<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
NETSCOUT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7373 04-2837575
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
------------------------
NETSCOUT SYSTEMS, INC.
4 TECHNOLOGY PARK DRIVE
WESTFORD, MASSACHUSETTS 01886
(978) 614-4000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
ANIL K. SINGHAL, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
NARENDRA POPAT, PRESIDENT AND CHIEF OPERATING OFFICER
NETSCOUT SYSTEMS, INC.
4 TECHNOLOGY PARK DRIVE
WESTFORD, MASSACHUSETTS 01886
(978) 614-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
JOHN A. MELTAUS, ESQ. PHILIP P. ROSSETTI, ESQ.
MIGUEL J. VEGA, ESQ. MICHAEL D. BAIN, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP HALE AND DORR LLP
125 High Street 60 State Street
Boston, Massachusetts 02110 Boston, Massachusetts 02109
(617) 248-7000 (617) 526-6000
------------------------
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 a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.001 par value $103,500,000 $28,773
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933, the number
of shares of common stock being registered and the proposed maximum offering
price per share are not included in this table. Estimated solely for the
purpose of calculating the registration fee in accordance with Rule 457(a)
under the Securities Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED April 22, 1999
Shares
[LOGO]
Common Stock
---------------------
We are selling shares of common stock and the selling stockholders
identified on page 50 are selling shares of common stock. We will not
receive any of the proceeds from the shares of common stock sold by the selling
stockholders. Prior to this offering, there has been no public market for the
common stock. The initial public offering price is expected to be between $
and $ per share.
Application has been made to list the common stock on The Nasdaq Stock
Market's National Market under the symbol "NSCT."
We and the selling stockholders have granted the underwriters an option to
purchase a maximum of additional shares of common stock to cover
over-allotments of shares.
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 5.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions NetScout Stockholders
--------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Per Share...................................... $ $ $ $
Total.......................................... $ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Bear, Stearns & Co. Inc.
BT Alex. Brown
Dain Rauscher Wessels
a
division of Dain Rauscher Incorporated
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 5
Special Note Regarding Forward-Looking
Statements.................................. 15
Use Of Proceeds............................... 16
Dividend Policy............................... 16
Capitalization................................ 17
Dilution...................................... 18
Selected Consolidated Financial Data.......... 19
Management's Discussion And Analysis Of
Financial Condition And Results Of
Operations.................................. 20
Business...................................... 31
<CAPTION>
PAGE
---------
<S> <C>
Management.................................... 41
Certain Transactions.......................... 48
Principal And Selling Stockholders............ 50
Description Of Capital Stock.................. 52
Shares Eligible For Future Sale............... 56
Underwriting.................................. 58
Notice To Canadian Residents.................. 60
Legal Matters................................. 61
Experts....................................... 61
Where You Can Find More Information........... 61
Index To Consolidated Financial Statements.... F-1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
------------------------
EXCEPT AS SET FORTH IN THE CONSOLIDATED FINANCIAL STATEMENTS OR AS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS:
- ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED;
- REFLECTS THE CONVERSION OF ALL OUTSTANDING SHARES OF OUR SERIES A
PREFERRED STOCK, NON-VOTING COMMON STOCK AND CLASS B CONVERTIBLE COMMON
STOCK INTO SHARES OF OUR COMMON STOCK UPON THE CLOSING OF THIS OFFERING;
- ASSUMES A THREE-FOR-TWO STOCK SPLIT OF OUR COMMON STOCK PRIOR TO THE
EFFECTIVENESS OF THIS OFFERING;
- REFLECTS THE FILING, AS OF THE CLOSING OF THIS OFFERING, OF OUR AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION AND THE ADOPTION OF OUR AMENDED
AND RESTATED BY-LAWS IMPLEMENTING CERTAIN PROVISIONS DESCRIBED BELOW UNDER
"DESCRIPTION OF CAPITAL STOCK," AND THE RECEIPT OF STOCKHOLDER APPROVAL
THEREFOR; AND
- REFLECTS THE ADOPTION OF NEW STOCK PLANS, WHICH OCCURRED IN APRIL 1999.
OUR VOTING COMMON STOCK WILL BE RENAMED UPON THE CLOSING OF THIS OFFERING, AND
IS REFERRED TO HEREIN AS "COMMON STOCK." SEE "MANAGEMENT--STOCK PLANS,"
"DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITING."
------------------------
DEALER PROSPECTUS DELIVERY OBLIGATION
Until , 1999 (25 days after the commencement of this offering),
all dealers that effect transactions in the common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
NetScout is a registered trademark and the NetScout logo, AppScout, WebCast,
NetScout Server, NetFlow Monitor, Resource Monitor, VLAN Monitor, NetScout
Manager Plus and ART MIB are trademarks of NetScout. TrafficDirector and
SwitchProbe are trademarks of Cisco Systems, Inc. All other trade names and
trademarks referred to in this prospectus are the property of their respective
owners.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS
CAREFULLY.
NETSCOUT
We design, develop, manufacture, market and support an integrated family of
products that enable businesses and service providers to manage the performance
of computer networks and important business software applications. Our
Application Flow Management ("AFM") solution consists of data collection devices
and analysis and presentation software. AFM collects, aggregates and analyzes
network and application data from a wide range of network technologies. Using
this data, AFM provides real-time information regarding the performance of
computer networks and software applications, such as e-mail, order entry and
Web-based applications. Our solution provides this information to computer
network and business managers in a user-friendly, graphical format.
Business enterprises increasingly rely on their software applications and
computer networks as strategic assets that are essential to business operations.
Even minor computer network malfunctions can result in significant business
interruptions, lost revenue, decreased productivity and customer
dissatisfaction. As a result, businesses are recognizing the critical importance
of effective network and application performance management.
To support the growing number of users and demand for faster and more
reliable computer network access, new network technologies and products have
been introduced. This has resulted in highly-complex, multi-vendor computer
networks, which are more difficult to manage.
Our solution provides a proactive approach to network and application
performance management that enables managers to anticipate and address network
and application performance problems and align their computer resources with
their business strategies. AFM provides the following key functions:
- APPLICATION RESPONSE TIME MEASUREMENT. AFM provides detailed, real-time
information on application response time which can be used to optimize
network configuration and prioritize applications.
- MONITORING AND TROUBLESHOOTING. AFM allows real-time monitoring and trend
analysis of network usage, performance and error conditions which helps
network managers prevent network malfunctions and expedite
troubleshooting.
- CAPACITY PLANNING. AFM measures trends in network usage by individual
software application to enable informed network spending decisions.
- POLICY ENFORCEMENT. AFM helps network managers identify inappropriate or
wasteful usage of the computer network to ensure adherence to corporate
policies and guidelines.
- ACCOUNTING AND CHARGE-BACK. AFM provides network usage information by
user, department or application, which can be used to charge for internal
network usage.
Our AFM solution is used by businesses and organizations with large and
medium-sized computer networks, as well as service providers that offer computer
network infrastructure and software application management services. We sell our
products through indirect distribution channels and a direct sales force. Cisco
Systems, Inc. is our largest indirect channel partner and sells our products
under its private label.
NetScout was incorporated in Massachusetts in June 1984 under the name
Frontier Software Development, Inc. We were primarily an engineering consulting
company until 1992 when we began developing the NetScout family of products. In
April 1993, we reincorporated in Delaware and, in March 1997, we changed our
name to NetScout Systems, Inc. Our principal offices are located at 4 Technology
Park Drive, Westford, Massachusetts 01886, and our telephone number is (978)
614-4000.
3
<PAGE>
THE OFFERING
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<S> <C>
Common stock offered by NetScout................... shares
Common stock offered by the selling stockholders... shares
Common stock to be outstanding after the shares
offering.........................................
Use of proceeds.................................... For general corporate purposes,
including working capital.
Proposed Nasdaq National Market symbol............. NSCT
</TABLE>
Common stock outstanding is based on 33,843,258 shares of common stock
outstanding as of March 31, 1999 and excludes 4,640,438 shares issuable upon the
exercise of outstanding stock options as of March 31, 1999 and 7,500,000 shares
available for future grant under our stock plans.
SUMMARY CONSOLIDATED FINANCIAL DATA
The pro forma data in the tables below give effect to (1) our issuance of
shares of Class B Convertible Common Stock and our repurchase of shares of
common stock, Non-Voting Common Stock and Series A Preferred Stock in the fourth
quarter of fiscal 1999 and (2) the conversion of all outstanding shares of
Series A Preferred Stock, Class B Convertible Common Stock and Non-Voting Common
Stock into common stock upon the closing of this offering. The pro forma as
adjusted balance sheet data as of December 31, 1998 also give effect to the sale
of shares of common stock that we are offering under this prospectus at
an assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and offering expenses. See
"Capitalization."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenue.................................... $ 5,877 $ 15,683 $ 30,648 $ 42,829 $ 29,171 $ 48,880
Total cost of revenue............................ 1,962 6,035 9,955 13,422 8,809 14,452
Gross margin..................................... 3,915 9,648 20,693 29,407 20,362 34,428
Total operating expenses......................... 3,214 6,287 11,596 21,662 14,833 22,779
Income from operations........................... 701 3,361 9,097 7,745 5,529 11,649
Provision for income taxes....................... 136 1,355 3,640 3,056 2,191 4,435
Net income....................................... $ 555 $ 2,003 $ 5,918 $ 5,432 $ 3,893 $ 7,881
Basic net income per share....................... $ 0.02 $ 0.07 $ 0.21 $ 0.19 $ 0.13 $ 0.27
Diluted net income per share..................... $ 0.02 $ 0.06 $ 0.17 $ 0.16 $ 0.11 $ 0.22
Shares used in computing:
Basic net income per share..................... 27,064 27,814 28,514 28,934 28,909 29,353
Diluted net income per share................... 28,982 33,690 34,378 34,748 34,450 35,694
Pro forma basic net income per share............. $ 0.17 $ 0.24
Pro forma diluted net income per share........... $ 0.16 $ 0.22
Shares used in computing:
Pro forma basic net income per share........... 32,723 33,142
Pro forma diluted net income per share......... 34,748 35,694
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
MARCH 31, PRO FORMA
1998 ACTUAL PRO FORMA AS ADJUSTED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 6,341 $ 22,024 $ 21,614 $
Working capital.................................................. 14,163 21,830 21,420
Total assets..................................................... 31,220 40,195 39,785
Class B redeemable convertible common stock...................... -- -- --
Total stockholders' equity....................................... 20,400 28,518 28,108
</TABLE>
4
<PAGE>
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. THE RISKS AND UNCERTAINTIES
DESCRIBED BELOW ARE NOT THE ONLY RISKS WE FACE. IF ANY OF THE FOLLOWING RISKS
ACTUALLY OCCURS, OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION
COULD BE MATERIALLY ADVERSELY AFFECTED, THE TRADING PRICE OF OUR COMMON STOCK
COULD DECLINE, AND YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT. PLEASE ALSO
SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."
RISKS RELATED TO OUR BUSINESS
<TABLE>
<S> <C>
A REDUCTION IN ORDERS FROM Our operating results and financial condition for a
CISCO SYSTEMS, INC. WOULD particular fiscal period would be materially adversely
MATERIALLY ADVERSELY AFFECT affected if there is a substantial reduction in orders
OUR BUSINESS from Cisco Systems, Inc. or if we are unable to complete
one or more Cisco orders planned for that period. We
derive a significant portion of our revenue from Cisco,
which distributes some of our products under its private
label and incorporates some of our software in its
products. For the fiscal years ended March 31, 1997 and
1998 and the nine months ended December 31, 1998, Cisco
accounted for 24%, 40% and 49% of our total revenue. Our
future performance is significantly dependent upon Cisco's
continued promotion of our products. Cisco has no
obligation to purchase any products from us. Further, we
do not control Cisco's distribution of our products,
whether incorporated into Cisco's products or sold under
private label. Finally, Cisco may decide to internally
develop products that compete with our solution or partner
with our competitors or bundle or resell competitors'
solutions, possibly at lower prices. If our relationship
with Cisco were terminated or adversely affected for any
reason, our business, operating results and financial
condition would be materially adversely affected.
DISAPPOINTING QUARTERLY Our quarterly revenue and operating results are difficult
OPERATING RESULTS COULD CAUSE to predict and may fluctuate significantly from quarter to
OUR COMMON STOCK PRICE TO quarter. If our quarterly revenue or operating results
DECREASE fall below the expectations of investors or securities
analysts, the price of our common stock could decrease
substantially. Most of our expenses, such as employee
compensation and rent, are relatively fixed in the short
term. Moreover, our expense levels are based, in part, on
our expectations regarding future revenue levels. As a
result, if revenue for a particular quarter is below our
expectations, we may not be able to reduce operating
expenses proportionately for that quarter, and therefore
this revenue shortfall would have a disproportionately
negative effect on our operating results for that quarter.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Our quarterly revenue may fluctuate as a result of a
variety of factors, many of which are outside our control,
including the following:
- the market for network and application performance
management solutions is in an early stage of
development and therefore demand for our solutions may
be uneven;
- the timing and receipt of orders from customers,
particularly Cisco, especially in light of our lengthy
sales cycle;
- the timing and market acceptance of new products or
product enhancements by us or our competitors;
- distribution channels through which our products are
sold could change;
- we may not be able to anticipate or adapt effectively
to developing markets and rapidly changing technologies;
and
- our prices or the prices of our competitors' products
may change.
We operate with minimal backlog because our products
typically are shipped shortly after orders are received.
Therefore, product revenue in any quarter is substantially
dependent on orders booked and shipped in that quarter,
and revenue for any future quarter is not predictable to
any degree of certainty. Therefore, any significant
deferral of orders for our products would cause a
shortfall in revenue for that quarter.
OUR RELIANCE ON SOLE SOURCE Many components that are necessary for the assembly of our
SUPPLIERS COULD ADVERSELY probes, including the network interface cards, are
AFFECT OUR BUSINESS obtained from separate sole source suppliers or a limited
group of suppliers. Our reliance on sole or limited
suppliers involves several risks, including a potential
inability to obtain an adequate supply of required
components and reduced control over pricing, quality and
timely delivery of components. We do not generally
maintain long-term agreements with any of our suppliers or
large volumes of inventory. Our inability to obtain
adequate deliveries or the occurrence of any other
circumstance that would require us to seek alternative
sources of these components would affect our ability to
ship our products on a timely basis. This could damage
relationships with current and prospective customers,
cause shortfalls in expected revenue and materially
adversely affect our business, operating results and
financial condition.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
OUR CONTINUED GROWTH DEPENDS We must increase the size of our sales force in order to
ON OUR ABILITY TO EXPAND OUR increase our direct sales and support our indirect sales
SALES FORCE channels. Because our products are very technical, sales
people require a long period of time to become productive,
typically three to six months. This lag in productivity,
as well as the challenge of attracting qualified
candidates, may make it difficult to meet our sales force
growth targets. Further, we may not generate sufficient
sales to offset the increased expense resulting from
growing our sales force or we may be unable to manage a
larger sales force. If we are unable to successfully
expand our sales capability, our business, operating
results and financial condition could be materially
adversely affected.
OUR SUCCESS DEPENDS ON OUR To increase our sales, we must further expand and manage
ABILITY TO EXPAND AND MANAGE our indirect distribution channels, including OEMs,
INDIRECT DISTRIBUTION distributors, resellers, systems integrators and service
CHANNELS providers. Sales to our indirect distribution channels
accounted for 76% and 82% of our total revenue for the
fiscal year ended March 31, 1998 and the nine months ended
December 31, 1998. During these periods, Cisco accounted
for 40% and 49% of our total revenue. Our indirect channel
partners have no obligation to purchase any products from
us. In addition, they could internally develop products
which compete with our solutions or partner with our
competitors or bundle or resell competitors' solutions,
possibly at lower prices. Our inability to expand and
manage our relationships with our partners, the inability
or unwillingness of our partners to effectively market and
sell our products or the loss of existing partnerships
could have a material adverse effect on our business,
operating results and financial condition.
IF WE FAIL TO INTRODUCE NEW The market for network and application performance
PRODUCTS AND ENHANCE OUR management solutions is relatively new and is
EXISTING PRODUCTS TO KEEP UP characterized by rapid changes in technology, evolving
WITH RAPID TECHNOLOGICAL industry standards, changes in customer requirements and
CHANGE, DEMAND FOR OUR frequent product introductions and enhancements. Our
PRODUCTS MAY DECLINE success is dependent upon our ability to meet our
customers' needs, which are driven by changes in computer
networking technologies and the emergence of new industry
standards. In addition, new technologies may shorten the
life cycle for our products or could render our existing
or planned products obsolete. If we are unable to develop
and introduce new network and application performance
management products or enhancements to existing products
in a timely and successful manner, it would have a
material adverse effect on our business, operating results
and financial condition.
WE FACE SIGNIFICANT The market for network and application performance
COMPETITION FROM OTHER management solutions is intensely competitive. We believe
TECHNOLOGY COMPANIES customers make network management system purchasing
decisions based primarily upon the following factors:
- product performance, functionality and price;
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
- name and reputation of vendor;
- distribution strength; and
- alliances with industry partners.
We compete with probe vendors, such as Hewlett-Packard
Company, providers of network performance management
solutions, such as Concord Communications, Inc. and
Micromuse, Inc., providers of application performance
management solutions, such as International Network
Services, and providers of portable network traffic
analyzers, such as Network Associates, Inc. In addition,
leading network equipment providers could offer their own
or competitors' solutions in the future. Many of our
current and potential competitors have longer operating
histories, greater name recognition and substantially
greater financial, management, marketing, service,
support, technical, distribution and other resources than
we do. Therefore, they may be able to respond more quickly
than we can to new or changing opportunities,
technologies, standards or customer requirements.
As a result of these and other factors, we may not be able
to compete effectively with current or future competitors,
which would have a material adverse effect on our
business, operating results and financial condition.
THE SUCCESS OF OUR BUSINESS We derive all of our revenue from the sale of products and
DEPENDS ON THE CONTINUED services that are designed to allow our customers to
GROWTH IN THE MARKET FOR AND manage the performance of computer networks and important
COMMERCIAL ACCEPTANCE OF business software applications. The market for network and
NETWORK AND APPLICATION application performance management solutions is in an
PERFORMANCE MANAGEMENT early stage of development. Therefore, we cannot
SOLUTIONS accurately assess the size of the market and may be unable
to predict the appropriate features and prices for
products to address the market, the optimal distribution
strategy and the competitive environment that will
develop. In order for us to be successful, our potential
customers must recognize the value of more sophisticated
network and application performance management solutions,
decide to invest in the management of their networks and
the performance of important business software
applications and, in particular, adopt our management
solution. Any failure of this market to continue to
develop would materially adversely affect our business,
operating results and financial condition.
Businesses may choose to outsource the management of their
networks and applications to service providers. Our
business may depend on our ability to develop
relationships with these service providers and
successfully market our products to them.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
FAILURE TO PROPERLY MANAGE We have been experiencing a period of rapid growth over
GROWTH COULD ADVERSELY AFFECT the past several years. We plan to continue to expand our
OUR BUSINESS business by hiring additional personnel. The growth in
size and complexity of our business and our customer base
has been and will continue to be a significant challenge
to our management and operations.
To manage future growth effectively we must enhance our
financial and accounting systems and controls, integrate
new personnel and manage expanded operations. We
anticipate that our financial and accounting systems will
be upgraded during the third calendar quarter in 1999. If
we are unable to successfully integrate these systems and
controls and to effectively manage our growth, our costs,
the quality of our products, the effectiveness of our
sales organization, our ability to retain key personnel
and our business, operating results and financial
condition could be materially adversely affected.
LOSS OF KEY PERSONNEL COULD Our future success depends to a significant degree on the
ADVERSELY AFFECT OUR BUSINESS skills, experience and efforts of Anil Singhal, our
Chairman of the Board, Chief Executive Officer and
co-founder, and Narendra Popat, our President, Chief
Operating Officer and co-founder. We also depend on the
ability of our other executive officers and senior
managers to work effectively as a team. The loss of one or
more of our key personnel could have a material adverse
effect on our business, operating results and financial
condition.
WE MUST HIRE AND RETAIN Qualified personnel are in great demand throughout the
SKILLED PERSONNEL IN A TIGHT computer software, hardware and networking industries. The
LABOR MARKET demand for qualified personnel is particularly acute in
the New England area due to the large number of software
and other high technology companies and the low
unemployment in the region. Our success depends in large
part upon our ability to attract, train, motivate and
retain highly-skilled employees, particularly sales and
marketing personnel, software engineers, and technical
support personnel. We have had difficulty hiring and
retaining these highly-skilled employees in the past. If
we are unable to attract and retain the highly-skilled
technical personnel that are integral to our sales,
marketing, product development and customer support teams,
the rate at which we can generate sales and develop new
products or product enhancements may be limited. This
inability could have a material adverse effect on our
business, operating results and financial condition.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
OUR SUCCESS DEPENDS ON OUR Our business is heavily dependent on our intellectual
ABILITY TO PROTECT OUR property. We rely upon a combination of copyright,
INTELLECTUAL PROPERTY RIGHTS trademark and trade secret laws and non-disclosure and
other contractual arrangements to protect our proprietary
rights. The reverse engineering, unauthorized copying or
other misappropriation of our intellectual property could
enable third parties to benefit from our technology
without compensating us. Legal proceedings to enforce our
intellectual property rights could be burdensome and
expensive and could involve a high degree of uncertainty.
In addition, legal proceedings may divert management's
attention from growing our business. There can be no
assurance that the steps we have taken to protect our
intellectual property rights will be adequate to deter
misappropriation of proprietary information, or that we
will be able to detect unauthorized use by third parties
and take appropriate steps to enforce our intellectual
property rights. Further, we also license software from
third parties for use as part of our products, and if any
of these licenses were to terminate, we may experience
delays in product shipment until we develop or license
alternative software.
OTHERS MAY CLAIM THAT WE We may be subject to claims by others that our products
INFRINGE ON THEIR infringe on their intellectual property rights. These
INTELLECTUAL PROPERTY RIGHTS claims, whether or not valid, could require us to spend
significant sums in litigation, pay damages, delay product
shipments, reengineer our products or acquire licenses to
such third-party intellectual property. We may not be able
to secure any required licenses on commercially reasonable
terms or at all. We expect that these claims will become
more frequent as more companies enter the market for
network and application performance management solutions.
Any of these claims or resulting events could have a
material adverse effect on our business, operating results
and financial condition.
IF OUR PRODUCTS CONTAIN Despite testing by us and our customers, errors may be
ERRORS, THEY MAY BE COSTLY TO found in our products after commencement of commercial
CORRECT, REVENUE MAY BE shipments. If errors are discovered, we may not be able to
DELAYED, WE COULD GET SUED successfully correct them in a timely manner or at all. In
AND OUR REPUTATION COULD BE addition, we may need to make significant expenditures of
HARMED capital resources in order to eliminate errors and
failures. Errors and failures in our products could result
in loss of or delay in market acceptance of our products
and could damage our reputation. If one or more of our
products fails, a customer may assert warranty and other
claims for substantial damages against us. The occurrence
or discovery of these types of errors or failures could
have a material adverse effect on our business, operating
results and financial condition.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
OUR SUCCESS DEPENDS ON OUR In the fiscal year ended March 31, 1998 and the nine
ABILITY TO EXPAND AND MANAGE months ended December 31, 1998, 12% and 11% of our total
OUR INTERNATIONAL OPERATIONS revenue were from sales outside North America. We
currently expect international revenue to continue to
account for a significant percentage of total revenue in
the future. We believe that we must continue to expand our
international sales activities in order to be successful.
Our international sales growth will be limited if we are
unable to:
- expand international indirect distribution channels;
- hire additional sales personnel;
- adapt products for local markets; or
- manage geographically dispersed operations.
In addition, international operations are generally
subject to a number of risks, including:
- failure of local laws to provide the same degree of
protection against infringement of our intellectual
property;
- protectionist laws and business practices that favor
local competitors;
- dependence on local vendors;
- multiple, conflicting and changing governmental laws
and regulations;
- longer sales cycles;
- greater difficulty in collecting accounts receivable;
- foreign currency exchange rate fluctuations; and
- political and economic instability.
OUR BUSINESS MAY BE AFFECTED Many existing computer systems and software products do
BY UNEXPECTED YEAR 2000 not properly recognize dates after December 31, 1999. This
PROBLEMS "Year 2000" problem could result in miscalculations, data
corruption, system failures or disruptions of operations.
Our products, our internal systems, our customers'
systems, our distributors' systems and our suppliers'
systems may experience Year 2000 problems, any of which
could have a material adverse effect on our business,
operating results and financial condition.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Year 2000 errors or defects in our products could give
rise to warranty and other claims by our customers. In
addition, there can be no assurance that Year 2000 errors
or defects will not be discovered in our internal software
systems and, if errors or defects are present, there can
be no assurance that the costs of making such systems Year
2000 compliant will not be material. We have determined
that some of our products and internal systems are not
Year 2000 compliant, and other of our products or internal
systems may contain undetected errors or defects. If we
are unable to make our products and internal systems Year
2000 compliant in a timely manner, our business, operating
results and financial condition could be materially
adversely affected.
Changing purchasing patterns of customers impacted by Year
2000 issues may result in reduced purchases of our
solutions. Any Year 2000 errors or defects in our
distributors' systems or the products of our OEM partners
could cause a reduction in their orders from us. Finally,
Year 2000 errors or defects in the internal systems of our
suppliers, including our sole and limited source
suppliers, could require us to incur significant
unanticipated expenses to remedy any problems or replace
affected vendors and could cause cancellations or delays
in product shipments.
RISKS ASSOCIATED WITH THIS OFFERING OF OUR COMMON STOCK
THE PRICE OF OUR COMMON STOCK Prior to this offering, there has been no public market
AFTER THIS OFFERING MAY BE for our common stock. After this offering, an active
LOWER THAN THE PRICE YOU PAY trading market in our common stock might not develop or
IN THIS OFFERING continue. If you purchase shares of our common stock in
the offering, you will pay a price that was not
established in a competitive market. Rather, you will pay
a price that we negotiated with the representatives of the
underwriters based upon several factors. See
"Underwriting." The price of our common stock that will
prevail in the market after the offering may be higher or
lower than the price you pay.
The stock market in general has recently experienced
extreme price and volume fluctuations. In addition, the
market prices of securities of technology companies have
been extremely volatile, and have experienced fluctuations
that often have been unrelated or disproportionate to the
operating performance of these companies. These broad
market fluctuations could adversely affect the market
price of our common stock.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Recently, when the market price of a stock has been
volatile, holders of that stock have occasionally
instituted securities class action litigation against the
company that issued the stock. If any of our stockholders
brought such a lawsuit against us, even if the lawsuit is
without merit, we could incur substantial costs defending
the lawsuit. The lawsuit could also divert the time and
attention of our management.
OUR EXECUTIVE OFFICERS AND After this offering, our executive officers and directors
DIRECTORS WILL BE ABLE TO and their affiliates will together control approximately
CONTROL ALL MATTERS REQUIRING % of the outstanding common stock. As a result, these
STOCKHOLDER APPROVAL stockholders, if they act together, will be able to
control all matters requiring stockholder approval,
including the election of directors and approval of
significant corporate transactions. This concentration of
ownership may have the effect of delaying, preventing or
deterring a change in control of NetScout, could deprive
our stockholders of an opportunity to receive a premium
for their common stock as part of a sale of NetScout and
might affect the market price of our common stock.
CERTAIN PROVISIONS OF OUR Our corporate documents and Section 203 of the Delaware
CHARTER AND OF DELAWARE LAW General Corporation Law could discourage, delay or prevent
MAKE A TAKEOVER OF NETSCOUT a third party or a significant stockholder from acquiring
MORE DIFFICULT control of NetScout. In addition, provisions of our
certificate of incorporation may have the effect of
discouraging, delaying or preventing a merger, tender
offer or proxy contest involving NetScout. Any of these
anti-takeover provisions could lower the market price of
the common stock and could deprive our stockholders of the
opportunity to receive a premium for their common stock
that they might otherwise receive from the sale of
NetScout.
FUTURE SALES BY EXISTING If our existing stockholders sell a large number of shares
SECURITY HOLDERS COULD of our common stock or the public market perceives that
DEPRESS THE MARKET PRICE OF existing stockholders might sell shares of common stock,
THE COMMON STOCK the market price of the common stock could significantly
decline. All of the shares offered under this prospectus
will be freely tradable in the open market, and
- 83,100 additional shares may be sold immediately after
this offering;
- 392,974 additional shares may be sold 90 days after the
effective date of this offering;
- 20,901,303 additional shares may be sold upon the
expiration of 180-day lock-up agreements; and
- 10,465,881 additional shares may be sold commencing on
January 15, 2000.
Credit Suisse First Boston Corporation, as representative
of the underwriters, may release any or all shares from
the lock-up agreements at any time and without notice.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Existing stockholders holding an aggregate of 10,465,881
shares of common stock have the right to require us to
register their shares of common stock with the Securities
and Exchange Commission. If we register their shares of
common stock, they can sell those shares in the public
market.
After this offering, we intend to register approximately
12,140,438 shares of our common stock that we have issued
or may issue under our stock plans. Once we register these
shares, they can be freely sold in the public market upon
issuance, subject to the "lock-up" agreements described
above.
WE WILL HAVE BROAD DISCRETION We have not identified specific uses for our proceeds from
IN USING OUR PROCEEDS FROM this offering, and we will have broad discretion in how we
THIS OFFERING use them. You will not have the opportunity to evaluate
the economic, financial or other information on which we
base our decisions on how to use these proceeds.
INVESTORS WILL EXPERIENCE If you purchase shares of our common stock in this
IMMEDIATE AND SUBSTANTIAL offering, you will experience immediate and substantial
DILUTION IN THE BOOK VALUE OF dilution of $ in the pro forma net tangible book value
THEIR INVESTMENT per share of common stock. You will experience additional
dilution upon the exercise of outstanding stock options to
purchase common stock. See "Dilution."
</TABLE>
14
<PAGE>
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," "could," "should," "expects," "plans," "intends," "seeks,"
"anticipates," "believes," "estimates," "potential," or "continue" or the
negative of such terms or other comparable terminology. These statements are
only predictions. You should not place undue reliance on these forward-looking
statements. Actual events or results may differ materially. In evaluating these
statements, you should specifically consider various important factors,
including the risks outlined under "Risk Factors." These factors may cause our
actual results to differ materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of such statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform such statements to actual results.
15
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of
common stock that we are offering hereby will be approximately $ , at
an assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and offering expenses. If the
underwriters' over-allotment option is exercised in full, we estimate that such
net proceeds will be approximately $ . We will not receive any proceeds
from the sale of common stock by the selling stockholders. See "Principal and
Selling Stockholders."
The principal purposes of this offering are to obtain additional working
capital, create a public market for our common stock, increase our visibility in
the marketplace, facilitate future access to public capital markets and provide
liquidity to existing stockholders.
We intend to use our net proceeds for general corporate purposes, including
working capital, product development and expansion of our international
operations and sales and marketing capabilities. We may also use a portion of
our net proceeds to acquire or invest in complementary businesses or products or
to obtain the right to use complementary technologies. We have no specific
understandings, commitments or agreements with respect to any such acquisition
or investment. Pending such uses, we intend to invest our net proceeds from this
offering in short-term, interest-bearing, investment-grade securities,
certificates of deposit or direct or guaranteed obligations of the United
States.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
we do not anticipate paying cash dividends in the foreseeable future. In
addition, the terms of our bank loan agreement prohibit the payment of cash
dividends on our capital stock. We currently intend to retain future earnings,
if any, to fund the expansion and growth of our business. Payment of future cash
dividends, if any, will be at the discretion of our Board of Directors after
taking into account various factors, including our financial condition,
operating results, current and anticipated cash needs and plans for expansion.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998:
- on an actual basis;
- on a pro forma basis giving effect to (1) our issuance of shares of Class
B Convertible Common Stock and our repurchase of shares of common stock,
Non-Voting Common Stock and Series A Preferred Stock in the fourth quarter
of fiscal 1999, and (2) the conversion of all outstanding shares of Series
A Preferred Stock, Non-Voting Common Stock and Class B Convertible Common
Stock into common stock upon the closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale by us of
shares of common stock offered under this prospectus at an assumed initial
public offering price of $ per share, after deducting estimated
underwriting discounts and commissions and offering expenses.
This information should be read in conjunction with our consolidated financial
statements and notes thereto appearing elsewhere in this prospectus. This
information excludes 4,620,544 shares of common stock issuable upon exercise of
outstanding options as of December 31, 1998, of which options to purchase
1,816,654 shares were then exercisable, and 1,773,425 shares of common stock
reserved for future issuance under our 1990 Stock Option Plan. An additional
7,500,000 shares of common stock have been reserved for issuance under our 1999
Stock Option and Incentive Plan and our 1999 Employee Stock Purchase Plan. See
"Management--Stock Plans" and Note 9 to the consolidated financial statements.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Redeemable convertible common stock:
Class B redeemable convertible common stock, $.001 par value; no shares
authorized, issued and outstanding, actual; 6,977,254 shares authorized,
no shares issued or outstanding, pro forma and pro forma as adjusted.... $ -- $ -- $ --
---------- ----------- -----------
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value; 631,579 shares
authorized, issued and outstanding, actual; no shares issued or
outstanding, pro forma and pro forma as adjusted........................ 5,964 -- --
Common stock, $0.001 par value:
Voting, 39,918,273 shares authorized, 24,000,000 shares issued and
outstanding, actual; 50,384,154 shares authorized, 43,990,185 and
shares issued and 33,524,304 and shares
outstanding, pro forma and pro forma as adjusted, respectively........ 24 44
Non-voting, 39,918,273 shares authorized, 5,734,830 shares issued and
outstanding, actual; no shares issued or outstanding, pro forma and
pro forma as adjusted................................................. 6 -- --
Additional paid-in capital.............................................. 1,010 51,121
Deferred compensation..................................................... (550) (550) (550)
Treasury stock............................................................ -- (44,394) (44,394)
Retained earnings......................................................... 22,064 21,887 21,887
---------- ----------- -----------
Total stockholders' equity.............................................. 28,518 28,108
---------- ----------- -----------
Total capitalization................................................ $ 28,518 $ 28,108 $
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
17
<PAGE>
DILUTION
The pro forma net tangible book value of NetScout at December 31, 1998 was
$28,108,000, or $0.84 per share of common stock, assuming the conversion of all
outstanding shares of Series A Preferred Stock, Class B Convertible Common Stock
and Non-Voting Common Stock into shares of common stock (giving effect to the
issuance of shares of Class B Convertible Common Stock and the related
repurchase of shares of Series A Preferred Stock, Non-Voting Common Stock and
Voting Common Stock in the fourth quarter of fiscal 1999). Pro forma net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the pro forma number of outstanding shares of
common stock. After giving effect to the sale of shares of common stock
offered hereby by NetScout at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and offering expenses, NetScout's pro forma net tangible book value
as of December 31, 1998 would have been approximately $ , 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 new investors purchasing shares of common stock in this
offering. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $
Pro forma net tangible book value per share
at December 31, 1998................................... $ 0.84
Increase attributable to this offering...................
Pro forma net tangible book value per share after this
offering...................................................
---------
Net tangible book value dilution per share to new investors
in this offering........................................... $
---------
---------
</TABLE>
The following table summarizes, as of December 31, 1998, on the pro forma
basis described above, the total number of shares of common stock purchased, and
the consideration paid to NetScout and the average price per share paid by the
existing stockholders for their shares and by new investors purchasing shares of
common stock in this offering at an assumed initial public offering price of
$ per share (before deducting estimated underwriting discounts and
commissions and offering expenses payable by us):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 33,843,258 % $ 50,241,000 % $ 1.48
New investors.................. $
------------ ----- ------------- -----
Totals................... 100.0% $ 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
The sales by the selling stockholders in this offering will reduce the
number of shares of common stock held by existing stockholders to , or
approximately % of the total shares of common stock outstanding immediately
after this offering, and will increase the number of shares of common stock held
by new investors to , or % of the total number of shares of common
stock outstanding immediately after this offering. See "Principal and Selling
Stockholders."
The foregoing discussion and tables assume no exercise of any stock options
after December 31, 1998. As of December 31, 1998, there were 4,620,544 shares of
common stock issuable upon exercise of outstanding stock options, at a weighted
average exercise price of $1.58 per share; and 1,773,425 shares of common stock
reserved for issuance under NetScout's 1990 Stock Option Plan. To the extent
that these options are exercised, there will be further dilution to new
investors. In addition, in April 1999, we adopted our 1999 Stock Option and
Incentive Plan, pursuant to which 6,750,000 shares of common stock are reserved
for issuance, and our 1999 Employee Stock Purchase Plan, pursuant to which
750,000 shares of common stock are reserved for issuance. See "Management-Stock
Plans" and Note 9 to the consolidated financial statements.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with our consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
income data for the years ended March 31, 1996, 1997 and 1998, and the
consolidated balance sheet data as of March 31, 1997 and 1998, are derived from
and are qualified by reference to the audited consolidated financial statements
included elsewhere in this prospectus. The consolidated statement of income data
for the years ended March 31, 1994 and 1995, and the consolidated balance sheet
data as of March 31, 1994, 1995 and 1996, have been derived from audited
consolidated financial statements of NetScout that do not appear in this
prospectus. The consolidated statement of income data for the nine months ended
December 31, 1997 and 1998 and the consolidated balance sheet data as of
December 31, 1998 are derived from unaudited consolidated financial statements
included elsewhere in this prospectus. The unaudited consolidated financial
statements have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of our management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The historical results
are not necessarily indicative of the operating results to be expected in the
future.
