority of the stock present or
represented and voting on such matter (or if there are two or more classes of
stock entitled to vote as separate classes, then in the case of each such class,
the holders of a majority of the stock of that class present or represented and
voting on such matter), except when a different vote is required by law, the
Certificate of Incorporation or these By-laws. When a quorum is present at any
meeting, any election by stockholders shall be determined by a plurality of the
votes cast by the stockholders entitled to vote on the election.
10. Nomination of Directors. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as directors
(except for directors elected to fill vacancies, as provided in Article II,
Section 8). Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made (i) by or at the direction of the Board
of Directors or (ii) by any stockholder of the corporation entitled to vote for
the election of directors at such meeting who complies with the notice
procedures set forth in this Section 10.
To be timely, a stockholder's notice must be received by the Secretary at
the principal executive offices of the corporation as follows: (a) in the case
of an election of directors at an annual meeting of stockholders, not less than
60 days nor more than 90 days prior to the first anniversary of the preceding
year's annual meeting; provided, however, that (i) in the event that the date of
the annual meeting is advanced by more than 20 days, or delayed by more than 60
days, from such anniversary date, to be timely, a stockholder's notice must be
so received not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of (A) the 60th day prior to such
annual meeting and (B) the 10th day following the day on which notice of the
date of such annual meeting was mailed or public disclosure of the date of such
annual meeting was made, whichever first occurs, or (ii) with respect to the
annual meeting of stockholders of the corporation to be held in the year 2001,
to be timely, a stockholder's notice must be so received not earlier than the
90th day prior to such annual meeting and not later than the close of business
on the 10th day following the day on which notice of the date of such annual
meeting was mailed or public disclosure of the date of such annual meeting was
made, whichever first occurs; or (b) in the case of an election of directors at
a special meeting of stockholders, not earlier than the ninetieth day prior to
such special meeting and not later than the close of
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business on the later of (A) the sixtieth day prior to such special meeting and
(B) the 10th day following the day on which notice of the date of such special
meeting was mailed or public disclosure of the date of such special meeting was
made, whichever first occurs.
The stockholder's notice to the Secretary shall set forth (a) as to each
proposed nominee (i) the name, age, business address and, if known, residence
address of each such nominee, (ii) the principal occupation or employment of
each such nominee, (iii) the number of shares of stock of the corporation which
are beneficially owned by each such nominee, and (iv) any other information
concerning the nominee that must be disclosed as to nominees in proxy
solicitations pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended; (b) as to the stockholder giving the notice (i) the name and
address, as they appear on the corporation's books, of such stockholder and (ii)
the class and number of shares of the corporation which are beneficially owned
by such stockholder; and (c) as to the beneficial owner, if any, on whose behalf
the nomination is being made (i) the name and address of such beneficial owner
and (ii) the class and number of shares of the corporation which are
beneficially owned by such person. In addition, to be effective, the
stockholder's notice must be accompanied by the written consent of the proposed
nominee to serve as a director if elected. The corporation may require any
proposed nominee to furnish such other information as may reasonably be required
by the corporation to determine the eligibility of such proposed nominee to
serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Nothing in the foregoing provision shall obligate the corporation or the
Board of Directors to include in any proxy statement or other stockholder
communication distributed on behalf of the corporation or the Board of Directors
information with respect to any nominee for directors submitted by a
stockholder.
11. Notice of Business at Annual Meetings. At any annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
brought before the meeting by or at the direction of the Board of Directors, or
(c) otherwise properly brought before an annual meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, (i)
if such business relates to the
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election of directors of the corporation, the procedures in Section 10 of
Article I must be complied with and (ii) if such business relates to any other
matter, the stockholder must have given timely notice thereof in writing to the
Secretary in accordance with the procedures set forth in this Section 11.
To be timely, a stockholder's notice must be received by the Secretary at
the principal executive offices of the corporation not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting; provided, however, that (i) in the event that the date of the annual
meeting is advanced by more than 20 days, or delayed by more than 60 days, from
such anniversary date, to be timely, a stockholder's notice must be so received
not earlier than the 90th day prior to such annual meeting and not later than
the close of business on the later of (A) the 60th day prior to such annual
meeting and (B) the 10th day following the day on which notice of the date of
such annual meeting was mailed or public disclosure of the date of such annual
meeting was made, whichever first occurs, or (ii) with respect to the annual
meeting of stockholders of the corporation to be held in the year 2001, to be
timely, a stockholder's notice must be so received not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of (A) the 60th day prior to such annual meeting and (B) the 10th day
following the day on which notice of the date of such annual meeting was mailed
or public disclosure of the date of such annual meeting was made, whichever
first occurs.
The stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (b) the name and
address, as they appear on the corporation's books, of the stockholder proposing
such business, and the name and address of the beneficial owner, if any, on
whose behalf the proposal is made, (c) the class and number of shares of the
corporation which are beneficially owned by the stockholder and beneficial
owner, if any, and (d) any material interest of the stockholder or such
beneficial owner, if any, in such business. Notwithstanding anything in these
By-Laws to the contrary, no business shall be conducted at any annual meeting of
stockholders except in accordance with the procedures set forth in this Section
11; provided that any stockholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance
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with the provisions of this Section 11, and if he should so determine, the
chairman shall so declare to the meeting that any such business not properly
brought before the meeting shall not be transacted.
12. Action without Meeting. Stockholders may not take any action by
written consent in lieu of a meeting.
13. Conduct of Meetings. The Board of Directors of the corporation may
adopt by resolution such rules, regulations and procedures for the conduct of
any meeting of stockholders of the corporation as it shall deem appropriate.
Except to the extent inconsistent with such rules, regulations and procedures as
adopted by the Board of Directors, the officer of the corporation presiding at
any meeting of stockholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such officer, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the Board of Directors or
prescribed by the officer of the corporation presiding at the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
corporation, their duly authorized and constituted proxies or such other persons
as shall be determined; (iv) restrictions on entry to the meeting after the time
fixed for the commencement thereof; and (v) limitations on the time allotted to
questions or comments by participants. Unless and to the extent determined by
the Board of Directors or the officer of the corporation presiding at the
meeting, meetings of stockholders shall not be required to be held in accordance
with the rules of parliamentary procedure.
The officer of the corporation presiding at any meeting of stockholders
shall announce at the meeting when the polls for each matter to be voted upon at
the meeting will be closed. If no announcement is made, the polls shall be
deemed to have closed upon the final adjournment of the meeting. After the polls
close, no ballots, proxies or votes or any revocations or changes thereto may be
accepted.
In advance of any meeting of stockholders, the Board of Directors, the
Chairman of the Board or the President shall appoint one or more inspectors or
election to act at the meeting and make a written report thereof. One or more
other persons may be designated as alternate inspectors to replace any inspector
who fails to act. If no inspector or alternate is present, ready and willing to
act at a meeting of stockholders, the chairman of the meeting shall appoint one
or more inspectors to act at the meeting. Unless otherwise required by law,
inspectors may be officers, employees or agents of
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the corporation. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability. The
inspector shall have the duties prescribed by law and shall take charge of the
polls and, when the vote in completed, shall make a certificate of the result of
the vote taken and of such other facts as may be required by law.
ARTICLE II. - Directors
1. General Powers. The business and affairs of the corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2. Number; Election and Qualification. The number of directors which shall
constitute the whole Board of Directors shall be determined by resolution of the
Board of Directors, but in no event shall be less than three. The number of
directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
3. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting of stockholders following the annual meeting at
which such director was elected; provided, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting of stockholders
in 2001; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2002, and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2003; and provided further, that
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the term of each director shall be subject to the election and qualification of
his successor and to his earlier death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he or she is a
member (subject to Section 4 above) and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class.
6. Quorum; Action at Meeting. A majority of the directors at any time in
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third (1/3) of the number of
directors then in office constitute a quorum. If at any meeting of the Board of
Directors there shall be less than such a quorum, a majority of those present
may adjourn the meeting from time to time. Every act or decision done or made by
a majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board of Directors unless a greater
number is required by law, by the Certificate of Incorporation or these By-Laws.
7. Removal. Directors of the corporation may be removed by the
stockholders only for cause by the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board, shall be filled
only by vote of a majority of the directors then in office, although less than a
quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the Chairman of the
Board or Secretary. Such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
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10. Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
11. Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
12. Notice of Special Meetings. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 24 hours in
advance of the meeting, (ii) by sending a telegram, telecopy, telex or
electronic mail, or delivering written notice by hand, to his last known
business, home or electronic mail address at least 24 hours in advance of the
meeting, or (iii) by mailing written notice to his last known business or home
address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
13. Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
14. Action by Consent. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee of the Board of Directors
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent to the action in writing, and the written consents are
filed with the minutes of proceedings of the Board or committee.
15. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of
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the committee. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the corporation
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-Laws for the Board of Directors.
16. Compensation of Directors. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE III. - Officers
1. Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
2. Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3. Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
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4. Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
5. Resignation and Removal. Any officer may resign by delivering his or
her written resignation to the corporation at its principal office or to the
Chairman of the Board, President or Secretary. Such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
Any officer may be removed at any time, with or without cause, by vote of
a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who
resigns or is removed shall have any right to any compensation as an officer for
any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
6. Vacancies. The Board of Directors may fill any vacancy occurring in any
office for any reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of President, Treasurer and
Secretary. Each such successor shall hold office for the unexpired term of his
predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
7. Chairman of the Board and Vice Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. Unless otherwise provided by the
Board of Directors, he shall preside at all meetings of the stockholders, and if
he is a director, at all meetings of the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him or her by
the Board of Directors. The person designated as the Chief Executive Officer of
the Company shall, subject to the direction of the Board of Directors, have
general charge and supervision of the business of the corporation.
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8. President. Unless the Board of Directors has designated the Chairman of
the Board or another officer as Chief Executive Officer, the President shall be
the Chief Executive Officer of the corporation. The President shall perform such
other duties and shall have such other powers as the Chief Executive Officer or
the Board of Directors may from time to time prescribe.
9. Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the Chief Executive Officer may
from time to time prescribe. In the event of the absence, inability or refusal
to act of the Chief Executive Officer, then, in the order determined by the
Board of Directors, the President (if he is not the Chief Executive Officer) and
the Vice President (or if there shall be more than one, the Vice Presidents)
shall perform the duties of the Chief Executive Officer and when so performing
shall have all the powers of and be subject to all the restrictions upon the
Chief Executive Officer. The Board of Directors may assign to any Vice President
the title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
10. Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the Chief
Executive Officer may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office of
the secretary, including without limitation the duty and power to give notices
of all meetings of stockholders and special meetings of the Board of Directors,
to attend all meetings of stockholders and the Board of Directors and keep a
record of the proceedings, to maintain a stock ledger and prepare lists of
stockholders and their addresses as required, to be custodian of corporate
records and the corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Secretary, the Assistant Secretary (or if there shall be more than one,
the Assistant Secretaries in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting
of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
11. Treasurer and Assistant Treasurers. The Treasurer shall perform such
duties and shall have such powers as may from time to time be assigned to him or
her
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by the Board of Directors or the Chief Executive Officer. In addition, the
Treasurer shall perform such duties and have such powers as are incident to the
office of treasurer, including without limitation the duty and power to keep and
be responsible for all funds and securities of the corporation, to deposit funds
of the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers
as the Board of Directors, the Chief Executive Officer or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to act
of the Treasurer, the Assistant Treasurer (or if there shall be more than one,
the Assistant Treasurers in the order determined by the Board of Directors)
shall perform the duties and exercise the powers of the Treasurer.
12. Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE IV. - Capital Stock
1. Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
2. Certificates of Stock. Every holder of stock of the corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him or her in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any restriction
on transfer pursuant to the Certificate of Incorporation, the By-Laws,
applicable securities laws or
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any agreement among any number of stockholders or among such holders and the
corporation shall have conspicuously noted on the face or back of the
certificate either the full text of the restriction or a statement of the
existence of such restriction.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of each certificate representing shares of such
class or series of stock, provided that in lieu of the foregoing requirements
there may be set forth on the face or back of each certificate representing
shares of such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests a copy of the full
text of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
3. Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
4. Lost, Stolen or Destroyed Certificates. The corporation may issue a new
certificate of stock in place of any previously issued certificate alleged to
have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
5. Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other
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<PAGE> 15
distribution or allotment of any rights in respect of any change, conversion or
exchange of stock, or for the purpose of any other lawful action. Such record
date shall not be more than 60 nor less than 10 days before the date of such
meeting, nor more than 60 days prior to any other action to which such record
date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE V. - General Provisions
1. Fiscal Year. Except as from time to time otherwise designated by the
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January of each year and end on the last day of December in each year.
2. Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
3. Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telecopy or any other available
method, whether before, at or after the time stated in such waiver, or the
appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
4. Voting of Securities. Except as the directors may otherwise designate,
the Chairman of the Board or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
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5. Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary, as to any action taken by the stockholders,
directors, a committee or any officer or representative of the corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
6. Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Amended and
Restated Certificate of Incorporation of the corporation, as amended and in
effect from time to time.
7. Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
a. The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
b. The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
c. The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board of Directors or of a committee which
authorizes the contract or transaction.
8. Severability. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
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9. Pronouns. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE VI. - Amendments
These By-Laws may be altered, amended or repealed, in whole or in part, or
new By-Laws may be adopted by the Board of Directors or by the stockholders as
provided in the Certificate of Incorporation.
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Exhibit 10.01
ArrowPoint Communications, Inc.
1997 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1997 Stock Incentive Plan (the "Plan") of ArrowPoint
Communications, Inc. ("ArrowPoint"), a Delaware corporation (the "Company"), is
to advance the interests of the Company's stockholders by enhancing the
Company's ability to attract, retain and motivate persons who make (or are
expected to make) important contributions to the Company by providing such
persons with equity ownership opportunities and performance-based incentives and
thereby better aligning the interests of such persons with those of the
Company's stockholders. Except where the context otherwise requires, the term
"Company" shall include any present or future subsidiary corporations of
ArrowPoint as defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder (the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant."
3. Administration, Delegation
(a) Administration by Board of Directors. The Plan will be administered by
the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
(b) Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
<PAGE> 2
(c) Appointment of Committees. To the extent permitted by applicable law,
the Board may delegate any or all of its powers under the Plan to one or more
committees or subcommittees of the Board (a "Committee"). If and when the common
stock, $.001 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act." All references in the Plan to the "Board" shall mean
the Board or a Committee of the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under the Plan
have been delegated to such Committee or executive officer.
4. Stock Available for Awards
(a) Number of Shares. Subject to adjustment under Section 4(c), Awards may
be made under the Plan for up to 19,000,000 shares of Common Stock. If any Award
expires or is terminated, surrendered or canceled without having been fully
exercised or is forfeited in whole or in part or results in any Common Stock not
being issued, the unused Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan, subject, however, in the case
of Incentive Stock Options (as hereinafter defined), to any limitation required
under the Code. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(b) Per-Participant Limit. Subject to adjustment under Section 4(c), for
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares with respect to which an Award may be granted to any
Participant under the Plan shall be 500,000 per calendar year. The
per-participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
(c) Adjustment to Common Stock. In the event of any stock split, stock,
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of security and exercise price per
share subject to each outstanding Option, (iii) the repurchase price per
security subject to each outstanding Restricted Stock Award, and (iv) the terms
of each other outstanding stock-based Award shall be appropriately adjusted by
the Company (or substituted Awards may be made, if applicable) to the extent the
Board shall determine, in good faith, that such an adjustment (or substitution)
is necessary and appropriate. If this Section 4(c) applies and Section 8(e)(1)
also applies to any event, Section 8(e)(1) shall be applicable to such event,
and this Section 4(c) shall not be applicable.
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5. Stock Options
(a) General. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
(e) Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may otherwise provide in an Option
Agreement, delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;
(3) to the extent permitted by the Board and explicitly provided in
an Option Agreement (i) by delivery of shares of Common Stock owned by the
Participant valued at their fair market value as determined by the Board in good
faith ("Fair Market Value"), which Common Stock was owned by the Participant at
least six months prior to such delivery, (ii) by delivery of a promissory note
of the Participant to the Company on
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terms determined by the Board, or (iii) by payment of such other lawful
consideration as the Board may determine; or
(4) any combination of the above permitted forms of payment.
6. Restricted Stock
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient in
the event that conditions specified by the Board in the applicable Award are not
satisfied prior to the end of the applicable restriction period or periods
established by the Board for such Award (each, "Restricted Stock Award").
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including the
grant of shares based upon certain conditions, the grant of securities
convertible into Common Stock and the grant of stock appreciation rights.
8. General Provisions Applicable to Awards
(a) Transferability of Awards. Except as the Board may otherwise determine
or provide in an Award, Awards shall not be sold, assigned, transferred, pledged
or otherwise encumbered by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of descent and
distribution, and, during the life of the Participant, shall be exercisable only
by the Participant. References to a Participant, to the extent relevant in the
context, shall include references to authorized transferees.
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(b) Documentation. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
(c) Board Discretion. Except as otherwise provided by the Plan, each type
of Award may be made alone or in addition or in relation to any other type of
Award. The terms of each type of Award need not be identical, and the Board need
not treat Participants uniformly.
(d) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
(e) Acquisition Events
(1) Consequences of Acquisition Events. Upon the occurrence of an
Acquisition Event (as defined below), or the execution by the Company of any
agreement with respect to an Acquisition Event, the Board shall take any one or
more j of the following actions with respect to then outstanding Awards: (i)
provide that outstanding Options shall be assumed, or equivalent Options shall
be substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such Options substituted for Incentive Stock Options
shall satisfy, in the determination of the Board, the requirements of Section
424(a) of the Code; (ii) upon written notice to the Participants, provide that
all then unexercised Options will become exercisable in full as of a specified
time (the "Acceleration Time") prior to the Acquisition Event and will terminate
immediately prior to the consummation of such Acquisition Event, except to the
extent exercised by the Participants between the Acceleration Time and the
consummation of such Acquisition Event; (iii) in the event of an Acquisition
Event under the terms of which holders of Common Stock will receive upon
consummation thereof a cash payment for each share of Common Stock surrendered
pursuant to such Acquisition Event (the "Acquisition Price"), provide that all
outstanding Options shall terminate upon consummation of such Acquisition Event
and each Participant shall receive, in exchange therefor, a cash payment equal
to the amount (if any) by which (A) the Acquisition Price multiplied by the
number of shares of Common Stock subject to such outstanding Options (whether or
not then exercisable), exceeds (B) the aggregate exercise price of such Options;
(iv) provide that all Restricted Stock Awards then outstanding shall become free
of all restrictions prior to the consummation of the Acquisition Event; and (v)
provide that any other stock-based Awards outstanding (A) shall become
exercisable, realizable or vested in full, or shall be free of all conditions or
restrictions, as applicable to each such Award, prior to the consummation of the
Acquisition Event, or (B), if applicable, shall be assumed, or equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof).
An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto
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<PAGE> 6
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; (b) any sale of all or substantially all of the assets of the
Company; (c) 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; or (d) the complete
liquidation of the Company.
(2) Assumption of Options Upon Certain Events. The Board may grant
Awards under the Plan in substitution for stock and stock-based awards held by
employees of another corporation who become employees of the Company as a result
of a merger or consolidation of the employing corporation with the Company or
the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) Acceleration. The Board may at any time provide that any Options shall
become immediately exercisable in full or in part, that any Restricted Stock
Awards shall
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be free of all restrictions or that any other stock-based Awards may become
exercisable in full or in part or free of some or all restrictions or
conditions, or otherwise realizable in full or in part, as the case may be.
9. Miscellaneous
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Award until becoming the record holder of such shares.
(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board. No Awards shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's stockholders, but Awards previously granted may extend beyond
that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time.
(e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
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Exhibit 10.02
ARROWPOINT COMMUNICATIONS, INC.
2000 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose.
The purpose of this 2000 Non-Employee Director Stock Option Plan (the
"Plan") of ArrowPoint Communications, Inc. (the "Company") is to encourage
ownership in the Company by non-employee directors of the Company whose services
are considered essential to the Company's future progress and to provide them
with a further incentive to remain as directors of the Company.
2. Administration.
The Board of Directors shall supervise and administer the Plan. All
questions concerning interpretation of the Plan or any options granted under it
shall be resolved by the Board of Directors and such resolution shall be final
and binding upon all persons having an interest in the Plan. The Board of
Directors may, to the full extent permitted by or consistent with applicable
laws or regulations, delegate any or all of its powers under the Plan to a
committee appointed by the Board of Directors, and if a committee is so
appointed, all references to the Board of Directors in the Plan shall mean and
relate to such committee.
3. Participation in the Plan.
Directors of the Company who are not employees of the Company or any
subsidiary of the Company ("non-employee directors") shall be eligible to
receive options under the Plan.
4. Stock Subject to the Plan.
(a) The maximum number of shares of the Company's Common Stock, par value
$.001 per share ("Common Stock"), which may be issued under the Plan shall be
300,000 shares, subject to adjustment as provided in Section 7.
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares covered by the
unexercised portion of such option shall again become available for issuance
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options not
<PAGE> 2
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
(d) Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
5. Terms, Conditions and Form of Options.
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Company shall from time to time approve, which
agreements shall comply with and be subject to the following terms and
conditions:
(a) Option Grant Dates. Options shall automatically be granted to the
Directors as follows:
(i) each person serving as a non-employee director on the date (the
"IPO Date") of the final prospectus relating to the Company's initial public
offering of Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as amended, shall be granted an option to purchase
20,000 shares of Common Stock on the IPO Date;
(ii) each person who first becomes a non-employee director following
the IPO Date shall be granted an option to purchase 20,000 shares of Common
Stock on the date of his or her election to the Board of Directors; and
(iii) each non-employee director shall be granted an option to
purchase 10,000 shares of Common Stock on January 31 of each year, beginning
January 31, 2001, provided he or she attended at least 75% of the meetings of
the Board of Directors or any committees on which he or she served in the
preceding year.
Each date of grant of an option pursuant to this Section 5(a) is
hereinafter referred to as an "Option Grant Date."
(b) Option Exercise Price. The option exercise price per share for each
option granted under the Plan shall equal (i) the closing price on any national
securities exchange on which the Common Stock is listed, (ii) the closing price
of the Common Stock on the Nasdaq National Market or (iii) the average of the
closing bid and asked prices in the over-the-counter market, whichever is
applicable, as published in The Wall Street Journal, on the Option Grant Date.
If no sales of Common Stock were made on the Option Grant Date, the price of the
Common Stock for purposes of clauses (i) and (ii) above shall be the reported
price for the next preceding day on which sales
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were made.
(c) Transferability of Options. Except as the Board may otherwise
determine or provide in an option granted under the Plan, any option granted
under the Plan to an optionee shall not be transferable by the optionee other
than by will or the laws of descent and distribution, and shall be exercisable
during the optionee's lifetime only by the optionee or the optionee's guardian
or legal representative. References to an optionee, to the extent relevant in
the context, shall include references to authorized transferees.
(d) Vesting Period.
(i) General. Each option granted under the Plan pursuant to Section
5(a) above shall become exercisable in full on the first anniversary of the
Option Grant Date; provided that the optionee is serving as a director of the
Company on such anniversary.
(ii) Acceleration Upon a Change In Control. Notwithstanding the
foregoing, each outstanding option granted under the Plan shall immediately
become exercisable for 50% of the shares covered thereby upon the occurrence of
Change in Control Event (as defined in Section 8) with respect to the Company.
(iii) Right to Receive Restricted Stock. Notwithstanding the
provisions of Section 5(d)(i) above, the Board shall have the authority to grant
options (including options granted pursuant to Section 5(a) above) which are
immediately exercisable subject to the Company's right to repurchase any
unvested shares of stock acquired by the optionee on exercise of an option in
the event such optionee's service as a director terminates for any reason.
(e) Termination. Each option shall terminate, and may no longer be
exercised, on the earlier of (i) the date ten years after the Option Grant Date
of such option or (ii) the first anniversary of the date on which the optionee
ceases to serve as a director of the Company.
(f) Exercise Procedure. An option may be exercised only by written notice
to the Company at its principal office accompanied by (i) payment in cash or by
certified or bank check of the full consideration for the shares as to which
they are exercised, (ii) delivery of outstanding shares of Common Stock (which
have been outstanding for at least six months) having a fair market value on the
last business day preceding the date of exercise equal to the option exercise
price, or (iii) an irrevocable undertaking by a creditworthy broker to deliver
promptly to the Company sufficient funds to pay the
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<PAGE> 4
exercise price or delivery of irrevocable instructions to a creditworthy broker
to deliver promptly to the Company cash or a check sufficient to pay the
exercise price.
(g) Exercise by Representative Following Death of Director. An optionee,
by written notice to the Company, may designate one or more persons (and from
time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wish to exercise any portion of the option, they must do so within
the term of the option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
6. Limitation of Rights.
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
of an option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company will retain the optionee as a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no rights
as a stockholder with respect to the shares covered by his or her option until
the date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 7) for which the record date is prior to the date such certificate is
issued.
(c) Compliance with Securities Laws. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
7. Adjustment Provisions for Mergers, Recapitalizations and Related
Transactions.
If, through or as a result of any merger, consolidation, reorganization,
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recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are exchanged for a different number or kind of securities of the Company or of
another entity, or (ii) additional shares or new or different shares or other
securities of the Company or of another entity are distributed with respect to
such shares of Common Stock, the Board of Directors shall make an appropriate
and proportionate adjustment in (x) the maximum number and kind of shares
reserved for issuance under the Plan, (y) the number and kind of shares or other
securities subject to then outstanding options under the Plan, and (z) the price
for each share subject to any then outstanding options under the Plan (without
changing the aggregate purchase price for such options), to the end that each
option shall be exercisable, for the same aggregate exercise price, for such
securities as such optionholder would have held immediately following such event
if he had exercised such option immediately prior to such event. No fractional
shares will be issued under the Plan on account of any such adjustments.
8. Definition of "Change in Control Event". A "Change in Control Event" shall
mean:
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership of any capital stock of the
Company after the date of adoption of this Plan by the Board of
Directors if, after such acquisition, such Person beneficially
owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) 30% or more of either (x) the then-outstanding
shares of common stock of the Company (the "Outstanding Company
Common Stock") or (y) the combined voting power of the
then-outstanding securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a
Change in Control Event: (A) any acquisition directly from the
Company or an underwriter or agent of the Company (excluding an
acquisition pursuant to the exercise, conversion or exchange of
any security exercisable for, convertible into or exchangeable
for common stock or voting securities of the Company, unless the
Person exercising, converting or exchanging such security
acquired such security directly from the Company or an
underwriter or agent of the Company), (B) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained
by the Company or any corporation controlled by the Company, or
(C) any acquisition by any corporation pursuant to a Business
Combination (as defined below)
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which complies with clauses (x) and (y) of subsection (iii) of this
definition; or
(b) such time as the Continuing Directors (as defined below) do not
constitute a majority of the Board (or, if applicable, the Board
of Directors of a successor corporation to the Company), where
the term "Continuing Director" means at any date a member of the
Board (x) who was a member of the Board on the date of the
initial adoption of this Plan by the Board or (y) who was
nominated or elected subsequent to such date by at least a
majority of the directors who were Continuing Directors at the
time of such nomination or election or whose election to the
Board was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such
nomination or election; provided, however, that there shall be
excluded from this clause (y) any individual whose initial
assumption of office occurred as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation
of proxies or consents, by or on behalf of a person other than
the Board; or
(c) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the
Company or a sale or other disposition of all or substantially
all of the assets of the Company (a "Business Combination"),
unless, immediately following such Business Combination, each of
the following two conditions is satisfied: (x) all or
substantially all of the individuals and entities who were the
beneficial owners of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly,
more than 50% of the then-outstanding shares of common stock and
the combined voting power of the then-outstanding securities
entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such
Business Combination (which shall include, without limitation, a
corporation which as a result of such transaction owns the
Company or substantially all of the Company's assets either
directly or through one or more subsidiaries) (such resulting or
acquiring corporation is referred to herein as the "Acquiring
Corporation") in substantially the same proportions as their
ownership of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively, immediately prior to
such Business Combination and (y) no Person (excluding the
Acquiring Corporation or any employee benefit plan (or related
trust) maintained or sponsored by the Company or by the
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<PAGE> 7
Acquiring Corporation) beneficially owns, directly or indirectly,
30% or more of the then-outstanding shares of common stock of the
Acquiring Corporation, or of the combined voting power of the
then-outstanding securities of such corporation entitled to vote
generally in the election of directors (except to the extent that
such ownership existed prior to the Business Combination).
9. Termination and Amendment of the Plan.
The Board of Directors may suspend or terminate the Plan or amend it in
any respect whatsoever.
10. Notice.
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
11. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the internal laws of the State of Delaware (without regard
to any applicable conflicts of laws or principles).
12. Effective Date.
The Plan shall become effective on the date hereof.
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EXHIBIT 10.03
STOCK RESTRICTION AGREEMENT
This Agreement is made this 15th day of April, 1997, between ArrowPoint
Communications, Inc., a Delaware corporation (the "Company"), and Chin-Cheng Wu
(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, 1,000,000 shares (the "Shares") of
common stock, $.001 par value, of the Company ("Common Stock"), at a purchase
price of $.001 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.
2. Purchase Option.
(a) In the event that the Employee ceases to be employed by
the Company for any reason prior to September 30, 2001, the Company shall have
the right and option (the "Purchase Option") to purchase from the Employee, for
the sum of $0.001 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 September 30, 1997 and on the last day of each month
thereafter 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) Notwithstanding the foregoing, in the event of an
Acquisition, if the Employee is not offered a position with the acquiring
company (or the subsidiary or unit of the acquiring company formed by such
acquisition) at a location within a 30-mile radius of the Company's headquarters
as it existed on the day before the execution of the definitive agreement with
respect to the Acquisition, with responsibilities and compensation at least
equivalent to his responsibilities and compensation with the Company on the day
before the execution of the definitive agreement with respect to the
Acquisition, then the Vesting Schedule shall be accelerated so that all Shares
which are not then vested shall become vested immediately prior to the closing
of the Acquisition.
(e) Notwithstanding the foregoing, if following an Acquisition
(x) the Employee's employment is terminated by the acquiring company (or a
subsidiary thereof) without Good Cause (as defined below) or (y) the Employee
resigns from employment by the acquiring company (or a subsidiary thereof) for
Good Reason (as defined below), all securities or other property received in the
Acquisition (which, pursuant to Section 10(b) below, shall become subject to the
Purchase Option) which are not then vested shall become vested immediately prior
to such employment termination.
(f) For the purposes of this Section 3, "Good Cause" shall
mean (a) a good faith finding by the Board of Directors of the acquiring company
of (i) the failure of the Employee to perform, to the reasonable satisfaction of
the Board of Directors or the officer of the acquiring company to whom he
reports, his reasonably assigned duties for the acquiring company, which failure
continues for a period of 15 days after written notice by the acquiring company
to the Employee informing the Employee with reasonable specificity of such
failure, or (ii) gross negligence or willful misconduct on the part of the
Employee, or (b) the conviction of the Employee of, or the entry of a pleading
of guilty or nolo contendere by the Employee to, any crime involving moral
turpitude or any felony. For the purposes of this Section 3, "Good Reason" shall
mean a diminution in the Employee's compensation, a material adverse change in
the Employee's position or responsibilities or a relocation of the Employee
beyond a 30-mile radius from the location of the Company's headquarters as it
existed on the day before the execution of the definitive agreement with respect
to the Acquisition.
(g) 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
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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 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
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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.
(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
4
<PAGE> 5
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 (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.
5
<PAGE> 6
(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.
Notwithstanding the foregoing, the Employee acknowledges that he is a party to a
Right of First Refusal and Co-Sale Agreement with the Company and certain other
persons which imposes certain restrictions on the transfer of the shares issued
thereunder and a purchase option in favor of the Company and certain other.
persons which are in addition to the transfer restrictions and purchase rights
set forth herein.
(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.
6
<PAGE> 7
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
----------------------------
(print name and title)
Address: 235 Littleton Road
Westford, MA 01886
Chin-Cheng Wu
/s/ Chin-Cheng Wu
----------------------------
Address: 3 Coburn Road
Hopkinton, MA 01748
7
<PAGE> 8
JOINT ESCROW INSTRUCTIONS
April 15,1997
Secretary
ArrowPoint Communications, Inc.
235 Littleton Road
Westford, MA 01886
Dear Sir/Madam:
As Escrow Agent for ArrowPoint Communications, Inc., a Delaware
corporation (the "Company"), and the undersigned employee (the "Holder"), you
are hereby authorized and directed to hold the documents delivered to you
pursuant to the terms of that certain Stock Restriction Agreement (the
"Agreement") of even date herewith, to which a copy of these joint Escrow
Instructions is attached, in accordance with the following instructions:
1. Appointment. The Holder does hereby irrevocably constitute and
appoint you as his attorney-in-fact and agent for the term of this escrow to
execute with respect to the Shares (as defined in the Agreement) all documents
necessary or appropriate to make such Shares negotiable and to complete any
transaction herein contemplated. Subject to the provisions of this paragraph 1
and the terms of the Agreement, the Holder shall exercise all rights and
privileges of a stockholder of the Company while the Shares are held by you.
2. Closing.
(a) Upon any purchase by the Company of the Shares pursuant to
the Agreement, the Company shall give to the Holder and you a written notice
specifying the purchase price for the Shares, as determined pursuant to the
Agreement, and the time for a closing hereunder (the "Closing") at the principal
office of the Company. The Holder and the Company hereby irrevocably authorize
and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
(b) At the Closing (unless you have previously received
written notice from the Holder of a dispute between the Holder and the Company
with respect to the Company's purchase of the Shares, in which case you shall
continue to hold the Shares in escrow until you have received a written notice
signed by both the Holder and the Company setting forth the resolution of such
dispute and instructions with respect to the disposition of the Shares) you are
directed (i) to date the stock assignment form or forms necessary for the
transfer of the Shares, (ii) to fill in on such form or forms the number of
Shares being transferred, and (iii) to deliver same, together with the
certificate or certificates evidencing the Shares to be transferred, to the
Company against the simultaneous delivery to you of the purchase price for the
Shares being purchased pursuant to the Agreement.
3. Withdrawal. Upon receipt of a written notice from the Holder
that the Purchase Option (as defined in the Agreement) has terminated or expired
with respect to certain Shares,
<PAGE> 9
you shall deliver a certificate requesting such Shares to the Holder (unless you
have previously received written notice from the Company of a dispute between
the Holder and the Company with respect to the termination or expiration of the
Purchase Option with respect to such Shares, in which case you shall continue to
hold such Shares in escrow until you have received a written notice signed by
both the Holder and the Company setting forth the resolution of such dispute and
instructions with respect to the disposition of such Shares).
4. Duties and Responsibilities.
(a) Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
(b) You shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be protected
in relying or refraining from acting on any instrument reasonably believed by
you to be genuine and to have been signed or presented by the proper party or
parties. You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact of the Holder while acting in
good faith and in the exercise of your own good judgment, and any act done or
omitted by you pursuant to the advice of your own attorneys shall be conclusive
evidence of such good faith.
(c) You are hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law, and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree of any
court, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified, annulled,
set aside, vacated or found to have been entered without jurisdiction.
(d) You shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
(e) You shall be entitled to employ such legal counsel and
other experts as you may deem necessary properly to advise you in connection
with your obligations hereunder and may rely upon the advice of such counsel.
(f) Your responsibilities as Escrow Agent hereunder shall
terminate if you shall resign by written notice to each party. In the event of
any such termination, the Company shall appoint a successor Escrow Agent.
(g) If you reasonably require other or further instruments in
connection with these joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
(h) It is understood and agreed that should any dispute arise
with respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part
2
<PAGE> 10
of said securities until such dispute shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
5. Notices. All notices, requests, consents, and other
communications hereunder 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 235 Littleton Road, Westford, MA 01886, Attn:
President;
If to the Holder, at 3 Coburn Road, Hopkinton, MA 01748; or
If to you, at your address set forth in the introduction hereto.
Notices provided in accordance with this Section 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.
6. Substitution of Property. In the event that, pursuant to
Section 10(b) of the Agreement, other securities or property are received in
respect of the Shares and become subject to the Purchase Option, such other
securities or property shall be held in escrow pursuant to the terms hereof
applicable to the Shares.
7. Miscellaneous.
(a) By signing these joint Escrow Instructions, you become a
party hereto only for the purpose of said joint Escrow Instructions, and you do
not become a party to the Agreement.
(b) This instrument shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
Very truly yours,
/s/ Chin-Cheng Wu
---------------------------
Chin-Cheng Wu
ArrowPoint Communications, Inc.
By: /s/ Chin-Cheng Wu
---------------------------
Chin-Cheng Wu, President
---------------------------
(print name and title)
3
<PAGE> 11
ESCROW AGENT:
/s/ Chin-Cheng Wu
- ------------------------------
Chin-Cheng Wu
Secretary
ArrowPoint Communications, Inc.
4
<PAGE> 1
EXHIBIT 10.08
NONCOMPETITION AND CONFIDENTIALITY AGREEMENT
This Agreement is made between ArrowPoint Communications, Inc., a
Delaware corporation (hereinafter referred to collectively with its subsidiaries
as the "Company"), and (the "Employee").
In consideration of the employment and/or continued employment of the
Employee by the Company, the Employee and the Company hereby agree as follows:
1. Non-competition.
(a) While the Employee is employed by the Company and for a period of
one year after the termination or cessation of such employment for any reason,
the Employee will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender,
consultant, or in any other capacity whatsoever (other than as the
holder of not more than one percent of the combined voting power of the
outstanding stock of a publicly held company), develop, design,
produce, market, sell or render (or assist any other person in
developing, designing, producing, marketing, selling or rendering)
products or services competitive with those developed, designed,
produced, marketed, sold or rendered by the Company while the Employee
was employed by the Company; or
(ii) solicit, divert or take away, or attempt to divert or to
take away, the business or patronage of any of the clients, customers
or accounts, or prospective clients, customers or accounts, of the
Company which were contacted, solicited or served by the Employee while
employed by the Company.
(b) If the Employee violates the provisions of Section 1(a), the
Employee shall continue to be bound by the restrictions set forth in Section
1(a) until a period of one year has expired without any violation of such
provisions.
2. Non-solicitation.
(a) While the Employee is employed by the Company and for a period of
one year after the termination or cessation of such employment for any reason,
the Employee will not directly or indirectly recruit, solicit or hire any
employee of the Company, or induce or attempt to induce any employee of the
Company to terminate his/her employment with, or otherwise cease his/her
relationship with, the Company.
(b) If the Employee violates the provisions of Section 2(a), the
Employee shall continue to be bound by the restrictions set forth in Section
2(a) until a period of one year has expired without any violation of such
provisions.
3. Proprietary Information.
(a) The Employee agrees that all information, whether or not in
writing, of a private, secret or confidential nature concerning the Company's
business, business relationships or financial affairs (collectively,
"Proprietary Information") is and shall be the
<PAGE> 2
exclusive property of the Company. By way of illustration, but not limitation,
Proprietary Information may include inventions, products, processes, methods,
techniques, formulas, compositions, compounds, projects, developments, plans,
research data, clinical data, financial data, personnel data, computer programs,
customer and supplier lists, and contacts at or knowledge of customers or
prospective customers of the Company. The Employee will not disclose any
Proprietary Information to any person or entity other than employees of the
Company or use the same for any purpose (other than in the performance of
his/her duties as an employee of the Company) without written approval by an
officer of the Company, either during or after his/her employment with the
Company, unless and until such Proprietary Information has become public
knowledge without fault by the Employee.
(b) The Employee agrees that all files, letters, memoranda, reports,
records, data, sketches, drawings, laboratory notebooks, program listings, or
other written ' photographic, or other tangible material containing Proprietary
Information, whether created by the Employee or others, which shall come into
his/her custody or possession, shall be and are the exclusive property of the
Company to be used by the Employee only in the performance of his/her duties for
the Company. All such materials or copies thereof and all tangible property of
the Company in the custody or possession of the Employee shall be delivered to
the Company, upon the earlier of (i) a request by the Company or (ii)
termination of his/her employment. After such delivery, the Employee shall not
retain any such materials or copies thereof or any such tangible property.
(c) The Employee agrees that his/her obligation not to disclose or to
use information and materials of the types set forth in paragraphs (a) and (b)
above, and his/her obligation to return materials and tangible property, set
forth in paragraph (b) above, also extends to such types of information,
materials and tangible property of customers of the Company or suppliers to the
Company or other third parties who may have disclosed or entrusted the same to
the Company or to the Employee.
4. Developments.
(a) The Employee will make full and prompt disclosure to the Company of
all inventions, improvements, discoveries, methods, developments, software, and
works of authorship, whether patentable or not, which are created, made,
conceived or reduced to practice by him/her or under his/her direction or
jointly with others during his/her employment by the Company, whether or not
during normal working hours or on the premises of the Company (all of which are
collectively referred to in this Agreement as "Developments").
(b) The Employee agrees to assign and does hereby assign to the Company
(or any person or entity designated by the Company) all his/her right, title and
interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this Section 4(b)
shall not apply to Developments which do not relate to the present or planned
business or research and development of the Company and which are made and
conceived by the Employee not during normal working hours, not on the Company's
premises and not using the Company's tools, devices, equipment or Proprietary
Information. The Employee understands that, to the extent this Agreement shall
be construed in accordance with the laws of any state which precludes a
requirement in an employee agreement to assign certain classes of inventions
made by an employee, this Section 4(b) shall be interpreted not to apply to any
invention which a court rules and/or the Company
2
<PAGE> 3
agrees falls within such classes. The Employee also hereby waives all claims to
moral rights in any Developments.
(c) The Employee agrees to cooperate fully with the Company, both
during and after his/her employment with the Company, with respect to the
procurement, maintenance and enforcement of copyrights, patents and other
intellectual property rights (both in the United States and foreign countries)
relating to Developments. The Employee shall sign all papers, including, without
limitation, copyright applications, patent applications, declarations, oaths,
formal assignments, assignments, of priority rights, and powers of attorney,
which the Company may deem necessary or desirable in order to protect its rights
and interests in any Development. The Employee further agrees that if the
Company is unable, after reasonable effort, to secure the signature of the
Employee on any such papers, any executive officer of the Company shall be
entitled to execute any such papers as the agent and the attorney-in-fact of the
Employee, and the Employee hereby irrevocably designates and appoints each
executive officer of the Company as his/her agent and attorney-in-fact to
execute any such papers on his/her behalf, and to take any and all actions as
the Company may deem necessary or desirable in order to protect its rights and
interests in any Development, under the conditions described in this sentence.
5. Other Agreements. The Employee hereby represents that, except as the
Employee has disclosed in writing to the Company, the Employee is not bound by
the terms of any agreement with any previous employer or other party to refrain
from using or disclosing any trade secret or confidential or proprietary
information in the course of his/her employment with the Company or to refrain
from competing, directly or indirectly, with the business of such previous
employer or any other party. The Employee further represents that his/her
performance of all the terms of this Agreement and as an employee of the Company
does not and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by the Employee in confidence or in
trust prior to his/her employment with the Company, and the Employee will not
disclose to the Company or induce the Company to use any confidential or
proprietary information or material belonging to any previous employer or
others.
6. United States Government Obligations. The Employee acknowledges that
the Company from time to time may have agreements with the other persons or with
the United States Government, or agencies thereof, which impose obligations or
restrictions on the Company regarding inventions made during the course of work
under such agreements or regarding the confidential nature of such work. The
Employee agrees to be bound by all such obligations and restrictions which are
made known to the Employee and to take all action necessary to discharge the
obligations of the Company under such agreements.
7. Miscellaneous.
(a) No Conflict. The Employee represents that the execution and
performance by him/her of this Agreement does not and will not conflict with or
breach the terms of any other, agreement by which the Employee is bound.
(b) Not Employment Contract. The Employee acknowledges that this
Agreement does not constitute a contract of employment and does not imply that
the Company will continue his/her employment for any period of time.
3
<PAGE> 4
(c) Interpretation. If any restriction set forth in this Agreement is
found by any court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities or
in too broad a geographic area, it shall be interpreted to extend only over the
maximum period of time, range of activities or geographic area as to which it
may be enforceable.
(d) 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.
(e) Waiver of Rights. No delay or omission by the Company in exercising
any right under this Agreement will operate as a waiver of that or any other
right. A waiver or consent given by the Company on any one occasion is effective
only in that instance and will not be construed as a bar to or waiver of any
right on any other occasion.
(f) Equitable Remedies. The restrictions contained in this Agreement
are necessary for the protection of the business and goodwill of the Company and
are considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach of this Agreement is likely to cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, the Employee agrees that the Company, in addition to such other remedies
which may be available, shall be entitled to specific performance and other
injunctive relief.
(g) Assignability. This Agreement will be binding upon the Employee's
heirs, executors and administrators and will inure to the benefit of the Company
and its successors and assigns. The Company may assign this Agreement to any
other corporation or entity which acquires (whether by purchase, merger,
consolidation or otherwise) all or substantially all of the business and/or
assets of the Company. The Employee expressly consents to be bound by the
provisions of this Agreement for the benefit of the Company or any subsidiary or
affiliate thereof to whose employ the Employee may be transferred without the
necessity that this Agreement be re-signed at the time of such transfer.
(h) Entire Agreement. This Agreement supersedes all prior agreements,
written or oral, between the Employee and the Company relating to the subject
matter of this Agreement. This Agreement may not be modified, changed or
discharged in whole or in part, except by an agreement in writing signed by the
Employee and the Company. The Employee agrees that any change or changes in
his/her duties, salary or compensation after the signing of this Agreement shall
not affect the validity or scope of this Agreement.
(i) Governing Law. This Agreement is governed by and will be construed
as a sealed instrument under and in accordance with the laws of the Commonwealth
of Massachusetts. Any action, suit, or other legal proceeding which is commenced
to resolve any matter arising under or relating to any provision of this
Agreement shall be commenced only in a court of the Commonwealth of
Massachusetts (or, if appropriate, a federal court located within
Massachusetts), and the Company and the Employee each consents to the
jurisdiction of such a court.
4
<PAGE> 5
THE EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT
AND UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.
WITNESS: ARROWPOINT COMMUNICATIONS, INC.
Date:________________________ By:_______________________________
___________________________________
(print name and title)
Employee
Date:________________________ __________________________________
(signature)
5
<PAGE> 1
Exhibit 10.09
INVESTOR RIGHTS AGREEMENT
This Agreement, dated as of January 14, 2000, is entered into by and among
ArrowPoint Communications, Inc., a Delaware corporation (the "Company"), the
persons and entities listed on the signature page hereto under the heading
"Investors" (individually, an "Investor", and collectively, the "Investors") and
Chin-Cheng Wu (the "Founder").
BACKGROUND
WHEREAS, the Investors hold either Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock, Series C Convertible Preferred Stock,
Series D Convertible Preferred Stock and/or Series E Convertible Preferred Stock
of the Company; and
WHEREAS, the Company, the Investors and the Founder wish to provide for
(i) the composition of the Board of Directors of the Company, (ii) certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act of 1933, and (iii) a right of first refusal
with respect to the sale of any securities of the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and the consummation of the sale and purchase of
the Series E Convertible Preferred Stock pursuant to the Series E Preferred
Stock Purchase Agreement, and for other valuable consideration, receipt of which
is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" means the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"Common Stock" means the common stock, $0.001 par value per
share, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Initial Public Offering" means the sale of shares of Common Stock
in a firm commitment underwritten public offering pursuant to a Registration
Statement at a price to the public of at least $25.00 per share (adjusted for
stock splits, stock dividends and similar events) resulting in proceeds (net of
the underwriting discounts or commissions and offering expenses) to the Company
of at least $10,000,000.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock by
the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for
<PAGE> 2
a similar limited purpose, or any registration statement covering only
securities proposed to be issued in exchange for securities or assets of another
corporation).
"Registration Expenses" means the expenses described in Section 4 of
Article III below.
"Registrable Shares" means (i) the shares of Common Stock issued or
issuable upon conversion of the Shares, (ii) shares of Common Stock held by the
Founder, (iii) any shares of Common Stock, and any shares of Common Stock issued
or issuable upon the conversion or exercise of any other securities, acquired by
the Investors pursuant to Article IV of this Agreement or pursuant to the Right
of First Refusal and Co-Sale Agreement of even date herewith among the Company,
the Investors and certain other parties thereto, and (iv) any other shares of
Common Stock issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
however, that shares of Common Stock which are Registrable Shares shall cease to
be Registrable Shares (a) upon any sale of such shares pursuant to a
Registration Statement or Rule 144 under the Securities Act, (b) upon any sale
of such shares in any manner to a person or entity which, by virtue of Section 2
of Article V of this Agreement, is not entitled to the rights provided by this
Agreement, or (c) at such time as they become eligible for resale pursuant to
Rule 144(k) under the Securities Act. Wherever reference is made in this
Agreement to a request or consent of holders of a certain percentage of
Registrable Shares, the determination of such percentage shall include shares of
Common Stock issuable upon conversion of the Shares even if such conversion has
not yet been effected.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Shares" means (a) the Series A Convertible Preferred Stock issued
pursuant to the Series A Preferred Stock Purchase Agreement among the Company,
certain Investors and the Founder dated April 17, 1997 (the "Series A
Agreement"), (b) the Series B Convertible Preferred Stock issued pursuant to the
Series B Preferred Stock Purchase Agreement among the Company, certain Investors
and the Founder dated February 5, 1998 (the "Series B Agreement"), (c) the
Series C Convertible Preferred Stock issued pursuant to the Series C Preferred
Stock Purchase Agreement among the Company and certain Investors dated September
30, 1998 (the "Series C Agreement"), (d) the Series D Convertible Preferred
Stock issued pursuant to (i) the Series D Preferred Stock Purchase Agreement
among the Company and certain Investors dated February 16, 1999 and (ii) the
Series D Preferred Stock Purchase Agreement between the Company and Louis Volpe
dated November 4, 1999 (the "Series D Agreement") and (e) the Series E
Convertible Preferred Stock issued pursuant to the Series E Preferred Stock
Purchase Agreement among the Company and certain Investors dated January 14,
2000 (the "Series E Agreement").