The pro forma data in the following tables give effect to (1) our issuance
of shares of Class B Convertible Common Stock and our repurchase of shares of
Series A Preferred Stock, Non-Voting Common Stock and common stock in the fourth
quarter of fiscal 1999 and (2) the conversion of Series A Preferred Stock, Class
B Convertible Common Stock and Non-Voting Common Stock into common stock upon
the closing of this offering.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
Product................................................................... $ 1,416 $ 4,035 $ 13,276 $ 25,159 $ 34,990
Service................................................................... 68 341 1,521 3,888 5,143
License and royalty....................................................... 1,009 1,501 886 1,601 2,696
--------- --------- --------- --------- ---------
Total revenue........................................................... 2,493 5,877 15,683 30,648 42,829
--------- --------- --------- --------- ---------
Cost of revenue:
Product................................................................... 687 1,962 5,897 9,427 12,638
Service................................................................... -- -- 138 528 784
--------- --------- --------- --------- ---------
Total cost of revenue................................................... 687 1,962 6,035 9,955 13,422
--------- --------- --------- --------- ---------
Gross margin................................................................ 1,806 3,915 9,648 20,693 29,407
--------- --------- --------- --------- ---------
Operating expenses:
Research and development.................................................. 369 1,008 1,208 3,003 5,129
Sales and marketing....................................................... 744 1,765 4,384 6,778 13,583
General and administrative................................................ 181 441 695 1,815 2,950
--------- --------- --------- --------- ---------
Total operating expenses................................................ 1,294 3,214 6,287 11,596 21,662
--------- --------- --------- --------- ---------
Income from operations...................................................... 512 701 3,361 9,097 7,745
Interest income (expense), net.............................................. (2) (10) (3) 461 743
--------- --------- --------- --------- ---------
Income before provision for income taxes.................................... 510 691 3,358 9,558 8,488
Provision for income taxes.................................................. 66 136 1,355 3,640 3,056
--------- --------- --------- --------- ---------
Net income.................................................................. $ 444 $ 555 $ 2,003 $ 5,918 $ 5,432
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic net income per share.................................................. $ 0.02 $ 0.02 $ 0.07 $ 0.21 $ 0.19
Diluted net income per share................................................ $ 0.01 $ 0.02 $ 0.06 $ 0.17 $ 0.16
Shares used in computing:
Basic net income per share................................................ 24,215 27,064 27,814 28,514 28,934
Diluted net income per share.............................................. 28,890 28,982 33,690 34,378 34,748
Pro forma basic net income per share........................................ $ 0.17
Pro forma diluted net income per share...................................... $ 0.16
Shares used in computing:
Pro forma basic net income per share...................................... 32,723
Pro forma diluted net income per share.................................... 34,748
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
Product................................................................... $ 23,944 $ 36,737
Service................................................................... 3,455 6,329
License and royalty....................................................... 1,772 5,814
--------- ---------
Total revenue........................................................... 29,171 48,880
--------- ---------
Cost of revenue:
Product................................................................... 8,299 13,614
Service................................................................... 510 838
--------- ---------
Total cost of revenue................................................... 8,809 14,452
--------- ---------
Gross margin................................................................ 20,362 34,428
--------- ---------
Operating expenses:
Research and development.................................................. 3,543 5,295
Sales and marketing....................................................... 9,378 14,726
General and administrative................................................ 1,912 2,758
--------- ---------
Total operating expenses................................................ 14,833 22,779
--------- ---------
Income from operations...................................................... 5,529 11,649
Interest income (expense), net.............................................. 555 667
--------- ---------
Income before provision for income taxes.................................... 6,084 12,316
Provision for income taxes.................................................. 2,191 4,435
--------- ---------
Net income.................................................................. $ 3,893 $ 7,881
--------- ---------
--------- ---------
Basic net income per share.................................................. $ 0.13 $ 0.27
Diluted net income per share................................................ $ 0.11 $ 0.22
Shares used in computing:
Basic net income per share................................................ 28,909 29,353
Diluted net income per share.............................................. 34,450 35,694
Pro forma basic net income per share........................................ $ 0.24
Pro forma diluted net income per share...................................... $ 0.22
Shares used in computing:
Pro forma basic net income per share...................................... 33,142
Pro forma diluted net income per share.................................... 35,694
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 358 $ 346 $ 7,797 $ 6,514 $ 6,341
Working capital........................................................... 125 324 7,837 11,140 14,163
Total assets.............................................................. 1,100 2,781 14,328 21,703 31,220
Class B redeemable convertible common stock............................... -- -- -- -- --
Total stockholders' equity................................................ 322 878 8,848 14,809 20,400
<CAPTION>
DECEMBER 31, 1998
----------------------
ACTUAL PRO FORMA
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................. $ 22,024 $ 21,614
Working capital........................................................... 21,830 21,420
Total assets.............................................................. 40,195 39,785
Class B redeemable convertible common stock............................... -- --
Total stockholders' equity................................................ 28,518 28,108
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF NETSCOUT SHOULD BE READ IN CONJUNCTION WITH "SELECTED
CONSOLIDATED FINANCIAL DATA" AND NETSCOUT'S CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND
ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN IMPORTANT FACTORS,
INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
NetScout designs, develops, manufactures, markets and supports an integrated
family of products that enable businesses and service providers to manage the
performance of computer networks and important business software applications.
Our products include data collection devices, consisting of probes and software
agents, which collect, aggregate and perform detailed analysis of computer
network and application data, and analytical software, which provides real-time
network and application performance information in an user-friendly, graphical
format.
We were incorporated in 1984 and primarily provided consulting services
until 1992, when we began to develop and market our first computer network
performance management products. Our operations have been financed principally
through cash provided by operations and we have been profitable for the last 20
quarters.
Product revenue consists of sales of our network and application performance
management products. Product revenue is recognized upon shipment, provided that
fees are fixed and determinable and collection of the related receivable is
probable. Sales to indirect channel partners that are subject to return
privileges are recognized upon shipment, net of an allowance for estimated
product returns which is based on our return policy and historical experience.
Customer payments received in advance of product shipments are recorded as
customer deposits.
Service revenue consists primarily of customer fees from support agreements,
installation and training. We generally provide three-months software and
service support and 12-months hardware support as part of our product sales. In
addition, customers can elect to purchase extended support agreements, typically
for 12-month periods. Revenue from support agreements is deferred and recognized
ratably over the support period. Revenue from installation and training is
recognized as the work is performed.
License and royalty revenue consists primarily of royalties paid under
license agreements by OEMs who incorporate components of our data collection
technology in their own products or who reproduce and sell our software
products. License revenue is recognized when we become contractually entitled to
receive license fees, provided that such fees are fixed and determinable and
collection is probable. Royalty revenue is recognized based upon product
shipment by the license holder.
Revenue from indirect distribution channels, including OEMs, distributors,
resellers, system integrators and service providers, represented 73%, 76% and
82% of total revenue for the fiscal years ended March 31, 1997 and 1998 and the
nine months ended December 31, 1998. Cisco resells our products to customers
under its own private label and incorporates components of our technology into
its products. Our revenue from Cisco represented 24%, 40% and 49% of our total
revenue in the fiscal years ended March 31, 1997 and 1998 and the nine months
ended December 31, 1998. We expect revenue from Cisco to account for a
significant portion of our revenue for the foreseeable future. Network
Associates, a reseller, accounted for 12% of our total revenue in the fiscal
year ended March 31, 1998. No other customer or indirect channel partner
accounted for 10% or more of our total
20
<PAGE>
revenue during the fiscal years ended March 31, 1997 or 1998 or the nine months
ended December 31, 1998.
Revenue from sales outside North America represented 12%, 12% and 11% of our
total revenue in the fiscal years ended March 31, 1997 and 1998 and the nine
months ended December 31, 1998. Sales outside North America are primarily to
indirect channel partners, which are generally responsible for importing
products and providing installation and technical support and service to
customers within their territory. Our reported international revenue does not
include any revenue from sales to customers outside North America made by any of
our North American-based indirect channel partners, including Cisco. We expect
revenue from sales outside North America to continue to account for a
significant portion of our revenue in the future.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenue of certain line items included in our statement of income:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
Revenue:
Product.............................................................. 84.7% 82.1% 81.7% 82.1% 75.2%
Service.............................................................. 9.7 12.7 12.0 11.8 12.9
License and royalty.................................................. 5.6 5.2 6.3 6.1 11.9
--------- --------- --------- --------- ---------
Total revenue...................................................... 100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- ---------
Cost of revenue:
Product.............................................................. 37.6 30.8 29.5 28.5 27.9
Service.............................................................. 0.9 1.7 1.8 1.7 1.7
--------- --------- --------- --------- ---------
Total cost of revenue.............................................. 38.5 32.5 31.3 30.2 29.6
--------- --------- --------- --------- ---------
Gross margin........................................................... 61.5 67.5 68.7 69.8 70.4
--------- --------- --------- --------- ---------
Operating expenses:
Research and development............................................. 7.7 9.8 12.0 12.1 10.8
Sales and marketing.................................................. 28.0 22.1 31.7 32.1 30.1
General and administrative........................................... 4.4 5.9 6.9 6.6 5.7
--------- --------- --------- --------- ---------
Total operating expenses........................................... 40.1 37.8 50.6 50.8 46.6
--------- --------- --------- --------- ---------
Income from operations................................................. 21.4 29.7 18.1 19.0 23.8
Interest income, net................................................... -- 1.5 1.7 1.9 1.4
--------- --------- --------- --------- ---------
Income before provision for income taxes............................... 21.4 31.2 19.8 20.9 25.2
Provision for income taxes............................................. 8.6 11.9 7.1 7.5 9.1
--------- --------- --------- --------- ---------
Net income............................................................. 12.8% 19.3% 12.7% 13.4% 16.1%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1998
REVENUE
Total revenue increased 68% from $29.2 million for the nine months ended
December 31, 1997 to $48.9 million for the nine months ended December 31, 1998.
PRODUCT. Product revenue increased 53% from $23.9 million for the nine
months ended December 31, 1997 to $36.7 million for the nine months ended
December 31, 1998. This increase was primarily due to growth in unit sales
attributable to an increase in the number of sales personnel, an
21
<PAGE>
increase in shipments to existing indirect channel partners and, to a lesser
extent, an expansion of indirect distribution channels. This increase was also
due to an increase in average selling price due to larger volumes of WAN, ATM
and Fast Ethernet probes.
SERVICE. Service revenue increased 83% from $3.5 million for the nine
months ended December 31, 1997 to $6.3 million for the nine months ended
December 31, 1998. This increase was primarily due to growth in sales of support
agreements to new and existing customers attributable to increased sales and
marketing efforts and a reduction of our software and service support period
accompanying product sales from 12 months to three months in January 1998.
LICENSE AND ROYALTY. License and royalty revenue increased 228% from $1.8
million for the nine months ended December 31, 1997 to $5.8 million for the nine
months ended December 31, 1998. This increase was primarily due to a growth in
unit sales of our software and embedded software products by Cisco.
COST OF REVENUE
PRODUCT. Cost of product revenue consists primarily of components,
personnel costs, media duplication, manuals, packaging materials, licensed
technology fees and overhead. Cost of product revenue increased 64% from $8.3
million for the nine months ended December 31, 1997 to $13.6 million for the
nine months ended December 31, 1998. This increase was primarily due to an
increase in unit sales and a shift in product mix. Product gross margins
decreased from 65% for the nine months ended December 31, 1997 to 63% for the
nine months ended December 31, 1998. This decrease was primarily due to a shift
toward indirect sales which tend to have lower gross margins than direct sales
and, to a lesser extent, the pricing of larger direct sales transactions,
partially offset by a decrease in component costs and an increase in operating
efficiencies.
SERVICE. Cost of service revenue consists primarily of personnel costs.
Cost of service revenue increased 64% from $510,000 for the nine months ended
December 31, 1997 to $838,000 for the nine months ended December 31, 1998. This
increase was primarily due to the hiring of additional service personnel to
support an increase in our customer base. Service gross margins increased from
85% for the nine months ended December 31, 1997 to 87% for the nine months ended
December 31, 1998. This increase was primarily due to timing of personnel
replacements and additions. We anticipate that service gross margins will
decrease as a percentage of service revenue as staffing reaches planned levels.
Overall gross margins are primarily affected by the mix of product, service
and license and royalty revenue and by the proportion of sales through direct
versus indirect distribution channels. We typically realize higher gross margins
on license and royalty revenue relative to product and service revenue and on
direct sales relative to indirect distribution channel sales.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of personnel costs, fees for outside consultants and related costs
associated with the development of new products, the enhancement of existing
products, quality assurance and testing. Research and development expenses
increased 49% from $3.5 million for the nine months ended December 31, 1997 to
$5.3 million for the nine months ended December 31, 1998. This increase was
primarily due to the hiring of additional research and development personnel and
higher consulting costs. We anticipate that research and development expenses
will increase in absolute dollars and as a percentage of total revenue as
staffing reaches planned levels.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
personnel costs and costs associated with marketing programs such as trade
shows, seminars, advertising and new product launch activities. Sales and
marketing expenses increased 57% from $9.4 million for the nine months ended
22
<PAGE>
December 31, 1997 to $14.7 million for the nine months ended December 31, 1998.
This increase was primarily due to costs associated with hiring of additional
sales and marketing personnel and an increase in marketing programs. We
anticipate that sales and marketing expenses will increase in absolute dollars
and as a percentage of total revenue as we expand our sales force and marketing
programs to support international expansion, increased sales efforts to major
accounts, brand awareness and product launches.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of personnel costs for executive, financial, information services and
human resource employees. General and administrative expenses increased 44% from
$1.9 million for the nine months ended December 31, 1997 to $2.8 million for the
nine months ended December 31, 1998. This increase was primarily due to the
hiring of additional general and administrative personnel and costs associated
with our growth. We expect that our general and administrative expenses will
increase in absolute dollars as we continue to expand our staff to support
expanded operations and facilities, and incur expenses relating to our new
responsibilities as a public company.
INTEREST INCOME, NET. Interest income, net of interest expense, increased
20% from $555,000 for the nine months ended December 31, 1997 to $667,000 for
the nine months ended December 31, 1998. This increase was primarily due to an
increase in our cash balances.
PROVISION FOR INCOME TAXES. The provision for income taxes increased from
$2.2 million for the nine months ended December 31, 1997 to $4.4 million for the
nine months ended December 31, 1998, primarily due to higher pre-tax income. Our
effective tax rate remained constant at 36% for the nine months ended December
31, 1997 and for the nine months ended December 31, 1998.
YEARS ENDED MARCH 31, 1997 AND 1998
REVENUE
Total revenue increased 40% from $30.6 million for the fiscal year ended
March 31, 1997 to $42.8 million for the fiscal year ended March 31, 1998.
PRODUCT. Product revenue increased 39% from $25.2 million for the fiscal
year ended March 31, 1997 to $35.0 million for the fiscal year ended March 31,
1998. This increase was primarily due to growth in unit sales attributable to an
increase in the number of sales personnel and an increase in shipments to
existing indirect channel partners and, to a lesser extent, an expansion of
indirect distribution channels. This increase was also due to an increase in the
average selling price attributable to an increase in the sale of WAN, Fast
Ethernet and multi-port probes and the introduction of the HSSI probe.
SERVICE. Service revenue increased 32% from $3.9 million for the fiscal
year ended March 31, 1997 to $5.1 million for the fiscal year ended March 31,
1998. This increase was primarily due to growth in sales of support agreements
to new and existing customers attributable to increased sales and marketing
efforts.
LICENSE AND ROYALTY. License and royalty revenue increased 68% from $1.6
million for the fiscal year ended March 31, 1997 to $2.7 million for the fiscal
year ended March 31, 1998. This increase was primarily due to a growth in unit
sales of our software and embedded software products by Cisco.
COST OF REVENUE
PRODUCT. Cost of product revenue increased 34% from $9.4 million for the
fiscal year ended March 31, 1997 to $12.6 million for the fiscal year ended
March 31, 1998. The increase was primarily due to an increase in unit sales and
a shift in product mix. Product gross margins increased from 63%
23
<PAGE>
for the fiscal year ended March 31, 1997 to 64% for the fiscal year ended March
31, 1998. This was
primarily due to a decrease in component costs and an increase in operational
efficiencies.
SERVICE. Cost of service revenue increased 48% from $528,000 for the fiscal
year ended March 31, 1997 to $784,000 for the fiscal year ended March 31, 1998.
This increase was primarily due to the hiring of additional service personnel to
support an increase in the customer base. Service gross margins decreased from
86% for the fiscal year ended March 31, 1997 to 85% for the fiscal year ended
March 31, 1998. This was primarily due to the increase in service personnel.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses increased 71%
from $3.0 million for the fiscal year ended March 31, 1997 to $5.1 million for
the fiscal year ended March 31, 1998. This increase was primarily due to the
hiring of additional research and development personnel and higher consulting
costs related to development of new products and enhancements to existing
products.
SALES AND MARKETING. Sales and marketing expenses increased 100% from $6.8
million for the fiscal year ended March 31, 1997 to $13.6 million for the fiscal
year ended March 31, 1998. This increase was primarily due to the hiring of
additional sales and marketing personnel and an increase in marketing programs,
including trade shows, seminars and advertising.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
63% from $1.8 million for the fiscal year ended March 31, 1997 to $3.0 million
for the fiscal year ended March 31, 1998. This increase was primarily due to the
hiring of additional general and administrative personnel and costs to support
our growth and the related move to new facilities in November 1997.
INTEREST INCOME, NET. Interest income, net of interest expense, increased
61% from $461,000 for the fiscal year ended March 31, 1997 to $743,000 for the
fiscal year ended March 31, 1998. The increase was primarily due to an increase
in our cash balances.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased from
$3.6 million for the fiscal year ended March 31, 1997 to $3.1 million for the
fiscal year ended March 31, 1998. This decrease was primarily due to lower
pre-tax income and, to a lesser degree, a decrease in our effective tax rate.
Our effective tax rate decreased from 38% for the fiscal year ended March 31,
1997 to 36% for the fiscal year ended March 31, 1998 primarily due to the
reinstatement of the Research and Development Tax Credit in 1998.
INCOME FROM OPERATIONS. Income from operations decreased 15% from $9.1
million for the fiscal year ended March 31, 1997 to $7.7 million for the fiscal
year ended March 31, 1998. Income from operations during the fiscal year ended
March 31, 1997 was favorably impacted by higher than anticipated revenue coupled
with expenses that did not increase proportionately.
YEARS ENDED MARCH 31, 1996 AND 1997
REVENUE
Total revenue increased 95% from $15.7 million for the fiscal year ended
March 31, 1996 to $30.6 million for the fiscal year ended March 31, 1997.
PRODUCT. Product revenue increased 90% from $13.3 million for the fiscal
year ended March 31, 1996 to $25.2 million for the fiscal year ended March 31,
1997. This increase was primarily due to growth in unit sales which was
attributable to an increase in shipments to existing indirect channel partners
and an increase in the number of sales personnel and, to a lesser extent, an
expansion of indirect distribution channels. This increase was also due to an
increase in the average selling price attributable to an increase in the sale of
FDDI and Fast Ethernet probes.
24
<PAGE>
SERVICE. Service revenue increased 156% from $1.5 million for the fiscal
year ended March 31, 1996 to $3.9 million for the fiscal year ended March 31,
1997. This increase was primarily due to growth in sales of support agreements
to new and existing customers attributable to increased sales and marketing
efforts.
LICENSE AND ROYALTY. License and royalty revenue increased 81% from
$886,000 for the fiscal year ended March 31, 1996 to $1.6 million for the fiscal
year ended March 31, 1997. This increase was primarily due to a growth in unit
sales of our software and embedded software products by Cisco.
COST OF REVENUE
PRODUCT. Cost of product revenue increased 60% from $5.9 million for the
fiscal year ended March 31, 1996 to $9.4 million for the fiscal year ended March
31, 1997. This increase was primarily due to an increase in unit sales and a
shift in product mix. Product gross margins increased from 56% for the fiscal
year ended March 31, 1996 to 63% for the fiscal year ended March 31, 1997. This
increase was primarily due to a shift in product mix to higher margin products,
a decrease in component costs and increases in operating efficiencies.
SERVICE. Cost of service revenue increased 283% from $138,000 for the
fiscal year ended March 31, 1996 to $528,000 for the fiscal year ended March 31,
1997. This increase was primarily due to the hiring of additional service
personnel to support an increase in the customer base. Service gross margins
decreased from 91% for the fiscal year ended March 31, 1996 to 86% for the
fiscal year ended March 31, 1997. This decrease was primarily due to the
increase in service personnel.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses increased 149%
from $1.2 million for the fiscal year ended March 31, 1996 to $3.0 million for
the fiscal year ended March 31, 1997. This increase was primarily due to the
hiring of additional research and development personnel and higher consulting
costs related to development of new products and enhancements to existing
products.
SALES AND MARKETING. Sales and marketing expenses increased 55% from $4.4
million for the fiscal year ended March 31, 1996 to $6.8 million for the fiscal
year ended March 31, 1997. This increase was primarily due to the hiring of
additional sales and marketing personnel and increases in marketing programs,
including trade shows, direct mail programs and seminars.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
161% from $695,000 for the fiscal year ended March 31, 1996 to $1.8 million for
the fiscal year ended March 31, 1997. This increase was primarily due to the
hiring of additional general and administrative personnel and costs to support
our growth.
INTEREST INCOME (EXPENSE), NET. Interest income, net of interest expense,
increased from an expense of $3,000 for the fiscal year ended March 31, 1996 to
income of $461,000 for the fiscal year ended March 31, 1997. This increase was
primarily due to an increase in our cash balances.
PROVISION FOR INCOME TAXES. The provision for income taxes increased from
$1.4 million for the fiscal year ended March 31, 1996 to $3.6 million for the
fiscal year ended March 31, 1997. This increase was primarily due to higher
pre-tax income. Our effective tax rate decreased from 40% for the fiscal year
ended March 31, 1996 to 38% for the fiscal year ended March 31, 1997 primarily
due to the reduction of non-deductible expenses.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth a summary of NetScout's unaudited quarterly
operating results for each of the seven quarters included in the period ended
December 31, 1998. This information has been derived from unaudited interim
consolidated financial statements that, in the opinion of management, have been
prepared on a basis consistent with the audited consolidated financial
statements contained elsewhere in this prospectus and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information when read in conjunction with our audited
consolidated financial statements and notes thereto. The operating results for
any quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1998 1998 1998 1998
----------- ----------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
STATEMENT OF INCOME DATA:
Revenue:
Product........................................ $ 6,512 $ 7,710 $ 9,722 $ 11,046 $ 11,547 $ 11,863 $ 13,327
Service........................................ 1,192 1,033 1,230 1,688 1,873 2,284 2,172
License and royalty............................ 298 788 686 924 1,843 1,999 1,972
----------- ----------- --------- --------- --------- --------- ---------
Total revenue................................ 8,002 9,531 11,638 13,658 15,263 16,146 17,471
----------- ----------- --------- --------- --------- --------- ---------
Cost of revenue:
Product........................................ 2,162 2,649 3,488 4,339 4,340 4,347 4,927
Service........................................ 136 152 222 274 296 320 222
----------- ----------- --------- --------- --------- --------- ---------
Total cost of revenue........................ 2,298 2,801 3,710 4,613 4,636 4,667 5,149
----------- ----------- --------- --------- --------- --------- ---------
Gross margin..................................... 5,704 6,730 7,928 9,045 10,627 11,479 12,322
----------- ----------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development....................... 1,070 1,196 1,277 1,586 1,732 1,760 1,803
Sales and marketing............................ 2,557 2,984 3,837 4,205 5,008 4,527 5,191
General and administrative..................... 580 586 746 1,038 815 913 1,030
----------- ----------- --------- --------- --------- --------- ---------
Total operating expenses..................... 4,207 4,766 5,860 6,829 7,555 7,200 8,024
----------- ----------- --------- --------- --------- --------- ---------
Income from operations........................... 1,497 1,964 2,068 2,216 3,072 4,279 4,298
Interest income, net............................. 185 176 194 188 200 243 224
----------- ----------- --------- --------- --------- --------- ---------
Income before provision for income taxes......... 1,682 2,140 2,262 2,404 3,272 4,522 4,522
Provision for income taxes....................... 606 771 814 865 1,178 1,628 1,629
----------- ----------- --------- --------- --------- --------- ---------
Net income....................................... $ 1,076 $ 1,369 $ 1,448 $ 1,539 $ 2,094 $ 2,894 $ 2,893
----------- ----------- --------- --------- --------- --------- ---------
----------- ----------- --------- --------- --------- --------- ---------
</TABLE>
26
<PAGE>
AS A PERCENTAGE OF TOTAL REVENUE:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1997 1997 1997 1998 1998 1998
----------- ----------- ----------- ----------- ----------- -----------
Revenue:
Product............................................ 81.4% 80.9% 83.5% 80.9% 75.7% 73.5%
Service............................................ 14.9 10.8 10.6 12.4 12.3 14.1
License and royalty................................ 3.7 8.3 5.9 6.7 12.0 12.4
----- ----- ----- ----- ----- -----
Total revenue.................................... 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- -----
Cost of revenue:
Product............................................ 27.0 27.8 30.0 31.8 28.4 26.9
Service............................................ 1.7 1.6 1.9 2.0 2.0 2.0
----- ----- ----- ----- ----- -----
Total cost of revenue............................ 28.7 29.4 31.9 33.8 30.4 28.9
----- ----- ----- ----- ----- -----
Gross margin......................................... 71.3 70.6 68.1 66.2 69.6 71.1
----- ----- ----- ----- ----- -----
Operating expenses:
Research and development........................... 13.4 12.5 11.0 11.6 11.4 10.9
Sales and marketing................................ 31.9 31.3 33.0 30.8 32.8 28.0
General and administrative......................... 7.3 6.1 6.4 7.6 5.3 5.7
----- ----- ----- ----- ----- -----
Total operating expenses......................... 52.6 49.9 50.4 50.0 49.5 44.6
----- ----- ----- ----- ----- -----
Income from operations............................... 18.7 20.7 17.7 16.2 20.1 26.5
Interest income, net................................. 2.3 1.8 1.7 1.4 1.3 1.5
----- ----- ----- ----- ----- -----
Income before provision for income taxes............. 21.0 22.5 19.4 17.6 21.4 28.0
Provision for income taxes........................... 7.6 8.1 7.0 6.3 7.7 10.1
----- ----- ----- ----- ----- -----
Net income........................................... 13.4% 14.4% 12.4% 11.3% 13.7% 17.9%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<CAPTION>
<S> <C>
DEC. 31,
1998
-----------
Revenue:
Product............................................ 76.3%
Service............................................ 12.4
License and royalty................................ 11.3
-----
Total revenue.................................... 100.0
-----
Cost of revenue:
Product............................................ 28.2
Service............................................ 1.3
-----
Total cost of revenue............................ 29.5
-----
Gross margin......................................... 70.5
-----
Operating expenses:
Research and development........................... 10.3
Sales and marketing................................ 29.7
General and administrative......................... 5.9
-----
Total operating expenses......................... 45.9
-----
Income from operations............................... 24.6
Interest income, net................................. 1.3
-----
Income before provision for income taxes............. 25.9
Provision for income taxes........................... 9.3
-----
Net income........................................... 16.6%
-----
-----
</TABLE>
NetScout's total revenue has increased each of the seven consecutive
quarters in the period ended December 31, 1998. Product revenue increased in
each quarter due to increased market acceptance of our products and
diversification of our sales channels, including expansion of our sales force
and relationships with indirect channel partners. Service revenue generally
increased due to the growth in our customer base and new initiatives to sell
extended support agreements. License and royalty revenue generally increased but
fluctuated due to variability in the sale of software products by Cisco.
Cost of product revenue increased in absolute dollars each quarter primarily
due to higher unit volumes but fluctuated as a percentage of product revenue
primarily due to changes in the distribution channel and, to a lesser degree,
variability of component costs. Cost of service revenue generally increased in
absolute dollars primarily due to the hiring of additional support personnel and
related costs for customer support with the exception of the quarter ended
December 31, 1998, when timing of personnel replacements and additions resulted
in lower expenses. Cost of service revenue fluctuated as a percentage of service
revenue primarily due to variability in staffing levels.
Operating expenses generally increased in absolute dollars primarily due to
increased spending in all areas. Operating expenses generally declined as a
percentage of total revenue primarily due to our limited ability to hire
research and development personnel as well as sales and marketing personnel.
Research and development expenses increased in absolute dollars each quarter
primarily due to the hiring of additional research and development personnel and
higher consulting costs associated with enhancing existing products and
developing new products. Research and development expenses generally declined as
a percentage of total revenue primarily due to research and development
staffing.
Sales and marketing expenses generally increased in absolute dollars each
quarter primarily due to the hiring of additional sales and marketing personnel
and an increase in marketing program activities. A reduction in marketing
activities for the quarter ended September 30, 1998 resulted in a decrease in
27
<PAGE>
overall sales and marketing expenses for that quarter. Sales and marketing
expenses fluctuated as a percentage of total revenue primarily due to
variability in marketing expenditures and our internal hiring cycles for sales
and marketing personnel.
General and administrative expenses generally increased in absolute dollars
primarily due to the hiring of additional financial, information services and
human resources personnel, as well as increased use of outside services. General
and administrative expenses were unusually high in the quarter ended March 31,
1998 primarily due to expenses related to our move to a new facility. General
and administrative expenses have fluctuated as a percentage of total revenue
primarily due to variability in purchases of outside services.
Our operating results have varied on a quarterly basis during our operating
history and are expected to fluctuate significantly in the future. A variety of
important factors, many of which are outside of our control, may affect our
quarterly operating results. See "Risk Factors--Disappointing quarterly
operating results could cause our common stock price to decrease."
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded operations primarily through cash provided
by operating activities. At December 31, 1998, we had cash and cash equivalents
totaling $22.0 million. In March 1999, we extended and increased our line of
credit with a bank which allows us to borrow up to $5.0 million for working
capital purposes and to obtain of letters of credit. The line of credit expires
in March 2000. Amounts available under the line of credit are a function of
eligible accounts receivable and bear interest at the bank's prime rate, which
was 7.75% on March 31, 1999. At March 31, 1999, we had letters of credit
outstanding under the line aggregating $561,000. The bank line of credit is
secured by our inventory and accounts receivable.
Cash provided by operating activities was $2.3 million, $8.4 million, $6.7
million and $8.8 million for the fiscal years ended March 31, 1996, 1997 and
1998 and for the nine months ended December 31, 1998. Cash provided by operating
activities was primarily derived from net income generated and, to a lesser
degree, increases in deferred revenue, accrued expenses, and depreciation and
amortization in each period. This was partially offset by increases in accounts
receivable in fiscal 1996 and fiscal 1998 and for the nine months ended December
31, 1998 and increases in inventories in fiscal 1996, fiscal 1997 and fiscal
1998. All of these increases were due to the growth of our business.
Cash used by investing activities was $788,000, $9.7 million and $6.9
million for the fiscal years ended March 31, 1996, 1997 and 1998. Cash used by
investing activities in fiscal 1996, fiscal 1997 and fiscal 1998 was primarily
due to purchases of marketable securities and purchases of fixed assets and, in
fiscal 1997, also due to loans that were made to stockholders. Cash provided by
investing activities was $6.9 million for the nine months ended December 31,
1998, which was primarily due to the maturity of marketable securities,
partially offset by purchases of fixed assets.
Cash provided by financing activities was $5.9 million for the fiscal year
ended March 31, 1996, which represent the net proceeds derived from the sale of
Series A Preferred Stock. In January 1999, we received gross proceeds of $44.5
million from the sale of Class B Convertible Common Stock and all of the
proceeds were used to redeem shares of Series A Preferred Stock, Non-Voting
Common Stock and common stock. Cash provided by financing activities was $2,000,
$22,000 and $43,000 for the fiscal years ended March 31, 1997 and 1998 and for
the nine months ended December 31, 1998, which was primarily due to proceeds
received upon the exercise of stock options.
As of December 31, 1998, our primary commitments consisted of obligations
outstanding under operating leases. Future noncancelable minimum lease
commitments are $861,000, $959,000, $1.0 million, and $683,000 for fiscal years
2000, 2001, 2002 and 2003.
We expect to experience growth in our working capital needs for the
foreseeable future in order to execute our business plan. We anticipate that
operating activities, as well as planned capital
28
<PAGE>
expenditures, will constitute a material use of our cash resources. In addition,
we may utilize cash resources to fund acquisitions or investments in
complementary businesses, technologies or products. We believe that the net
proceeds from this offering, together with our current cash and cash equivalents
and cash generated from operations, will be sufficient to meet our anticipated
cash requirements for working capital and capital expenditures for at least the
next 12 months.
YEAR 2000 READINESS DISCLOSURE
Many computers and software products accept only two digit entries in date
fields which could cause problems distinguishing 21st century dates from 20th
century dates. The use of computers and software products that are not "Year
2000" compliant could result in system failures or miscalculations causing
business disruptions including the inability to process transactions, send
invoices or perform other business activities. As a result, many computers and
software products may need to be upgraded or replaced in order to meet Year 2000
requirements.
We have reviewed our products to determine whether they are Year 2000
compliant. Based on this review, we believe that most of our products are Year
2000 compliant. The NetScout WebCast Unix and Windows NT products are not
currently Year 2000 compliant but are expected to be made Year 2000 compliant in
the next product release (version 2.1), which is planned for the third calendar
quarter of 1999.
We believe our current financial and accounting system is Year 2000
compliant. We anticipate that our financial and accounting systems will be
upgraded during the third calendar quarter of 1999 and that such systems will
also be Year 2000 compliant. All other commercially available internal systems
used in our daily operations including our computers, software packages,
telephones, security systems, and shipping systems have either been determined
to be compliant, have been certified compliant by the commercial provider, or
are in the process of being tested and upgraded. We expect that our internal
systems will be fully compliant by the end of the third calendar quarter of
1999.
Purchasing patterns of our customers or potential customers may be affected
by Year 2000 issues. They may expend significant resources to correct their
current systems for Year 2000 compliance which could result in reduced funds
available for network management products. Year 2000 complications could also
disrupt the operations of our customers which could delay purchases of network
management products. Reduced funds or delayed purchases could have a material
adverse effect on our business, operating results and financial condition.
In addition, we rely on suppliers and indirect channel partners who may be
impacted by Year 2000 complications. To date, we have not conducted a Year 2000
review of our suppliers or indirect channel partners. We are currently
evaluating the need to conduct a review of our suppliers' and indirect channel
partners' Year 2000 compliance issues. Failure of our suppliers' systems to
operate properly could require us to incur significant expenses to remedy
problems or replace suppliers. Failure of our indirect channel partners' systems
to operate properly could reduce our revenue from indirect distribution
channels. Problems with our suppliers or indirect channel partners could have a
material adverse effect on our business, operating results and financial
condition.
Some of our products are sold to OEMs who incorporate them into their own
product offerings. We do not know whether OEM products incorporating our
products are or will be Year 2000 complaint. If such OEM products are not Year
2000 complaint, their customers could cancel or delay orders which, in time,
would affect the orders that we receive from our OEM partners. Therefore, the
failure of our OEM partners to be Year 2000 complaint could have a material
adverse effect on our business, results of operations and financial condition.
To date, we have not incurred significant incremental costs in order to
comply with Year 2000 requirements and do not expect to incur significant
incremental costs in the foreseeable future. However, there can be no assurance
that Year 2000 errors or defects will not be discovered in our products or our
internal software systems. If such errors or defects are discovered, there can
be no
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assurance that the costs of making such systems Year 2000 compliant will not
have a material adverse effect on our business, operating results and financial
condition.
We do not currently have any Year 2000 contingency plans. If we discover
Year 2000 compliance issues, we intend to evaluate the need for one or more
contingency plans relating to such issues.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We consider all highly-liquid investments purchased with a maturity of three
months or less to be cash equivalents, and those with maturities greater than
three months are considered to be marketable securities. Cash equivalents and
marketable securities are stated at amortized cost plus accrued interest, which
approximates fair value. Cash equivalents and marketable securities consist
primarily of money market instruments and U.S. Treasury bills. We currently do
not hedge interest rate exposure, but do not believe that an increase in
interest rates would have a material effect on the value of our marketable
securities.
EUROPEAN MONETARY UNION
On January 1, 1999, eleven of the existing members of the European Union
("EU") joined the European Monetary Union. Ultimately, there will be a single
currency within certain countries of the EU, known as the Euro, and one
organization, the European Central Bank, responsible for setting European
monetary policy. We have reviewed the impact the Euro will have on our business
and whether this will give rise to a need for significant changes in our
commercial operations or treasury management functions. Because our transactions
are denominated in U.S. dollars, we do not believe that the Euro conversion will
have any material effect on our business, financial condition or result of
operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. We do not expect SOP 98-1,
which is effective for us beginning April 1, 1999, to have a material effect on
our financial condition or results of operations.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities relating to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for our fiscal year 2000 financial statements and we do
not expect its adoption to have a material effect on our financial condition or
results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal year quarters of fiscal years beginning after
June 15, 1999. We do not expect SFAS No. 133 to have a material effect on our
financial condition or results of operations.
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BUSINESS
INTRODUCTION
We design, develop, manufacture, market and support an integrated family of
products that enable businesses and service providers to manage the performance
of computer networks and important business software applications. Our
Application Flow Management ("AFM") solution consists of data collection devices
and analysis and presentation software. AFM collects, aggregates and analyzes
network and application data from a wide range of network technologies. Using
this data, AFM provides real-time information regarding the performance of
computer networks and individual software applications, such as e-mail, order
entry and Web-based applications. Our solution provides this information to
computer network and business managers in a user-friendly, graphical format.
INDUSTRY BACKGROUND
Business enterprises increasingly rely on software applications and computer
networks as strategic assets that are essential to business operations. Computer
networks are being expanded to deliver important software applications, such as
enterprise resource planning, e-mail, order entry, accounting and Web-based
applications, to employees, suppliers, distributors and customers. Because of
the dramatic increase in the number of users who depend on fast and reliable
computer network access, even minor computer network malfunctions can result in
significant business interruptions, lost revenue, decreased productivity and
customer dissatisfaction. As a result, businesses are recognizing the critical
importance of effective network and application performance management.
To support the growing number of users and demand for faster and more
reliable network access, both business enterprises and service providers are
making significant investments in advanced networking technology. The Gartner
Group, a leading networking industry research company, estimates that the
world-wide enterprise networking equipment market, excluding Internet remote
access equipment, was $37.4 billion in 1998, growing at a five-year compounded
annual rate of 28.2%. This growth has resulted in the introduction of new
technologies addressing network speed and access, such as Fast Ethernet, Gigabit
Ethernet, ATM and IP/Internet, and new network products addressing quality of
service and security. The implementation of these new technologies and products
has resulted in highly-complex, multi-vendor computer networks, which are more
difficult to manage.
Traditional network performance management is a reactive process in which
computer network managers respond to problems only after computer network
performance has been impacted. This type of network performance management is
based on receiving alerts from malfunctioning computer network devices or calls
from computers network users indicating that performance has degraded.
Highly-skilled technicians with portable network traffic analyzers are then
dispatched to diagnose and resolve the computer network problems. While this
approach helps computer network managers respond to technical problems, it does
not provide sufficient information to proactively manage the overall computer
network, measure the performance of applications, or address issues with
computer network design. A further drawback of this approach is that network
problems are often addressed by adding costly network capacity instead of
identifying and correcting inefficiencies.
A new, proactive approach is emerging that is designed to anticipate and
help prevent computer network problems before performance is degraded. This
approach is based on analytical software that retrieves and analyzes information
from data sources located on the computer network. These data sources include
existing computer network devices, such as routers, switches and hubs, data
collection software agents, and dedicated data collection devices, known as
probes.
One class of proactive network management products relies on retrieving data
from existing computer network devices. These products generally report on
computer network utilization for use in network capacity planning and device
status monitoring which can help prevent certain types of failures.
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Because this class of products relies on limited, predefined data, originally
intended for device management, it provides minimal information regarding
network users or application performance. These solutions typically provide only
historical and end-of-period reports because providing real-time information
would significantly increase network traffic.
A second class of proactive network management products relies on retrieving
data from proprietary software installed on users' desktop computers. These
solutions provide information regarding application performance, but offer
limited insight into the performance of the network. In addition, these
solutions can be difficult to administer and can burden the processing power of
desktop computers.
A third class of proactive network management products relies on placing
probes on key parts of the computer network to provide continuous monitoring of
computer network traffic. Comprised of dedicated computer hardware and software,
most probes are based on the remote monitoring ("RMON") standard. In contrast
with approaches that utilize existing network devices, probes contain
proprietary software which allows the capture of a richer set of network
information. In contrast with approaches that require the installation of
software on desktop computers, probes contain processors which can capture,
store and analyze traffic data on a computer network segment without impacting
any existing devices on the computer network. Although probes provide the most
robust data about network performance, most probes are unable to provide
information regarding application performance, such as response time.
Business and computer network managers need a comprehensive approach to
network and application performance management that enables them to anticipate
and address network performance problems and align their computer resources to
their business strategies. Although each of the new, proactive network
management approaches provides better solutions than the traditional reactive
approach, none of these approaches provides the ability to manage both network
and application performance.
NETSCOUT SOLUTION
We design, develop, manufacture, market and support an integrated family of
products to enable business managers to manage both network and application
performance, which together comprise our Application Flow Management ("AFM")
solution. AFM uses proprietary technology to deliver more functionality than
other solutions. Our probes collect, aggregate and perform detailed analysis on
a wide range of computer network data, including data from individual software
applications. We believe that we currently offer the industry's most extensive
family of probes, with models for a wide range of network technologies. In
addition, our robust analytical software provides real-time network and
application performance information in a user-friendly, graphical format. AFM
addresses the following key aspects of network management:
- APPLICATION RESPONSE TIME MEASUREMENT. AFM measures and provides detailed,
real-time information on application response time over the computer
network. This information enables network managers to optimize application
configuration, prioritize applications and proactively manage the computer
network.
- MONITORING AND TROUBLESHOOTING. AFM allows real-time monitoring and trend
analysis of network usage, performance and error conditions which help
network managers prevent network malfunctions. When network problems do
occur, detailed information expedites troubleshooting to minimize the
impact.
- CAPACITY PLANNING. AFM measures trends in network usage by individual
software application. Helps network managers make informed network
spending decisions.
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- POLICY ENFORCEMENT. AFM allows network managers to identify inappropriate
or wasteful usage of the computer network. Network managers can use this
information to ensure adherence to corporate policies and guidelines.
- ACCOUNTING AND CHARGE-BACK. AFM provides network usage information by
user, department or application. When used in conjunction with accounting
software packages, it allows customers to charge for internal network
usage.
STRATEGY
Our objective is to enhance our leadership position in the network and
application performance management market. Key elements of our strategy include:
EXTEND TECHNOLOGY LEADERSHIP IN INSTRUMENTATION. We intend to continue to
devote significant resources to the development of new and innovative products,
capitalizing on our extensive experience with large computer networks and our
understanding of customer needs. As computer networks evolve, we intend to
incorporate new technologies and provide solutions to enable businesses to
manage and optimize the performance of their computer networks and critical
software applications. We have an extensive track record of innovation,
including the introduction of Ethernet probes in 1992, WAN probes in 1993,
switch embedded probes and CDDI/FDDI probes in 1995, Fast Ethernet probes in
1996, WAN (T3) probes in 1997, ATM probes in 1998, and Channelized WAN and Fast
EtherChannel probes in 1999. We are currently developing a Gigabit Ethernet
probe that is planned for release later in 1999.
EXPAND REPORTING AND ANALYSIS SOFTWARE SUITE. We plan to develop new
analysis, presentation and reporting software to leverage the extensive
information collected by our probes. Our product family is designed to permit
easy integration of enhanced analysis and reporting functions, as demonstrated
by the release of Resource Monitor in 1994, NetScout Server and WebCast in 1997
and AppScout in 1999.
LEVERAGE INSTALLED BASE OPPORTUNITIES. We have sold a majority of our
products through indirect distribution channels and have also sold our products
directly to over 600 customers. Our installed base consists of over 25,000
hardware probes and over 50,000 switch-embedded agents. We intend to target
existing users of our products with marketing and sales programs designed to
promote the more extensive use of our data collection devices throughout their
computer networks and the adoption of our management software options.
TARGET NEW MARKET OPPORTUNITIES. We market our products to potential
customers in markets which we believe have the potential for growth. We have
identified the following markets as having the potential for strong demand for
our products:
- network management outsourcing companies, such as Compaq and WANG Global;
- connectivity service providers, such as MCI Worldcom and Concert
Communications Company; and
- application service providers, which we believe is an emerging market.
CONTINUE TO LEVERAGE CISCO RELATIONSHIP. Since 1994, we have had a
strategic relationship with Cisco. Our strategy is to further synchronize our
product development and marketing activities with Cisco's business strategy, and
to support Cisco's distribution of our products. Through our relationship with
this computer networking industry leader, we have significantly increased the
sale of our products and enhanced the market acceptance of our network and
application performance management solutions.
EXPAND DISTRIBUTION CHANNELS. We plan to substantially increase the number
of our field sales representatives. We also seek to develop additional indirect
distribution channels to promote our
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products, including computer networking equipment and software application
vendors, system integrators, distributors, resellers and service providers. We
have strategic relationships with Paradyne Corporation, WaveTek Wandel
Goltermann, Inc., FORE Systems, Inc. and Compaq Computer Corporation designed to
facilitate the distribution and market acceptance of our solutions. We are
striving to increase sales outside of North America through the addition of
sales personnel and increased marketing activities to support our indirect
channel partners, including Cisco.
FACILITATE DEVELOPMENT OF COMPLEMENTARY THIRD-PARTY PRODUCTS. Our probes
provide a rich source of data that can be used by third-party software products.
As a means to increase demand for our products, we encourage the development of
applications that leverage our solutions. For example, we have partnered with
Concord Communications, Inc., DeskTalk Systems, Inc. and Apogee Networks, Inc.
to develop interoperable, expanded solutions. We supply a developer's toolkit,
which includes interfaces to our products, to enable the development of
complementary products.
PRODUCTS AND TECHNOLOGY
Our AFM solution provides computer network and application performance
management through three layers of products:
Graphic depicting the three layers of our products: Data Collection, Data
Aggregation and Information and Presentation Analysis
Our products are generally purchased as a complete system, consisting of
multiple data sources, presentation and analysis software and optional data
aggregation software for larger networks. A representative new customer would be
a multinational corporation that deploys 25 to 50 probes, data aggregation
software and our full suite of presentation and analysis software over a
12-month period. Depending on the type of network, such a deployment would
typically cost between $100,000 and $300,000. After initial deployment of our
solution, a customer can add additional probes and management software options
on an individual basis. Our solution has been deployed in networks employing
more than 500 probes.
DATA COLLECTION
Our data sources are based on the RMON standard and implement proprietary
enhancements for additional functionality, such as application response time and
switched network monitoring. We offer the following family of data sources:
PROBES. NetScout probes are dedicated data collection devices comprised
of a standard hardware platform and proprietary software. Probes contain
processors that capture, store and analyze data on a computer network. Our
probes are best suited for parts of the computer network that require
continuous monitoring and support a wide range of computer network
technologies, including the following:
- Ethernet, Fast Ethernet, Fast EtherChannel and Token Ring;
- Sub-rate, T1/E1, T3/E3 WAN and Frame Relay;
- FDDI/CDDI; and
- Oc3 ATM.
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SOFTWARE AGENTS. NetScout software agents are software-only data
sources that run on server or desktop computers running the Windows NT
operating system. This lower-cost alternative is best suited for parts of
the computer network with lower traffic volume, such as branch office
networks and remote user links.
SWITCH EMBEDDED AGENTS. Switch embedded agents are data sources
operating in third-party network switches. One version of our switch
embedded agent consists of our software embedded into the switch operating
system. Because the switch embedded agent must utilize the switch's
processor, it offers only a limited subset of our data collection
functionality. Another version which has been implemented with Cisco
requires the installation of a dedicated interface module into the switch.
Because the module has its own processor, it can offer the full range of our
data collection functionality.
DATA COLLECTION AGENT OPTIONS. Our data collection agent options are
proprietary software enhancements for our probes and software agents. These
options consist of:
- NetFlow Monitor. This enhancement allows certain types of our probes to
collect traffic information stored in Cisco routers in order to provide
a single, consolidated view of all traffic information to the network
manager.
- Resource Monitor. With this option, our probes are enabled to collect
information from network devices, including servers, to offer a more
complete, end-to-end view of the network.
- Application Response Time Management Information Base (ART MIB). This
option enables our probes or agents to monitor application response
times on a given part of the network.
- VLAN Monitor. With this option, users can collect traffic information
pertaining to a given subset of users within a switched network, giving
additional flexibility to the network manager for troubleshooting and
traffic accounting.
DATA AGGREGATION
NETSCOUT SERVER. NetScout Server is an optional data aggregation software
package that enables our AFM solution to effectively manage large computer
networks. NetScout Server reduces overall computer network and application
performance management traffic by aggregating, sorting, simplifying and storing
data collected at remote sites. It then transmits only relevant periodic reports
and real-time alarms through the WAN to the presentation and analysis software.
This reduces consumption of costly WAN bandwidth. NetScout Server runs on the
Microsoft Windows NT, Sun Solaris, HP-UNIX and IBM AIX operating platforms.
INFORMATION PRESENTATION AND ANALYSIS
Our presentation and analysis software provides clear, meaningful, real-time
displays of relevant network and application performance data to network and
business managers in easy-to-read, graphical formats. We offer the following
family of data presentation and analysis software:
NETSCOUT MANAGER PLUS. NetScout Manager Plus presents management
reports based on data gathered from probes, embedded agents, software agents
and NetScout Server. NetScout Manager Plus provides a suite of over 40
integrated functions, which include application-level management, monitoring
and troubleshooting, capacity planning, policy enforcement and accounting.
APPSCOUT. AppScout uses our data sources to monitor the performance of
applications over the network, including response time and bandwidth
utilization by application or by user.
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AppScout is a real-time, browser-based reporting solution that is especially
useful when measuring service level conformance or deploying new
applications.
WEBCAST. WebCast works in conjunction with NetScout Manager Plus and
provides a portfolio of secure, easy-to-access reports viewable by
authorized users from any Web browser.
SALES AND MARKETING
We sell our products through indirect distribution channels and a direct
sales force. Our indirect channel partners include OEMs, distributors,
resellers, system integrators and service providers. For the fiscal years ended
March 31, 1997 and 1998 and the nine months ended December 31, 1998, revenue
from indirect channels represented 73%, 76% and 82%, respectively, of total
revenue. Sales to Cisco, our largest indirect channel partner, represented 24%,
40% and 49%, respectively, of our total revenue during the same periods.
Our direct sales force works in cooperation with our indirect channel
partners and devotes significant efforts to support sales through indirect
distribution channels. We plan to substantially increase the number of our field
sales representatives, which we believe will promote additional direct and
indirect sales.
We use a consultative sales approach. Our inside sales representatives
pre-qualify opportunities and set up appointments for members of the field sales
team. An initial sales meeting will generally consist of a review of the
prospect's specific computer network and application performance management
needs and a demonstration of our products' capabilities. Often, the
demonstration will be followed by a product evaluation on the customer's
network. Our sales representative will often encourage one of our indirect
channel partners to participate in the sales process. In addition, our indirect
channel partners often request that we participate in sales presentations to
their customers.
International sales are accomplished primarily through indirect distribution
channels. Revenues from sales outside North America represented 12%, 12% and 11%
of total revenue for the fiscal years ended March 31, 1997 and 1998 and the nine
months ended December 31, 1998, respectively. We believe that our North American
indirect channel partners also resell a significant amount of our products
internationally.
As of March 31, 1999, our North American field sales organization consisted
of 43 employees. Our international field sales organization consisted of 10
employees with an office in the United Kingdom. In addition, we had 16 employees
responsible for providing telesales and sales and administrative support. In
addition to our Westford, Massachusetts headquarters, we have sales offices in
Maryland, North Carolina, Texas, Minnesota, Illinois, California, Oregon, and
Ontario, Canada.
A key element of our market penetration strategy is the formation of
strategic relationships with industry-leading network equipment vendors and
software suppliers in various complementary areas. We believe these
relationships increase our market presence and generate qualified opportunities
to sell our solutions. As of March 31, 1999, our business development
organization consisted of 10 employees.
Our marketing organization utilizes a variety of programs to promote the
sale and acceptance of our solutions. As of March 31, 1999, our marketing
organization consisted of 19 employees. Our marketing programs include:
- advertising;
- trade shows;
- public relations activities;
- direct mail;
- seminars and speaking engagements;
- brochures, data sheets and white papers; and
- Web marketing.
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STRATEGIC RELATIONSHIP WITH CISCO
Cisco is a significant distributor of our products under its private label.
We sell NetScout Manager and NetScout probes to Cisco, which are resold by Cisco
under the names TrafficDirector and SwitchProbes. We also license versions of
our software for use in a range of Cisco switches for which we receive royalty
payments and we provide development services to Cisco for which we receive
engineering fees. Cisco has a worldwide, non-exclusive right to market and
resell our products on a stand-alone basis and to incorporate certain components
of our technology into its products. This relationship is governed by a project
development and license agreement dated as of January 13, 1994 and a private
labeling agreement dated as of May 15, 1996. These agreements have been amended
and were extended until October 2000.
We work closely with Cisco on joint sales and marketing efforts. These
include collaboration on product marketing, our participation in Cisco seminars,
joint customer presentations, introductions to Cisco's international
distributors and links between our web sites. We devote significant time and
attention of senior management, as well as resources throughout our company, to
making this partnership successful and believe that we have a strong business
relationship.
CUSTOMERS
We sell our products to businesses and organizations with large and
medium-sized computer networks. We have sold a majority of our products through
indirect distribution channels and have also sold our products directly to over
600 customers. Our customers operate in a wide variety of industries, such as
financial services, transportation, manufacturing, insurance, retail and
software development. The following is a partial list of our customers:
<TABLE>
<S> <C>
3M Corporation Los Alamos National Laboratory
Amoco Corporation Lotus Development Corp.
AT&T Mid America Energy Co.
Cargill Financial Services Merrill Corporation
CIGNA Corporation Morgan Stanley
Consumers Energy Company NationsBank
Deutsche Bank AG London NCR
Donaldson, Lufkin & Jenrette Northwest Airlines
The GAP, Inc. Providian Financial Corp
Fidelity Investments State Street Bank and Trust
Goldman Sachs & Co. Sun Microsystems, Inc.
Harvard Pilgrim Health Care Teradyne
Lehman Brothers Toys-R-Us
Liberty Mutual Group Xerox
Lockheed Martin Financial Services
</TABLE>
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The following are examples of selected client applications of our products:
<TABLE>
<CAPTION>
THE PROBLEM NETSCOUT'S SOLUTION THE RESULT
<S> <C> <C>
Troubleshooting
A manufacturing firm with 8,400 Using our AFM solution, the The WAN was properly
employees at 75 networked company monitored its network reconfigured and, as a result,
locations in 23 countries was and identified a configuration order entry response times
experiencing sluggish order problem that originated with returned to normal, and users
entry response times which the WAN service provider. stopped complaining of slow
compromised the quality of service.
customer service.
Capacity Planning
A leading financial services Using our AFM solution, the The company identified baseline
company with 10,000 employees company was able to understand usage patterns, which helped
at 350 sites depended on its current and profile future them to intelligently plan and
network to process 200,000 capacity requirements for their implement infrastructure
online financial trades and network. expenditures. Our AFM solution
support up to 20 million Web also identified remnants of a
site hits a day. This volume software test that was slowing
caused business-critical down a remote server. As a
applications to slow down. result, the company avoided
purchasing $90,000 in
unnecessary bandwidth capacity.
Usage-based Accounting
A technology enterprise had a Using our AFM solution, the The program has just been
network with 12,500 users network operations center implemented in Europe and is
spanning 715 sites. The CEO designed a charge-back program expected to be rolled out in
wanted to economize and for network usage. The program the U.S. in June 1999. The
challenged the network was based on quantifying company anticipates substantial
operations center to control bandwidth usage and response reductions in overhead with
network costs. times by user and by network access tied to business
application throughout the goals.
network.
Application Deployment
A large aerospace defense Our AFM solution was installed The network team was able to
contractor wanted to move its to provide both confirm that the WAN had
email system from a local application-level data and adequate capacity. Our solution
server to a remote server. This network-wide bandwidth usage minimized the risks involved in
critical application had to information. The company was a major application
continue running smoothly, and able to determine the current re-deployment.
the network team was unsure if local server load and calculate
the WAN could handle the how much data would flow across
additional load. the WAN to the remote server.
</TABLE>
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SUPPORT SERVICES
We believe that providing a high level of customer service and technical
support is critical to achieving effective product implementation and ensuring
customer satisfaction. We offer a broad range of support and training services
to our customers and work closely with our indirect channel partners to provide
pre-sales and post-sales support.
We offer a toll-free technical support hotline to our customers under
support agreements and to our indirect channel partners. This hotline is staffed
by customer support engineers from 8:00 a.m. to 8:00 p.m., Eastern time, Monday
through Friday, from our corporate headquarters in Westford, Massachusetts. As
of March 31, 1999, our support services organization consisted of 11 employees.
RESEARCH AND DEVELOPMENT
We devote substantial resources to developing new products and enhancing
existing products. Our market is characterized by rapid technological change,
frequent product introductions and enhancements, evolving industry standards and
rapidly changing customer requirements. We have a long record of product
innovation, including:
<TABLE>
<CAPTION>
INFORMATION AGGREGATION
CALENDAR YEAR AND
INTRODUCED PROBES AND AGENTS PRESENTATION SOFTWARE
<S> <C> <C>
1992 Ethernet, Token Ring NetScout Manager
1993 -- --
1994 WAN Resource Monitor
1995 CDDI/FDDI, Switch Embedded
1996 Fast Ethernet NetScout Manager Plus
1997 WAN (T3) NetScout Server, WebCast
1998 ATM --
1999 Channelized WAN, AppScout
Fast EtherChannel --
1999 (Planned) Gigabit Ethernet --
</TABLE>
As of March 31, 1999, our research and development organization consisted of
52 employees. In addition, we contract with third parties to perform specific
development projects. Research and development expenditures for the fiscal years
ended March 31, 1997 and 1998 and for the nine months ended December 31, 1998
were approximately $3.0 million, $5.1 million and $5.3 million. To date, all
research and development expenses have been expensed as incurred.
COMPETITION
The market for our products is new and rapidly evolving, and is expected to
become increasingly competitive as current competitors expand their product
offerings and new companies enter the market. Our principal competitors include
a number of companies offering one or more solutions for the network and
applications performance management market, some of which compete directly with
our products. For example, we compete with probe vendors, such as
Hewlett-Packard, providers of network performance management solutions, such as
Concord Communications and Micromuse, providers of application performance
management solutions, such as International Network Services, and providers of
portable network traffic analyzers, such as Network Associates. In addition,
leading network equipment providers could offer their own or competitors'
solutions in the future. We believe that the principal competitive factors in
the network and applications performance management solutions market include:
- product performance, functionality and price;
- name and reputation of vendor;
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- distribution strength; and
- alliances with industry partners.
Although we believe that we currently compete favorably with respect to
these factors, there can be no assurance that we can maintain our competitive
position against current and potential competitors, especially those with
greater financial, management, marketing, service, support, technical,
distribution and other resources.
MANUFACTURING
Our manufacturing operations consist primarily of final product assembly,
configuration and testing. We purchase components and subassemblies from
suppliers and configure our hardware products to individual customer
requirements. We inspect, test and use statistical process control to ensure the
quality and reliability of our products. In February 1998, we obtained ISO 9001
quality systems registration, a certification showing that our procedures and
manufacturing facilities comply with standards for quality assurance and
manufacturing process control. As of March 31, 1999, our manufacturing
organization consisted of 20 employees.
Although we generally use standard parts and components for our products,
each of the computer network interface cards used in our probes is currently
available only from separate single source suppliers. We have generally been
able to obtain adequate supplies of components in a timely manner from current
suppliers. We have no supply commitments with our suppliers but believe that, in
most cases, alternate suppliers can be identified if current suppliers are
unable to fulfill our needs.
INTELLECTUAL PROPERTY RIGHTS
Our success and competitiveness are dependent to a significant degree on the
protection of our proprietary technology. We rely primarily on a combination of
copyrights, trademarks, licenses, trade secret laws and restrictions on
disclosure to protect our intellectual property and proprietary rights. We also
enter into confidentiality agreements with our employees and consultants, and
generally control access to and distribution of our documentation and other
proprietary information.
We pursue registration of some of our trademarks in the U.S. and in other
countries. We have registered the trademark NetScout in the U.S. and the
European Union. We have filed applications for the NetScout trademark in Canada
and Japan, and those applications are still pending. In addition, we have
applications pending for the NetScout Logo and AppScout, in the U.S., Canada,
Europe and Japan. We are also pursuing registration in the U.S. for the marks
ART MIB, FrameScout and WebScout.
EMPLOYEES
As of March 31, 1999, we had 209 employees, 160 of whom were based at our
headquarters in Westford, Massachusetts. None of our employees is subject to a
collective bargaining agreement. We believe that our relations with our
employees are good.
FACILITIES
We lease approximately 97,500 square feet of space in an office building in
Westford, Massachusetts for our headquarters. The lease expires in November
2002, and we have an option to extend the lease for an additional five-year
term. We also lease office space in nine other cities for our sales and support
personnel. We believe that these existing facilities are adequate to meet our
foreseeable requirements or that suitable additional or substitute space will be
available on commercially reasonable terms.
LEGAL PROCEEDINGS
From time to time we may be subject to legal proceedings and claims in the
ordinary course of our business, including claims of alleged infringement of
third party trademarks and other intellectual property rights by us. We are not
aware of any legal proceedings or claims that we believe will have, individually
or in the aggregate, a material adverse effect on our business, financial
condition or results of operations.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of NetScout are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Anil K. Singhal................................ 45 Chairman of the Board, Chief Executive Officer and
Treasurer
Narendra Popat(1).............................. 50 President, Chief Operating Officer, Secretary and Director
Charles W. Tillett............................. 42 Vice President, Finance and Administration and Chief
Financial Officer
Nathan Kalowski................................ 53 Vice President, Business Development
Ashwani Singhal................................ 38 Vice President, Engineering
Gerald Stabile................................. 39 Vice President, Worldwide Sales and Services
Tracy Steele................................... 39 Vice President, Manufacturing
Michael Szabados............................... 47 Vice President, Marketing
Richard J. Egan(1)............................. 63 Director
Joseph G. Hadzima, Jr.(1)(2)................... 47 Director
Kenneth T. Schiciano(2)........................ 36 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
ANIL K. SINGHAL co-founded NetScout in June 1984 and has served as
NetScout's Chairman of the Board, Chief Executive Officer and Treasurer since
July 1993. From NetScout's inception until July 1993, Mr. Singhal was President
of NetScout. Mr. Singhal has served as a director of NetScout since inception.
Prior to founding NetScout, he was a Senior Architect and Project Manager at
Wang Laboratories, a provider of computer systems, from 1979 until June 1984.
Mr. Singhal is the brother of Ashwani Singhal, NetScout's Vice President,
Engineering.
NARENDRA POPAT co-founded NetScout in June 1984 and has served as NetScout's
President, Chief Operating Officer and Secretary since July 1993. From
NetScout's inception until July 1993, Mr. Popat was Chairman of the Board and
Treasurer of NetScout. Mr. Popat has served as a director of NetScout since
inception. Prior to founding NetScout, he was a Senior Software Engineer at Wang
Laboratories from 1980 until June 1984.
CHARLES W. TILLETT has served as NetScout's Vice President, Finance and
Administration since May 1995 and Chief Financial Officer since April 1999. Mr.
Tillett joined NetScout in July 1991 and served as Director, Finance and
Administration from July 1991 until May 1995. Prior to joining NetScout, he
served Fidelity Investments, a financial services firm, in various capacities,
most recently as Project Manager.
NATHAN KALOWSKI has served as NetScout's Vice President, Business
Development since August 1997. Mr. Kalowski joined NetScout in July 1993 and
served as Vice President, Marketing from July 1993 until August 1997. Prior to
joining NetScout, he was Vice President, Marketing for Proteon, a computer
networking company, from 1988 until May 1993. He has also held various
engineering, product management, marketing and executive positions at Texas
Instruments, a diversified electronics company, General Electric, a diversified
electronics company, and Digital Equipment Corporation, a computer hardware
company.
ASHWANI SINGHAL has served as NetScout's Vice President, Engineering since
October 1998. Mr. Singhal joined NetScout in 1987 and served as a Senior
Software Engineer and Project Manager
41
<PAGE>
from 1987 until February 1997 and as Director of Engineering from February 1997
until October 1998. Prior to joining NetScout, he was a Senior Software Engineer
at Symmetrix, an artificial intelligence systems company, from 1984 until 1987.
Mr. Singhal is the brother of Anil Singhal, NetScout's Chairman of the Board and
Chief Executive Officer.
GERALD STABILE has served as NetScout's Vice President, Worldwide Sales and
Services since October 1998. Mr. Stabile joined NetScout in September 1997 and
served as Vice President, Worldwide Sales from March 1998 until October 1998 and
as Vice President, North American Sales from September 1997 until March 1998.
Prior to joining NetScout, he served Olicom (formerly CrossComm Corporation), a
developer of networking software, as Vice President, Americas from 1996 until
September 1997 and as Sales Director from 1992 through 1995.
TRACY STEELE has served as NetScout's Vice President, Manufacturing since
May 1997. Mr. Steele joined NetScout in November 1995 and served as Director of
Manufacturing from November 1995 until May 1997. Prior to joining NetScout, he
served as Director of Manufacturing for Scope Communications, a developer of
hand-held network tools, from 1993 until November 1995.
MICHAEL SZABADOS has served as NetScout's Vice President, Marketing since
August 1997. Prior to joining NetScout, he served as Chief Executive Officer of
Jupiter Technology, Inc., a developer of frame relay access devices, from March
1997 until August 1997. He also served as Vice President, Product
Management/Marketing at UB Networks, a computer networking company, from July
1994 until March 1997 and served as Director of Marketing at SynOptics
Communications, a computer networking company, from 1991 until July 1994.
RICHARD J. EGAN has served as a director of NetScout since January 1999. Mr.
Egan is a founder of EMC Corporation, a provider of computer storage systems and
software. Mr. Egan has served EMC Corporation, a publicly-held company, as
Chairman of the Board since January 1988, as a director since inception in 1979,
as Chief Executive Officer from 1979 until January 1992 and as President from
1979 until January 1988. Mr. Egan is also a director of BEC Energy Company, a
public utility.
JOSEPH G. HADZIMA, JR. has served as a director of NetScout since July 1998.
Mr. Hadzima has been a Managing Director of Technology Enabling Company, LLC, a
venture capital investment and technology commercialization company, since April
1998. Since June 1996, he has also served as Of Counsel at Sullivan & Worcester
LLP, a law firm where he was a partner from October 1987 until June 1996. Mr.
Hadzima served as Senior Vice President and General Counsel of Quantum Energy
Technologies Corporation, an energy and environmental products research and
development company, from June 1996 until December 1998. Mr. Hadzima is also a
Senior Lecturer at MIT Sloan School of Management.
KENNETH T. SCHICIANO has served as a director of NetScout since January
1999. Mr. Schiciano has been a Principal of TA Associates, Inc., a venture
capital firm, since December 1994. Mr. Schiciano served as a Vice President of
TA Associates from August 1989 until December 1994. Prior to that, Mr. Schiciano
was a member of the technical staff of AT&T Bell Laboratories, a
telecommunications company. Mr. Schiciano is also a director of Galaxy Telecom
L.P. and several privately-held companies.
The Board of Directors is currently fixed at five members. NetScout's
amended and restated certificate of incorporation, as in effect immediately
following this offering, divides the Board of Directors into three classes. The
members of each class of directors serve for staggered three-year terms. The
Board of Directors is composed of (i) one Class I director (Mr. Schiciano),
whose term expires upon the election and qualification of directors at the
annual meeting of stockholders to be held in 2000, (ii) two Class II directors
(Messrs. Singhal and Egan), whose terms expire upon the election and
qualification of directors at the annual meeting of stockholders to be held in
2001 and (iii) two Class III directors (Messrs. Popat and Hadzima), whose terms
expire upon the election and qualification of directors at the annual meeting of
stockholders to be held in 2002.
42
<PAGE>
Our executive officers are elected by and serve at the discretion of the
Board of Directors. Except as noted above, there are no family relationships
among any of our executive officers and directors.
COMMITTEES OF THE BOARD OF DIRECTORS
We have a standing Compensation Committee and Audit Committee of the Board
of Directors. The current members of the Compensation Committee are Messrs.
Egan, Hadzima and Popat. The Compensation Committee's duties are to review and
evaluate the salaries and incentive compensation of our management and employees
and administer our 1990 Stock Option Plan, 1999 Stock Option and Incentive Plan
and 1999 Employee Stock Purchase Plan.
The current members of the Audit Committee are Messrs. Hadzima and
Schiciano. The Audit Committee is responsible for reviewing the results and
scope of audits and other services provided by our independent public
accountants and reviewing our system of internal accounting and financial
controls. The 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 as may be brought to its attention.
DIRECTOR COMPENSATION
After this offering, non-employee directors will be reimbursed for their
reasonable out-of-pocket expenses incurred in attending meetings of the Board of
Directors or of any committee thereof. On July 14, 1998, we granted to Joseph
Hadzima, a member of the board of directors, an option to purchase 90,000 shares
of common stock vesting over a four-year period, at an exercise price of $2.67
per share. No director who is an employee of NetScout will receive separate
compensation for services rendered as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In January 1999, NetScout's Board of Directors established the Compensation
Committee and appointed Messrs. Popat, Egan and Hadzima to serve on the
Compensation Committee. Messrs. Popat, Egan and Hadzima each had certain
transactions with NetScout which we described in the "Certain Transactions"
section of this prospectus.
The Compensation Committee evaluates the salaries and incentive compensation
of management and employees of NetScout and administers our equity incentive
plans. Other than Mr. Popat and as described under "Certain Transactions," no
member of this committee was at any time during the past year an officer or
employee of NetScout, was formerly an officer of NetScout or any of its
subsidiaries, or had any relationship with NetScout. During the last year, none
of our executive officers served as:
- a member of the compensation committee (or other committee of the Board of
Directors performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors) of another entity, one of whose
executive officers served on the Compensation Committee of NetScout;
- a director of another entity, one of whose executive officers served on
the Compensation Committee of NetScout; or
- a member of the compensation committee (or other committee of the Board of
Directors performing equivalent functions or, in the absence of any such
committee, the entire Board of Directors) of another entity, one of whose
executive officers served as a director of NetScout. See "Certain
Transactions."
43
<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the total compensation
paid or accrued for the fiscal year ended March 31, 1999 for (i) the Chief
Executive Officer of NetScout and (ii) the four other most highly compensated
executive officers of NetScout other than the Chief Executive Officer
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(2)
- --------------------------------------------------------------------- --------- --------- -------------------
<S> <C> <C> <C>
Anil K. Singhal...................................................... 250,000 325,000 2,144
Chairman of the Board and
Chief Executive Officer
Narendra Popat....................................................... 250,000 325,000 2,144
President and Chief
Operating Officer
Charles W. Tillett................................................... 150,000 100,000 2,462
Vice President, Finance and
Administration and
Chief Financial Officer
Gerald Stabile....................................................... 136,800 152,500 --
Vice President, Worldwide
Sales and Services
Michael Szabados..................................................... 137,500 75,000 2,452
Vice President, Marketing
</TABLE>
- ------------------------
(1) NetScout did not make any restricted stock awards, grant any stock
appreciation rights or stock options or make any long-term incentive
payments during the fiscal year ended March 31, 1999 to its Named Executive
Officers. In accordance with the rules of the Securities and Exchange
Commission, the compensation set forth in the table does not include certain
perquisites and other benefits which do not exceed the lesser of $50,000 or
10% of the person's salary and bonus shown in the table.
(2) Composed of contributions to a defined contribution plan.
OPTION GRANTS IN LAST FISCAL YEAR
No stock option or stock appreciation rights were granted to any of the
Named Executive Officers during the fiscal year ended March 31, 1999.
YEAR-END OPTION TABLE
The following table sets forth information regarding exercisable and
unexercisable stock options held as of March 31, 1999 by each of the Named
Executive Officers. There was no public trading market for our common stock as
of March 31, 1999. Accordingly, the value of unexercised in-the-money options
has been calculated by determining the difference between the exercise price per
share and an assumed initial public offering price of $ .
44
<PAGE>
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END ($)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ------------ ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Anil K. Singhal............ -- -- -- -- -- --
Narendra Popat............. -- -- -- -- -- --
Charles W. Tillett......... 175,312 1,043,107(1) -- 79,687 --
Gerald Stabile............. 21,900 56,721(2) 90,600 187,500
Michael Szabados........... 33,000 85,470(2) 102,000 225,000
</TABLE>
- ------------------------
(1) Calculated by determining the difference between the exercise price per
share and the fair market value on the date of exercise.