"Stockholders" means the Investors, the Founder and any persons or
entities to whom the rights granted to Investors under this Agreement are
transferred by an Investor, its successors or permitted assigns pursuant to
Section 2 of Article V below.
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"Venture Investors" means Matrix Partners IV, L.P., Matrix IV
Entrepreneurs Fund, L.P., Matrix Partners VI, L.P., _______ Matrix _______,
North Bridge Venture Partners II, L.P., North Bridge Venture Partners IV-A,
L.P., North Bridge Venture Partners IV-B, L.P., Accel V L.P., Accel
Internet/Strategic Technology Fund L.P., Accel Keiretsu V L.P., Accel Investors
'97 L.P., Ellmore C. Patterson Partners, Chin-Cheng Wu, Net One Systems Co.,
Ltd., Westcon Group, Inc., Pequot Private Equity Fund, L.P., Pequot Offshore
Private Equity Fund, Inc., Spinnaker Clipper Fund, LP, Spinnaker Founders Fund,
LP, Spinnaker Offshore Founders Fund, Cayman Limited, Bayview Investors, Ltd.
and BT Investment Partners, Inc., and any persons or entities to whom the rights
granted to Investors under this Agreement are transferred by an Investor, its
successors or permitted assigns pursuant to Section 2 of Article V below.
ARTICLE II. VOTING RIGHTS
1. Voting of Shares. In any and all elections of directors of the Company
(whether at a meeting or by written consent in lieu of a meeting), each
Stockholder shall vote or cause to be voted all Voting Shares (as defined in
Section 2 of Article II below) owned by him, her or it, or over which he, she or
it has voting control, and otherwise use his, her or its respective best
efforts, so as to fix the number of directors at five and to elect as directors
(i) the Founder, (ii) one representative designated by North Bridge Venture
Partners II, L.P. (initially Edward T. Anderson), (iii) one representative
designated by Matrix Partners IV, L.P. (initially Paul J. Ferri), (iv) the Chief
Executive Officer of the Company, and (v) one person mutually agreed upon by the
individuals listed in clauses (i) through (iv) above. The obligation of the
Stockholders under this Section 1 to elect as a director (a) the Founder shall
continue only for so long as the Founder (together with his spouse or children
and any trust established for the benefit of his spouse, children or himself)
owns, after giving effect to the conversion of all convertible preferred stock
into Common Stock, at least 650,000 shares of Common Stock (subject to
appropriate adjustment for stock splits, stock dividends, combinations and other
similar recapitalizations affecting such shares), (b) a designee of North Bridge
Venture Partners II, L.P. shall continue only for so long as North Bridge
Venture Partners II, L.P. (together with any affiliates, within the meaning of
Rule 144 under the Securities Act) owns, after giving effect to the conversion
of all convertible preferred stock into Common Stock, at least 1,050,000 shares
of Common Stock (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other similar recapitalizations affecting such
shares) and (c) a designee of Matrix Partners IV, L.P. shall continue only for
so long as Matrix Partners IV, L.P. (together with any affiliates, within the
meaning of Rule 144 under the Securities Act) owns, after giving effect to the
conversion of all convertible preferred stock into Common Stock, at least
1,437,500 shares of Common Stock (subject to appropriate adjustment for stock
splits, stock dividends, combinations and other similar recapitalizations
affecting such shares).
2. Voting Shares. "Voting Shares" shall mean and include any and all
shares of the Common Stock, Shares, and/or shares of capital stock of the
Company, by whatever name called, which carry voting rights (including voting
rights which arise by reason of default) which are now owned or subsequently
acquired by a Stockholder, however acquired, including without limitation stock
splits and stock dividends.
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3. Restrictive Legend. All certificates representing Voting Shares owned
or hereafter acquired by the Stockholders or any transferee bound by this
Agreement shall have affixed thereto a legend substantially in the following
form:
"The shares of stock represented by this certificate are subject to
certain voting agreements as set forth in an Investor Rights Agreement by
and among the registered owner of this certificate, the Company and
certain other stockholders of the Company, a copy of which is available
for inspection at the offices of the Secretary of the Company."
4. Transfers of Voting Rights. Any transferee to whom Voting Shares are
transferred by a Stockholder, whether voluntarily or by operation of law, shall
be bound by the voting obligations imposed upon the transferor under this
Agreement, to the same extent as if such transferee were a Stockholder
hereunder.
ARTICLE III. REGISTRATION RIGHTS
1. Required Registrations.
(a) At any time after the earlier of January 14, 2003 or the closing
of the Company's first underwritten public offering of shares of Common Stock
pursuant to a Registration Statement, Venture Investors (other than the Founder)
holding in the aggregate at least 35% of the Registrable Shares held by the
Venture Investors (other than the Founder) may request, in writing, that the
Company effect the registration on Form S-1 or Form S-2 (or any successor form)
of Registrable Shares owned by such Venture Investors having an aggregate
offering price of at least $5,000,000 (based on the market price or fair value
at the time of such request). If the Venture Investors initiating the
registration intend to distribute the Registrable Shares by means of an
underwriting, they shall so advise the Company in their request. Thereupon, the
Company shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-1 or Form S-2 (or any successor form) of all Registrable
Shares which the Company has been requested to so register.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), a Stockholder or Stockholders may request the Company, in writing,
to effect the registration on Form S-3 (or such successor form), of Registrable
Shares having an aggregate offering price of at least $1,000,000 (based on the
public market price at the time of such request). Thereupon, the Company shall,
as expeditiously as possible, use its best efforts to effect the registration on
Form S-3 (or such successor form) of all Registrable Shares which the Company
has been requested to so register.
(c) The Company shall not be required to effect more than two
registrations pursuant to paragraph (a) above or more than three registrations
pursuant to paragraph (b) above; provided, however, that such obligation shall
be deemed satisfied only when a registration statement covering the applicable
Registrable Shares shall have (i) become effective or (ii) been withdrawn at the
request of the Stockholders requesting such registration (other than as a result
of information concerning the business or financial condition of the Company
which is made known to the Stockholders after the date on which such
registration was requested).
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(d) If at the time of any request to register Registrable Shares
pursuant to this Section 1, the Company is engaged or has plans to engage within
90 days of the time of the request in a registered public offering of securities
for its own account or is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely affected
by the requested registration to the material detriment of the Company, then the
Company may at its option direct that such request be delayed for a period not
in excess of three months from the effective date of such offering or the date
of commencement of such other material activity, as the case may be, such right
to delay a request to be exercised by the Company not more than once in any
12-month period.
2. Incidental Registration.
(a) Whenever the Company proposes to file a Registration Statement
(including pursuant to Section 1 of this Article III) at any time and from time
to time, it will, prior to such filing, give written notice to all Stockholders
of its intention to do so and, upon the written request of a Stockholder or
Stockholders, given within 10 business days after the Company provides such
notice (which request shall state the intended method of disposition of such
Registrable Shares), the Company shall use its reasonable best efforts to cause
all Registrable Shares which the Company has been requested by such Stockholder
or Stockholders to register, to be registered under the Securities Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such
Stockholder or Stockholders; provided, however, that the Company shall have the
right to postpone or withdraw any registration effected pursuant to this Section
2 without obligation to any Stockholder.
(b) In connection with any registration under this Section 2
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it. If in the opinion of the managing underwriter it is
desirable because of marketing factors to limit the number of Registrable Shares
to be included in the offering, then the Company shall be required to include in
the registration only that number of Registrable Shares, if any, which the
managing underwriter believes should be included therein; provided, however,
that no persons or entities other than the Company, the Stockholders and other
persons or entities holding registration rights shall be permitted to include
securities in the offering. If the number of Registrable Shares to be included
in the offering in accordance with the foregoing is less than the total number
of shares which the holders of Registrable Shares have requested to be included,
then the holders of Registrable Shares who have requested registration and other
holders of securities entitled to include them in such registration shall
participate in the registration pro rata based upon their total ownership of
shares of Common Stock (giving effect to the conversion into Common Stock of all
securities convertible thereinto). If any holder would thus be entitled to
include more securities than such holder requested to be registered, the excess
shall be allocated among other requesting holders pro rata in the manner
described in the preceding sentence.
3. Registration Procedures. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:
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(a) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its best efforts to cause that Registration
Statement to become effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or 120 days after the effective date thereof;
(c) as expeditiously as possible furnish to each selling Stockholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling Stockholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Stockholder; and
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the selling Stockholder shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholder to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Stockholder; provided, however, that the Company shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholder shall
immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide each selling
Stockholder with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholder shall be free to resume making offers of
the Registrable Shares.
Notwithstanding the foregoing, each selling Stockholder shall cease making
offers or sales pursuant to a "shelf" Registration Statement during any period
(not to exceed 90 days) in which the Company determines, by notice to each
selling Stockholder, that it is in possession of material non-public information
that, for valid business reasons, it wishes to keep confidential.
If, after a registration statement becomes effective, the Company becomes
engaged in any activity which, in the good faith determination of the Company's
Board of Directors, involves information that would have to be disclosed in the
Registration Statement but which the Company desires to keep confidential for
valid business reasons, then the Company may at its option, by notice to such
Stockholders, require that the Stockholders who have included Shares in such
Registration Statement cease sales of such Shares under such Registration
Statement for a period not in excess of three months from the date of such
notice, such right to be exercised by
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the Company not more than once in any 12-month period. If, in connection
therewith, the Company considers it appropriate for such Registration Statement
to be amended, the Company shall so amend such Registration Statement as
promptly as practicable and such Stockholders shall suspend any further sales of
their Shares until the Company advises them that such Registration Statement has
been amended. The time periods referred to herein during which such Registration
Statement must be kept effective shall be extended for an additional number of
days equal to the number of days during which the right to sell shares was
suspended pursuant to this paragraph.
4. Allocation of Expenses. The Company will pay all Registration Expenses
of all registrations under this Agreement. For purposes of this Section 4, the
term "Registration Expenses" shall mean all expenses incurred by the Company in
complying with Article III, Section 1, including, without limitation, all
registration and filing fees, exchange listing fees, printing expenses, fees and
expenses of counsel for the Company to represent the selling Stockholder(s),
state Blue Sky fees and expenses, and the expense of any special audits incident
to or required by any such registration, but excluding underwriting discounts,
selling commissions and the fees and expenses of selling Stockholders' own
counsel.
5. Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or final prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and
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each underwriter (if any) and each person, if any, who controls the Company or
any such underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities, joint or several, to
which the Company, such directors and officers, underwriter or controlling
person may become subject under the Securities Act, Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such seller furnished in writing to the Company by or on
behalf of such seller specifically for use in connection with the preparation of
such Registration Statement, prospectus, amendment or supplement; provided,
however, that the obligations of such Stockholders hereunder shall be limited to
an amount equal to the proceeds to each Stockholder of Registrable Shares sold
in connection with such registration.
(c) Each party entitled to indemnification under this Article III,
Section 5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article III, Section 5, unless
and except to the extent that the Indemnifying Party is prejudiced by the
failure of the Indemnified Party to provide timely notice. The Indemnified Party
may participate in such defense at such party's expense; provided, however, that
the Indemnifying Party shall pay such expense if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation, and no Indemnified Party shall consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
Indemnifying Party.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Article III, Section 5 but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Article III, Section 5 provides for
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indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling Stockholder or any such controlling
person in circumstances for which indemnification is provided under this Article
III, Section 5; then, in each such case, the Company and such Stockholder will
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (after contribution from others) in such proportions so that such
holder is responsible for the portion represented by the percentage that the
public offering price of its Registrable Shares offered by the Registration
Statement bears to the public offering price of all securities offered by such
Registration Statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the proceeds to it of all
Registrable Shares sold by it pursuant to such Registration Statement, and (B)
no person or entity guilty of fraudulent misrepresentation, within the meaning
of Section 11(f) of the Securities Act, shall be entitled to contribution from
any person or entity who is not guilty of such fraudulent misrepresentation.
6. Indemnification with Respect to Underwritten Offering. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Article III, Section 1, the Company agrees to
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwriters of such offering.
7. Information by Holder. Each Stockholder including Registrable Shares in
any registration shall furnish to the Company such information regarding such
Stockholder and the distribution proposed by such Stockholder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
8. "Stand-Off" Agreement. Each Stockholder, if requested by the Company
and the managing underwriter of an offering by the Company of Common Stock or
other securities of the Company pursuant to a Registration Statement, shall
agree not to sell publicly or otherwise transfer or dispose of any Registrable
Shares or other securities of the Company held by such Stockholder as of the
effective date of such Registration Statement for a specified period of time
(not to exceed 180 days) following the effective date of such Registration
Statement; provided, that:
(a) such agreement shall only apply to the first Registration
Statement covering Common Stock to be sold by or on behalf of the Company to the
public in an underwritten offering;
(b) all officers and directors of the Company and all selling
stockholders in such offering enter into similar agreements; and
(c) any waiver of the preceding "stand-off" agreement cannot be
unilateral but shall be applied pro rata among the Stockholders, the officers
and directors of the Company, and all selling shareholders in such offering.
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9. Limitations on Subsequent Registration Rights. The Company shall not,
without the prior written consent of Investors holding 66 2/3% of the
Registrable Shares held by all Investors, enter into any agreement (other than
this Agreement) with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder (a) to include
securities of the Company in any Registration Statement upon terms which are
more favorable to such holder or prospective holder than the terms on which
holders of Registrable Shares may include shares in such registration, or (b) to
make a demand registration which could result in such registration statement
being declared effective prior to January 14, 2003.
10. Rule 144 Requirements. After the earliest of (a) the closing of the
sale of securities of the Company pursuant to a Registration Statement, (b) the
registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (c) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(i) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(ii) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(iii) furnish to any holder of Registrable Shares upon request (A) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c), and the reporting requirements of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), (B) a copy of the most recent annual or quarterly report of the
Company, and (C) such other reports and documents of the Company as such holder
may reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
ARTICLE IV. RIGHT OF FIRST REFUSAL
1. Right of First Refusal
(a) The Company shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange, (i)
any shares of its Common Stock, (ii) any other equity securities of the Company,
including, without limitation, shares of preferred stock, (iii) any option,
warrant or other right to subscribe for, purchase or otherwise acquire any
equity securities of the Company, or (iv) any debt securities convertible into
capital stock of the Company (collectively, the "Offered Securities"), unless in
each such case the Company shall have first complied with Article IV of this
Agreement. The Company shall deliver to each Venture Investor a written notice
of any proposed or intended issuance, sale or exchange of Offered Securities
(the "Offer"), which Offer shall (i) identify and describe the Offered
Securities, (ii) describe the price and other terms upon which they are to be
issued, sold or exchanged, and the number or amount of the Offered Securities to
be issued, sold or exchanged, (iii) identify the persons or entities, if known,
to which or with which the Offered
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Securities are to be offered, issued, sold or exchanged, and (iv) offer to issue
and sell to or exchange with such Venture Investor (A) such portion of the
Offered Securities as is equal to (1) the number of Offered Securities
multiplied by (2) a fraction the numerator of which is the aggregate number of
shares of Common Stock issued or issuable upon conversion of the Shares held by
such Venture Investor and the denominator of which is the total number of shares
of Common Stock outstanding (after giving effect to the conversion of all
outstanding Preferred Stock into Common Stock) (the "Basic Amount"), and (B)
such additional portion of the Offered Securities as such Venture Investor shall
indicate it will purchase or acquire should the other Venture Investors
subscribe for less than their Basic Amounts (the "Undersubscription Amount").
Each Venture Investor shall have the right, for a period of 20 days following
delivery of the Offer, to purchase or acquire, at the price and upon the other
terms specified in the Offer, the number or amount of Offered Securities
described above. The Offer by its term shall remain open and irrevocable for
such 20-day period.
(b) To accept an Offer, in whole or in part, a Venture Investor must
deliver a written notice to the Company prior to the end of the 20-day period of
the Offer, setting forth the portion of such Venture Investor's Basic Amount
that such Venture Investor elects to purchase and, if such Venture Investor
shall elect to purchase all of its Basic Amount, the Undersubscription Amount
(if any) that such Venture Investor elects to purchase (the "Notice
Acceptance"). If the Basic Amounts subscribed for by all Venture Investors are
less than the total Basic Amounts, then each Venture Investor who has set forth
an Undersubscription Amount in its Notice of Acceptance shall be entitled to
purchase, in addition to the Basic Amounts subscribed for, the Undersubscription
Amount it has subscribed for; provided, however, that should the
Undersubscription Amounts subscribed for exceed the difference between the total
Basic Amounts and the Basic Amounts subscribed for (the "Available
Undersubscription Amount"), each Venture Investor who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Undersubscription Amount subscribed
for by such Venture Investor bears to the total Undersubscription Amounts
subscribed for by all Venture Investors, subject to rounding by the Board of
Directors to the extent it reasonably deems necessary.
(c) The Company shall have 90 days from the expiration of the 20-day
period set forth in Article IV, Section 1(a) to issue, sell or exchange all or
any part of such Offered Securities as to which a Notice of Acceptance has not
been given by the Venture Investors (the "Refused Securities"), but only to the
offerees or purchasers described in the Offer and only upon terms and conditions
(including, without limitation, unit prices and interest rates) which are not
more favorable, in the aggregate, to the acquiring person or persons or less
favorable to the Company than those set forth in the Offer.
(d) In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms specified
in Article IV, Section 1(c)), then each Venture Investor may, at its sole option
and in its sole discretion, reduce the number or amount of the Offered
Securities specified in its Notice of Acceptance to an amount that shall be not
less than the number or amount of the Offered Securities that the Venture
Investor elected to purchase pursuant to Article IV, Section 1(b) multiplied by
a fraction, (i) the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued
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<PAGE> 12
or sold to Venture Investors pursuant to Article IV, Section 1(b) prior to such
reduction) and (ii) the denominator of which shall be the amount of all Offered
Securities. In the event that a Venture Investor so elects to reduce the number
or amount of Offered Securities specified in its Notice of Acceptance, the
Company may not issue, sell or exchange more than the reduced number or amount
of the Offered Securities unless and until such securities have again been
offered to the Venture Investors in accordance with Article IV, Section 1(a).
(e) Upon the closing of the issuance, sale or exchange of all or
less than all the Refused Securities, the Venture Investors shall acquire from
the Company, and the Company shall issue to the Venture Investors, the number or
amount of Offered Securities specified in the Notices of Acceptance, as reduced
pursuant to Article IV, Section 1(d) if the Venture Investors have so elected,
upon the terms and conditions specified in the Offer. The purchase by the
Venture Investors of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Venture Investors of
a purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Venture Investors and the Company.
(f) Any Offered Securities not acquired by the Venture Investors or
other persons in accordance with Article IV, Section 1(c) may not be issued,
sold or exchanged until they are again offered to the Venture Investors under
the procedures specified in this Article.
2. Excluded Issuances. The rights of the Venture Investors under this
Article IV shall not apply to:
(a) Common Stock issued as a stock dividend to holders of Common
Stock or upon any subdivision or combination of shares of Common Stock;
(b) the issuance of any shares of Common Stock upon conversion of
outstanding shares of convertible preferred stock;
(c) up to 4,500,000 shares of Common Stock, or options exercisable
therefor (including shares issued or options granted to 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 Company and a
majority of the non-employee directors of the Company, issued or issuable to
officers, directors, consultants and employees of the Company or any subsidiary
pursuant to any plan, agreement or arrangement approved by the Board of
Directors of the Company;
(d) securities issued solely in consideration for the acquisition
(whether by merger or otherwise) by the Company or any of its subsidiaries of
all or substantially all of the stock or assets of any other entity; or
(e) shares of Common Stock sold by the Company in an underwritten
public offering pursuant to an effective registration statement under the
Securities Act.
(f) up to 12,000 shares of Common Stock (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such
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<PAGE> 13
shares) issued to value-added resellers of the Company pursuant to a program
approved by a majority of the members of the Board of Directors of the Company.
ARTICLE V. GENERAL
1. Termination. Article II and Article IV of this Agreement shall
terminate in their entirety upon the earlier of (a) an Acquisition (as defined
below), or (b) the closing of an Initial Public Offering, or (c) the redemption
of all Shares. An "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 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.
2. Transfer of Rights. This Agreement, and the rights and obligations of
an Investor hereunder, may be assigned by such Investor to any person or entity
to which at least 300,000 shares of Series A Convertible Preferred Stock (or
100% of the shares of Series A Convertible Preferred Stock originally purchased
under the Series A Agreement by such Investor, if less than 300,000 shares of
Series A Convertible Preferred Stock), 100,000 shares of Series B Convertible
Preferred Stock (or 100% of the shares of Series B Convertible Preferred Stock
originally purchased under the Series B Agreement by such Investor, if less than
100,000 shares of Series B Convertible Preferred Stock), 100,000 shares of
Series C Convertible Preferred Stock (or 100% of the shares of Series C
Convertible Preferred Stock originally purchased under the Series C Agreement by
such Investor, if less than 100,000 shares of Series C Convertible Preferred
Stock), 100,000 shares of Series D Convertible Preferred Stock (or 100% of the
shares of Series D Convertible Preferred Stock originally purchased under the
Series D Agreement by such Investor, if less than 100,000 shares of Series D
Convertible Preferred Stock), or 100,000 shares of Series E Convertible
Preferred Stock (or 100% of the shares of Series E Convertible Preferred Stock
originally purchased under the Series E Agreement by such Investor, if less than
100,000 shares of Series E Convertible Preferred Stock), in each case as
adjusted for stock splits, stock dividends, recapitalizations and similar
events, are transferred by such Investor, and such transferee shall be deemed an
"Investor" 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.
3. Severability. The provisions of this Agreement are severable, so that
the invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
4. Specific Performance. In addition to any and all other remedies that
may be available at law in the event of any breach of this Agreement, the
Investors and the Founder shall be entitled to specific performance of the
agreements and obligations of the other parties
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<PAGE> 14
hereunder and to such other injunctive or other equitable relief as may be
granted by a court of competent jurisdiction.
5. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware (without
reference to the conflicts of law provisions thereof).
6. 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, 60 State Street, Boston, MA 02109, Attn: Patrick
J. Rondeau, Esq.;
If to an Investor, at its or his address as set forth on the signature
page hereto, or at such other address or addresses as may have been furnished in
writing by such Investor to the Company;
If to the Founder, at 303 Kimball Road, Carlisle, MA 01741 or at such
other address or addresses as may have been furnished by the Founder to the
Company and the Investors.
Notices provided in accordance with this Article V, Section 6 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.
7. Complete Agreement; Amendments.
(a) This Agreement constitutes the full and complete agreement of
the parties hereto with respect to the subject matter hereof.
(b) The Investor Rights Agreement dated February 16, 1999 among the
Company, certain of the Investors and the Founder is hereby terminated and is
superceded in all respects by this Agreement. Each of the Investors hereby
waives any right it may have had under Article IV of such Investor Rights
Agreement with respect to the issuance and sale by the Company of the shares of
Series E Convertible Preferred Stock pursuant to the Series E Agreement.
(c) This Agreement may be amended, terminated or any rights
hereunder may be waived at any time by a written instrument signed by the
Company, Investors holding at least 66 2/3% of the shares of Common Stock issued
or issuable upon conversion of the Shares, and (if such amendment affects any of
the rights or obligations of the Founder) 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.
-14-
<PAGE> 15
8. Pronouns. Whenever the content 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.
9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one Agreement binding on all the parties hereto.
10. Captions. Captions of sections have been added only for convenience
and shall not be deemed to be a part of this Agreement.
11. Additional Purchasers. Persons or entities that, after the date
hereof, purchase Shares pursuant to the Series E Preferred Stock Purchase
Agreement and become "Additional Purchasers" thereunder may, with the prior
written approval of the Company (but without the need for approval by any other
party to this Agreement), become parties to this Agreement by executing and
delivering a counterpart signature page hereto, whereupon they shall be deemed
"Purchasers" for all purposes of this Agreement.
-15-
<PAGE> 16
[Investor Rights Agreement]
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
written above.
COMPANY:
ArrowPoint Communications, Inc.
By:________________________________
Chin-Cheng Wu
President
INVESTORS:
North Bridge Venture Partners II, L.P.
950 Winter Street, Suite 4600
Waltham, MA 02451
By: North Bridge Venture Management II, L.P.,
its General Partner
By:___________________________
Edward T. Anderson
General Partner
North Bridge Venture Partners IV-A, L.P.
950 Winter Street, Suite 4600
Waltham, MA 02451
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.
950 Winter Street, Suite 4600
Waltham, MA 02451
By: North Bridge Venture Management IV, L.P.,
its General Partner
By:___________________________
Edward T. Anderson
General Partner
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<PAGE> 17
Matrix Partners IV, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
By: Matrix IV Management Co., L.P.,
its General Partner
By:____________________________
Paul J. Ferri
General Partner
Matrix IV Entrepreneurs Fund, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
By: Matrix IV Management Co., L.P.,
its General Partner
By:___________________________
Paul J. Ferri
General Partner
Matrix Partners VI, L.P.
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
By: Matrix VI Management Co., L.L.C.,
its General Partner
By:____________________________
Paul J. Ferri
Member
Matrix ____________
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA 02154
By: _______________________________
its ____________
By:____________________________
Name:
Title:
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<PAGE> 18
Accel V L.P.
One Palmer Square
Princeton, NJ 08542
By: Accel V Associates L.L.C.
its General Partner
By:_______________________________
Name:
Managing Member
Accel Internet/Strategic Technology
Fund L.P.
One Palmer Square
Princeton, NJ 08542
By: Accel Internet/Strategic
Technology Fund Associates L.L.C.
its General Partner
By:_______________________________
Name:
Managing Member
Accel Keiretsu V L.P.
One Palmer Square
Princeton, NJ 08542
By: Accel Keiretsu V Associates L.L.C.
its General Partner
By:_______________________________
Name:
Managing Member
Accel Investors '97 L.P.
One Palmer Square
Princeton, NJ 08542
By:_______________________________
Name:
General Partner
Ellmore C. Patterson Partners
One Palmer Square
Princeton, NJ 08542
By:_______________________________
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<PAGE> 19
Name:
General Partner
Net One Systems Co., Ltd.
850 Hansen Way, Suite 100
Palo Alto, CA 94306
By:_______________________________
Name:
Title:
Westcon Group, Inc.
520 White Plains Road
Tarrytown, NY 10591
By:_______________________________
Name:
Title:
Pequot Private Equity Fund, L.P.
500 Nyala Farm Road
Westport, CT 06880
By: Pequot Capital Management, Inc.
Investment Manager
By:_______________________________
David J. Malat
Chief Financial Officer
Pequot Offshore Private Equity Fund, Inc.
500 Nyala Farm Road
Westport, CT 06880
By: Pequot Capital Management, Inc.
Investment Adviser
By:_______________________________
David J. Malat
Chief Financial Officer
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<PAGE> 20
Spinnaker Clipper Fund, LP
1875 South Grant Street
Suite 600
San Mateo, CA 94402
By: Bowman Capital Management, L.L.C.,
its General Partner
By:_______________________________
Name:
Title:
Spinnaker Founders Fund, LP
1875 South Grant Street
Suite 600
San Mateo, CA 94402
By: Bowman Capital Management, L.L.C.,
its General Partner
By:_______________________________
Name:
Title:
Spinnaker Offshore Founders Fund, Cayman Limited
1875 South Grant Street
Suite 600
San Mateo, CA 94402
By: Bowman Capital Management, L.L.C.,
its Investment Adviser and Attorney-in-Fact
By:_______________________________
Name:
Title:
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<PAGE> 21
Bayview Investors, Ltd.
555 California Street
Suite 2600
San Francisco, CA 94104
By:_______________________________
Name:
Title:
BT Investment Partners, Inc.
130 Liberty Street, 29th Floor
NY, NY 10006
By:_______________________________
Name:
Title:
H&D Investments 97
60 State Street
Boston, MA 02109
By:_______________________________
Paul P. Brountas
The Alexer Family Limited Partnership
9 Stonegate Road
Hopkinton, MA 01748
By:_______________________________
Name:
__________________________________
David Bakstran
7 Sarenstone Way
Southborough, MA 01772
__________________________________
Ari Daskalakis
42 Pilgrim Road
Belmont, MA 02178
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<PAGE> 22
__________________________________
JoAnn Daskalakis
42 Pilgrim Road
Belmont, MA 02178
__________________________________
Jan Bruggink
6 Garnet Field
Yateley Hampshire
UK GUY466FN
__________________________________
Peter Danzig
875 College Avenue
Menlo Park, CA 94025
__________________________________
Chin-Cheng Wu
303 Kimball Road
Carlisle, MA 01741
__________________________________
Yeh-Tsong Wen
37 Andover Country Club Lane
Andover, MA 01742
__________________________________
Rubin Gruber
709 Sudbury Road
Concord, MA 01742
__________________________________
Harry Daniel Lowe
141 Governor Street
Providence, RI 02906
__________________________________
Bruce I. Sachs
29 Wildwood Drive
Carlisle, MA 01741
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<PAGE> 23
__________________________________
John Prendergast
4 Dear Hill Farm
Essex, MA 01929
__________________________________
Brian Walck
1 Magnolia Road
Windham, NH 03087
__________________________________
Cynthia Deysher
28 Guzzle Brook Drive
Sudbury, MA 01776
________________________________________
Cynthia Deysher, as Custodian for Lauren
Deysher under the Massachusetts
Uniform Transfers to Minors Act
28 Guzzle Brook Drive
Sudbury, MA 01776
____________________________________________
Cynthia Deysher, as Custodian for Jacqueline
Deysher under the Massachusetts
Uniform Transfers to Minors Act
28 Guzzle Brook Drive
Sudbury, MA 01776
__________________________________
Gary J. Bowen
90 Marlboro Street #7
Boston, MA 02116
__________________________________
Stephen Van Beaver
6 Laurel Road
North Reading, MA 01864
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<PAGE> 24
__________________________________
Louis Volpe
208 Chapman Street
Canton, MA 02021
__________________________________
John Puckett
Toysmart.com
170 High Street
Waltham, MA 02453
__________________________________
Lee S. Weinstein
11 Skyline Drive
Hawthorne, NY 10532
__________________________________
[Corporate--Exodus]
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
__________________________________
Timothy Reynders
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
__________________________________
Peter Biro
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
__________________________________
Peter Fortenbaugh
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
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<PAGE> 25
__________________________________
Joseph Stockwell
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
__________________________________
Richard Stoltz
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
___________________________Michael
Hakimi
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
__________________________________
James McInerny
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
__________________________________
Sam Mohamad
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
__________________________________
Adam Wegner
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
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<PAGE> 26
__________________________________
Robert Sanford
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
__________________________________
James Blom
Exodus
2831 Mission College Boulevard
Santa Clara, CA 95054
__________________________________
Don Detampel
Global Crossing
141 Caspian Court
Sunnyvale, CA 94089
__________________________________
Paul Santinelli
Global Crossing
141 Caspian Court
Sunnyvale, CA 94089
__________________________________
Scott David
Global Crossing
141 Caspian Court
Sunnyvale, CA 94089
__________________________________
John Calonico
Global Crossing
141 Caspian Court
Sunnyvale, CA 94089
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<PAGE> 27
__________________________________
Stephen Van Beaver
13241 Woodland Park Rd.
Herndon, VA 20171-3000
__________________________________
Robert B. Eisenberg
52 Louise Drive
Hollis, NH 03049
__________________________________
Kenneth Hale
100 Brickstone Square, 5th Fl.
Andover, MA 01810
__________________________________
Dr. Luis Paz
Combox
212 Harvard Avenue E., #401
Seattle, WA 98102
__________________________________
Peter Herzog
Combox
212 Harvard Avenue E., #401
__________________________________
[Lycos Corporate]
Lycos
400-2 Totten Pond Road
Waltham, MA 02451
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<PAGE> 28
__________________________________
Bob Davis
Lycos
400-2 Totten Pond Road
Waltham, MA 02451
Jose Garcia
Case Technology
Isla del Hierro, n. 5
28700 San Sebastian
de los Reyes
Madrid, Spain
__________________________________
Lawrence Calcano
Goldman Sachs
85 Broad Street, 14th Floor
New York, NY 10004
FOUNDER:
__________________________________
Chin-Cheng Wu
-28-
<PAGE> 1
Exhibit 10.10
[PLEXUS LOGO]
Confidential Materials omitted and filed separately
with the Securities and Exchange
Commission. Asterisks denote omissions.
COMPREHENSIVE PROFESSIONAL SERVICES AGREEMENT
This Agreement is hereby entered into on this 25th day of August, 1999 and
between Arrowpoint Communications, 235 Littleton Road, Westford, MA
018886,(hereinafter "Customer") and Plexus Corp. of 55 Jewelers Park Drive,
Neenah, WI 54956, (along with its wholly-owned subsidiaries Technology Group
Inc., and Electronic Assembly Corporation, hereafter collectively referred to as
"Plexus".)
A. PRODUCT DEVELOPMENT AND PROTOTYPE PHASE
The terms and conditions set forth in this Section A, Product Development and
Prototype Phase, as well as the terms and conditions set for in Section C,
Standard Terms and Conditions, shall be applicable to this portion of the
Agreement.
1. PROGRAM
Plexus will undertake for the Customer a Program (which includes a
Prototype Production Run) defined in the accompanying Proposal which
this Agreement is part of. The activity described in the accompanying
Proposal will be referred to as the "Program". Prototype Services
further include, but not limited to, assembly labor, parts,
manufacturing defect analysis "MDA" testing and printed circuit board
"PCB" layout.
a) At the Customers request, Plexus will provide a monthly detailed
engineering report showing progress of the agreed to Program and
schedule.
b) From time to time, Plexus and the customer may redefine, revise,
enlarge, amend, abandon, or undertake a new phase of activity as an
addition to the Program. These revisions to the Program shall be
defined in writing and agreed upon by both parties. Any additional
cost associated with the revisions shall be quoted by Plexus and
authorized by the Customer before work can proceed on them. Except
for appropriate changes in objectives, schedules and budgets, all
additional work shall be conducted under the terms of this
Agreement.
c) Unit cost estimates provided in this Proposal or during the course
of the Product Development Phase are not binding and are for
informal use only.
d) Sections B.1."Definitions" and B. h. regarding "Engineering Changes"
of this Agreement shall further apply to all Prototype Services
herein.
2. DRAWINGS, RECORDS AND MODELS
Customer agrees to provide to Plexus drawings, records and models,
assembly drawings, bill of materials, approved vendor list ("AVL") and
Gerber files. All records, sketches, original drawings, photographs,
prototypes, assembly drawings, bill of materials, AVL, Gerber files or
finished models and the use thereof are the exclusive property of the
Customer. Normally any such items, which are of continuing value to the
Customer, are returned to the Customer. In order to avoid questions
regarding value, the customer will issue written instructions to Plexus
within sixty (60) days following termination or completion of the
Product Development and Prototype Phase for the disposition all such
items. Plexus is authorized to determine the disposition of any such
items, which are not covered by written instructions.
At the completion of the Product Development and Prototype Phase, the
customer will receive hard copies and/or magnetic medium of the files
generated as a result of the Product Development and Prototype Phase.
These deliverables are described in the Proposal. Customer will be
responsible for maintaining the deliverables in a suitable environment.
Plexus will assume no responsibility for archiving the deliverables at
the completion
<PAGE> 2
of the Product Development and Prototype Phase, unless otherwise
negotiated or agreed upon between the parties.
3. COMMITMENT TO MANUFACTURE
Customer understands that PLEXUS desires to manufacture the product at
the end of the program. Customer understands that manufacturing of the
product by a competitor of PLEXUS is undesirable to PLEXUS. Should
Customer manufacture the product outside Customer's facilities,
Customer will work with PLEXUS in good faith to ensure that PLEXUS is
awarded the manufacture of the product. Manufacturing decisions will be
based on competitive analysis and capability requirements.
4. PROTOTYPE UNITS
Engineering and Pre-production Prototypes: During the Product
Development and Prototype Phase, Plexus may generate several versions
of the unit to verify design concepts. The number of prototypes and/or
pre-production units that Plexus will deliver to the Customer is
outlined in the body of the proposal. These prototypes may or may not
meet the requirements of the product specification. Once these units
are built, any modifications (hardware, software, or mechanical)
required as a result of further testing will be done by Plexus on a
time and material basis.
5. ON-GOING SUPPORT
At the conclusion of the Product Development and Prototype Phase of the
Program, Plexus and the Customer will jointly review the entire Program
to assure compliance with the Program Specifications. When this has
been completed, Plexus will notify the Customer in writing that this
Phase has been completed, and the Customer will have thirty (30) days
to respond by identifying errors or omissions they believe should be
corrected by Plexus under this Agreement. After that period, the
Customer requests for on-going support will be handled on a time and
materials basis at Plexus' then current billing rates.
6. COMPENSATION, CHARGES, AND BILLING
a) Unless other specific arrangements are agreed upon, Plexus will
invoice the Customer each month for services rendered up to the
total amount specified in the Proposal. Invoices are subject to
terms of NET AMOUNT DUE IN THIRTY (30) DAYS following the date of
the invoice.
b) The parties agree to work in good faith on prototype unit machine
and assembly labor rates in connection with this Agreement, which
shall be calculated in a manner and similar to the Parts and Labor
Pricing Estimate ("Pricing Model Estimate") set forth in Attachment
A, attached hereto and made a part hereof. The parties further agree
that this Pricing Model Estimate shall be used for estimating and
budgetary purposes only and that prototype pricing may change from
time to time due to market fluctuations, components pricing and
other variables.
c) Unless specifically stated to the contrary in the Proposal, the
following parts and/or services are not included in the base
Proposal and may be an additional billing monthly as costs are
incurred:
Parts, PCBs and freight which may be required for project,
breadboard and/or prototypes, which shall be calculated in a manner
and similar to the Parts and Labor Pricing Model Estimate ("Pricing
Model Estimate") set forth in Attachment A, attached hereto and made
a part hereof. The parties further agree that this Pricing Model
shall be used for estimating and budgetary purposes only and that
prototype pricing may change from time to time due to market
fluctuations, components pricing and other variables.
i. Tooling charges for custom components such as graphics,
plastics, metal, etc. - actual cost plus 10%.
ii. Telephone, fax, and travel expenses incurred by Plexus in
pursuing the customers objectives and directives - actual
cost.
iii. Any travel required by Plexus in pursuing the Customer's
objectives and directives will be billed at the normal hourly
rate of the personnel performing the work for the Customer,
with a maximum day billing of 8 hours plus any expenses
incurred.
2
<PAGE> 3
iv. Services of consultants or other outside personnel retained by
Plexus will be invoiced to the customer at a rate commensurate
with Plexus' in-house rates or actual cost plus 10%.
v. NRE and Tooling: Mark-up percentage on NRE is 10%.Plexus will
make reasonable efforts to minimize tooling and NRE charges
including competitive quoting. Customer has the right to
review NRE and tooling quotes. Customer has the right to
alternatively source NRE materials if NRE if pricing cannot be
mutually agreed upon between the parties.
7. PRODUCT DEVELOPMENT AND PROTOTYPE CANCELLATION
During the Product Development and Prototype Phase, Customer may cancel
this project upon providing forty-five (45) days written notice to
Plexus. In such an event, the Customer shall be responsible for all
expenses incurred through the effective date of cancellation,
including, but not limited to, all labor undertaken and all materials
purchases or ordered prior to said effective date.
8. ADVANCED PROCUREMENT OF COMPONENTS
Plexus may, at its sole discretion, with Customer approval, procure in
advance of Customer POs for assemblies, pursuant to the Prototype
Quantity Build for each top level and board level assembly, the
Components and/or the Long Lead Time Components, NCNR Components and/or
Special Components, as required for each top level and board level
assembly. Plexus shall purchase all components in accordance with
Customer's approved vendor list (AVL) exclusively. Any deviation from
the AVL must be authorized in writing by Customer prior to purchase by
Plexus.
B. MANUFACTURING PHASE
The terms and conditions set forth in this Section B, Manufacturing Phase, as
well as the terms and conditions set forth in Section C, Standard Terms and
Conditions, shall be applicable to this portion of the Agreement.
1. DEFINITIONS
For the purpose of this Manufacturing Phase:
"Long Lead Time Component(s)" shall mean all of those individual parts
and materials whose current lead times extend beyond forty (40)
business days. The Long Lead Time Components may, from time to time, be
reviewed by Plexus and Customer, at the request of either party due to
possible changes in market conditions of supply and demand affecting
the procurement by Plexus of the Components and/or Long Lead Time
Components for the assemblies hereunder. Any changes resulting from
such review shall be with the mutual written agreement of Plexus and
Customer.
"NCNR Component(s)" shall mean those parts that are not cancelable once
placed on order with Plexus suppliers, and are not returnable once
delivered to Plexus. The NCNR Component(s) may, from time to time, be
reviewed by Plexus and Customer, at the request of either party due to
possible changes in market conditions of supply and demand affecting
the procurement by Plexus of the Components and/or NCNR Component(s)
for the assemblies hereunder. Any changes resulting from such review
shall be with the mutual written agreement of Plexus and Customer.
"Special Component(s)" shall mean those parts that have special
procurement conditions such as limited change parameters or other
special liability conditions that are required by Plexus' suppliers.
The Special Component(s) may, from time to time, be reviewed by Plexus
and Customer, at the request of either party due to possible changes in
market conditions of supply and demand affecting the procurement by
Plexus of the Components and/or Special Component(s) for the assemblies
hereunder. Any changes resulting from such review shall be with the
mutual written agreement of Plexus and Customer.
"Monthly Rolling Quantity Forecast of Delivery Requirements" shall mean
the written documents provided to Plexus by Customer each month
indicating the delivery requirements projected for the next six
(6)months.
2. AUTHORIZATION OF WORK/PROCUREMENT OF MATERIALS
The following terms will apply:
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a) The purpose of this section is to define the methods under which
Plexus will procure materials to support manufacturing of product
for the Customer. The intent is to provide the Customer with
flexibility to alter and/or cancel schedules within a reasonable
period of time while at the same time minimizing Plexus liability
that is a result of those alterations and cancellations. In order to
offer the best possible price, Plexus does not attempt to build
unanticipated carrying charges into its price. When changes in
Customer requirements occur that cause Plexus to incur unanticipated
expenses that are the result of Customer actions, the Customer is
expected to reimburse Plexus for the costs incurred.
b) For each top level assembly and/or board level to be manufactured,
Plexus establishes a manufacturing lead time, which is the number of
business days it will take, on average, to receive and kit all
components, assemble, test and ship the lot. Unless otherwise noted,
this manufacturing lead-time is twenty (20) business days. Plexus
schedules all components for a particular lot of assemblies to
arrive one manufacturing lead-time prior to the Customer due date.
Plexus then uses this information, together with the Forecast and
Purchase Order information as defined below, to place commitments to
its suppliers for materials.
c) At the beginning of each month, Customer will provide a six (6)
month rolling Forecast of total requirements listing top level
assembly and/or board level assembly requirements by month. This
monthly rolling Forecast shall be used by Plexus to determine the
Components and/or the Long Lead-Time Components, NCNR Components
and/or Special Components that Plexus must obtain and/or procure
and/or inventory, and unless otherwise agreed to, Plexus will
negotiate pricing contracts with its supplier based upon the
Forecast. Changes from the previous month's Forecast are allowed to
the current Forecast as follows:
<TABLE>
<CAPTION>
<S> <C>
i) Current Month: No Change Allowed
ii) Second Month: Up to 50% reduction, to be negotiated in
lieu of Attachment B.
iii) Third Month: Up to 75% reduction, to be negotiated in
lieu of Attachment B.
iv) Fourth Month (and beyond): As required; increase or decrease
</TABLE>
Changes in excess of these parameters may be mutually agreed to by
Plexus and Customer.
Changes to the monthly rolling Forecast may result in an excess
inventory position (due to component market conditions), the impact
for which is not considered in the original cost of the assembly. In
addition, Plexus may have to place orders for quantities of
components in excess of that required to support Customer
requirements. This may be as a result of minimum order size
requirements or standard package sizes from the supplier. In the
event that the monthly rolling forecast does not define component
consumption of sufficient magnitude to eliminate the excess
inventory within sixty (60) business days, Plexus will notify
Customer of its excess inventory position of Components and/or Long
Lead Time Components, NCNR Components and/or Special Components that
Plexus has procured and is inventorying and/or has on order with its
suppliers. Upon receipt of such notification, Customer will purchase
the excess inventory at Plexus' actual cost plus the agreed upon
quoted material markup. Payment terms are net thirty (30) days.
d) At the end of each quarter, Customer will issue Purchase Orders
("POs") for top level and/or board level assemblies in accordance
with, but not limited to, the monthly rolling Forecast of total
requirements. These POs will cover the next quarter's total
requirements. New pricing will actually take effect the second month
of the new quarter and run for three (3) continuous months.
e) Plexus shall procure in advance of Customer POs for assemblies,
pursuant to the monthly rolling Forecast for each top level and
board level assembly, the Components and/or the Long Lead Time
Components, NCNR Components and/or Special Components, as required
for each top level and board level assembly. Plexus shall purchase
all components in accordance with Customer's approved vendor list
(AVL) exclusively. Any deviation from the AVL must be authorized in
writing by Customer prior to purchase by Plexus.
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f) Customer may request that Plexus purchase from Customer certain
components that the Customer has in its inventory as a result of the
transfer of new business to Plexus. Plexus and Customer will
negotiate in good faith to determine pricing and title transfer of
such inventory. In addition, open component purchase order(s) with
Customer's suppliers may be transferred to Plexus upon mutual
agreement.
g) Customer will communicate a monthly Production Schedule to Plexus
outlining the top level assembly and/or board level production
requirements. The Production Schedule will be firmed for the current
month fifteen (15) business days prior to the start of that month,
will be within Forecasted quantities, and have a six (6) month
rolling horizon. Changes to the Production Schedule are allowed as
follows:
<TABLE>
<CAPTION>
<S> <C>
(1) Current Month: No Change Allowed
(2) Second Month: Up to 50% reduction, to be negotiated
in lieu of Attachment B.
Third Month: Up to 75% reduction, to be negotiated
in lieu of Attachment B.
(3) Fourth Month (and beyond): As required; increase or decrease
</TABLE>
Changes to the Production Schedule within the current month may be
mutually agreed to by Plexus and Customer.
i) At any time during the current month, Customer may exercise an
increase or decrease in delivery requirements (Flexibility
Quantity). This Flexibility Quantity is limited to a maximum
accumulation of the Flexibility Percentage outlined in
Attachment B for each top level and board level assembly, for
the current month's production based on the average of the
current sixty (60) business days of the Forecast. This
Flexibility Quantity will be available within ten (10)
business days of the Customer request. Additional Flexibility
Quantity may be mutually agreed to by Plexus and Customer. Any
finished goods inventory (FGI) at the end of the current month
will be netted from the Forecast in accordance with the change
provisions of this Agreement. Unless otherwise noted, any
remaining FGI at the end of the quarter will be shipped to
Customer on the last business day of the last month of the
quarter.
ii) For Production Schedule decreases issued within the current
month beyond the allowable Flexibility Quantity decrease, the
Customer will either:
(1) Accept shipment of the completed assemblies within the
current month as originally scheduled: or
(2) Pay full price and accept title and risk of loss for
completed assemblies and any work in process materials and
labor
iii) For Production Schedule decreases issued outside the current
month and beyond the allowable Production Schedule decrease
parameters, the Customer will:
(1) Pay for and accept title and risk of loss for the value of
the components (cost plus the agreed upon quoted material
markup) which Plexus is unable to return or reschedule to
meet the new schedule requirements, and
(2) Pay Plexus for any additional cost from suppliers
resulting from the prescheduling.
iv) For Production Schedule increases beyond the allowable
Flexibility Quantity, Plexus will make its best effort to
obtain the components necessary to meet Customer requirements.
However, Plexus may be unsuccessful in obtaining all of the
components required to meet the Customer's increased
requirements. In that situation, Plexus reserves the right to
Customer payment of the value of all inventory in house as of
the delivery date that is a result of the increased
requirement.
h) The term "Engineering Change(s)" (hereinafter called "EC" or "EC's")
shall mean those mechanical, software, or electrical design and/or
specification and requirement changes which, if made to the
assemblies to be delivered hereunder, would affect the schedule
performance, reliability, availability,
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<PAGE> 6
serviceability, appearance, dimensions, tolerance, safety or
purchase price of such assemblies or which would require additional
approval test.
Plexus may determine that Engineering Changes will affect its
ability to maintain the delivery schedule, due to the lead time of
newly specified parts and/or the impact of substantial rework or
modification. Under these circumstances, Plexus reserves the right
to define a new Production Schedule for delivery and treat this as a
Production Schedule change, with the Customer liability as defined
under section 2e above.
Upon receipt, Plexus shall review Customer's proposed EC and Plexus
shall give to Customer a written evaluation of the EC, stating
Plexus' cost to implement the EC (including the cost to modify any
tooling), the excess quantity of Components and/or Long Lead Time
Components, NCNR Components and/or Special Components Plexus has
inventoried and/or has on order with its Components and/or Long Lead
Time Components, NCNR Components and/or Special Components suppliers
that are excess due to the EC, and associated costs and expenses
such Components and/or Long Lead Time Components, NCNR Components
and/or Special Components that Customer shall be liable for and the
cost savings, if any, resulting from the EC, and the expected effect
on the Production Schedule, availability and/or purchase price of
such assemblies, or which may require additional approval tests by
Customer. Plexus will submit its written evaluation to the Customer
within five (5) business days after receipt of the proposed EC, or
in conjunction with Customer's stated timeframe (if possible).
i) The Customer may provide certain components required to build
Customer's assemblies. The Customers inability to provide parts in a
timely manner may effect Plexus's ability to meet its delivery
schedule and may cause Plexus to incur extraordinary expenses to
hold Plexus purchased material and/or labor in process. Under these
circumstances, Plexus reserves the right to define a new Production
Schedule for delivery based upon component availability information
from the Customer and treat this as a Production Schedule change,
with the Customer liability as defined under section 2e above.
j) Customer may cancel requirements defined in orders and/or forecasts
at any time before the scheduled delivery date. Any assembly
requirements canceled within the manufacturing lead-time of the
scheduled delivery date will be invoiced at the full agreed to price
for the completed assembly.
For assembly requirements canceled outside the manufacturing lead
time of the scheduled delivery date, Customer's liability to Plexus
will be the value of the components in Plexus's inventory (including
the full markup as defined in the Plexus quotation), and other
components for which Plexus has liability but which are not in
Plexus inventory, as well as payment for any and all in-process
manufacturing costs and expenses, and reasonable administrative
costs and expenses. Plexus will deliver an itemized list of these
costs to customer. Customer agrees to pay the costs identified by
Plexus within thirty (30) calendar days of notification of such
costs. To help minimize the impact of cancellation charges, Plexus
will attempt to restock components at the supplier, resell the
components, and/or utilize the components on non-customer
assemblies.
k) Reporting requirements are identified in Attachment C.
l) Cost Reduction: Cost Reductions will be agreed to quarterly. Plexus
initiated cost reductions will be shared 50/50 for 6 months.
Customer initiated reductions will be passed through at full value.
Actual cut-in reduction will based upon, at minimum, inventory at
Plexus and committed on-order Product with Plexus's supplier.
m) Customer Property: Tooling and consigned material - Plexus has the
responsibility to have proper security, insurance, and material
storage.
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<PAGE> 7
n) Packaging and Shipping:
i. Product will be shipped to the customer in a manner that meets
industry standard packaging requirements. Plexus is not liable
for design related packaging issues but is liable for products
improperly packaged. Plexus is responsible for the selection
of the shipping company unless otherwise directed.
ii. Distribution Services: Plexus will provide Customer with
"Direct Ship" Distribution Services for the specified
product(s) identified in Attachment E, attached hereto and
made a part hereof. Prior to expanding these services for
additional product(s), Plexus and Customer must review and
mutually agree upon written changes to this Agreement.
Upon manufacturing completion of Direct Ship product, Plexus
will invoice Customer and identify/store product as Customer's
Finished Goods Inventory in a segregated location in the focus
factory. Consequent to the invoice transaction, Customer
assumes complete title, liability, and ownership of the
Customer's Finished Goods Inventory, which includes insurance
coverage and loss of product. Plexus assumes no liability for
Customer's Finished Goods Inventory on the premise or in
transit.
Immediately following the invoice transaction, Plexus will
"receive" Direct Ship product onto Customer's computer system
(Great Plains.) Customer to provide completely functional
computer terminals, with applicable hardware and software,
dedicated printer, and access to Customer's computer system.
Additionally, Customer will provide necessary training and
on-going computer support.
When Plexus receives signal to direct ship product, Plexus
will complete appropriate actions and transactions on
Customer's computer system to package, per specifications, and
ship product. Plexus to ship product 3rd party collect. Plexus
will guarantee same business day shipment of product for
domestic locations, if signal is received prior to 2:00 p.m.
CST. For signals received after 2:00 p.m. CST, Plexus will
make every effort to ship domestic locations the same business
day, but will guarantee next business day shipment. Plexus
will guarantee shipment of product for all international
locations within two (2) business days.
The cost to provide these Direct Ship Distribution Services
will be included in the unit price of each assembly shipped.
Payment terms and conditions shall be pursuant to this
Agreement.
Any EC's that will require re-work and/or upgrade for Customer
Finished Goods Inventory shall be the sole liability of the
Customer and follow standard re-work/upgrade policies and
procedures as specified in this Agreement.
o) Testing Inspection and Acceptance: All products will be tested to
the agreed upon process. Customer reserves the right to perform
periodic audits or source inspection. Customer also reserves the
right to hold product for non-conformances. The two companies must
agree upon target test yield goals and implement a process to
achieve those goals. Customer will pay for special pilot or
pre-production builds. Plexus and Customer will need to agree upon a
sample size in conducting a post pack audit. Plexus and Customer
must also agree to the sample size for on-going reliability testing.
p) The parties may conduct a mutual review of component pricing,
material markup, and labor on a quarterly basis. The estimated
quantity of Products is a factor used to determine unit pricing. In
the
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<PAGE> 8
event of a significant quantity change, either increasing or
decreasing the estimated quantity of Products, the parties agree to
evaluate and negotiate the impact and timing of unit price
adjustments.
3. PRICING AND PAYMENT
As full compensation for the assemblies provided by Plexus hereunder
and its obligations contained herein, Customer will make payments
subject to terms of NET AMOUNT DUE THIRTY (30) DAYS following the date
of the invoice. Unless stated otherwise, prices quoted are F. O. B.
Plexus manufacturing facility. Unless specifically stated otherwise,
all quoted prices are firm for thirty (30) days from the date of
quotation. Quotations are based on drawings, specifications, and other
written information available to Plexus at the time of quotation. Any
additional data supplied at the time of purchase may necessitate price
adjustments. Any manufacturer's tax, retailer's occupation tax, use
tax, sales tax, excise tax, or tax of any nature whatsoever imposed on
or measured by the transaction between Plexus and Customer shall be
paid by the Customer in addition to the prices quoted or invoiced. In
the event Plexus is required to pay such tax, the Customer shall
reimburse Plexus therefore, within ten (10) days of written demand by
Plexus to the Customer for such reimbursement. If the transaction
between Plexus and the Customer is exempt from all such taxes, Customer
shall provide Plexus with a tax exemption certification or other
document acceptable to all taxing authorities at the time the order or
contract is submitted. The parties further agree to the credit terms
and conditions set forth in Attachment D, attached hereto and made a
part hereof. Plexus and Customer will review the status of deposit and
credit history on a regular basis; and, after sufficient credit history
is established by the Customer, Plexus will remove the credit
restrictions set forth in Attachment D, and all business shall resume
subject to the payment terms and provisions set forth in this Section 3
above.
4. WARRANTY
PLEXUS EXPRESSLY WARRANTS THE WORK AS SET FORTH HEREIN. PLEXUS MAKES NO
OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED (INCLUDING WITHOUT
LIMITATION WARRANTIES AS TO MERCHANTABILITY OR FITNESS FOR PARTICULAR
PURPOSES). IN ADDITION, THE FOLLOWING SHALL CONSTITUTE THE EXCLUSIVE
REMEDIES FOR CUSTOMER FOR ANY BREACH BY PLEXUS OF ITS WARRANTIES
HEREUNDER.
Plexus warrants the assemblies against all defects in: (a) workmanship
- where the assemblies do not conform to the agreed upon manufacturing
specifications, for a period of fifteen (15) months from date of
shipment, provided agreed upon testing is conducted by Plexus prior to
shipment, except as set forth below; and (b) turnkey components - the
warranty period provided by the component manufacturer to Plexus or
Customer, to the extent possible or allowed by the component
manufacturer. Plexus will not be liable for component failures beyond
the manufacturer's warranty unless failures are determined to be caused
by the sole negligence of Plexus and as a result of Plexus's
manufacturing process. Plexus shall repair or replace, at Plexus's
option and free of charge, any portion of the assemblies which is
returned to Plexus's factory securely packaged, insured and with
freight pre-paid within the warranty period, and which upon examination
Plexus determines in its sole discretion to be defective in
workmanship. Plexus will return the repaired or replaced assemblies to
customer with freight pre-paid.
Plexus is responsible for determining root cause of any defective
assemblies, and will work with Customer and material supplier to
develop corrective actions. Customer and Plexus will work cooperatively
in pursuing corrective action if a third party is determined to cause
failures. In the event Customer and Plexus are unable to reach an
agreement for a resolution of a deficiency caused by a third party,
then Plexus will recommend the final solution and/or corrective action
plan to remedy any defect caused by such third party. Plexus will allow
Customer to participate in any discussions with such third party as
requested.
This Warranty does not apply to:
a) Design deficiencies. Plexus expressly disclaims any warranty
responsibility for design deficiency, and for infringement for the
like.
b) Any modifications and/or alterations made to the Assemblies, or any
portion thereof, without the express written authorization of Plexus
obtained in advance. If this is the case, all warranties made herein
are invalid and Customer shall have no further remedies hereunder
against Plexus.
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<PAGE> 9
c) Any defect, loss or damage resulting from theft, loss, fire, misuse,
abuse, negligence, vandalism, acts of God, accident, casualty, power
failures or surges, alteration, modification or failure to follow
installation, operation or maintenance instructions, or any other
cause beyond Plexus's reasonable control.
d) Any defect, unless written notice of the defect is given by the
Customer to Plexus as soon as practical after the defect first
appears. The right to make a claim under this warranty expires
fifteen (15) months from the date of shipment. Actions taken by
Plexus to correct any defect shall not extend beyond this period.
e) Components incorporated into the assemblies.
IN NO EVENT, REGARDLESS OF CAUSE, SHALL PLEXUS BE LIABLE FOR
INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES OR LOSSES OF
ANY KIND, WHETHER IN CONTRACT OR IN TORT, ARISING FROM ITS PERFOMANCE
UNDER THIS AGREEMENT.
5. TEST EQUIPMENT
Unless otherwise noted, any test equipment quoted herein is warranted
to be free from defects in material and workmanship for a period of one
(1) year from the date of certification, provided Customer agrees that
Plexus shall be entitled to use its own preferred Supplier for purposes
of this section relating to test equipment and/or material.
After the warranty period the equipment will be repaired on a time and
materials basis. Labor will be charged at the current billing rate.
Parts will be charged at cost plus 25%. Travel expenses will be added
to any repairs including travel between Plexus and/or one of its
affiliates. All dedicated test/burn in fixtures will be progress billed
monthly up to 95% of the program cost. The remaining 5% is due upon
fixture certification.
6. DOCUMENTATION
The Customer is responsible for supplying Plexus with complete
documentation. This includes, at a minimum, (three) 3 complete and
current sets of documentation including, at a minimum, all prints,
softwares, artwork, and bill of materials with manufacturer and part
number, and any specifications, including test specializations or
procedure, called for on any customer prints. It is the Customer's
responsibility to assure that Plexus receives timely notification of
any changes to the documentation, and updated prints reflecting the
changes.
7. TOOLING
All tooling produced or obtained for the assemblies delivered hereunder
and paid for by Customer shall become and remain the property of
Customer at the time payment in full is received for the tooling by
Plexus. Such tooling shall be used by Plexus only for the benefit of
Customer, and shall be delivered to Customer upon request. If Customer
requests the return of any tooling from Plexus and Plexus determines
the return of such tooling prevents Plexus from providing the
assemblies to Customer, then Plexus shall inform Customer in writing,
and Customer and Plexus shall negotiate a mutually acceptable
resolution.
Customer, at its sole discretion, may consign to Plexus, items,
including, but not limited to, materials and/or equipment relating to
the production and/or testing of the assemblies at Plexus's location.
The material and/or equipment shall be utilized by Plexus only for the
production and/or testing of the assemblies. Customer shall assist
Plexus in installing the materials and/or equipment and shall provide
training and maintenance instructions, if requested by Plexus or
required by Customer. Customer shall be responsible for repairing,
upgrading, replacing and/or maintaining the materials and/or equipment
consigned to Plexus. However, Plexus shall provide routine maintenance.
All tooling quoted herein is quoted at the cost to Plexus from its
suppliers. A procurement charge of 10% will be added to all tooling
with a cost of less than $5,000, and a 5% procurement charge added to
all tooling with a cost of $5,000 or greater.
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8. TERMINATION AND CANCELLATION OF MANUFACTURING PHASE
During the Manufacturing Phase, either party shall have the right to
terminate any or all activities under this agreement for any reason and
at any time upon ninety (90) days prior written notice to the other
party. Plexus agrees to immediately terminate the specified activity
pursuant to this Agreement upon termination or cancellation. If this
entire Agreement is terminated, all existing Customer POs shall be
deemed to have been canceled unless otherwise specified by Customer.
Customer agrees to reimburse Plexus for unrecovered expenses. In
addition, Customer and Plexus shall negotiate a settlement of charges,
if any, for reasonable and allowable expense directly incurred by
Plexus including, but not limited to, manufacturing process ramp down
costs and packaging and transportation costs and expenses, and the
return to Customer of any Customer owned material(s), tools, equipment
and/or any other related items, consistent with Section B2, above.
If this entire agreement is terminated, then Plexus shall:
a) Deliver to Customer all completed assemblies which conform to the
applicable and then current specifications and requirements; and
b) Return to Customer, at Customer's expense, all tooling, equipment,
Components and/or Long Lead Time Components, drawings,
specifications, documentations and supplies that are owned by
Customer pursuant to the Agreement; and
c) Prepare and submit to Customer an itemized document to include the
quantity of assemblies in the production process.
Upon such termination, all existing Customer POs shall be deemed to
have been canceled unless otherwise specified by Customer and Customer,
agrees to reimburses Plexus for unrecovered expenses, consistent with
section B2, above.
C. STANDARD TERMS AND CONDITIONS
The terms and conditions set forth in this Section C, STANDARD TERMS AND
CONDITIONS shall be applicable to both the Product Development and Prototype
Phase and the Manufacturing Phase of the Agreement.
1. MUTUAL COOPERATION
Plexus represents that it will pursue the Agreement to the best of its
ability and in the best interest of the Customer, and the Customer
represents that it will cooperate with Plexus in reaching the
objectives of the Agreement. Plexus and Customer will mutually agree on
the appointment of a project manager for the duration of the Agreement.
Plexus will require the Customer to establish one person to coordinate
all activities through. In the event that the project manager is not
operating in the best interest of the Customer, the Customer shall
contact Plexus to discuss Agreement related concerns and/or complaints.
2. CONFIDENTIAL INFORMATION
Plexus will use its best efforts to prevent the disclosure of any
confidential information, unless specifically instructed otherwise in
writing by the Customer, and excepting in such instances where Plexus
may be compelled by law to make disclosures. The mechanisms for
controlling and processing confidential information may be covered
under a separate Confidential Disclosure Agreement (if required).
3. FORCE MAJEURE
Plexus shall not be liable for any delay in or failure of performance
under this agreement due to any contingency beyond Plexus's control,
including, but not limited to, an act of God, war, insurrection, fire,
riot, strike or labor dispute, sabotage, act of public enemy, flood,
storm, accident, equipment failure, inability to obtain suitable or
sufficient labor or material, laws or regulations, or any other cause
beyond its reasonable control.
4. INTELLECTUAL PROPERTY RIGHTS
All patents, copyrights, trademarks, or other rights pertaining to
inventions, developments, or improvements made in the course of the
work are the property of Customer. Plexus will, upon written direction
from Customer, execute any and all papers and documents prepared or
submitted by Customer as may be reasonably
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required to transfer or secure to Customer full title and authority
over such rights. Plexus will be compensated by Customer for time and
expense as incurred in this obligation at the then current billing
rates for those of its employees necessary for these purposes.
Customer agrees that it shall assume all responsibility for determining
whether the assemblies to be designed and assembled infringe on any
patent, copyright or trademark, and Customer shall indemnify and hold
harmless Plexus from any liability, including legal costs and expenses,
damages and attorney fees arising from any claim demand or suit,
including a claim by Customer, based on allegations or claims that the
assemblies or any design, patent, copyright, or trademark sought to be
obtained or obtained by Customer as a result of this agreement
constitutes an infringement of any patent, trademark or copyright of
the United States or any foreign county.
In the event any such claim or suit is asserted or instituted against
Plexus, Plexus shall promptly notify Customer of the assertion of any
such allegation or claim. Customer shall thereupon assume
responsibility for and conduct the defense of each assertion or suit at
its expense, and reasonable information and assistance for the defense
of same shall be provided by Plexus for which Plexus will be
compensated for time and expenses at its then current billing rate.
Plexus shall have the right, at its expense, to be represented in the
defense of any such assertion or suit by counsel of its own selection.
The prices quoted do not include, unless specifically stated otherwise,
the cost for testing and/or submittals for assembly approvals or any
annual file maintenance fee, such as for UL, VDE, CSA or FCC. Plexus
will assist Customer in obtaining such approvals and charge for same
services at Plexus's current hourly billing rate.
5. LIABILITY AND INDEMNIFICATION
Plexus will use its discretion to pursue the Agreement in the best
interest of Customer. Plexus will be under no liability to Customer or
otherwise for its choice of methods employed, the character or tests
and experiments performed, the results obtained, nor for the use which
shall thereafter be made by Customer of such results. IT IS UNDERSTOOD
THAT OTHER THAN THE WARRANTY SET FORTH IN SECTION B4, NO OTHER
GUARANTEES OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, ARE GIVEN BY
PLEXUS, INCLUDING, BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. PLEXUS SHALL NOT BE LIABLE FOR ANY
INDIRECT, INCIDENTAL OR CONSENQUENTIAL DAMAGES (INCLUDING LOST PROFITS)
SUSTAINED OR INCURRED IN CONNECTION WITH THIS AGREEMENT.
Customer will fully indemnify and hold harmless Plexus from any and all
liability, claims demands, costs and expense arising out of the use,
publication, and/or marketing of the results of Plexus's efforts, the
functioning of the assemblies or the product(s) which they are a part
of, or any other matter resulting from Plexus's performance under this
Agreement, whether such liability, claims or demands be in the nature
of patent, trademark or copyright infringement, public or product
liability, contract liability, or otherwise during or following the
terms of this Agreement, and Customer shall, at its own expense, defend
any and all such actions based thereon and shall pay all attorney's
fees and cost and other expenses arising therefrom.
Plexus will not be liable for errors, or expenses which may be incurred
in its performance of this work which results from the engineering
and/or design of the Assemblies, or from Plexus's reliance upon
information, technological records, sketches, drawings, or prototypes
furnished by Customer or Customer's design engineering firm. Customer
will forthwith, during the term of this Agreement, notify Plexus of any
and all information, technology changes, or other facts relevant to any
aspect or phase of the Agreement.
6. YEAR 2000 ("Y2K")
Customer shall maintain systems and procedures that ensure that all
assemblies delivered by Plexus shall conform to purchase order
requirements and shall not be affected by the transition from the year
1999 to the year 2000 (Year 2000 Compliance.) Customer agrees that if
any Special Tooling and/or Equipment is supplied by Customer, Customer
warrants that: (i) the operation of such deliverables on or after
January 1, 2000, without limitation to date, shall in no way be
different from their operation prior to that date; and (ii) such
deliverable will be able to process, store, record and present data
containing dates in the Year 2000, and thereafter without limitation as
to date, in the same manner as data containing dates prior to the year
2000. Plexus assumes no
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liability for, nor will bear any additional costs relating to
assemblies that are not Year 2000 compliant. Customer agrees to
indemnify and hold harmless Plexus from any and all liability, claims,
demands, costs and expenses arising from Customer's non-compliance with
Year 2000. Customer further agrees, at its own expense, to defend any
and all such actions based on such non-compliance and shall pay all
attorney's fees and costs and other expenses arising therefrom
including reimbursement to Plexus for any expenses or costs related
thereto. Plexus shall not be liable for errors, or expenses which may
be incurred from Plexus's reliance upon Customer's compliance with Year
2000.
Upon request by Plexus, Customer agrees to provide written
certification to Plexus by completing a "Certification Notice",
certifying: (1) the operating systems used by Customer will operate
satisfactorily and will not be affected by the transition from the year
1999 to the year 2000; (2) issues relating to Year 2000 compliance will
not interrupt the flow of Products (including goods and services) from
Plexus to Customer; (3) Plexus delivery of Products will not cause
Plexus to bear any additional costs to facilitate operating without
interruption and (4) Customer will meet Plexus deadline of September
30, 1999 to be fully Year 2000 compliant.
7. CONSENT TO JURISDICTION AND APPLICABLE LAW
The parties hereby irrevocably submit to the jurisdiction of the courts
of the State of Wisconsin in any action or proceeding arising out of or
relating to this Agreement, and the parties hereby irrevocably agree
that all claims in respect of such action or proceeding may be
determined by such courts. The parties hereby waive, to the fullest
extent possible, the defense of an inconvenient forum to the
maintenance of such action or proceeding, and the parties agree that a
final judgement in any action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgement or in any
other matter provided by law.
The parties hereby agree that this Agreement shall be governed by and
will be construed in accordance with the laws of the State of
Wisconsin, irrespective of the conflicts of laws provisions thereof.
8. NO RECRUITING
Plexus and the Customer agree that during the term of this program and
for twelve (12) months thereafter, it shall not solicit or recruit
(even through professional recruiters) the employees of the other. This
shall not preclude an employee of either Plexus or the Customer from
independently pursuing and securing employment opportunities with the
other on such employee's own initiative.
12
<PAGE> 13
9. ENTIRE AGREEMENT
This Agreement, along with the proposal, and Confidential Disclosure
Agreement and/or quotation (if any) and Plexus's invoices, contains the
entire understanding of the parities pertaining to the subject matter
hereof, and no other agreements, oral or otherwise, shall be deemed to
exist or to bind the parties. Notwithstanding anything to the contrary
contained herein, the parties hereto agree that the terms and
conditions set forth herein and in Plexus's invoices, proposal and
Confidential Disclosure Agreement (if any), shall supersede any and all
terms and conditions submitted by the Customer in any document,
including but not limited to any terms and conditions contained in the
Customer's purchase order. This agreement may not be modified or
terminated orally, and no claimed modification, termination, or waiver
shall be binding unless in writing and signed by both parties.
Accepted and agreed to:
CUSTOMER: PLEXUS:
ARROWPOINT COMMUNICATIONS
ENGINEERING AUTHORIZATION:
By: /s/ Jeffrey K. White By: /s/ Michael T. Verstegen
----------------------- -----------------------
Michael T. Verstegen
Title: Vice President of Manufacturing Title: Executive Vice President
----------------------- -----------------------
Date: 8/26/99 Date: 9/17/99
----------------------- -----------------------
MANUFACTURING AUTHORIZATION:
By: /s/ Chuck Williams
-----------------------
Chuck Williams
Title: Vice President
-----------------------
Date: 9/20/99
-----------------------
13
<PAGE> 14
Confidential Materials omitted and filed separately with the Securities and
Exchange Commission.
Asterisks denote such omission.
ATTACHMENT A
PROTOCENTER PARTS/LABOR PRICING MODEL ESTIMATE
1. Parts/materials-mark-up (reduced from our standard rate of 25%):
PROTOCENTER
--------------------
CS100 [**]
--------------------
CS800 [**]
2. Labor Estimating Model for machine and assembly. Note that this Pricing
Model Estimate is for estimating purposes only and that prototype pricing could
drastically change if there are changes to components, board size, density,
complexity, layers, or unknown technologies. Set-up cost play a significant role
in prototype builds, therefore the quantity involved is also a significant
factor.
<TABLE>
<S> <C> <C>
ASSUMPTIONS LARGE BOARD SMALL BOARD
---------------------- -----------------
SIMILARITY SWITCH FAB FENNICK
---------------------- -----------------
DELIVERY 5 DAYS 5 DAYS
---------------------- -----------------
QTY. OF BUILD 25 25
---------------------- -----------------
SIZE 10 X 14 6 X 8
---------------------- -----------------
QTY. COMPONENTS 2,200 500
---------------------- -----------------
QTY. UNIQUE PARTS 160 50
---------------------- -----------------
QTY. NETS (APPROX.) 5,000 1,500
---------------------- -----------------
QTY. BGA'S 10 2
---------------------- -----------------
QTY. PRESS FITS 1 1
---------------------- -----------------
QTY. SOT'S 120 42
---------------------- -----------------
SMT BOTH SIDES BOTH SIDES
---------------------- -----------------
PTH SINGLE SIDE SINGLE SIDE
---------------------- -----------------
MDA TEST NOT INCLUDED NOT INCLUDED
---------------------- -----------------
PRICE PER BOARD
QTY 10 UNITS [**] [**]
QTY 25 UNITS [**] [**]
</TABLE>
<TABLE>
<CAPTION>
Lead Time Delivery Adjustment Multipliers
- ----------------------- ----------------------
Lead Time Multiplier
- ----------------------- ----------------------
<S> <C>
3 days 1.200
- ----------------------- ----------------------
5 days 1.000
- ----------------------- ----------------------
12 days 0.915
or greater
- ----------------------- ----------------------
</TABLE>
Note: In some cases, 50 piece builds may not be possible to complete due to
production limitations.
This Pricing Model Estimate is provided herein only for the convenience of
Arrowpoint to use for estimating future prototypes. MDA Test will be quoted on a
case by case basis.
3. MDA Takaya Testing (reduced from our standard rate of $125 per hour)
shall be $100 per hour.
<PAGE> 15
ATTACHMENT B
FLEXIBILITY PERCENTAGES PER ASSEMBLY
TO BE DETERMINED AT A LATER DATE BY MUTUAL AGREEMENT BETWEEN THE PARTIES.
CUSTOMER: J. K. W. 8/26/99 PLEXUS: C. W. 9/20/99
---------------- -------------
INITIAL/DATE INITIAL/DATE
<PAGE> 16
ATTACHMENT C
REPORTING REQUIREMENTS
TO BE DETERMINED AT A LATER DATE BY MUTUAL AGREEMENT BETWEEN THE PARTIES.
CUSTOMER: J. K. W. 8/26/99 PLEXUS: C. W. 9/20/99
---------------- -------------
INITIAL/DATE INITIAL/DATE
<PAGE> 17
ATTACHMENT D
March 3, 1999
Ms. Linda Russell
ArrowPoint Communications
235 Littleton Road
Westford, MA 01886
Dear Linda,
I just wanted to follow up on the agreements we have reached verbally regarding
the credit arrangement between Plexus Electronic Assembly Corporation and
ArrowPoint Communications.
1) ArrowPoint Communications, upon request from Electronic Assembly Corporation,
will provide to Electronic Assembly Corporation, confirmation of the available
cash balances under ArrowPoint's control. Such confirmation shall be from the
bank or investment firm in which the funds are held.
2) ArrowPoint will provide quarterly financial statements to Electronic Assembly
for review. Statements will be provided within 20 working days after the close
of each quarter. All information will be strictly confidential and for internal
use only.
3) Invoice terms will be NET 30 days from invoice date. Payment to be received
by Electronic Assembly Corporation on the 30th day.
4) An initial credit limit of $400,000 has been established for accounts
receivable. If in the course of business this initial limit is exceeded, you
will be contacted and may be required to pay some invoices before the NET 30 day
term so as to remain within the limit. Any increase in the limit will be based
upon length and status of credit history.
I thank you for your cooperation in working to establish these credit standards,
and look forward to a mutually beneficial relationship between our two
companies. If you have any questions or concerns, please feel free to contact me
direct (920) 751-3437.
Sincerely,
Paul A. Morris
Controller
Cc: Sue Herrmann, EAC
Matt Knight, Plexus
Bob Kronser, EAC
<PAGE> 18
ATTACHMENT E
Plexus to provide Customer with Direct Ship Distribution Services for the
following product(s):
- CS100-LAN-01
Other products may be added with Customer and Plexus Corp. mutual
agreement.
<PAGE> 1
Exhibit 10.11
SOURCEPRO
SOFTWARE SOURCE CODE ESCROW AGREEMENT
SOURCEFILE NUMBER: 7541
This Software Source Code Escrow Agreement, dated as of July 30, 1997, by
and among SourceFile, a California limited liability partnership, located at
1350 West Grand Ave, Oakland, CA, 94607 ("SourceFile"), MMC Networks, Inc. a
California corporation, with offices located at 1134 E. Arques Ave., Sunnyvale,
CA 94086-4602, ("Depositor"), and ArrowPoint Communications a Delaware
corporation with offices at 235 Littleton Road, Westford MA 01886,
("Beneficiary").
RECITALS:
WHEREAS, Depositor and Beneficiary from time to time conduct business
pursuant to which Depositor supplies quantities of its ATM 2400 chip set as
listed in exhibit A (the "Chip Set") to Beneficiary:
WHEREAS, Depositor desires to ensure the availability to Beneficiary of
certain proprietary materials relating to the Chip Set (collectively the "Source
Material") in the event certain conditions set forth in Section 3 of this
Agreement should occur.
AGREEMENT:
1. DELIVERY OF SOURCE MATERIAL TO SOURCEFILE. Depositor shall deliver to
SourceFile a parcel (the "Parcel"), sealed by Depositor, which Depositor
represents and warrants contains the Source Material and any necessary
proprietary information. SourceFile undertakes to perform only such duties as
are expressly set forth herein. The Source Material shall be held by SourceFile.
As of the date of this Agreement, Depositor shall complete a detailed
description of the Source Material which is attached to this Agreement as
EXHIBIT "A". The Depositor will keep the Parcel updated with supplemental or
replacement materials ("Parcel Changes") to the extent of any supplements or
modifications to the use of the Source Materials in Depositor's business. A
"Supplemental Deposit" will include any materials added to the Parcel.
"Replacement Materials" will include any materials intended to replace the
existing all or part of the parcel. Within ten (10) days of acceptance by
SourceFile of such Supplemental or Replacement Deposit, SourceFile Shall notify
Depositor and Beneficiary and identifying the nature of the supplemental or
replacement materials as the case may be. In addition, the parties acknowledge
delivery of, and SourceFile acknowledges receipt of, a fully executed original
license agreement (the "License Agreement") by and between Depositor and
Beneficiary, a copy of which is attached as EXHIBIT "B", which SourceFile also
shall maintain in escrow and only deliver to Beneficiary concurrent with
delivery to Beneficiary of the Source Materials pursuant to Section 3 Below.
Depositor agrees that is shall not at any time revoke the License Agreement or
any rights, permissions or other authorizations issued or granted in the Source
Materials, or attempt or assist others in any action to do so.
<PAGE> 2
2. ACKNOWLEDGEMENT OF RECEIPT BY SOURCEFILE. SourceFile shall promptly
acknowledge Depositor and to Beneficiary the receipt of the Parcel and any
supplements to the Source Material which are added to the Parcel. Depositor
shall provide to SourceFile the latest version of the Software at least every
six months as supplements to the Source Material without removing the Source
Material. Depositor shall send to SourceFile a duplicate of the Source Material
within three (3) days after receiving written notice from SourceFile that the
Source Material has been destroyed or damaged. All supplements shall be subject
to the terms and provisions of this Agreement. SourceFile will notify
Beneficiary and Depositor of each update to the Source Material. Such
notification will be sent via certified mail, return receipt required.
3. TERMS AND CONDITIONS OF THE SOURCE MATERIAL ESCROW. The Source
Material shall be held by SourceFile (in the FileSafe underground vault,
specifically designed for magnetic media storage), upon the following terms and
conditions:
(i) In the event that (1) SourceFile is notified by Beneficiary that
Depositor, pursuant to a sale, merger, reorganization, license or other
transaction, either has or will imminently assign, transfer or delegate its
business or the ability to make or sell the chip set to a third party that
is a direct competitor of Beneficiary, that Beneficiary has given Depositor
written notice of such event, or received written notice of such event from
Depositor (hereinafter, a "Release Condition"), and (2) Beneficiary has
paid to SourceFile all fees and charges then due and owing, SourceFile
shall follow the following procedures set forth in Section 3, parts (ii),
(iii), (iv) and (v);
(ii) SourceFile shall with in five days notify Depositor of the
occurrence of the Release Condition and shall provide to Depositor the
License Agreement and a copy of Beneficiary's notice to SourceFile;
(iii) If SourceFile does not receive Contrary Instructions, as defined
below, from Depositor within thirty (30) days following SourceFile's
delivery of a copy of such notice to Depositor, SourceFile shall deliver
the Source Material to Beneficiary within (30) days of the date of
Beneficiary's original notice to Depositor. "Contrary Instructions" for the
purposes of this Section 3 shall mean the filing of written notice with
SourceFile by Depositor, with a copy to Beneficiary demanding delivery,
stating that the Release Condition has not occurred or has been cured;
(iv) If SourceFile receives Contrary Instructions from Depositor
within thirty (30) days of the giving of such notice to Depositor,
SourceFile shall not deliver the Source Material to Beneficiary, but shall
continue to store the Source Material until: (1) otherwise directed by the
Depositor and Beneficiary jointly; (2) SourceFile has received a copy of an
order of a court of competent jurisdiction directing SourceFile as to the
disposition of the Source Material; or (3) SourceFile has deposited the
Parcel with a court of competent
<PAGE> 3
jurisdiction or a Trustee or receiver selected by such court pursuant to
Section 3, subpart (v) below;
(v) Upon receipt of Contrary Instructions from Depositor, SourceFile
shall have the absolute right, at SourceFile's election to file an action
in interpleader requiring the Depositor and Beneficiary to answer and
litigate their several claims and rights among themselves. SourceFile is
hereby authorized to comply with the applicable interpleader statutes of
the State of California or the Federal Courts of San Francisco in this
regard.
4. TERM OF AGREEMENT. This Agreement shall have an initial term of three
(3) years. The term shall be automatically renewed on a yearly basis thereafter,
unless Beneficiary, Depositor or SourceFile notifies the other parties in
writing at least forty-five (45) days prior to the end of the then current term
of its intention to terminate this Agreement.
5. COMPENSATION OF SOURCEFILE. Beneficiary agrees to pay SourceFile
reasonable compensation for the services to be rendered hereunder in accordance
with SourceFile's then current schedule of fees, and will pay or reimburse
SourceFile upon request for all reasonable expenses, disbursements and advances,
including software duplication charges and reasonable attorneys' fees, incurred
or made by it in connection with carrying out its duties hereunder. SourceFile's
schedule of fees for the initial term of this Agreement is attached to this
Agreement as EXHIBIT "B".
6. LIMITATION OF LIABILITY OF SOURCEFILE. SourceFile may rely on and
shall suffer no liability as a result of acting or refraining from acting upon
any written notice, instruction or request furnished to SourceFile hereunder
which is reasonably believed by SourceFile to be genuine and to have been signed
or presented by a person reasonably believed by SourceFile to be authorized to
act on behalf of the parties hereto. SourceFile shall not be liable for any
action taken by it in good faith and believed by it to be authorized or within
the rights or powers conferred upon it by this Agreement. SourceFile may consult
with counsel of its own choice, and shall have full and complete authorization
and protection for any action taken or suffered by it hereunder in good faith
and in accordance with the opinion of such counsel.
7. INDEMNIFICATION OF SOURCEFILE. Depositor and Beneficiary jointly agree
to indemnify and defend SourceFile and to hold it harmless from and against, any
loss, liability or expense incurred by SourceFile, arising out of or in
connection with this Agreement, carrying out its duties hereunder, and any other
claim of liability with respect to the Source Material. In the event suit is
brought by any party to this Agreement, or any other party, as against any other
party, including SourceFile, claiming any right they may have as against each
other or against SourceFile, then in that event the parties hereto, agree to pay
to SourceFile any attorney's fees and cost incurred by SourceFile in connection
therewith.
8. RECORD KEEPING INSPECTION OF SOFTWARE. SourceFile shall maintain
complete
<PAGE> 4
written records of all materials deposited by Depositor pursuant to this
Agreement. During the term of this Agreement, Depositor shall be entitled at
reasonable times during normal business hours and upon reasonable notice to
SourceFile to inspect the records of SourceFile maintained pursuant to this
Agreement and to inspect the facilities of SourceFile and the physical condition
of the Source Material.
9. TECHNICAL VERIFICATION. Beneficiary reserves the option to request
SourceFile to verify the Source Material for completeness and accuracy.
SourceFile may elect to perform the verification at its site or at Depositor's
site. Depositor agrees to cooperate with SourceFile in the verification process
by providing its facilities and computer systems and by permitting SourceFile
and at least one employee of Beneficiary to be present during the verification
of Source Material.
10. RESTRICTION ON ACCESS TO SOFTWARE. Except as required to carry out its
duties hereunder, SourceFile shall not permit any SourceFile employee,
Beneficiary or any other person access to the Source Material unless consented
to in writing by Depositor. SourceFile shall use its best efforts to avoid
unauthorized access to the Source Material by its employees or any other person.
11. BANKRUPTCY. Depositor and Beneficiary acknowledge that this Agreement
is an "agreement supplementary to" the License Agreement as provided in Section
365 (n) of Title 11, United States Code (the "Bankruptcy Code"). Depositor
acknowledges that if Depositor, as a debtor in possession or a trustee in
Bankruptcy in a case under the Bankruptcy Code, rejects the License Agreement or
this Agreement, Beneficiary may elect to retain its rights under the License
Agreement and this Agreement as provided in Section 365 (n) of the Bankruptcy
Code. Upon written request of Beneficiary to Depositor or the Bankruptcy
Trustee, Depositor or such Bankruptcy Trustee shall not interfere with the
rights of Beneficiary as provided in the License Agreement and this Agreement,
including the right to obtain the Source Material from SourceFile.
12. NOTICES. Any notice or other communication required or permitted under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date service is served personally, one day after the date of sending by
overnight courier, or five (5) days after the date of mailing if sent registered
mail, postage prepaid, return receipt required, and addressed as follows or to
such other address or telefax number as either party may, from time to time,
designate in a written notice given in like manner:
TO BENEFICIARY: Mr. Cheng Wu, President
ArrowPoint Communications
235 Littleton Road
Westford, MA 01886
Telephone: 1.508.692.5875
Facsimile: 1.508.692.5873
<PAGE> 5
TO DEPOSITOR: Mr. Amos Wilnai, President
MMC Networks, Inc.
1134 East Arques Avenue
Sunnyvale, CA 94086
Telephone: 1.408.731.1600
Facsimile: 1.408.731.1660
TO SOURCEFILE: SourceFile
1350 West Grand Ave
Oakland, California 946067
Attn: Director
Telephone: 1.510.419.3888
Facsimile: 1.510.419.3875
13. MISCELLANEOUS PROVISIONS.
(a) WAIVER. Any term of this Agreement may be waived by the party
entitled to the benefits thereof, provided that any such waiver must be in
writing and signed by the party against whom the enforcement of the waiver is
sought. No waiver of any condition, or of the breach of any provision of this
Agreement, in any one or more instances, shall be deemed to be a further or
continuing waiver of such condition or breach. Delay or failure to exercise any
right or remedy shall not be deemed the waiver of that right or remedy.
(b) MODIFICATION OR AMENDMENT. Any modification or amendment of any
provision of this Agreement must be in writing, signed by the parties hereto and
dated subsequent to the date hereof.
(c) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
(d) HEADINGS; SEVERABILITY. The headings appearing at the beginning
of the sections contained in this Agreement have been inserted for
identification and reference purposes only and shall not be used to determine
the construction or interpretation of this Agreement. If any provision of this
Agreement is held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
(e) FURTHER ASSURANCES. The parties agree to perform all acts and
execute all supplementary instruments or documents which may be reasonably
necessary to carry out the
<PAGE> 6
provisions of this Agreement.
(f) ENTIRE AGREEMENT. This Agreement, including the attachments
hereto, contains the entire understanding among the parties and supersedes all
previous communications, representations and contracts, oral or written, among
the parties, with respect to the subject matter thereof. It is agreed and
understood that this document and agreement shall be the whole and only
agreement among the parties hereto with regard to these escrow instructions and
the obligations of SourceFile herein in connection with this Agreement, and
shall supersede and cancel any prior instructions. SourceFile is specifically
directed to follow these instructions only and SourceFile shall have no
responsibility to follow the terms of any prior agreements or understandings.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DEPOSITOR
By: /s/ Amos Wilnai
----------------------------------
Name: Amos Wilnai
--------------------------------
Title: Chairman
-------------------------------
BENEFICIARY
By: /s/ Cheng Wu
----------------------------------
Name: Cheng Wu
--------------------------------
Title: CEO
-------------------------------
SOURCEFILE
CALIFORNIA LIMITED LIABILITY PARTNERSHIP
By: /s/ Anders Bjork
----------------------------------
Name: Anders Bjork
--------------------------------
Title: Admin. Mgr.
-------------------------------
<PAGE> 7
EXHIBIT "A-_____"
DESCRIPTION OF SOURCE MATERIAL
SOURCEFILE ACCOUNT #:________
The Depositor agrees to deposit the Source Material for the benefit of the
Beneficiary of this escrow arrangement. Below is the acknowledgment that the
deposit arrived at SourceFile in good order. It is completed by the Depositor
and visually inspected by SourceFile. A copy of this form will be shared with
the Beneficiary. (As multiple deposits are made please make copies of this form
and number them appropriately. For example, the initial deposit will be Exhibit
"A-1", the next "A-2" and so on.).
1. LETTER OF AUTHORIZATION FOR EACH SUPPLIER OF THE FOLLOWING MMC CHIPS:
- - MBUF2 (A2401) - Memory Access Buffer 2
- - PIF2 (A2402) - Port Interface 2
- - MSCI (A2403) - Modular Switch Controller 1
- - MSC2 (A2404) - Modular Switch Controller 2
- - CMI (A2405) - Controller Memory Interface
- - XQC (A2406) - Xstrewn Queuing Controller
- - XS (ATMS2205) - Xstrearn Scheduler
- - EPIF (A2301) - Ethernet Port Interface
- - PCIPIF - PCI Port Interface
- - GEPIF - Gigabit Ethernet Port Interface
- - Xcheck - Xcheck controller
PLEASE CHECK ONE OF THE FOLLOWING:
INITIAL DEPOSIT_____ SUPPLEMENTAL_____ REPLACEMENT_____*
*IF REPLACEMENT THEN: DESTROY DEPOSIT_____ OR RETURN DEPOSIT_____
- --------------------------------------------------------------------------------
Completed by: Visually verified by:
DEPOSITOR SOURCEFILE
By: __________________________ By: ____________________________
Name: ________________________ Name: __________________________
Title: _______________________ Title: Client Services
Date: ________________________ Date: __________________________
<PAGE> 8
EXHIBIT B
LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is entered into and effective as of the
date this fully executed original copy is delivered to Arrowpoint
Communications, a Delaware corporation ("Arrowpoint"), by and between Arrowpoint
and MMC Networks, Inc., a California corporation ("MMC"), on the basis of the
following facts:
RECITALS
WHEREAS, MMC designs, manufactures, has manufactured, markets and sells a chip
set currently known as the ATSM2400 chip set (the "Chip Set").
WHEREAS, MMC and Arrowpoint from time to time conduct business pursuant to which
MMC supplies quantities of the Chip Set to Arrowpoint.
WHEREAS, MMC desires to (i) ensure the availability to Arrowpoint of certain
proprietary materials relating to the Chip Set (collectively the "Source
Material") in the event certain, conditions set forth in Section 3 of the Escrow
Agreement (a "Release Event") should occur, and (ii) grant to Arrowpoint and
Arrowpoint desires to acquire from MMC a license to make, use and sell the Chip
Sets for the consideration and upon the terms and subject to the condition set
forth in this Agreement.
AGREEMENT
IT IS HEREBY AGREED, on the basis of the foregoing facts and in
consideration of the respective covenants set forth in this Agreement, as
follows:
Grant of License. MMC hereby grants to Arrowpoint a perpetual, non-exclusive,
worldwide right and license, without the right to sublicense, under all of its
intellectual property rights to directly and indirectly make, use, test, sell,
market and distribute the Chip Set, but only as part of an Arrowpoint's switch
system product and only pursuant to the terms stated in section 3(i) of the
Escrow Agreement.
Consideration. In consideration of the License granted hereunder Arrowpoint
shall pay to MMC a royalty (the "Royalties") for each Chip Set manufactured and
sold by Arrowpoint, as part of Arrowpoint's switch system product, equal to the
Production Margin. For the purposes of this Agreement, the "Production Margin"
for each Chip Set shall be determined by subtracting the cost that Arrowpoint
pays to the ASIC supplier for such Chip Set from the average, pre-tax, FOB point
of manufacture price at which Arrowpoint purchased Chip Sets from MMC during the
three month period immediately preceding notice of a Release Event.
<PAGE> 9
Payment Terms for Royalties. The Royalties attributable to the sale of a Chip
Set, as part of Arrowpoint's switch system product, shall be payable on the last
day of the month following the month in which the Chip Set is actually received
by Arrowpoint.
Royalties Mistakenly Paid on Returned Products. If Arrowpoint pays to MMC a
Royalty on the sales of a product which includes the Chip Set that is
subsequently returned to Arrowpoint, the amount of the Royalty so paid shall be
deemed a credit against future royalties payable by Arrowpoint. If no future
Royalties are payable, the remaining balance of such credits shall be refunded
to Arrowpoint within thirty (30) days after the expiration or termination of
Arrowpoint's obligation to pay Royalties or the expiration or termination of
this Agreement.
Term of License. This Agreement shall commence and be effective on the date on
which a copy of the Agreement is delivered to Arrowpoint by the Escrow Agent and
shall continue in full force and effect thereafter, subject to termination by
(a) Arrowpoint for any reason on thirty (30) days prior written notice to MMC,
and (b) MMC for failure to pay Royalties when due, unless Arrowpoint pays such
Royalties within thirty (30) days of receipt of notice from MMC. In the event of
a Change in Control of Arrowpoint, provided that Arrowpoint has not first
obtained MMC's written consent as to a Change in Control, which consent shall
not be unreasonably withheld, MMC may, upon fifteen (15) days written notice to
Arrowpoint, terminate Arrowpoint's right to purchase ASICs from the ASIC vendor.
It is agreed that MMC may not reasonably withhold such consent unless a Change
of Control involves an acquisition or controlling investment by a company that
represents a clear competitive threat to MMC. A Change in Control is defined as
a sale of substantially all of Arrowpoint's assets, a merger involving
Arrowpoint whereby Arrowpoint is not the surviving corporate entity or any other
changes of control of Arrowpoint in which more than 50 percent of the voting
power of Arrowpoint no longer resides in Arrowpoint's shareholders as
constituted immediately prior to such transactions.
Confidential Information. Arrowpoint agrees that MMC has proprietary interest in
the Source Materials. All disclosures to Arrowpoint, its agents and employees
shall be held in strict confidence by Arrowpoint, its agents and employees.
Arrowpoint shall disclose the Source Materials only to those of its agents and
employees to whom it is necessary in order properly to carry out their duties as
limited by the terms and conditions hereof. Arrowpoint shall not use the Source
Materials except for the purposes of exercising its rights and carrying out its
duties hereunder.
Audit Rights. Arrowpoint agrees to make and keep full and accurate books and
records in sufficient detail to enable Royalties payable hereunder to be
determined. On seven (7) days' prior written notice to Arrowpoint, MMC's
independent firm of certified public accountants shall have access to the books
and records of Arrowpoint pertaining to net proceeds received by Arrowpoint for
its sublicensing and assigning of its rights and licenses under this Agreement
and shall have the right to make copies therefrom at MMC's expense. In the event
that the audit shows that Arrowpoint under compensated MMC by greater than 10%
of the total amount due to MMC for the period audited,
<PAGE> 10
the costs of the audit shall be paid by Arrowpoint. Such firm of independent
certified public accountants shall have such access at all reasonable times and
from time to time during normal business hours. Prompt adjustment shall be made
by the proper party to compensate for any errors or omissions disclosed by such
audit. The firm of independent certified public accountants shall execute a
confidentiality agreement with Arrowpoint advance of receiving such access,
whereby such firm shall agree to hold confidential all information learned in
the course of any examination of Arrowpoint's books and records hereunder,
except that it may report to MMC the extent of any error or omission and the
general basis therefor. All reports and payments not disputed as to correctness
by MMC within two (2) years after receipt thereof shall thereafter conclusively
be deemed correct for all purposes.
Miscellaneous.
This Agreement shall be governed by the internal laws of the State of California
as if made and performed within the State.
Any dispute, controversy or claim arising out of or relating to this Agreement
or breach thereof shall be exclusively and finally resolved by arbitration
pursuant to the rules of the American Arbitration Association, which shall
administer the arbitration and act as appointing authority. The decision of the
arbitrators shall be final and binding upon the parties hereto, and shall be
executory. Judgment based on the decision of the arbitrators may be entered by
any court of competent jurisdiction. Notwithstanding this, judgment upon the
award of the arbitration may be entered in any court where the arbitration takes
place or any court having jurisdiction thereof, and application may be made to
any court for a judicial acceptance of the award or order of enforcement.
Notwithstanding anything contained in this Section 8 to the contrary, each party
shall have the right to institute judicial proceedings against the other party
or anyone acting by, through or under such other party in order to enforce the
instituting party's rights hereunder through reformation of contract, specific
performance, injunction or similar equitable relief.
(c) A waiver of any breach of any provision of this Agreement shall not be
construed as a continuing waiver of other breaches of the same or
other provisions of this Agreement.
(d) Nothing herein contained shall be deemed to create an agency, joint
venture or partnership relationship between the parties hereto.
Neither party shall have any power to bind the other party in any
respect whatsoever.
Any amendment or modification of any provision of this Agreement must be in
writing, dated and signed by both parties hereto.
This Agreement may be executed in any number of counterparts and each such
counterpart shall be deemed to be an original.
<PAGE> 11
This Agreement embodies the entire understanding between the parties relating to
the subject matter hereto and there are no prior representations or warranties
between the parties not contained in the Agreement.
Each notice or payment required or permitted to be sent under this Agreement
shall be given or made by registered or recorded delivery letter (return receipt
requested) at the addresses indicated above. Either party may change its address
for purposes of this Agreement by giving the other party written notice of its
new address. Any such notice or payment if given or made by registered or
recorded delivery letter (return receipt requested) shall be deemed to have been
received on the earlier of the date actually received and the date three (3)
days after the same was posted (and in proving such it shall be sufficient to
prove that the envelope containing the same was properly addressed and posted as
aforesaid).
If any provision of this Agreement is declared invalid or unenforceable by a
court having competent jurisdiction, it is mutually agreed that this Agreement
shall endure except for the party declared invalid or unenforceable by order of
such court. The parties shall consult and use their best efforts to agree upon a
valid and enforceable provision which shall be a reasonable substitute for such
invalid or unenforceable provision in light of the intent of this Agreement.