(2) Calculated by determining the difference between the exercise price per
share and the fair market value of $4.26 on the date of exercise, which was
also the redemption date for these shares.
STOCK PLANS
1990 STOCK OPTION PLAN. The 1990 Stock Option Plan (the "1990 Stock Option
Plan"), was adopted by the Board of Directors and approved by the stockholders
on October 4, 1990. Under the 1990 Stock Option Plan, we are authorized to grant
options to purchase shares of common stock intended to qualify as incentive
stock options as defined under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to our employees. In addition, we are authorized to
grant non-qualified stock options to purchase shares of common stock to
employees, consultants and directors. In general, options granted pursuant to
the 1990 Stock Option Plan are exercisable within ten years of the original
grant date and become exercisable over a period of four years from a specific
date, and an additional 25% of the unexercisable options shall become
exercisable immediately prior to the closing of a merger, acquisition, business
combination or similar transaction which results in our existing stockholders
owning less than 50% of NetScout's equity securities or assets. Options are not
assignable or transferable except by will or the laws of descent or
distribution. We have a right of repurchase for shares issued upon the exercise
of options under certain circumstances, including unauthorized transfers of the
shares and termination of the optionee's relationship with NetScout in certain
situations. As of March 31, 1999, an aggregate of 4,640,438 shares of common
stock at a weighted average exercise price of $1.90 per share were outstanding
under the 1990 Stock Option Plan. No additional option grants will be made under
the 1990 Stock Option Plan.
1999 STOCK OPTION AND INCENTIVE PLAN. Our 1999 Stock Option and Incentive
Plan ("1999 Stock Option Plan") was adopted by our Board of Directors and is
expected to be approved by our stockholders in April 1999. The 1999 Stock Option
Plan provides for the grant of stock-based awards to our employees, officers and
directors, consultants or advisors. Under the 1999 Stock Option Plan, we may
grant options that are intended to qualify as incentive stock options within the
meaning of Section 422 of the Code, options not intended to qualify as incentive
stock options, restricted stock and other stock-based awards. Incentive stock
options may be granted only to employees of NetScout. A total of 6,750,000
shares of common stock have been reserved for issuance under the 1999 Stock
Option Plan. The maximum number of shares with respect to which awards may be
granted to any employee under the 1999 Stock Option Plan shall not exceed
1,000,000 shares of common stock during any calendar year.
The 1999 Stock Option Plan is administered by the Compensation Committee.
Subject to the provisions of the 1999 Stock Option Plan, the Compensation
Committee has the authority to select the persons to whom awards are granted and
determine the terms of each award, including the number of
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<PAGE>
shares of common stock subject to the award. Payment of the exercise price of an
award may be made in cash or, if approved by the Compensation Committee, shares
of common stock, a combination of cash and stock, a promissory note or by any
other method approved by the Compensation Committee. Unless otherwise permitted
by the Compensation Committee, awards are not assignable or transferable except
by will or the laws of descent and distribution, and, during the participant's
lifetime, may be exercised only by the participant.
The 1999 Stock Option Plan provides, subject to certain conditions, that
upon an acquisition of NetScout the vesting of all awards will accelerate by a
period of one year.
The Compensation Committee may, in its sole discretion, amend, modify or
terminate any award granted or made under the 1999 Stock Option Plan, so long as
such amendment, modification or termination would not materially and adversely
affect the participant. The Compensation Committee may also provide that any
option shall become immediately exercisable, in full or in part, or that any
restricted stock granted under the 1999 Stock Option Plan shall be free of some
or all restrictions.
1999 EMPLOYEE STOCK PURCHASE PLAN. The 1999 Employee Stock Purchase Plan
(the "1999 Purchase Plan") was adopted by our Board of Directors and is expected
to be approved by our stockholders in April 1999, to be effective upon the
closing of this offering. The 1999 Purchase Plan provides for the issuance of a
maximum of 750,000 shares of common stock.
The 1999 Purchase Plan will be administered by the Compensation Committee.
All employees of NetScout whose customary employment is for more than 20 hours
per week and for more than three months in any calendar year are eligible to
participate in the 1999 Purchase Plan. Employees who would own 5% or more of the
total combined voting power or value of NetScout's stock immediately after the
grant of the option may not participate in the 1999 Purchase Plan. To
participate in the 1999 Purchase Plan, an employee must authorize us to deduct
an amount (not less than one percent nor more than 10 percent of a participant's
total cash compensation) from his or her pay during six-month payment periods
(each, a "Payment Period"). The first Payment Period will commence on the
earlier to occur of (1) October 1, 1999 and (2) the first day of the first
calendar month following the effective date of the Registration Statement on
Form S-8 filed with respect to the shares issued under the 1999 Purchase Plan
and shall end March 31, 2000. Thereafter, the Payment Periods will commence on
the six-month periods commencing on April 1 and October 1, respectively, and
ending on the following September 30 and March 31, respectively, of each year.
In no case shall an employee be entitled to purchase more than 500 shares in any
one Payment Period. The exercise price for the option granted in each Payment
Period is 85% of the lesser of the last reported sale price of the common stock
on the first or last business day of the Payment Period, in either event rounded
up to the nearest cent. If an employee is not a participant on the last day of
the Payment Period, such employee is not entitled to exercise his or her option,
and the amount of his or her accumulated payroll deductions will be refunded.
Options granted under the 1999 Purchase Plan may not be transferred or assigned.
An employee's rights under the 1999 Purchase Plan terminate upon his or her
voluntary withdrawal from the plan at any time or upon termination of
employment. No options have been granted to date under the 1999 Purchase Plan.
401(K) PLAN
We maintain a 401(k) plan qualified under Section 401 of the Code. All of
our employees who are at least 21 years of age are eligible to participate in
the 401(k) plan. 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 of $10,000 in calendar
year 1999) to the 401(k) plan. The percentage elected by more highly compensated
participants may be required to be lower. At the discretion of the Board of
Directors, we may make matching contributions to the 401(k) plan. During the
plan year ending December 31, 1998, we matched $.25 for each $1.00 of
46
<PAGE>
employee contributions up to 6% of salary. In addition, at the discretion of the
Board of Directors, we may make profit-sharing contributions to the 401(k) plan
for all eligible employees. During the plan year ending December 31, 1998, we
made no profit-sharing contributions to the 401(k) plan.
EMPLOYMENT AGREEMENTS
Anil Singhal and Narendra Popat entered into employment agreements with
NetScout on June 1, 1994, which were amended on January 14, 1999. Under the
terms of these employment agreements, each of Messrs. Singhal and Popat receive
a base salary of at least $250,000 and a year-end, non-discretionary bonus of at
least $250,000. In the event that either Mr. Singhal or Mr. Popat is terminated
without cause, or either decides to terminate his own employment for "good
reason" each is entitled to receive severance benefits for three years as
follows:
- for the first twelve months following termination, the greater of $175,000
or base salary as of the date of termination; and
- for each of the following twelve month periods, an amount equal to 120% of
the amount received in the immediately preceding twelve months.
"Good reason" means a change in executive responsibilities or a reduction in
salary or benefits. Severance benefits will be discontinued if the executive
secures alternative employment that is comparable as to position and pay. During
any period in which Mr. Singhal or Mr. Popat is entitled to receive severance
benefits, he shall also continue to receive all other benefits under the
employment agreements including life insurance, medical insurance, and
reimbursement for company car expenses. Each of Messrs. Singhal and Popat are
also entitled to reimbursement of job placement expenses of up to $25,000 plus
related travel expenses. If either Mr. Singhal or Mr. Popat is terminated with
cause, he will not be entitled to any severance or other benefits, except as
required by law. Each employment agreement provides for a five-year term
commencing June 1, 1994 with automatic one-year renewals.
47
<PAGE>
CERTAIN TRANSACTIONS
In February 1996, NetScout issued 631,579 shares of its Series A Preferred
Stock to Greylock Equity Limited Partnership ("Greylock"), at a purchase price
of $9.50 per share, for an aggregate of $6,000,000. Roger Evans, a general
partner of the general partner of Greylock, served as a member of the Board of
Directors of NetScout from February 1996 until January 1999. In January 1999, we
redeemed 315,789 shares of Series A Preferred Stock as described below. Upon the
closing of this offering, the 315,790 outstanding shares of Series A Preferred
Stock will automatically convert into 1,894,740 shares of common stock.
In January 1999, NetScout issued 6,977,254 shares of its Class B Convertible
Common Stock at a purchase price of $6.388051 per share to certain affiliates of
TA Associates, Inc. (the "TA Entities") for an aggregate consideration of
$42,571,057 and to Egan-Managed Capital, L.P. for an aggregate consideration of
$1,999,997. In connection with this transaction, Kenneth Schiciano and Richard
Egan were elected to the Board of Directors. Mr. Schiciano is a Principal of TA
Associates, Inc., which is either the manager or the general partner of the
general partner of the TA Entities. Mr. Egan and his children own substantially
all of the equity interests in Egan-Managed Capital, L.P. All of the proceeds
from the Class B Convertible Common Stock financing were used to redeem shares
of Series A Preferred Stock, Non-Voting Common Stock and common stock from the
officers, directors and 5% stockholders and certain other persons as set forth
below:
<TABLE>
<CAPTION>
TYPE OF NUMBER OF
SECURITY SHARES AGGREGATE
NAME POSITION REDEEMED REDEEMED REDEMPTION PAYMENT
- ------------------------ ------------------------ ------------------------ ------------- -------------------
<S> <C> <C> <C> <C>
Greylock Equity Limited 5% stockholder and Series A Preferred Stock 315,789 $ 8,069,105
Partnership formerly represented on (1,894,734
the Board of Directors common stock
equivalents)
Anil K. Singhal Chairman of the Board, Voting Common Stock 3,562,124 $ 15,170,018
Chief Executive Officer
and Treasurer
Narendra Popat President, Chief Voting Common Stock 3,562,124 $ 15,170,018
Operating Officer,
Secretary and Director
Charles W. Tillett Vice President, Finance Non-Voting Common Stock 285,000 $ 1,213,730
and Administration and
Chief Financial Officer
Nathan Kalowski Vice President, Business Non-Voting Common Stock 285,000 $ 1,213,730
Development
Ashwani Singhal Vice President, Non-Voting Common Stock 528,000 $ 2,248,594
Engineering
Gerald Stabile Vice President, Non-Voting Common Stock 21,900 $ 93,266
Worldwide Sales and
Services
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
TYPE OF NUMBER OF
SECURITY SHARES AGGREGATE
NAME POSITION REDEEMED REDEEMED REDEMPTION PAYMENT
- ------------------------ ------------------------ ------------------------ ------------- -------------------
<S> <C> <C> <C> <C>
Tracy Steele Vice President, Non-Voting Common Stock 9,000 $ 38,328
Manufacturing
Michael Szabados Vice President, Non-Voting Common Stock 33,000 $ 140,537
Marketing
Ralph Lowry Former Vice President, Non-Voting Common Stock 285,000 $ 1,213,730
International Sales
</TABLE>
Anil K. Singhal and Ashwani Singhal are brothers.
Upon closing of the offering, all of the 6,977,254 outstanding shares of
Class B Convertible Common Stock will automatically convert into an aggregate of
10,465,881 shares of common stock. The holders of shares of common stock
issuable upon conversion of the Class B Convertible Common Stock have certain
rights with respect to the registration by NetScout of their shares. See
"Description of Capital Stock--Registration Rights."
On June 28, 1996, Anil K. Singhal borrowed $1,100,000 and Narendra Popat
borrowed $900,000 from NetScout. In connection with the loans, Mr. Singhal
pledged 851,616 shares of Voting Common Stock, and Mr. Popat pledged 696,780
shares of Voting Common Stock to NetScout. Each loan is evidenced by a
promissory note and bears interest at 6.48% per annum, compounded semi-annually.
Accrued interest is payable on an annual basis. Each of Mr. Singhal and Mr.
Popat have agreed to repay the entire outstanding principal and interest on
these loans upon the closing of this offering.
Joseph G. Hadzima, Jr., a member of the Board of Directors since July 1998,
was a partner at the law firm of Sullivan & Worcester LLP until June 1996 and
since June 1996 has served as Of Counsel at Sullivan & Worcester. Sullivan &
Worcester was NetScout's counsel until October 1996.
Anil K. Singhal and Narendra Popat each own one-third ( 1/3) of the voting
capital stock of Frontier Software Development Pvt. Ltd., a private company
located in Bombay, India ("Frontier India"). Shirish Deodhar, a holder of
300,000 shares of Non-Voting Common Stock, oversaw the day-to-day operations of
Frontier India. Frontier India provided engineering consulting services to
NetScout from 1988 through 1999. Our payments to Frontier India were
approximately $20,000 during fiscal year 1996 (which represented 3% of Frontier
India's revenue), $352,000 during fiscal year 1997 (which represented 33% of
Frontier India's revenue), $315,000 during fiscal year 1998 (which represented
19% of Frontier India's revenue) and $470,000 during fiscal year 1999. In 1991,
the Industrial Credit and Investment Corporation of India Limited (the "ICICI")
loaned $387,000 to NetScout and Frontier India to help finance the
NetScout-Frontier India engineering consulting services arrangement. The amounts
due to the ICICI have been paid in full.
In February 1999, Frontier India sold substantially all of its assets to
Veritas Software Corporation USA, a Delaware corporation, and the Board of
Directors of NetScout fully accelerated the vesting schedule applicable to Mr.
Deodhar's 300,000 shares of Non-Voting Common Stock.
In May 1996, NetScout Systems (UK) Limited ("NetScout UK") was organized
under the laws of England and Wales to serve as a wholly-owned subsidiary of
NetScout. Messrs. Popat and Singhal were issued the outstanding shares of stock
of NetScout UK. The shares are currently in the process of being transferred to
NetScout.
NetScout believes that all transactions described above were made on terms
no less favorable to it than would have been obtained from unaffiliated third
parties. All future transactions, if any, with our executive officers, directors
and affiliates will be on terms no less favorable to us than could be obtained
from unrelated third parties and will be approved by a majority of the Board of
Directors and by a majority of the disinterested members of the Board of
Directors.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of the shares of common stock offered hereby, by: (a) each beneficial
owner of more than 5% of our common stock; (b) each Named Executive Officer; (c)
each director; (d) all executive officers and directors as a group; and (e) the
selling stockholders. The address of each person listed on the table is c/o
NetScout Systems, Inc., 4 Technology Park Drive, Westford, MA 01886, and 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 unless otherwise noted below.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Shares of common stock issuable by NetScout
to a person or entity named below pursuant to options which may be exercised
within 60 days after March 31, 1999 are deemed to be beneficially owned and
outstanding for purposes of calculating the number of shares and the percentage
beneficially owned by that person or entity. However, these shares are not
deemed to be beneficially owned and outstanding for purposes of computing the
percentage beneficially owned by any other person or entity.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON
STOCK OUTSTANDING
NUMBER OF SHARES -----------------------
BENEFICIALLY NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED BEING OFFERED* OFFERING OFFERING
- ---------------------------------------------------- ----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
Anil K. Singhal(1).................................. 7,844,250 * 23.2% *
Narendra Popat(2)................................... 7,844,251 * 23.2 *
Charles W. Tillett(3)............................... 675,750 * 2.0 *
Nathan Kalowski(4).................................. 651,279 * 1.9 *
Ashwani Singhal(5).................................. 1,272,000 * 3.8 *
Gerald Stabile(6)................................... 90,600 * * *
Tracy Steele(7)..................................... 77,250 * * *
Michael Szabados(8)................................. 124,500 * * *
Richard J. Egan(9).................................. -- * * *
c/o Egan-Managed Capital, L.P.
30 Federal Street
Boston, MA 02110-2508
Joseph G. Hadzima, Jr.(10).......................... 944,892 * 2.8 *
c/o Technology Enabling Company, LLC
238 Main Street, Suite 400
Cambridge, MA 02142
Kenneth T. Schiciano(11)............................ 25,021 * 29.5 *
c/o TA Associates, Inc.
125 High Street
Boston, MA 02110
TA Entities(12)..................................... 9,996,255 * 29.5 *
c/o TA Associates, Inc.
125 High Street
Boston, MA 02110
Greylock Equity Limited Partnership................. 1,894,740 * 5.6 *
c/o Greylock Management Corporation
One Federal Street
Boston, MA 02110
All executive officers and directors as a group (11
persons)(13)...................................... 19,549,793 57.8% *
-----------------
</TABLE>
- ------------------------
* The number of shares to be sold in this offering and the selling
stockholders have not yet been determined.
50
<PAGE>
(1) Includes an aggregate of 23,024 shares held in trust for the benefit of Mr.
Singhal's children; Mr. Singhal's wife is one of two trustees of each such
trust. Includes 510,000 shares held by a family limited partnership of which
Mr. and Mrs. Singhal are the general and limited partners. Does not include
593,625 shares held in a grantor retained annuity trust for the benefit of
Mr. Singhal.
(2) Includes 204,084 shares held in trust for the benefit of Mr. Popat's
children; Mr. Popat's wife and Mr. Hadzima are the two trustees of such
trust. Includes 510,000 shares held by a family limited partnership of which
Mr. and Mrs. Popat are the general and limited partners. Does not include
593,625 shares held in a grantor retained annuity trust for the benefit of
Mr. Popat; Mr. Hadzima is the sole trustee of such trust.
(3) Includes 15,938 shares issuable upon exercise of options exercisable within
60 days of March 31, 1999. Excludes 63,750 shares issuable upon the exercise
of options that become exercisable upon the closing of this offering.
(4) Does not include 88,221 shares held in trusts for the benefit of Mr.
Kalowski's children.
(5) Includes 60,450 shares owned by Mr. Singhal's wife.
(6) Consists of shares issuable upon the exercise of options exercisable within
60 days of March 31, 1999. Excludes 18,750 shares issuable upon the exercise
of options that become exercisable upon the closing of this offering.
(7) Consists of shares issuable upon the exercise of options exercisable within
60 days of March 31, 1999.
(8) Consists of shares issuable upon the exercise of options exercisable within
60 days of March 31, 1999.
(9) Egan-Managed Capital, L.P. owns 469,626 shares. Although Mr. Egan does not
have any voting or investment powers over the shares, Mr. Egan and his
children own substantially all of the equity interest of Egan-Managed
Capital, L.P.
(10) Includes 16,875 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1999. Includes 204,084 shares held in trust for
the benefit of Mr. Popat's children; Mrs. Popat and Mr. Hadzima are the two
trustees of such trust. Includes 593,625 shares held in a grantor retained
annuity trust for the benefit of Mr. Popat; Mr. Hadzima is the sole trustee
of such trust. Mr. Hadzima disclaims beneficial ownership of all shares held
in trust for the benefit of either Mr. Popat's children or Mr. Popat. The
shares deemed to be beneficially owned by Mr. Hadzima does not include
79,992 shares held in trust for the benefit of Mr. Hadzima's children.
(11) Consists of shares in TA Executives Fund, LLC beneficially owned by Mr.
Schiciano. Mr. Schiciano is a Principal of TA Associates, Inc. Mr. Schiciano
disclaims beneficial ownership of the shares held by the TA Entities, except
to the extent of his pecuniary interest therein.
(12) Includes 8,150,220 shares held by TA/Advent VIII, L.P., of which
shares are being offered hereby; 1,528,176 shares held by Advent Atlantic &
Pacific III, L.P., of which shares are being offered hereby; 154,854
shares held by TA Executives Fund, LLC, of which shares are being
offered hereby; and 163,005 shares held by TA Investors, LLC, of which
shares are being offered hereby. TA/Advent VIII, L.P., Advent Atlantic
& Pacific III, L.P., TA Executives Fund, LLC and TA Investors, LLC are part
of an affiliated group of investment partnerships referred to, collectively,
as the "TA Entities." The general partner of TA/Advent VIII, L.P. is TA
Associates VIII, LLC. The general partner of Advent Atlantic & Pacific III,
L.P. is TA Associates AAP III, L.P. TA Associates, Inc. is the general
partner of TA Associates AAP III, L.P. and is the sole manager of TA
Associates VIII, LLC, TA Executives Fund, LLC and TA Investors, LLC. In such
capacity, TA Associates, Inc. exercises sole voting and investment power
with respect to all shares held of record by the named investment
partnerships; individually, no stockholder, director or officer of TA
Associates, Inc. is deemed to have or share such voting or investment power.
(13) Includes an aggregate of 325,162 shares issuable upon exercise of options
exercisable within 60 days of March 31, 1999. Excludes 82,500 shares
issuable upon exercise of options that become exercisable upon the closing
of this offering.
If the underwriter's over-allotment option is exercised in full, NetScout
will sell an additional shares and the following selling stockholders will
sell an additional shares:
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering and the filing of NetScout's
Third Amended and Restated Certificate of Incorporation, the authorized capital
stock of NetScout will consist of 150,000,000 shares of common stock, par value
$.001 per share, and 5,000,000 shares of preferred stock, par value $.001 per
share.
The following summary description of NetScout's capital stock, as of the
closing of this offering, is not intended to be complete and is qualified by
reference to the provisions of applicable law and to NetScout's Third Amended
and Restated Certificate of Incorporation and Amended and Restated By-laws filed
as exhibits to the registration statement of which this prospectus is a part.
COMMON STOCK
As of March 31, 1999, there were 33,843,258 shares of common stock
outstanding and held of record by 66 stockholders, after giving effect to the
conversion of all outstanding shares of Non-Voting Common Stock, Class B Common
Stock and Series A Preferred Stock upon the closing of this offering. Based upon
the number of shares outstanding as of March 31, 1999 and giving effect to the
issuance of the shares of common stock offered by NetScout hereby, there will be
shares of common stock outstanding upon the closing of this offering. In
addition, as of March 31, 1999, there were outstanding stock options for the
purchase of a total of 4,640,438 shares of Non-Voting Common Stock which upon
the closing of the offering will be automatically converted into options to
purchase an aggregate of 4,640,438 shares of common stock.
Holders of common stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Directors are elected by a plurality of the votes
of the shares present in person or by proxy at the meeting. The holders of
common stock are entitled to receive ratably such lawful dividends as may be
declared by the Board of Directors. However, such dividends are subject to
preferences that may be applicable to the holders of any outstanding shares of
preferred stock. In the event of a liquidation, dissolution or winding up of the
affairs of NetScout, whether voluntarily or involuntarily, the holders of common
stock will be entitled to receive pro rata all of the remaining assets of
NetScout available for distribution to its stockholders. Any such pro rata
distribution would be subject to the rights of the holders of any outstanding
shares of preferred stock. The common stock has no preemptive, redemption,
conversion or subscription rights. All outstanding shares of common stock are
fully paid and non-assessable. The shares of common stock to be issued by
NetScout in this offering will be fully paid and non-assessable. The rights,
powers, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock which NetScout may designate and issue in the future.
Upon the closing of this offering, there will be no shares of preferred stock
outstanding.
PREFERRED STOCK
The Board of Directors will be authorized, subject to any limitations
prescribed by Delaware law, without further stockholder approval, to issue from
time to time up to an aggregate of 5,000,000 shares of preferred stock, in one
or more series. The Board of Directors is also authorized, subject to the
limitations prescribed by Delaware law, to establish the number of shares to be
included in each series and to fix the voting powers, preferences,
qualifications and special or relative rights or privileges of each series. The
Board of Directors is authorized to issue preferred stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of common stock.
NetScout has no current plans to issue any preferred stock. However, the
issuance of preferred stock or of rights to purchase preferred stock could have
the effect of making it more difficult for a
52
<PAGE>
third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding common stock of NetScout.
REGISTRATION RIGHTS
The Amended and Restated Rights Agreement dated as of January 15, 1999,
provides that the holders (the "Registration Rights Holders") of 10,465,881
shares of common stock (after giving effect to the conversion of the Class B
Common Stock) (the "Registrable Shares") are entitled to certain rights with
respect to the registration of such shares under the Securities Act. If NetScout
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of another securityholder, the Registration
Rights Holders are entitled to notice of such registration and to include such
Registrable Shares in such registration. However, in the event of a registration
pursuant to an underwritten public offering of common stock, the underwriters
shall have the right, subject to certain conditions, to limit the number of
shares included in such registration.
In addition, after six months after this offering, the holders of at least
40% of the then outstanding Registrable Shares issued are entitled to request
that NetScout file a registration statement under the Securities Act covering
the sale of some or all of the shares held by the requesting holder or holders.
Upon the receipt of such a request, NetScout is required to use its reasonable
best efforts to effect such registration, subject to certain conditions and
limitations. NetScout is not required to effect more than two such demand
registrations for the Registration Rights Holders, and each such demand
registration must have an offering value of at least $2,500,000.
Once NetScout has qualified to use Form S-3 to register securities under the
Securities Act, the Registration Rights Holders have the right to request that
NetScout file a registration statement on Form S-3 or any successor thereto for
a public offering of all or any portion of their Registrable Shares, provided
that the reasonably anticipated aggregate price to the public of such offering
would not be less than $1,000,000. NetScout is not required to effect a
registration in this manner more than once in any twelve-month period.
In general, all fees, costs and expenses of such registrations (other than
underwriting discounts and commissions and fees and disbursements of counsel to
the Registration Rights Holders) will be borne by NetScout. We have agreed to
indemnify the Registration Rights Holders against, and provide contribution with
respect to, certain liabilities relating to any registration in which any
Registrable Shares of Registration Rights Holders are sold under the Securities
Act.
The previously described registration rights shall terminate for a
Registration Rights Holder at such time as such particular holder could sell all
of such holder's shares under the terms of Rule 144(k) under the Securities Act.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF NETSCOUT'S THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BY-LAWS AND DELAWARE LAW
NetScout's Third Amended and Restated Certificate of Incorporation (the
"Charter"), NetScout's Amended and Restated By-Laws (the "By-Laws") and the
Delaware General Corporation Law contain certain provisions that could
discourage, delay or prevent a change in control of NetScout or an acquisition
of NetScout at a price which many stockholders may find attractive. The
existence of these provisions could limit the price that investors might be
willing to pay in the future for shares of common stock.
THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
The Charter provides for the division of the Board of Directors into three
classes as nearly as equal in size as possible with staggered three-year terms.
In addition, the Charter provides that directors may be removed only for cause
by the affirmative vote of the holders of 75% of the shares of capital stock of
NetScout entitled to vote. The By-Laws provide that, except as otherwise
provided by
53
<PAGE>
law or the Charter, newly created directorships resulting from an increase in
the authorized number of directors or vacancies on the Board may be filled only
by:
- a majority of the directors then in office, even though less than a quorum
may then be in office; or
- the sole remaining director.
These provisions prevent a stockholder from enlarging the Board and filling
the new directorships with such stockholder's own nominees without Board
approval.
These provisions of the By-Laws may have the effect of discouraging a third
party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of NetScout, or attempting to change the composition
or policies of the Board, even though such attempts might be beneficial to
NetScout or its stockholders.
The Charter and By-Laws provide that, unless otherwise prescribed by law,
only a majority of the Board, the Chairman of the Board or the President is able
to call a special meeting of stockholders. The Charter and the By-Laws also
provide that, unless otherwise prescribed by law, stockholder action may be
taken only at a duly called and convened annual or special meeting of
stockholders and may not be taken by written consent. These provisions, taken
together, prevent stockholders from forcing consideration by the stockholders of
stockholder proposals over the opposition of the Board, except at an annual
meeting.
The By-Laws provide that any action required or permitted to be taken by the
stockholders of NetScout at an annual meeting or special meeting of stockholders
may only be taken if NetScout is given proper advance notice of the action (the
"Notice Procedure"). The Notice Procedure affords the Board an opportunity to
consider the qualifications of proposed director nominees or the merit of
stockholder proposals, and, to the extent deemed appropriate by the Board, to
inform stockholders about such matters. The Notice Procedure also provides a
more orderly procedure for conducting annual meetings of stockholders. The
By-Laws do not give the Board any power to approve or disapprove stockholder
nominations for the election of directors or proposals for action. However, the
Notice Procedure may prevent a contest for the election of directors or the
consideration of stockholder proposals. This could deter a third party from
conducting a solicitation of proxies to elect its own slate of directors or to
approve its own proposal if the proper advance notice procedures are not
followed, without regard to whether consideration of such nominees or proposals
might be harmful or beneficial to NetScout and its stockholders.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares issued and outstanding is required
to amend a corporation's certificate of incorporation or by-laws, unless a
corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. The By-Laws require the affirmative vote of the
holders of at least 75% of the issued and outstanding shares of capital stock of
NetScout entitled to vote to amend or repeal any of the foregoing provisions of
the By-Laws. The 75% stockholder vote would be in addition to any separate class
vote that might be required pursuant to the terms of any series of preferred
stock that might be outstanding at the time any such amendments are submitted to
stockholders.
DELAWARE LAW
NetScout is subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder.
54
<PAGE>
Section 203 does not apply if:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and by employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or subsequent to such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.
The application of Section 203 may limit the ability of stockholders to approve
a transaction that they may deem to be in their best interests.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation to or with the interested stockholder;
- subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to
the interested stockholder;
- any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an "interested stockholder" as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation or is an affiliate or associate of the corporation and was the owner
of 15% or more of the outstanding voting stock of the corporation at any time
within the past three years, and any entity or person associated with,
affiliated with or controlling or controlled by such entity or person.
LIMITATION OF LIABILITY
The Charter provides that no director of NetScout shall be personally liable
to NetScout or to its stockholders for monetary damages for breach of fiduciary
duty as a director, except that the limitation shall not eliminate or limit
liability to the extent that the elimination or limitation of such liability is
not permitted by the Delaware General Corporation Law as the same exists or may
hereafter be amended.
The Charter further provides for the indemnification of NetScout's directors
and officers to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, including circumstances in which indemnification is
otherwise discretionary. A principal effect of these provisions is to limit or
eliminate the potential liability of NetScout's directors for monetary damages
arising from breaches of their duty of care, subject to certain exceptions.
These provisions may also shield directors from liability under federal and
state securities laws.
STOCK TRANSFER AGENT
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
55
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for NetScout's stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices from time to time. Furthermore, since
only a limited number of shares will be available for sale shortly after the
offering because of certain contractual and legal restrictions on resale (as
described below), sales of substantial amounts of common stock of NetScout in
the public market after the restrictions lapse could adversely affect the
prevailing market price and the ability of NetScout to raise equity capital in
the future.
Upon completion of this offering (based on shares outstanding as of March
31, 1999), NetScout will have outstanding an aggregate of shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, the shares sold
in the offering will be freely tradable without restrictions or further
registration under the Securities Act, unless such shares are purchased by an
"affiliate" of NetScout as that term is defined in Rule 144 under the Securities
Act (an "Affiliate").
The remaining shares of common stock held by existing stockholders
are "restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares") or are subject to the contractual
restrictions described below. Of these restricted securities:
- 83,100 shares may be sold immediately after completion of this offering;
- 392,974 additional shares may be sold 90 days after the effective date of
this offering;
- 20,901,303 additional shares may be sold upon expiration of the 180-day
lock-up agreement; and
- 10,465,881 additional shares may be sold commencing on January 15, 2000.
All of the officers and directors and certain stockholders and optionholders
of NetScout have signed lock-up agreements in favor of the underwriters. As a
result, these individuals are not permitted to offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of common
stock, other than shares purchased by certain securityholders of NetScout in the
open market post-offering or shares sold as part of this offering, for a period
of 180 days after the date of this prospectus, without the prior written consent
of Credit Suisse First Boston Corporation. Credit Suisse First Boston
Corporation currently has no plans to release any portion of the securities
subject to lock-up agreements, but may do so without notice. When determining
whether or not to release shares from the lock-up agreements, Credit Suisse
First Boston Corporation will consider, among other factors, the stockholder's
reasons for requesting the release, the number of shares for which the release
is being requested and market conditions at the time.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except when purchased from an Affiliate)
would be entitled to sell a certain number of shares within any three-month
period. That certain number of shares cannot exceed the greater of one percent
of the number of shares of common stock then outstanding (which will equal
approximately shares immediately after the offering), or the average
weekly trading volume of the 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 certain manner of
sale provisions, notice requirements and the availability of current public
information about NetScout. Rule 144 also provides that Affiliates of NetScout
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.
56
<PAGE>
Under Rule 144(k), a person who is not deemed to have been an Affiliate of
NetScout 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
(including the holding period of any prior owner except when purchased from an
Affiliate), is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Accordingly, unless otherwise restricted, "144(k) shares" may therefore be sold
immediately upon the completion of this offering.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from NetScout by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). To be eligible for resale under Rule 701,
shares must have been issued pursuant to written compensatory benefit plans or
written contracts relating to the compensation of such persons. In addition, the
Securities and Exchange Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired upon
exercise of such options (including exercises after the date of the offering).
Securities issued in reliance on Rule 701 are restricted securities and, subject
to the contractual restrictions described above, beginning 90 days after the
date of this prospectus, may be sold by persons other than Affiliates, subject
only to the manner of sale provisions of Rule 144, and by Affiliates, under Rule
144 without compliance with its one-year minimum holding period requirements.
NetScout has agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of common stock or any securities convertible into or exercisable
or exchangeable for common stock, or publicly disclose the intention to make any
such offer, sale, pledge, disposition or filing, for a period of 180 days after
the date of this prospectus, without the prior written consent of Credit Suisse
First Boston, subject to certain limited exceptions.
Following the offering, NetScout intends to file registration statements
under the Securities Act covering approximately 12,140,438 shares of common
stock issued pursuant to the exercise of stock options, subject to outstanding
options or reserved for issuance under NetScout's 1990 Stock Option Plan, 1999
Stock Option and Incentive Plan and 1999 Employee Stock Purchase Plan.
Accordingly, shares registered under such registration statements will, subject
to Rule 144 provisions applicable to Affiliates, be available for sale in the
open market, except to the extent that such shares are subject to NetScout's
vesting or exercise restrictions or the contractual restrictions described
above. See "Management--Stock Plans."
57
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, the underwriters named below, for whom
Credit Suisse First Boston Corporation, Bear, Stearns & Co. Inc., BT Alex. Brown
Incorporated and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, are acting as representatives, have severally but not jointly
agreed to purchase from NetScout and the selling stockholders the following
respective number of shares of common stock:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Credit Suisse First Boston Corporation.....................................
Bear, Stearns & Co. Inc....................................................
BT Alex. Brown Incorporated................................................
Dain Rauscher Wessels......................................................
-----------------
Total..................................................................
-----------------
-----------------
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to approval of certain conditions precedent and that the
underwriters will be obligated to purchase all of the shares of the common stock
offered hereby (other than those shares covered by the over-allotment option
described below) if any are purchased. The underwriting agreement provides that,
in the event of a default by an underwriter, in certain circumstances the
purchase commitments of non-defaulting underwriters may be increased or the
underwriting agreement may be terminated.
The following table summarizes the compensation to be paid to the
underwriters by NetScout and the selling stockholders and the expenses payable
by NetScout:
<TABLE>
<CAPTION>
TOTAL
--------------------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------------- --------------------- ---------------------
<S> <C> <C> <C>
Underwriting discounts and commissions payable by
NetScout.........................................
Expenses payable by NetScout.......................
Underwriting discounts and commissions payable by
the selling stockholders.........................
</TABLE>
NetScout and certain of the selling stockholders have granted to the
underwriters an option expiring on the 30th day after the date of this
prospectus to purchase up to additional shares of common stock at the
initial public offering price, less the underwriting discounts and commissions.
Such option may be exercised only to cover over-allotments in the sale of shares
of common stock. To the extent such option is exercised, each underwriter will
become obligated, subject to certain conditions, to purchase approximately the
same percentage of such additional shares of common stock as it was obligated to
purchase pursuant to the underwriting agreement.
NetScout and the selling stockholders have been advised by the
representatives that the underwriters propose to offer the shares of common
stock to the public initially at the public offering price set forth on the
cover page of this prospectus and, through the representatives, to selling group
members (who may include the underwriters) at such price less a concession of
$ per share, and the underwriters and such selling group members may allow
a discount of $ per share on sales to certain other broker-dealers. After
the offering, the public offering price and concession and discount to dealers
may be changed by the representatives.
The representatives have informed NetScout that they do not expect
discretionary sales by the underwriters to exceed 5% of the shares being offered
hereby.
58
<PAGE>
NetScout, its officers and directors, and certain other existing
stockholders and optionholders of NetScout have agreed that they will not offer,
sell, contract to sell, pledge or otherwise dispose of or transfer, directly or
indirectly, or, in the case of NetScout, file with the Securities and Exchange
Commission a registration statement relating to, any shares of common stock or
securities exchangeable or exercisable for or convertible into shares of common
stock or publicly disclose the intention to do any of the foregoing without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except under certain circumstances.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
certain other persons associated with NetScout who have expressed an interest in
purchasing such shares of common stock in the offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same basis as other
shares offered hereby.