Any headings contained herein are for directory purposes only, do not constitute
a part of this Agreement, and shall not be employed in interpreting this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
personally or by agents or officers thereunto duly authorized.
"Arrowpoint"
ARROWPOINT Communications
By_____________________________
"MMC"
MMC NETWORKS, INC.
By_____________________________
<PAGE> 12
EXHIBIT "C"
SOURCEFILE COMPENSATION
ESCROW SERVICES
- Initial set-up $1000.00*
- Annual Maintenance $1000.00
(Includes 2 deposit updates)
Includes climate controlled storage, certified letters of notification, and
custom agreements.
ADDITIONAL SERVICES
- Source Material Updates in excess of two per year $150.00
- Escrow release Beneficiary Request $600.00
- Escrow Release Depositor Request $200.00
- Pick-Up and Delivery Service per year $200.00
TECHNICAL REVIEW/VERIFICATION starts at $145.00/hour
SOURCELINK SERVICE Please call for an estimate
*Due when agreement is customized or signed.
<PAGE> 1
Exhibit 10.12
OFFICE LEASE
by and between
NAGOG PARK INVESTORS, L.L.C.
("Landlord")
and
ARROWPOINT COMMUNICATIONS, INC.
("Tenant")
Dated: August 31, 1999
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I
REFERENCE DATA...................................................... 1
1.1 Commencement Date............................................. 1
1.2 Building...................................................... 1
1.3 Leased Premises............................................... 1
1.4 Land.......................................................... 2
1.5 Property...................................................... 2
1.6 Landlord's Mailing Address.................................... 2
1.7 Tenant's Mailing Address...................................... 2
1.8 Broker........................................................ 2
1.9 Tenant's Prorata Share........................................ 2
1.10 Security Deposit.............................................. 2
1.11 Guarantor..................................................... 2
1.12 Leased Premises Rentable Area................................. 2
1.13 Permitted Use................................................. 2
1.14 Lease Year.................................................... 2
1.15 Base Year Taxes............................................... 3
1.16 Base Year Operating Costs..................................... 3
ARTICLE II
LEASE TERM; EXTENSIONS.............................................. 4
2.1 Term.......................................................... 4
2.2 Extension Rights.............................................. 4
ARTICLE III
RENT ............................................................... 4
3.1 Base Rent..................................................... 4
3.2 Additional Rent............................................... 5
3.3 Manner of Payment of Additional Rent.......................... 6
3.4 Audit Right of Tenant......................................... 7
ARTICLE IV
SECURITY DEPOSIT.................................................... 7
4.1 Handling of Security Deposit.................................. 7
4.2 Restoration of Security Deposit............................... 8
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ARTICLE V
UTILITIES AND SERVICES ............................................. 8
5.1 Electricity................................................... 8
5.2 Other Utilities............................................... 8
5.3 Tenant's Obligations Regarding Additional Utilities........... 8
5.4 Landlord's Right to Install Other Utilities................... 9
5.5 Janitorial Services........................................... 9
5.6 Satellite Dish................................................ 9
5.7 Year 2000 Compliance.......................................... 10
ARTICLE VI
USE OF LEASED PREMISES.............................................. 10
6.1 Use of Leased Premises........................................ 10
6.2 Compliance with Laws.......................................... 10
6.3 Compliance with Americans with Disabilities Act............... 10
6.4 No Nuisance or Other Harmful or Disruptive Activity........... 11
6.5 Compliance with Fire Insurance Requirements................... 11
6.6 Hazardous Materials........................................... 12
ARTICLE VII
MAINTENANCE; REPAIRS................................................ 13
7.1 Tenant's Obligations.......................................... 13
7.2 Landlord's Obligations........................................ 13
7.3 Removal of Snow, Ice and Debris............................... 14
7.4 Tenant's Failure to Make Repairs.............................. 14
7.5 Landlord's Failure to Make Repairs............................ 14
ARTICLE VIII
ALTERATIONS......................................................... 14
8.1 Alterations or Additions by Tenant............................ 14
8.2 Alterations or Additions by Landlord.......................... 15
ARTICLE IX
ASSIGNMENT; SUBLEASING.............................................. 15
9.1 Landlord's Consent............................................ 15
9.2 Standards for Consent......................................... 16
9.3 Affiliated Transfers.......................................... 16
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ARTICLE X
SUBORDINATION; ESTOPPEL CERTIFICATES................................ 16
10.1 Subordination ................................................ 16
10.2 Estoppel Certificates......................................... 17
ARTICLE XI
INDEMNIFICATION AND WAIVER.......................................... 18
11.1 Damage to Property ........................................... 18
11.2 Indemnity Against Liability .................................. 18
11.3 Waiver of Claims ............................................. 19
ARTICLE XII
INSURANCE........................................................... 19
12.1 Insurance to be Maintained by Tenant.......................... 19
12.2 Other Insurance Requirements ................................. 20
12.3 Waiver of Subrogation......................................... 20
12.4 Insurance to be Maintained by Landlord........................ 20
ARTICLE XIII
FIRE; CASUALTY; EMINENT DOMAIN...................................... 21
13.1 Damage by Casualty............................................ 21
13.2 Tenant's Option to Terminate in the Event of a Taking......... 22
13.3 Landlord's Option to Terminate in the Event of a Taking....... 22
13.4 Miscellaneous Provisions Regarding Casualty or Taking......... 23
ARTICLE XIV
DEFAULT; REMEDIES; BANKRUPTCY....................................... 23
14.1 Events of Default ............................................ 23
14.2 Landlord's Remedies .......................................... 25
14.3 Landlord's Cure Rights ....................................... 26
14.4 Tenant's Obligation to Reimburse Landlord .................... 26
14.5 No Waiver .................................................... 26
14.6 Acceptance of Late Payments .................................. 27
14.7 Interest on Late Payments .................................... 27
14.8 Remedies Cumulative .......................................... 27
14.9 Landlord's Rights in Tenant's Bankruptcy ..................... 27
14.10 Landlord's Default............................................ 28
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ARTICLE XV
SURRENDER; HOLDING OVER............................................. 29
15.1 Surrender of Leased Premises.................................. 29
15.2 Holding Over ................................................. 29
ARTICLE XVI
LANDLORD'S LIABILITY................................................ 30
16.1 Limited Recourse ............................................. 30
16.2 Interruption of Services and Utilities ....................... 30
16.3 No Consequential Damages ..................................... 30
16.4 Liability after Conveyance of Property ....................... 30
ARTICLE XVII
MISCELLANEOUS PROVISIONS............................................ 31
17.1 Governing Law ................................................ 31
17.2 Partial Invalidity ........................................... 31
17.3 Captions ..................................................... 31
17.4 Successors and Assigns........................................ 31
17.5 Recording of Lease............................................ 31
17.6 Entire Agreement.............................................. 31
17.7 Amendments.................................................... 31
17.8 Quiet Enjoyment............................................... 31
17.9 No Partnership................................................ 31
17.10 Time of Essence............................................... 32
17.11 Brokerage..................................................... 32
17.12 Rules and Regulations......................................... 32
17.13 Signs......................................................... 32
17.14 Landlord's Access and Tenant's Access; Security............... 33
17.15 Notices....................................................... 33
17.16 No Merger..................................................... 34
17.17 No Offer...................................................... 34
17.18 Waiver of Jury Trial.......................................... 34
17.19 Financial Reports............................................. 34
17.20 Landlord's Fees............................................... 34
17.21 Telecommunications............................................ 34
17.22 Confidentiality............................................... 35
17.23 Notice to Landlord's Mortgagee................................ 35
17.24 Condition of Leased Premises.................................. 35
17.25 Landlord Work................................................. 36
17.26 Intentionally Omitted......................................... 37
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17.27 Tenant Improvements........................................... 37
17.28 Right of First Offer.......................................... 37
</TABLE>
List of Exhibits:
- -----------------
Exhibit FP - Floor Plan of Leased Premises
Exhibit LD - Legal Description of Property
Exhibit OC - Operating Costs
Exhibit FMRV - Calculation of Fair Market Rental Value
Exhibit RR - Rules and Regulations
Exhibit LW - Landlord Work
Exhibit TI - Tenant Improvements
Exhibit J - Janitorial Services
Exhibit S - Subordination, Non-Disturbance and Attornment Agreement
Exhibit HM - Hazardous Materials Disclosure Form
vi
<PAGE> 7
8/27/99
Exchange.3028907.6
OFFICE LEASE
THIS OFFICE LEASE (this "Lease") is made as of the 31st day of August,
1999, by and between Nagog Park Investors, L.L.C., having a business address c/o
Tishman-Heskin Partners, 119 North Fourth Street, Minneapolis, MN 55401
("Landlord") and ArrowPoint Communications, Inc., a Delaware corporation, having
a business address as provided below in Section 1.7 ("Tenant").
Subject to the covenants, conditions and other provisions of this Lease,
Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the
Leased Premises (as defined below), together with the non-exclusive right to use
in common with others the Common Facilities (as defined below) and the right to
use in common with other tenants, the unassigned parking spaces on the Land, it
being agreed the assigned parking spaces on the Land will not exceed 45 spaces.
ARTICLE I
REFERENCE DATA
Each of the capitalized terms used in this Lease shall have the meaning
set forth opposite such term below:
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1.1 COMMENCEMENT DATE: The later of (a) November 1, 1999 or (b) the
date on which Landlord delivers the Leased
Premises to Tenant with the Landlord Work
substantially complete in accordance with
Section 17.25 of this Lease.
1.2 BUILDING: The building located at 50 Nagog Park,
Acton, Massachusetts, containing
approximately one hundred eighteen thousand
(118,309) rentable square feet of floor
space.
1.3 LEASED PREMISES: A portion of the Building containing
approximately forty-four thousand three
hundred five (44,776) square feet of
floor space, located within the Building
on the third (3rd) floor as shown on
EXHIBIT FP attached hereto.
1.4 LAND: The land on which the Building is
located, as described in the legal
description attached hereto as EXHIBIT LD.
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1.5 PROPERTY: The Land, the Building, the Common
Facilities and the other common areas and
the other improvements on the Land.
1.6 LANDLORD'S MAILING ADDRESS: 119 North Fourth Street, Suit 407
Minneapolis, MN 55401
Attn: Mr. Raymond P. Cunningham
1.7 TENANT'S MAILING ADDRESS: Prior to the Commencement Date:
235 Littleton Rd., Suite #3
Westford, MA 01886
After the Commencement Date:
the address of the Leased Premises
Attn: Chief Financial Officer
1.8 BROKER: Grubb & Ellis Company and Insignia/ESG,
Inc.
1.9 TENANT'S PRORATA SHARE: Thirty-seven and eight tenths percent
37.8%)
1.10 SECURITY DEPOSIT:. One Hundred Thirty-Four Thousand Seven
Hundred Sixty-One and 00/100 Dollars
($134,761.00)
1.11 GUARANTOR: N/A
1.12 LEASED PREMISES RENTABLE AREA: Forty-four thousand seven hundred
seventy-six (44,776) rentable square feet
1.13 PERMITTED USE: General office, laboratory, research,
development and light assembly but only
to the extent permitted by applicable
zoning, and no other purpose.
1.14 LEASE YEAR: A period of twelve (12) consecutive
calendar months commencing on the
Commencement Date (or the first day of
the first calendar month after the
Commencement Date occurs if the
Commencement Date is any day other than
the first day of a month), and then each
consecutive twelve (12) month period
occurring thereafter during the Term of
this Lease.
1.15 BASE YEAR TAXES: Total Taxes (as defined below) paid with
respect to the Property for the period
from July 1, 1999 through June 30, 2000
(i.e., fiscal tax year 2000); provided,
however, if at the time the Building
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<S> <C>
reaches 95% occupancy, it can be
reasonably determined that the assessment
of the Property has been increased to
reflect an increase in the occupancy of
the Building over the occupancy level
that existed on the relevant assessment
date for fiscal year 2000, then the Base
Year Taxes shall be calculated to equal
the product of (a) the new, higher
assessed value which reflects such 95%
occupancy (as distinct from any increased
valuation which is part of a general
increased valuation of all the property
within the Town of Acton) times (b) the
tax rate in effect for the Property for
fiscal year 2000.
1.16 BASE YEAR OPERATING COSTS: Total Operating Costs (as defined below)
paid with respect to the Property for the
period from January 1, 2000 through and
including December 31, 2000; however, if
during such period average occupancy of
the Building was less than ninety-five
(95%), then Base Year Operating Costs
shall be adjusted as reasonably
appropriate to reflect the Operating
Costs which would have been incurred had
average occupancy of the Building for
such period been ninety-five percent
(95%).
1.17 COMMON FACILITIES: The driveways and walkways necessary for
access to the Building and the parking areas
on the Land; the loading docks and loading
areas serving the Building; the cafeteria;
the entrances, lobbies, stairways, freight
and passenger elevators, and corridors
necessary for access to said loading docks,
cafeteria and the Leased Premises; exercise
facilities; and the heating, ventilating,
air conditioning, plumbing, electrical,
security, emergency and other mechanical
systems and equipment serving the Leased
Premises in common with other portions of
the Building.
</TABLE>
ARTICLE II
LEASE TERM; EXTENSIONS
2.1 TERM. The term of this Lease shall be for a period of five (5) years
commencing on the Commencement Date and ending on the last day of the month
immediately prior to the
3
<PAGE> 10
month in which the fifth (5th) anniversary of the Commencement Date occurs (the
"Term"). Landlord shall deliver the Leased Premises to Tenant, free of all
tenants and occupants in accordance with Section 17.25 of this Lease, on the
Commencement Date.
2.2 EXTENSION RIGHTS. Provided there is no uncured Event of Default both
at the time of Tenant's exercise of its right to extend and at the commencement
of the Option Term, Tenant shall have the right to extend the Term for one (1)
five-year extension period (the "Option Term") upon the following terms and
conditions:
2.2.1 Tenant must notify Landlord in writing of its election to
extend the Term for the Option Term on or before two hundred seventy (270) days
prior to the expiration of the Term.
2.2.2 The annual Base Rent for the Option Term shall be equal to
ninety-five percent (95%) of the Fair Market Rental Value as determined pursuant
to EXHIBIT FMRV attached hereto as of the last day of the original Term.
2.2.3 Additional Rent (defined below) due for Real Estate Taxes
(defined below), Operating Costs (defined below), the costs of utilities and
other sums due under this Lease shall be payable during the Option Term in the
same manner as herein provided for the original Term; provided, however, the
Base Year Taxes shall be Total Taxes paid with respect to the Property for
fiscal tax year 2005, and the Base Year Operating Costs shall be Total Operating
Costs paid with respect to the Property for calendar year 2005.
2.2.4 All other provisions of this Lease shall also remain in effect
during the Option Term except the right to extend as set forth in this Section
2.2, it being agreed that there are no further rights of extension after the
first (1st) Option Term. Unless expressly stated herein to the contrary, all
references in this Lease to the "Term" shall include the Option Term when and if
Landlord receives Tenant's notice of election to extend the Term as herein
provided.
ARTICLE III
RENT
3.1 BASE RENT. Tenant shall pay to Landlord annual rent equal to (i) Eight
Hundred Seventeen Thousand One Hundred Sixty-Two and 00/100 Dollars
($817,162.00) per year, payable in equal monthly installments of Sixty-Eight
Thousand Ninety-Six and 83/100 Dollars ($68,096.83) each from the Commencement
Date through the date which is one (1) day prior to the first (1st) anniversary
of the Commencement Date, and Eight Hundred Twenty-Eight Thousand Three Hundred
Fifty-Six and 00/100 Dollars ($828,356.00) per year, payable in equal monthly
installments of Sixty-Nine Thousand Twenty-Nine and 67/100 Dollars ($69,029.67)
each from the first (1st) anniversary of the Commencement Date through the date
which is one (1) day prior to the third (3rd) anniversary of the Commencement
Date, and Eight Hundred Fifty
4
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Thousand Seven Hundred Forty-Four and 00/100 Dollars ($850,744.00) per year,
payable in equal monthly installments of Seventy Thousand Eight Hundred
Ninety-Five and 33/100 Dollars ($70,895.33) each from the third (3rd)
anniversary of the Commencement Date through the last day of the original Term
of this Lease ("Base Rent"), and (ii) an amount equal to the cost of the
electricity consumed by Tenant at the Building determined by a check meter (the
"Electricity Rent"). Landlord shall pay for the cost of such check meter.
Payments of Base Rent shall be made by Tenant at the Landlord's Mailing Address
commencing on the Commencement Date and continuing thereafter on the first day
of each month during the Term in advance, without offset, deduction, demand, or
abatement (except as otherwise expressly specified in this Lease) whatsoever, in
lawful money of the United States. The Base Rent payment for any fractional
month at the commencement, termination or expiration of the Term will be
prorated accordingly. The amount of Base Rent payable during the Option Term
shall be determined in accordance with Section 2.2.2 above. Electricity Rent
shall be payable in monthly installments in arrears within thirty (30) days
after Tenant receives an invoice from Landlord stating the amount of electricity
consumed by Tenant during the previous month according to said check meter and
the actual cost to Landlord of such electricity.
3.2 ADDITIONAL RENT. In addition to the Base Rent and Electricity Rent,
Tenant shall pay to Landlord the following amounts as additional rent
("Additional Rent") hereunder:
3.2.1 TAXES. Commencing July 1, 2000, Tenant will pay to Landlord
Tenant's Prorata Share of the "Increased Taxes" (defined below) for each fiscal
tax year or portion thereof included within the Term. "Taxes" shall mean the
total of all real estate taxes, charges, and assessments, extraordinary as well
as ordinary, and any payments in lieu of such real estate taxes, levied,
imposed, or assessed for a particular fiscal year during the Term of this Lease
by governmental authorities upon or attributable to the Property, or to any and
all personalty owned by Landlord installed in or about the same by Landlord. If
due to a future change in the method of taxation any franchise, income or profit
tax shall be levied against Landlord in substitution for or in lieu of any tax
which would otherwise constitute a real estate tax or payment in lieu of real
estate tax, or if a specific tax on rentals from the Property shall be levied
against Landlord, such franchise, rental, or income tax shall be deemed to
constitute "Taxes" for the purposes hereof. Notwithstanding any other provision
of this Lease, "Taxes" shall not include any penalties or interest thereon
incurred due to Landlord's fault or omission nor any tax on Landlord's net
income or any succession, inheritance, transfer, estate, franchise, income tax
or tax on gross rent. "Increased Taxes" shall mean the amount, if any, by which
total Taxes paid for any fiscal tax year included within the Term exceed Base
Year Taxes. If Landlord obtains an abatement of any such Taxes, a proportionate
share of such abatement, less the reasonable fees and costs incurred in
obtaining the same, shall be refunded to Tenant. If Tenant reasonably determines
that the assessed value of real property is not commensurate with similar
commercial properties in Acton, Tenant shall have the right to bring or cause to
be brought an application or proceeding for reduction of the assessed valuation
of the real property, at Tenant's sole cost and expense. Taxes shall be deemed
to be paid over the maximum time permitted under law. If the Term includes only
a portion of any fiscal tax year, Tenant's Prorata Share of Increased Taxes for
such fiscal tax year shall be prorated according to the fraction calculated by
dividing (a) the total number
5
<PAGE> 12
of days in such fiscal tax year included within the Term by (b) 365. Tenant
shall be fully responsible for any tax assessment or other charge levied by any
governmental authority against any personalty placed upon the Property by
Tenant.
3.2.2 OPERATING COSTS. Commencing January 1, 2001, Tenant shall pay
to Landlord Tenant's Prorata Share of the Increased Operating Costs (defined
below) for each calendar year. For the purposes of this Lease, the term
"Operating Costs" shall mean the items listed in EXHIBIT OC attached hereto and
made a part hereof. "Increased Operating Costs" shall mean the amount, if any,
by which total Operating Costs for any calendar year included within the Term
exceed Base Year Operating Costs. If during any calendar year less than
ninety-five percent (95%) of the rentable area of the Building is occupied, then
Operating Costs for such calendar year shall be adjusted reasonably to reflect
the Operating Costs which would have been incurred if at least ninety-five
percent (95%) of the rental area of the Building had been occupied during such
calendar year. If the Term includes only a portion of a calendar year, Tenant's
Prorata Share of Increased Operating Costs for such calendar year shall be
prorated according to the fraction calculated by dividing (a) the total number
of days in such calendar year included within the Term by (b) 365.
3.3 MANNER OF PAYMENT OF ADDITIONAL RENT. Landlord shall reasonably
estimate Base Year Operating Costs, Increased Taxes, Increased Operating Costs,
and Tenant's Prorata Share of such Increased Taxes and such Increased Operating
Costs for the Lease Year in question and commencing January 1, 2001, Tenant
shall pay with each monthly installment of Base Rent during that Lease Year, in
advance as Additional Rent, an amount equal to one-twelfth (1/12th) of the total
of Tenant's Prorata Share of such estimated Increased Taxes and Increased
Operating Costs. On or before April 1 of each calendar year, Landlord shall
deliver to Tenant a reasonably detailed written statement of the actual Taxes
and Operating Costs for the preceding calendar year, together with reasonable
supporting documentation to permit Tenant to confirm the accuracy of all charges
and calculations. If total payments made by Tenant based upon such estimates
exceed Tenant's Prorata Share of actual Increased Taxes and Increased Operating
Costs as finally determined for the Lease Year in question, then any overpayment
shall be credited in full to such payments next coming due under this Lease or
in the event such overpayment occurs at the end of the Term, then such excess
shall be refunded to Tenant within thirty (30) days after the end of the Term
(subject to any offsets for sums due from Tenant). If total payments based upon
such estimates are less than the actual amounts required to pay in full Tenant's
Prorata Share of actual Increased Taxes and Increased Operating Costs for the
year in question, then Tenant shall pay to Landlord the full amount of the
deficiency within thirty (30) days after receiving written notice from Landlord
of the amount of such deficiency. The Additional Rent payment for any fractional
month at the commencement, termination or expiration of the Term shall be
prorated accordingly. Payments of Additional Rent shall be made by Tenant
without offset, deduction, demand, or abatement whatsoever (except as otherwise
expressly provided in this Lease), in lawful money of the United States.
3.4 AUDIT RIGHT OF TENANT. Tenant shall have the right to audit the
applicable records of Landlord to confirm that the Operating Costs and other
charges billed to Tenant are proper and
6
<PAGE> 13
conform to the provisions of the Lease. Such right shall be exercisable by
Tenant within one year after the Tenant's receipt of the Landlord's statement of
Taxes and Operating Costs with respect to such expenses and charges. Landlord
shall cooperate with Tenant in providing Tenant reasonable access to Landlord's
books and records during normal business hours to enable Tenant to audit
Landlord's books and records as they relate to any costs or expenses passed
through to Tenant pursuant to any provisions of this Lease. If the audit
discloses any overpayment on the part of Tenant, then Tenant shall be entitled
to a credit on the next succeeding installment of Increased Operating Costs for
an amount equal to the overcharge plus interest on the amount of such overcharge
from the date on which same was paid by Tenant until the date refunded by
Landlord at the prime rate as published in the Wall Street Journal, and such
credit shall be extended to succeeding installments of Increased Operating Costs
in the event such overcharge exceeds the amount of the next succeeding such
installment and, in the event the term of this Lease has expired or been earlier
terminated, then Tenant shall be entitled to a refund of such excess from
Landlord (net of any amounts whatsoever which Tenant may still owe to Landlord
notwithstanding such expiration or early termination) within thirty (30) days
after such date or expiration or earlier termination. In addition, in the event
such audit by Tenant discloses such an overcharge in excess of five percent (5%)
of the amount payable in accordance with this Lease, then Landlord shall pay to
the Tenant the reasonable costs and expenses of such audit.
ARTICLE IV
SECURITY DEPOSIT
4.1 HANDLING OF SECURITY DEPOSIT. Upon the execution of this Lease, Tenant
shall pay to Landlord the Security Deposit in the amount specified in Section
1.10 above, which shall be held as security for Tenant's performance of Tenant's
obligations under this Lease (and may be applied by Landlord to defray the cost
or expense to Landlord (including, without limitation, payment of any unpaid
Rent) arising out of any Event of Default by Tenant hereunder) and refunded to
Tenant at the end of the Lease Term subject to Tenant's satisfactory compliance
with the conditions and obligations of this Lease. Landlord may co-mingle the
Security Deposit with Landlord's other funds; however, Landlord shall at least
annually either pay over to Tenant or credit against Rent owed by Tenant any
interest accrued with respect to the Security Deposit. Further, Landlord shall
have the right to turn over the Security Deposit to any grantee of Landlord's
interest in the Property; and if so turned over, Tenant agrees to look solely to
such grantee for proper application of the Security Deposit.
4.2 RESTORATION OF SECURITY DEPOSIT. In the event Landlord applies any
portion of the Security Deposit in accordance with provided in Section 4.1
above, Tenant shall immediately make payment to Landlord of the amount necessary
to restore the Security Deposit to the full dollar amount set forth in Section
1.10.
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ARTICLE V
UTILITIES AND SERVICES
5.1 ELECTRICITY. Tenant shall pay directly to Landlord monthly (as set
forth in Section 3.1) Tenant's share of charges for electricity for the lights
and plugs consumed in the Leased Premises as established by the so-called check
meter or sub-meter (the "Sub-meter") between the main meter (the "Main Meter")
for the Building and the Leased Premises which monitors electricity usage at the
Leased Premises. Tenant's share shall equal the total monthly electric bill
based upon the usage reflected by the Main Meter, times a fraction of which the
denominator is the total kilowatt hours shown on the Main Meter for the month in
question and the numerator of which is the total kilowatt hours shown on the
Sub-meter for the month in question. Landlord hereby warrants to Tenant that
electricity having a capacity of six (6) watts per square foot of rentable area
in excess of electricity provided for HVAC, lighting and the base building will
be provided to the Leased Premises at all times during the term. Landlord shall
provide heating, ventilation and air conditioning ("HVAC") to the Leased
Premises between the hours of 8:00 a.m. to 6:00 p.m. Monday through Friday and
from 8:00 a.m. to 1:00 p.m. on Saturday, but excluding holidays (the "Normal
Hours HVAC"). Landlord hereby warrants to Tenant that the Building air
conditioning system shall have a cooling capacity of one (1) ton per hour for
each three hundred (300) usable square feet in the Building. Upon Tenant's
request, which request must be made to Landlord's property manager by 3:00 p.m.
on the preceding business day, Landlord shall provide HVAC beyond Normal Hours
HVAC at a cost of fifty dollars ($50) per hour. Notwithstanding any provisions
of this Section 5.1 to the contrary, Tenant hereby agrees that in the event that
the Tenant's unusual concentration and use of business machines, classrooms,
training rooms, or its uncharacteristically high occupancy of the Leased
Premises or Tenant's unusual electrical loads cause the need for an upgrade to
the HVAC system, Tenant shall pay to Landlord all costs of such HVAC system
upgrade.
5.2 OTHER UTILITIES. For any utility service provided to the Leased
Premises other than electricity, water or sewer, Tenant must make arrangements
directly with the provider of such utility service for bills to be rendered
directly to Tenant, and Tenant shall have full responsibility to pay all such
bills.
5.3 TENANT'S OBLIGATIONS REGARDING ADDITIONAL UTILITIES. Landlord shall
have no obligation to provide utilities or equipment other than the utilities
and equipment within the Leased Premises as of the Commencement Date of this
Lease. In the event Tenant's use of the Leased Premises requires additional
utilities or equipment or utilities of greater capacity, the installation and
maintenance thereof shall be Tenant's sole obligation and shall be performed at
Tenant's sole cost and expense, provided that such installation shall be subject
to the prior written consent of Landlord which shall not be unreasonably
withheld, delayed or conditioned.
5.4 LANDLORD'S RIGHT TO INSTALL OTHER UTILITIES. Landlord shall be
entitled to install in or through the Leased Premises (above drop ceilings) and
the Property and repair, maintain, and replace pipes, conduits, wires, and other
utility lines serving other tenants or portions of the
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Property provided said installation, repair, maintenance or replacements do not
unreasonably interfere with Tenant's use of the Leased Premises, other than a
reasonable time necessary to complete repairs or replacements of an urgent
nature. Landlord shall provide at least forty-eight (48) hours advance written
notice to Tenant of any such work to be performed in or adjacent to the Leased
Premises that may reasonably be calculated to have an effect on the Tenant's use
of the Leased Premises.
5.5 JANITORIAL SERVICES. Landlord shall provide daily and periodic
janitorial services to the Leased Premises after 5:00 p.m. according to the
schedule attached as EXHIBIT J substantially in accordance with similar suburban
buildings along the Route 495 corridor. The cost of such services shall be
included in Operating Costs. Tenant shall have the right, which shall be
exercised by sixty (60) days prior written notice to Landlord, to select and
hire Tenant's own cleaning company to perform the janitorial services set forth
on EXHIBIT J at Tenant's sole cost and expense; provided that, upon the date
which is sixty (60) days after Landlord's receipt of Tenant's notice that Tenant
will select and hire its own cleaning company, Landlord shall have no obligation
to provide any janitorial services to Tenant with respect to the Leased Premises
or otherwise. If Tenant notifies Landlord of its election to select and hire its
own cleaning company, then commencing on the date which is sixty (60) days after
Tenant's notice, Landlord shall not include in the calculation of Tenant's
Prorata Share of Operating Costs the cost of the janitorial services set forth
on EXHIBIT J.
5.6 SATELLITE DISH. Provided that Tenant has (i) obtained Landlord's prior
written consent, which consent may be withheld in Landlord's sole discretion,
and (ii) submitted to Landlord, and Landlord has approved, the plans and
specifications for a satellite dish or other form of wireless equipment for
receiving telecommunications (the "Satellite Dish"), Tenant shall have the
right, appurtenant to the Leased Premises, to install, construct, maintain, use
and operate a satellite dish or other form of wireless equipment for receiving
telecommunications on the roof of the Building in the area reasonably specified
by Landlord; provided further that, (a) Tenant's installation, construction,
maintenance, use and operation of the Satellite Dish shall not invalidate any
warranty of any contractors or materials suppliers relating to the roof, (b)
Tenant hereby acknowledges and agrees that the indemnification of Landlord by
Tenant set forth in Section 11.2 shall expressly apply to any damage to the
roof, and injury to persons or other damage property occurring during or as a
result of the installation, construction, maintenance, or use of the Satellite
Dish, and (c) Tenant, its agents, contractors, or employees shall not interfere
with the rights of any other tenants to install, construct, maintain, use or
operate a satellite dish or other form of wireless equipment for receiving
telecommunications at the Building. Tenant shall so install, construct, maintain
(in good condition), use and operate such Satellite Dish at its sole expense and
in accordance with all applicable laws. Tenant shall remove such Satellite Dish
at the end of the Term and shall repair any damage to the Building caused by its
installation or removal. Notwithstanding anything in this Section 5.6 to the
contrary, Tenant shall have no right to install, construct, maintain, use or
operate the Satellite Dish in violation of any applicable Governmental
Regulations, zoning or town bylaws.
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5.7 YEAR 2000 COMPLIANCE. If any repairs, alterations or replacements need
to be made to any of the equipment, software and/or appliances of the Building,
including without limitation, elevators, heating, ventilating and air
conditioning systems, card key access systems, door locks, energy management
systems, sprinkler systems, fire detection and life safety systems and other
building systems, in order to prevent or eliminate any interruptions or
malfunctions in the services or operations provided thereby as a result of the
passage from the year 1999 to the year 2000, Landlord shall cause any such
repairs, alterations or replacements to be promptly and timely made and the cost
thereof will be paid by Landlord.
ARTICLE VI
USE OF LEASED PREMISES
6.1 USE OF LEASED PREMISES. Tenant acknowledges that no trade or
occupation shall be conducted in the Leased Premises or use made thereof other
than the Permitted Use set forth in Section 1.13 above.
6.2 COMPLIANCE WITH LAWS. Tenant, at its sole expense, shall comply with
all laws, rules, orders and regulations of federal, state, county, and municipal
authorities (collectively, "Governmental Regulations"), and with any direction
of any public officers pursuant to law, which impose any duty upon Landlord or
Tenant with respect to the Leased Premises; provided, however, Tenant shall not
be required to make structural modifications to the Leased Premises or to make
modifications to the Building's electrical, mechanical and plumbing systems
serving the Leased Premises, including, but not limited to, any bathrooms
located in the Leased Premises. Conversely, Landlord, at its sole expense, shall
comply with all Governmental Regulations and any such directions which impose
any duty with respect to the portions of the Building or Property outside of the
Leased Premises (or within the Leased Premises if structural modifications are
required), except to the extent that such duty is triggered by any unique (i.e.,
not typically part of a general office, laboratory, research, development or
light assembly use) and the specific use for which Tenant is utilizing the
Leased Premises, in which event the provisions of the prior sentence shall
govern. Tenant shall also comply with all covenants, conditions and restrictions
of record as of the execution of this Lease applicable to Tenant's use or
occupancy of the Property.
6.3 COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Without in any way
limiting the generality of the obligations set forth in Section 6.2 above,
Tenant also shall comply at Tenant's sole cost and expense with all applicable
provisions of the Americans with Disabilities Act ("ADA") and all of the
regulations promulgated thereunder as they apply to Tenant's use and occupancy
of the Leased Premises and the operation of Tenant's business therein and shall
be fully responsible for any modifications or alterations to the Leased Premises
or the common areas of the Property necessary to meet requirements of the ADA
which have become applicable to the Leased Premises or the Property as a result
of any unique and specific use for which Tenant is utilizing the Leased
Premises; provided, however, Tenant shall not be required to make structural
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alterations to the Leased Premises nor shall Tenant be required to make any
alteration or modification in connection with the entrance door to the Leased
Premises connecting to the hallway of the Building. Landlord shall be
responsible for compliance of the Building or Property outside of the Leased
Premises with all provisions of the ADA, except to the extent that such duty is
triggered by any unique and specific use for which Tenant is utilizing the
Leased Premises, in which event the provisions of the prior sentence shall
govern, and also except that Landlord will take no action to bring into
compliance with ADA any of the bathrooms of the Building (including, without
limitation, bathrooms within the Leased Premises) which may not presently comply
with ADA unless specifically notified of any such ADA noncompliance by a public
official having jurisdiction over such matters under applicable Governmental
Regulations. In the event that a public official having jurisdiction over such
matters under applicable Governmental Regulations specifically notifies Landlord
that any of the bathrooms of the Building are not in compliance with the ADA,
Landlord shall be responsible to: (i) bring any such bathrooms into compliance
with the ADA at Landlord's sole cost and expense and, (ii) pay any fines in
connection therewith; provided that, Tenant and not Landlord shall be
responsible for the items enumerated in (i) and (ii) above, at Tenant's sole
cost and expense, if the bathrooms were in compliance at the time of execution
of the Lease and the noncompliance is a result of any unique and specific use
for which Tenant is utilizing the Leased Premises. Notwithstanding the
immediately preceding sentence, Tenant shall not be required to make structural
alterations to the Leased Premises to bring the bathrooms of the Building into
compliance with the ADA. Landlord hereby represents that as of the execution of
this Lease, the Building (excluding the bathrooms of the Building as set forth
on the immediately preceding sentence) is in compliance with the ADA.
6.4 NO NUISANCE OR OTHER HARMFUL OR DISRUPTIVE ACTIVITY. Tenant shall not
perform any acts or carry on any business or practices which may (a) injure or
overburden any part of the Leased Premises, the Property or common areas,
including, without limitation, any of the electrical or mechanical systems of
the Property, (b) violate any certificate of occupancy affecting the same, (c)
constitute a public or private nuisance or a menace to other tenants on the
Property, (d) produce undue noise, (e) create obnoxious fumes or other odors or
(f) otherwise cause unreasonable interference with other tenants or occupants of
the Property. Further, Tenant agrees not to use the Leased Premises for any
purpose whatsoever which may injure the reputation of the Leased Premises or the
Property.
6.5 COMPLIANCE WITH FIRE INSURANCE REQUIREMENTS. Tenant shall not permit
any use of the Leased Premises which will make voidable any insurance on the
Property or on the contents of the Building or which shall be contrary to any
law or regulation from time to time established by the New England Fire
Insurance Rating Association or any similar body succeeding to its powers.
Tenant shall on demand reimburse Landlord for all extra insurance premiums
caused in any way by Tenant's use of the Leased Premises, including, without
limitation, the volume of electricity and electrical equipment used by Tenant.
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6.6 HAZARDOUS MATERIALS. Tenant shall not cause or permit the emission,
release, threat of release or other escape of any Hazardous Materials (defined
below) so as to adversely affect in any manner, even temporarily, any element or
part of the Leased Premises or the Property. Tenant shall not use, generate,
store or dispose of Hazardous Materials in or about the Leased Premises (except
for the materials listed and disclosed on the Hazardous Materials Disclosure
Form attached hereto as EXHIBIT HM provided such materials shall be stored, used
and disposed of by Tenant strictly in accordance with all applicable
Governmental Regulations and Environmental Laws, and ordinary office and
cleaning supplies which are stored, used and disposed of in compliance with all
applicable Environmental Laws (defined below)), or dump, flush or in any way
introduce Hazardous Materials (other than common cleaning products which are
being disposed of in compliance with all applicable Environmental Laws) into
sewage or other waste disposal systems serving the Leased Premises (nor shall
Tenant permit its employees, agents or contractors to take any of the foregoing
actions). Upon each anniversary of the Commencement Date, Tenant shall provide
to Landlord a written update to the information initially provided in EXHIBIT HM
reaffirming or revising the information provided on EXHIBIT HM or in the most
recently provided update, as applicable, which updated information shall be
certified as being true and correct by an authorized officer of Tenant.
Tenant will indemnify, defend and hold Landlord harmless from and against
all claims, loss, costs and expenses (including, without limitation, reasonable
attorneys' fees and disbursements, diminution in the value of the Leased
Premises or the Property, costs incurred in connection with any investigation of
site conditions or any clean-up or remedial work required by any federal, state
or local governmental agency) to the extent incurred as a result of any
contamination of the Leased Premises or any other portion of the Property with,
or any release of Hazardous Materials by Tenant or Tenant's contractors,
licensees, invitees, agents, servants or employees (collectively, the "Tenant
Group") during the Term of this Lease. Without limiting the foregoing, if the
presence of any Hazardous Materials in, on or under the Leased Premises or the
Property caused or permitted by any of the Tenant Group results in any
contamination of the Leased Premises or the Property or any other property
during the Term of this Lease, Tenant shall promptly take all actions at its
sole expense as are necessary to return the Leased Premises, the Property and
such other property to the condition existing prior to the introduction of any
such Hazardous Material by such member(s) of the Tenant Group, provided that
Landlord's approval of such action shall first be obtained, which approval shall
not be unreasonably withheld so long as such actions would not potentially have
any material adverse long-term or short-term effect on Landlord, the Leased
Premises or the Property.
The obligations of Tenant and Landlord in this Section shall survive the
expiration or earlier termination of this Lease and any transfer of title to the
Leased Premises, whether by sale, foreclosure, deed in lieu of foreclosure or
otherwise.
For purposes of this Lease, "Hazardous Materials" means, collectively, any
animal wastes, medical waste, blood, biohazardous materials, hazardous waste,
hazardous substances, pollutants or contaminants, petroleum or petroleum
products, radioactive materials, asbestos in any form or
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condition, or any pollutant or contaminant or hazardous, dangerous or toxic
chemicals, materials or substances within the meaning of any applicable federal,
state or local law, regulation, ordinance or requirement relating to or imposing
liability or standards of conduct concerning any such substances or materials on
account of their biological, chemical, radioactive, hazardous or toxic nature,
all as now in effect or hereafter from time to time enacted or amended. For
purposes of this Lease, "Environmental Laws" means all laws, rules, orders and
regulations of federal, state, county, and municipal authorities, concerning any
Hazardous Materials whatsoever.
ARTICLE VII
MAINTENANCE; REPAIRS
7.1 TENANT'S OBLIGATIONS. Tenant shall, at Tenant's sole cost and expense,
(a) maintain and keep in good repair, good working order and free of litter and
refuse the interior of the Leased Premises and, except for Landlord's
obligations under Section 7.2 of this Lease, make any and all repairs and
replacements thereto as and when required, ordinary or extraordinary,
foreseeable or unforeseeable, including, but not limited to, the maintenance,
repair and replacement of any and all furnishings, fixtures and leasehold
improvements within the Leased Premises, exterior entrances, windows and plate
glass within or part of the wall delimiting the Leased Premises and any
electrical wiring, lighting fixtures, heating or plumbing fixtures, pipes, air
conditioning or heating components contained within and exclusively serving the
Leased Premises; and (b) keep unclogged and in good repair all drains, traps and
sewer pipes serving the Leased Premises and maintain and leave the same in good
working order, reasonable wear and tear, damage by fire and other casualty only
excepted. Landlord hereby represents that the heating and plumbing fixtures of
the Building currently do not serve the Leased Premises exclusively and that the
maintenance and repair of such items and the balancing of the HVAC system in the
Leased Premises shall be governed by Section 7.2 below. Tenant hereby agrees
that the maintenance and repair of the bathrooms serving the Leased Premises
shall be the responsibility of the Landlord but the costs for such maintenance
and repairs shall be included in the Operating Costs passed through to the
tenants in the Building on a prorata basis. At Landlord's option, ordinary
maintenance of any of the systems described above shall be undertaken by
Landlord in which event, promptly upon demand by Landlord, Tenant shall
reimburse Landlord (such reimbursement to constitute Additional Rent hereunder)
for all costs and expenses incurred by Landlord in connection with such
maintenance undertaken.
7.2 LANDLORD'S OBLIGATIONS. Landlord agrees to make all necessary repairs,
replacements, additions and removals, interior and exterior, structural and
nonstructural to maintain the exterior and structural portions of the Building
and the Property (including foundations, floors, structural supports, roofs,
roof structures, canopies (excluding Tenant's signage thereon), walls,
driveways, sidewalks and parking facilities), the building systems including
heating, ventilation, air conditioning, electrical, mechanical and plumbing
systems (except for portions of those systems exclusively serving the Leased
Premises and located within the Leased Premises), the Common Facilities and
windows and plate glass (to the extent
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maintenance is required due to product failure or storm related damage) of the
Building, reasonable wear and tear, damage by fire and other casualty only
excepted. Further, if any such maintenance is required because of the negligence
or intentional misconduct of Tenant or those for whose conduct Tenant is legally
responsible and such maintenance is not covered by insurance, then Tenant shall
be responsible for such maintenance, and if such maintenance is covered by
insurance, then Tenant shall be fully liable and responsible to Landlord for the
deductible amount of any such insurance. Landlord agrees to maintain the Common
Facilities of the Building and the landscaped and paved areas of the Property in
the same condition as they may be as of the Commencement Date.
7.3 REMOVAL OF SNOW, ICE AND DEBRIS. Removal of snow, ice and debris from
the Common Facilities including sidewalks, driveways and parking areas of the
Property shall be the responsibility of Landlord. Snow, ice and debris shall be
removed as soon as reasonably practicable.
7.4 TENANT'S FAILURE TO MAKE REPAIRS. If repairs are required to be made
by Tenant pursuant to the terms hereof, Landlord may demand that Tenant make the
same forthwith, and if Tenant refuses or neglects to commence such repairs and
complete the same with reasonable dispatch, after such demand, Landlord may (but
shall not be required to do so) make or cause such repairs to be made and such
repairs by Landlord shall be governed by the provisions of Sections 14.3 and
14.4 below.
7.5 LANDLORD'S FAILURE TO MAKE REPAIRS. If Landlord fails to make any
repairs required of Landlord under this Lease, Tenant shall be entitled to the
remedies described in Section 14.10 below.
ARTICLE VIII
ALTERATIONS
8.1 ALTERATIONS OR ADDITIONS BY TENANT. Tenant shall not make any
alterations (structural or otherwise), improvements, or additions to the Leased
Premises, without the prior written consent of the Landlord, such consent or
approval not to be unreasonably withheld, conditioned or delayed (except that
Landlord may withhold consent to any work which may affect structural elements
of the Building in Landlord's sole discretion), other than the Landlord Work as
set forth in Section 17.25 and EXHIBIT LW below and nonstructural alterations or
additions to the Leased Premises costing less than $10,000 in any one instance,
in which case Landlord's consent shall not be required. Landlord shall respond
to Tenant's written request for approval within ten (10) business days after
Landlord's receipt thereof; and Tenant's request shall expressly refer to
Landlord's time period for approval. All such allowed alterations, improvements
or additions other than the Landlord Work shall be at Tenant's sole cost and
expense. Tenant shall not permit any mechanics' liens, or similar liens, to
remain upon the Leased Premises for labor and material furnished to Tenant or
claimed to have been furnished
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to Tenant in connection with work of any character performed or claimed to have
been performed at the direction of Tenant and shall cause any such lien to be
released of record forthwith without cost to Landlord. Any alterations or
improvements made by Tenant shall become the property of the Landlord at the
expiration or earlier termination of the Term unless Landlord notified Tenant in
writing at the time Tenant makes such alteration or improvement that such
alteration or improvement is to be removed by Tenant at Tenant's sole cost and
expense at the expiration or earlier termination of the Term. All alterations or
additions made by Tenant shall be performed in a good and workmanlike manner and
in compliance with all the applicable laws, ordinances, orders, rules,
regulations and requirements applicable thereto, shall be carried out in
conformance with plans and specifications approved by Landlord, such consent or
approval not to be unreasonably withheld, conditioned or delayed (except that
Landlord may withhold consent to any work which may affect structural elements
of the Building in Landlord's sole discretion), and shall be performed only by
contractors or mechanics approved by Landlord, such consent or approval not to
be unreasonably withheld, conditioned or delayed. All such contractors and
mechanics shall carry liability insurance (which shall name Landlord and Tenant
as an additional insured) and workmen's compensation insurance reasonably
satisfactory to Landlord, and Landlord shall be presented with certificates of
same prior to the commencement of any work. If Landlord elects to retain the
services of an architect, engineer or other construction professional to review
or supervise any part of Tenant's work, Tenant agrees to reimburse Landlord for
any reasonable charges or fees paid to any of the same for the review of all
proposed alterations, improvements and additions and for supervision of the same
other than the Landlord Work. Neither approval of the plans and specifications
nor supervision of the Tenant's work by Landlord shall constitute a
representation or warranty by Landlord as to the accuracy, adequacy, sufficiency
or propriety of such plans and specifications or the quality of workmanship or
the compliance of such alteration with applicable law.
8.2 ALTERATIONS OR ADDITIONS BY LANDLORD. Landlord hereby reserves the
right at any time to enter upon the Property or the Leased Premises and make
alterations or additions thereto, or to any or all of the common facilities,
improvements or personalty comprising a part thereof which are owned by
Landlord, provided such alterations or additions do not unreasonably interfere
with Tenant's use of the Leased Premises.
ARTICLE IX
ASSIGNMENT; SUBLEASING
9.1 LANDLORD'S CONSENT. Tenant shall not, without the prior written
consent of Landlord: (i) assign, convey, mortgage or otherwise transfer this
Lease or any interest hereunder, or sublease the Leased Premises, or any part
thereof, whether voluntarily or by operation of law; or (ii) permit the use of
the Leased Premises by any person other than Tenant and its employees; or (iii)
sell or transfer greater than fifty (50%), in the aggregate, of the ownership
interest of Tenant, unless after such sale or transfer Tenant's net worth is
equal to or greater than Tenant's net worth immediately prior to such sale, as
reasonably determined by Landlord, and Tenant
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continues to conduct the same business operations that Tenant conducted prior to
such sale or transfer in which event Landlord's consent shall not be required.
Any such assignment, sublease, transfer or use described in the preceding
sentence (a "Transfer") occurring without the prior written consent of Landlord
shall be void and of no effect. Landlord's consent to any Transfer shall not
constitute a waiver of Landlord's right to withhold its consent to any future
Transfer. Landlord's consent to any Transfer or acceptance of Base Rent or
Additional Rent from any party other than Tenant shall not release Tenant from
any covenant or obligation under this Lease. Landlord may require as a condition
to its consent to any assignment of this Lease that the assignee execute an
instrument in which such assignee assumes the obligations of Tenant hereunder.
If Landlord consents to any Transfer, Tenant shall pay to Landlord fifty percent
(50%) of all rent and other consideration received by Tenant in excess of the
Base Rent, Electricity Rent and Additional Rent paid by Tenant for the portion
of the Leased Premises so transferred minus all costs associated with a
transfer, including, without limitation, Tenant's improvements, architectural,
engineering, brokerage commissions and reasonable attorneys' fees. In addition,
Tenant shall pay to Landlord reasonable attorneys' fees and expenses incurred by
Landlord in connection with any proposed Transfer, whether or not Landlord
consents to such Transfer.
9.2 STANDARDS FOR CONSENT. If Tenant desires the consent of Landlord to a
Transfer, Tenant shall submit to Landlord, at least thirty (30) business days
prior to the proposed effective date of the Transfer, a written notice which
includes such information as Landlord may reasonably require about the proposed
Transfer and the transferee. Landlord shall not unreasonably withhold, condition
or delay its consent to any proposed Transfers. Landlord shall not be deemed to
have unreasonably withheld its consent if, in the judgment of Landlord: (i) the
transferee is of a character or engaged in a business which is not in keeping
with the standards or criteria used by Landlord in leasing the Building; (ii)
the financial condition of the transferee is such that it may not be able to
perform its obligations in connection with this Lease; (iii) the purpose for
which the transferee intends to use the Leased Premises or portion thereof is in
violation of the terms of this Lease or the lease of any other tenant in the
Building; or (iv) any other reasonable basis which Landlord deems appropriate.
If Landlord wrongfully withholds its consent to any Transfer, Tenant's sole and
exclusive remedy therefor shall be to seek specific performance of Landlord's
obligation to consent to such Transfer.