NetScout and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including civil liabilities under the
Securities Act, or to contribute to payments which the underwriters may be
required to make in respect thereof.
NetScout has applied for listing of the common stock on The Nasdaq Stock
Market's National Market under the symbol "NSCT."
Prior to the offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between
NetScout and the representatives. The principal factors to be considered in
determining the initial public offering price include:
- the information set forth in this prospectus and otherwise available to
the representatives;
- the history of, and the prospects for, NetScout and the industry in which
it competes;
- an assessment of NetScout's management;
- the prospects for, and the timing of, future earnings of NetScout;
- the present state of NetScout's development and its current financial
condition;
- the general condition of the securities markets at the time of the
offering;
- the recent market prices of, and the demand for, publicly-traded common
stock of companies in businesses similar to those of NetScout;
- market conditions for initial public offerings; and
- other relevant factors.
There can be no assurance that an active trading market will develop for the
common stock or that the common stock will trade in the market subsequent to the
offering at or above the initial public offering price.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the underlying security so long as the stabilizing bids do not
exceed a specified maximum. Syndicate covering transactions involve purchases of
shares of the common stock in the open market after the distribution has been
completed in order to cover syndicate short positions. Penalty bids permit the
representatives to reclaim a selling concession from a syndicate member when
shares of the common stock originally sold by such syndicate member are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
59
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that NetScout prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to NetScout and the dealer from whom
such purchase confirmation is received that (1) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (2) where required
by law, that such purchaser is purchasing as principal and not as agent, and (3)
such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to the offering. Such a report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from NetScout. Only one such
report must be filed in respect of common stock acquired on the same date and
under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
Legislation.
60
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for NetScout by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
Additional legal matters will be passed upon for the underwriters by Hale and
Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of NetScout Systems, Inc. as of March
31, 1997 and 1998, and for each of the three years in the period ended March 31,
1998, included in this prospectus, have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
NetScout has filed with the Securities and Exchange Commission (the
"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 NetScout and the 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 7 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 Room of the Commission at 450 Fifth Street, N.W., Washington D.C.
20549, at prescribed rates. Information on the operation of the Public Reference
Room may be obtained by calling the Commission at 1-800-SEC-0330. The Commission
also maintains a Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants, such as
NetScout, that make electronic filings with the Commission.
NetScout intends to furnish to its stockholders annual reports containing
financial statements audited by an independent public accounting firm.
61
<PAGE>
NETSCOUT SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheet as of March 31, 1997 and 1998 and December 31, 1998
(unaudited).............................................................................................. F-3
Consolidated Statement of Income for the years ended March 31, 1996, 1997 and 1998 and the nine months
ended December 31, 1997 and 1998 (unaudited)............................................................. F-4
Consolidated Statement of Redeemable Convertible Common Stock and Stockholders' Equity for the years ended
March 31, 1996, 1997 and 1998 and the nine months ended December 31, 1998 (unaudited).................... F-5
Consolidated Statement of Cash Flows for the years ended March 31, 1996, 1997 and 1998 and the nine months
ended December 31, 1997 and 1998 (unaudited)............................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of NetScout Systems, Inc.
The three-for-two stock split authorized on April 14, 1999 described in Note 8
to the consolidated financial statements has not been consummated at April 21,
1999. When it has been consummated, we will be in a position to furnish the
following report:
"In our opinion, the accompanying consolidated balance sheet and the related
statements of income, of redeemable convertible common stock and
stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of NetScout Systems, Inc. and its
subsidiaries at March 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above."
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 2, 1998, except for Note 8, as to
which the date is April 14, 1999
F-2
<PAGE>
NETSCOUT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, PRO FORMA
-------------------- DECEMBER 31, DECEMBER 31,
1997 1998 1998 1998
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (NOTE 2)
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 6,514 $ 6,341 $ 22,024 $ 21,614
Marketable securities........................................... 5,841 8,834 -- --
Accounts receivable, net of allowance for doubtful accounts and
returns of $1,693, $1,063 and $1,021 at March 31, 1997 and
1998 and December 31, 1998 (unaudited), respectively.......... 2,192 4,295 7,118 7,118
Inventories..................................................... 2,274 3,054 2,632 2,632
Refundable income taxes......................................... -- 708 -- --
Deferred income taxes........................................... 1,010 1,191 1,191 1,191
Prepaids and other current assets............................... 203 560 542 542
--------- --------- ------------- -------------
Total current assets.......................................... 18,034 24,983 33,507 33,097
Fixed assets, net................................................. 1,596 3,841 4,292 4,292
Notes receivable--stockholders.................................... 2,000 2,000 2,000 2,000
Deferred income taxes............................................. 73 396 396 396
--------- --------- ------------- -------------
Total assets.................................................. $ 21,703 $ 31,220 $ 40,195 $ 39,785
--------- --------- ------------- -------------
--------- --------- ------------- -------------
LIABILITIES, REDEEMABLE CONVERTIBLE COMMON
STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 1,183 $ 2,951 $ 2,635 $ 2,635
Accrued compensation............................................ 1,758 2,690 2,938 2,938
Accrued other................................................... 369 403 711 711
Income tax payable.............................................. 84 -- 306 306
Customer deposits............................................... 1,262 1,246 1,129 1,129
Deferred revenue................................................ 2,238 3,530 3,958 3,958
--------- --------- ------------- -------------
Total current liabilities..................................... 6,894 10,820 11,677 11,677
--------- --------- ------------- -------------
Commitments and contingencies (Note 12)
Redeemable convertible common stock:
Class B redeemable convertible common stock, $.001 par value;
No shares authorized, issued or outstanding at March 31, 1997
and 1998 and December 31, 1998 (unaudited); 6,977,254 shares
authorized, no shares issued or outstanding at December 31,
1998 on a pro forma basis (unaudited)......................... -- -- -- --
--------- --------- ------------- -------------
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value;
1,263,158 shares authorized, 631,579 shares issued and
outstanding at March 31, 1997 and 1998 and December 31, 1998
(unaudited); no shares issued and outstanding at December 31,
1998 on a pro forma basis (unaudited)......................... 5,964 5,964 5,964 --
Common stock, $0.001 par value:
Voting, 39,918,273 shares authorized, 24,000,000 shares issued
and outstanding at March 31, 1997 and 1998 and December 31,
1998 (unaudited); 50,384,154 shares authorized, 43,990,185
shares issued and 33,524,304 shares outstanding at December
31, 1998 on a pro forma basis (unaudited)................... 24 24 24 44
Non-voting, 39,918,273 shares authorized, 5,383,200, 5,412,000
and 5,734,830 shares issued and outstanding at March 31,
1997 and 1998 and December 31, 1998 (unaudited),
respectively; no shares issued and outstanding at December
31, 1998 on a pro forma basis (unaudited)................... 5 5 6 --
Additional paid-in capital.................................... 238 896 1,010 51,121
Deferred compensation........................................... (173) (672) (550) (550)
Treasury stock.................................................. -- -- -- (44,394)
Retained earnings............................................... 8,751 14,183 22,064 21,887
--------- --------- ------------- -------------
Total stockholders' equity.................................... 14,809 20,400 28,518 28,108
--------- --------- ------------- -------------
Total liabilities, redeemable convertible common stock and
stockholders' equity........................................ $ 21,703 $ 31,220 $ 40,195 $ 39,785
--------- --------- ------------- -------------
--------- --------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
NETSCOUT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
---------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Product.................................. $ 13,276 $ 25,159 $ 34,990 $ 23,944 $ 36,737
Service.................................. 1,521 3,888 5,143 3,455 6,329
License and royalty...................... 886 1,601 2,696 1,772 5,814
------------ ------------ ------------ ------------ ------------
Total revenue.......................... 15,683 30,648 42,829 29,171 48,880
------------ ------------ ------------ ------------ ------------
Cost of revenue:
Product.................................. 5,897 9,427 12,638 8,299 13,614
Service.................................. 138 528 784 510 838
------------ ------------ ------------ ------------ ------------
Total cost of revenue.................. 6,035 9,955 13,422 8,809 14,452
------------ ------------ ------------ ------------ ------------
Gross margin............................... 9,648 20,693 29,407 20,362 34,428
------------ ------------ ------------ ------------ ------------
Operating expenses:
Research and development................. 1,208 3,003 5,129 3,543 5,295
Sales and marketing...................... 4,384 6,778 13,583 9,378 14,726
General and administrative............... 695 1,815 2,950 1,912 2,758
------------ ------------ ------------ ------------ ------------
Total operating expenses............... 6,287 11,596 21,662 14,833 22,779
------------ ------------ ------------ ------------ ------------
Income from operations..................... 3,361 9,097 7,745 5,529 11,649
Interest income............................ 23 471 750 561 669
Interest expense........................... (26) (10) (7) (6) (2)
------------ ------------ ------------ ------------ ------------
Income before provision for income taxes... 3,358 9,558 8,488 6,084 12,316
Provision for income taxes................. 1,355 3,640 3,056 2,191 4,435
------------ ------------ ------------ ------------ ------------
Net income................................. $ 2,003 $ 5,918 $ 5,432 $ 3,893 $ 7,881
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Basic net income per share................. $ 0.07 $ 0.21 $ 0.19 $ 0.13 $ 0.27
Diluted net income per share............... $ 0.06 $ 0.17 $ 0.16 $ 0.11 $ 0.22
Shares used in computing:
Basic net income per share............... 27,813,702 28,514,402 28,933,752 28,909,404 25,352,740
Diluted net income per share............. 33,689,729 34,377,926 34,748,294 34,450,260 35,694,174
Unaudited pro forma basic net income per
share.................................... $ 0.17 $ 0.24
Unaudited pro forma diluted net income per
share.................................... $ 0.16 $ 0.22
Shares used in computing:
Unaudited pro forma basic net income per
share.................................. 32,723,226 33,142,214
Unaudited pro forma diluted net income
per share.............................. 34,748,294 35,694,174
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NETSCOUT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF REDEEMABLE CONVERTIBLE COMMON STOCK AND STOCKHOLDERS'
EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
CLASS B REDEEMABLE --------------------------------------------------
CONVERTIBLE COMMON SERIES A CONVERTIBLE
STOCK PREFERRED STOCK VOTING NON-VOTING
-------------------- ---------------------- ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES PAR VALUE SHARES PAR VALUE
--------- --------- --------- ----------- --------- ------------- --------- -------------
Balance, March 31, 1996....... -- $ -- 631,579 $ 5,964 24,000,000 $ 24 5,356,800 $ 5
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Deferred compensation related
to stock options granted....
Issuance of common stock
pursuant to exercise of
options..................... 26,400 --
Amortization of deferred
compensation................
Net income....................
--------- --------- --------- ----------- --------- --- --------- ---
Balance, March 31, 1997....... -- -- 631,579 5,964 24,000,000 24 5,383,200 5
Deferred compensation related
to stock options granted....
Issuance of common stock
pursuant to exercise of
options..................... 28,800 --
Amortization of deferred
compensation................
Net income....................
--------- --------- --------- ----------- --------- --- --------- ---
Balance, March 31, 1998....... -- -- 631,579 5,964 24,000,000 24 5,412,000 5
Deferred compensation related
to stock options granted....
Issuance of common stock
pursuant to exercise of
options..................... 322,830 1
Amortization of deferred
compensation................
Net income....................
--------- --------- --------- ----------- --------- --- --------- ---
Balance, December 31, 1998
(unaudited)................. -- -- 631,579 5,964 24,000,000 24 5,734,830 6
Issuance of Class B redeemable
convertible common stock,
net of issuance costs of
$410 (unaudited)............ 6,977,254 44,161
Purchase of treasury stock
(unaudited).................
Conversion of outstanding
shares into voting common
stock (unaudited)........... (6,977,254) (44,161) (631,579) (5,964) 19,990,185 20 (5,734,830) (6)
--------- --------- --------- ----------- --------- --- --------- ---
Balance, December 31, 1998 on
a pro forma basis
(unaudited)................. -- $ -- -- $ -- 43,990,185 $ 44 -- $ --
--------- --------- --------- ----------- --------- --- --------- ---
--------- --------- --------- ----------- --------- --- --------- ---
<CAPTION>
ADDITIONAL TOTAL
PAID-IN DEFERRED TREASURY RETAINED STOCKHOLDERS'
CAPITAL COMPENSATION STOCK EARNINGS EQUITY
----------- ------------- ---------- ----------- -----------
Balance, March 31, 1996....... $ 70 $ (47) $ -- $ 2,833 $ 8,849
<S> <C> <C> <C> <C> <C>
Deferred compensation related
to stock options granted.... 166 (166) --
Issuance of common stock
pursuant to exercise of
options..................... 2 2
Amortization of deferred
compensation................ 40 40
Net income.................... 5,918 5,918
----------- ----- ---------- ----------- -----------
Balance, March 31, 1997....... 238 (173) -- 8,751 14,809
Deferred compensation related
to stock options granted.... 636 (636) --
Issuance of common stock
pursuant to exercise of
options..................... 22 22
Amortization of deferred
compensation................ 137 137
Net income.................... 5,432 5,432
----------- ----- ---------- ----------- -----------
Balance, March 31, 1998....... 896 (672) -- 14,183 20,400
Deferred compensation related
to stock options granted.... 72 (72) --
Issuance of common stock
pursuant to exercise of
options..................... 42 43
Amortization of deferred
compensation................ 194 194
Net income.................... 7,881 7,881
----------- ----- ---------- ----------- -----------
Balance, December 31, 1998
(unaudited)................. 1,010 (550) -- 22,064 28,518
Issuance of Class B redeemable
convertible common stock,
net of issuance costs of
$410 (unaudited)............ 44,161
Purchase of treasury stock
(unaudited)................. (44,394) (177) (44,571)
Conversion of outstanding
shares into voting common
stock (unaudited)........... 50,111 --
----------- ----- ---------- ----------- -----------
Balance, December 31, 1998 on
a pro forma basis
(unaudited)................. $ 51,121 $ (550) $ (44,394) $ 21,887 $ 28,108
----------- ----- ---------- ----------- -----------
----------- ----- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
NETSCOUT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 2,003 $ 5,918 $ 5,432 $ 3,893 $ 7,881
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 382 1,171 1,470 969 1,454
Loss on disposal of fixed assets............................ 26 78 171 95 50
Compensation expense associated with equity awards.......... 3 40 137 67 194
Deferred income taxes....................................... (68) (848) (504) -- --
Changes in assets and liabilities:
Accounts receivable....................................... (2,466) 1,480 (2,103) (1,891) (2,823)
Inventories............................................... (1,114) (773) (780) (164) 422
Refundable income taxes................................... -- -- (708) (975) 708
Prepaids and other current assets......................... (91) (82) (357) (195) 18
Accounts payable.......................................... 1,169 (405) 1,768 670 (316)
Accrued expenses.......................................... 590 1,022 966 134 556
Income taxes payable...................................... 1,024 (1,122) (84) (84) 306
Customer deposits......................................... (133) 1,227 (16) (123) (117)
Deferred revenue.......................................... 1,003 693 1,292 716 428
--------- --------- --------- --------- ---------
Net cash provided by operating activities................. 2,328 8,399 6,684 3,112 8,761
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities............................. -- (5,841) (2,993) (1,910) --
Proceeds from maturity of marketable securities............... -- -- -- -- 8,834
Issuance of notes receivable--stockholders.................... -- (2,000) -- -- --
Purchase of fixed assets...................................... (788) (1,844) (3,886) (3,092) (1,955)
--------- --------- --------- --------- ---------
Net cash (used) provided by investing activities.......... (788) (9,685) (6,879) (5,002) 6,879
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series A convertible preferred
stock, net of issuance costs................................ 5,964 -- -- -- --
Proceeds from issuance of common stock........................ -- 2 22 22 43
Repayments of mortgages payable............................... (52) -- -- -- --
--------- --------- --------- --------- ---------
Net cash provided by financing activities................. 5,912 2 22 22 43
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents............ 7,452 (1,284) (173) (1,868) 15,683
Cash and cash equivalents, beginning of year.................... 346 7,798 6,514 6,514 6,341
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period........................ $ 7,798 $ 6,514 $ 6,341 $ 4,646 $ 22,024
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................................ $ 22 $ 10 $ 7 $ 6 $ 2
Cash paid for income taxes.................................... 400 4,340 4,351 3,250 3,421
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
NetScout Systems, Inc. ("NetScout") designs, develops, manufactures, markets
and supports an integrated family of products that enable businesses and service
providers to manage the performance of computer networks and important business
software applications. NetScout's principal markets are the domestic and
international business markets. NetScout manages its business as a single
segment.
The consolidated financial statements include the accounts of NetScout and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL INSTRUMENTS
The carrying value of NetScout's financial instruments, which include cash
and cash equivalents, marketable securities, accounts receivable, notes
receivable, accounts payable and accrued expenses, approximate their fair
values.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
NetScout considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents, and those with maturities
greater than three months are considered to be marketable securities. Cash
equivalents and marketable securities are stated at amortized cost plus accrued
interest, which approximates fair value. Cash equivalents and marketable
securities consist primarily of money market instruments and U.S. Treasury
bills.
NetScout accounts for its investments in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under the provision of SFAS No. 115,
NetScout has classified its investments as "available-for-sale" and any
associated unrealized gains or losses, if material, are recorded as a separate
component of stockholders' equity until realized. At March 31, 1997 and 1998,
any unrealized gains or losses were immaterial.
At March 31, 1998 and periodically throughout the year, NetScout has
maintained cash balances in various operating accounts in excess of federally
insured limits. NetScout limits the amount of credit exposure with any one
financial institution by evaluating the credit worthiness of the financial
institutions with which it invests.
REVENUE RECOGNITION
Product revenue is recognized upon shipment, provided that fees are fixed
and determinable and collection of the related receivable is probable. Sales to
indirect channel partners that are subject to return privileges are recognized
upon shipment, net of an allowance for estimated product returns which is based
on NetScout's return policy and historical experience. Customer payments
received in advance of product shipments are recorded as customer deposits.
Service revenue consists primarily of customer fees from support agreements,
installation and training. Revenue from support agreements is deferred and
recognized ratably over the support period. Revenue from installation and
training is recognized as the work is performed.
F-7
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
License and royalty revenue consists primarily of royalties paid under
license agreements by OEMs who incorporate components of NetScout's data
collection technology in their own products or who reproduce and sell NetScout's
software products. License revenue is recognized when NetScout becomes
contractually entitled to receive license fees, provided that such fees are
fixed and determinable and collection is probable. Royalty revenue is recognized
based upon product shipment by the license holder.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Concentration of credit risk is limited as NetScout sells its products to a
large number of customers in many different industries and geographic areas. At
March 31, 1998, two customers accounted for approximately 21% and 19%,
respectively, of NetScout's accounts receivable. Management believes its credit
policies are prudent and reflect normal industry terms and business risk. In
addition, NetScout maintains reserves for potential credit losses, and such
losses historically have been minimal and within management's expectations.
NetScout does not anticipate non-performance by counterparties and, accordingly,
does not require collateral.
During the year ended March 31, 1996, three customers accounted for
approximately 17%, 14% and 10%, respectively, of NetScout's total revenue.
During the year ended March 31, 1997, one customer accounted for approximately
24% of NetScout's total revenue. During the year ended March 31, 1998, two
customers accounted for approximately 40% and 12%, respectively, of NetScout's
total revenue.
(Unaudited)
During the nine months ended December 31, 1998, one customer accounted for
49% of NetScout's total revenue.
INVENTORIES AND CONCENTRATIONS OF SUPPLIERS
Inventories are stated at the lower of cost or market with cost being
determined on the first-in, first-out method.
NetScout purchases the majority of its product components from a limited
number of vendors. Although there is a concentration of sources of supply,
management believes that the nature of its business requires sourcing and
marketing products from the limited number of vendors who have expertise in
manufacturing the components for NetScout's products. A change in or loss of one
or more of these vendors could cause a delay in filling customer orders and a
possible loss of sales, which could adversely affect results of operations.
FIXED ASSETS
Fixed assets are stated at cost and depreciated using the straight-line
method over their estimated useful lives.
F-8
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT AND COMPUTER SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of NetScout's products are
expensed as incurred, except for certain software development costs. Costs
associated with the development of computer software are expensed prior to
establishment of technological feasibility (as defined by SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed") and capitalized thereafter when material to NetScout's financial
position or results of operations. No software development costs were
capitalized during the years ended March 31, 1996, 1997 and 1998, since costs
incurred subsequent to establishment of technological feasibility were not
material.
ACCOUNTING FOR STOCK-BASED COMPENSATION
NetScout accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employes," and related interpretations.
NetScout has adopted the provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," through disclosure only (Note 9). All stock-based awards to
non-employees are accounted for at their fair value in accordance with SFAS No.
123 and, for awards made after November 16, 1998, in accordance with Emerging
Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments that are
Issued to Other than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services" ("EITF 96-18").
ADVERTISING EXPENSE
NetScout recognizes advertising expense as incurred. Advertising expense was
approximately $13, $70 and $146 for the years ended March 31, 1996, 1997 and
1998, respectively.
UNAUDITED PRO FORMA BALANCE SHEET AND UNAUDITED PRO FORMA STATEMENT OF
REDEEMABLE CONVERTIBLE COMMON STOCK AND STOCKHOLDERS' EQUITY
As discussed in Note 8, NetScout issued 6,977,254 shares of Class B
Redeemable Convertible Common Stock ("Class B Convertible Common Stock") at
$6.39 per share in January 1999. NetScout used the proceeds from this financing
to repurchase 7,124,247, 1,446,900 and 315,789 shares of Voting Common Stock,
Non-Voting Common Stock and Series A Convertible Preferred Stock ("Series A
Preferred Stock"), respectively.
Upon the closing of NetScout's initial public offering, all of the
outstanding shares of Class B Convertible Common Stock, Series A Preferred Stock
and Non-Voting Common Stock will automatically convert into 10,465,881,
3,789,474 and 5,734,830 shares, respectively, of Voting Common Stock (Note 8).
These transactions have been reflected in the unaudited pro forma balance sheet
and unaudited pro forma statement of redeemable convertible common stock and
stockholders' equity as of December 31, 1998.
NET INCOME PER SHARE
Basic net income per share is computed by dividing income available to
common stockholders by the weighted average number of shares of common stock
outstanding during the period, excluding shares of common stock subject to
repurchase. Diluted net income per share is computed by dividing
F-9
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
income available to common stockholders by the sum of the weighted average
number of shares of common stock outstanding during the period and the weighted
average number of potential common stock from the assumed exercise of stock
options and common stock subject to repurchase using the "treasury stock" method
and the assumed conversion of the Series A Convertible Preferred Stock.
UNAUDITED PRO FORMA NET INCOME PER SHARE
Pro forma basic and diluted net income per share have been computed assuming
the conversion of all outstanding shares of Class B Convertible Common Stock,
Series A Preferred Stock and Non-Voting Common Stock into common stock, as if
the shares had converted immediately upon their issuance.
UNAUDITED INTERIM FINANCIAL STATEMENTS
Data and information as of December 31, 1998 and for the nine months ended
December 31, 1997 and 1998 is unaudited. In the opinion of NetScout's
management, the December 31, 1997 and 1998 unaudited interim consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and result of operations for that period. The results of operations for
the nine month period ended December 31, 1998 are not necessarily indicative of
the results of operations for the year ended March 31, 1999.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures of contingent assets and liabilities at March 31, 1997 and 1998 and
the reported amounts of revenues and expenses during fiscal 1996, 1997 and 1998.
Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. NetScout does not expect
SOP 98-1, which is effective for NetScout beginning April 1, 1999, to have a
material effect on its financial condition or results of operations.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities relating to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for NetScout's fiscal year 2000 financial statements and
NetScout does not expect its adoption to have a material effect on its financial
condition or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The new standard
establishes accounting and reporting
F-10
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
NetScout does not expect SFAS No. 133 to have a material effect on its financial
condition or results of operations.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------- DECEMBER 31,
1997 1998 1998
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Raw materials............................................... $ 1,503 $ 2,482 $ 1,862
Work-in-process............................................. 229 259 317
Finished goods.............................................. 542 313 453
--------- --------- ------
$ 2,274 $ 3,054 $ 2,632
--------- --------- ------
--------- --------- ------
</TABLE>
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL MARCH 31,
LIFE --------------------
IN YEARS 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Furniture and fixtures......................................... 3-7 $ 286 $ 788
Computer equipment and purchased software...................... 3 1,737 2,815
Demonstration units............................................ 2 756 971
Leasehold improvements......................................... 5 244 1,815
--------- ---------
3,023 6,389
Less--accumulated depreciation and amortization................ 1,427 2,548
--------- ---------
$ 1,596 $ 3,841
--------- ---------
--------- ---------
</TABLE>
5. NOTES RECEIVABLE--STOCKHOLDERS
In June 1996, the Board of Directors approved $1,100 and $900 loans to two
voting stockholders ($2,000 in the aggregate). The loans are collateralized by
1,548,396 shares of Voting Common Stock of NetScout. The loans have five-year
terms with an interest rate of 6.48%, compounded semi-annually and payable
annually.
6. LINE OF CREDIT
At March 31, 1998, NetScout had a revolving line of credit with a bank under
which it can borrow up to $3,000 based upon a percentage of eligible accounts
receivable. This line of credit was set to expire on March 11, 1999. Borrowings
under the line are payable on demand and bear interest at the bank's prime rate.
Under the terms of the agreement, NetScout is required to comply with certain
F-11
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. LINE OF CREDIT (CONTINUED)
restrictive covenants, which require that NetScout maintain minimum amounts of
profitability and liquidity. The line of credit is secured by NetScout's
accounts receivable and inventory. NetScout was in compliance with all
restrictive covenants at March 31, 1998. No borrowings were outstanding under
the line of credit at March 31, 1998 (Note 12).
(Unaudited)
In March 1999, the revolving line of credit was modified to allow NetScout
to borrow up to $5,000 based on a percentage of eligible accounts receivable and
to extend the expiration date to March 2000.
7. NET INCOME PER SHARE
Below is a summary of the shares used in computing basic and diluted net
income per share for the years indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
---------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1997 1998
------------ ------------ ------------ ------------ ------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted average number of shares
outstanding.............................. 27,813,702 28,514,402 28,933,752 28,909,404 29,352,740
Shares attributable to Series A Preferred
Stock.................................... 3,789,474 3,789,474 3,789,474 3,789,474 3,789,474
Shares attributable to restricted Non-
Voting Common Stock...................... 1,258,602 823,104 440,430 456,174 232,613
Stock options.............................. 827,951 1,250,946 1,584,638 1,295,208 2,319,347
------------ ------------ ------------ ------------ ------------
Shares used in computing diluted net income
per share................................ 33,689,729 34,377,926 34,748,294 34,450,260 35,694,174
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
Stock options to purchase 185,400, 98,051, 11,798 and 141,644 shares of
Non-Voting Common Stock for the years ended March 31, 1997 and 1998 and for the
nine months ended December 31, 1997 and 1998 (unaudited), respectively, were
outstanding at period end but were not included in the computation of diluted
net income per share because the exercise prices of the options were greater
than the average fair value of the common stock for the respective period.
8. CAPITAL STOCK
In January 1999, NetScout issued 6,977,254 shares of Class B Convertible
Common Stock to independent financial investors at $6.39 per share ($4.26 per
common equivalent) for net proceeds of $44,161. NetScout used the proceeds from
this financing to repurchase shares of the Company's capital stock--see Treasury
Stock below.
The Class B Convertible Common Stock and Series A Preferred Stock have the
following characteristics:
F-12
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. CAPITAL STOCK (CONTINUED)
VOTING RIGHTS
The holders of the Class B Convertible Common Stock shall be entitled to
that number of votes equal to the number of shares of Voting Common Stock into
which each share could be converted with regard to any matter submitted to the
shareholders for a vote. The holders of the Series A Preferred Stock have no
voting rights, except rights to elect board directors.
DIVIDEND RIGHTS
The holders of the Class B Convertible Common Stock and Series A Preferred
Stock are entitled to receive, when and as declared by the Board of Directors
and out of funds legally available, noncumulative dividends at the rate of $.64
and $.95, respectively, per share per annum, payable in preference and priority
to any payment of any dividend on common stock. No dividends or other
distributions shall be made with respect to the common stock, until all declared
dividends on the Class B Convertible Common Stock and Series A Preferred Stock
have been paid. Through March 31, 1998, no cash dividends have been declared or
paid by NetScout.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the affairs of
NetScout, the holders of the then outstanding Class B Convertible Common Stock
and Series A Preferred Stock shall receive for each share an amount equal to the
sum of $6.39 and $9.50 per share of Class B Convertible Common Stock and Series
A Preferred Stock, respectively, plus all declared but unpaid dividends, payable
in preference and priority to any payments made to the holders of the then
outstanding common stock.
CONVERSION
Each share of Class B Convertible Common Stock shall be convertible at any
time, at the option of the stockholder, into one and one-half shares of Voting
Common Stock. Each share of Class B Convertible Common Stock shall automatically
be convertible (i) into shares of Voting Common Stock upon the closing of an
initial public offering in which gross proceeds are at least $40,000 and in
which the price per common share to the public is at least $8.53 or (ii) into
Voting Common Stock upon the written election of holders of not less than a
majority of the then outstanding shares of Class B Convertible Common Stock,
voting as a class, at any other time. Each share of Series A Preferred Stock may
be converted at any time, at the option of the stockholder, into six shares of
Non-Voting Common Stock. Each share of Series A Preferred Stock shall
automatically be converted (i) into shares of Voting Common Stock upon the
closing of an initial public stock offering in which gross proceeds are at least
$10,000, and in which the price per common share to the public is at least
$3.17, or (ii) into Voting Common Stock at such time upon the election of
holders of not less than two-thirds of the then outstanding shares of Series A
Preferred Stock, when NetScout's common stock is registered under Section 12(g)
of the Securities Exchange Act of 1934 or (iii) into Non-Voting Common Stock
upon the election of holders of not less than two-thirds of the then outstanding
shares of Series A Preferred Stock.
F-13
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. CAPITAL STOCK (CONTINUED)
REDEMPTION
The holders of not less than a majority of the outstanding shares of Class B
Convertible Common Stock may require NetScout to redeem 33.3%, 66.7% and 100% of
their outstanding shares on January 15, 2004, 2005 and 2006, respectively. The
redemption amount per share will be equal to the sum of $6.39 plus all declared
but unpaid dividends.
NON-VOTING COMMON STOCK
Shares of Non-Voting Common Stock are automatically convertible to shares of
Voting Common Stock upon the closing of an initial public stock offering.
RESTRICTION AGREEMENT
In August 1995, NetScout issued 300,000 shares of restricted Non-Voting
Common Stock to a related party in exchange for services to be performed. The
shares were scheduled to become unrestricted in August 2005. The fair value
ascribed to the shares was $50 which was recorded as deferred compensation and
was being charged to NetScout's results of operations ratably over the service
period of the related party. In February 1999, NetScout terminated the
restriction agreement allowing the shares to become unrestricted and recognized
the remaining balance of deferred compensation as a charge to options at that
time.
STOCK SPLIT
In December 1998, NetScout authorized and effected a two-for-one stock split
on the voting and non-voting common stock. As a result, all common stock share
data included in the accompanying financial statements and notes have been
retroactively restated for the split.
On April 14, 1999, NetScout authorized a three-for-two stock split on the
voting and non-voting common stock. As a result, all common stock share data
included in the accompanying financial statements and notes have been
retroactively restated for the split.
TREASURY STOCK
In January 1999, NetScout repurchased 7,124,247 shares of Voting Common
Stock and 1,446,900 shares of Non-Voting Common Stock for $4.26 per share and
315,789 shares of Series A Preferred Stock for $25.55 per share ($4.26 per
common equivalent) for a total of $44,571. Of this amount, $44,394 was recorded
as treasury stock and $177 was recorded as a charge to operations. The amount
charged to operations was for 63,900 shares of Non-Voting Common Stock
repurchased from employees who acquired the stock under NetScout's stock option
plan and did not hold such stock for at least six months.
RESERVED SHARES
NetScout has reserved 4,710,084 shares of Non-Voting Common Stock for
issuance under the 1990 Stock Option Plan (Note 9). NetScout has also reserved
13,911,558 shares of Voting Common Stock for issuance upon conversion of
NetScout's Series A Preferred Stock and Non-Voting Common Stock. In
F-14
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. CAPITAL STOCK (CONTINUED)
addition, NetScout has reserved 3,789,474 shares of Non-Voting Common Stock for
issuance upon conversion of NetScout's Series A Preferred Stock.
9. 1990 STOCK OPTION PLAN
In October 1990, NetScout adopted the 1990 Stock Option Plan (the "Plan").
The Plan provides for the granting of incentive and non-qualified stock options
to employees, directors and consultants of NetScout. The Plan, as amended,
allows for the issuance of options to purchase up to 4,776,084 shares of
Non-Voting Common Stock. The Board of Directors determines the term of each
option, option price, number of shares for which each option is granted and the
rate at which each option is exercisable. The exercise price of incentive stock
options shall not be less than 100% of the fair market value of the common stock
at the date of grant (110% for incentive stock options granted to holders of
more than 10% of the voting stock of NetScout). The term of options granted
cannot exceed ten years (five years for incentive stock options granted to
holders of more than 10% of the voting stock of NetScout).
In April 1998, NetScout increased the shares available under the Plan to
6,771,999 shares of Non-Voting Common Stock.
Transactions under the Plan during the years ended March 31, 1996, 1997 and
1998 are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- -----------
<S> <C> <C>
Outstanding--March 31, 1995............................................ 833,850 $ .01
Granted (weighted average fair value of $.05 per share).............. 276,000 .21
Exercised............................................................ (10,800) .01
Canceled............................................................. (100,800) .01
----------
Outstanding--March 31, 1996............................................ 998,250 .07
Granted (weighted average fair value of $.29 per share).............. 2,106,750 .94
Exercised............................................................ (26,400) .08
Canceled............................................................. (81,000) .32
----------
Outstanding--March 31, 1997............................................ 2,997,600 .67
Granted (weighted average fair value of $.53 and $1.09 per share for
options with exercise prices equal to and less than the market
price, respectively, at the date of grant)......................... 1,794,000 1.91
Exercised............................................................ (28,800) .87
Canceled............................................................. (345,900) 1.45
----------
Outstanding--March 31, 1998............................................ 4,416,900 1.11
----------
----------
</TABLE>
F-15
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. 1990 STOCK OPTION PLAN (CONTINUED)
The following tables summarize information about employee options
outstanding and exercisable at March 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE
- ------------------------------------------------------ ----------- -------------- -----------
<S> <C> <C> <C>
(YEARS)
$.002 to .50......................................... 1,835,250 7.2 $ .29
1.00 to 1.33......................................... 505,500 8.3 1.03
1.67................................................. 1,669,650 9.2 1.67
2.67................................................. 406,500 9.8 2.67
-----------
4,416,900 8.4 1.11
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
RANGE OF EXERCISE PRICES EXERCISABLE PRICE
- ----------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
$.002 to .50.......................................................... 768,510 $ .17
1.00 to 1.33.......................................................... 101,100 1.03
1.67.................................................................. 166,350 1.67
----------
1,035,960 .49
----------
----------
</TABLE>
As of March 31, 1996 and 1997, 198,570 and 406,140 options were exercisable,
respectively, under the Plan. As of March 31, 1998, there were 293,184 shares of
Non-Voting Common Stock available for grant under the Plan.
FAIR VALUE DISCLOSURES
As discussed in Note 2, NetScout has adopted SFAS No. 123 through disclosure
only. Had compensation cost for NetScout's option plan been determined based on
the fair value at the grant dates, as prescribed in SFAS No. 123, NetScout's net
income and basic and diluted net income per share on a pro forma basis would
have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Net income:
As reported.................................................... $ 2,003 $ 5,918 $ 5,432
Pro forma...................................................... $ 2,000 $ 5,824 $ 5,208
Basic net income per share:
As reported.................................................... $ .07 $ .21 $ .19
Pro forma...................................................... $ .07 $ .20 $ .18
Diluted net income per share:
As reported.................................................... $ .06 $ .17 $ .16
Pro forma...................................................... $ .06 $ .17 $ .15
</TABLE>
F-16
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. 1990 STOCK OPTION PLAN (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions for grants in 1996, 1997
and 1998: dividend yield of 0.0%; risk-free interest rates of 5.9%, 6.4% and
6.0% for 1996, 1997 and 1998, respectively; and a weighted-average expected
option term of 5 years. Because options granted after the initial filing for
NetScout's initial public offering must contain a volatility factor under SFAS
No. 123, additional option grants are expected to be made each year and options
vest over several years, the above pro forma disclosures are not representative
of pro forma effects of reported net income for future years.
In May 1996, NetScout granted 498,000 options to purchase Non-Voting Common
Stock to a consultant in exchange for services to be performed. The fair value
ascribed to the shares was $166 which was recorded as deferred compensation and
is being charged to NetScout's results of operations ratably over the service
period.