9.3 AFFILIATED TRANSFERS. Notwithstanding any provision of Section 9.1 or
9.2 to the contrary, Tenant shall have the right to assign or sublet all or any
portion of the Leased Premises without Landlord's prior consent or any
obligation to pay such excess, to a business organization controlling,
controlled by or under common control with Tenant in connection with the merger
or consolidation of or into Tenant or the sale of all or substantially all of
Tenant's assets provided such successor entity expressly assumes Tenant's
obligations under this Lease and Tenant remains jointly and severally liable
with such successor for the failure to perform Tenant's obligations under the
Lease.
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ARTICLE X
SUBORDINATION; ESTOPPEL CERTIFICATES
10.1 SUBORDINATION. If the Leased Premises are, as of the date hereof,
subject to any mortgage or trust deed, Landlord shall provide Tenant with an
agreement executed by such lienholder which shall assure Tenant's right to
possession of the Leased Premises and other rights granted under this Lease
substantially in accordance with this Lease's terms and conditions within thirty
(30) days after the execution of this Lease. Such agreement shall be reasonably
acceptable to Tenant, Landlord, and such lienholder and shall be recordable with
the applicable registry or office. Tenant agrees to subordinate this Lease to
any future mortgage, or trust deeds, provided such lienholder shall assure
Tenant's right to possession of the Leased Premises and other rights granted
under this Lease substantially in accordance with this Lease's terms and
conditions. Such assurance shall be in the form attached as EXHIBIT S with
respect to such lienholder, and shall be recordable with the applicable registry
or office.
Upon such attornment, this Lease shall continue in full force and effect
as a direct lease between the Successor Landlord (as defined below) and Tenant
upon all of the terms, conditions and covenants as are set forth in this Lease,
except that the Successor Landlord (unless formerly Landlord under this Lease or
its nominee or designee) shall not be: (i) liable in any way to Tenant for any
act or omission, neglect or default on the part of Landlord under this Lease;
(ii) responsible for any monies owing by or on deposit with Landlord to the
credit of Tenant unless actually received by the Successor Landlord; (iii)
subject to any counterclaim or setoff which theretofore accrued to Tenant
against Landlord; (iv) bound by any modification of this Lease subsequent to
such Superior Lease or Superior Mortgage (each as defined below) or by any
previous prepayment of Base Rent or Additional Rent for more than one (1) month,
which was not approved in writing by the Superior Mortgagee (as defined below);
(v) liable to Tenant beyond the Successor Landlord's interest in the Property
and the rents, income, receipts, revenues, issues and profits issuing from such
Property; (vi) responsible for the performance of any work to be done by
Landlord under this Lease to render the Leased Premises ready for occupancy by
Tenant; or (vii) required to remove any person occupying the Leased Premises or
any part thereof, except if such person claims by, through or under the
Successor Landlord. Any mortgage to which this Lease is, at the time referred
to, subject and subordinate, is herein called the "Superior Mortgage" and the
holder of a Superior Mortgage is herein called the "Superior Mortgagee." Any
Superior Mortgagee or the nominee or designee of any Superior Mortgagee or
lessor under any Superior Lease, and their respective successors or assigns,
including the purchaser at a foreclosure sale, who succeeds to the rights of
Landlord under this Lease shall be a "Successor Landlord."
10.2 ESTOPPEL CERTIFICATES. Tenant shall, within ten (10) business days
after request from Landlord, deliver to any mortgagee, proposed mortgagee,
proposed purchaser of all or any part of the Property, or any other person or
entity designated by Landlord, in recordable form, a certificate certifying any
and all information reasonably requested, including, but not limited to, the
following: (a) the date of this Lease, the date when the Term of this Lease
commenced,
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the date of the expiration of the Term, and the date when Base Rent and
Additional Rent commenced to accrue hereunder; (b) that this Lease is
unmodified, not amended, and in full force and effect; or, if there have been
any amendments or modifications, that the Lease is in full force and effect as
so amended or modified and stating the amendments or modifications and the dates
thereof; (c) whether or not there are then existing any setoffs or defenses
against the enforcement of any of the terms and/or conditions of this Lease and
any amendments or modifications hereof on the part of Tenant to be performed,
and, if so, specifying the same; and (d) the dates, if any, to which the Base
Rent, the Additional Rent and other sums on Tenant's part to be paid hereunder
have been paid and/or paid in advance; and (e) whether Tenant has accepted the
Leased Premises and any and all improvements in the condition then existing as
being complete and in accordance with Tenant's agreements as to the same and in
accordance with the Lease, and that Tenant waives any and all claims or causes
of action as to the condition of the Leased Premises including the improvements
thereto (to the extent that the work for such improvements has been completed)
as against Landlord and any new owner of the Property or assignee, or specifying
in detail any respect in which the Leased Premises or any improvements have not
been completed in accordance with the Lease, if that is the case (setting forth
any such deficiencies in reasonable detail). Further, Tenant's failure or
refusal to execute and deliver such certificate within such ten (10) business
day period shall constitute an Event of Default under this Lease, provided that
the notice to Tenant requesting such certificate expressly states that such
failure or refusal shall constitute an Event of Default.
ARTICLE XI
INDEMNIFICATION AND WAIVER
11.1 DAMAGE TO PROPERTY. Tenant shall save Landlord harmless from all loss
and damage to property occurring within the Leased Premises occasioned by the
use or escape of water or by the bursting of pipes, as well as from any claim or
damage resulting from neglect in not removing snow and ice from the roof of the
Building, or by any nuisance made or suffered on the Leased Premises. Tenant
also agrees to save Landlord harmless from any claim or damage resulting from
neglect in not removing snow and ice from the sidewalks on the Property, unless
such loss is caused by the intentional misconduct or gross negligence of
Landlord. Landlord shall not be liable for any loss or damage arising from any
latent defect in the Leased Premises or in the Building except as may be
otherwise expressly and specifically provided herein. All personal property or
improvements of Tenant at or about the Leased Premises shall be installed, used,
or enjoyed at the sole risk of Tenant, and Tenant shall defend, indemnify and
hold Landlord harmless from and against any and all claims and/or causes of
action pertaining to or arising out of damage to the same, including but not
limited to subrogation claims by Tenant's insurance carrier, but excepting such
claims and/or causes of action resulting from the actual negligence and/or
willful misconduct of Landlord.
11.2 INDEMNITY AGAINST LIABILITY. Tenant shall also indemnify and hold
Landlord harmless, to the fullest extent permitted by law, from and against any
and all claims, actions, loss,
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damage, liability and expense (including, without limitation, reasonable
attorney's fees and related legal costs incurred by Landlord) in connection with
loss of life, personal injury and/or damage to property arising out of or
resulting from (i) any occurrence in, upon or at the Leased Premises or (ii) the
occupancy or use of the Leased Premises, the Building or the Property or any
part thereof, or anywhere on or about the Property if caused wholly or in part
by any act, negligence or failure to perform the obligations imposed by this
Lease or any breach thereof, or omission of Tenant, its officers, agents,
employees, subtenants, licensees, concessionaires, invitees, visitors or others
occupying space in the Leased Premises, except to the extent arising out of the
negligence or willful misconduct of Landlord or its agents, employees or
contractors. If Landlord shall be threatened with or made a party to any
litigation commenced by or against Tenant (except in the event that such
litigation is commenced by Landlord against Tenant or by Tenant against Landlord
and Tenant prevails in such litigation), or with respect to any matter described
above, except to the extent arising out of the negligence or willful misconduct
of Landlord or its agents, employees or contractors, then Tenant shall protect
and hold Landlord harmless and indemnified and shall defend Landlord with
counsel reasonably acceptable to Landlord, or, at Landlord's option, shall
advance all costs, expenses and reasonable attorney's fees incurred or paid by
Landlord in connection with such litigation.
11.3 WAIVER OF CLAIMS. Except for any loss or claim covered by liability
insurance covering Landlord, for which a prorata share of premiums are charged
to Tenant pursuant to Section 3.2.2 (but only to the extent of the insurance
proceeds actually received by Landlord under such liability insurance for claims
relating to Tenant's loss), Tenant releases Landlord and its agents and
employees from, and waives all claims against Landlord for, damage or injury to
person or property and loss of business sustained by Tenant and resulting from
the Building or the Leased Premises or any part thereof or any equipment therein
becoming in disrepair (other than from Landlord's negligence in managing and
operating the Property), or resulting from any accident, or from any
intentionally wrongful conduct by anyone other than Landlord, in or about the
Building or the Leased Premises or occurring anywhere on or about the Property.
This paragraph shall apply particularly, but not exclusively, to flooding,
damage caused by Building equipment and apparatus, water, snow, ice, frost,
steam, excessive heat or cold, broken glass, sewage, gas, odors, excessive noise
or vibration or the bursting or leaking of pipes, plumbing fixtures or sprinkler
devices. Without limiting the generality of the foregoing, Tenant waives all
claims and rights of recovery against Landlord and its agents and employees for
any loss or damage to any property of Tenant, whether or not such loss or damage
is due to the fault or negligence of Landlord or its agents or employees, and
regardless of the amount of insurance proceeds collected or collectible under
insurance policies in effect.
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ARTICLE XII
INSURANCE
12.1 INSURANCE TO BE MAINTAINED BY TENANT. At its own cost and expense,
Tenant shall obtain and maintain throughout the Term of this Lease the following
insurance coverage: (a) comprehensive general public liability insurance
covering claims for injury to persons or property occurring in or about the
Leased Premises or the Property, or arising out of ownership, maintenance, use,
or occupancy thereof by the Tenant, in the amount of Two Million Dollars
($2,000,000.00), with property damage insurance with limits of Five Hundred
Thousand Dollars ($500,000.00); (b) all risk hazard insurance including and not
limited to fire, extended coverage, vandalism and malicious mischief insurance,
covering any and all of the Tenant's equipment, trade fixtures, tools,
inventory, and personal property in, at, or about the Leased Premises, in the
full amount of the replacement cost of any and all of the same; (c) Worker's
Compensation and all other insurance coverages for employees, agents, servants,
and others at or about the Leased Premises in compliance with and as required by
any and all applicable governmental regulations and statutes; and (d) if any of
the walls delimiting the Leased Premises contain plate glass, plate glass
insurance for the benefit of Landlord in the amount of replacement cost thereof.
Landlord may from time to time reasonably require Tenant to maintain other
insurance coverage or may increase the amount of the foregoing insurance to be
maintained by Tenant so as to provide insurance coverage in forms and amounts
consistent with the extent of coverage maintained by similar tenants in similar
buildings located in the same geographic market as the Leased Premises. Tenant
shall obtain an endorsement to such insurance waiving rights of subrogation
against Landlord, if such an endorsement is available from Tenant's insurance
company.
12.2 OTHER INSURANCE REQUIREMENTS. All such insurance procured by Tenant
as provided herein shall be in responsible companies qualified to do business in
Massachusetts and in good standing therein and having a Best's rating of A+++,
naming Landlord and Landlord's mortgagee; as well as Tenant against injury to
persons or damage to property as herein provided. Tenant shall deposit with
Landlord certificates for such insurance at or prior to the Commencement Date,
and thereafter within thirty (30) days prior to the expiration of any such
policies. All such insurance certificates shall provide that such policies shall
not be canceled or modified without at least ten (10) days prior written notice
to each insured named therein.
12.3 WAIVER OF SUBROGATION. Insofar as, and to the extent that, the
following provision may be effective without invalidating or making it
impossible to secure insurance coverage obtainable from responsible insurance
companies doing business in the locality in which the Property is located (even
though an extra premium may result therefrom), Landlord and Tenant mutually
agree that, with respect to any hazard, the loss from which is covered by
insurance then being carried by them, respectively, the party carrying such
insurance and suffering such loss releases the other of and from any and all
claims with respect to such loss to the extent of the insurance proceeds paid
with respect thereto; and they further mutually agree that their respective
insurance companies shall have no right of subrogation against the other on
account thereof.
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12.4 INSURANCE TO BE MAINTAINED BY LANDLORD. Landlord shall maintain
property and casualty insurance with respect to the Building and other
improvements constituting the Property in such amounts as are required by the
first mortgage lender for the Property, or in the absence of a first mortgage
lender, in amounts which are comparable to those maintained by other reasonably
prudent property owners of facilities of the type and character of the Property,
but not less than full replacement cost thereof as reasonably determined by
Landlord.
ARTICLE XIII
FIRE; CASUALTY; EMINENT DOMAIN
13.1 DAMAGE BY CASUALTY. Should a substantial portion of the Leased
Premises, or of the Building or Property, be substantially damaged by fire or
other casualty, or in the event that a fire or other casualty renders the Leased
Premises or the access thereto substantially unsuitable for its intended use,
Landlord may elect to terminate this Lease. If less than a substantial portion
of the Leased Premises, or of the Building, or of the Property is damaged by
fire or other casualty, then (subject to the availability of insurance proceeds
from any mortgagee of the Property) Landlord shall be obligated to repair,
reconstruct or replace the damaged portions of the Leased Premises, Building or
Property as nearly as possible to their former condition. When such fire or
casualty renders the Leased Premises substantially unsuitable for its intended
use, a just and proportionate abatement of rent shall be made until such time as
Tenant is able to resume full utilization of Premises or this Lease is
terminated. If any casualty results in the total suspension of business in the
Leased Premises as a result of damage or any adverse effect on the Leased
Premises, Tenant shall have the option of suspending the running of the Term
from the date of the casualty to the earlier of the date business is resumed or
sixty (60) days following the completion of restoration; such option to be
exercised by written notice within thirty (30) days after the date of the
casualty. Further, within thirty (30) days after any substantial fire or other
casualty, Landlord shall give written notice to Tenant with respect to whether
or not Landlord will restore the Leased Premises, except for the Tenant
Improvements to the Leased Premises. Tenant may elect to terminate this Lease if
either (a) Landlord notifies Tenant that Landlord has elected not to restore the
Leased Premises, including the Tenant Improvements to the Leased Premises, or
(b) Landlord elects to restore but fails to restore the Leased Premises, except
for the Tenant Improvements to the Leased Premises, to a condition substantially
suitable for its intended use within one hundred eighty (180) days after such
fire or casualty. However, Tenant's failure to give such notice of termination
within twenty (20) business days after the date on which the right to terminate
ripens under either (a) or (b) above shall constitute a waiver of such right by
Tenant. Tenant shall be responsible for the restoration of the Tenant
Improvements to the Leased Premises. Landlord will seek to have the first
mortgagee of the Property, if any, provide for application of hazard insurance
loss proceeds to the repair or reconstruction of the Leased Premises upon any
hazard loss. Subject to the mortgagee (if any) of the Property making the hazard
loss insurance proceeds available for such restoration and to Landlord's receipt
of such proceeds for that purpose, if Landlord elects to repair, reconstruct, or
cause to be repaired or reconstructed, such damage or destruction, Landlord
shall not be required to expend, in connection with such repair or
reconstruction, any amount exceeding the amount of casualty
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insurance proceeds actually received by Landlord. Notwithstanding the foregoing,
in the event such mortgagee shall not make the insurance loss proceeds available
for repair or restoration, Landlord shall not be required to repair or
reconstruct the Leased Premises and shall notify Tenant within thirty (30) days
next following such hazard loss, of its election in this respect and thereupon,
Tenant shall have the termination rights described above in this Section. For
purposes of this Section 13.1, damage shall be deemed substantial if (i) fifty
percent (50%) or more of the Leased Premises, Building or Property is damaged or
destroyed, or (ii) the time needed for Landlord to repair or restore the damage
and put the Leased Premises, Building and/or Property in proper condition for
use or occupancy is reasonably estimated by Landlord to require more than one
hundred eighty (180) days.
13.2 TENANT'S OPTION TO TERMINATE IN THE EVENT OF A TAKING. If the
Property shall be taken in its entirety under any condemnation or eminent domain
proceedings (each such occurrence being hereinafter referred to as a "Taking")
by any governmental authority (the "Taking Authority") during the Term hereof,
or in the event twenty-five percent (25%) or more of the Leased Premises, or the
access thereto, is taken in any such proceedings and the remaining portion shall
not be suitable or adequate (in the reasonable opinion of Tenant exercised in
good faith) for the conduct of Tenant's business and Tenant notifies Landlord in
writing of such determination within thirty (30) days next following the notice
of such taking by the Taking Authority or the date upon which Tenant receives
written notice that title has vested in the Taking Authority, whichever is first
to occur, then in any such event this Lease and the Term hereof shall terminate
thirty (30) days after such written notice from Tenant to Landlord, and Tenant
shall be liable for the payment of Base Rent, Additional Rent and all other
charges due from Tenant hereunder, and performance of the other terms and
conditions of this Lease on Tenant's part to be performed only up to date of
such termination, and any Base Rent and Additional Rent paid in advance for
periods following such date shall be apportioned and promptly refunded to
Tenant.
13.3 LANDLORD'S OPTION TO TERMINATE IN THE EVENT OF A TAKING. If less than
the entire Property, or less than twenty-five (25%) percent of the Leased
Premises, shall be acquired or taken by condemnation or eminent domain as
aforesaid, and the mortgagee of the Property shall not make the proceeds of any
awards or damages payable as to the Taking available for restoration and repair
of the balance of the Building, or Landlord shall determine in its reasonable
discretion that the restoration and repair of the balance of the Building shall
be impracticable; or in the event the Taking occurs within the last eighteen
(18) months of the initial Term (or of an Option Term, if any), Landlord shall
be entitled to terminate this Lease by ninety (90) days written notice to Tenant
without liability by reason of such Taking. If Landlord does not so terminate
this Lease, this Lease shall continue and Landlord shall rebuild and restore the
Leased Premises as nearly as possible to the condition existing next preceding
such Taking, with due allowance for the portion so taken; further, Tenant shall
promptly restore or repair any improvements made by it in the Leased Premises to
the extent proceeds from such awards are made available to Tenant for such
purpose and this Lease shall be and remain in full force and effect and be
unaffected by, the Taking, except that from the date possession of the taken
portion of the Leased Premises is acquired by the Taking Authority, the Base
Rent payable under this Lease shall be diminished by a percentage equal to the
percentage of the Leased Premises so
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taken and the Tenant's Pro Rata Share shall be recalculated. The restoration or
repair work to be done by Tenant shall be done subject to any and all terms and
conditions elsewhere set forth in this Lease governing alterations or work on
Tenant's part to be performed. Upon written request from Tenant (which written
request shall specifically reference this Section 13.3 and the consequence of
Landlord's failure to respond), Landlord shall notify Tenant of its
determination called for in this Section within one hundred twenty (120) days
after the date of the Taking. In the event that Landlord shall fail to respond
to such request and notify Tenant of its determination within such one hundred
twenty (120) day period, Tenant shall have the right to terminate this Lease
without cost or liability therefor as of the date of the Taking.
13.4 MISCELLANEOUS PROVISIONS REGARDING CASUALTY OR TAKING.
13.4.1 In the event this Lease is terminated or terminates by reason
of a Taking or a Casualty, the provisions of the Lease applicable upon
expiration of the Lease shall govern the parties.
13.4.2 Landlord will seek to have any mortgagee of the Building or
Property provide for application of the proceeds of any Taking awards to
restoration, repair, and reconstruction of the portion of such Property
remaining after the Taking. Notwithstanding the amount of land, building, or
improvements taken by condemnation or eminent domain or the termination or
continuance of this Lease with respect thereto, Tenant shall not participate or
share in any recovery, award, or damages payable or paid as to such Taking, nor
have or assert any right, claim, or cause of action against Landlord, the fee
owner, or mortgagee of the Property or, except as expressly provided in Section
13.4.3 below, the Taking Authority whether for the loss of, or diminution in
value of, the unexpired Term of this Lease, or as to the Taking of any such
land, building, and/or improvements or otherwise; and Tenant for itself and its
successors and assigns hereby waives, surrenders, and releases to Landlord any
and all claims or rights to claim or receive all or any portion of any and all
recovery, awards, and/or damages as to such Taking.
13.4.3 If permitted by statute, Tenant may assert a separate and
independent claim for and recover from the Taking Authority, but not from
Landlord, any compensation as may be separately awarded or recoverable by Tenant
in its own name and right for the value of the Tenant Improvements made by
Tenant (but only to the extent Tenant has paid the cost of installing or
constructing such Tenant Improvements), any damage to Tenant's portable fixtures
and equipment, or on account of any expenses which it shall incur in relocation
expenses, but in no event shall any such claims or recoveries be asserted if the
same would diminish in any way the award to Landlord for the Land, Building and
any Tenant Improvements paid for by Landlord.
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ARTICLE XIV
DEFAULT; REMEDIES; BANKRUPTCY
14.1 EVENTS OF DEFAULT. Each of the following shall be an event of default
("Event of Default") under this Lease:
14.1.1 Tenant shall default in the payment of any installment of
Base Rent, Additional Rent or other sum herein specified to be paid by Tenant
and such default shall continue for five (5) business days after written notice
thereof; provided, however, that Landlord shall not be required to give more
than two (2) notices during any consecutive twelve (12) month period with regard
to defaults in the payment of installments of Base Rent, Additional Rent or any
other sums payable by Tenant under this Lease, and in the event that Landlord
has already given two (2) such notices during any consecutive twelve (12) month
period, any subsequent failure of Tenant during such twelve (12) month period to
make any such payment shall immediately constitute an Event of Default even
though no notice has been given;
14.1.2 Tenant shall default in the observance or performance of any
other of Tenant's covenants, agreements, or obligations hereunder and such
default shall not be cured within thirty (30) days after written notice thereof,
or if such default is of a nature that it cannot be reasonably cured within such
thirty (30) day period, Tenant shall not have commenced to cure such default
within such thirty (30) day period and diligently proceed to completion of said
cure, but only if such extended period beyond thirty (30) days without a
completed cure will not have a material adverse effect on the value of the
Property or the Leased Premises or expose Landlord to any liability;
14.1.3 Tenant's leasehold interest in the Leased Premises shall be
taken on execution, levied upon or attached by other process of law directed
against Tenant;
14.1.4 Tenant shall dissolve, shall become insolvent, shall make a
transfer in fraud of creditors, shall make an assignment for the benefit of
creditors, shall file a voluntary petition in bankruptcy, shall be adjudicated
bankrupt or insolvent, shall file any petition or answer seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief for itself under Title 11 of the United States Bankruptcy Code
relating to Bankruptcy, as amended (the "Bankruptcy Code") or under any present
or future Federal, State or other statute, law or regulation for the relief of
debtors, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Tenant or of all or any substantial part of
their respective assets, or shall admit in writing its inability to pay its
debts generally as they become due (Tenant hereby acknowledging that this Lease
is a lease of nonresidential real property and therefore agreeing that Tenant,
as debtor in possession, or the trustee for Tenant in any proceeding under the
Bankruptcy Code, shall not seek or request any extension of time to assume or
reject this Lease or to perform any obligations of this Lease which arise from
or after the order of relief);
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14.1.5 A petition shall be filed against Tenant in bankruptcy under
the Bankruptcy Code or under any other law seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution, or similar
relief under any present or future Federal, State or other statute, law or
regulation and shall remain undismissed or unstayed for an aggregate of sixty
(60) days (whether or not consecutive), or if any debtor in possession (whether
or not Tenant) trustee, receiver or liquidator of Tenant or of all or any
substantial part of their respective assets shall be appointed without the
consent or acquiescence of Tenant, as the case may be, and such appointment
shall remain unvacated or unstayed for an aggregate of sixty (60) days (whether
or not consecutive).
14.2 LANDLORD'S REMEDIES. Upon the occurrence of an Event of Default,
Landlord shall have the following rights and remedies:
14.2.1 Landlord shall have the right at its election, at any time
thereafter, to give Tenant written notice of Landlord's election to terminate
this Lease on a date specified in such notice. Upon the giving of such notice,
this Lease and the estate hereby granted shall expire and terminate on such date
as fully and completely and with the same effect as if such date were the date
hereinbefore fixed for the expiration of the Term, and all rights of Tenant
hereunder shall expire and terminate, but Tenant shall remain liable as
hereinafter provided. Further, Tenant hereby expressly waives any rights of
redemption it may have under M.G.L. c. 186, Section 11 or pursuant to any other
statutory provision or common law principle.
14.2.2 Landlord shall have the immediate right, whether or not this
Lease shall have been terminated pursuant to Section 14.2.1, to re-enter and
repossess the Leased Premises or any part thereof and repossess the same as of
its former estate by force, summary proceedings, ejectment or otherwise and the
right to remove all persons and property therefrom. Landlord shall be under no
liability for or by reason of any such entry, repossession or removal. No such
re-entry or taking of possession of the Leased Premises by Landlord shall be
deemed to waive or prejudice any remedies provided to Landlord hereunder, nor be
construed as an election on Landlord's part to terminate this Lease unless a
written notice of such election be given to Tenant pursuant to Section 14.2.1 or
unless the termination of this Lease be decreed by a court of competent
jurisdiction.
14.2.3 At any time or from time to time after the repossession of
the Leased Premises or any part thereof pursuant to Section 14.2.2, whether or
not this Lease shall have been terminated pursuant to Section 14.2.1, Landlord
shall use commercially reasonable efforts to relet the Leased Premises or any
part thereof for the account of Tenant, in the name of Tenant or Landlord or
otherwise, without notice to Tenant, for such term or terms (which may be
greater or less than the period which would otherwise have constituted the
balance of the Term) and on such conditions (which may include free rent and any
other concessions) and for such uses as Landlord, in its reasonable discretion,
may determine; and Landlord may collect and receive any rents payable by reason
of such reletting. Landlord shall not be responsible or liable for any failure
to relet or to collect any rent due upon such reletting.
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14.2.4 In the event of any termination of this Lease or repossession
of the Leased Premises or any part thereof by reason of the occurrence of an
Event of Default, Tenant will pay to Landlord the Base Rent, Additional Rent and
other sums required to be paid by Tenant for the period to and including the
date of such termination or repossession; and, thereafter, until the end of what
would have been the Term in the absence of such termination or repossession, and
whether or not the Leased Premises or any part thereof shall have been relet,
Tenant shall be liable to Landlord for, and shall pay to Landlord, as liquidated
and agreed current damages, the Base Rent, Additional Rent and other sums which
would be payable under this Lease by Tenant in the absence of such termination
or repossession, less the net proceeds, if any, of any reletting effected for
the account of Tenant pursuant to Section 14.2.3, after deducting from such
proceeds all of Landlord's expenses reasonably incurred in connection with such
reletting (including, without limitation, all repossession costs, brokerage
commissions, legal expenses, attorney's fees, employee expenses, alteration
costs and expenses of preparation for such reletting). Tenant will pay such
current damages on the days on which Base Rent would have been payable under
this Lease in the absence of such termination or repossession, and Landlord
shall be entitled to recover the same from Tenant on each such day.
14.2.5 At any time after any such termination of this Lease or
repossession of the Leased Premises or any part thereof by reason of the
occurrence of an Event of Default, whether or not Landlord shall have collected
any current damages pursuant to Section 14.2.4, Landlord shall be entitled to
recover from Tenant, and Tenant will pay to Landlord on demand, as and for
liquidated and agreed final damages for any Event(s) of Default by Tenant and in
lieu of all current damages beyond the date of such demand (it being agreed that
it would be impracticable or extremely difficult to fix the actual damages), an
amount equal to the present value of the excess, if any, of (a) the Base Rent,
Additional Rent and other sums which would be payable under this Lease from the
date of such demand (or, if it be earlier, the date to which Tenant shall have
satisfied in full its obligations under Section 14.2.4 to pay current damages)
for what would be the then unexpired Term in the absence of such termination or
repossession plus Landlord's estimate of the aggregate expenses of reletting the
Leased Premises, over (b) the then net fair rental value of the Leased Premises
for the same period (after deducting from such fair rental value reasonable
amounts on account of the time needed to relet the Leased Premises and
concessions which would normally be given to a new tenant). Fair rental value
shall be established by reference to the terms and conditions upon which
Landlord relets the Leased Premises if such reletting is accomplished within a
reasonable period of time after such termination or repossession and otherwise
established on the basis of Landlord's estimates and assumptions of fact
regarding market and other relevant circumstances, which shall govern unless
shown to be clearly erroneous.
14.3 LANDLORD'S CURE RIGHTS. If an Event of Default shall occur, Landlord,
without being under any obligation to do so and without thereby waiving such
Event of Default, may remedy such default for the account and at the expense of
Tenant.
14.4 TENANT'S OBLIGATION TO REIMBURSE LANDLORD. If Landlord makes any
expenditures (pursuant to Section 14.3 above or otherwise) or incurs any
obligations for the
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payment of money in connection with any failure of Tenant to perform fully all
of its obligations under this Lease, such sums paid or obligations incurred
(including but not limited to, reasonable attorney's fees and court costs in
instituting, prosecuting or defending any action or proceeding), with interest
at the rate of one and one half percent (1-1/2%) per month and costs, shall upon
demand be paid to Landlord by Tenant as Additional Rent.
14.5 NO WAIVER. Landlord's failure to take action against Tenant with
respect to any default in Tenant's performance of its obligations hereunder
shall not, under any circumstances, constitute a waiver of any of Landlord's
rights under this Lease and, further, no waiver of any of the provisions of this
Lease shall be effective unless given in writing nor shall any waiver be
construed as a waiver of any of the other provisions hereof or as a waiver of
the same provisions for any subsequent time.
14.6 ACCEPTANCE OF LATE PAYMENTS. No payment by Tenant, or acceptance by
Landlord, of a lesser amount than then due from Tenant to Landlord shall be
treated otherwise than as a payment on account regardless of any letter
accompanying such check or legend entered upon such check. Further, no
acceptance of any payment by Landlord from Tenant shall in any way constitute a
waiver of any default then existing or which would exist with the proper giving
of notice.
14.7 INTEREST ON LATE PAYMENTS. If Tenant shall fail to pay, when the same
is due and payable, any Base Rent, or Additional Rent or any other charges or
payments required hereunder (excluding the payments described in Section 14.4
above), such unpaid amounts shall bear interest from the due date thereof to the
date of payment at the annual rate of interest of twelve percent (12%) per
annum, but in no event higher than the maximum rate permitted by law; and, in
addition, Tenant shall pay Landlord a late charge for any Base Rent, any
Additional Rent or any other charges or payments due hereunder which is paid
after its due date equal to five percent (5%) of such payment.
14.8 REMEDIES CUMULATIVE. Any and all remedies set forth in this Lease (a)
shall be in addition to any and all other remedies Landlord may have at law or
in equity, (b) shall be cumulative, and (c) may be pursued successively or
concurrently as Landlord may elect. The exercise of any remedy by Landlord shall
not be deemed an election of remedies or preclude Landlord from exercising any
other remedies in the future.
14.9 LANDLORD'S RIGHTS IN TENANT'S BANKRUPTCY. If this Lease is assigned
to any person or entity pursuant to the provisions of the Bankruptcy Code, 11
U.S.C. 101 et seq. as now existing or hereafter amended (the "Bankruptcy Code"),
any and all monies or other considerations payable or otherwise to be delivered
in connection with such assignment shall be paid and delivered to Landlord,
shall be and remain the exclusive property of Landlord and shall not constitute
property of Tenant or of the estate of Tenant within the meaning of the
Bankruptcy Code. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust for the benefit of Landlord and be promptly paid
to or turned over to the Landlord. Notwithstanding anything in
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this Lease to the contrary, all amounts payable by Tenant to or on behalf of
Landlord under this Lease, whether or not expressly denominated as rent,
including, without limitation, the Base Rent and Additional Rent specified
herein, shall constitute rent for the purpose of Section 502(b)(7) of the
Bankruptcy Code.
If Tenant assumes this Lease and proposes to assign the same pursuant to
the provisions of the Bankruptcy Code to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms acceptable
to Tenant, then notice of such proposed assignment, setting forth (a) the name
and address of such person; (b) all of the terms and conditions of such offer,
and (c) the adequate assurance to be provided Landlord to assure such person's
future performance under the Lease, including without limitation, the assurance
referred to in Sections 365(b)(1)(c) and 365(b)(3) of the Bankruptcy Code, shall
be given to Landlord by the Tenant no later than twenty (20) days after receipt
by the Tenant of such bona fide offer, but in any event no later than ten (10)
days prior to the date that the Tenant shall make application to a court of
competent jurisdiction for authority and application to enter into such
assignment and assumption, and Landlord shall thereupon have the prior right and
option, to be exercised by notice to the Tenant given at any time prior to the
effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if any,
as the bona fide offer made by such person, less any brokerage commissions which
may be payable out of the consideration to be paid by such person for the
assignment of this Lease. Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code shall be deemed without
further act or deed to have assumed on and after the date of such assignment all
of the obligations arising under this Lease. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption.
14.10 LANDLORD'S DEFAULT. (a) If Tenant shall give written notice to
Landlord requesting that Landlord undertake any repair or replacement of the
Leased Premises or Property or to undertake any other obligation which Landlord
is expressly required to perform under the terms of this Lease, and Landlord
shall not, within twenty (20) days thereafter either (i) commence and diligently
prosecute such repair, replacement or other obligation, or (ii) refute on some
reasonable basis Tenant's contention that Landlord is required to undertake the
same, then in such event, Tenant may give a second notice to Landlord requesting
that Landlord undertake the same. If, within fifteen (15) days after such second
notice, Landlord shall not either (i) commence and diligently prosecute such
repair, replacement or other obligation or (ii) refute on some reasonable basis
Tenant's contention that Landlord is required to undertake the same, then
Tenant, on three (3) business days prior notice to Landlord of Tenant's intent
to do so, may undertake such repair, replacement or other obligation on
Landlord' behalf (unless Landlord shall have already commenced and be diligently
prosecuting the same) and Landlord shall reimburse Tenant for the reasonable
costs incurred by Tenant in connection herewith within fifteen (15) business
days after demand by Tenant therefor (such demand to be accompanied by
documentation of such expenditures in reasonable detail). Notwithstanding the
foregoing, in the event of an emergency, Tenant shall notify Landlord that such
emergency situation exists and describe the details and risk of the same and, if
Landlord has not responded to such emergency situation within twenty-four (24)
hours after receipt of such notice, then Tenant shall have the right to take
reasonable
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measures to address such emergency situation and will be entitled to
reimbursement from Landlord in accordance with the preceding sentence.
(b) If Landlord shall not make payment to Tenant as required
pursuant to this Subsection 14.10, then Tenant may file a legal proceeding
against Landlord to recover the same, but under no circumstance will Tenant have
the right to offset against Base or Additional Rent any amount owed by Landlord
to Tenant pursuant to this Section 14.10. If Tenant prevails against Landlord in
connection with such legal proceeding, then Landlord shall also be obligated to
reimburse Tenant fully for any and all reasonable attorney's fees or other costs
incurred by Tenant in connection with such legal proceeding and Landlord agrees
that its obligation to reimburse Tenant shall be made a part of any order
entered by a court as part in such legal proceeding.
ARTICLE XV
SURRENDER; HOLDING OVER
15.1 SURRENDER OF LEASED PREMISES. Tenant shall, at the expiration or
other termination of the Term, (a) remove all of Tenant's goods and effects and
trade fixtures from the Leased Premises (including, without hereby limiting the
generality of the foregoing, all signs and lettering affixed or painted by
Tenant either inside or outside the Leased Premises) and repair fully any damage
caused by such removal, and (b) deliver to Landlord the Leased Premises, in
broom clean condition, and otherwise in the same condition as existed as of the
Commencement Date (normal wear and tear and damage by fire or other casualty
excepted), all keys, locks thereto, other fixtures connected therewith and all
alterations and additions made to or upon the Leased Premises (other than any
Tenant's trade fixtures removed pursuant to the preceding subsection (a)).
Notwithstanding the foregoing, Tenant shall not be required to remove or restore
any alteration, addition or improvement to the Leased Premises at the expiration
or other termination of the Term unless Landlord notified Tenant in writing at
the time Tenant makes such alteration or improvement that such alteration or
improvement is to be removed by Tenant at Tenant's sole cost and expense at the
expiration or earlier termination of the Term. Upon Tenant's failure to comply
with either of the preceding sentences, Landlord is hereby authorized, without
liability to Tenant for loss or damage thereto, and at the sole risk of Tenant,
to remove and store any of such property at Tenant's expense, or to retain same
under Landlord's control or to sell, at public or private sale, without notice,
any or all of such property not so removed and to apply the net proceeds of such
sale to the payment of any sum due hereunder, or to destroy such property.
15.2 HOLDING OVER. If Tenant remains in possession of the Leased Premises
or any part thereof after the expiration or earlier termination of the Term of
this Lease, Tenant shall be deemed to be in use and occupancy of the Leased
Premises as a month-to-month tenant at a rate of monthly Base Rent one and
one-half (1 1/2) times the rate of the total monthly installment of Base Rent
then in effect upon the date of expiration or termination of this Lease and
subject to
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the same terms and conditions (including, without limitation, provisions
concerning the payment of all other charges hereunder) as those set forth in
this Lease other than as to the length of Term. However, nothing in this Lease
provision shall be deemed to extend the Term beyond that set forth in Article 2
hereof, nor grant any right to Tenant or any other person to use, occupy, or
remain in possession of all or any part of the Leased Premises beyond the
expiration or earlier termination of the Term of this Lease.
ARTICLE XVI
LANDLORD'S LIABILITY
16.1 LIMITED RECOURSE. Tenant specifically agrees to look solely to
Landlord's then equity interest in the Property at the time owned, for recovery
of any judgment from Landlord; it being specifically agreed that Landlord
(original or successor) shall never be personally liable for any such judgment,
or for the payment of any monetary obligation to Tenant.
16.2 INTERRUPTION OF SERVICES AND UTILITIES. Landlord shall in no event be
liable for any interruption in, failure of, or discontinuance of services or
utilities to the Building or the Leased Premises for any reason, including,
without limitation, when such services or utilities are interrupted (a) by
strike (not limited to Landlord or its business operations), lockout, breakdown,
accident, order or regulation of or by an governmental authority, or failure of
supply, (b) by reason of the making of repairs or alterations which Landlord is
required or is permitted by this Lease or by law to make or in good faith deems
necessary; (c) by inability to obtain supplies, parts or employees necessary to
furnish such services, or because of war or other emergency, (d) by any other
cause beyond Landlord's reasonable control, or (e) by any cause due to any act
or neglect of Tenant or Tenant's servants, agents, employees, licensees or any
persons claiming by, through or under Tenant In addition, no such interruption
in, failure of, or discontinuance of any such services or utilities shall be
considered as an eviction or disturbance of Tenant's occupancy of the Leased
Premises, relieve Tenant from its obligations under this Lease, or entitle
Tenant to any offset rights or any other rights or remedies against Landlord.
16.3 NO CONSEQUENTIAL DAMAGES. In no event shall either Landlord or Tenant
ever be liable to the other for any loss of business or any other indirect or
consequential damages suffered by Tenant from whatever cause.
16.4 LIABILITY AFTER CONVEYANCE OF PROPERTY. The term "Landlord", as used
herein, shall mean and refer to the owner of the fee estate in the Property
whosoever such owner may be from time to time or to the person or entity named
as Landlord above or its successors or assigns, as the case may be; and upon any
conveyance or transfer of the interest of such person or entity as Landlord,
such person or entity shall be thereupon released and discharged from any and
all liability under this Lease or otherwise to Tenant and any and all others
whomsoever except for breaches of this Lease occurring prior to such transfer.
Upon such conveyance, Landlord shall transfer any monies on deposit with
Landlord hereunder to such successor or assign.
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ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 GOVERNING LAW. This Lease shall be governed by the law of the
Commonwealth of Massachusetts and shall be deemed to have been made, executed,
delivered and accepted by the respective parties in that state.
17.2 PARTIAL INVALIDITY. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law. It is the intention of the parties hereto that if any
provision of this Lease is capable of two constructions, one of which would
render the provision valid, then the provision shall have the meaning which
renders it valid.
17.3 CAPTIONS. The captions of this Lease are for convenience and
reference only and shall not be deemed or construed to bind, modify, increase,
or decrease the terms and conditions of this Lease, or any interpretation or
construction thereof.
17.4 SUCCESSORS AND ASSIGNS. The terms and conditions in this Lease shall
apply to and be binding upon the parties herein and their respective successors
and assigns, except as expressly otherwise provided.
17.5 RECORDING OF LEASE. Tenant shall not record this Lease. However,
Landlord and Tenant shall execute, acknowledge, deliver, exchange, and record a
Notice of Lease or other short-form instrument permitted under applicable state
law and prepared by Landlord.
17.6 ENTIRE AGREEMENT. This Lease and any and all exhibits and riders
attached hereto and made a part of this Lease constitute the entire agreement of
the parties concerning this Lease, and any and all other or prior agreements,
representations, or warranties are hereby terminated, canceled, and agreed to be
void and of no force or effect.
17.7 AMENDMENTS. No change, amendment, deletion, or addition to this Lease
shall be effective unless in writing and signed by the parties.
17.8 QUIET ENJOYMENT. So long as Tenant is not in default of any of its
obligations under this Lease, Tenant shall peaceably and quietly have, hold and
enjoy the Leased Premises free of any claims by, through or under Landlord.
17.9 NO PARTNERSHIP. Nothing in this Lease shall create or be construed to
create a partnership between Tenant and Landlord, or make them joint venturers,
or bind or make
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Landlord in any way liable or responsible for any acts, omissions, negligence,
debts or obligations of Tenant.
17.10 TIME OF ESSENCE. Time is of the essence of this Lease and all of the
terms and conditions specified herein.
17.11 BROKERAGE. Tenant acknowledges that Tenant has dealt with no broker
in connection with this Lease other than the Broker or Brokers named in Section
1.8 above. In the event of any other brokerage claim against Landlord predicated
upon dealings with Tenant, Tenant agrees to defend the same and indemnify
Landlord against any such claim. Landlord warrants and represents that it has
dealt with no broker in connection with the consummation of this Lease except
the Broker or Brokers listed in Section 1.8 above, and in the event of any other
brokerage claim against Tenant predicated upon dealings with Landlord, Landlord
agrees to defend the same and indemnify Tenant against any such claim. The
Brokers shall be paid by Landlord pursuant to a separate agreement.
17.12 RULES AND REGULATIONS. Tenant agrees to comply, and cause its
employees, agents, contractors, invitees and other representatives to comply,
with any and all rules and regulations established by Landlord for the Property
as reasonably determined by Landlord to be necessary for the orderly and
efficient operation of the Property and applied in a uniform, non-discriminatory
manner, including, without limitation, those rules and regulations set forth in
EXHIBIT RR attached hereto and any reasonable modifications, amendments or
additions thereto as Landlord may make from time to time by written notice to
Tenant. However, Landlord shall not be responsible to Tenant for failure to
enforce any of such rules and regulations or for the non-observance or violation
of any of such rules and regulations by any other tenant or owner or by any
other person, or for the non-observance or violation of or failure to enforce or
to perform the provisions of any other lease.
17.13 SIGNS. Tenant shall obtain the prior written consent of Landlord,
which consent shall not be unreasonably withheld, before placing any sign at,
on, or about the door to the Leased Premises. Tenant shall also obtain the prior
written consent of Landlord, which consent may be withheld in Landlord's sole
and absolute discretion, before erecting any other type of sign outside of the
Building or any exterior door, wall, window, or portion of the Leased Premises,
or within the lobby of the Building and Landlord shall have no obligation
whatsoever to approve any such sign. Any materials or displays approved by
Landlord, shall at all times be maintained by Tenant at its cost and expense in
good condition, good working order and appearance and in compliance with all
applicable laws, codes, ordinances and by-laws; and Tenant hereby
unconditionally and irrevocably authorizes Landlord to enter upon the Leased
Premises at Tenant's expense and without liability or penalty, and to remove any
materials or displays not in accordance with each and all of the foregoing
provisions. Landlord shall provide, at Landlord's sole cost and expense, an
identifying sign for Tenant in a Building directory located in the lobby of the
first (1st) floor of the Building. Landlord shall install, at Landlord's sole
cost and expense, by December 31, 1999, a Building monument sign on the
Property, and for so long thereafter as Tenant occupies at least one-third (1/3)
of the Building, Landlord shall provide, at
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Tenant's sole cost and expense, an identifying sign for Tenant on the Building's
monument sign, which sign shall comply with all applicable laws, codes,
ordinances and bylaws.
17.14 LANDLORD'S ACCESS AND TENANT'S ACCESS; SECURITY. (a) Landlord or
agents of Landlord may, upon twenty-four (24) hours prior notice to Tenant (or
at any time without notice in the case of emergency), enter the Leased Premises
to (i) inspect the same, (ii) remove placards and signs affixed thereto and not
approved as herein provided, (iii) make alterations as provided in Section 8.2
above or repairs, (iv) show the Leased Premises to prospective lenders or buyers
and during the last six (6) months of the Term or Option Term, as the case may
be, to prospective tenants, and (v) at any time within six (6) months before the
expiration of the Term or the Option Term, as the case may be, affix to any
suitable part of the Leased Premises a notice that the Leased Premises are
available for lease and keep the same so affixed without hindrance or
molestation.
(b) Thirty (30) days prior to the Commencement Date, provided Tenant
shall not be in default of any term, covenant or condition of this Lease (i)
Landlord shall notify Tenant that Tenant may have access to the Leased Premises
(subject to the immediately following sentence) for a period of fifteen (15)
days solely for purposes of installing customary office furniture and
telecommunications equipment, and (ii) during the Term of this Lease, Tenant
shall have access to the Leased Premises, the Common Areas and the parking
facilities twenty-four (24) hours per day, seven (7) days a week, fifty-two (52)
weeks per year, through means of the Building card-key security/access system.
Landlord, at its sole cost and expense, shall install a card-key security/access
system at the main entrance to the Leased Premises which shall be compatible
with the card-key security/access system at the main door of the Building.
Tenant hereby acknowledges and agrees that Tenant shall not interfere with or
disrupt the Landlord Work or any other work performed in, at, or around the
Building or the Leased Premises, and Tenant shall coordinate Tenant's access and
its installation of such furniture and telecommunications equipment with
Landlord for the period of time that Tenant has access to the Leased Premises
prior to the Commencement Date. Upon Tenant's request, Landlord shall provide
Building card-key passes to Tenant, but if Tenant requests more than one hundred
(100) such passes in total, Tenant shall pay all costs in connection with
Landlord's issuance of each such additional pass. The cost to issue each
additional and/or replace a card-key pass shall be reasonably determined by
Landlord, and initially shall be $5. In the event that Landlord is unable to
provide Tenant with access the Leased Premises at least for the period of
fourteen (14) days prior to the Commencement Date and such inability is the
result of causes within Landlord's reasonable control, Tenant shall receive a
day for day abatement of Basic Rent and Additional Rent under this Lease for
each day after such date that Landlord is unable to provide such access to
Tenant.
17.15 NOTICES. Any and all notices, demands, consents or approvals
required hereunder shall be given in writing in accordance with this Section
17.15. Any notice from Landlord to Tenant shall be deemed duly served, or mailed
to Tenant's Mailing Address (as defined in Section 1.7 above), or such other
address as Tenant may advise by written notice to Landlord, by overnight
courier, or by registered or certified mail, return receipt requested, postage
prepaid. Any notice from Tenant to Landlord shall be deemed duly served, if
mailed to Landlord by a
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nationally recognized overnight courier, or by registered or certified mail,
return receipt requested, postage prepaid, addressed to Landlord at Landlord's
Mailing Address (as defined in Section 1.6 above) or at such other address as
Landlord may from time to time advise in writing. All payments of Base Rent and
Additional Rent shall be paid and sent to Landlord at Landlord's Mailing
Address.
17.16 NO MERGER. There shall be no merger of the leasehold estate hereby
created with the fee estate in the Property or any part thereof if the same
person acquires or holds, directly or indirectly, this Lease or any interest in
this Lease and the fee estate in the Property or any interest in such fee
estate.
17.17 NO OFFER. The submission of this Lease to Tenant shall not be
construed as an offer, and Tenant shall not have any rights under this Lease
unless Landlord executes a copy of this Lease and delivers it to Tenant.
17.18 WAIVER OF JURY TRIAL. To the maximum extent permitted by law,
Landlord and Tenant each waive right to trial by jury in any litigation arising
out of or with respect to this Lease.
17.19 FINANCIAL REPORTS. Not more than once in any twelve (12) month
period, and within fifteen (15) days after Landlord's request, Tenant shall
furnish Tenant's most recent financial statements (including any notes to them)
as may have been prepared by an independent certified public accountant or,
failing those, Tenant's internally prepared financial statements to Landlord.
Landlord will not disclose any aspect of Tenant's financial statements that
Tenant designates to Landlord as confidential except (i) to Landlord's lenders
or prospective purchasers of the Property, (ii) in litigation between Landlord
and Tenant, and (iii) if required by court order.
17.20 LANDLORD'S FEES. Whenever Tenant requests Landlord to take any
action or give any consent required or permitted under this Lease, Tenant will
reimburse Landlord for Landlord's reasonable out-of-pocket costs incurred in
reviewing the proposed action or consent, including without limitation
reasonable attorneys', engineers' or architects' fees, within ten (10) days
after Landlord's delivery to Tenant of a statement of such costs. Tenant will be
obligated to make such reimbursement without regard to whether Landlord consents
to any such proposed action.
17.21 TELECOMMUNICATIONS. Tenant and its telecommunications companies,
including but not limited to local exchange telecommunications companies and
alternative access vendor services companies shall have no right of access to
and within the Building, for the installation and operation of
telecommunications systems including but not limited to voice, video, data, and
any other telecommunications services provided over wire, fiber optic,
microwave, wireless, and any other transmission systems, for part or all of
Tenant's telecommunications within the Building and from the Building to any
other location without Landlord's prior written consent which shall not be
unreasonably withheld, conditioned or delayed; provided, however, Tenant
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shall have the right to use, in common with others, (i) the main
telecommunications room of the Building located on the first (1st) floor of the
Building for the placement of service provider equipment (such placement, size
and type of equipment subject to Landlord's approval which may be withheld in
its sole discretion) and (ii) the riser cables from such main telecommunications
room located on the first (1st) floor of the Building to the third (3rd) floor
(provided Tenant's use of such riser cables shall not interfere with any other
tenant's use or occupancy of the Building or any portion thereof). Regardless of
Landlord's consent to the installation and operation of such telecommunications
systems, Tenant hereby acknowledges that Landlord has no obligation to Tenant to
ensure performance by telecommunication companies or other service companies,
and Landlord has no responsibility for any delays, deficiencies or defects in
connection with the services provided. Tenant hereby acknowledges and agrees
that the indemnification of Landlord by Tenant set forth in Section 11.2 above,
shall expressly apply to any damage to the Leased Premises or the Building, and
injury to persons or other damage to property occurring during or as a result of
any actions taken or done pursuant to Landlord's consent given in accordance
with this Section 17.21.