In September 1997, NetScout granted 60,000 options to purchase Non-Voting
Common Stock to consultants for services to be performed. In November 1997, the
EITF finalized Issue No. 96-18. Under EITF 96-18, the compensation expense that
will ultimately be recognized for options issued to these consultants will be
measured at the vesting dates of the underlying options. NetScout has recorded
deferred compensation at a preliminary value of $118 of these options which have
not vested as of March 31, 1998. As these options vest over five years, NetScout
will be required to remeasure the fair value of these options at each reporting
period prior to vesting and then finally at the vesting dates of the options.
Changes in the estimated fair value of these options will be recognized as
compensation expense in the period of the change. For the year ended March 31,
1998, NetScout recorded $27 of compensation expense related to these options.
In September 1997, NetScout granted 777,000 options to purchase Non-Voting
Common Stock at $1.67 per share to employees. At the grant date, NetScout
estimated the fair value of the common stock to be $2.33 per share. In
accordance with APB No. 25, NetScout recorded $518 of deferred compensation
which will be charged to NetScout's results of operations over the vesting
period of the options, generally four years. For the year ended March 31, 1998,
NetScout recorded $66 of compensation expense related to these options.
(Unaudited)
In March 1999, NetScout terminated the agreement with the consultants and a
total of 24,000 options vested. As a result, NetScout recorded an additional
$105 of compensation expense related to these options. In February 1999,
NetScout granted 458,250 options to purchase Non-Voting Common Stock to
employees. At the date of grant, NetScout estimated the fair value of the common
stock to be $6.45 per share. In accordance with APB No. 25, NetScout recorded
$968 of deferred compensation which will be charged to NetScout's results of
operations over the vesting period of the options, generally four years.
10. RETIREMENT PLAN
In 1996, NetScout established a 401(k) plan, which is intended to qualify
under Section 401(k) of the Internal Revenue Code of 1986, pursuant to which
NetScout matches 25% of the employee's contribution up to 6% of the employee's
salary. NetScout contributions vest at a rate of 20% per year
F-17
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10. RETIREMENT PLAN (CONTINUED)
of service. NetScout made matching contributions of $35, $57 and $121 to the
plan for the years ended March 31, 1996, 1997 and 1998, respectively.
11. INCOME TAXES
The components of the provision for income taxes are as follow:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Current provision:
Federal........................................................ $ 1,111 $ 3,438 $ 2,859
State.......................................................... 312 1,050 701
--------- --------- ---------
1,423 4,488 3,560
--------- --------- ---------
Deferred tax benefit:
Federal........................................................ (58) (721) (426)
State.......................................................... (10) (127) (78)
--------- --------- ---------
(68) (848) (504)
--------- --------- ---------
$ 1,355 $ 3,640 $ 3,056
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C>
1997 1998
--------- ---------
Deferred tax assets:
Reserves................................................................. $ 713 $ 486
Accrued expenses......................................................... 275 226
Fixed assets............................................................. 52 335
Deferred revenue......................................................... 22 479
Other.................................................................... 21 61
--------- ---------
$ 1,083 $ 1,587
--------- ---------
--------- ---------
</TABLE>
F-18
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. INCOME TAXES (CONTINUED)
The income tax provision computed using the federal statutory income tax
rate differs from NetScout's effective tax rate primarily due to the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
Statutory U.S. federal tax rate................................ 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit........................ 6.2 6.4 4.8
Foreign sales corporation exempt income........................ (1.0) (.8) (1.5)
Research and development tax credits........................... (.9) (1.3) (1.7)
Nondeductible expenses......................................... 2.1 (.2) .4
--------- --------- ---------
40.4% 38.1% 36.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
LEASES
NetScout leases office space under operating leases. Total rent expense
under the leases was $50, $198 and $942 for the years ended March 31, 1996, 1997
and 1998, respectively. Future noncancelable minimum lease commitments are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
- -------------------------------------------------------------------------------------
<S> <C>
1999................................................................................. $ 829
2000................................................................................. 861
2001................................................................................. 959
2002................................................................................. 1,024
2003................................................................................. 683
---------
Total minimum lease payments......................................................... $ 4,356
---------
---------
</TABLE>
Under the terms of its principal office lease, NetScout is required to
maintain a letter of credit totaling $561 under its $3,000 revolving line of
credit (Note 6).
Pursuant to a product development arrangement, NetScout pays royalties on
certain network management and monitoring software it developed and is selling.
Royalties accrue at rates ranging from 2% to 4% of gross product and contract
sales, up to a maximum of $992. Royalty expense under the agreement was $260,
$451 and $16 for the years ended March 31, 1996, 1997 and 1998, respectively.
(Unaudited)
CONTINGENCIES
In August 1998, a former employee made claims against NetScout and an
employee stockholder and alleged unspecified damages. The former employee filed
a related claim with the Massachusetts Commission Against Discrimination in
December 1998. Based on the information available to date, NetScout believes
that the claim is without merit and intends to vigorously defend this claim. As
this
F-19
<PAGE>
NETSCOUT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
matter is at a preliminary stage, NetScout is unable to predict the outcome or
the amount of related expense or loss, if any.
In addition to the matter noted above, from time to time NetScout is subject
to legal proceedings and claims in the ordinary course of business. In the
opinion of management, the amount of ultimate expense with respect to any other
current legal proceedings and claims will not have a material adverse effect on
NetScout's financial position or results of operations.
EMPLOYMENT AGREEMENT
In January 1999, NetScout amended an employee agreement with two employee
stockholders to provide that each employee stockholder will receive a base
salary of at least $250 and a year-end, non-discretionary bonus of at least
$250. The employment agreement is terminable at will, but provides that if
either employee's employment is terminated by NetScout without cause, or either
decides to terminate his own employment for "good reason", as defined, each is
entitled to receive severance benefits for three years as follows: (i) for the
first twelve months following termination, the greater of $175 or base salary as
of the date of termination; and (ii) for each subsequent twelve-month period, an
amount equal to 120% of the amount received in the immediately preceding twelve
months. Each employment agreement provides for a five-year term commencing June
1, 1994 with automatic one-year renewals.
13. RELATED PARTY TRANSACTIONS
For the years ended March 31, 1996, 1997 and 1998, NetScout paid
approximately $20, $352 and $315, respectively, to an affiliate, which is
two-thirds owned by the two voting common stockholders of NetScout, for
consulting services.
14. GEOGRAPHIC INFORMATION
Revenue was distributed geographically as follows:
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
North America................................................ $ 12,106 $ 26,823 $ 37,518
Other international.......................................... 3,577 3,825 5,311
--------- --------- ---------
$ 15,683 $ 30,648 $ 42,829
--------- --------- ---------
--------- --------- ---------
</TABLE>
Substantially all of NetScout's identifiable assets are located in the
United States.
F-20
<PAGE>
NETSCOUT SYSTEMS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO DEDUCTIONS END OF
DESCRIPTION PERIOD OPERATIONS (1) PERIOD
- ------------------------------------------------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Year ended March 31, 1996
Reserves and allowances deducted from asset accounts
Allowance for doubtful accounts and returns........ $ 178,000 845,000 826,000 $ 197,000
Year ended March 31, 1997
Reserves and allowances deducted from asset accounts
Allowance for doubtful accounts and returns........ $ 197,000 3,019,000 1,523,000 $1,693,000
Year ended March 31, 1998
Reserves and allowances deducted from asset accounts
Allowance for doubtful accounts and returns........ $ 1,693,000 (249,000) 381,000 $1,063,000
</TABLE>
- ------------------------
(1) Doubtful accounts written off, net of recoveries
S-1
<PAGE>
[LOGO]
<PAGE>
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.............................................. $ 28,773
NASD filing fee................................................... 10,850
Nasdaq National Market listing fee................................ 95,000
Printing and engraving expenses................................... 120,000
Legal fees and expenses........................................... 300,000
Accounting fees and expenses...................................... 225,000
Blue Sky fees and expenses (including legal fees)................. 5,000
Transfer agent and registrar fees and expenses.................... 5,000
Miscellaneous..................................................... 10,377
---------
Total........................................................... $ 800,000
---------
---------
</TABLE>
NetScout will bear all expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law and the Company's charter and by-laws
provide for indemnification of the Company'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 the Company and, with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.
Reference is made to the Company's charter and by-laws filed as Exhibits 3.3 and
3.5 hereto, respectively.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). Reference is made
to the form of Underwriting Agreement filed as Exhibit 1.1 hereto.
In addition, the Company has an existing directors and officers liability
insurance policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three fiscal years preceding the filing of this registration
statement, the Company has issued the following securities that were not
registered under the Securities Act:
(a) Issuances of Capital Stock.
In January 1999, the Company issued 6,977,254 shares of its Class B
Convertible Common Stock, par value $.001 per share (the "Class B Common
Stock"), to certain affiliates of TA Associates, Inc. and to Egan-Managed
Capital, L.P., at $6.388051 per share, for aggregate consideration of
$44,571,054. All of the proceeds from the Class B Common Stock financing were
used to redeem shares of the Company's Series A Preferred Stock, Non-Voting
Common Stock and common stock held by certain persons, including certain
officers and directors of NetScout. Upon closing of this offering, the 6,977,254
outstanding shares of Class B Common Stock will automatically convert into
10,465,881 shares of common stock.
In February 1996, NetScout issued 631,579 shares of its Series A Preferred
Stock, par value $.001 per share (the "Series A Preferred"), to Greylock Equity
Limited Partnership ("Greylock"), at purchase price
II-1
<PAGE>
of $9.50 per share, for an aggregate of $6,000,000. Roger Evans, a general
partner of the general partner of Greylock, served as a member of the Board of
Directors of NetScout from February 1996 until January 1999. Upon closing of
this offering, the 315,790 shares of outstanding Series A Preferred will
automatically convert into an aggregate of 1,894,740 shares of common stock.
(b) Grants and Exercises of Stock Options
As of March 31, 1999, the Company has outstanding options to purchase an
aggregate of 4,640,438 shares of Non-Voting Common Stock under the 1990 Stock
Option Plan exercisable at a weighted average exercise price of $1.90 per share.
From April 1, 1996 to March 31, 1999, the Company issued 696,986 shares of
Non-Voting Common Stock for an aggregate purchase price of $278,982 pursuant to
exercise of employee options.
Upon closing of this offering, each share of Non-Voting Common Stock will
convert into one share of common stock.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or, in the case of options to purchase common stock, Rule 701 under
the Securities Act. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Certificate of Incorporation of NetScout.
3.2 Form of Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation of
NetScout.
3.3, 4.1 Form of Third Amended and Restated Certificate of Incorporation of NetScout.
3.4 By-laws of NetScout.
3.5, 4.2 Form of Amended and Restated By-laws of NetScout.
4.3* Specimen Certificate for shares of NetScout's Common Stock.
5.1* Legal Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1** 1990 Stock Option Plan, as amended.
10.2** 1999 Stock Option and Incentive Plan.
10.3** 1999 Employee Stock Purchase Plan.
10.4 Stock Purchase and Redemption Agreement dated December 31, 1999 by and among NetScout, Greylock
Equity Limited Partnership, certain affiliates of TA Associates, Inc. and Egan-Managed Capital, L.P.
10.5 Amended and Restated Rights Agreement entered into as of January 15, 1999 by and among NetScout,
Greylock Equity Limited Partnership, certain affiliates of TA Associates, Inc. and Egan-Managed
Capital, L.P.
10.6 Lease dated August 18, 1997 between NetScout and Michelson Farm-Westford Technology Park Limited
Partnership.
10.7 Amended and Restated Loan and Security Agreement dated March 12, 1998 by and between NetScout and
Silicon Valley Bank.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.8 Loan Modification Agreement entered into March 11, 1999 between NetScout and Silicon Valley Bank.
+10.9 OEM Agreement dated as of February 3, 1998 by and between SDL Communications, Inc. and NetScout.
+10.10 Project Development and License Agreement dated as of July 13, 1994 by and between Cisco Systems,
Inc. ("Cisco") and NetScout.
+10.11 Amendment No. 1 to the Project Agreement and Design License Agreement dated as of January 4, 1995 by
and between Cisco and NetScout.
+10.12 Private Label Agreement effective as of October 17, 1995 by and between Cisco and NetScout.
+10.13 Amendment to Private Label Agreement and Project Development and License Agreement dated May 15, 1996
by and between Cisco and NetScout.
+10.14 Amendment No. 3 to the Private Label Agreement and Project Development and License Agreement by and
between Cisco and NetScout.
+10.15 Amendment No. 4 to Private Label Agreement and Project Development and License Agreement effective as
of February 23, 1998 by and between Cisco and NetScout.
10.16** Agreement Relating to Employment dated June 1, 1994 by and between NetScout and Anil Singhal.
10.17** Amendment No. 1 to Agreement Relating to Employment dated January 14, 1999 by and between NetScout
and Anil Singhal.
10.18** Agreement Relating to Employment dated June 1, 1994 by and between NetScout and Narendra Popat.
10.19** Amendment No. 1 to Agreement Relating to Employment dated January 14, 1999 by and between NetScout
and Narendra Popat.
10.20 Secured Term Note for $1,100,000, Partially Non-Recourse, dated June 28, 1996, Payable to NetScout by
Anil Singhal.
10.21 Stock Pledge Agreement, made as of June 28, 1996, between Anil Singhal and NetScout.
10.22 Secured Term Note for $900,000, Partially Non-Recourse, dated June 28, 1996. Payable to NetScout by
Narendra Popat.
10.23 Stock Pledge Agreement, made as of June 28, 1996, between Narendra Popat and NetScout.
21.1 Subsidiaries of NetScout.
23.1* Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (contained on page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Indicates a management contract or any compensatory plan, contract or
arrangement.
+ Confidential materials omitted and filed separately with the Securities and
Exchange Commission.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are either not applicable
or the required information is included with the Consolidated Financial
Statement and Notes thereto, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective; and (3) that for the purpose of determining any liability
under the Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
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 Westford, Massachusetts
on April 22, 1999.
NETSCOUT SYSTEMS, INC.
By: /s/ ANIL K. SINGHAL
------------------------------------------
Anil K. Singhal
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF
THE BOARD
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of NetScout Systems, Inc., hereby
severally constitute and appoint Anil K. Singhal, Narendra Popat and Charles
Tillett, and each of them singly, our true and lawful attorneys, with full power
to them and each of them singly, to sign for us in our names in the capacities
indicated below, any registration statement related to the offering that is to
be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933 (a "462(b) Registration Statement"), any and all amendments and exhibits to
this registration statement or any 462(b) Registration Statement, and any and
all applications and other documents to be filed with the Securities and
Exchange Commission pertaining to the registration of the securities covered
hereby or thereby, and generally to do all things in our names and on our behalf
in such capacities to enable NetScout Systems, Inc. to comply with the
provisions of the Securities Act of 1933 and all requirements of the Securities
and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE(S) DATE
- ------------------------------ --------------------------- -------------------
Chief Executive Officer and April 22, 1999
/s/ ANIL K. SINGHAL Chairman of the Board
- ---------------------------- (Principal Executive
Anil K. Singhal Officer)
/s/ NARENDRA POPAT President, Chief Operating April 22, 1999
- ---------------------------- Officer and Director
Narendra Popat
Vice President, Finance and April 22, 1999
/s/ CHARLES TILLETT Administration and Chief
- ---------------------------- Financial Officer
Charles Tillett (Principal Financial and
Accounting Officer)
/s/ JOSEPH G. HADZIMA, JR. Director April 22, 1999
- ----------------------------
Joseph G. Hadzima, Jr.
/s/ KENNETH T. SCHICIANO Director April 22, 1999
- ----------------------------
Kenneth T. Schiciano
/s/ RICHARD J. EGAN Director April 22, 1999
- ----------------------------
Richard J. Egan
II-5
<PAGE>
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
NETSCOUT SYSTEMS, INC.
NetScout Systems, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Law of the State of Delaware, hereby
certifies as follows:
The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State on April 21, 1993, under the Corporation's previous
name, Frontier Software Development, Inc. An Amended and Restated Certificate of
Incorporation was filed with the Secretary of State on February 16, 1996 and
Amendments to the Certificate of Incorporation were filed with the Secretary of
State on July 11, 1996, March 31, 1997, May 4, 1998, and December 14, 1998. This
Amended and Restated Certificate of Incorporation has been duly adopted by the
Corporation in accordance with Sections 228, 242 and 245 of the General
Corporation Law of Delaware.
The text of the Certificate of Incorporation of the Corporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
FIRST. The name of the Corporation is NetScout Systems, Inc.
SECOND. The address of the Corporation's registered office in the
State of Delaware is 1013 Centre Road, County of New Castle, Wilmington,
Delaware. The name of its registered agent at such address is Corporation
Service Company.
THIRD. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH. The Corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Series A Preferred Stock." The
total number of shares which the Corporation is authorized to issue is fifty-one
million eight hundred ten thousand four hundred fifty-one (51,810,451) shares.
Fifty-one million one hundred seventy-eight thousand eight hundred seventy-two
(51,178,872) shares shall be Common Stock and six hundred thirty-one thousand
five hundred seventy-nine (631,579) shares shall be Series A Preferred Stock
(hereinafter "Series A Preferred"), each of which shall have a par value of
$0.001 per share.
Thirty-three million five hundred eighty-nine thousand four hundred
thirty-six (33,589,436) shares of the Common Stock shall be designated "Voting
Common Stock" (hereinafter "Voting Common"), each of which shall have a par
value of $0.001 per share. Ten million six hundred twelve thousand one hundred
eighty-two (10,612,182) shares of the Common Stock shall be designated
"Non-Voting Common Stock" (hereinafter "Non-Voting Common"), each of which shall
have a par value of $0.001 per share. Six million nine hundred seventy-seven
thousand two hundred fifty-four (6,977,254) shares of the Common Stock shall be
<PAGE>
designated "Class B Convertible Common Stock" (hereinafter "Class B Common"),
each of which shall have a par value of $0.001 per share. The Voting Common and
the Non-Voting Common shall hereinafter be referred to collectively as "Junior
Common Stock."
The rights, preferences, restrictions and other matters relating to the
stock of the Corporation are as follows:
1. DIVIDENDS.
(a) The holders of the Series A Preferred and Class B Common
shall be entitled to receive, pari passu, when and as declared by the Board of
Directors, out of funds legally available therefor, noncumulative dividends at
the rate of $.95 per share and $.6388051 per share, respectively (each rate to
be adjusted for any subdivisions, combinations, consolidations, or stock
distributions or dividends with respect to such shares), per annum, payable in
preference and priority to any payment of any dividend on Junior Common Stock of
the Corporation. No dividends or other distributions shall be made with respect
to the Junior Common Stock, until all declared dividends on the Series A
Preferred and Class B Common have been paid or set apart. The holders of Class B
Common shall be entitled to receive, out of funds legally available therefor,
dividends when, if and as declared by the Board of Directors at the same rate as
dividends (other than dividends paid in additional shares of Common Stock) are
paid with respect to the Junior Common Stock (treating each such share of
Class B Common on an as if converted to Voting Common basis).
(b) Notwithstanding paragraph (a) hereof, the Corporation
may, subject to Section 4(d)(ii) hereof, at any time, out of funds legally
available therefor, repurchase shares of Junior Common Stock of the Corporation
issued to or held by employees or consultants of the Corporation or its
subsidiaries upon termination of their employment or services, pursuant to any
agreement providing for such right of repurchase, whether or not dividends on
the Series A Preferred and the Class B Common shall have been paid and whether
or not such dividends shall have been declared and funds set aside therefor.
2. LIQUIDATION PREFERENCE.
2
<PAGE>
(a) In the event of any dissolution, liquidation or winding
up of the Corporation, whether voluntary or involuntary, before any distribution
or payment is made to or upon any shares of Junior Common Stock, from the
available net assets of the Corporation, the holders of Series A Preferred and
Class B Common shall receive, on a pari passu basis, the following amounts:
(A) for each share of Series A Preferred then held, property or cash in an
amount equal to the sum of (i) $9.50 per share of Series A Preferred (as
originally issued and appropriately adjusted for stock splits and the like) plus
(ii) all declared but unpaid dividends thereon, if any, through the date of such
payment and (B) for each share of Class B Common then held, property or cash in
an amount equal to the sum of (i) $6.38805 per share of Class B Common (as
originally issued and appropriately adjusted for stock splits and the like) plus
(ii) all declared but unpaid dividends thereon, if any, through the date of such
payment. If upon any dissolution, liquidation or winding up of the Corporation,
the net assets available for distribution to the Corporation's shareholders
pursuant to this subparagraph (a) shall be insufficient to permit payment to the
holders of Series A Preferred and Class B Common of the amounts distributable as
aforesaid, the entire net assets of the Corporation to be so distributed shall
be distributed to the holders of Series A Preferred and Class B Common, and as
among such holders, in proportion to the relative liquidation preferences owed
to such holders hereunder.
(b) Upon any such liquidation, dissolution or winding up,
after the holders of Series A Preferred and Class B Common shall have been paid
in full the amount to which they shall be entitled pursuant to subparagraph (a)
above, the remaining net assets of the Corporation shall be distributed ratably
among the holders of Junior Common Stock in proportion to the number of shares
of such stock until the holders of Junior Common Stock have received for each
share of Junior Common Stock an amount equal to the result of (x) the amount
received by the holders of Class B Common pursuant to Section 2(a) divided by
(y) the number of shares of Common Stock the outstanding shares of Class B
Common are then convertible into, and any remaining net assets shall be
distributed ratably among the holders of Series A Preferred, Class B Common and
Junior Common Stock in proportion to the number of shares of such stock (on an
as if converted to Common Stock basis), without distinction as to class.
(c) Unless waived by vote of the holders of at least a
majority of the issued and outstanding shares of Series A Preferred and Class B
Common, taken together (on an as if converted to Common Stock basis) as a single
class, an Exit Event shall be deemed to be a liquidation, dissolution or winding
up within the meaning of this Section 2. As used herein, the term "Exit Event"
shall mean:
(i) any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
which will result in the Corporation's shareholders or their Family Members (as
defined below) immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) at least 50% of
the voting power of the surviving or continuing entity (as used herein the
"Family Members" of a referenced entity shall mean the immediate family (spouse,
lineal ancestors or lineal descendants) of such entity and any trusts
established for the benefit of such entity or its immediate family);
3
<PAGE>
(ii) a sale of all or substantially all of the assets
of the Corporation, unless the Corporation's shareholders immediately prior to
such sale will, as a result of such sale, hold (by virtue of securities issued
as consideration for the Corporation's sale) at least 50% of the voting power of
the purchasing entity; or
(iii) any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
(iv) in connection with any such transaction
contemplated by this Section 2, all consideration payable to the stockholders of
the Corporation, in connection with a merger or consolidation, or all
consideration payable to the Corporation, together with all other available
assets of the Corporation (net of obligations owed by the Corporation), in the
case of an asset sale, shall be paid to and deemed (to the fullest extent
permitted by law) distributed (in the case of a merger or consolidation) or
available for distribution and payment as provided herein (in the case of a sale
of assets), as applicable, to the holders of capital stock of the Corporation in
accordance with the preference and priorities set forth in Sections 2(a) and
2(b), with such preferences and priorities specifically intended to be
applicable in any such merger, consolidation or sale transaction as if the same
were a liquidation, dissolution or winding up. If applicable, the Corporation
shall either (i) cause the agreement and plan of merger or consolidation to
provide as a consequence of such merger or consolidation for the conversion of
the Series A Preferred and Class B Common into the right to receive an amount
equal to the applicable amounts payable under Section 2(a) or 2(b) in the form
of applicable consideration for such merger of consolidation, or (ii)
immediately concurrent with the consummation of the sale of all or substantially
all of the assets of the Corporation, the redemption of all outstanding shares
of the Series A Preferred and the Class B Common for an amount equal to the
applicable amounts payable under Section 2(a) or 2(b) in the form of the
applicable consideration for such sale. In the event of the foregoing
redemption, (i) the Corporation shall revalue its assets and liabilities to the
fullest extent permitted by law to determine lawfully available funds for such
redemption, and (ii) if the Corporation shall not have such funds available to
redeem all such shares, the Corporation shall redeem such shares to the fullest
extent of available funds as the same became available.
(d) Any securities to be delivered to the shareholders
pursuant to this Section 2 shall be valued as follows:
(i) If traded on a securities exchange or the National
Market System of the National Association of Securities Dealers, Inc., the value
shall be deemed to be the average of the closing prices of the securities on
such exchange over the 30 trading day period ending three (3) days prior to the
closing;
(ii) If actively traded over the counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
are applicable) over the 30 trading day period ending three (3) days prior to
the closing; and
(iii) If there is no active public market, the value shall
be the fair
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market value thereof, as mutually determined by the Board of Directors of the
Corporation and the holders of a majority of the then outstanding shares of
Series A Preferred and Class B Common, voting together as a single class (on an
as if converted to Common Stock basis), or, if they are unable to agree, by an
independent appraiser mutually acceptable to the Board and to such holders.
3. VOTING RIGHTS.
(a) VOTE OTHER THAN FOR DIRECTORS. Except as otherwise
provided herein or required by law, the holder of (i) each share of Voting
Common issued and outstanding shall have one vote with regard to any matter
submitted to the shareholders for a vote and (ii) each share of Class B Common
issued and outstanding shall be entitled to that number of votes equal to the
number of shares of Voting Common into which each such share could be converted
pursuant to Section 4 hereof with regard to any matter submitted to the
shareholders for a vote. Holders of Common Stock and Series A Preferred shall be
entitled to notice of any stockholders' meeting in accordance with the Bylaws of
the Corporation. Except as otherwise provided herein or required by law, the
holders of shares of Non-Voting Common or of Series A Preferred shall have no
right to vote on any matter (except to the extent that such holder may hold
Voting Common or other voting securities of the Corporation). The authorized
shares of any class of capital stock of the Corporation 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. The holders of capital stock of the
Corporation shall have no cumulative voting rights.
(b) VOTING FOR DIRECTORS. So long as the TA Entities (as
defined below) or any of their respective Affiliates hold at least 1,666,042
shares of Class B Common (appropriately adjusted for any stock split, dividend,
combination, recapitalization or the like) or, if earlier, until the closing of
a public offering, underwritten on a firm commitment basis by a nationally
recognized investment banking organization or organizations, pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of shares of the Corporation's Voting Common (i) at
a price per share of Voting Common, after underwriter discounts and commissions,
of not less than $12.80 per share (appropriately adjusted for any stock split,
dividend, combination, recapitalization or the like), (ii) for an aggregate
offering price (after deduction of underwriter discounts and commissions) of not
less than $40,000,000 and (iii) with respect to which such Voting Common is
listed for trading on either the New York Stock Exchange or the Nasdaq National
Market (a "Qualified Public Offering"), the number of directors of the
Corporation shall be fixed at five (5) and the directors shall be elected in
accordance with, and the Board of Directors shall be subject to, the following:
(i) The holders of a majority of the outstanding shares
of Class B Common, voting as a class, shall be entitled to elect two (2)
directors (the "Class B Directors"); provided that such holders may designate
one, but not more than one, individual as one of such directors who is not an
Affiliate (as defined below) of such holders and who is knowledgeable in the
Corporation's industry and business (the "Outside Director"); provided, further,
that any such
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Outside Director shall be subject to the initial approval of the holders of a
majority of the outstanding shares of Voting Common, voting as a separate
series, and PROVIDED, FURTHER, that if any such person continues to serve as
such Outside Director for a period of one year after his or her initial
election, at any meeting of stockholders of the Corporation at which directors
of the Corporation are elected held after such one-year anniversary, such
Outside Director shall continue to serve as a director of the Corporation only
if the holders of a majority of the outstanding shares of Voting Common, voting
as a separate series, vote in favor of the re-election of such Outside Director.
Notwithstanding the foregoing, in the event that TA Advent VIII, L.P., Advent
Atlantic & Pacific III, L.P., TA Executives Fund, LLC or TA Investors LLC (the
"TA Entities") or any of their respective Affiliates hold less than 3,332,085
shares of Class B Common (appropriately adjusted for any stock split, dividend,
combination, recapitalization or the like), the holders of a majority of the
outstanding shares of Class B Common, voting as a class, shall be entitled to
elect only one (1) director and the number of directors of the Corporation may
be reduced from five (5) to four (4) if the holders of a majority of the
outstanding shares of Voting Common, voting as a separate series, vote in favor
of the elimination of such directorship. In the case of any vacancy in the
office of a Class B Director, a successor shall be elected to hold office for
the unexpired term of such Class B Director by the affirmative vote of the
holders of a majority of the outstanding shares of Class B Common, voting as a
class, represented at a duly called special or annual meeting of such
shareholders or by an action by written consent for that purpose, subject, in
the case of election of any Outside Director, to the initial approval of the
holders of a majority of the outstanding shares of Voting Common, voting as a
separate series, and PROVIDED, FURTHER, that if any such person continues to
serve as such Outside Director for a period of one year after his or her initial
election, at any meeting of stockholders of the Corporation at which directors
of the Corporation are elected held after such one-year anniversary, such
Outside Director shall continue to serve as a director of the Corporation only
if the holders of a majority of the outstanding shares of Voting Common, voting
as a separate series, vote in favor of the re-election of such Outside Director.
Except as required by law, any Class B Director may be removed during the
aforesaid term of office, either for or without cause, by, and only by, the
affirmative vote of the holders of a majority of the outstanding shares of Class
B Common, voting as a class, represented at a duly called special or annual
meeting of such shareholders or by an action by written consent for that
purpose, provided that the foregoing shall not effect the right to call a
meeting for the re-election of directors at any time and the approval rights of
the Voting Common with respect to the Outside Director as set forth in this
Section 3(b)(i), and any such vacancy thereby created, shall be filled by the
vote of the holders of a majority of the outstanding shares of Class B Common
represented at such meeting or in such consent, voting as a class, subject, in
the case of election of any Outside Director, to the initial approval of the
holders of a majority of the outstanding shares of Voting Common, voting as a
separate series, and PROVIDED, FURTHER, that if any such person continues to
serve as such Outside Director for a period of one year after his or her initial
election, at any meeting of stockholders of the Corporation at which directors
of the Corporation are elected held after such one-year anniversary, such
Outside Director shall continue to serve as a director of the Corporation only
if the holders of a majority of the outstanding shares of Voting Common, voting
as a separate series, vote in favor of the re-election of such Outside Director.
(ii) The holders of a majority of the outstanding
shares of Voting
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Common and Class B Common, voting together as a single class, shall be entitled
to elect three (3) directors (the "Common Directors"); PROVIDED, HOWEVER, that
if the holders of Class B Common shall be entitled to elect only one director
pursuant to Section 3(b)(i) above, then the holders of a majority of the
outstanding shares of Voting Common and Class B Common, voting together as a
single class, shall have the right to elect four (4) directors except when such
directorship is eliminated pursuant to Section 3(b)(i) above. In the case of any
vacancy in the office of a Common Director, a successor shall be elected to hold
office for the unexpired term of such Common Director by the affirmative vote of
the holders of a majority of the outstanding shares of Voting Common and Class B
Common, voting together as a single class, represented at a duly called special
or annual meeting of such shareholders or by an action by written consent for
that purpose. Except as required by law, any Common Director may be removed
during the aforesaid term of office, either for or without cause, by, and only
by, the affirmative vote of the holders of a majority of the outstanding shares
of Voting Common and Class B Common, voting together as a single class,
represented at a duly called special or annual meeting of such shareholders or
by an action by written consent for that purpose, and any such vacancy thereby
created, shall be filled by the vote of the holders of a majority of the
outstanding shares of Voting Common and Class B Common, voting together as a
single class, represented at such meeting or in such consent, voting together as
a single class. At any time when the holders of Class B Common, voting
separately, shall not be entitled to elect any director of the Corporation, the
holders of the outstanding shares of Voting Common and Class B Common, voting
together as a single class, shall be entitled to fix the number of directors and
elect each director of the Corporation.
(iii) In the event that any two Common Directors vote at
a properly held meeting of the Board of Directors of this Corporation (or by a
writing signed by such Common Directors) to veto an action by the Board of
Directors of this Corporation, then such vetoed action shall be null and void
and without force.
(iv) A quorum for the holding of a meeting of the Board
of Directors shall consist of a majority of the Directors then in office
notwithstanding that there may be a vacancy in the Board of Directors and action
of the Board of Directors by unanimous written consent shall only require the
written consent of the Directors then in office notwithstanding that there may
be a vacancy in the Board of Directors. The provisions of this subparagraph (iv)
shall take precedence over any inconsistent provision of the Bylaws of the
Corporation.
(c) PROTECTIVE PROVISIONS OF THE SERIES A PREFERRED. In
addition to any other rights provided by law, so long as any shares of Series A
Preferred shall be outstanding, the Corporation shall not, without first
obtaining the affirmative vote or written consent of the holders of a majority
of the outstanding shares of the Series A Preferred, amend or repeal any
provision of, or add any provision to, the Corporation's Certificate of
Incorporation or Bylaws if such action would alter or change the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit
of, the Series A Preferred, or increase or decrease the number of shares of
Series A Preferred authorized hereby.
(d) PROTECTIVE PROVISIONS OF THE CLASS B COMMON. In addition
to any other
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rights provided by law, so long as any shares of Class B Common shall be
outstanding, the Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of a majority of the outstanding shares
of the Class B Common, amend or repeal any provision of, or add any provision
to, the Corporation's Certificate of Incorporation or Bylaws if such action
would alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Class B Common, or increase or
decrease the number of shares of Class B Common authorized hereby.
In addition, so long as the TA Entities or any of their respective
Affiliates hold 1,666,042 shares of Class B Common (appropriately adjusted for
any stock split, dividend, combination, recapitalization or the like), the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of a majority of the outstanding shares of the Class B
Common:
(i) (A) take any action or enter into any agreement to
authorize, sell or issue any equity securities or bonds, certificates of
indebtedness or debentures convertible or exchangeable into or for equity
securities of the Corporation (x) which is senior to or has a preference or
priority as to dividends or redemption rights or with respect to the
distribution of assets or other amounts in connection with a liquidation,
dissolution or winding up of the Corporation or an Exit Event over the Class B
Common or (y) if the Corporation's pre-money valuation is less than $255
million, which is on a pari passu basis as to dividends or redemption rights or
with respect to the distribution of assets or other amounts in connection with a
liquidation, dissolution or winding up of the Corporation or an Exit Event with
the Class B Common or (B) issue or make available for issuance (pursuant to the
exercise of options or otherwise) more than 4,220,046 shares of Junior Common
Stock (as appropriately adjusted for stock splits, reverse stock splits and the
like) to employees, directors, and consultants in their capacities as such of
the Corporation pursuant to the Corporation's stock and option plans or
otherwise, provided that any options for such shares that expire or terminate
unexercised or are otherwise forfeited and any such shares repurchased by the
Corporation shall not be counted toward such maximum number.
(ii) except as otherwise expressly provided for in the
Stock Purchase and Redemption Agreement, dated as of December 31, 1998, by and
among the Corporation, the holders of Class B Common and the other parties named
therein and except for dividends declared or paid on the Series A Preferred or
Class B Common pursuant to this Certificate of Incorporation, declare or pay any
dividends or make any distributions of cash, property or securities of the
Corporation with respect to any shares of its Junior Common Stock or any other
class of its capital stock, or directly or indirectly redeem, purchase, or
otherwise acquire for consideration any shares of its Junior Common Stock, or
any other class of its capital stock; PROVIDED, HOWEVER, that this restriction
shall not apply to (i) dividends payable by the Corporation solely in Common
Stock, (ii) the repurchase of shares of Junior Common Stock, other than shares
of Junior Common Stock owned by Anil Singhal and Narendra Popat, pursuant to
agreements under which the Corporation has the option or obligation to
repurchase such shares upon the occurrence of certain events, including
termination of employment and (iii) subject to Section 12.4 of the Amended and
Restated Rights Agreement, dated as of January 15, 1999, by and among the
Corporation, the holders of Class B Common and the other parties named therein,
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as the same may be amended from time to time, the purchase of shares pursuant to
any right of first refusal to acquire shares in the event of certain proposed
transfers;
(iii) acquire any other corporation or business concern
whether by acquisition of assets, capital stock or otherwise, and whether in
consideration of the payment of cash, the issuance of capital stock or
otherwise, or make any material investment in another business entity or any
joint venture or similar arrangement in one transaction or a series of related
transactions in which the value of any such acquisition or transaction or series
of related acquisitions or transactions exceeds $20 million;
(iv) recapitalize or reclassify any class or series of
any Junior Common Stock into (x) shares which are senior to or have any
preference or priority as to dividends or redemption rights or with respect to
the distribution of assets or other amounts in connection with a liquidation,
dissolution or winding up of the Corporation or an Exit Event over the Class B
Common or (y) if the Corporation's pre-money valuation is less than $255
million, shares which are on a pari passu basis as to dividends or redemption
rights or with respect to the distribution of assets or other amounts in
connection with a liquidation, dissolution or winding up of the Corporation or
an Exit Event with the Class B Common;
(v) liquidate or dissolve the Corporation or sell,
lease, convey, exchange, transfer, or otherwise dispose of all or substantially
all of the assets of the Corporation unless the holders of Class B Common will
receive net proceeds of at least $12.80 per share of Class B Common (as
originally issued and as appropriately adjusted for stock splits, reverse stock
splits and the like) as a result of such liquidation, dissolution or
transaction, payable at such time and in such manner as the holders of Junior
Common Stock are paid with respect to their Junior Common Stock on such
liquidation, dissolution or transaction; or
(vi) merge or consolidate with any other corporation
unless the holders of Class B Common will receive net proceeds of at least
$12.80 per share of Class B Common (as originally issued and as appropriately
adjusted for stock splits, reverse stock splits and the like) as a result of
such transaction, payable at such time and in such manner as the holders of
Junior Common Stock are paid with respect to their Junior Common Stock on such
transaction.
(e) An "Affiliate" of an entity referenced herein shall mean
(i) any entity who controls, is controlled by, or is under common control with
such entity, or (ii) any constituent partner or stockholder of such entity.
4. CONVERSION. The holders of stock of this Corporation have
conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series A Preferred shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share at the office of the Corporation or any transfer agent
for the Series A Preferred, into such number of fully paid and nonassessable
shares of Junior Common Stock as is determined by dividing $9.50 by the
Conversion Price for such series, determined as hereinafter provided, in effect
at
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the time of the conversion. The Junior Common Stock issuable upon such
conversion at the option of a holder of Series A Preferred shall be Non-Voting
Common, provided that, in the event that any such conversion at the option of a
holder of Series A Preferred takes place at any time following such time as the
Corporation shall become subject to the reporting requirements of Section 15(d)
or Section 12(g) of the Securities Exchange Act of 1934, as amended (or any
comparable successor law), then the Junior Common Stock issuable upon such
conversion shall be Voting Common. Each share of Class B Common shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for the Class B Common, into such number of fully paid and nonassessable shares
of Voting Common as is determined by dividing $6.388051 by the Conversion Price
for such series, determined as hereinafter provided, in effect at the time of
the conversion. The prices at which shares of Junior Common Stock shall be
deliverable upon conversion (the "Conversion Prices" and each a "Conversion
Price") shall initially be $2.375 per share of Junior Common Stock in the case
of the Series A Preferred (taking into account the stock splits as stock
dividends effected by the Corporation with respect to the Junior Common Stock in
July 1996 and on December 14, 1998) and $6.388051 per share of Voting Common in
the case of the Class B Common. Such initial Conversion Prices shall be subject
to adjustment as hereinafter provided. Upon conversion, all declared and unpaid
dividends on the Series A Preferred or Class B Common shall be paid, to the
extent funds are legally available therefor, either in cash or in shares of
Junior Common Stock of the same class as those issued upon such conversion, at
the election of the Corporation, wherein the shares of such Junior Common Stock
shall be valued at the fair market value at the time of such conversion, as
determined in good faith by the Board of Directors of the Corporation.
(b) AUTOMATIC CONVERSION OF SERIES A PREFERRED. Each share of
Series A Preferred shall automatically be converted into shares of (i) Voting
Common at the then effective Conversion Prices upon the closing of a firm
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
shares of the Corporation's Common Stock at a price per share of Common Stock,
prior to underwriter commissions and offering expenses, of not less than $4.75
per share (taking into account the stock splits as stock dividends effected by
the Corporation with respect to the Junior Common Stock in July 1996 and on
December 14, 1998 and as otherwise appropriately adjusted for any stock split,
dividend, combination, recapitalization or the like) and an aggregate offering
price (before deduction of underwriter commissions and offering expenses) of not
less than $10,000,000; or (ii) Voting Common at the then effective Conversion
Prices upon the written election of holders of not less than two-thirds of the
then outstanding Series A Preferred at any time following such time as the
Corporation shall become subject to the reporting requirements of Section 15(d)
or Section 12(g) of the Securities Exchange Act of 1934, as amended (or any
comparable successor law); or (iii) Non-Voting Common at the then effective
Conversion Prices upon the written election of holders of not less than
two-thirds of the then outstanding Series A Preferred at any other time. In the
event of the automatic conversion of the Series A Preferred upon a public
offering as aforesaid in subsection (i) above, the person(s) entitled to receive
the Voting Common issuable upon such conversion of Series A Preferred shall not
be deemed to have
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converted such Series A Preferred until immediately prior to the closing of such
sale of securities.
(c) CONVERSION OF COMMON.
(i) AUTOMATIC CONVERSION OF NON-VOTING COMMON. Each
share of Non-Voting Common shall automatically be converted into one share of
Voting Common upon such time as the Corporation shall become subject to the
reporting requirements of Section 15(d) or Section 12(g) of the Securities
Exchange Act of 1934, as amended (or any comparable successor law). In the event
of the automatic conversion of the Non-Voting Common as aforesaid, the person(s)
entitled to receive the Voting Common issuable upon such conversion of
Non-Voting Common shall not be deemed to have converted such Non-Voting Common
until immediately prior to the time the Corporation becomes a reporting company
as aforesaid.
(ii) OPTIONAL CONVERSION OF VOTING COMMON INTO NON-VOTING
COMMON. A holder of a share of Voting Common may at any time convert such share
into one share of Non-Voting Common by surrendering the certificate therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Voting Common and by giving written notice of such election to the Corporation
at such office. The Corporation shall, as soon as practicable after such
delivery, issue and deliver at such office to such holder of Voting Common, a
certificate for the number of shares of Non-Voting Common to which he shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of
shares to be converted and the person or persons entitled to receive the shares
of Non-Voting Common issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Non-Voting Common on
such date. The Corporation shall take all appropriate actions necessary to
increase the number of Non-Voting Common to enable the conversion of the Voting
Common as provided herein.
(iii) AUTOMATIC CONVERSION OF CLASS B COMMON. Each share
of Class B Common shall automatically be converted into shares of (i) Voting
Common at the then effective Conversion Price upon the closing of a Qualified
Public Offering; or (ii) Voting Common at the then effective Conversion Price
upon the written election of holders of not less than a majority of the then
outstanding Class B Common, voting as a class, at any other time. In the event
of the automatic conversion of the Class B Common upon a Qualified Public
Offering, the person(s) entitled to receive the Voting Common issuable upon such
conversion of Class B Common shall not be deemed to have converted such Class B
Common until immediately prior to the closing of such Qualified Public Offering.
(d) MECHANICS OF CONVERSION. No fractional shares of Junior
Common Stock shall be issued upon conversion of Series A Preferred or Class B
Common. In lieu of any fractional shares to which the holder would otherwise be
entitled (after aggregating all shares of Series A Preferred and Class B Common
held by such holder such that the maximum number of whole shares of Junior
Common Stock is issued to such holder upon
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conversion), the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Prices. Before any holder of Series A Preferred or
Class B Common shall be entitled to convert the same into full shares of Junior
Common Stock and to receive certificates therefor, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred or Class B
Common, as applicable, and shall give written notice to the Corporation at such
office that he elects to convert the same; provided, however, that in the event
of an automatic conversion pursuant to paragraph (b) or (c) hereof, the
outstanding shares of Series A Preferred, Class B Common and Non-Voting Common
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent, and provided further that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Voting Common issuable upon such automatic conversion unless the
certificates evidencing such shares of Series A Preferred, Class B Common or
Non-Voting Common are either delivered to the Corporation or its transfer agent
as provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such delivery, or
after such agreement and indemnification, issue and deliver at such office to
such holder of Series A Preferred, Class B Common or Non-Voting Common, a
certificate or certificates for the number of shares of Junior Common Stock to
which he shall be entitled as aforesaid and a check payable to the holder in the
amount of any cash amounts payable as the result of a conversion into fractional
shares of Common Stock. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series A Preferred or Class B Common to be converted, or, in the case
of automatic conversion, on the date of closing of the offering or the date of
written election to convert, and the person or persons entitled to receive the
shares of Junior Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Junior Common
Stock on such date.
(e) ADJUSTMENTS OF CONVERSION PRICE FOR DILUTING ISSUES.
(i) ADJUSTMENTS FOR DILUTIVE ISSUANCES.
A. SPECIAL DEFINITIONS. For purposes of this
Section 4(e), the following definitions shall apply:
(1) "OPTIONS" shall mean rights, options
or warrants to subscribe for, purchase or otherwise acquire
either Junior Common Stock or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall mean the
date on which the first share of Class B Common was first
issued.
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(3) "CONVERTIBLE SECURITIES" shall mean
any evidences of indebtedness, shares or other securities convertible into
or exchangeable for Junior Common Stock.
(4) "ADDITIONAL SHARES OF COMMON STOCK"
shall mean all shares of Junior Common Stock issued (or, pursuant to
Section 4(e)(i)(C), deemed to be issued) by the Corporation after the
Original Issue Date, other than shares of Junior Common Stock issued or
issuable:
(aa) upon conversion of the Series A
Preferred into Junior Common Stock or upon conversion of the Class B
Common into Voting Common or upon conversion of the Non-Voting Common
in Voting Common or upon conversion of the Voting Common into
Non-Voting Common;
(bb) to directors and employees of,
consultants to, the Corporation pursuant to an option plan, purchase
plan or other employee or consultant incentive plan, pursuant to stock
grants or any other plan or arrangement approved by the Compensation
Committee of the Board of Directors; or
(cc) as a dividend or distribution on
Series A Preferred or Class B Common or pursuant to any event for
which adjustment is made pursuant to subparagraph (e)(ii), (iii) or
(iv) hereof.
(5) "ISSUE PRICE" with respect to any
issuance of Additional Shares of Common Stock shall mean the price
per share obtained by dividing the total consideration received by
the Corporation in respect of such Additional Shares of Common Stock,
computed in accordance with Section 4(e)(i)(E) hereof, by the
aggregate number of shares of such Additional Shares of Common Stock
issued, computed in accordance with Section 4(e)(i)(C) hereof.
B. NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
Conversion Price of a particular share of Class B Common shall be made
hereunder in respect of the issuance of Additional Shares of Common
Stock unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less
than the Conversion Price in effect on the date of, and immediately
prior to, such issue for such share of Class B Common.
C. DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.
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(1) OPTIONS AND CONVERTIBLE SECURITIES.
Except as otherwise provided in Section 4(e)(i)(B),
in the event the Corporation at any time or from time to time
after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Junior Common Stock
issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such
issue of Options or Convertible Securities or, in case such a
record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 4(e)(i)(E) hereof) of
such Additional Shares of Common Stock would be less than the
Conversion Price in effect on the date of and immediately prior
to such issue, or such record date, as the case may be, and
provided further that in any such case in which Additional Shares
of Common Stock are deemed to be issued:
(aa) no further adjustment in
the Conversion Price shall be made upon the subsequent issue
of Convertible Securities or shares of Junior Common Stock
upon the exercise of such Options or conversion or exchange
of such Convertible Securities;
(bb) upon the expiration of
any such Options or any rights of conversion or exchange
under such Convertible Securities which shall not have been
exercised, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration, be recomputed as if:
(I) in the case of
Convertible Securities or Options for Junior Common Stock,
the only Additional Shares of Common Stock issued were
shares of Junior Common Stock, if any, actually issued upon
the exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration
received therefor was the consideration actually received by
the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received
by the Corporation upon such exercise, or for the issue of
all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration,
if any, actually received by the Corporation upon
14
<PAGE>
such conversion or exchange, and
(II) in the case of
Options for Convertible Securities, only the Convertible
Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options,
and the consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been then
issued was the consideration actually received by the
Corporation for the issue of all such Options, whether or
not exercised, plus the consideration deemed to have been
received by the Corporation upon the issue of the
Convertible Securities with respect to which such Options
were actually exercised;
(cc) no readjustment pursuant
to clause (bb) above shall have the effect of increasing the
Conversion Price to an amount which exceeds the lower of (i)
the Conversion Price on the original adjustment date, or
(ii) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date; and
(dd) in the case of any
Options which expire by their terms not more than thirty
(30) days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or
exercise of all such Options.
D. ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In the event the Corporation shall after the Original
Issue Date issue Additional Shares of Common Stock (including Additional Shares
of Common Stock deemed to be issued pursuant to Section 4(e)(i)(C)) without
consideration or for a consideration per share less than the Conversion Price of
the Class B Common in effect on the date of and immediately prior to such issue,
then and in such event such Conversion Price shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be
the number of shares of Junior Common Stock outstanding immediately prior to
such issue plus the number of shares of Junior Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Conversion Price, and
the denominator of which shall be the number of shares of Junior Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; and provided further that, for the purposes of
this Section 4(e)(i), all shares of Junior Common Stock issuable upon conversion
of outstanding Options, Convertible Securities, Series A Preferred and Class B
Common (but not including shares of Voting Common issuable upon conversion of
Non-Voting Common) shall be deemed to be outstanding, and immediately after any
Additional Shares of Common Stock are
15
<PAGE>
deemed issued pursuant to Section 4(e)(i)(C), such Additional Shares of Common
Stock shall be deemed to be outstanding.
E. DETERMINATION OF CONSIDERATION. For purposes of this
Section 4(e), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY: Such consideration shall:
(aa) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(bb) insofar as it consists of services or property
other than cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(cc) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of
the Corporation for consideration which covers both, be the proportion
of such consideration so received, computed as provided in clauses
(aa) and (bb) above, as determined in good faith by the Board of
Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration
per share received by the Corporation for Additional Shares of Common
Stock deemed to have been issued pursuant to Section 4(e)(i)(C),
relating to Options and Convertible Securities, shall be determined by
dividing
(aa) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the
Corporation upon the exercise in full of such Options or the
conversion or exchange in full of such Convertible Securities, or in
the case of Options for Convertible Securities, the exercise in full
of such Options for Convertible Securities and the conversion or
exchange in full of such Convertible Securities, by
(bb) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment
16
<PAGE>
of such number) issuable upon the exercise in full of such Options or
the conversion or exchange in full of such Convertible Securities.
(ii) ADJUSTMENTS FOR SUBDIVISIONS, COMBINATIONS OR
CONSOLIDATIONS OF COMMON STOCK. In the event the outstanding shares of
Junior Common Stock shall be subdivided (by stock split, stock dividend or
otherwise), into a greater number of shares of Junior Common Stock, the
Conversion Prices of the Series A Preferred and the Class B Common then in
effect shall, concurrently with the effectiveness of such subdivision, be
proportionately decreased (it being understood that the Conversion Price
for the Series A Preferred has been heretofore adjusted to take into
account the stock splits as stock dividends effected by the Corporation
with respect to the Junior Common Stock in July 1996 and on December 14,
1998). In the event the outstanding shares of Junior Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Junior Common Stock, the Conversion Prices of the
Series A Preferred and the Class B Common then in effect shall,
concurrently with the effectiveness of such combination or consolidation,
be proportionately increased. The Corporation shall not subdivide, combine
or consolidate any series of Junior Common Stock without effecting a
proportional subdivision, combination or consolidation of all other series
of Junior Common Stock.
(iii) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the
event the Corporation at any time or from time to time makes, or fixes
a record date for the determination of holders of Junior Common Stock
entitled to receive, any distribution payable in securities of the
Corporation other than shares of Junior Common Stock and other than as
otherwise adjusted in this Section 4, then and in each such event
provision shall be made so that the holders of Series A Preferred and
Class B Common shall receive upon conversion thereof, in addition to
the number of shares of Junior Common Stock receivable thereupon, the
amount of securities of the Corporation which they would have received
had their shares of Series A Preferred or Class B Common been
converted into Junior Common Stock on the date of such event and had
they thereafter, during the period from the date of such event to and
including the date of conversion, retained such securities receivable
by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 4 with
respect to the rights of the holders of the Series A Preferred or
Class B Common. The Corporation shall not distribute securities of the
Corporation to holders of any series of Junior Common Stock without
effecting a proportional and equivalent distribution to the holders of
all other series of Junior Common Stock.
(iv) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If the Junior Common Stock issuable upon conversion of
the Series A Preferred or the Class B Common shall be changed into the
same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision, combination or consolidation of
shares provided for above), the Conversion Prices of the Series A
Preferred and the Class B Common then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the Series A Preferred and the
Class B Common shall be convertible into, in lieu of the number of
shares of Junior Common Stock which the holders would otherwise have been
17
<PAGE>
entitled to receive, a number of shares of such other class or classes
of stock equivalent to the number of shares of Junior Common Stock
that would have been subject to receipt by the holders upon conversion
of such shares of Series A Preferred or the Class B Common immediately
before that change. No series of Junior Common Stock shall be so
changed into shares of any other class or classes of stock unless a
proportional and equivalent change shall be made with respect to all
other series of Junior Common Stock.
(f) NO IMPAIRMENT. The Corporation will not, by
amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all
the provisions of this Section 4 and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion
Rights of the holders of the Non-Voting Common, Series A Preferred and
Class B Common against impairment.
(g) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment of any Conversion Price pursuant to
this Section 4, the Corporation at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Non-Voting Common, Series A Preferred and
Class B Common a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment
is based. The Corporation shall, upon the written request at any time of
any holder of Non-Voting Common, Series A Preferred or Class B Common,
furnish or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Prices
at the time in effect, and (iii) the number of shares of Junior Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of such holder's shares of Non-Voting Common,
Series A Preferred or Class B Common.
5 STATUS OF CONVERTED STOCK. In case any shares of Series A
Preferred or Class B Common shall be converted pursuant to Section 4 hereof, the
shares so converted shall be canceled and shall not be issuable by the
Corporation. From time to time, the Certificate of Incorporation of the
Corporation shall be appropriately revised to reflect the corresponding
reduction in the Corporation's authorized capital stock.
18
<PAGE>
6 REDEMPTION.
(a) REDEMPTION UPON REQUEST. At any time following January 15,
2003, the holders of not less than a majority of the outstanding shares of Class
B Common shall have the right to require the Corporation to redeem up to the
Redemption Percentage (as set forth below) of the Class B Common held by all
holders of Class B Common at the Redemption Price. The foregoing election shall
be made by such holders giving the Corporation and each of the other holders of
Class B Common not less than thirty (30) days prior written notice, setting
forth the date for such redemption, which redemption date shall be no earlier
than sixty (60) days after the expiration of such 30-day notice period. The
"Redemption Percentage" for each holder of Class B Common shall equal the
following cumulative percentage of each such holder's Class B Common for the
applicable time periods set forth below, in each case reduced by the cumulative
percentage of each such holder's Class B Common previously redeemed pursuant to
this Section 6(a):
<TABLE>
<CAPTION>
TIME PERIODS REDEMPTION PERCENTAGE
------------ ---------------------
<S> <C>
One year period following
January 15, 2003 33.3%
One year period following
January 15, 2004 66.7%
One year period following
January 15, 2005 and
each year thereafter 100.0%
</TABLE>
(b) REDEMPTION DATE; REDEMPTION PRICE. Upon the election of
the holders of not less than a majority the outstanding Class B Common to
require the Corporation to redeem the Class B Common pursuant to Section 6(a),
all holders of Class B Common shall be deemed to have elected to require the
Class B Common to be so redeemed in accordance with the terms thereof. The date
upon which a redemption is to occur (whether or not such redemption actually
does occur) in accordance with Section 6(a) shall be referred to as a
"Redemption Date." The redemption price for each share of Class B Common
redeemed hereunder shall be equal to the sum of (i) $6.388051 per share (as
originally issued and appropriately adjusted for stock splits and the like) plus
(ii) all declared but unpaid dividends thereon, if any, through the Redemption
Date (the "Redemption Price"). If at Redemption Date shares of Class B Common
are unable to be redeemed (as contemplated by Section 6(c) below), then holders
of Class B Common shall also be entitled to dividends and interest pursuant to
Sections 6(c) and (d). The aggregate Redemption Price shall be payable in cash
in immediately available funds to the respective holders of the Class B Common
on the Redemption Date (subject to Section 6(c)). Upon any redemption of the
Class B Common as provided herein, holders of fractional shares shall receive
proportionate amounts in respect thereof. Until the aggregate Redemption Price
has been paid for all shares of Class B Common being redeemed pursuant to this
Section 6(a): (A) no dividend whatsoever shall be
19
<PAGE>
paid or declared, and no distribution shall be made, on any capital stock of the
Corporation ranking on liquidation junior to the Class B Common; and (B) no
shares of capital stock of the Corporation (other than the Class B Common in
accordance with this Section 6) shall be purchased, redeemed or acquired by the
Corporation and no monies shall be paid into or set aside or made available for
a sinking fund for the purchase, redemption or acquisition thereof.
(c) REDEMPTION PROHIBITED. If, at a Redemption Date, the
Corporation is prohibited under the General Corporation Law of the State of
Delaware from redeeming, or otherwise fails to redeem, all shares of Class B
Common for which redemption is required hereunder, then it shall redeem such
shares on a pro-rata basis among the holders of Class B Common in proportion to
the full respective redemption amounts to which they are entitled hereunder to
the extent possible and shall redeem the remaining shares to be redeemed as soon
as the Corporation is not prohibited from redeeming some or all of such shares
under the General Corporation Law of the State of Delaware. Any shares of Class
B Common not redeemed shall remain outstanding and entitled to all of the rights
and preferences provided in this Article Fourth. Subject to the Corporation's
fulfillment of its fiduciary duties to all constituencies of the Corporation,
the Corporation shall take such action as shall be reasonable under the
circumstances to review and promptly remove any impediment to its ability to
redeem Class B Common under the circumstances contemplated by this Section 6(c).
In the event that the Corporation fails for any reason to redeem shares for
which redemption is required pursuant to this Section 6, including without
limitation due to a prohibition of such redemption under the General Corporation
Law of the State of Delaware, then during the period from the applicable
Redemption Date through the date on which such shares are redeemed, the
Redemption Price of such shares that the Corporation has failed to redeem shall
bear interest, with such interest to accrue daily in arrears and to be
compounded annually, at the rate of fifteen percent (15%) per annum.
(d) DIVIDEND AFTER REDEMPTION DATE. From and after a
Redemption Date, no shares of Class B Common subject to redemption shall be
entitled to dividends, if any, as contemplated by Section 1; PROVIDED, HOWEVER,
that in the event that shares of Class B Common are unable to be redeemed and
continue to be outstanding in accordance with Section 6(c), such shares shall
continue to be entitled to dividends and interest thereon as provided in
Sections 1 and 6(c) until the date on which such shares are actually redeemed by
the Corporation.
(e) SURRENDER OF CERTIFICATES. Upon receipt of the Redemption
Price by certified check or wire transfer, each holder of shares of Class B
Common to be redeemed shall surrender the certificate or certificates
representing such shares to the Corporation, duly assigned or endorsed for
transfer (or accompanied by duly executed stock powers relating thereto), or, in
the event the certificate or certificates are lost, stolen or missing, shall
deliver an affidavit or agreement satisfactory to the Corporation to indemnify
the Corporation from any loss incurred by it in connection therewith with
respect to such certificates at the principal executive office of the
Corporation or the office of the transfer agent for the Class B Common and each
surrendered certificate shall be canceled and retired; PROVIDED, HOWEVER, that
if the Corporation is prohibited from redeeming shares of Class B Common as
provided in Section
20
<PAGE>
6(c), the holder shall not be required to surrender said certificate(s) to the
Corporation until such holder has received a new stock certificate for those
shares of Class B Common not so redeemed.
FIFTH. The Board of Directors of the Corporation is expressly
authorized to make, alter or repeal Bylaws of the Corporation, but the
stockholders may make additional Bylaws and may alter or repeal any Bylaw
whether adopted by them or otherwise.
SIXTH. Elections of directors need not be by written ballot except and
to the extent provided in the Bylaws of the Corporation.
SEVENTH.
1. The Corporation shall indemnify any 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 a
director, trustee, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director,
trustee, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding 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
interest of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
2. The Corporation shall indemnify any person 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
a director, trustee, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a director,
trustee, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit 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 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
21
<PAGE>
of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for
such expenses which the Court Chancery of the State of Delaware or
such other court shall deem proper.
3. To the extent that any person referred to in Paragraphs (1)
and (2) of this Article SEVENTH has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to
therein, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith.
4. Any indemnification under paragraphs (1) and (2) of this
Article SEVENTH (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a
determination that indemnification of the director, trustee, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in such paragraphs (1) and (2)
of this Article SEVENTH. Such determination shall be made (a) by the
Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or
(b) if such a quorum is not obtainable, or, even if obtainable, if a
quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (c) by the stockholders.
5. Expenses (including attorneys' fees) incurred by an officer
or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of any undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Corporation
as authorized in this Article SEVENTH. Such expenses (including
attorneys' fees) incurred by other employees and agents of the
Corporation may be so paid upon such terms and conditions, if any, as
the Board of Directors deems appropriate.
6. The indemnification and advancement of expenses provided
by, or granted pursuant to, the other Paragraphs of this Article
SEVENTH shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be
entitled under any statute, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such
office.
7. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director,
trustee, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, trustee,
officer, employee or agent of another Corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against him and incurred
22
<PAGE>
by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Article SEVENTH.
8. For purposes of this Article SEVENTH, references to "the
Corporation" include, in addition to the resulting Corporation, any
constituent Corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence
had continued would have had power and authority to indemnify its
directors, officers and employees or agents so that any person who is
or was a director, trustee, officer, employee or agent of such
constituent Corporation, or is or was serving at the request of such
constituent Corporation as a director, trustee, officer, employee or
agent of another Corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position under the provisions
of this Article SEVENTH with respect to the resulting or surviving
Corporation as he would have with respect to such constituent
Corporation if its separate existence had continued.
9. For purposes of this Article SEVENTH, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director,
trustee, officer, employee or agent of the Corporation which imposes
duties on, or involves services by, such director, trustee, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Article SEVENTH.
10. The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article SEVENTH shall, unless
otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such
a person.
EIGHTH. A director of the Corporation shall not be liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent that exculpation
from liability is not permitted under the General Corporation Law of
the State of Delaware as in effect when such breach occurred. No
amendment or repeal of this Article EIGHTH 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 or repeal.
23
<PAGE>
IN WITNESS WHEREOF, NetScout Systems, Inc. has caused this certificate
to be executed by Narendra Popat, its President, this 15th day of January, 1999.
NETSCOUT SYSTEMS, INC., a Delaware corporation
By: /S/ NARENDRA POPAT
--------------------------------------------
Narendra Popat, President
24
<PAGE>
Exhibit 3.2
FORM OF CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NETSCOUT SYSTEMS, INC.
NetScout Systems, Inc.(the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation adopted
resolutions proposing and declaring advisable the following
amendments to the Amended and Restated Certificate of
Incorporation of the Corporation:
RESOLVED: That the first two paragraphs of Article FOURTH of
the Corporation's Amended and Restated Certificate
of Incorporation, as amended to date, shall be
amended to read in their entirety as follows:
FOURTH. The Corporation is authorized to issue two
classes of stock to be designated, respectively, "Common
Stock" and "Preferred Stock." The total number of shares which
the Corporation is authorized to issue is one hundred fifty
million six hundred thirty-one thousand five hundred
seventy-nine (150,631,579) shares. One hundred fifty million
(150,000,000) shares shall be Common Stock and six hundred
thirty-one thousand five hundred seventy-nine (631,579) shares
shall be Preferred Stock, each of which shall have a par value
of $0.001 per share.
One hundred twenty-one million seven hundred
ninety-eight thousand three hundred eighty-two (121,798,382)
shares of the Common Stock shall be designated "Voting Common
Stock" (hereinafter "Voting Common"), which shall have a par
value of $0.001 per share. Twenty-one million two hundred
twenty-four thousand three hundred sixty-four (21,224,364)
shares of the Common Stock shall be designated "Non-Voting
Common Stock" (hereinafter "Non-Voting Common"), which shall
have a par value of $0.001 per share. Six million nine hundred
seventy-seven thousand two hundred fifty-four (6,977,254)
shares of the Common Stock shall be designated "Class B
Convertible Common Stock" (hereinafter "Class B Common"),
which shall have a par value of $0.001 per share. The Voting
Common and the Non-Voting Common shall hereinafter be referred
to collectively as "Junior Common Stock." Six hundred
thirty-one thousand five hundred seventy-nine (631,579) shares
of the Preferred Stock shall be designated "Series A Preferred
Stock" (hereinafter "Series A Preferred"), which shall have a
par value of $0.001 per share.
<PAGE>
SECOND: The foregoing amendment to the Amended and Restated
Certificate of Incorporation of the Corporation was duly
adopted by vote of the stockholders of the Corporation in
accordance with the applicable 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 executed by Narendra Popat, its President, this ___ day of ____,
1999.
NETSCOUT SYSTEMS, INC.
By:
---------------------------------
Narendra Popat, President
<PAGE>
Exhibits 3.3 and 4.1
FORM OF THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NETSCOUT SYSTEMS, INC.
(INCORPORATED APRIL 21, 1993)
* * * * * *
NetScout Systems, Inc. (The "Corporation"), a corporation organized and
existing under and by virtue of the General Law of the State of Delaware, hereby
certifies as follows:
The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State on April 21, 1993, under the Corporation's previous
name, Frontier Software Development, Inc. This Third Amended and Restated
Certificate of Incorporation has been duly adopted by the Corporation in
accordance with Sections 228, 242 and 245 of the General Corporation Law of
Delaware.
The text of the Certificate of Incorporation of the Corporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
FIRST. The name of the Corporation is NetScout Systems, Inc.
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 1013 Centre Road, Wilmington, County of New Castle,
Delaware. 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 is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of Delaware.
FOURTH. The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 155,000,000 shares,
consisting of 150,000,000 shares of Common Stock with a par value of $.001 per
share (the "Common Stock") and 5,000,000 shares of Preferred Stock with a par
value of $.001 per share (the "Preferred Stock").
<PAGE>
-2-
Immediately upon filing of this Third Amended and Restated Certificate
of Incorporation, the Corporation's previously authorized, issued and
outstanding Voting Common Stock shall be renamed and hereinafter known as
"Common Stock."
A description of the respective classes of stock and a statement of the
designations, powers, preferences and rights, and the qualifications,
limitations and restrictions of the Preferred Stock and Common Stock are as
follows:
A. COMMON STOCK
1. GENERAL. All shares of Common Stock will be identical and
will entitle the holders thereof to the same rights, powers and privileges.
The rights, powers and privileges of the holders of the Common Stock are
subject to and qualified by the rights of holders of the Preferred Stock.
2. 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.
3. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, each issued and outstanding share of Common
Stock shall entitle the holder thereof to receive an equal portion of the net
assets of the Corporation available for distribution to the holders of Common
Stock, subject to any preferential rights of any then outstanding Preferred
Stock.
4. VOTING RIGHTS. Except as otherwise required by law or this
Third Amended and Restated Certificate of Incorporation, each holder of
Common Stock shall have one vote in respect of each share of stock held of
record by such holder on the books of the Corporation for the election of
directors and on all matters submitted to a vote of stockholders of the
Corporation. Except as otherwise required by law or provided herein, holders
of Common Stock shall vote together with holders of the Preferred Stock as a
single class, subject to any special or preferential voting rights of any
then outstanding Preferred Stock. There shall be no cumulative voting.
B. PREFERRED STOCK
The Preferred Stock may be issued in one or more series at such time or
times and for such consideration or considerations as the Board of Directors of
the Corporation may determine. Each series shall be so designated as to
distinguish the shares thereof from the shares of all other series and classes.
Except as otherwise provided in this Third Amended and Restated Certificate of
Incorporation, different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purpose of voting by classes.
<PAGE>
-3-
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the undesignated Preferred Stock in one or more
series, each with such designations, preferences, voting powers (or special,
preferential or no voting powers), relative, participating, optional or other
special rights and privileges and such qualifications, limitations or
restrictions thereof as shall be stated in the resolution or resolutions adopted
by the Board of Directors to create such series, and a certificate of said
resolution or resolutions (a "Certificate of Designation") shall be filed in
accordance with the General Corporation Law of the State of Delaware. The
authority of the Board of Directors with respect to each such series shall
include, without limitation of the foregoing, the right to provide that the
shares of each such series may be: (i) subject to redemption at such time or
times and at such price or prices; (ii) entitled to receive dividends (which may
be cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; (iv) convertible into, or exchangeable for, shares of any other
class or classes of stock, or of any other series of the same or any other class
or classes of stock of the Corporation at such price or prices or at such rates
of exchange and with such adjustments, if any; (v) entitled to the benefit of
such limitations, if any, on the issuance of additional shares of such series or
shares of any other series of Preferred Stock; or (vi) entitled to such other
preferences, powers, qualifications, rights and privileges, all as the Board of
Directors may deem advisable and as are not inconsistent with law and the
provisions of this Third Amended and Restated Certificate of Incorporation.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. The following provisions are included for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Board of Directors and stockholders:
1. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors of the Corporation.
2. The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the By-laws of the Corporation, subject to
any limitation thereof contained in the By-laws. The stockholders shall also
have the power to adopt, amend or repeal the By-laws of the Corporation;
PROVIDED, HOWEVER, that, in addition to any vote of the holders of any class or
series of stock of the Corporation required by law or by this Third Amended and
Restated Certificate of Incorporation, the affirmative vote of the holders of at
least seventy-five percent (75%) of the voting power of all of the then
outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to adopt, amend or repeal any provision of the By-laws of the
Corporation.
<PAGE>
-4-
3. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting.
4. Special meetings of stockholders may be called at any time
only by the President, the Chairman of the Board of Directors (if any) or a
majority of 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.
5. The books of the Corporation may be kept at such place
within or without the State of Delaware as the By-laws of the Corporation may
provide or as may be designated from time to time by the Board of Directors of
the Corporation.
SEVENTH.
1. NUMBER OF DIRECTORS. The number of directors which shall constitute
the whole Board of Directors shall be determined by resolution of a majority of
the Board of Directors, but in no event shall the number of directors 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.
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.
3. ELECTION OF DIRECTORS. Elections of directors need not be by written
ballot except as and to the extent provided in the By-laws of the Corporation.
4. TERMS OF OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting next following
the end of the Corporation's fiscal year ending March 31, 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting next following the end of the Corporation's fiscal year ending March 31,
2001; and each initial director in Class III shall serve for a term ending on
the date of the annual meeting next following the end of the Corporation's
fiscal year ending March 31, 2002.
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 director of the class of which he or she is a
member until the expiration of such director's current term or his or her prior
death, removal or resignation and (ii) the
<PAGE>
-5-
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. To the extent possible, consistent with the foregoing
rule, any newly created directorships shall be added to those classes whose
terms of office are to expire at the earliest dates following such allocation,
unless otherwise provided for from time to time by resolution adopted by a
majority of the directors then in office, though less than a quorum. No decrease
in the number of directors constituting the whole Board of Directors shall
shorten the term of an incumbent Director.
6. TENURE. Notwithstanding any provisions to the contrary contained
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
7. VACANCIES. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board of Directors, may be filled only by vote of a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director. A director elected to fill a vacancy shall be elected
for the unexpired term of his or her predecessor in office, if applicable, and a
director chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next election of the class for which such
director shall have been chosen and until his or her successor is elected and
qualified, or until his or her earlier death, resignation or removal.
8. QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
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 such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
9. ACTION AT MEETING. At any meeting of the Board of Directors at which
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law or the
Corporation's By-laws.
10. REMOVAL. Any one or more or all of the directors may be removed
without cause only by the holders of at least seventy-five percent (75%) of the
shares then entitled to vote at an election of directors. Any one or more or all
of the directors may be removed with cause only by the holders of at least a
majority of the shares then entitled to vote at an election of directors.
11. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance
notice of stockholder nominations for election of directors and other business
to be
<PAGE>
-6-
brought by stockholders before a meeting of stockholders shall be given in the
manner provided in the By-laws of the Corporation.
12. RIGHTS OF PREFERRED STOCK. The provisions of this Article are
subject to the rights of the holders of any series of Preferred Stock from time
to time outstanding.
EIGHTH. No director (including any advisory director) of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director notwithstanding
any provision of law imposing such liability; provided, however, that, to the
extent provided by applicable law, this provision shall not eliminate the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director for or with respect
to any acts or omissions of such director occurring prior to such amendment or
repeal.
NINTH. The Board of Directors of the Corporation, when evaluating any
offer of another party (a) to make a tender or exchange offer for any equity
security of the Corporation or (b) to effect a business combination, shall, in
connection with the exercise of its judgment in determining what is in the best
interests of the Corporation as whole, be authorized to give due consideration
to any such factors as the Board of Directors determines to be relevant,
including, without limitation:
(i) the interests of the Corporation's stockholders, including the
possibility that these interests might be best served by the continued
independence of the Corporation;
(ii) whether the proposed transaction might violate federal or state
laws;
(iii) not only the consideration being offered in the proposed
transaction, in relation to the then current market price for the
outstanding capital stock of the Corporation, but also to the market price
for the capital stock of the Corporation over a period of years, the
estimated price that might be achieved in a negotiated sale of the
Corporation as a whole or in part or through orderly liquidation, the
premiums over market price for the securities of other corporations in
similar transactions, current political, economic and other factors
bearing on securities prices and the Corporation's financial condition and
future prospects; and
(iv) the social, legal and economic effects upon employees, suppliers,
customers, creditors and others having similar relationships with the
Corporation, upon the communities in which the Corporation conducts its
business and upon the economy of the state, region and nation.