17.22 CONFIDENTIALITY. Tenant acknowledges that the terms and conditions
of this Lease are to remain confidential for the Landlord's benefit, and may not
be disclosed by Tenant to anyone, by any manner or means, directly or
indirectly, without Landlord's prior written consent, except to bona-fide
current or prospective investors, lenders, underwriters, legal counsel, or as
required by law. The consent by the Landlord to any disclosures shall not be
deemed to be a waiver on the part of the Landlord of the prohibition against any
future disclosure.
17.23 NOTICE TO LANDLORD'S MORTGAGEE. Tenant shall not seek to enforce any
remedy it may have for any default on the part of the Landlord without first
giving written notice by certified mail, return receipt requested, specifying
the default in reasonable detail, to any Landlord's Mortgagee whose address has
been given to Tenant, and affording such Landlord's Mortgagee a reasonable
opportunity to perform Landlord's obligations hereunder.
17.24 CONDITION OF LEASED PREMISES. Tenant hereby accepts the Leased
Premises in their "AS-IS" condition, and Landlord shall have no obligation to
perform any work therein (including, without limitation, demolition of any
improvements existing therein or construction of any tenant finish-work or other
improvements therein), and shall not be obligated to reimburse Tenant or provide
an allowance for any costs related to the demolition or construction of
improvements therein except for completion of the Landlord Work (defined below)
in accordance with EXHIBIT LW. No agreement of Landlord to alter, remodel,
decorate, clean or improve the Leased Premises or the Building (or to provide
Tenant with any credit or allowance for the same), and no representations
regarding the condition of the Leased Premises or the Building have been made by
or on the behalf of Landlord or relied upon by Tenant other than with respect to
the Landlord Work as set forth in Section 17.25 and as described in EXHIBIT LW.
Landlord and Tenant expressly disclaim any implied warranty that the Leased
Premises are suitable for Tenant's intended commercial purpose, and Tenant's
obligation to pay rent hereunder is not dependent upon the condition of the
Leased Premises or the performance by Landlord of its obligations hereunder,
except for the completion of the Landlord Work as provided in
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Section 17.25 below and, except as otherwise expressly provided herein, Tenant
shall continue to pay the rent, without abatement, setoff or deduction,
notwithstanding any breach by Landlord of its duties or obligations hereunder,
whether express or implied. Tenant's taking possession of the Leased Premises
shall be conclusive evidence that the Leased Premises were in good order and
satisfactory condition when Tenant took possession. Notwithstanding the
foregoing, Landlord shall deliver the Leased Premises to Tenant in broom-clean
condition, with all trash removed therefrom, missing and stained ceiling tiles
replaced, all furniture of prior tenants removed, and lights in good working
order.
17.25 LANDLORD WORK. Landlord shall perform the construction work (the
"Landlord Work") described in EXHIBIT LW attached hereto in a good and
workmanlike manner and in accordance with all Government Regulations and shall
substantially complete the Landlord Work (that is, complete the Landlord Work,
except for normal "punch list" items which shall be completed within thirty (30)
days after substantial completion of the Landlord Work) on or before November 1,
1999. Landlord shall attach a schedule of dates by which Tenant shall approve
the construction drawings for the Landlord Work, and such schedule shall be
attached to and be a part of EXHIBIT LW. Subject to the provisions of the
following paragraph, if substantial completion of the Landlord Work is delayed
beyond November 1, 1999, payment of Base Rent pursuant to Section 3.1 of this
Lease shall commence on the date the Landlord Work is substantially complete. On
or before the date of execution of this Lease, Tenant shall have the option upon
five (5) days prior written notice to select the construction company which will
perform the Landlord Work, subject to Landlord's approval.
Landlord shall use diligent efforts to complete the Landlord Work on or
before November 15, 1999. In the event the Landlord Work is not substantially
completed on or before November 15, 1999 (the "Completion Date"), Tenant shall
receive a day for day abatement of Basic Rent for each day beyond the Completion
Date that the Landlord Work is not substantially complete, and in the event the
Landlord Work is not substantially completed on or before December 15, 1999 (the
"Outside Date for Completion"), Tenant shall have the right to terminate its
obligations under this Lease; provided, however, that (1) the Completion Date
and the Outside Date for Completion shall be extended for a period equal to the
duration of any delays in construction caused by strikes, shortages or
materials, acts of God or other matters not reasonably within the control of
Landlord, and (2) in the event any delays in completing the Landlord Work are as
a result of change orders or other delays caused by Tenant, including, without
limitation, Tenant's failure to approve the construction drawings for the
Landlord Work by the dates set forth in the schedule of dates attached to
EXHIBIT LW, the Outside Date for Completion shall be extended day for day for
each such delay caused by Tenant or longer if appropriate to compensate for
additional delays which were encountered on account of items enumerated in (1)
above that would not otherwise have been encountered but for the Tenant caused
delays. Further, if issuance of a temporary or permanent certificate of
occupancy for the Landlord Work or the Leased Property is delayed beyond
November 1, 1999, because of delays caused by Tenant, then the rent commencement
date shall be November 1, 1999 and on that date Tenant shall commence to pay
Base Rent and Additional Rent under this Lease.
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Except for latent defects and deficiencies in the Landlord Work of which
Tenant has given written notice to Landlord not later than thirty (30) days
following the Commencement Date, Landlord shall be deemed to have satisfactorily
completed the Landlord Work, and Tenant shall be deemed to have waived all
rights and remedies with respect to deficiencies (other than latent defects) in
the Landlord Work. If Tenant does give timely notice of deficiencies, Landlord
shall remedy as soon as reasonably practicable any deficiencies specified in
such notice and shall begin such remediation within thirty (30) days after
Tenant's notice.
Landlord shall bear the full cost of the Design Costs (defined below) and
the Tenant Improvement Allowance (defined below). The "Design Costs" shall be
the cost of Tenant's architect or other design fees incurred to design, and
prepare the plans and specifications necessary for, the Landlord Work. The
"Tenant Improvement Allowance" shall be the allowance for any so-called "hard
costs" incurred in constructing the Landlord Work, which allowance shall not
exceed Four Hundred Forty-Seven Thousand Seven Hundred Sixty and 00/100 Dollars
($447,760.00). Tenant shall be responsible for any construction-related costs of
the Landlord Work on the Leased Premises exceeding Four Hundred Forty-Seven
Thousand Seven Hundred Sixty and 00/100 Dollars ($447,760.00), and Tenant shall
pay such amount to Landlord within thirty (30) days after the Landlord Work is
completed and Tenant has received an invoice describing the costs with
reasonable detail. The Tenant Improvement Allowance shall be used for physical
improvements only.
17.26 INTENTIONALLY OMITTED.
17.27 TENANT IMPROVEMENTS. Except for Landlord Work, all improvements to
the Building required for Tenant's initial occupancy of the Building are
referred to as "Tenant Improvements." Tenant Improvements shall be constructed
in accordance with the plans and specifications prepared by Tenant ("Tenant
Space Plan") (as further defined in EXHIBIT TI) and submitted to Landlord and
approved by Landlord as provided below and in EXHIBIT TI. Landlord's approval,
shall be limited to determining whether Tenant's plans and specifications (a)
will have an adverse impact on Landlord's re-use of the Leased Premises at the
end of the Term and (b) conform with the requirements of applicable Governmental
Regulations, good construction practices, and insurance industry standards,
their consistency with the architectural and structural integrity of the
Building, and with the ability of the heating, ventilation and air conditioning
system serving the Leased Premises to provide adequate ventilation and
heating/cooling capacity for general office purposes.
17.28 RIGHT OF FIRST OFFER. Landlord will first offer to Tenant in writing
any space on the first (1st), second (2nd), or third (3rd) floors of the
Building, as applicable, which will still leave any remaining area in a good
marketable layout in Landlord's sole judgement, subject to Tenor Network, Inc.'s
right of first offer on the second (2nd) floor of the Building, and subject to
Xedia Corporation's right of first offer on the first (1st), second (2nd), and
third (3rd) floors of the Building. Said space will be leased to Tenant at the
same rental rate per rentable square foot if leased to Tenant during the first
(1st) year of Tenant's occupancy of the Building, and otherwise at the
then-prevailing fair market rents for comparable space at such time as Tenant
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shall lease said additional space as determined in accordance with EXHIBIT FMRV,
but in either case expressly excluding any allowances, Landlord's contributions,
free rent, broker's commissions, other similar concessions, rights of first
offer or extension options contained in this Lease. Tenant will have ten (10)
days to accept Landlord's offer in writing, which offer will specify the
proposed rent rate and amount of allowances, if any, and will include a
reference to the aforesaid ten (10) day period in which Tenant is required to
respond to such offer. Failure to respond timely to Landlord's offer shall be
deemed to constitute a denial by Tenant of Landlord's offer. If Tenant accepts
Landlord's offer, Landlord and Tenant shall execute a new lease which effects
the addition of the new space to the Leased Premises upon terms which are in
accordance with Landlord's offer, and with respect to terms not set forth in
Landlord's offer, substantially on the same terms and conditions set forth in
this Lease, but containing appropriate modifications to reflect the different
number of rentable square feet, prorata share, rent, increased number of parking
spaces, and term. If Tenant declines Landlord's offer, Landlord shall be free to
offer the space to a third party on terms which are not materially more
favorable to the tenant than those terms offered to Tenant. If Landlord has not
leased the space within twelve (12) months after offering the space to Tenant,
the space shall be re-offered to Tenor Networks, Inc. in accordance with its
right of first offer before being re-offered to Tenant if the space is on the
second (2nd) floor, and/or to Xedia Corporation in accordance with its right of
first offer before being re-offered to Tenant, and in the event Tenor Networks,
Inc. and Xedia Corporation decline Landlord's offer, the space shall be
re-offered to Tenant in accordance with this Section 17.28 before being offered
to any third party.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed and delivered as a sealed instrument by their respective duly
authorized officers as of the day and year first written above.
LANDLORD: TENANT:
NAGOG PARK INVESTORS, L.L.C. ARROWPOINT COMMUNICATIONS, INC.
By: /s/ Nagog Park LLC By: /s/ Cynthia M. Deysher
-------------------------- -------------------------
Its Managing Member Name: Cynthia M.Deysher
Title: VP Operations, CFO
By: /s/ Steven B. Cox
------------------------
Name: Steven B. Cox
Title: V.P.
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EXHIBIT FP
FLOOR PLAN OF LEASED PREMISES
See Attached.
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[ARROWPOINT COMMUNICATIONS FLOOR PLAN GRAPHIC]
<PAGE> 47
EXHIBIT LD
LEGAL DESCRIPTION OF PROPERTY
Lot 106 on a Plan entitled " 'Nagog Square' Definitive Subdivision Plan of Land
in Acton, Mass." by R. D. Nelson dated May 10, 1973, last revised November 12,
1973 and recorded with Middlesex South District Registry of Deeds as Plan No.
448 of 1974 in Book 12629, Page 25 (hereinafter called the "Plan"), bounded and
described as follows:
SOUTHERLY by Nagog Park, as shown on the Plan, by five courses,
76.81', 520.00', 99.38', 346.17' and 104.76',
respectively;
SOUTHEASTERLY by land of Nagog Development Company shown on the
Plan as "60' R. O. W. Easement Area 20.450 S.F.," by
two courses, 43.17' and 289.09', respectively;
NORTHERLY by land now or formerly of J. J. Heider & V. P. Wiegand,
231.95';
EASTERLY again by said land now or formerly of J. J. Heider &
V. E. Wiegand by five courses, 86.36', 141.00',
62.49', 110.13', and 135.94', respectively;
NORTHEASTERLY by land now or formerly of S. & J. Tabbi, 623.67';
NORTHWESTERLY by land shown on the Plan as Lot 8A, by three courses,
109.64', 103.78' and 154.91', respectively;
SOUTHWESTERLY again by said land shown on the Plan as Lot 8A, 102.27'
Together with grant of easements contained in a deed May 27, 1982 recorded in
Book 14625, Page 368.
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EXHIBIT OC
OPERATING COSTS
"Operating Costs" shall mean:
(a) all costs and expenses paid or incurred by Landlord, which costs shall
be substantially competitive with comparable properties located along the Route
495 corridor, in operating, managing, equipping, insuring, controlling traffic,
policing (if and to the extent provided by Landlord), lighting, cleaning,
maintaining, repairing (including minor replacements associated with such
repair) and restoring the Property, including all utility lines, pipes and
conduits, drainage or sewage systems, elevators and escalators, and electricity,
steam, water, fuel, heating, lighting and air conditioning systems serving the
Property and also including the costs and expenses for all utilities, including,
without limitation, HVAC, water and sewer service, used or consumed in the
Building, and also including all costs and expenses for mail collection and
distribution, sweeping, snowplowing, sanding, refuse removal, planting and
replacing decorations, flowers and landscaping, painting, uniforms, wages,
fidelity bonds, unemployment taxes, social security taxes, workmen's
compensation insurance premiums, fees for required licenses and permits,
supplies, repair, maintenance, operation, replacement and debt service of any
equipment associated with the maintenance or operation of common areas and
Common Facilities (but excluding the cost of equipment properly chargeable to
the capital account and depreciation of the original cost of construction of the
common areas, buildings and building systems), and any other expense or charge,
whether or not hereinbefore mentioned, which, in accordance with generally
accepted accounting and management principles, would be considered an expense of
managing, operating, maintaining or repairing the Property; and
(b) all premiums for comprehensive general public liability, property
damage, difference-in-condition, casualty, rent loss, elevator, and other
insurance maintained by Landlord with respect to all of the Property, including
the Common Facilities and other common areas and all buildings and improvements.
Notwithstanding any contrary provision of this Lease, Operating Costs
shall not include expenses relating to the following:
(i) salaries, wages, benefits and other expenses of administrative
employees and other persons not involved in the daily operations of the
Building;
(ii) principal, interest or other charges relating to indebtedness secured
by a mortgage covering any portion of the Property, and payments of rent and
other charges under any superior lease covering any portion of the Property;
(iii) leasehold improvements made in connection with the preparation of
any portion of the Building for occupancy by a new or existing tenant;
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(iv) any expansion of the rentable area of the Building;
(v) costs, expenses or charges properly chargeable or attributable to a
particular tenant or tenants;
(vi) any utility or other service used or consumed in the premises leased
to any tenant or occupant, if Tenant's use or consumption of such utility or
other services is separately metered or sub-metered at the Premises;
(vii) efforts to lease portions of the Building or to procure new tenants
for the Building, including advertising expenses, leasing commissions and
attorney's fees;
(viii) negotiations or disputes with any tenant of the Building;
(ix) Landlord's general overhead not directly related to the management or
operations of the Building;
(x) depreciation of the Building;
(xi) repairs and replacements arising out of a fire or other casualty or
an exercise of the eminent domain of the Building; provided, however, that the
deductible portion of any loss covered by insurance shall be amortized over the
useful life of the improvements which have been repaired or replaced in response
to such fire or other casualty and such amortized portion shall be includable in
annual operating costs;
(xii) Landlord's breach or violation of a law, lease or other obligation,
including fines, penalties and attorneys' fees;
(xiii) compensation paid to employees or other persons in connection with
commercial concessions operated by Landlord;
(xiv) fees for licenses, permits or inspections that are not part of
routine maintenance of the Building (but Operating Costs shall include fees for
licenses, permits of inspections required to comply with changes in any laws
occurring after the Commencement Date) or result from the act or negligence of
Landlord or any other tenant of the Building;
(xv) environmental testing, remediation and compliance;
(xvi) compliance by Landlord with laws existing as of the date of this
Lease, including without limitation the Americans with Disabilities Act and the
regulations and standards thereunder;
(xvii) sculptures, paintings and other works of art;
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(xviii) repairs necessary to cure defects in the construction of any
portion or component of the Building;
(xix) any items with respect to which Landlord receives reimbursement from
insurance proceeds or from a third party; and
(xx) any repair or replacement which would be deemed a capital expenditure
under generally accepted accounting; provided, however, that the cost of any
such repair or replacement shall be amortized over the useful life of the
improvements which have been repaired or replaced and such amortized portion
shall be includable in annual operating costs.
(xxi) any capital expenditure to replace the Building's roof or structure.
Notwithstanding the foregoing, Landlord shall not charge Tenant, as an
Operating Cost, for any management fee of Landlord's property manager in excess
of four percent (4%) of Landlord's gross revenues derived from the Property.
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EXHIBIT FMRV
CALCULATION OF FAIR MARKET RENTAL VALUE
For purposes of Section 2.2, "Fair Market Rental Value" shall be as
reasonably determined by Landlord to be the annual rental charge (including
without limitation Base Rent, Additional Rent and other charges) as of the
commencement date of each Option Period, for new leases then being negotiated or
executed for comparable office space in Acton, Massachusetts for terms
commencing on or about the date of commencement of the Option Period. In
determining Fair Market Rental Value, Landlord shall take into consideration the
size of the premises, location of the premises, lease term, condition and
location of the applicable office building, services provided by the landlord,
rental concessions and other comparable factors). Bona fide written offers to
lease comparable space received by Landlord from third parties (at arm's length)
may be used by Landlord as an indication of the Fair Market Rental Value.
Landlord shall notify Tenant of its determination of Fair Market Rental
Value within thirty (30) days after Landlord's receipt of Tenant's notice
exercising its option to extend. If the Landlord does not receive written notice
from Tenant of Tenant's disagreement with Landlord's determination of the Fair
Market Rental Value within ten (10) days after Tenant's receipt of said
determination and requesting an appraisal as set forth below, Tenant shall be
deemed to have rejected said determination by Landlord. If Tenant rejects
Landlord's determination of the Fair Market Rental Value, Tenant shall have the
right, by written notice to Landlord within ten (10) days after Tenant has
received notice of Landlord's determination, to (i) request that such Fair
Market Value be determined by appraisal in accordance with the provisions of
this EXHIBIT FMRV or (ii) withdraw Tenant's notice exercising its option to
extend. In the event Tenant requests that such Fair Market Value be determined
by appraisal in accordance with the provisions of EXHIBIT FMRV, the Fair Market
Rental Value shall be determined by impartial MAI appraisers, one to be chosen
by Landlord, one to be chosen by Tenant (the "Initial Appraisers"), and, if
necessary, a third to be selected as provided below. Landlord and Tenant shall
each notify the other of its selected appraiser within ten days following the
giving of Tenant's request for appraisal as provided above. Each appraiser shall
be independent, familiar with office buildings and leases and rents in Acton,
Massachusetts and experienced in making real estate appraisals. The cost of each
Initial Appraiser shall be paid by the party selecting such Appraiser. The
appraisers shall render their written appraisal of the Fair Market Rental Value
for the Option Period within thirty (30) days following the appointment of both
such appraisers. If the appraisals determined by each of the Initial Appraisers
are less than five percent (5%) apart (i.e., the higher appraisal is less than
105% of the lower appraisal), then the Fair Market Rental Value shall be
determined by taking the average of the two appraisals. In the event the Initial
Appraisers are five percent (5%) or more apart, the Initial Appraisers shall
promptly select a third appraiser who meets the same criteria as required of the
Initial Appraisers ("Third Appraiser"). The Third Appraiser shall submit to
Landlord and Tenant, within twenty-one (21) days after its appointment, its
written appraisal of the Fair Market Rental Value with respect to the Leased
Premises as of the applicable commencement date, which appraisal shall be
binding upon
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Landlord and Tenant. The cost of the Third Appraiser shall be borne equally by
Landlord and Tenant.
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EXHIBIT RR
RULES AND REGULATIONS
The following rules and regulations shall apply to the Leased Premises,
the Building, and the Property:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or deposited therein. Damage resulting to any such fixtures or
appliances from misuse by a tenant or its agents, employees or invitees, shall
be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows or doors or other part of the Building (nor to the outside of the
Leased Premises) without the prior written consent of Landlord. No curtains or
other window treatments shall be placed between the glass and the Building
standard window treatments.
4. Landlord shall provide all door locks in each tenant's leased premises,
at the cost of such tenant, and no tenant shall place any additional door locks
in its leased premises without Landlord's prior written consent. Landlord shall
furnish to each tenant a reasonable number of keys to such tenant's leased
premises, at such tenant's cost, and no tenant shall make a duplicate thereof.
5. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by tenants of any bulky material, merchandise or materials
which require use of elevators or stairways, or movement through the Building
entrances or lobby shall be conducted under Landlord's supervision at such times
and in such a manner as Landlord may reasonably require, except for Tenant's
receipt and transportation of boxes approximately 4'x2'x2' containing electronic
equipment; provided that, Tenant's receipt, movement and transportation of such
boxes of electrical equipment shall not interfere with the use of the Property,
Building and Common Areas, including without limitation the use of the elevators
and loading docks by Landlord and the other tenants, and further, Tenant agrees
to take all reasonable measures to minimize any interference with such other
tenants that is occasioned by Tenant's receipt, movement and transportation of
such boxes of equipment. Each tenant assumes all risks of and shall be liable
for all damage to articles moved and injury to persons or public engaged or not
engaged in such movement, including equipment, property and personnel of
Landlord if damaged or injured as a result of acts in connection with carrying
out this service for such tenant.
6. Landlord may prescribe weight limitations and determine the locations
for safes and other heavy equipment or items, which shall in all cases be placed
in the Building so as to
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distribute weight in a manner acceptable to Landlord which may include the use
of such supporting devices as Landlord may require. All damages to the Building
caused by the installation or removal of any property of a tenant, or done by a
tenant's property while in the Building, shall be repaired at the expense of
such tenant.
7. Corridor doors, when not in use, shall be kept closed. Nothing shall be
swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals shall be brought into or kept in, on or about any tenant's
leased premises excluding dogs to assist sight impaired individuals. No portion
of any tenant's leased premises shall at any time be used or occupied as
sleeping or lodging quarters.
8. Tenant shall cooperate with Landlord's employees in keeping its leased
premises neat and clean. Tenant shall not employ any person for the purpose of
such cleaning other than the Building's cleaning and maintenance personnel,
except in accordance with Section 5.5 of this Lease.
9. To ensure orderly operation of the Building, no ice, mineral or other
water, towels, newspapers, etc. shall be delivered to any leased area except by
persons approved by Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed.
10. Tenant shall not make or permit any vibration or improper,
objectionable or unpleasant noises or odors to permeate outside of the Leased
Premises or otherwise interfere in any way with other tenants or persons having
business with them.
11. No machinery of any kind (other than normal office equipment) shall be
operated by any tenant on its leased area without Landlord's prior written
consent which shall not be unreasonably withheld, conditioned or delayed, nor
shall any tenant use or keep in the Building any flammable or explosive fluid or
substance other than the materials listed on EXHIBIT HM and ordinary office
supplies and cleaning products provided the same are stored, used and disposed
of strictly in compliance with all Governmental Regulations and Environmental
Laws.
12. Landlord will not be responsible for lost or stolen personal property,
money or jewelry from tenant's leased premises or public or common areas
regardless of whether such loss occurs when the area is locked against entry or
not.
13. No vending or dispensing machines of any kind may be maintained in any
leased premises without the prior written permission of Landlord; provided,
however, Tenant shall be permitted to maintain vending or food dispensing in the
Leased Premises machines for food and drink for use strictly by Tenant's
employees only.
14. Tenant shall not conduct any activity on or about the Property, the
Building or the Leased Premises which will draw pickets, demonstrators, or the
like.
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15. All vehicles are to be currently licensed, in good operating
condition, parked for business purposes having to do with Tenant's business
operated in the Premises, parked within designated parking spaces, one vehicle
to each space. No vehicle shall be parked as a "billboard" vehicle in the
parking lot. Any vehicle parked improperly may be towed away. Tenant, Tenant's
agents, employees, vendors and customers who do not operate or park their
vehicles as required shall subject the vehicle to being towed at the expenses of
the owner or driver. Landlord may place a "boot" on the vehicle to immobilize it
and may levy a charge of $50.00 to remove the "boot". Tenant shall indemnify,
hold and save harmless Landlord of any liability arising from the towing or
booting of any vehicles belonging to Tenant, Tenant's agents, vendors, employees
and customers.
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EXHIBIT LW
LANDLORD WORK
See Attached.
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[GRAPHIC TENANT ENTRY DOOR]
<PAGE> 58
100 NAGOG PARK, ACTON, MASSACHUSETTS
LANDLORD IMPROVEMENTS SPECIFICATIONS
WALLS: New demising partition: one layer 5/8" FC GWB each side on 3 5/8"
metal studs to underside of metal deck above.
Demising wall from existing wall construction: extend existing wall to
underside of metal deck above, one layer 5/8" FC GWB each side on 3
5/8" metal studs. For existing wall that extends to deck, firetape
only.
CEILING: Patch ceiling where new demising: match existing.
DOORS: Tenant entry: construct new tenant entry per building standard.
PAINT: Existing demising walls (only if altered): one coat latex eggshell,
Benjamin Moore or equal, color to be determined.
New demising walls: one coat primer, one coat latex eggshell, Benjamin
Moore or equal, color to be determined.
<PAGE> 59
[GRAPIC OF THIRD FLOOR]
<PAGE> 60
[GRAPIC OF THIRD FLOOR FLOORPLAN]
<PAGE> 61
EXHIBIT TI
TENANT IMPROVEMENTS
(a) Tenant shall cause its architect to prepare a reasonable detailed layout
plan of proposed Tenant Improvements of the Leased Premises, as the same may be
amended ("Tenant Space Plan") and submitted to and approved by Landlord, which
approval or disapproval shall not be unreasonably delayed or conditioned.
Landlord shall provide its approval or disapproval to Tenant within five (5)
business days after Landlord's receipt of the Tenant Space Plan and provided
that any disapproval shall contain reasonable objections, Tenant will enter into
a contract (the "TI Construction Contract") with one of three general
contractors to be chosen by Landlord in its reasonable discretion and approved
by Tenant in its reasonable discretion ("Tenant's General Contractor"). Tenant
shall have the right to solicit competitive bids for the construction of the
Tenant Improvements from said three (3) general contractors.
(b) Tenant shall adhere to the following requirements in performing all the
Tenant Improvements work. Tenant shall procure all necessary governmental
approvals and all Tenant Improvements work shall be performed at Tenant's risk
in compliance with all applicable laws and in a good and workmanlike manner
employing new materials of good quality and producing a result at least equal in
quality to the other parts of the Leased Premises. When any Tenant Improvements
work is in progress, Tenant shall cause to be maintained insurance as described
below and such other insurance as may be required by Landlord covering any
additional hazards due to such Tenant Improvements work. It shall be a condition
of Landlord's approval of any Tenant Improvements work (i) that certificates of
such insurance, issued by responsible insurance companies qualified to do
business in Massachusetts and reasonably approved by Landlord, shall have been
deposited with Landlord, (ii) that Tenant has provided Tenant's certification of
the insurable value of the work in question for casualty insurance purposes, and
(iii) that all of the other conditions of the Lease have been satisfied. At all
times while performing Tenant Improvements work, Tenant and each contractor of
Tenant shall not discriminate against any individual because of race, color,
sex, religion or national origin.
(c) In performing Tenant Improvements work, each contractor of Tenant shall
comply with Landlord's reasonable requirements relating to the time and methods
for such work, use of delivery elevators and other Building facilities; and no
contractor shall ever interfere with or disrupt any other tenant or other person
using the Building. Each contractor shall in all events work on the Leased
Premises without causing labor disharmony or coordination difficulties, and
without causing any delays to, or impairing any guaranties, warranties or
obligations of, any contractors of Landlord. Tenant and its contractors shall
not have any obligation to employ union labor. If any such contractor uses or
asks Landlord to provide any services in addition to those services specified in
this Lease, such contractors, jointly and severally with Tenant, shall agree to
reimburse Landlord for the cost thereof based on Landlord's schedule of charges
established from time to time (and if no such charges have been established,
then based on Landlord's reasonable charge established at the time). Each such
contractor shall, by its entry into the Building, be deemed to have agreed
jointly and severally with Tenant to indemnify and hold
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Landlord, Landlord's Managing Agent and Landlord's mortgagee and their
respective partners, officers, directors, employees and agents harmless from any
claim, loss or expense arising in whole or in part out of any act or neglect
committed by such person while in the Building, to the same extent as Tenant has
so agreed in the Lease.
Tenant shall purchase and, unless waived in writing by the Landlord in
particular instances, shall cause each contractor of Tenant to purchase, in a
company or companies against which the Landlord has no reasonable objections,
such insurance as will protect Landlord from claims set forth below:
4.1 claims under workers' or workmen's compensation, disability
benefit and other similar employee benefit acts;
4.2 claims for damages because of bodily injury, occupational
sickness or disease, or death of his employees;
4.3 claims for damages because of bodily injury, sickness or
disease, or death of any person other than his employees;
4.4 claims for damages insured by personal injury liability coverage
which are sustained (1) by any person as a result of an offense directly or
indirectly related to the employment of such person by the Contractor, or (2) by
any other person;
4.5 claims for damages, other than to the Tenant Improvements work
itself, because of injury to or destruction of tangible property, including loss
of use resulting therefrom;
4.6 claims for damages because of bodily injury or death of any
person or property damage arising out of the ownership, maintenance or use of
any motor vehicle; and
4.7 claims for contractual liability (both oral and written) under
his undertaking with Tenant.
(d) The insurance required shall include all major divisions of coverage, and
shall be on a comprehensive general basis including Premises and Operations
(deleting X-C-U exclusions), Owners' and Contractor's Protective, Products and
Completed Operations, and Owned, Nonowned, and Hired Motor Vehicles. Such
insurance shall be written for not less than any limits of liability required by
law or those set forth below (which amounts may, from time to time, be
reasonably increased by Landlord), whichever is greater.
.1 Workman's Compensation - Statutory/Employers Liability and
all additional endorsements $500,000.
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.2 Public Liability - Single Limit (Combined) Per Occurrence.
Bodily & Personal Injury $1,000,000
Property Damage $1,000,000 Occurrence/Aggregate.
.3 Automobile Liability - Single Limit (Combined) Per
Occurrence.
Bodily Injury $1,000,000
Property Damage $1,000,000 Per Occurrence.
.4 Independent Contractors - $1,000,000 Per Occurrence.
.5 Products and Completed Operations $1,000,000 Per Occurrence,
covering liability for claims made within applicable statutes
of limitations following issuance of final Certificate of
Payment.
.6 Broad Form Blanket Contractual Liability (both oral and
written) $1,000,000 per occurrence.
.7 Excess Liability Umbrella - $5,000,000 Per Occurrence.
Certificates of insurance reasonably acceptable to Landlord shall be filed
with Landlord prior to commencement of the Tenant Improvements work. These
Certificates shall contain a provision that coverages afforded under the
policies will not be amended, canceled or non-renewed until at least 30 days'
prior written notice has been given to Landlord and all other additional
insureds. The form of certificate shall be acceptable to Landlord. If by the
terms of insurance carried by tenant or any contractor a mandatory deductible is
required, in the event of a paid claim Tenant or such contractor shall be
responsible for the deductible amount. All deductible/self-insured retention
amounts shall be show on the Certificate of Insurance. In all cases, Landlord,
Landlord's Managing Agent, each mortgagee of the Building and any other person
designated by Landlord shall be named as additional insureds.
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EXHIBIT J
JANITORIAL SERVICES
CLEANING SPECIFICATIONS
A. GENERAL NOTES
1. All cleaning personnel shall sign in and out at the main lobby
security desk.
2. Building keys shall be accounted for and returned daily. Any missing
keys are to be reported to building security immediately.
3. All cleaning personnel will wear uniforms and proper identification
including the company and the employee names.
4. Cleaning company will maintain a logbook on a daily basis noting any
problems, areas inaccessible due to tenants working after hours and
utility work completed.
5. Cleaning supervisors will maintain a log of building supplies used
and advise management when to restock. Cleaning supervisor will be
responsible for transporting, storing and organizing supplies.
6. Supervisors will be responsible for turning off all lights and
locking all doors when their job is done.
B. MAIN LOBBY AND COMMON AREAS
1. Dust mop, wash and rinse all hard floor surfaces. Wash with a
detergent solution and rinse with a clear water solution. Spray
buff, using a high speed floor machine as necessary. Strip and
reseal as directed.
2. Clean all entrance mats as required.
3. Vacuum all carpeted surfaces and spot clean all stains with a spot
carpet cleaner.
4. Clean, with glass cleaner, all fingerprints and marks on all glass
entry doors including revolving doors, etc.
5. Polish all exposed metal surfaces in main lobby.
6. Wipe clean and polish all metal and wood surfaces in elevator and on
elevator doors.
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7. Vacuum carpeted elevators and spot clean as necessary. Wash freight
elevator floor as necessary.
8. Dust elevator light fixtures.
9. Empty all exterior trash receptacles, cleaning as needed and replace
liners.
10. Clean and sanitize all drinking fountains using a germicidal
detergent solution.
C. RESTROOMS
1. Dust mop and sweep tiled lavatory floors. Wash and rinse using
germicidal solution. Machine scrub once per month. Strip and reseal
tile floors as directed.
2. Clean, using a germicidal solution, all metal toilet and urinal
partitions.
3. Clean, using a germicidal solution, all tile walls as required.
4. Clean all vanity tops.
5. Clean and sanitize all sinks, toilet bowls and seats, and urinals,
using a germicidal detergent.
6. Clean and polish all bright work (chrome fixtures, faucets, etc.).
7. Clean and sanitize all dispensers and receptacles (soap dispensers,
paper towels, toilet paper, sanitary napkins).
8. Refill all dispensers in lavatories.
9. Remove all waste paper and refuse to a designated area.
D. TENANT CLEANING
1. Empty all wastebaskets and dispose of trash in designated area.
Replace plastic liners.
2. Dust mop, wash and rinse all hard surfaces. Spray buff, using a high
speed floor machine, as necessary. Strip and reseal floors as
directed.
3. Vacuum all carpeted surfaces and spot clean all stairs with a spot
cleaner.
4. Clean all fingerprints and marks on walls, door frames, kick planes,
door louvers, door handles and light switches.
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5. Dust and clean any spots on all baseboards throughout tenant areas.
6. Dust and wipe clean as necessary, all furniture, chair rails,
moldings, closets and coat racks.
7. Damp wipe and polish all glass furniture tops.
E. UTILITY CLEANING
1. Keep electric and telephone closets in clean and orderly fashion.
2. Police loading dock and trash areas.
3. Perform miscellaneous projects such as cleaning mechanical areas,
exterior stairs, etc. as may be requested by building management.
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EXHIBIT S
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT is made as of the ____ day of __________, 19__, by _______
________, a ____________ corporation, having a principal address at ___________
_____________________________, (hereinafter referred to as the "Tenant"), and
Nagog Park Investors, L.L.C., a Delaware limited liability company having a
business address c/o Tishman-Heskin Partners, 119 North Fourth Street,
Minneapolis, Minnesota 55401 ("Borrower" and, having its principal address at
__________________________________ (hereinafter referred to as the "Lender").
WITNESSETH:
WHEREAS, the Lender has loaned to Borrower the original principal amount
of ___________ DOLLARS ($________ ), evidenced by a Promissory Note of even
date and delivery herewith, made by the Borrower to the order of the Lender
(hereinafter referred to as the "Note");
WHEREAS, payment of the indebtedness evidenced by the Note is secured, in
part, by a Mortgage and Security Agreement (hereinafter referred to as the
"Mortgage") of even date and record herewith, executed by the Borrower in favor
of the Lender, encumbering certain real property and all of the improvements now
or hereafter located thereon commonly known as 100 Nagog Park, Acton,
Massachusetts (hereinafter collectively referred to as the "Mortgaged
Property"), as more particularly described in EXHIBIT A attached hereto and
incorporated herein by reference;
WHEREAS, the Note, the Mortgage, this Agreement and all other documents
and instruments evidencing or securing the repayment of, or otherwise pertaining
to and executed and delivered in connection with, the loan evidenced by the Note
are hereinafter collectively referred to as the "Loan Documents" and all
indebtedness and all other covenants, terms, conditions and warranties under the
Loan Documents are hereinafter collectively referred to as the "Loan
Obligations");
WHEREAS, the Tenant has entered an office lease (hereinafter referred to
as the "Lease") dated as of ________, 1999, with the Borrower relating to
certain premises (hereinafter referred to as the "Demised Premises") consisting
of _______ rentable square feet on the second floor of the principal Building on
the Mortgaged Property and other appurtenances thereto, all as more fully
described in the Lease;
WHEREAS, the Demised Premises consist of all or a portion of the
Mortgaged Property; and
WHEREAS, the Tenant has required Landlord to obtain this Agreement from
the Lender as a condition of Tenant entering into the Lease;
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<PAGE> 68
WHEREAS, the Lender has required that the Tenant execute and deliver this
Agreement as a condition of the Lender's agreeing to make the loan evidenced by
the Note.
NOW, THEREFORE, in consideration of the foregoing premises and of the sum
of Ten ($10.00) Dollars and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties do hereby covenant
and agree as follows:
1. SUBORDINATION. Subject to the terms of this Agreement, the Tenant hereby
agrees that the Lease and all amendments, consolidations, substitutions,
extensions, renewals, replacements or modifications thereof, and all of its
right, title and interest in and to the Demised Premises and the Mortgaged
Property, including, without limitation, all options to purchase and rights of
first refusal, are and shall be subject and subordinate in all respects to all
of the Loan Documents, including, without limitation, the lien of the Mortgage,
and to all amendments, revisions, substitutions, renewals, modifications,
consolidations, replacements and extensions thereof, to the full extent of the
Loan Obligations with the same force and effect as if the Note, the Mortgage and
all of the other Loan Documents were each made, delivered and/or recorded prior
to the making, delivery and/or recording of the Lease (or any memorandum or
notice thereof). Without limiting the foregoing, the Tenant expressly
acknowledges and agrees that with respect to any and all insurance proceeds
recovered or recoverable in connection with a fire or other casualty, and with
respect to any and all proceeds recovered or recoverable in connection with a
taking by condemnation or by eminent domain by a public or quasi-public
authority of all or a part of the Demised Premises, the rights of the Lender
under the Mortgage shall be superior, in all respects, to the rights of the
Tenant under the Lease to have such proceeds applied to the repair and
restoration of the Mortgaged Property, but Tenant shall retain any rights it
enjoys under the Lease to terminate the Lease if Landlord or its successors or
assigns fails to repair and restore the Leased Premises in the manner and time
required by the Lease.
2. NONDISTURBANCE. As long as Tenant is not in default (beyond any
applicable notice and grace period expressly given the Tenant in the Lease to
cure such default) in the payment of rent or in the performance or fulfillment
of any of the terms, warranties, representations, covenants or conditions of the
Lease (including, without limitation, all options to purchase and rights of
first refusal), the Tenant's possession of the Demised Premises and the Tenant's
rights and privileges under the Lease, and all extensions or renewals thereof
which may be effected in accordance with any option granted in the Lease, shall
not be diminished or interfered with by the Lender, and the Tenant's occupancy
of the Demised Premises shall not be disturbed by the Lender during the term of
the Lease or any such extension or renewal thereof.
3. JOINDER OF THE TENANT. As long as the Tenant is not in default (beyond
any applicable notice and grace period expressly given the Tenant in the Lease
to cure such default) in the payment of rent or in the performance of any of the
terms, covenants or conditions of the Lease on the Tenant's part to be
performed, the Lender will not join the Tenant as a party defendant for the
purpose of terminating or otherwise affecting the Tenant's interest and estate
under the Lease, in any action of foreclosure or other proceeding brought by the
Lender for the purpose of enforcing any of its rights and/or remedies under any
of the Loan Documents in the
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event of any default thereunder; provided, however, the Lender may join the
Tenant as a party in any such action or proceeding if such joinder is necessary
under applicable law for the purpose of effecting the rights and/or remedies
available to the Lender under the Loan Documents, but only for such purpose and
not for the purpose of terminating the Lease, or affecting the Tenant's right to
possession.
4. ATTORNMENT. If the interest of the Borrower in the Mortgaged Property
shall be transferred to the Lender or any other Person (as hereinafter defined)
by reason of the Lender's exercise of any of its rights and/or remedies under
any of the Loan Documents, including, without limitation, the exercise of the
power of sale under the Mortgage or any other foreclosure of the Mortgage or
other proceeding brought to enforce the rights of the holder of the Mortgage, by
and in lieu of foreclosure, or by any other method (each such other Persons
being hereinafter referred to as a "Purchaser"), and the Lender or such
Purchaser succeeds to the interest of the Borrower under the Lease, the Tenant
shall be bound to the Lender or such Purchaser, and the Lender or such Purchaser
shall be bound to the Tenant, under all of the terms, covenants, conditions and
warranties under the Lease for the balance of the term thereof remaining and all
extensions or renewals thereof which may be effected in accordance with any
option granted in the Lease, with the same force and effect as if the Lender or
such Purchaser were the landlord under the Lease, but subject to the exceptions
set forth in this Agreement, and, the Tenant does hereby attorn to the Lender or
such Purchaser as its landlord, said attornment to be effective and
self-operative without the execution of any further instruments on the part of
any of the parties hereto immediately upon the Lender or such Purchaser
succeeding to the interest of the Borrower under the Lease.
Without limiting the foregoing, within ten (10) days after written request
by the Lender or such Purchaser, the Tenant agrees to execute and deliver to the
Lender or such Purchaser, any instrument of further assurance reasonably
requested by the Lender or such Purchaser to confirm and acknowledge such
attornment.
Notwithstanding anything to the contrary contained herein, the Tenant
shall be under no obligation to pay rent or any other charges due under the
Lease to the Lender or such Purchaser until the Tenant receives written notice
from the Lender or such Purchaser that it has succeeded to the interest of the
Borrower under the Lease (or that the Lender has exercised its rights under any
Assignment of Leases and Rents from the Borrower to the Lender) and directing
where such rent should be delivered. Landlord hereby consents to Tenant paying
such rent and other charges in accordance with such directions, and any such
payments shall be credited against Tenant's obligations under the Lease.
5. LIMITATION OF THE OBLIGATIONS OF THE LENDER. Notwithstanding anything to
the contrary contained herein, in the event that the Lender or any Purchaser
shall succeed to the interest of the Borrower under the Lease, the Lender and
such Purchaser shall not be:
(a) liable for any act or omission or any representation or warranty
of any prior landlord, including, without limitation, the Borrower;
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<PAGE> 70
(b) liable for the return of any security deposit not actually
received by it;
(c) subject to any offsets or defenses which the Tenant might have
against any prior landlord, including, without limitation, the Borrower;
(d) bound by any minimum rent or additional rent or other charges
which the Tenant might have paid for more than the current month to any
prior landlord, including, without limitation, the Borrower, unless
actually received by the Lender or such Purchaser;
(e) bound by any assignment (except assignments that do not require
Landlord's consent under the Lease), surrender, termination, cancellation,
amendment or modification of the Lease made without the Lender's express
written consent;
(f) liable under the Lease except during that period of time in
which the Lender or such Purchaser are in privity of estate with the
Tenant; or
(g) responsible for any indirect or consequential damages,
including, without limitation, loss of business, arising from any breach of the
lessor's obligations under the Lease; provided, that the Lender or such
Purchaser shall in no event be exonerated from any liability to the Tenant for
any injury, loss, damage or liability to the extent prohibited by applicable
law.
In addition, and without limiting the foregoing, in the event that the
Lender or any Purchaser shall succeed to the interest of the Borrower under the
Lease, the Tenant specifically agrees to look solely to the Lender's or the
Purchaser's then equity interest in the Mortgaged Property and the proceeds of
any insurance relating to the Mortgaged Property for the satisfaction or
recovery of any obligation from the Lender or the Purchaser to the Tenant
arising under or in connection with the Lease; it being specifically agreed that
the Lender or the Purchaser shall never be personally liable to the Tenant for
the satisfaction of any such obligation and that the general assets of the
Lender or the Purchaser shall not be subject to levy, execution or other
enforcement procedure for the satisfaction of any such obligation.
6. DEFAULTS UNDER THE LEASE. Notwithstanding anything contained in the
Lease to the contrary, the Tenant agrees that so long as the Mortgage is in
force and effect, the Tenant shall deliver to the Lender, at the address and in
the manner set forth above, copies of all notices which the Tenant may from time
to time serve upon the Borrower or any successor thereto, under and pursuant to
the terms, covenants and conditions of the Lease. The Tenant further agrees
that, from this date forward, it will not seek to terminate the Lease by reason
of any act or omission of the Borrower until:
(a) the Tenant shall have given written notice (sent by certified
mail, return receipt requested or by a nationally recognized commercial
overnight delivery service) of such act or omission to the Lender, at the
address set forth above; and
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(b) thirty (30) days shall have elapsed following the receipt of
such notice, during which period the Lender shall have the right, but
shall not be obligated, to remedy such act or omission; the Tenant
agreeing to accept any such remedy by the Lender as if the same had been
performed by the Landlord.
As used herein, a reasonable period of time shall be thirty (30) days or, if
such act or omission cannot be remedied during such thirty (30) day period, then
such period of time as is necessary to remedy such act or omission, including,
without limitation, such time as may be reasonably required to gain possession
of the Demised Premises; provided, that the Lender (i) has elected to remedy
such act or omission, (II) has so notified the Tenant during the thirty (30) day
period following the receipt of the Tenant's notice and (iii) is diligently
prosecuting the same.
7. NOTICES. Any notice, request, demand, statement or consent made
hereunder shall be in writing and shall be deemed duly given if personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally recognized commercial overnight delivery service with provisions for
a receipt, postage or delivery charges prepaid, and shall be deemed given three
business days after being postmarked or placed in the possession of such mail or
delivery service and addressed as follows:
IF TO THE TENANT: ___________________________
___________________________
___________________________
Attn:______________________
WITH A COPY TO: ___________________________
___________________________
___________________________
Attn:______________________
IF TO THE LENDER: ___________________________
___________________________
___________________________
Attn: ____________________
or at such other place as either party hereto may from time to time hereafter
designate to the other in writing. Any notice given to the Tenant by the Lender
at any time shall not imply that such notice or any further or similar notice
was or is required.
8. GOVERNING LAW. This Agreement shall be construed, and the rights and
obligations of the Tenant and the Lender shall be determined, in accordance with
the laws of the Commonwealth of Massachusetts.
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9. AMENDMENTS, WAIVERS AND MODIFICATIONS. This Agreement sets forth the
entire agreement of the parties with respect to the subject matter hereof and
none of the terms, covenants, conditions, warranties or representations
contained herein may be renewed, replaced, amended, extended, substituted,
revised, waived, consolidated, modified or terminated except by an agreement in
writing signed by the Person against whom enforcement is sought. The provisions
of this Agreement shall extend and be applicable to all renewals, replacements,
amendments, extensions, substitutions, revisions, consolidations and
modifications of the Loan Documents or the Lease; and all references herein to
the Loan Documents or the Lease shall be deemed to include any such renewals,
replacements, amendments, substitutions, revisions, extensions, consolidations
or modifications thereof.
Notwithstanding the foregoing, any reference, whether express or implied,
to any renewal, replacement, amendment, extension, substitution, revision,
consolidation or modification of the Lease is not intended to constitute a
consent to any such renewal, replacement, amendment, extension, substitution,
revision, consolidation or modification of the Lease, but as a reference only to
those instances where the Lender may give consent to any such renewal,
replacement, amendment, extension, substitution, revision, consolidation or
modification of the Lease, as the same may be required pursuant to the terms,
covenants and conditions hereof.
10. INVALIDITY. If any provision of this Agreement or the application
thereof to any Person or circumstance, for any reason and to any extent, shall
be held to be invalid or unenforceable, neither the remainder of this Agreement
nor the application of such provision to any other Person or circumstance shall
be affected thereby, but rather the same shall be enforced to the greatest
extent permitted by law.
Notwithstanding the foregoing, it is the intention of the Tenant and the
Lender that if any provision of any of this Agreement is capable of two (2)
constructions, one of which would render the provision void and the other of
which would render the provision valid, then such provision shall be construed
in accordance with the construction which renders such provision valid.
11. SUCCESSORS AND ASSIGNS; JOINT AND SEVERAL LIABILITY. This Agreement
shall run with the land and be binding on and inure to the benefit of (a) the
Tenant and the Tenant's heirs, executors, administrators, legal representatives,
and permitted successors and assigns and (b) the Lender, any Person who may now
or hereafter hold any interest in the Loan, the Purchaser and their respective
successors and assigns. Notwithstanding the foregoing, except for assignments
and subleases that do not require Landlord's prior consent under the lease, the
Tenant shall not assign or otherwise transfer this Agreement or any of its
rights or obligations hereunder without the express written consent of the
Lender in each instance, which consent shall not be unreasonably withheld,
delayed or conditioned. Where more than one Person shall execute this Agreement
as the Tenant, then each such Person shall be fully liable for all of the
obligations of the Tenant hereunder and all such obligations shall be joint and
several.
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12. RULES OF CONSTRUCTION. References in this Agreement to "herein",
"hereof" and "hereunder" shall be deemed to refer to this Agreement and shall
not be limited to the particular text or Section in which such words appear. The
use of any gender shall include all genders and the singular number shall
include the plural and vice versa as the context may require. References in this
Agreement to attorneys' fees and expenses shall be deemed to include all
reasonable out-of-pocket costs for administrative, paralegal and other support
staff.
References in this Agreement to the Mortgaged Property shall be deemed to
include references to all of the Mortgaged Property and references to any
portion thereof. References in this Agreement to the Demised Premises shall be
deemed to include references to all of the Demised Premises or any portion
thereof. The words "foreclosure" and "foreclosure sale" as used herein shall be
deemed to include the acquisition of the Mortgaged Property or of the Demised
Premises by voluntary deed or assignment in lieu of foreclosure.
As used herein the term "Person" shall include all individuals and all
entities of every kind and nature, including, without limitation, corporations,
general and limited partnerships, stock companies or associations, joint
ventures, unincorporated associations, companies, trusts, banks, trust
companies, land trusts, business trusts, and agencies, authorities, bodies,
boards, commissions, courts, instrumentalities, legislatures, or offices of any
nature whatsoever for any government unit or political subdivision, whether
federal, state, county, district, municipal, city or otherwise, and whether now
or hereafter in existence.
As used herein, the term "including", when following any general
statement, will not be construed to limit such statement to the specific items
or matters as provided immediately following the term "including" (whether or
not non-limiting language such as "without limitation" or "but not limited to"
or words of similar import are also used), but rather will be deemed to refer to
all items or matters that could reasonably fall within the broader scope of the
general statement.
13. CAPTIONS AND HEADINGS. The captions and headings set forth in this
Agreement are included for convenience and reference only and the words
contained therein shall in no way be held or deemed to define, limit, describe,
explain, modify, amplify or add to the interpretation, construction or meaning
of, or the scope or intent of, this Agreement or any part hereof.
14. LIMITATION OF LIABILITY. All Persons dealing with the Lender, in any
way, shall look only to the assets of the Lender for the payment of any sum or
the performance of any obligation. Furthermore, in no event shall the Lender
ever be liable to the Tenant for any indirect or consequential damages suffered
by the Tenant resulting from any cause whatsoever. Notwithstanding the
foregoing, the Tenant hereby acknowledges and agrees that the Tenant shall look
only to the assets of the Lender for the payment of any sum or performance of
any obligation due by or from the Lender pursuant to the terms, covenants and
conditions hereof.
15. TIME OF THE ESSENCE. Time is of the essence of each and every term,
condition, covenant and warranty set forth herein.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as a sealed instrument on the date first above-mentioned.
WITNESS: TENANT:
______________________________________
____________________________ By:___________________________________
Name: Name:___________________
Title:__________________
WITNESS: LENDER:
__________________________, a _______________
____________________________ By:___________________________________
Name: Name:
Title: Vice President
____________________________ By:___________________________________
Name: Name:
Title: Assistant Treasurer
WITNESS: LANDLORD:
NAGOG PARK INVESTORS, L.L.C.
____________________________ By:___________________________________
Name: Name:
Title:
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COMMONWEALTH OF MASSACHUSETTS
, ss. ___________, 1999
Then personally appeared the above-named _________________ , ____________
__________________ of _________________ , and acknowledged the foregoing
instrument to be his free act and deed and the free act and deed of ___________
_________________ , before me,
__________________________________
Notary Public
My commission expires: ___________
STATE OF NEW YORK
, ss. ___________, 1999
Then personally appeared the above-named ______________________ who swore
that he/she is the ____________of Nagog Park Investors, L.L.C., and acknowledged
the foregoing instrument to be his free act and deed and the free act and deed
of Nagog Park Investors, L.L.C., before me,
__________________________________
Notary Public
My commission expires: ___________
COMMONWEALTH OF MASSACHUSETTS
, ss. ___________, 1999
Then personally appeared the above-named ____________________ who swore
that he/she is the ____________ of __________________________________ and
acknowledged the foregoing instrument to be his free act and deed and the
free act and deed of ________________________, before me
__________________________________
Notary Public
My commission expires: ___________
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Exhibit A
Legal Description
Lot 106 on a Plan entitled " 'Nagog Square' Definitive Subdivision Plan of Land
in Acton, Mass." by R. D. Nelson dated May 10, 1973, last revised November 12,
1973 and recorded with Middlesex South District Registry of Deeds as Plan No.
448 of 1974 in Book 12629, Page 25 (hereinafter called the "Plan"), bounded and
described as follows:
SOUTHERLY by Nagog Park, as shown on the Plan, by five courses, 76.81',
520.00', 99.38', 346.17' and 104.76', respectively;
SOUTHEASTERLY by land of Nagog Development Company shown on the Plan as "60'
R. O. W. Easement Area 20.450 S.F.," by two courses, 43.17'
and 289.09', respectively;
NORTHERLY by land now or formerly of J. J. Heider & V. P. Wiegand,
231.95';
EASTERLY again by said land now or formerly of J. J. Heider & V. E.
Wiegand by five courses, 86.36', 141.00', 62.49', 110.13', and
135.94', respectively;
NORTHEASTERLY by land now or formerly of S. & J. Tabbi, 623.67';
NORTHWESTERLY by land shown on the Plan as Lot 8A, by three courses,
109.64', 103.78' and 154.91', respectively;
SOUTHWESTERLY again by said land shown on the Plan as Lot 8A, 102.27'
Together with grant of easements contained in a deed May 27, 1982 recorded in
Book 14625, Page 368.
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EXHIBIT HM
INITIAL HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the provisions of
Section 6.6 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:
Landlord: Nagog Park Investors, LLC
Attn:______________________________________________________________
Phone:_____________________________________________________________
Name of (Prospective) Tenant: ArrowPoint Communications, Inc.
Mailing Address: 235 Littleton Road, Westford, MA 01886
Contact Person, Title and Telephone Number(s): Maurice Bouchard,
IS and Facilities Manager
978 692-5875 x 543
Address of (Prospective) Premises: 50 Nagog Park, 3rd Floor, Acton, MA
Length of (Prospective) initial Term: 5 years
1. GENERAL INFORMATION:
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Describe the initial proposed operations to take place in, on, or about
the Premises, including, without limitation, principal products processed,
manufactured or assembled services and activities to be provided or
otherwise conducted. Existing tenants should describe any proposed changes
to on-going operations.
General office, laboratory, research development and light assembly of
data network switches.
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials be used, generated, stored or disposed
of in, on or about the Premises? Existing tenants should describe
any Hazardous Materials which continue to be used, generated, stored
or disposed of in, on or about the Premises.
Wastes Yes [ ] No [X]
Chemical Products Yes [X] No [ ]
Other Yes [ ] No [X]
If Yes is marked, please explain: Some very small amounts of chemicals are
used in the repair and rework of electronic parts. See attached list for
quantity and types.
2.2 If Yes is marked in Section 2.1, attach a list of any Hazardous
Materials to be used, generated, stored or disposed of in, on or
about the Premises, including the applicable hazard class and an
estimate of the quantities of such Hazardous Materials at any given
time; estimated annual throughput; the proposed location(s) and
method of storage (excluding nominal amounts of ordinary household
cleaners and janitorial supplies which are not regulated by any
Environmental Laws); and the proposed location(s) and method of
disposal for each Hazardous Material, including, the estimated
frequency, and the proposed contractors or subcontractors. Existing
tenants should attach a list setting forth the information requested
above and such list should include actual data from on-going
operations and the identification of any variations in such
information from the prior year's certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel, petroleum,
or other Hazardous Materials in tanks or sumps proposed in, on or
about the Premises? Existing tenants should describe any such actual
or proposed activities.
Yes [ ] No [X]
If yes, please explain:____________________________________________
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4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator I.D.
Number? Existing tenants should describe any additional
identification numbers issued since the previous certificate.
Yes [ ] No [X]
4.2 Has your company filed a biennial or quarterly reports as a
hazardous waste generator'? Existing tenants should describe any new
reports filed.
Yes [ ] No [X]
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
storm drain? sewer?
---- ----
surface water? X no wastewater or other wastes discharged.
---- ----
Existing tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
____________________________________________________________________
____________________________________________________________________
5.2 Will any such wastewater or waste be treated before discharge?
Yes [ ] No [X]
If yes, describe the type of treatment proposed to be conducted.
Existing tenants should describe the actual treatment conducted.
____________________________________________________________________
____________________________________________________________________
6. AIR DISCHARGES
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6.1 Do you plan for any air filtration systems or stacks to be used in
your company's operations in, on or about the Premises that will
discharge into the air; and will such air emissions be monitored?
Existing tenants should indicate whether or not there are any such
air filtration systems or stacks in use in, on or about the Premises
which discharge into the air and whether such air emissions are
being monitored.
Yes [ ] No [X]
If yes, please describe:___________________________________________
___________________________________________________________________
___________________________________________________________________
6.2 Do you propose to operate any of the following types of equipment,
or any other equipment requiring an air emissions permit? Existing
tenants should specify any such equipment being operated in, on or
about the Premises.
Spray booth(s) Incinerator(s)
---- ----
Dip tank(s) Other (Please describe)
---- ----
Drying oven(s) X No Equipment Requiring Air Permits
---- ----
If yes, please describe:___________________________________________
___________________________________________________________________
___________________________________________________________________
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan") pursuant to
Fire Department or other governmental or regulatory agencies'
requirements? Existing tenants should indicate whether or not a
Management Plan is required and has been prepared.
Yes [ ] No [X]
If yes, attach a copy of the Management Plan. Existing tenants
should attach a copy of any required updates to the Management Plan.
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has your
company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees or has your company
received requests for information, notice or demand letters, or any
other inquiries regarding its operations? Existing tenants should
indicate whether or not any such actions, orders or decrees have
been, or are in the process of being, undertaken or if any such
requests have been received.
69
<PAGE> 81
Yes [ ] No [X]
If yes, describe the actions, orders or decrees and any continuing
compliance obligations imposed as a result of these actions, orders
or decrees and also describe any requests, notices or demands, and
attach a copy of all such documents. Existing tenants should
describe and attach a copy of any new actions, orders, decrees,
requests, notices or demands not already delivered to Landlord
pursuant to the provisions of Section 6.6 of the signed Lease
Agreement.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
8.2 Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety
concerns?
Yes [ ] No [X]
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other documents
related thereto as requested by Landlord. Existing tenants should
describe and attach a copy of any new complaint(s),
cross-complaint(s), pleadings and other related documents not
already delivered to Landlord pursuant to the provisions of Section
6.6 of the signed Lease Agreement.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
8.3 Have there been any problems or complaints from adjacent tenants,
owners or other neighbors at your company's current facility with
regard to environmental or health and safety concerns? Existing
tenants should indicate whether or not there have been any Such
problems or complaints from adjacent tenants, owners or other
neighbors at, about or near the Premises.
Yes [ ] No [X]
If yes, please describe. Existing tenants should describe any such
problems or complaints not already disclosed to Landlord under the
provisions of the signed Lease Agreement.
___________________________________________________________________
___________________________________________________________________
70
<PAGE> 82
9. PERMITS AND LICENSES
9.1 Attach copies of all Hazardous Materials permits and licenses
including a Transporter Permit number issued to your company with
respect to its proposed operations in, on or about the Premises,
including, without limitation, any wastewater discharge permits, air
emissions permits, and use permits or approvals. Existing tenants
should attach copies of any new permits and licenses as well as any
renewals of permits or licenses previously issued.
The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 6.6 of the Lease Agreement; and (C) that
Tenant shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the HazMat Certificate
notwithstanding Landlord's/Tenant's receipt and/or approval of such certificate.
Tenant further agrees that none of the following described acts or events shall
be construed or otherwise interpreted as either (a) excusing, diminishing or
otherwise limiting Tenant from the requirement to fully and faithfully perform
its obligations under the Lease with respect to Hazardous Materials, including,
without limitation, Tenant's indemnification of the Indemnitees and compliance
with all Environmental Laws, or (b) imposing upon Landlord, directly or
indirectly, any duty or liability with respect to any such Hazardous Materials,
including, without limitation, any duty on Landlord to investigate or otherwise
verify the accuracy of the representations and statements made therein or to
ensure that Tenant is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Landlord and/or Landlord's acceptance of such
certificate, (ii) Landlord's review and approval of such certificate, (iii)
Landlord's failure to obtain such certificate from Tenant at any time, or (iv)
Landlord's actual or constructive knowledge of the types and quantities of
Hazardous Materials being used, stored, generated, disposed of or transported on
or about the Premises by Tenant or Tenant's Representatives. Notwithstanding the
foregoing or anything to the contrary contained herein, the undersigned
acknowledges and agrees that Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof throughout the
term, and any renewals thereof of the Lease Agreement.
I (print name) Maurice Bouchard, acting with full authority to bind the
(proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent and
warrant that the information contained in this certificate is true and correct.
(PROSPECTIVE) TENANT:
By: /s/ Maurice E. Bouchard
-------------------------------------
71
<PAGE> 83
Title: IS and Facilities Manager
Date: 30 Aug 1999
72
<PAGE> 84
ArrowPoint Chemicals used in Assembly:
1) cyanoacrylate (tak pak circuit board adhesive).
Quantity: 1, 20 gram bottle. Usage, approx. 10 grams per month.
2) 1, 1, 1,2-tetrafluoroethane (freeze spray).
Quantity: 10, 238 gram cans. Usage, 1 can per week.
3) 2-methylpentane, 3-methylpentane, 2-3 dimethylbutane, n-hexane, ethyl acetate
(flux remover).
Quantity: 10, 284 gram cans. Usage, 1 can per week.
4) Isopropyl Alcohol, mineral spirits. (RMA Flux).
Quantity: 1 gallon. Usage, 1 ounce per week.
5) 60/40 Tin/Lead Solder.
Quantity: 3 rolls, 1 lb. each. Usage, .1 ounce per week.
<PAGE> 1
Exhibit 10.13
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
----------------
Dated as of August 5, 1998
between
ArrowPoint Communications, Inc.
and
Fleet National Bank
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS: .................................................................................1
2. REVOLVING CREDIT FACILITY. ...................................................................8
2.1. Commitment to Lend. ................................................................8
2.2. Requests Revolving Credit Loans. ...................................................8
2.3. Repayments and Prepayments. ........................................................10
3. TRANCHE A EQUIPMENT LOAN FACILITY..............................................................11
3.1. Making of Tranche A Equipment Loans.................................................11
3.2. Repayment of Tranche A Equipment Loans..............................................11
4. TRANCHE B EQUIPMENT LOAN FACILITY..............................................................12
4.1. Making of Tranche B Equipment Loans.................................................12
4.2. Repayment of Tranche B Equipment Loans..............................................13
5. LETTER OF CREDIT FACILITY......................................................................14
5.1. Letter of Credit Commitment. .......................................................14
5.2. Reimbursement Obligation of the Borrower. ..........................................15
5.3. Letter of Credit Payments. .........................................................16
5.4. Obligations Absolute. ..............................................................16
5.5. Reliance by Issuer. ................................................................16
5.6. Letter of Credit Fees. .............................................................17
6. INTEREST, OVERDUE PAYMENTS. ..................................................................17
6.1. Interest on Loans. .................................................................17
6.2. Interest after Default. ............................................................18
6.3. Overdue Payments. ..................................................................18
7. FEES AND PAYMENTS. ...........................................................................18
8. REPRESENTATIONS AND WARRANTIES. ..............................................................19
9. CONDITIONS PRECEDENT. ........................................................................21
10. COVENANTS. ...................................................................................21
10.1. Affirmative Covenants. ............................................................21
10.2. Negative Covenants. ...............................................................23
10.3. Financial Covenants. ..............................................................24
11. EVENTS OF DEFAULT; ACCELERATION. .............................................................24
12. SETOFF. ......................................................................................27
13. MISCELLANEOUS. ...............................................................................27
</TABLE>
<PAGE> 3
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT (this "Agreement") is made as of August 5, 1998, by
and between ArrowPoint Communications, Inc. (the "Borrower"), a Delaware
corporation having its principal place of business at 235 Littleton Road,
Westford, Massachusetts 01886, and Fleet National Bank (the "Bank"), a national
banking association with its head office at One Federal Street, Boston,
Massachusetts 02110.
1. DEFINITIONS:
------------
Certain capitalized terms are defined below:
ACCOUNTS: All rights of the Borrower to any payment of money for goods
sold, leased or otherwise marketed in the ordinary course of business and all
rights of the Borrower to payment for services rendered in the ordinary course
of business, whether evidenced by or under or in respect of a contract or
instrument, and to all proceeds in respect thereof.
AGREEMENT: See preamble, which term shall include this Agreement and the
Schedules hereto, all as amended and in effect from time to time.
BANK: See preamble.
BASE ACCOUNTS: Those Accounts (net of any finance charges, late charges,
credits, commissions, contras or other offsets or counterclaims) (i) which the
Borrower reasonably determines to be collectible, (ii) the account debtors in
respect of which are reasonably deemed creditworthy by the Bank, are solvent,
are not affiliated with the Borrower, and purchased the goods or services at
arms' length, (iii) which are not outstanding for more than ninety (90) days
past the earlier to occur of (A) the date of invoice and (B) the date of
shipment (as to goods) or of provision (as to services), (iv) that are not due
from an account debtor located in Indiana, Minnesota or New Jersey unless the
Borrower (A) has received a certificate of authority to do business and is in
good standing in such state or (B) has filed a notice of business activities
report with the appropriate office or agency of such state for the current year,
(v) in which the Bank has a valid and perfected first-priority security
interest, and over which there is no other Lien other than Liens permitted under
this Agreement, (vi) which are in payment of fully performed and undisputed
obligations, unless the amount of the portion of any Account in dispute is less
than $15,000, and (vii) which are payable in U.S. currency from an office within
the United States, unless (a) the payment of any such
<PAGE> 4
-2-
Account is backed by a letter of credit in form and substance satisfactory to
the Bank and is issued by a financial institution acceptable to the Bank having
an office in the United States or (b) such account is pre-approved in writing by
the Bank.
BASE RATE: The higher of (i) the annual rate of interest announced from
time to time by the Bank at its head office as the Bank's "prime rate" and (ii)
one-half of one percent (1/2%) above the Federal Funds Effective Rate.
BORROWER: See preamble.
BUSINESS DAY: Any day on which banks in Boston, Massachusetts, are open for
business generally.
CHARTER DOCUMENTS: In respect of any entity, the certificate or articles of
incorporation or organization and the by-laws of such entity, or other
constitutive documents of such entity.
COLLATERAL: All of the property, rights and assets of the Borrower that are
or are intended to be subject to the security interest created by the Security
Documents.
COMMITMENTS: Collectively, the Revolving Credit Commitment, the Tranche A
Equipment Loan Commitment and the Tranche B Equipment Loan Commitment.
CONSENT: In respect of any person or entity, any permit, license or
exemption from, approval, consent of, registration or filing with any local,
state or federal governmental or regulatory agency or authority, required under
applicable law.
CURRENT ASSETS: The sum of (i) cash on hand of the Borrower, (ii) cash
equivalents of the Borrower, (iii) Accounts and (iv) Inventory, that in
accordance with GAAP are properly classified as current assets.
CURRENT LIABILITIES: The sum of (i) all liabilities of the Borrower payable
on demand or maturing within one (1) year from the date as of which current
liabilities are to be determined, including, without limitation, any Revolving
Credit Loans, and such other liabilities that in accordance with GAAP are
properly classified as current liabilities minus (ii) Deferred Revenue.
DEFAULT: An event or act which with the giving of notice and/or the lapse
of time, would become an Event of Default.
<PAGE> 5
-3-
DEFERRED REVENUE: Payments received by the Borrower with respect to
services not yet provided by the Borrower.
DRAWDOWN DATE: In respect of any Loan, the date on which such Loan is made
to the Borrower.
ENVIRONMENTAL LAWS: All laws pertaining to environmental matters, including
without limitation, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water
Act, the Federal Clean Air Act, the Toxic Substances Control Act, in each case
as amended, and all rules, regulations, judgments, decrees, orders and licenses
arising under all such laws.
EQUIPMENT BORROWING BASE: An amount determined by the Bank to be equal to
the lesser of (a) $2,000,000 and (b) the sum of (i) one hundred percent (100%)
of the cost (excluding freight, taxes, set-up and other installation costs) of
all Equipment Collateral (excluding any and all Equipment Collateral consisting
of development software) as evidenced by invoices and evidence of payment (dated
no more than thirty (30) days from the date of purchase) from the sellers
thereof, plus (ii) one hundred percent (100%) of the cost (excluding freight,
taxes, set-up and other installation costs) of all Equipment Collateral
consisting of development software as evidenced by invoices and evidence of
payment (dated no more than thirty (30) days from the date of purchase) from the
sellers thereof in an aggregate amount not to exceed the lesser of (A) $500,000
and (B) thirty-five percent (35%) of the aggregate principal amount outstanding
of the Tranche A Equipment Loans and the Tranche B Equipment Loans; provided,
however, that the Borrower shall not be required to provide Bank with evidence
of such invoices and evidence of payment within such thirty (30) day period set
forth above with respect to the Equipment Collateral financed by Silicon Valley
Bank or such other entity and refinanced with the proceeds of Tranche A
Equipment Loans on the Closing Date or other equipment financed on Closing Date.
EQUIPMENT BORROWING BASE REPORT: A report, in form and with supporting
details satisfactory to the Bank, setting forth the Borrower's computation of
the Equipment Borrowing Base.
EQUIPMENT COLLATERAL: The new machinery, equipment and fixtures purchased
or financed by the Borrower with the proceeds of the Equipment Loans on or after
the Closing Date (or refinanced by the Bank with the proceeds of Tranche A
Equipment Loans and paid to Silicon Valley Bank or such other entity on the
Closing Date) and which
<PAGE> 6
-4-
machinery, equipment and fixtures (a) are owned, possessed and held by the
Borrower within the United States and not subject to any claim of ownership by
any third party, (b) are held on land leased by the Borrower located in
Westford, Massachusetts and (c) as to which a valid and perfected first-priority
security interest in favor of the Bank has been created and which there is no
other Lien other than Liens permitted under this Agreement.
EQUIPMENT LOAN CONVERSION DATE: With respect to Tranche A Equipment Loans,
January 1, 1999 and with respect to Tranche B Equipment Loans, July 1, 1999.
EQUIPMENT LOAN MATURITY DATE: With respect to the Tranche A Equipment
Loans, December 1, 2002 and with respect to the Tranche B Equipment Loans, June
1, 2002.
EQUIPMENT LOANS: Collectively, the Tranche A Equipment Loans and the
Tranche B Equipment Loans.
ERISA: The Employee Retirement Income Security Act of 1974, as amended, and
all rules, regulations, judgments, decrees, and orders arising thereunder.
EVENT OF DEFAULT: Any of the events listed in ss.11 hereof.
FCC: The Federal Communications Commission or any governmental authority
succeeding to any of its functions.
FCC LICENSES. Any mobile telephone, cellular telephone, microwave, paging
or other license, authorization, certificate of compliance, franchise, approval
or permit granted or issued by the FCC.
FEDERAL FUNDS EFFECTIVE RATE: For any day, the rate per annum equal to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for such day on such transactions received by the Bank from three
funds brokers of recognized standing selected by the Bank.
FINANCIALS: In respect of any period, the balance sheet of any person or
entity as at the end of such period, and the related statement of income and
statement of cash flow for such period, each setting forth in
<PAGE> 7
-5-
comparative form the figures for the previous comparable fiscal period, if
history is available, all in reasonable detail and prepared in accordance with
GAAP.
GAAP: Generally accepted accounting principles consistent with those
adopted by the Financial Accounting Standards Board and its predecessor, (i)
generally, as in effect from time to time, and (ii) for purposes of determining
compliance by the Borrower with its financial covenants set forth herein, as in
effect for the fiscal year therein reported in the most recent Financials
submitted to the Bank prior to execution of this Agreement.
INDEBTEDNESS: In respect of any entity, all obligations, contingent and
otherwise, that in accordance with GAAP should be classified as liabilities,
including without limitation (i) all debt obligations for money borrowed, (ii)
all liabilities secured by Liens, (iii) all guarantees and (iv) all liabilities
in respect of bankers' acceptances or letters of credit.
INTELLECTUAL PROPERTY. All intellectual property and/or rights owned,
possessed or controlled by Borrower or which Borrower has the right to use,
including, without limitation, patents (including, without limitation,
substitutions, extensions, reissues, re-examinations, renewals, divisions,
continuations, or continuations-in-part); copyrights; works of authorship;
object code; source code; data bases; inventions; mask work rights; trademarks;
service marks; trade names; logos; other commercial symbols; trade secrets;
know-how; confidential or proprietary information; and registrations or
applications for any of the foregoing.
INVENTORY: All goods, merchandise and other personal property, now owned or
hereafter acquired by the Borrower, which are held for sale or leased, or
furnished under a contract for service, or are raw materials, work in process,
or materials used in the Borrower's business.
INVESTMENTS: All expenditures made and all liabilities incurred
(contingently or otherwise) for the acquisition of equity interests or
indebtedness of, or for loans, advances, capital contributions or transfers of
property to, or in respect of any guaranties, or obligations of, any entity. In
determining the aggregate amount of Investments outstanding at any particular
time: (i) the amount of any Investment represented by a guaranty shall be taken
at not less than the principal amount of the obligations guaranteed and still
outstanding; (ii) there shall be included as an Investment all interest accrued
with respect to indebtedness constituting an Investment unless and until such
interest is paid; (iii) there shall be deducted in respect of each such
Investment any amount received as a return of capital (but only by repurchase,
redemption,
<PAGE> 8
-6-
retirement, repayment, liquidating dividend or liquidating distribution); (iv)
there shall not be deducted in respect of any Investment any amounts received as
earnings on such Investment, whether as dividends, interest or otherwise, except
that accrued interest included as provided in the foregoing clause (ii) may be
deducted when paid; and (v) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
LETTER OF CREDIT: See ss.5.1(a).
LETTER OF CREDIT APPLICATION: See ss.5.1(a).
LETTER OF CREDIT FEE: See ss.5.6.
LIENS: Any encumbrance, mortgage, pledge, hypothecation, charge,
restriction or other security interest of any kind securing any obligation of
any entity or person.
LOANS: Collectively, the Tranche A Equipment Loans, the Tranche B Equipment
Loans and the Revolving Credit Loans.
LOAN DOCUMENTS: This Agreement, the Notes, the Letters of Credit, the
Letter of Credit Applications and the Security Documents and any document,
agreement and/or instrument executed and/or delivered in connection therewith,
in each case as from time to time amended or supplemented.
MATERIALLY ADVERSE EFFECT: Any materially adverse effect on the financial
condition or business operations of the Borrower or material impairment of the
ability of the Borrower to perform its material obligations hereunder or under
any of the other Loan Documents.
MAXIMUM DRAWING AMOUNT: The maximum aggregate amount from time to time that
beneficiaries may draw under outstanding Letters of Credit, as such aggregate
amount may be reduced from time to time pursuant to the terms of the Letters of
Credit.
NET INCOME. The net income (or deficit) of the Borrower, after deduction of
all expenses, taxes and other proper charges, determined in accordance with
GAAP.
NOTES. Collectively, the Tranche A Equipment Note, the Tranche B Equipment
Note and the Revolving Credit Note.
OBLIGATIONS: All indebtedness, obligations and liabilities of the Borrower
to the Bank, existing on the date of this Agreement or arising
<PAGE> 9
-7-
thereafter, direct or indirect, joint or several, absolute or contingent,
matured or unmatured, liquidated or unliquidated, secured or unsecured, arising
by contract, operation of law or otherwise, arising or incurred under this
Agreement or any other Loan Document or in respect of any of the Loans or
Letters of Credit or the Notes or other instruments at any time evidencing any
thereof.
REIMBURSEMENT OBLIGATION: The Borrower's obligation to reimburse the Bank
on account of any drawing under any Letter of Credit as provided in ss.5.2.
REQUIREMENT OF LAW: In respect of any person or entity, any law, treaty,
rule, regulation or determination of an arbitrator, court, or other governmental
authority, in each case applicable to or binding upon such person or entity or
affecting any of its property.
REVOLVING CREDIT BORROWING BASE: An amount equal to the sum of 80% of the
Base Accounts.
REVOLVING CREDIT BORROWING BASE REPORT: A report, in form and with
supporting details satisfactory to the Bank, setting forth the Borrower's
computation of the Revolving Credit Borrowing Base.
REVOLVING CREDIT COMMITMENT: The obligation of the Bank to make Revolving
Credit Loans to, and to issue, extend and renew Letters of Credit for the
account of, the Borrower up to an aggregate outstanding principal amount not to
exceed $5,000,0000, as such amount may be reduced from time to time or
terminated hereunder.
REVOLVING CREDIT LOAN: Any loan made or to be made to the Borrower pursuant
to ss.2 hereof.
REVOLVING CREDIT MATURITY DATE: June 30, 1999 or such earlier date on which
all Revolving Credit Loans may become due and payable pursuant to the terms
hereof.
REVOLVING CREDIT NOTE. See ss.2.1.
SECURITY DOCUMENTS: The Security Agreement between the Borrower and the
Bank, together with any UCC-1 financing statements executed and/or delivered in
connection therewith, each as the same may be amended, reaffirmed or modified
from time to time and in form and substance satisfactory to the Bank.
<PAGE> 10
-8-
TANGIBLE NET WORTH: The excess of (i) all assets of the Borrower determined
in accordance with GAAP, over (ii) all liabilities of the Borrower determined in
accordance with GAAP, subtracting from such result (iii) the sum of (A) the book
value all intangibles determined in accordance with GAAP, including good will
and intellectual property, and (B) any write-up in the book value of assets
since the most recent audited Financials in existence on the date hereof.
TOTAL FUNDED DEBT. As to the Borrower and whether recourse is secured by or
is otherwise available against all or only a portion of the assets of the
Borrower and whether or not contingent, but without duplication:
(i) every obligation of the Borrower for money borrowed;
(ii) every obligation of the Borrower evidenced by bonds, debentures,
notes or other similar instruments, including obligations incurred in
connection with the acquisition of property, assets or businesses;
(iii) every reimbursement obligation of the Borrower with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of the Borrower; and
(iv) every obligation of the Borrower issued or assumed as the
deferred purchase price of property or services (including securities
repurchase agreements but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business which are not
overdue or which are being contested in good faith).
TOTAL OUTSTANDINGS: At any time of reference thereto, the sum of (i)
Revolving Credit Loans outstanding at such time, (ii) the Maximum Drawing Amount
at such time and (iii) any Unpaid Reimbursement Obligations at such time.
TRANCHE A EQUIPMENT LOAN COMMITMENT: The obligation of the Bank to make
Tranche A Equipment Loans to the Borrower up to an aggregate outstanding
principal amount not to exceed $2,000,000, as such amount may be reduced from
time to time or terminated hereunder.
TRANCHE B EQUIPMENT LOAN COMMITMENT: The obligation of the Bank to make
Tranche B Equipment Loans to the Borrower up to an aggregate outstanding
principal amount not to exceed the sum of (a) $2,000,000 minus (b) the
outstanding principal amount of all Tranche A
<PAGE> 11
-9-
Equipment Loans, as such amount may be reduced from time to time or terminated
hereunder.
TRANCHE A EQUIPMENT LOAN NOTE: See ss.3.1.
TRANCHE B EQUIPMENT LOAN NOTE: See ss.4.1.
UNIFORM CUSTOMS: With respect to any Letter of Credit, the Uniform Customs
and Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500 or any successor version thereto adopted by the
Bank in the ordinary course of its business as a letter of credit issuer and in
effect at the time of issuance of such Letter of Credit.
UNPAID REIMBURSEMENT OBLIGATION: Any Reimbursement Obligation for which the
Borrower does not reimburse the Bank on the date specified in, and in accordance
with, ss.5.2(a).
2. REVOLVING CREDIT FACILITY.
--------------------------
2.1. COMMITMENT TO LEND. Upon the terms and subject to the conditions of
this Agreement, the Bank agrees to lend to the Borrower such sums that the
Borrower may request, from the date hereof until but not including the Revolving
Credit Maturity Date, PROVIDED that the sum of the outstanding principal amount
of all Revolving Credit Loans (after giving effect to all amounts requested)
shall not exceed the lesser of (a) the Revolving Credit Commitment MINUS the sum
of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations and (b)
the Revolving Credit Borrowing Base. Except as otherwise provided in certain
cash management arrangements between the Borrower and the Bank set forth in
ss.2.2(b), Revolving Credit Loans shall be in the minimum aggregate amount of
$100,000 or an integral multiple thereof.
2.2. REQUESTS REVOLVING CREDIT LOANS.
(a) Except as otherwise provided in certain cash management
arrangements between the Borrower and the Bank set forth in ss.2.2(b), the
Borrower shall give to the Bank written notice in form and substance
satisfactory to the Bank (or telephonic notice confirmed in writing in form
and substance satisfactory to the Bank) of each Revolving Credit Loan
requested hereunder (a "Revolving Loan Request") no later than 10:00 a.m.,
Boston time, on the proposed Drawdown Date of any Revolving Credit Loan.
Each such notice shall specify (i) the principal amount of the Revolving
Credit Loan requested and (ii) the proposed Drawdown Date of such
<PAGE> 12
-10-
Revolving Credit Loan. Each such notice shall be irrevocable and binding on
the Borrower and shall obligate the Borrower to accept the Revolving Credit
Loan requested from the Bank on the proposed Drawdown Date. Each Revolving
Loan Request shall be in a minimum aggregate amount of $100,000.00 or an
integral multiple thereof.
(b) Notwithstanding the notice requirement set forth in ss.2.2(a),
Revolving Credit Loans may be made from time to time in the following
manner: the Bank may make Revolving Credit Loans to the Borrower by entry
of credits to the Borrower's controlled disbursement account (the
"Disbursement Account") with the Bank to cover checks or other charges
which the Borrower has drawn or made against such Disbursement Account. The
Borrower hereby requests and authorizes the Bank to make from time to time
such Revolving Credit Loans by means of appropriate entries of such credits
sufficient to cover checks and other charges then presented. The Borrower
and the Bank may also agree to effect such other controlled disbursement
arrangements as may be mutually satisfactory. The Borrower acknowledges and
agrees that the making of such Revolving Credit Loans in accordance with
this ss.2.2(b) shall, in each case, be subject in all respects to
provisions of this Agreement as if they were Revolving Credit Loans covered
by a Revolving Loan Request including, without limitation, the limitations
set forth in ss.2.1 and the requirement that the applicable provisions of
ss.9 be satisfied. All actions taken by the Bank pursuant to the provisions
of this ss.2.2(b) shall be conclusive and binding on the Borrower.
(c) Notwithstanding the notice requirement set forth above in
ss.2.2(a) and subject to the other terms and conditions of this Agreement,
the Bank agrees to make Revolving Credit Loans to the Borrower sufficient
to pay to the Bank any Unpaid Reimbursement Obligations on the date on
which such Reimbursement Obligations become Unpaid Reimbursement
Obligations. The Borrower hereby requests and authorizes the Bank to make
from time to time such Revolving Credit Loans by means of paying Unpaid
Reimbursement Obligations. The Borrower acknowledges and agrees that the
making of such Revolving Credit Loans shall, in each case, be subject in
all respects to the provisions of this Agreement, including, without
limitation, the limitations set forth in ss.2.1 and the requirements of the
applicable conditions in ss.9. All actions taken by the Bank pursuant to
the provisions of this ss.2.2(c) shall be conclusive and binding on the
Borrower.
<PAGE> 13
-11-
(d) The obligation of the Borrower to repay to the Bank the principal
of the Revolving Credit Loans and interest accrued thereon shall be
evidenced by a revolving credit promissory note (the "Revolving Credit
Note") in the maximum aggregate principal amount of $5,000,000 executed and
delivered by the Borrower and payable to the order of the Bank, in form and
substance satisfactory to the Bank.
2.3. REPAYMENTS AND PREPAYMENTS. The Borrower hereby agrees to pay the Bank
on the Revolving Credit Maturity Date the entire unpaid principal of and
interest on all Revolving Credit Loans. The Borrower may elect to prepay the
outstanding principal of all or any part of any Revolving Credit Loan, without
premium or penalty. Except as otherwise provided in certain cash management
arrangements between the Borrower and the Bank, the Borrower shall give the Bank
no later than 10:00 a.m. Boston time, on the date of such prepayment pursuant to
this ss.2.3 of any Revolving Credit Loan, specifying the amount to be prepaid.
The Borrower shall be entitled to reborrow before the Revolving Credit Maturity
Date such amounts repaid or prepaid, upon the terms and subject to the
conditions of this Agreement. Each repayment or prepayment of principal of any
Revolving Credit Loan shall be accompanied by payment of the unpaid interest
accrued to such date on the principal being repaid or prepaid. If at any time
the sum of the outstanding principal amount of the Revolving Credit Loans, the
Maximum Drawing Amount and all Unpaid Reimbursement Obligations exceeds the
lesser of (a) the Revolving Credit Commitment and (b) the Revolving Credit
Borrowing Base, the Borrower shall immediately pay the amount of such excess to
the Bank for application to the Revolving Credit Loans or, if no Revolving
Credit Loans are outstanding, to be held by the Bank as cash collateral to
secure the payment of all Reimbursement Obligations up to the Maximum Drawing
Amount. The Borrower may elect to reduce or terminate the Commitment by a
minimum principal amount of $25,000 or an integral multiple thereof, upon
written notice to the Bank given by 10:00 a.m. Boston time at least one (1)
Business Day prior to the date of such reduction or termination. The Borrower
shall not be entitled to reinstate the Revolving Credit Commitment following
such reduction or termination.
3. TRANCHE A EQUIPMENT LOAN FACILITY.
----------------------------------
3.1. MAKING OF TRANCHE A EQUIPMENT LOANS. Upon the terms and subject to the
conditions of this Agreement, the Bank agrees to lend to the Borrower such sums
that the Borrower may request, from the date hereof until but not including the
Equipment Loan Conversion Date;
<PAGE> 14
-12-
provided that the sum of the outstanding principal amount of all Tranche A
Equipment Loans (after giving effect to all amounts requested) shall not exceed
the lesser of (a) Tranche A Equipment Loan Commitment and (b) the Equipment Loan
Borrowing Base. In addition, in no event shall the Bank be obligated to make any
Tranche A Equipment Loan in excess of one hundred percent (100%) of the purchase
price (including taxes, freight, set-up and installation costs) of the piece or
pieces of new or used equipment to be purchased or financed on the Closing Date
by the Borrower with the proceeds of such Tranche A Equipment Loan. Tranche A
Equipment Loans shall be in the minimum aggregate amount of $25,000 or an
integral multiple thereof. The Borrower shall notify the Bank in writing or
telephonically, not later than 2:00 p.m. Boston, Massachusetts time at least one
Business Day prior to the date of the Tranche A Equipment Loan being requested,
of the Drawdown Date (which must be a Business Day), the principal amount of
such Tranche A Equipment Loan and the type and description of equipment being
purchased (including, without limitation, serial or vehicle identification
numbers) and the purchase price thereof. In the case of any telephonic
notification, the Borrower shall provide to the Bank written confirmation of all
of such information within three Business Days after such telephonic
notification. Subject to the foregoing, so long as the Tranche A Equipment Loan
Commitment is then in effect and the conditions set forth in Section 9 hereof
have been met, the Bank shall advance the amount requested to the Borrower's
bank account at the Bank in immediately available funds not later than the close
of business on such Drawdown Date. The obligation of the Borrower to repay to
the Bank the principal of the Tranche A Equipment Loans and interest accrued
thereon shall be evidenced by a promissory note in the aggregate principal
amount of $2,000,000 executed and delivered by the Borrower and payable to the
order of the Bank, in form and substance satisfactory to the Bank (the "TRANCHE
A EQUIPMENT NOTE").
3.2. REPAYMENT OF TRANCHE A EQUIPMENT LOANS. (a) The Borrower hereby agrees
to pay the outstanding principal amount of the Tranche A Equipment Loans in
thirty-six (36) consecutive equal installments, with such installments due and
payable on the first day of each calendar month, commencing on February 1, 1999;
provided, that the outstanding principal amount of the Tranche A Equipment
Loans, together with all interest accrued thereon and all fees and expenses
incurred by the Bank in connection therewith, shall be due and payable on the
Equipment Loan Maturity Date.
(b) The Borrower shall have the right at any time, subject to the
indemnity provisions of Section 6.1, to prepay voluntarily the
<PAGE> 15
-13-
Tranche A Equipment Loans on or before the Equipment Loan Maturity Date, as a
whole, or in part; provided that each partial prepayment shall be in the
principal amount of $25,000 or an integral multiple thereof, unless paid in
full. The Borrower shall give the Bank, no later than 2:00 p.m. Boston,
Massachusetts time on the date of such prepayment (or if a fixed rate of
interest is selected under Section 6.1(b)(ii) hereof, two Business Days prior to
the date of such prepayment), written notice of any proposed prepayment pursuant
to this Section 3.2(b) and the principal amount to be prepaid. Any partial
prepayment of the Tranche A Equipment Loans shall be applied to the installments
of the Tranche A Equipment Loans due hereunder (including the final installment
due and payable on the Equipment Loan Maturity Date) in inverse order of
maturity. No amount repaid may be reborrowed. Any voluntary prepayment of
principal of the Tranche A Equipment Loans shall also include all interest
accrued to the date of prepayment.
(c) If at any time the outstanding principal amount of the Tranche A
Equipment Loans exceeds the lesser of (i) the Tranche A Equipment Loan
Commitment and (ii) the Equipment Loan Borrowing Base, the Borrower hereby
agrees to pay immediately the amount of such excess to the Bank for application
to the Tranche A Equipment Loans. The Borrower may elect to reduce or terminate
the Tranche A Equipment Loan Commitment by a minimum principal amount of $25,000
or an integral multiple thereof, upon one (1) Business Day's prior written
notice to the Bank of the proposed date of such reduction or termination. The
Borrower shall not be entitled to reinstate the Tranche A Equipment Loan
Commitment following such reduction or termination.
4. TRANCHE B EQUIPMENT LOAN FACILITY.
----------------------------------
4.1. MAKING OF TRANCHE B EQUIPMENT LOANS. Upon the terms and subject to the
conditions of this Agreement, the Bank agrees to lend to the Borrower such sums
that the Borrower may request from January 1, 1999 until but not including the
Equipment Loan Conversion Date; PROVIDED that the sum of the outstanding
principal amount of all Tranche B Equipment Loans (after giving effect to all
amounts requested) shall not exceed the lesser of (a) the Tranche B Equipment
Loan Commitment and (b) the Equipment Loan Borrowing Base. In addition, in no
event shall the Bank be obligated to make any Tranche B Equipment Loan in excess
of one hundred percent (100%) of the purchase price (including taxes, freight,
set-up and installation costs) of the piece or pieces of new or used equipment
to be purchased by the Borrower with the proceeds of such Tranche B Equipment
Loan. Tranche B Equipment Loans shall be in the minimum aggregate amount of
$25,000 or an integral multiple thereof.
<PAGE> 16
-14-
The Borrower shall notify the Bank in writing or telephonically, not later than
2:00 p.m. Boston, Massachusetts time at least one Business Day prior to the date
of the Tranche B Equipment Loan being requested, of the Drawdown Date (which
must be a Business Day), the principal amount of such Tranche B Equipment Loan
and the type and description of equipment being purchased (including, without
limitation, serial or vehicle identification numbers) and the purchase price
thereof. In the case of any telephonic notification, the Borrower shall provide
to the Bank written confirmation of all of such information within three
Business Days after such telephonic notification. Subject to the foregoing, so
long as the Tranche B Equipment Loan Commitment is then in effect and the
conditions set forth in Section 9 hereof have been met, the Bank shall advance
the amount requested to the Borrower's bank account at the Bank in immediately
available funds not later than the close of business on such Drawdown Date. The
obligation of the Borrower to repay to the Bank the principal of the Tranche B
Equipment Loans and interest accrued thereon shall be evidenced by a promissory
note in the aggregate principal amount of $2,000,000 executed and delivered by
the Borrower and payable to the order of the Bank, in form and substance
satisfactory to the Bank (the "TRANCHE B EQUIPMENT NOTE").
4.2. REPAYMENT OF TRANCHE B EQUIPMENT LOANS. (a) The Borrower hereby agrees
to pay the outstanding principal amount of the Tranche B Equipment Loans in
thirty-six (36) consecutive equal installments, with such installments due and
payable on the first day of each calendar month, commencing on August 1, 1999;
PROVIDED, that the outstanding principal amount of the Tranche B Equipment
Loans, together with all interest accrued thereon and all fees and expenses
incurred by the Bank in connection therewith, shall be due and payable on the
Equipment Loan Maturity Date.
(b) The Borrower shall have the right at any time, subject to the
indemnity provisions of Section 6.1, to prepay voluntarily the Tranche B
Equipment Loans on or before the Equipment Loan Maturity Date, as a whole, or in
part; provided that each partial prepayment shall be in the principal amount of
$25,000 or an integral multiple thereof, unless paid in full. The Borrower shall
give the Bank, no later than 2:00 p.m. Boston, Massachusetts time on the date of
such prepayment (or if a fixed rate of interest is selected under Section
6.1(b)(ii) hereof, two Business Days prior to the date of such prepayment),
written notice of any proposed prepayment pursuant to this Section 4.2(b) and
the principal amount to be prepaid. Any partial prepayment of the Tranche B
Equipment Loans shall be applied to the installments of the Tranche B Equipment
Loans due hereunder (including the final installment due and
<PAGE> 17
-15-
payable on the Equipment Loan Maturity Date) in inverse order of maturity. No
amount repaid may be reborrowed. Any voluntary prepayment of principal of the
Tranche B Equipment Loans shall also include all interest accrued to the date of
prepayment.
(c) If at any time the outstanding principal amount of the Tranche B
Equipment Loans exceeds the lesser of (i) the Tranche B Equipment Loan
Commitment and (ii) the Equipment Loan Borrowing Base, the Borrower hereby
agrees to pay immediately the amount of such excess to the Bank for application
to the Tranche B Equipment Loans. The Borrower may elect to reduce or terminate
the Tranche B Equipment Loan Commitment by a minimum principal amount of $25,000
or an integral multiple thereof, upon one (1) Business Day's prior written
notice to the Bank of the proposed date of such reduction or termination. The
Borrower shall not be entitled to reinstate the Tranche B Equipment Loan
Commitment following such reduction or termination.
5. LETTER OF CREDIT FACILITY.
--------------------------
5.1. LETTER OF CREDIT COMMITMENT.
(a) Subject to the terms and conditions hereof and the execution and
delivery by the Borrower of a letter of credit application on the Bank's
customary form (a "Letter of Credit Application"), the Bank, in reliance
upon the representations and warranties of the Borrower contained herein,
agrees to issue, extend and renew from time to time from the date hereof
until but not including the date which is fourteen (14) days prior to the
then scheduled Revolving Credit Maturity Date, for the account of the
Borrower, standby and documentary letters of credit (each a "Letter of
Credit"), in such form as may be requested by the Borrower and agreed to by
the Bank; PROVIDED, HOWEVER, that, after giving effect to such request, the
sum of the principal amount of Total Outstandings shall not exceed the
lesser of (i) the Revolving Credit Commitment and (ii) the Revolving Credit
Borrowing Base at any time. No Letter of Credit shall be issued, extended
or renewed with an expiration date occurring after the then scheduled
Revolving Credit Maturity Date;
(b) Each Letter of Credit Application shall be completed to the
satisfaction of the Bank. In the event that any provision of any Letter of
Credit Application shall be inconsistent with any provision of this
Agreement, then the provisions of this Agreement shall, to the extent of
any such inconsistency or conflict, govern;
<PAGE> 18
-16-
(c) Each Letter of Credit issued, extended or renewed hereunder shall,
among other things, provide for the payment of sight drafts for honor
thereunder when presented in accordance with the terms thereof and when
accompanied by the documents described therein. Each Letter of Credit so
issued, extended or renewed shall be subject to the Uniform Customs.
5.2. REIMBURSEMENT OBLIGATION OF THE BORROWER. In order to induce the Bank
to issue, extend and renew each Letter of Credit, the Borrower hereby agrees to
reimburse the Bank for or to pay to the Bank with respect to each Letter of
Credit issued, extended or renewed by the Bank hereunder,
(a) except as otherwise expressly provided in ss.5.2(b), on each date
that any draft presented under such Letter of Credit is honored by the
Bank, or the Bank otherwise makes a payment with respect thereto, (i) the
amount paid by the Bank under or with respect to such Letter of Credit, and
(ii) the amount of any taxes (not including the Bank's income taxes), fees,
charges or other costs and expenses whatsoever incurred by the Bank in
connection with any payment made by the Bank under, or with respect to,
such Letter of Credit;
(b) upon the termination of the Revolving Credit Commitment, or the
acceleration of the Reimbursement Obligations with respect to all Letters
of Credit in accordance with ss.11 an amount equal to the Maximum Drawing
Amount, which amount shall be held by the Bank as cash collateral for all
Reimbursement Obligations.
Unless funded by a Revolving Credit Loan pursuant to ss.2.2(c), each such
payment shall be made to the Bank at the Bank's head office at One Federal
Street, Boston, Massachusetts 02110 in immediately available funds. Interest on
any and all amounts remaining unpaid by the Borrower under this ss.5.2 and not
required to be funded by a Revolving Credit Loan pursuant to ss.2.2(c) at any
time from the date such amounts become due and payable (whether as stated in
this ss.5.2, by acceleration or otherwise) until payment in full (whether before
or after judgment) shall be payable to the Bank on demand at the rate specified
in ss.6.2 following an Event of Default.
5.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or other
demand for payment shall be made under any Letter of Credit, the Bank shall
notify the Borrower of the date and amount of the draft presented or demand for
payment and of the date and time when it
<PAGE> 19
-17-
expects to pay such draft or honor such demand for payment. The responsibility
of the Bank to the Borrower shall be only to determine that the documents
(including each draft) delivered under each Letter of Credit in connection with
such presentment shall be in conformity in all material respects with such
Letter of Credit.
5.4. OBLIGATIONS ABSOLUTE. The Borrower's obligations under this ss.5 shall
be absolute and unconditional under any and all circumstances and irrespective
of the occurrence of any Default or Event of Default or any condition precedent
whatsoever or any setoff, counterclaim or defense to payment which the Borrower
may have or have had against the Bank or any beneficiary of a Letter of Credit.
The Borrower further agrees with the Bank that the Bank shall not be responsible
for, and the Reimbursement Obligations shall not be affected by, among other
things, the validity or genuineness of documents or of any endorsements thereon,
even if such documents should in fact prove to be in any or all respects
invalid, fraudulent or forged, or any dispute between or among the Borrower, the
beneficiary of any Letter of Credit or any financing institution or other party
to which any Letter of Credit may be transferred or any claims or defenses
whatsoever of the Borrower against the beneficiary of any Letter of Credit or
any such transferee. The Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, except when caused by its own gross negligence or
willful misconduct, in connection with any Letter of Credit. The Borrower agrees
that any action taken or omitted by the Bank under or in connection with each
letter of Credit and the related drafts and documents, if done in good faith and
in the absence of gross negligence and willful misconduct, shall be binding upon
the Borrower and shall not result in any liability on the part of the Bank to
the Borrower.
5.5. RELIANCE BY ISSUER. To the extent not inconsistent with ss.5.4, the
Bank shall be entitled to rely, and shall be fully protected in relying upon,
any Letter of Credit, draft, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document believed by it to be genuine and correct and
to have been signed, sent or made by the proper person or entity and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Bank.
5.6. LETTER OF CREDIT FEES. The Borrower shall, on the date of issuance or
of any extension or renewal of any Letter of Credit and at such other time or
times as such charges are customarily made by the Bank, pay a fee (in each case
a "Letter of Credit Fee") to the Bank (a) in respect
<PAGE> 20
-18-
of each Standby Letter of Credit an amount equal to one and one-half of one
percent (1.5%) per annum of the face amount of such Letter of Credit, plus the
Bank's customary issuance, amendment and other administrative processing fees
and (b) in respect of each documentary Letter of Credit an amount equal to one
and one-half of one percent (1.5%) per annum of the face amount of such
documentary Letter of Credit, plus the Bank's customary issuance, amendment,
time negotiation fee and other administrative processing fees.
6. INTEREST, OVERDUE PAYMENTS.
---------------------------
6.1. INTEREST ON LOANS. Except as otherwise provided in ss.6.2, the Loans
shall bear interest as follows:
(a) Each Revolving Credit Loan or portion thereof shall bear interest
at a rate per annum equal to the Base Rate in effect from time to time,
such interest to be payable in arrears on the first day of each calendar
month for the immediately preceding calendar month, commencing the first
such day following the date hereof.
(b) In the case of Equipment Loans:
(i) Except as set forth in ss.6.1(b)(ii) hereof, the Borrower
agrees to pay interest on the Equipment Loans at a rate per annum which is equal
to the Base Rate in effect from time to time, PLUS one-half of one percent
(0.5%), such interest to be payable in arrears on the first day of each calendar
month for the immediately preceding calendar month, commencing the first such
day following the date hereof.
(ii) To the extent that the Borrower has requested, by written
notice provided to the Bank not more than sixty (60) days but not less than
seven (7) days after either Equipment Loan Conversion Date, a fixed rate option
as quoted by the Bank, such Equipment Loan shall bear interest at a fixed rate
per annum equal to the Bank's cost of funds rate plus three percent (3.0%)
applicable for such period on and after such Equipment Loan Conversion Date for
such Equipment Loan. Such fixed rate of interest shall be determined and quoted
by the Bank, in its discretion. The Borrower may elect, by written notice
provided to the Bank, that interest applicable to such Equipment Loan accrue on
and after such Equipment Loan Conversion Date at such fixed rate of interest;
provided, that the Borrower shall be entitled to request only one (1) fixed rate
option for each Equipment Loan. Interest on the Equipment Loans at such fixed
rate shall be payable in arrears on the first day of each calendar month for the
immediately preceding calendar month, commencing with the first such day
following the date hereof. If the
<PAGE> 21
-19-
Borrower elects the fixed rate of interest under this Section 6.1, the Borrower
agrees to indemnify the Bank and hold the Bank harmless from and against any
loss, cost or expense (including loss of anticipated profits) that the Bank may
sustain or incur as a consequence of any prepayment, in full or in part, of the
Equipment Loans prior to the applicable Equipment Loan Maturity Date.
6.2. INTEREST AFTER DEFAULT. While an Event of Default is continuing,
amounts payable under any of the Loan Documents shall bear interest (compounded
monthly and payable on demand in respect of overdue amounts) at a rate per annum
which is equal to the rate of interest in effect on such amounts immediately
preceding such Event of Default (or if not rate of interest in payable thereon,
the Base Rate) plus four percent (4.0%) until such amount is paid in full or (as
the case may be) such Event of Default has been cured or waived in writing by
the Bank (after as well as before judgment). In addition to the imposition of
the default rate, the Bank may charge the Borrower a late charge equal to five
percent (5.0%) of the amount of any payment due to the Bank hereunder or under
any of the other Loan Documents and not received by the Bank within ten (10)
days after the due date thereof.
6.3. OVERDUE PAYMENTS. If a payment of principal and/or interest due
hereunder or under the Notes is not made within ten (10) days of when due, the
Borrower shall pay a late payment charge to the Bank equal to five percent
(5.0%) of the amount then due and owing. Nothing contained herein shall affect
Bank's right to demand the Obligations upon the occurrence of an Event of
Default.
7. FEES AND PAYMENTS.
------------------
The Borrower shall pay to the Bank, on the first day of each calendar
quarter hereafter, and upon the Revolving Credit Maturity Date or the date upon
which the Revolving Credit Commitment is no longer in effect, a commitment fee
calculated at a rate per annum which is equal to three-tenths of one percent
(0.30%) of the average daily difference by which the Revolving Credit Commitment
amount exceeds the aggregate sum of the outstanding Revolving Credit Loans, the
Maximum Drawing Amount and all Unpaid Reimbursement Obligations during the
preceding calendar quarter or portion thereof. All payments to be made by the
Borrower hereunder or under any of the other Loan Documents shall be made in
U.S. dollars in immediately available funds at the Bank's head office at One
Federal Street, Boston, Massachusetts 02110, without set-off or counterclaim and
without any withholding or deduction whatsoever. The Bank shall be entitled to
charge any account of the Borrower with the
<PAGE> 22
-20-
Bank for any sum due and payable by the Borrower to the Bank hereunder or under
any of the other Loan Documents. If any payment hereunder is required to be made
on a day which is not a Business Day, it shall be paid on the immediately
succeeding Business Day, with interest and any applicable fees adjusted
accordingly. All computations of interest or of the commitment fee or any Letter
of Credit Fees payable hereunder shall be made by the Bank on the basis of
actual days elapsed and on a 360-day year.
8. REPRESENTATIONS AND WARRANTIES.
-------------------------------
The Borrower represents and warrants to the Bank on the date hereof, on the
date of any request for any Loan, on the date of each request for a Letter of
Credit, on each Drawdown Date and on the date on which each Letter of Credit is
issued, extended or renewed that subject to changes permitted hereunder:
(a) the Borrower is duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation and is duly
qualified and in good standing in every other jurisdiction where the
failure to so qualify would have a Materially Adverse Effect, and the
execution, delivery and performance by the Borrower of the Loan Documents
(i) are within its corporate authority, (ii) have been duly authorized,
(iii) do not conflict with or contravene its Charter Documents;
(b) upon execution and delivery thereof, each Loan Document shall
constitute the legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms, except as subject to or affected
by applicable usury, bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance laws or similar laws affecting the rights of
creditors generally;
(c) the Borrower has good and marketable title to all its material
properties, subject only to Liens permitted hereunder, and possesses all
assets, including intellectual properties, franchises and Consents,
adequate for the conduct of its business as now conducted. The Borrower
does not have or require any FCC Licenses to own or operate its business.
The Borrower maintains insurance with financially responsible insurers,
copies of the policies for which have been previously delivered to the
Bank, covering such risks and in such amounts and with such deductibles as
are customary in the Borrower's business and are adequate;
<PAGE> 23
-21-
(d) the Borrower has provided to the Bank its audited Financials as at
December 31, 1997 and for the fiscal period then ended, and such Financials
are complete and correct and fairly present the position of the Borrower as
at such date and for such period in accordance with GAAP consistently
applied;
(e) since March 31, 1998, there has been no materially adverse change
of any kind in the Borrower which would have a Materially Adverse Effect;
(f) other than disclosed in SCHEDULE 8(f) attached hereto, there are
no legal or other proceedings or investigations pending or threatened
against the Borrower before any court, tribunal or regulatory authority,
which would, if adversely determined, alone or together, have a Materially
Adverse Effect;
(g) the execution, delivery, performance of its obligations, and
exercise of its rights under the Loan Documents by the Borrower, including
borrowing under this Agreement and the obtaining of Letters of Credit (i)
do not require any Consents; and (ii) are not and will not be in conflict
with or prohibited or prevented by (A) any Requirement of Law, or (B) any
Charter Document, corporate minute or resolution, material instrument,
agreement or provision thereof, in each case binding on it or affecting its
property;
(h) the Borrower is not in violation of (i) any Charter Document,
corporate minute or resolution, (ii) any material instrument or agreement,
in each case binding on it or affecting its property, or (iii) any
Requirement of Law, in a manner which could have a Materially Adverse
Effect, including, without limitation, all applicable federal and state tax
laws, ERISA and Environmental Laws;
(i) upon execution and delivery of the Security Documents and the
filing of documents thereby required, the Bank shall have first-priority
perfected Liens on the Collateral, subject only to Liens permitted
hereunder and entitled to priority under applicable law, with no financing
statements, chattel mortgages, real estate mortgages or similar filings on
record anywhere which conflict with such first-priority Liens of the Bank;
and
(j) the Borrower is not a party to any partnership or joint venture.
<PAGE> 24
-22-
9. CONDITIONS PRECEDENT.
---------------------
In addition to the making of the foregoing representations and warranties
and the delivery of the Loan Documents and such other documents and the taking
of such actions as the Bank may reasonably require at or prior to the time of
executing this Agreement, the obligation of the Bank to make any Loan or to
issue, renew or extend any Letter of Credit to the Borrower hereunder is subject
to the satisfaction of the following further conditions precedent:
(a) each of the representations and warranties of the Borrower to the
Bank herein, in any of the other Loan Documents or any documents,
certificate or other paper or notice in connection herewith shall be true
and correct in all material respects as of the time made or claimed to have
been made, subject to changes permitted hereunder;
(b) no Default or Event of Default shall be continuing;
(c) all proceedings in connection with the transactions contemplated
hereby shall be in form and substance satisfactory to the Bank, and the
Bank shall have received all information and documents as it may have
reasonably requested; and
(d) no change shall have occurred in any law or regulation or in the
interpretation thereof that in the reasonable opinion of the Bank would
make it unlawful for the Bank to make such Loan.
10. COVENANTS.
----------
10.1. AFFIRMATIVE COVENANTS. The Borrower agrees that so long as there are
any Loans or Letters of Credit outstanding and until the termination of the
Commitments and the payment and satisfaction in full of all the Obligations, the
Borrower will comply with its obligations as set forth throughout this Agreement
and to:
(a) furnish the Bank: (i) as soon as available but in any event within
one hundred twenty (120) days after the close of each fiscal year, its
audited Financials for such fiscal year, certified by the Borrower's
accountants; (ii) as soon as available but in any event within thirty (30)
days after the end of each calendar month its unaudited Financials for such
month, certified by its chief financial officer; (iii) together with the
monthly and annual audited Financials, a certificate of the Borrower
setting forth computations demonstrating compliance with the Borrower's
financial covenants
<PAGE> 25
-23-
set forth herein, and certifying that no Default or Event of Default has
occurred, or if it has, the actions taken by the Borrower with respect
thereto; (iv) within thirty (30) days after the end of each calendar month,
or at such other time or times as the Bank may reasonably request, an
Equipment Loan Borrowing Base report, in form and detail satisfactory to
the Bank, demonstrating the Equipment Loan Borrowing Base as at the end of
such month or other applicable date requested; and (v) within thirty (30)
days after the end of each calendar month, or at such other time or times
as the Bank may reasonably request, (1) a Revolving Credit Borrowing Base
report, in form and detail satisfactory to the Bank, demonstrating the
Revolving Credit Borrowing Base as at the end of such month or other
applicable date requested and (2) a report detailing the aging of all
Accounts of the Borrower, in form and detail satisfactory to the Bank;
(b) keep true and accurate books of account in accordance with GAAP,
maintain its current fiscal year and permit the Bank or its designated
representatives to inspect the Borrower's premises during normal business
hours and upon not less than two days prior written notice, to examine and
be advised as to such or other business records upon the request of the
Bank, and to permit the Bank's commercial finance examiners to conduct
periodic commercial finance examinations no more than once per fiscal year;
(c) (i) maintain its corporate existence and business and keep its
assets in good repair, (ii) keep its business and assets adequately
insured, (iii) maintain its chief executive office in the United States,
(iv) continue to engage in the same or related lines of business, (v)
continue to hold and comply with all permits and licenses required for the
operation of its business, and (vi) comply with all Requirements of Law,
including ERISA and Environmental Laws which could have a Material Adverse
Effect;
(d) notify the Bank promptly in writing of (i) the occurrence of any
Default or Event of Default, (ii) any noncompliance with ERISA or any
Environmental Law or proceeding in respect thereof which could have a
Materially Adverse Effect, (iii) any change of address, (iv) any threatened
or pending litigation or similar proceeding affecting the Borrower or any
material change in any such litigation or proceeding previously reported,
(v) claims against any assets or properties of the Borrower encumbered in
favor of the Bank, excluding existing or permitted Liens, and (vi) any
proceedings instituted by or against the Borrower in any Federal or
<PAGE> 26
-24-
state court or any other commission or other regulatory body, whether
Federal, state or local, which, if adversely determined, would have a
Materially Adverse Effect upon the business, operations, properties,
assets, or condition, financial or otherwise, of the Borrower;
(e) use the proceeds of the Loans solely to refinance all of the
indebtedness of the Borrower to Silicon Valley Bank, to acquire equipment
to be used now or in the future in the ordinary course of the Borrower's
business and for working capital purposes, and use Letters of Credit solely
for other working capital purposes, and not for the carrying of "margin
security" or "margin stock" within the meaning of Regulations U and X of
the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221
and 224; and
(f) cooperate with the Bank, take such action, execute such documents,
and provide such information as the Bank may from time to time reasonably
request in order further to effect the transactions contemplated by and the
purposes of the Loan Documents.
10.2. NEGATIVE COVENANTS. The Borrower agrees that so long as there are any
Loans or Letters of Credit outstanding and until the termination of the
Commitments and the payment and satisfaction in full of all the Obligations, the
Borrower will not:
(a) create, incur or assume any Indebtedness other than (i)
Indebtedness to the Bank, (ii) Indebtedness in respect of the acquisition
of property which does not exceed $500,000 in the aggregate outstanding at
any time, (iii) current liabilities of the Borrower not incurred through
the borrowing of money or the obtaining of credit except credit on an open
account customarily extended, (iv) Indebtedness in respect of taxes or
other governmental charges contested in good faith and by appropriate
proceedings and for which adequate reserves have been taken; and (v)
Indebtedness not included above and listed on SCHEDULE 10.2(a) hereto;
(b) create or incur any Liens on any of the property or assets of the
Borrower or enter into or permit to exist any arrangement or agreement
which directly or indirectly prohibits Borrower from creating or incurring
any lien, encumbrance, mortgage, pledge, charge, restriction or other
security interest of any kind other than pursuant to the Security Agreement
except (i) Liens securing the Obligations; (ii) Liens securing taxes or
other governmental charges
<PAGE> 27
-25-
not yet due; (iii) deposits or pledges made in connection with social
security obligations; (iv) Liens of carriers, warehousemen, mechanics and
materialmen, less than 120 days old as to obligations not yet due; (v)
easements, rights-of-way, zoning restrictions and similar minor Liens which
individually and in the aggregate do not have a Materially Adverse Effect;
(vi) purchase money security interests in or purchase money mortgages on
real or personal property securing purchase money Indebtedness permitted by
ss.10.2(a)(ii), covering only the property so acquired; and (vii) other
Liens existing on the date hereof and listed on SCHEDULE 10.2(b) hereto;
(c) make any Investments other than Investments in (i) marketable
obligations of the United States maturing within one (1) year, (ii)
certificates of deposit, bankers' acceptances and time and demand deposits
of United States banks having total assets in excess of $1,000,000,000,
(iii) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated
and the ratings for which are not less than "P 1" if rated by Moody's
Investors Service, Inc., and not less than "A 1" if rated by Standard and
Poor's Rating Group, (iv) Investments not included above and listed on
Schedule 10.2(c) hereto, or (v) such other Investments as the Bank may from
time to time approve in writing; provided, however, that in each such case
referred to in this ss.10.2(c), arrangements have been made to the
satisfaction of the Bank for the perfection and protection and the
preservation of the Bank's Lien therein;
(d) make any distributions on or in respect of its capital of any
nature whatsoever, other than (i) dividends payable solely in shares of
common stock and (ii) payments in connection with repurchase of stock under
existing repurchase agreements not to exceed in the aggregate $300,000; or
(e) become party to a merger or sale-leaseback transaction, or to
effect any disposition of assets other than in the ordinary course, or to
purchase, lease or otherwise acquire assets other than in the ordinary
course.
10.3. FINANCIAL COVENANTS. The Borrower agrees that so long as there are
any Loans or Letters of Credit outstanding and until the termination of the
Commitments and the payment and satisfaction in full of all the Obligations, the
Borrower will not:
<PAGE> 28
-26-
(a) permit the ratio of Current Assets to Current Liabilities to be
less than 1.0 to 1 for any fiscal quarter of the Borrower ending on or
after March 31, 1999;
(b) permit the ratio of Total Funded Debt to Tangible Net Worth to be
less than 1.0 to 1 at any time; or
(c) permit Net Income to be less than $500,000 for any fiscal quarter
of the Borrower ending on or after December 31, 1999.
11. EVENTS OF DEFAULT; ACCELERATION.
--------------------------------
If any of the following events ("Events of Default") shall occur:
(a) the Borrower shall fail to pay when due and payable any principal
of the Loans when the same becomes due;
(b) the Borrower shall fail to pay interest on the Loans, any
Reimbursement Obligations not funded by a Revolving Credit Loan pursuant to
ss.2.2(c), or any other sum due under any of the Loan Documents on the date
which the same shall have first become due and payable;
(c) the Borrower shall fail to perform any term, covenant or
agreement contained in ss.ss.10.1(a), 10.1(d) and 10.1(e), 10.2 and 10.3;
(d) the Borrower shall fail to perform any other term, covenant or
agreement contained in the Loan Documents within fifteen (15) days after
the Bank has given written notice of such failure to the Borrower;
(e) any representation or warranty of the Borrower in the Loan
Documents or in any certificate or notice given in connection therewith
shall have been false or misleading in any material respect at the time
made or deemed to have been made;
(f) the Borrower shall be in default (after any applicable period of
grace or cure period) under any agreement or agreements evidencing
Indebtedness owing to the Bank or any affiliates of the Bank or in excess
of $100,000 in aggregate principal amount, or shall fail to pay such
Indebtedness when due, or within any applicable period of grace;
(g) any of the Loan Documents shall cease to be in full force and
effect,
<PAGE> 29
-27-
(h) the Borrower (i) shall make an assignment for the benefit of
creditors, (ii) shall be adjudicated bankrupt or insolvent, (iii) shall
seek the appointment of, or be the subject of an order appointing, a
trustee, liquidator or receiver as to all or part of its assets, (iv) shall
commence, approve or consent to, any case or proceeding under any
bankruptcy, reorganization or similar law and, in the case of an
involuntary case or proceeding, such case or proceeding is not dismissed
within forty-five (45) days following the commencement thereof, or (v)
shall be the subject of an order for relief in an involuntary case under
federal bankruptcy law;
(i) the Borrower shall be generally unable to pay its debts as they
mature; or
(j) there shall remain undischarged for more than thirty (30) days
any final judgment or execution action against the Borrower that, together
with other outstanding claims and execution actions against the Borrower
exceeds insurance coverage by $25,000 in the aggregate;
THEN, or at any time thereafter:
(1) In the case of any Event of Default under clause (h) or (i), the
Commitments shall automatically terminate and the Bank shall be relieved of
all further obligations to make Loans or to issue, renew or extend any
Letters of Credit, and the entire unpaid principal amount of the Loans, all
interest accrued and unpaid thereon, all Unpaid Reimbursement Obligations,
and all other amounts payable thereunder and under the other Loan Documents
shall automatically become forthwith due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived by the Borrower, and the Bank may require that cash be delivered to
the Bank in the amount of the Maximum Drawing Amount to be held by the Bank
as cash collateral for all Reimbursement Obligations; and
(2) In the case of any Event of Default other than (h) and (i), the
Bank may, by written notice to the Borrower, terminate the Commitments
and/or declare the unpaid principal amount of the Loans, all interest
accrued and unpaid thereon, all Unpaid Reimbursement Obligations, and all
other amounts payable hereunder and under the other Loan Documents to be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the
Borrower, and the Bank may require that cash be delivered to the
<PAGE> 30
-28-
Bank in the amount of the Maximum Drawing Amount to be held by the Bank as
cash collateral for all Reimbursement Obligations.
No remedy herein conferred upon the Bank is intended to be exclusive of any
other remedy and each and every remedy shall be cumulative and in addition to
every other remedy hereunder, now or hereafter existing at law or in equity or
otherwise.
12. SETOFF.
-------
Regardless of the adequacy of any collateral for the Obligations, any
deposits or other sums credited by or due from the Bank to the Borrower may
,after an Event of Default, be applied to or set off against any principal,
interest and any other amounts due from the Borrower to the Bank at any time
without notice to the Borrower, or compliance with any other procedure imposed
by statute or otherwise, all of which are hereby expressly waived by the
Borrower.
13. MISCELLANEOUS.
------------------
The Borrower agrees to indemnify and hold harmless the Bank and its
officers, employees, affiliates, agents, and controlling persons from and
against all claims, damages, liabilities and losses of every kind arising out of
the Loan Documents, including without limitation, against those in respect of
the application of Environmental Laws to the Borrower absent the gross
negligence or willful misconduct of the Bank. The Borrower shall pay to the Bank
promptly on demand all costs and expenses (including reasonable legal and other
professional fees) incurred by the Bank in connection with the preparation,
negotiation, execution, amendment, administration or enforcement of any of the
Loan Documents. Any communication to be made hereunder shall (i) be made in
writing, but unless otherwise stated, may be made by telex, facsimile
transmission or letter, and (ii) be made or delivered to the address of the
party receiving notice which is identified with its signature below (unless such
party has by five (5) days written notice specified another address), and shall
be deemed made or delivered, when dispatched, left at that address, or five (5)
days after being mailed, postage prepaid, to such address. This Agreement shall
be binding upon and inure to the benefit of each party hereto and its successors
and assigns, but the Borrower may not assign its rights or obligations
hereunder. This Agreement may not be amended or waived except by a written
instrument signed by the Borrower and the Bank, and any such amendment or waiver
shall be effective only for the specific purpose given. No failure or delay by
the Bank to exercise any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege preclude
any other right,
<PAGE> 31
-29-
power or privilege. The provisions of this Agreement are severable and if any
one provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, such invalidity or unenforceability shall affect only such
provision in such jurisdiction. This Agreement, together with all Schedules
hereto, expresses the entire understanding of the parties with respect to the
transactions contemplated hereby. This Agreement and any amendment hereby may be
executed in several counterparts, each of which shall be an original, and all of
which shall constitute one agreement. In proving this Agreement, it shall not be
necessary to produce more than one such counterpart executed by the party to be
charged. THIS AGREEMENT AND THE NOTES ARE CONTRACTS UNDER THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS AND SHALL BE CONSTRUED IN ACCORDANCE THEREWITH AND
GOVERNED THEREBY. THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF ANY
OF THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN. The Borrower, as an
inducement to the Bank to enter into this Agreement, hereby waives its right to
a jury trial with respect to any action arising in connection with any Loan
Document.
<PAGE> 32
-30-
IN WITNESS WHEREOF, the undersigned have duly executed this Revolving
Credit Agreement as a sealed instrument as of the date first above written.
ARROWPOINT
COMMUNICATIONS, INC.
By: /s/ Cynthia Deysher
------------------------------
Name: Cynthia Deysher
Title: Chief Financial Officer
Address:
235 Littleton Road
Westford, MA 01886
Tel: (978) 692-5875
Fax: (978) 692-5873
FLEET NATIONAL BANK
By: /s/ Olaperi Onipede
------------------------------
Name: Olaperi Onipede
Title: Vice President
Address:
Mail-stop: MA of DO7A
One Federal Street
Boston, MA 02110
Tel: (617) 346-0052
Fax: (617) 346-0151
<PAGE> 33
SCHEDULE 8(f)
-------------
LEGAL PROCEEDINGS
HISTORY:
ArrowPoint received a letter from Arrow Electronics, Inc. ("Arrow
Electronics") on 1/7/98 alleging trademark infringement. Arrow Electronics
requested voluntary withdrawal of ArrowPoint trademark and cessation of use of
name and mark. On February 13, 1998, ArrowPoint responded that it was not
willing to cease use of the name and mark.
CURRENT STATUS:
ArrowPoint has received no further direct correspondence from Arrow
Electronics. Arrow Electronics has filed a Request for Extension of Time to file
an opposition against ArrowPoint's trademark "ArrowPoint." This was extended to
July 27, 1998 by the Trademark Trial and Appeal Board.
<PAGE> 34
SCHEDULE 10.2(a)
----------------
PERMITTED INDEBTEDNESS
1. Capital Leases
3 Logic analyzers with data acquisition cards
2 oscilloscopes
1 Fireberd communication analyzer with interface cards
1 Programmer and PinSite
The foregoing are the subject of a capital lease with Continental
Resources, Inc. with a term of 12 months, starting November, 1997, for
total principal amount of $136,696 with interest charged at 9%, both
payable monthly. Principal Balance at July 31, 1998 was $35,331. Upon
completion of Lease, ArrowPoint has option to purchase the equipment for
$1.00 asset.
<PAGE> 35
SCHEDULE 10.2(b)
----------------
PERMITTED LIENS
1. SECURED PARTY SECURED PROPERTY
Continental Resources, Inc. See attached UCC-1,
175 Middlesex Turnpike reference number 501620
Bedford, MA 01730 dated October 6, 1997
<PAGE> 36
SCHEDULE 10.2(c)
----------------
INVESTMENTS
Repurchase Agreements and Eurodollar time deposits in connection with the
Borrower's checking account maintained with Lender.
<PAGE> 37
AMENDMENT AGREEMENT
-------------------
AMENDMENT AGREEMENT (this "AMENDMENT AGREEMENT") dated as of October 20,
1999 by and between ArrowPoint Communications, Inc. (the "BORROWER") and Fleet
National Bank (the "BANK"), amending a certain Credit Agreement dated as of
August 5, 1998 between the Borrower and the Bank (as amended from time to time,
the "CREDIT AGREEMENT").
WITNESSETH
WHEREAS, pursuant to the terms of the Credit Agreement, the Bank has made
loans to the Borrower; and
WHEREAS, the Borrower has requested, among other things, that the Bank
amend certain terms and conditions of the Credit Agreement; and
WHEREAS, the Borrower has also requested that the Bank make a new Tranche C
Equipment Loan; and
WHEREAS, the Bank is willing to amend certain terms and conditions of the
Credit Agreement and to make the Tranche C Equipment Loan on the terms and
conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SS.1. DEFINITIONS. Capitalized terms used herein without definition that
are defined in the Credit Agreement shall have the same meanings herein as
therein.
SS.2. RATIFICATION OF EXISTING AGREEMENTS. All of the Borrower's
obligations and liabilities to the Bank as evidenced by or otherwise arising
under the Credit Agreement, the Notes (as defined herein) and the other Loan
Documents, except as otherwise expressly modified in this Amendment Agreement
upon the terms set forth herein, are, by the Borrower's execution of this
Amendment Agreement, ratified and confirmed in all respects. In addition, by the
Borrower's execution of this Amendment Agreement, the Borrower represents and
warrants that no counterclaim, right of set-off or defense of any kind exists or
is outstanding with respect to such obligations and liabilities.
SS.3. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by the Borrower in the Credit Agreement, the Notes and the other
Loan Documents are true and correct on the date hereof as if made on and as of
the date hereof, except to the extent that any of such representations and
warranties relate by their terms to a prior date and for matters previously
disclosed to the Bank in writing.
<PAGE> 38
-2-
SS.4. CONDITIONS PRECEDENT. The effectiveness of the amendments
contemplated hereby shall be subject to the satisfaction on or before the date
hereof of each of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by the Borrower herein, whether directly or incorporated by
reference, shall be true and correct on the date hereof, except as provided
in ss.3 hereof.
(b) PERFORMANCE; NO EVENT OF DEFAULT. The Borrower shall have
performed and complied in all material respects with all terms and
conditions herein required to be performed or complied with by it prior to
or at the time hereof, and there shall exist no Event of Default or
condition which, with either or both the giving of notice of the lapse of
time, would result in an Event of Default upon the execution and delivery
of this Amendment Agreement.
(c) CORPORATE ACTION. All requisite corporate action necessary for
the valid execution, delivery and performance by the Borrower of this
Amendment Agreement and all other instruments and documents delivered by
the Borrower in connection therewith shall have been duly and effectively
taken.
(d) DELIVERY. The parties hereto shall have executed and delivered
this Amendment Agreement and the Tranche C Equipment Note, each in form and
substance satisfactory to the Bank.
(e) FEES AND EXPENSES. The Borrower shall have paid to the Bank in
immediately available funds all fees and expenses incurred by the Bank in
connection with this Amendment Agreement, the Credit Agreement or the other
Loan Documents on or prior to the date hereof.
SS.5. AMENDMENTS TO THE CREDIT AGREEMENT.
5.1. AMENDMENTS TO SS.1.
(a) The definition of the term "COMMITMENTS" appearing in Section 1
of the Credit Agreement is hereby amended in its entirety to read as
follows:
"COMMITMENTS: Collectively, the Revolving Credit Commitment, the
Tranche A Equipment Loan Commitment, the Tranche B Equipment Loan
Commitment and the Tranche C Equipment Loan Commitment."
(b) The definition of the term "CURRENT ASSETS" appearing in Section
1 of the Credit Agreement is hereby amended in its entirety to read as
follows:
<PAGE> 39
-3-
"CURRENT ASSETS: The sum of (i) cash on hand of the Borrower, (ii)
cash equivalents of the Borrower and (iii) Accounts, that in
accordance with GAAP are properly classified as current assets."
(c) The definition of the term "EQUIPMENT BORROWING BASE" appearing
in Section 1 of the Credit Agreement is hereby amended in its entirety to
read as follows:
"EQUIPMENT BORROWING BASE: An amount determined by the Bank to be
equal to the lesser of (a) $2,000,000 and (b) the sum of (i) one
hundred percent (100%) of the cost (excluding freight, taxes, set-up
and other installation costs) of all Equipment Collateral (excluding
any and all Equipment Collateral consisting of development software)
as evidenced by invoices and evidence of payment (dated no more than
thirty (30) days from the date of purchase) from the sellers thereof,
PLUS (ii) one hundred percent (100%) of the cost (excluding freight,
taxes, set-up and other installation costs) of all Equipment
Collateral consisting of development software as evidenced by invoices
and evidence of payment (dated no more than thirty (30) days from the
date of purchase) from the sellers thereof in an aggregate amount not
to exceed the lesser of (A) $500,000 and (B) thirty-five percent (35%)
of the aggregate principal amount outstanding of the Tranche A
Equipment Loans, the Tranche B Equipment Loans and the Tranche C
Equipment Loans; PROVIDED, however, that the Borrower shall not be
required to provide Bank with evidence of such invoices and evidence
of payment within such thirty (30) day period set forth above with
respect to (x) the Equipment Collateral financed by Silicon Valley
Bank or such other entity and refinanced with the proceeds of Tranche
A Equipment Loans on the Closing Date or other equipment financed on
Closing Date and (y) the Equipment Collateral purchased by the
Borrower from July 1, 1999 through the Tranche C Equipment Loan
Closing Date and refinanced with the proceeds of Tranche C Equipment
Loans on the Tranche C Equipment Loan Closing Date."
(d) The definition of the term "EQUIPMENT LOAN CONVERSION DATE"
appearing in Section 1 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"EQUIPMENT LOAN CONVERSION DATE: With respect to Tranche A
Equipment Loans, January 1, 1999, with respect to Tranche B Equipment
Loans, July 1, 1999 and with respect to Tranche C Equipment Loans,
September 30, 2000."
(e) The definition of the term "EQUIPMENT LOAN MATURITY DATE"
appearing in Section 1 of the Credit Agreement is hereby amended in its
entirety to read as follows:
<PAGE> 40
-4-
"EQUIPMENT LOAN MATURITY DATE: With respect to Tranche A
Equipment Loans, December 1, 2002, with respect to Tranche B Equipment
Loans, June 1, 2002 and with respect to Tranche C Equipment Loans,
September 1, 2003."
(f) The definition of the term "EQUIPMENT LOANS" appearing in Section
1 of the Credit Agreement is hereby amended in its entirety to read as
follows:
"EQUIPMENT LOANS: Collectively, the Tranche A Equipment Loans,
the Tranche B Equipment Loans and the Tranche C Equipment Loans."
(g) The definition of the term "LOANS " appearing in Section 1 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"LOANS: Collectively, the Equipment Loans and the Revolving
Credit Loans."
(h) The definition of the term "NOTES" appearing in Section 1 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"NOTES: Collectively, the Tranche A Equipment Note, the Tranche B
Equipment Note, the Tranche C Equipment Note and the Revolving Credit
Note."
(i) The definition of the term "REVOLVING CREDIT MATURITY DATE"
appearing in Section 1 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"REVOLVING CREDIT MATURITY DATE: June 30, 2000, or such earlier
date on which all Revolving Credit Loans may become due and payable
pursuant to the terms hereof."
(j) The following new definitions are hereby added to Section 1 of
the Credit Agreement in their proper alphabetical order to read as follows:
"NET CASH PROCEEDS: The cash proceeds received by the Borrower
from the sale of equity, net of all costs of sale, including legal
costs, underwriting or brokerage costs, Indebtedness (other than
Loans) paid off with such cash proceeds and taxes paid or payable as a
result thereof by the Borrower (but without deduction for any
hold-backs or reserves required in connection with the applicable
sale)."
"TRANCHE C EQUIPMENT LOAN CLOSING DATE: October 20, 1999."
<PAGE> 41
-5-
"TRANCHE C EQUIPMENT LOAN COMMITMENT: The obligation of the Bank
to make Tranche C Equipment Loans to the Borrower up to an aggregate
outstanding principal amount not to exceed the sum of (a) $2,000,000
MINUS (b) the aggregate principal amount of all Tranche A Equipment
Loans outstanding on the Equipment Loan Conversion Date and all
Tranche B Equipment Loans outstanding on the Equipment Loan Conversion
Date, as such amount may be reduced from time to time or terminated
hereunder."
"TRANCHE C EQUIPMENT LOAN NOTE: See ss.4A.1.
"TRANCHE C EQUIPMENT LOANS: Any equipment loan made or to be made
to the Borrower pursuant to ss.4A hereof.
5.2. AMENDMENTS TO SS.4. ss.4 of the Credit Agreement is hereby
amended by adding the following as Section 4A at the end of ss.4:
"4A EQUIPMENT LOAN FACILITY.
4A.1 MAKING OF TRANCHE C EQUIPMENT LOANS. Upon the terms and
subject to the conditions of this Agreement, the Bank agrees to lend
to the Borrower such sums that the Borrower may request from September
29, 1999 until but not including the Equipment Loan Conversion Date;
PROVIDED that the sum of the outstanding principal amount of all
Tranche C Equipment Loans (after giving effect to all amounts
requested) shall not exceed the lesser of (a) Tranche C Equipment Loan
Commitment and (b) the Equipment Borrowing Base. In addition, in no
event shall the Bank be obligated to make any Tranche C Equipment Loan
in excess of one hundred percent (100%) of the purchase price
(excluding freight, shipping, taxes, set-up and other installation
costs) of the Equipment Collateral purchased by the Borrower with the
proceeds of such Tranche C Equipment Loan or refinanced with the
proceeds of such Tranche C Equipment Loan for Equipment Collateral
purchased by the Borrower during the period commencing on July 1, 1999
and continuing up to the Conversion Date. Tranche C Equipment Loans
shall be in the minimum aggregate amount of not less than $25,000 or
an integral multiple thereof. The Borrower shall notify the Bank in
writing or telephonically, not later than 2:00 p.m. Boston,
Massachusetts time at least one Business Day prior to the date of the
Tranche C Equipment Loan being requested, of the Drawdown Date (which
must be a Business Day), the principal amount of such Tranche C
Equipment Loan and the type and description of equipment purchased
(including, without limitation, serial or vehicle identification
numbers) and the purchase price thereof. In the case of any telephonic
notification, the Borrower shall provide to the Bank written
confirmation of all of such information within
<PAGE> 42
-6-
three Business Days after such telephonic notification. Subject to the
foregoing, so long as the Tranche C Equipment Loan Commitment is then
in effect and the conditions set forth in ss.9 hereof have been met,
the Bank shall advance the amount requested to the Borrower's bank
account at the Bank in immediately available funds not later than the
close of business on such Drawdown Date. The obligation of the
Borrower to repay to the Bank the principal of the Tranche C Equipment
Loans and interest accrued thereon shall be evidenced by a promissory
note in the aggregate principal amount of $2,000,000 executed and
delivered by the Borrower and payable to the order of the Bank, in
form and substance satisfactory to the Bank (the "TRANCHE C EQUIPMENT
NOTE").
4A.2 REPAYMENT OF TRANCHE C EQUIPMENT LOANS. (a) If at any time
the outstanding principal amount of the Tranche C Equipment Loans
exceeds the lesser of (i) the Tranche C Equipment Loan Commitment and
(ii) the Equipment Borrowing Base, the Borrower hereby agrees to pay
immediately the amount of such excess to the Bank for application to
the Tranche C Equipment Loans. The Borrower may elect to reduce or
terminate the Tranche C Equipment Loan Commitment by a minimum
principal amount of $25,000 or an integral multiple thereof, upon one
(1) Business Day's prior written notice to the Bank of the proposed
date of such reduction or termination. The Borrower shall not be
entitled to reinstate the reduced or terminated portion of the Tranche
C Equipment Loan Commitment following such reduction or termination.
(b) As long as no Default or Event of Default shall have
occurred and be continuing, the outstanding amount of all Tranche C
Equipment Loans on the Equipment Loan Conversion Date shall be
converted into a term loan. The Borrower hereby absolutely and
unconditionally promises to pay to the Bank the principal amount of
the Tranche C Equipment Loans outstanding on the Equipment Loan
Conversion Date in thirty-six (36) consecutive equal installments,
each in the amount of two and seventy-seven one hundredths of one
percent (2.77%) of the aggregate principal amount of the Tranche C
Equipment Loans outstanding on the Equipment Loan Conversion Date.
Such installments shall be due and payable on the first day of each
calendar month, commencing on October 1, 2000; PROVIDED, that the
outstanding principal amount of the Tranche C Equipment Loans,
together with all interest accrued thereon and all fees and expenses
incurred by the Bank in connection therewith, shall be due and payable
on the Equipment Loan Maturity Date.
<PAGE> 43
-7-
(c) The Borrower shall have the right at any time, subject to
the indemnity provisions of Section 6.1, to prepay voluntarily the
Tranche C Equipment Loan on or before the Equipment Loan Maturity
Date, as a whole, or in part; provided that each partial prepayment
shall be in the minimum principal amount of $25,000, unless paid in
full. The Borrower shall give the Bank, no later than 2:00 p.m.
Boston, Massachusetts time on the date of such prepayment, written
notice of any proposed prepayment pursuant to this ss.4A.2(c) and the
principal amount to be prepaid. Any partial prepayment of the Tranche
C Equipment Loans shall be applied prior to the Equipment Loan
Conversion Date, to the aggregate principal amount of the Tranche C
Equipment Loans outstanding on the date of such prepayment and, on and
after the Equipment Loan Conversion Date, to the scheduled
installments of the principal due on the Tranche C Equipment Loans
(including the final installment due and payable on the Equipment Loan
Maturity Date) in inverse order of maturity. No amount repaid may be
reborrowed. Any voluntary prepayment of principal of the Tranche C
Equipment Loans shall also include all interest accrued to the date of
prepayment."
5.3. AMENDMENTS TO SS.10.1(a). Subsections "(ii)," "(iii)" and "(iv)"
of Section 10.1(a) of the Credit Agreement are hereby amended in their entirety
to read as follows:
"(ii) as soon as available but in any event within thirty (30)
days after the end of each fiscal quarter of the Borrower, its
unaudited Financials for such quarter, certified by its chief
financial officer; (iii) together with the quarterly unaudited and
annual audited Financials, a certificate of the Borrower setting forth
computations demonstrating compliance with the Borrower's financial
covenants set forth herein, and certifying that no Default or Event of
Default has occurred, or if its has, the actions taken by the Borrower
with respect thereto; (iv) within fifteen (15) days after the end of
each calendar month, a Revolving Credit Borrowing Base Report and an
Equipment Loan Borrowing Base Report, each in form and detail
satisfactory to the Bank, demonstrating compliance with the Revolving
Credit Borrowing Base and the Equipment Loan Borrowing Base,
respectively, each as at the end of such month or other applicable
date requested;"
5.4. AMENDMENT TO SS.10.3(a). Section 10.3(a) of the Credit Agreement
is hereby amended in its entirety to read as follows:
"(a) permit the ratio of Current Assets to Current Liabilities
for any fiscal quarter of the Borrower ending during any period
described in the table set forth below to be less than the ratio set
forth opposite such period in such table:
<PAGE> 44
-8-
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
September 29, 1999 through June 30, 2000 1.50:1.00
July 1, 2000 and thereafter 1.25:1.00"
</TABLE>
5.5. AMENDMENT TO SS.10.3(c). Section 10.3(c) of the Credit Agreement
is hereby amended in its entirety to read as follows:
"(c) permit Net Income (i) to be negative in an amount exceeding
$10,000,000 for the fiscal year of the Borrower ending December 31,
1999 and (ii) for any fiscal quarter ending during any period
described in the table set forth below to be less than (or in the case
of a negative amount, in an amount exceeding) the amount set forth
opposite such period in such table:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
January 1, 2000 through March 31, 2000 $(2,000,000)
April 1, 2000 through June 30, 2000 $(1,250,000)
July 1, 2000 through September 30, 2000 $ (500,000)
October 1, 2000 and thereafter $ 500,000"
</TABLE>
5.6. AMENDMENT TO SS.10.3. Section 10.3 of the Credit Agreement is
hereby amended by adding a new subsection "(d)" to read as follows:
"(d) permit the Tangible Net Worth at any time to be less than
the sum of (i) $9,000,000, plus (ii) 50% of the Net Cash Proceeds from
any issuance of capital stock, options, rights or warrants to buy
capital stock, or other equity issuances received by the Borrower
after September 30, 1999."
SS.6. ADDITIONAL COVENANTS. Without any prejudice or impairment whatsoever
to any of the Bank's rights and remedies contained in the Credit Agreement and
the covenants contained therein, the Notes or in any of the other Loan
Documents, the Borrower additionally covenants and agrees with the Bank as
follows:
(a) The Borrower shall comply and continue to comply with all of the
terms, covenants and provisions contained in the Credit Agreement, the
Notes and the other Loan Documents, except as such terms, covenants and
provisions are expressly modified by this Amendment Agreement upon the
terms set forth herein.
(b) The Borrower will provide to the Bank such financial information
as the Bank may reasonably request from time to time and at the Borrower's
expense.
(c) The Borrower shall at any time or from time to time execute and
deliver such further instruments, and take such further action as
<PAGE> 45
-9-
the Bank may reasonably request, in each case further to effect the
purposes of this Amendment Agreement, the Credit Agreement, the Notes and
the other Loan Documents.
The Borrower expressly acknowledges and agrees that any failure by the
Borrower to comply with the terms and conditions of this ss.6 or any other
provisions contained in this Amendment Agreement shall constitute an Event
of Default in accordance with the relevant provisions of ss.11 of the
Credit Agreement.
SS.7. EXPENSES. The Borrower agrees to pay to the Bank upon demand (a) an
amount equal to any and all reasonable out-of-pocket costs or expenses
(including reasonable legal fees and disbursements and appraisal expenses)
incurred or sustained by the Bank in connection with the preparation of this
Amendment Agreement and related matters and (b) from time to time any and all
reasonable out-of-pocket costs or expenses (including commercial examiner fees
and legal fees and disbursements) hereafter incurred or sustained by the Bank in
connection with the administration of credit extended by the Bank to the
Borrower or the preservation of or enforcement of the Bank's rights under the
Credit Agreement, the Notes or the other Loan Documents or in respect of any of
the Borrower's other obligations to the Bank.
SS.8. MISCELLANEOUS.
(a) This Amendment Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
(b) Except as otherwise expressly provided by this Amendment
Agreement, all of the respective terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each
of the parties hereto that the Credit Agreement, as amended hereby, shall
continue in full force and effect, and that this Amendment Agreement and
the Credit Agreement be read and construed as one instrument, and all
references in the Loan Documents to the Credit Agreement shall hereafter
refer to the Credit Agreement, as amended by this Amendment Agreement.
<PAGE> 46
-10-
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed in its name and behalf by its duly authorized officer as an
instrument under seal as of the date first written above.
FLEET NATIONAL BANK
By: /s/ illegible signature
----------------------------------
Title: VP
ARROWPOINT COMMUNICATIONS, INC.
By: /s/ Cynthia M. Deysher
----------------------------------
Title: VP Operations and CFO
<PAGE> 47
TRANCHE C EQUIPMENT NOTE
------------------------
ARROWPOINT COMMUNICATIONS, INC.
-------------------------------
$2,000,000.00 October 20, 1999
FOR VALUE RECEIVED, the undersigned, ARROWPOINT COMMUNICATIONS, INC., a
Delaware corporation (hereinafter, together with its successors in title and
assigns, called the "Borrower"), promises to pay, on or before the Equipment
Loan Maturity Date (as hereinafter defined by reference) to the order of FLEET
NATIONAL BANK, a national banking association hereinafter, together with its
successors in title and assigns, called the "Bank"), at the office of the Bank
at One Federal Street, Boston, Massachusetts 02110, the principal sum of TWO
MILLION AND 00/100 {$2,000,000.00) DOLLARS, in immediately available funds or,
if less, the aggregate unpaid principal amount of the Tranche C Equipment Loans
made by the Bank to the Borrower pursuant to the Credit Agreement to which
reference is hereinafter made and to pay interest, in like money, on the unpaid
principal amount owing hereunder from time to time from the date hereof until
payment in full of such principal amount as provided in the Credit Agreement.
This Note is made and delivered by the Borrower pursuant to ss.4A of the
Credit Agreement dated as of August 5, 1998 by and between the Borrower and the
Bank, as amended by an Amendment Agreement dated of even date herewith (as
amended and in effect from time to time, the "Credit Agreement"), and is
entitled to the benefits and is subject to the provisions of the Credit
Agreement. All capitalized terms used herein which are defined in the Credit
Agreement shall have the same meanings herein as therein.
The Borrower promises to pay principal in such amounts and on the dates set
forth in or established pursuant to the Credit Agreement. The Borrower also
promises to pay interest on the aggregate unpaid principal amount of the Tranche
C Equipment Loans outstanding until paid in full at the rates per annum set
forth in or established pursuant to the Credit Agreement. Such interest shall be
payable on such dates as are determined from time to time pursuant to the Credit
Agreement and shall be calculated as therein provided.
The Borrower has the right to prepay the principal of this Note without
premium or penalty on the terms and conditions specified in the Credit
Agreement.
If any Event of Default shall occur, the entire unpaid principal amount of
this Note and all of the unpaid interest accrued thereon may
<PAGE> 48
-2-
become or be declared due and payable in the manner and with the effect provided
in the Credit Agreement.
The Borrower and all guarantors and endorsers hereby waive presentment,
demand, protest and notice of any kind in connection with the delivery,
acceptance, performance and enforcement of this Note, and also hereby assent to
extensions of time of payment or forbearance or other indulgences without
notice. This Note and the obligations of the Borrower hereunder shall be
governed by, and interpreted and determined in accordance with, the laws of the
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its
corporate name by its duly authorized officer as a sealed instrument on the day
and in the year first above written.
ARROWPOINT COMMUNICATIONS, INC.
By: /s/ Cynthia M. Deysher
----------------------------
Its VP Operations and CFO
<PAGE> 1
EXHIBIT 21.01
ARROWPOINT COMMUNICATIONS, INC.
Subsidiaries
Name State or Jurisdiction of Incorporation
- ---- --------------------------------------
ArrowPoint Communications Limited United Kingdom
<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
January 26, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001039198
<NAME> ARROWPOINT
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> DEC-31-1998
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 10,730,584
<SECURITIES> 0
<RECEIVABLES> 4,994,902
<ALLOWANCES> 250,000
<INVENTORY> 2,864,072
<CURRENT-ASSETS> 18,881,000
<PP&E> 5,836,477
<DEPRECIATION> 1,702,251
<TOTAL-ASSETS> 23,205,902
<CURRENT-LIABILITIES> 8,530,572
<BONDS> 0
34,533,670
0
<COMMON> 8,351
<OTHER-SE> (19,866,691)
<TOTAL-LIABILITY-AND-EQUITY> 23,205,902
<SALES> 12,377,037
<TOTAL-REVENUES> 12,377,037
<CGS> 5,110,077
<TOTAL-COSTS> 5,110,077
<OTHER-EXPENSES> 20,389,603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,366
<INCOME-PRETAX> (12,605,966)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,605,966)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,605,966)
<EPS-BASIC> (3.99)
<EPS-DILUTED> (3.99)
</TABLE>