<PAGE>
-7-
In connection with any such evaluation, the Board of Directors is authorized to
conduct such investigations and engage in such legal proceedings as the Board of
Directors may determine.
TENTH.
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 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. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 6
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
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.
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 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 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
<PAGE>
-8-
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 or the court in which such action or suit was
brought 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 or such other court
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, 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 purpose 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 claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, 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 or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee
<PAGE>
-9-
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.
5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article 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 an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts
so advanced in the event that it shall ultimately be determined that the
indemnitee is not entitled to be indemnified by the Corporation as authorized in
this Article. Such undertaking may be accepted without reference to the
financial ability of such person 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, 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 indemnification or 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 the
Corporation determines, by clear and convincing evidence, within such 60-day
period that the Indemnitee did not meet 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 by (a) a majority vote of the directors of the Corporation who are
not at that time parties to the action, suit or proceeding in question
("disinterested directors"), even though less than a quorum, (b) by a committee
of disinterested directors designated by a majority vote of disinterested
directors, even though less than a quorum, (c) if there are no such
disinterested directors, or if such disinterested directors so direct, by
independent legal counsel (who may be regular legal counsel to the corporation)
in a written opinion, (d) a majority vote of a quorum of the outstanding shares
of stock of all classes entitled to vote for directors, voting as a single
class, which quorum shall consist of stockholders who are not at that time
parties to the action, suit or proceeding in question, or (e) a court of
competent jurisdiction.
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 if the Corporation denies such request, in whole or in part, or if
no disposition thereof is
<PAGE>
-10-
made within the 60-day period referred to above in Section 6. Unless otherwise
provided by law, the burden of proving that the Indemnitee is not entitled to
indemnification or advancement of expenses under this Article shall be on the
Corporation. 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 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. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of the
State 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.
9. 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.
10. 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.
<PAGE>
-11-
11. 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 Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of the State of Delaware.
12. 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.
13. 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 an applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. DEFINITIONS. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of the State of Delaware shall
have the respective meanings assigned to such terms in such Section 145(h) and
Section 145(i).
15. SUBSEQUENT LEGISLATION. If the General Corporation Law of the State
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
the State of Delaware, as so amended.
ELEVENTH. The Corporation reserves the right to amend or repeal any
provision contained in this Third Amended and Restated Certificate of
Incorporation in the manner prescribed by the laws of the State of Delaware and
all rights conferred upon stockholders are granted subject to this reservation,
PROVIDED, HOWEVER, that in addition to any vote of the holders of any class or
series of stock of the Corporation required by law, this Third Amended and
Restated Certificate of Incorporation or a Certificate of Designation with
respect to a series of Preferred Stock, the affirmative vote of the holders of
shares of voting stock of the Corporation representing at least seventy-five
percent (75%) of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to (i) reduce or
eliminate the number of authorized shares of Common Stock or the number of
authorized shares
<PAGE>
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of Preferred Stock set forth in Article FOURTH or (ii) amend
or repeal, or adopt any provision inconsistent with, Parts A and B of Article
FOURTH and Articles FIFTH, SIXTH, SEVENTH, EIGHTH, NINTH, TENTH and this Article
ELEVENTH of this Third Amended and Restated Certificate of Incorporation.
IN WITNESS WHEREOF, the undersigned has hereunto signed his name and
affirms that the statements made in this Third Amended and Restated Certificate
of Incorporation are true under the penalties of perjury this ____ day of
______, 1999.
------------------------------
Narendra Popat
President
<PAGE>
Exhibit 3.4
* * * * * * * * * * * * * * * * * * * * * * * *
BY LAWS
of
NETSCOUT SYSTEMS, INC.
(a Delaware Corporation)
* * * * * * * * * * * * * * * * * * * * * * * *
<PAGE>
NETSCOUT SYSTEMS, INC.
(a Delaware Corporation)
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. OFFICES............................................................4
SECTION 1.1 Registered Office............................................4
SECTION 1.2 Other Offices................................................4
ARTICLE 2. SEAL...............................................................4
ARTICLE 3. MEETINGS OF STOCKHOLDERS...........................................4
SECTION 3.1 Place of Meeting.............................................4
SECTION 3.2 Annual Meetings..............................................4
SECTION 3.3 Special Meeting..............................................4
SECTION 3.4 Notice.......................................................5
SECTION 3.5 Quorum and Adjournments......................................5
SECTION 3.6 Votes; Proxies...............................................5
SECTION 3.7 Organization.................................................6
SECTION 3.8 Consent of Stockholders in Lieu of meeting...................6
ARTICLE 4. DIRECTORS..........................................................7
SECTION 4.1 Number.......................................................7
SECTION 4.2 Term of Office...............................................8
SECTION 4.3 Vacancies....................................................8
SECTION 4.4 Removal by Stockholders......................................8
SECTION 4.5 Meetings.....................................................8
SECTION 4.6 Votes........................................................9
SECTION 4.7 Quorum and Adjournment.......................................9
SECTION 4.8 Compensation.................................................9
SECTION 4.9 Action By Consent of Directors...............................9
ARTICLE 5. COMMITTEES OF DIRECTORS............................................9
SECTION 5.1 Executive Committee..........................................9
SECTION 5.2 Audit Committee.............................................10
SECTION 5.3 Other Committees............................................11
SECTION 5.4 Term of Office..............................................12
ARTICLE 6. OFFICERS..........................................................12
SECTION 6.1 Officers....................................................12
SECTION 6.2 Vacancies...................................................12
SECTION 6.3 Chairman of the Board.......................................12
SECTION 6.4 President...................................................12
SECTION 6.5 Executive Vice Presidents and Vice Presidents...............12
SECTION 6.6 Secretary...................................................12
SECTION 6.7 Assistant Secretaries.......................................13
SECTION 6.8 Treasurer...................................................13
SECTION 6.9 Assistant Treasurers........................................13
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 6.10 Controller..................................................13
SECTION 6.11 Assistant Controllers.......................................13
SECTION 6.12 Subordinate Officers........................................14
SECTION 6.13 Compensation................................................14
SECTION 6.14 Removal.....................................................14
SECTION 6.15 Bonds.......................................................14
ARTICLE 7. CERTIFICATES OF STOCK.............................................14
SECTION 7.1 Form and Execution of Certificates..........................14
SECTION 7.2 Transfer of Shares..........................................15
SECTION 7.3 Closing of Transfer Books...................................15
SECTION 7.4 Fixing Date for Determination of Stockholders of Record.....15
SECTION 7.5 Lost or Destroyed Certificates..............................16
SECTION 7.6 Uncertified Shares..........................................17
ARTICLE 8. EXECUTION OF DOCUMENTS............................................17
SECTION 8.1 Execution of Checks, Notes, etc.............................17
SECTION 8.2 Execution of Contracts, Assignments, Etc....................17
SECTION 8.3 Execution of Proxies........................................17
ARTICLE 9. INSPECTION OF BOOKS...............................................17
ARTICLE 10. FISCAL YEAR.......................................................18
ARTICLE 11. AMENDMENTS........................................................18
ARTICLE 12. INDEMNIFICATION...................................................18
SECTION 12.1 Indemnification.............................................18
SECTION 12.2 Authorization...............................................19
SECTION 12.3 Expense Advance.............................................19
SECTION 12.4 Nonexclusivity..............................................20
SECTION 12.5 Insurance...................................................20
SECTION 12.6 "The Corporation"...........................................20
SECTION 12.7 Other Indemnification.......................................20
SECTION 12.8 Other Definitions...........................................20
SECTION 12.9 Continuation of Indemnification.............................21
SECTION 12.10 Amendment or Repeal.........................................21
</TABLE>
<PAGE>
NETSCOUT SYSTEMS, INC.
(a Delaware Corporation)
------------------------------------------------
BY-LAWS
------------------------------------------------
ARTICLE 1
OFFICES
SECTION 1.1 REGISTERED OFFICE. The registered office of the Corporation
shall be located in Wilmington, County of New Castle, State of Delaware, and the
name of the resident agent in charge thereof shall be Corporation Service
Company.
SECTION 1.2 OTHER OFFICES. The Corporation may also have offices at such
other places, within or without the State of Delaware, as the Board of Directors
may from time to time appoint or the business of the Corporation may require.
ARTICLE 2
SEAL
The seal of the Corporation shall, subject to alteration by the Board of
Directors, consist of a flat-faced circular die with the word "Delaware",
together with the name of the Corporation and the year of incorporation, cut or
engraved thereon.
ARTICLE 3
MEETINGS OF STOCKHOLDERS
SECTION 3.1 PLACE OF MEETING. Meetings of the stockholders shall be held
either within or without the State of Delaware at such place as the Board of
Directors may fix.
SECTION 3.2 ANNUAL MEETINGS. The annual meeting of stockholders shall be
held for the election of directors on such date and at such time as the Board of
Directors may fix. Any other proper business may be transacted at the annual
meeting.
SECTION 3.3 SPECIAL MEETING. Special meetings of the stockholders for any
purpose or purposes may be called by the Chairman of the Board of Directors, if
there be one, the President, or by the directors (either by written instrument
signed by a majority or by resolution adopted by a vote of the majority), and
special meetings shall be called by the President or the Secretary whenever
stockholders owning a majority of the capital stock issued, outstanding and
entitled to vote so request in writing. Such request of stockholders shall state
the purpose or purposes of the proposed meeting.
<PAGE>
SECTION 3.4 NOTICE. Written or printed notice of every meeting of
stockholders, annual or special, stating the hour, date and place thereof, and
the purpose or purposes in general terms for which the meeting is called shall,
not less than ten (10), or such longer period as shall be provided by law, the
Certificate of Incorporation, these By-Laws, or otherwise, and not more than
sixty (60) days before such meeting, be served upon or mailed to each
stockholder entitled to vote thereat, at his address as it appears upon the
stock records of the Corporation or, if such stockholder shall have filed with
the Secretary of the Corporation a written request that notices intended for him
be mailed to some other address, then to the address designated in such request.
Notice of the hour, date, place and purpose of any meeting of stockholders
may be dispensed with if every stockholder entitled to vote thereat shall attend
either in person or by proxy and shall not, at the beginning of the meeting,
object to the holding of such meeting because the meeting has not been lawfully
called or convened, or if every absent stockholder entitled to such notice shall
in writing, filed with the records of the meeting, either before or after the
holding thereof, waive such notice.
SECTION 3.5 QUORUM AND ADJOURNMENTS. Except as otherwise provided by law or
by the Certificate of Incorporation, the presence in-person or by proxy at any
meeting of stockholders of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
thereat, shall be requisite and shall constitute a quorum. If two or more
classes of stock are entitled to vote as separate classes upon any question,
then, in the case of each such class, a quorum for the consideration of such
question shall, except as otherwise provided by law or by the Certificate of
Incorporation, consist of a majority in interest of all stock of that class
issued, outstanding and entitled to vote. If a majority of the shares of capital
stock of the Corporation issued and outstanding and entitled to vote thereat or,
where a larger quorum is required, such quorum, shall not be represented at any
meeting of the stockholders regularly called, the holders of a majority of the
shares present or represented by proxy and entitled to vote thereat shall have
power to adjourn the meeting to another time, or to another time and place,
without notice other than announcement of adjournment at the meeting, and there
may be successive adjournments for like cause and in like manner until the
requisite amount of shares entitled to vote at such meeting shall be
represented; provided, however, that if the adjournment is for more than thirty
(30) days, notice of the hour, date and place of the adjourned meeting shall be
given to each stockholder entitled to vote thereat. Subject to the requirements
of law and the Certificate of Incorporation, on any issue on which two or more
classes of stock are entitled to vote separately, no adjournment shall be taken
with respect to any class for which a quorum is present unless the Chairman of
the meeting otherwise directs. At any meeting held to consider matters which
were subject to adjournment for want of a quorum at which the requisite amount
of shares entitled to vote thereat shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed.
SECTION 3.6 VOTES; PROXIES. Except as otherwise provided in the Certificate
of Incorporation, at each meeting of stockholders, every stockholder of record
at the closing of the transfer books, if closed, or on the date set by the Board
of Directors for the determination of
<PAGE>
stockholders entitled to vote at such meeting, shall have one vote for each
share of stock entitled to vote which is registered in his name on the books of
the Corporation, and, in the election of directors, may vote cumulatively to the
extent, if any, and in the manner authorized in the Certificate of
Incorporation.
At each such meeting every stockholder entitled to vote shall be entitled
to do so in person, or by proxy appointed by an instrument in writing or as
otherwise permitted by law subscribed by such stockholder and bearing a date not
more than three (3) years prior to the meeting in question, unless said
instrument provides for a longer period during which it is to remain in force. A
duly executed proxy shall be irrevocable if it states that it is irrevocable and
if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock itself
or any interest in the Corporation generally. A stockholder may revoke any proxy
which is not irrevocable by attending the meeting and voting in person or by
filing an instrument in writing or as otherwise permitted by law revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the Corporation.
Voting at meetings of stockholders need not be by written ballot and,
except as otherwise provided by law, need not be conducted by inspectors of
election unless so determined by the Chairman of the meeting or by the holders
of shares of stock having a majority of the votes which could be cast by the
holders of all outstanding shares of stock entitled to vote thereon which are
present in person or represented by proxy at such meeting. If it is required or
determined that inspectors of election be appointed, the Chairman shall appoint
two inspectors of election, who shall first take and subscribe an oath or
affirmation faithfully to execute the duties of inspectors at such meeting with
strict impartiality and according to the best of their ability. The inspectors
so appointed shall take charge of the polls and, after the balloting, shall make
a certificate of the result of the vote taken. No director or candidate for the
office or director shall be appointed as such inspector.
At any meeting at which a quorum is present, a plurality of the votes
properly cast for election to fill any vacancy on the Board of Directors shall
be sufficient to elect a candidate to fill such vacancy, and a majority of the
votes properly cast upon any other question shall decide the question, except in
any case where a larger vote is required by law, the Certificate of
Incorporation, these By-Laws, or otherwise.
SECTION 3.7 ORGANIZATION. The Chairman of the Board, if there be one, or in
his absence the Vice Chairman, or in the absence of a Vice Chairman, the
President, or in the absence of the President, a Vice President, shall call
meetings of the stockholders to order and shall act as chairman thereof. The
Secretary of the Corporation, if present, shall act as secretary of all meetings
of stockholders, and, in his absence, the presiding officer may appoint a
secretary.
SECTION 3.8 CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless otherwise
restricted by the Certificate of Incorporation, any action required or permitted
by the Delaware General Corporation Law to be taken at any annual or special
meeting of the stockholders of the Corporation, may be taken without a meeting,
without prior notice and without a vote, if a
<PAGE>
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated consent delivered in the manner required by this section to the
corporation, written consents signed by a sufficient number of stockholders to
take action are delivered to the corporation by delivery to its registered
office in Delaware, its principal place of business, or an officer or agent of
the Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a Meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. In the event that the action which is consented
to is such as would have required the filing of a certificate under any section
of the Delaware General Corporation Law other than Section 228 thereof, if such
action had been voted on by stockholders at a meeting thereof, the certificate
filed under such other section shall state, in lieu of any statement required by
such section concerning any vote of stockholders, that written consent has been
given in accordance with Section 228 of the Delaware General Corporation Law,
and that written notice has been given as provided in such Section 228.
ARTICLE 4
DIRECTORS
SECTION 4.1 NUMBER. The business and affairs of the Corporation shall be
conducted and managed by a Board of Directors consisting of not less than one
director, none of whom needs to be a stockholder. The number of directors for
each year shall be fixed at each annual meeting of stockholders, but if the
number is not so fixed, the number shall remain as it stood immediately prior to
such meeting.
At each annual meeting of stockholders, the stockholders shall elect
directors. Each director so elected shall hold office, subject to the provisions
of law, the Certificate of Incorporation, these By-Laws, or otherwise, until the
next annual meeting of stockholders or until his successor is elected and
qualified.
At any time during any year, except as otherwise provided by law, the
Certificate of Incorporation, these By-Laws, or otherwise, the number of
directors may be increased or
<PAGE>
reduced, in each case by vote of a majority of the stock issued and outstanding
and present in person or represented by proxy and entitled to vote for the
election of directors or a majority of the directors in office at the time of
such increase or decrease, regardless of whether such majority constitutes a
quorum.
SECTION 4.2 TERM OF OFFICE. Each director shall hold office until the next
annual meeting of stockholders and until his successor is duly elected and
qualified or until his earlier death or resignation, subject to the right of the
stockholders at anytime to remove any director or directors as provided in
Section 4 of this Article.
SECTION 4.3 VACANCIES. If any vacancy shall occur among the directors, or
if the number of directors shall at any time be increased, the directors then in
office, although less than a quorum, by a majority vote may fill the vacancies
or newly created directorships, or any such vacancies or newly created
directorships may be filled by the stockholders at any meeting.
SECTION 4.4 REMOVAL BY STOCKHOLDERS. Except as otherwise provided by law,
the Certificate of Incorporation or otherwise, the holders of record of the
capital stock of the Corporation entitled to vote for the election of directors
may, by a majority vote, remove any director or directors, with or without
cause, and, in their discretion, elect a new director or directors in place
thereof.
SECTION 4.5 MEETINGS. Meetings of the Board of Directors shall be held at
such place, within or without the State of Delaware, as may from time to time be
fixed by resolution of the Board of Directors or by the Chairman of the Board,
if there be one, the President and as may be specified in the notice or waiver
of notice of any meeting. Meetings may be held at any time upon the call of the
Chairman of the Board, if there be one, or the President or any two (2) of the
directors in office by oral, telegraphic, telex, telecopy or other form of
electronic transmission, or written notice, duly served or sent or mailed to
each director not less than twenty-four (24) hours before such meeting, except
that, if mailed, not less than forty-eight (48) hours before such meeting.
Meetings may be held at any time and place without notice if all the
directors are present and do not object to the holding of such meeting for lack
of proper notice or if those not present shall, in writing or by telegram,
telex, telecopy or other form of electronic transmission, waive notice thereof.
A regular meeting of the Board may be held without notice immediately following
the annual meeting of stockholders at the place where such meeting is held.
Regular meetings of the Board may also be held without notice at such time and
place as shall from time to time be determined by resolution of the Board.
Members of the Board of Directors or any committee thereof may participate
in a meeting of such Board or 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 in a meeting pursuant to the
foregoing provisions shall constitute presence in person at the meeting.
<PAGE>
SECTION 4.6 VOTES. Except as otherwise provided by law, the Certificate of
Incorporation or otherwise, the vote of the majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors.
SECTION-4 7 QUORUM AND ADJOURNMENT. Except as otherwise provided by law,
the Certificate of Incorporation or otherwise, a majority of the directors shall
constitute a quorum for the transaction of business. If at any meeting of the
Board there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time without notice other than announcement of
the adjournment at the meeting, and at such adjourned meeting at which a quorum
is present any business may be transacted which might have been transacted at
the meeting as originally noticed.
SECTION 4.8 COMPENSATION. Directors shall receive compensation for their
services, as such, and for service on any Committee of the Board of Directors,
as fixed by resolution of the Board of Directors and for expenses of attendance
at each regular or special meeting of the Board or any Committee thereof.
Nothing in this Section shall be construed to preclude a director from serving
the Corporation in any other capacity and receiving compensation therefor.
SECTION 4.9 ACTION BY CONSENT OF DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board, or committee.
Such consent shall be treated as a vote adopted at a meeting for all purposes.
Such consents may be executed in one or more counterparts and not every Director
or committee member need sign the same counterpart.
ARTICLE 5
COMMITTEES OF DIRECTORS
SECTION 5.1 EXECUTIVE COMMITTEE. The Board of Directors may, by resolution
passed by a majority of the whole Board, appoint an Executive Committee of two
(2) or more members, to serve during the pleasure of the Board, to consist of
such directors as the Board may from time to time designate. The Board of
Directors shall designate the Chairman of the Executive Committee.
(a) PROCEDURE. The Executive Committee shall, by a vote of a majority
of its members, fix its own times and places of meeting, determine the
number of its members constituting a quorum for the transaction of
business, and prescribe its own rules of procedure, no change in which
shall be made save by a majority vote of its members.
(b) RESPONSIBILITIES. During the intervals between the meetings of the
Board of Directors, except as otherwise provided by the Board of Directors
in establishing such Committee or otherwise, the Executive Committee shall
possess and may exercise all the powers of the Board in the management and
direction of the business and affairs of the Corporation; provided,
however, that the Executive Committee not, except to the extent
<PAGE>
the Certificate of Incorporation or the resolution providing for the
issuance of shares of stock adopted by the Board of Directors as provided
in Section 151(a) of the Delaware General Business Corporation Law, have
the power:
(i) to amend or authorize the amendment of the Certificate of
Incorporation or these By-Laws;
(ii) to authorize the issuance of stock;
(iii) to authorize the payment of any dividend;
(iv) to adopt an agreement of merger or consolidation of the
Corporation or to recommend to the stockholders the sale, lease
or exchange of all or substantially all the property and
business of the Corporation;
(v) to recommend to the stockholders a dissolution, or a revocation
of a dissolution, of the Corporation; or
(vi) to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware Business Corporation Law.
(c) REPORTS. The Executive Committee shall keep regular minutes of its
proceedings, and all action by the Executive Committee shall be reported
promptly to the Board of Directors. Such action shall be subject to review,
amendment and repeal by the Board, provided that no rights of third parties
shall be adversely affected by such review, amendment or repeal.
(d) APPOINTMENT OF ADDITIONAL MEMBERS. In the absence or
disqualification of any member of the Executive Committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in place of any such
absent or disqualified member.
SECTION 5.2 AUDIT COMMITTEE. The Board of Directors may, by resolution
passed by a majority of the whole Board, appoint an Audit Committee of two (2)
or more members who shall not be officers or employees of the Corporation to
serve during the pleasure of the Board. The Board of Directors shall designate
the Chairman of the Audit Committee.
(a) PROCEDURE. The Audit Committee, by a vote of a majority of its
members, shall fix its own times and places of meeting, shall determine the
number of its members constituting a quorum for the transaction of
business, and shall prescribe its own rules of procedure, no change in
which shall be made save by a majority vote of its members.
(b) RESPONSIBILITIES. The Audit Committee shall review the annual
financial statements of the Corporation prior to their submission to the
Board of Directors, shall
<PAGE>
consult with the Corporation's independent auditors, and may examine and
consider such other matters in relation to the internal and external audit
of the Corporation's accounts and in relation to the financial affairs of
the Corporation and its accounts, including the selection and retention of
independent auditors, as the Audit Committee may, in its discretion,
determine to be desirable.
(c) REPORTS. The Audit Committee shall keep regular minutes of its
proceedings, and all action by the Audit Committee shall, from time to
time, be reported to the Board of Directors as it shall direct. Such action
shall be subject to review, amendment and repeal by the Board, provided
that no rights of third parties shall be adversely affected by such review,
amendment or repeal.
(d) APPOINTMENT OF ADDITIONAL MEMBERS. In the absence or
disqualification of any member of the Audit Committee The member or members
thereof present at any meeting and not disqualified from voting, whether or
not constituting a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in place of any such absent or
disqualified member.
SECTION 5.3 OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, at any time appoint one or more other
committees from and outside of its own number. Every such committee must include
at least one member of the Board of Directors. The Board may from time to time
designate or alter, within the limits permitted by law, the Certificate of
Incorporation and this Article, if applicable, the duties, powers and number of
members of such other committees or change their membership, and may at any time
abolish such other committees or any of them.
(a) PROCEDURE. Each committee, appointed pursuant to this Section,
shall, by a vote of a majority of its members, fix its own times and places
of meeting, determine the number of its members constituting a quorum for
the transaction of business, and prescribe its own rules of procedure, no
change in which shall be made save by a majority vote of its members.
(b) RESPONSIBILITIES. Each committee, appointed pursuant to this
Section, shall exercise the powers assigned to it by the Board of Directors
in its discretion.
(c) REPORTS. Each committee appointed pursuant to this Section shall
keep regular minutes of proceedings, and all action by each such committee
shall, from time to time, be reported to the Board of Directors as it shall
direct. Such action shall be subject to review, amendment and repeal by the
Board, provided that no rights of third parties shall be adversely affected
by such review, amendment or repeal.
(d) APPOINTMENT OF ADDITIONAL MEMBERS. In the absence or
disqualification of any member of each committee, appointed pursuant to
this Section, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may
unanimously appoint another member of the Board of
<PAGE>
Directors (or, to the extent permitted, another person) to act at the
meeting in place of any such absent or disqualified member.
SECTION 5.4 TERM OF OFFICE. Each member of a committee shall hold office
until the first meeting of the Board of Directors following the annual meeting
of stockholders (or until such other time as the Board of Directors may
determine, either in the vote establishing the committee or at the election of
such member or otherwise) and until his successor is elected and qualified or
until he sooner dies, resigns, is removed, is replaced by change of membership
or becomes disqualified by ceasing to be a Director (where membership on the
Board is required), or until the committee is sooner abolished by the Board of
Directors.
ARTICLE 6
OFFICERS
SECTION 6.1 OFFICERS. The Board of Directors shall elect a President, a
Secretary and a Treasurer, and, in their discretion, may elect a Chairman of the
Board, a Vice Chairman of the Board, a Controller, and one or more Executive
Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers
and Assistant Controllers as deemed necessary or appropriate. Such officers
shall be elected annually by the Board of Directors at its first meeting
following the annual meeting of stockholders (or at such other meeting as the
Board of Directors determines), and each shall hold office for the term provided
by the vote of the Board, except that each will be subject to removal from
office in the discretion of the Board as provided herein. The powers and duties
of more than one office may be exercised and performed by the same person.
SECTION 6.2 VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors, at any regular or
special meeting.
SECTION 6.3 CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors,
if elected, shall be a member of the Board of Directors and shall preside at its
meetings. He shall advise and counsel with the President, and shall perform such
duties as from time to time may be assigned to him by the Board of Directors.
SECTION 6.4 PRESIDENT. The President shall be the chief executive officer
of the Corporation. Subject to the directions of the Board of Directors, he
shall have and exercise direct charge of and general supervision over the
business and affairs of the Corporation and shall perform all duties incident to
the office of the chief executive officer of a corporation and such other duties
as from time to time may be assigned to him by the Board of Directors. The
President may, but need not, be a member of the Board of Directors.
SECTION 6.5 EXECUTIVE VICE PRESIDENTS AND VICE PRESIDENTS. Each Executive
Vice President and Vice President shall have and exercise such powers and shall
perform such duties as from time to time may be assigned to him by the Board of
Directors or the President.
SECTION 6.6 SECRETARY. The Secretary shall keep the minutes of all meetings
of the stockholders and of the Board of Directors in books provided for the
purpose; he shall see that all
<PAGE>
notices are duly given in accordance with the provisions of law and these
.By-Laws; he shall be custodian of the records and of the corporate seal or
seals of the Corporation; he shall see that the corporate seal is affixed to all
documents the execution of which, on behalf of the Corporation under its seal,
is duly authorized, and, when the seal is so affixed, he may attest the same he
may sign, with the President, an Executive Vice President or a Vice President,
certificates of stock of the Corporation; and, in general, he shall perform all
duties incident to the office of secretary of a Corporation, and such other
duties as from time to time may be assigned to him by the Board of Directors.
SECTION 6.7 ASSISTANT SECRETARIES. The Assistant Secretaries in order of
their seniority shall, in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary and shall perform such other
duties as the Board of Directors shall prescribe or as from time to time may be
assigned by the Secretary.
SECTION 6.8 TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all monies or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he may endorse for collection on behalf of the Corporation checks,
notes and other obligations; he may sign receipts and vouchers for payments made
to the Corporation; he may sign checks of the Corporation, singly or jointly
with another person as the Board of Directors may authorize, and pay out and
dispose of the proceeds under the direction of the Board; he shall render to the
President and to the Board of Directors, whenever requested, an account of the
financial condition of the Corporation; he may sign, with the President, or an
Executive Vice President or a Vice President, certificates of stock of the
corporation; and in general, shall perform all the duties incident to the office
of treasurer of a corporation, and such other duties as from time to time may be
assigned to him by the Board of Directors.
SECTION 6.9 ASSISTANT TREASURERS. The Assistant Treasurers in order of
their seniority shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer and shall perform such other
duties as the Board of Directors shall prescribe or as from time to time may be
assigned by the Treasurer.
SECTION 6.10 CONTROLLER. The Controller, if elected, shall be the chief
accounting officer of the Corporation, in general, he shall perform all duties
incident to the office of a controller of a corporation, and, in the absence of
or disability of the Treasurer or any Assistant Treasurer, perform the duties
and exercise, the powers of the Treasurer and shall perform such other duties as
the Board of Directors shall prescribe or as from time to time may be assigned
by the President or the Treasurer.
SECTION 6.11 ASSISTANT CONTROLLERS. The Assistant Controllers in order of
their seniority shall, in the absence or disability of the Controller, perform
the duties and exercise the powers of the Controller and shall perform such
other duties as the Board of Directors shall prescribe or as from time to time
may be assigned by the Controller.
<PAGE>
SECTION 6.12 SUBORDINATE OFFICERS. The Board of Directors may appoint such
subordinate officers as it may deem desirable. Each such officer shall hold
office for such period, have such authority and perform such duties as the Board
of Directors may prescribe. The Board of Directors may, from time to time,
authorize any officer to appoint and remove subordinate officers and to
prescribe the powers and duties thereof.
SECTION 6.13 COMPENSATION. The Board of Directors shall fix the
compensation of all officers of the Corporation. It may authorize any officer,
upon whom the power of appointing subordinate officers may have been conferred,
to fix the compensation of such subordinate officers.
SECTION 6.14 REMOVAL. Any officer of the Corporation may be removed, with
or without cause, by action of the Board of Directors.
SECTION 6.15 BONDS. The Board of Directors may require any officer of the
Corporation to give a bond to the Corporation, conditional upon the faithful
performance of his duties, with one or more sureties and in such amount as may
be satisfactory to the Board of Directors.
ARTICLE 7
CERTIFICATES OF STOCK
SECTION 7.1 FORM AND EXECUTION OF CERTIFICATES. The interest of each
stockholder of the Corporation shall be evidenced by a certificate or
certificates for shares of stock in such form as the Board of Directors may from
time to time prescribe. The certificates of stock of each class shall be
consecutively numbered and signed by the Chairman or Vice Chairman of the Board,
if any, the President, an Executive Vice President or a Vice President and by
the Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer
of the Corporation, and may be countersigned and registered in such manner as
the Board of Directors may by resolution prescribe, and shall bear the corporate
seal or a printed or engraved facsimile thereof. Where any such certificate is
signed by a transfer agent or transfer clerk acting on behalf of the
Corporation, the signatures of any such Chairman, Vice Chairman, President,
Executive Vice President, Vice President, Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary may be facsimiles, engraved or printed. In case
any officer or officers, who shall have signed, or whose facsimile signature or
signatures shall have been used on, any such certificate or certificates, shall
cease to be such officer or officers, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the Corporation, such certificate or certificates may nevertheless be issued and
delivered by the Corporation as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or officers.
In case the corporate seal which has been affixed to, impressed on, or
reproduced in any such certificate or certificates shall cease to be the seal of
the Corporation before such certificate or certificates have been delivered by
the Corporation, such certificate or certificates may
<PAGE>
nevertheless be issued and delivered by the Corporation as though the seal
affixed thereto, impressed thereon or reproduced therein had not ceased to be
the seal of the corporation.
Every certificate for shares of stock which are subject to have restriction
on transfer pursuant to law, the Certificate of Incorporation, these By-Laws, or
any agreement to which the corporation is a party, shall have the restriction
noted conspicuously on the certificate, and shall also set forth, on the face or
back either the full text of the restriction or a statement of the existence of
such restriction and (except if such restriction is imposed by law) a statement
that the Corporation will furnish a copy thereof to the holder of such
certificate upon written request and without charge.
Every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall set forth on its face or back either the
full text of the preferences, voting powers, qualifications, and special and
relative rights of the shares of each class and series authorized to be issued,
or a statement of the existence of such preferences, powers, qualifications and
rights, and a statement that the Corporation will furnish a copy thereof to the
holder of such certificate upon written request and without charge.
SECTION 7.2 TRANSFER OF SHARES. The shares of the stock of the Corporation
shall be transferred on the books of the Corporation by the holder thereof in
person or by his attorney lawfully constituted, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof or
guaranty of the authenticity of the signature as the Corporation or its agents
may reasonably require. The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact thereof and
accordingly shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person whether or not
it shall have express or other notice thereof, save as expressly provided by law
or by the Certificate of Incorporation. It shall be the duty of each stockholder
to notify the Corporation of his post office Address.
SECTION 7.3 CLOSING OF TRANSFER BOOKS. The stock transfer books of the
Corporation may, if deemed appropriate by the Board of Directors, be closed for
such length of time not exceeding fifty (50) days as the Board may determine,
preceding the date of any meeting of stockholders or the date for the payment of
any dividend or the date for the allotment of rights or the date when any
issuance, change, conversion or exchange of capital stock shall go into effect,
during which time no transfer of stock on the books of the Corporation may be
made.
SECTION 7.4 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
directors and which record date: (a) in the case of
<PAGE>
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall, unless otherwise required by law, the Certificate of
Incorporation or otherwise, not be more than sixty (60) nor less than ten (10)
days before the date of such meeting; (b) in the case of determination of
stockholders entitled to express consent to corporate action in writing without
a meeting, shall, unless otherwise required by law, the Certificate of
Incorporation or otherwise, not be more than ten (10) days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (c) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (a) 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 next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (b) the record date
for determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation in accordance with applicable law, or, if prior action by the Board
of Directors is required by law, shall be at the-close of business on the day on
which the Board of Directors adopts the resolution taking such prior action; and
(c) 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 thereto. 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.
SECTION 7.5 LOST OR DESTROYED CERTIFICATES. In case of the loss or
destruction of any certificate of stock, a new certificate may be issued under
the following conditions:
(a) The owner of said certificate shall file with the Secretary or any
Assistant Secretary of the Corporation an affidavit giving the facts in
relation to the ownership, and in relation to the loss or destruction of
said certificate, stating its number and the number of shares represented
thereby; such affidavit shall be in such form and contain such statements
as shall satisfy the President, any Executive Vice President, Vice
President, the Secretary, any Assistant Secretary, the Treasurer or any
Assistant Treasurer, that said certificate has been accidentally destroyed
or lost, and that a new certificate ought to be issued in lieu thereof.
Upon being so satisfied, any such officer may require such owner to furnish
the Corporation a bond in such penal sum and in such form as he may deem
advisable, and with a surety or sureties approved by him, to indemnify and
save harmless the Corporation from any claim, loss, damage or liability
which may be occasioned by the issuance of a new certificate in lieu
thereof. Upon such bond being so filed, if so required, a new certificate
for the same number of shares shall be issued to the owner of the
certificate so lost or destroyed; and the transfer agent and registrar, if
any, of stock shall countersign and register such new certificate upon
receipt of a written order signed by any such officer, and thereupon the
Corporation will save harmless said transfer agent and registrar in the
premises. In case of the surrender of the original certificate, in lieu of
which a new certificate has been issued, or the surrender of such new
certificate, for
<PAGE>
cancellation, the bond of indemnity given as a condition of the issue of
such new certificate may be surrendered; or
(b) The Board of Directors of the Corporation may by
resolution authorize and direct any transfer agent or registrar of
stock of the Corporation to issue and register respectively from time
to time without further action or approval by or on behalf of the
Corporation new certificates of stock to replace certificates reported
lost, stolen or destroyed upon receipt of an affidavit of loss and bond
of indemnity in form and amount and with surety satisfactory to such
transfer agent or registrar in each instance or upon such terms and
conditions as the Board of Directors may determine.
SECTION 7.6 UNCERTIFIED SHARES. The Board of Directors of the Corporation
may by resolution provide that one or more of any or all classes or series of
the stock of the Corporation shall be uncertified shares, subject to the
provisions of section 158 of the Delaware General Corporation Law.
ARTICLE 8
EXECUTION OF DOCUMENTS
SECTION 8.1 EXECUTION OF CHECKS, NOTES, ETC. All checks and drafts on the
corporation's bank accounts and all bills of exchange and promissory notes, and
all acceptances, obligations and other instruments for the payment of money,
shall be signed by such officer or officers, or agent or agents, as shall be
thereunto authorized from time to time by the Board of Directors, which many in
its discretion authorize any such signatures to be facsimile.
SECTION 8.2 EXECUTION OF CONTRACTS, ASSIGNMENTS, ETC. Unless the Board of
Directors shall have otherwise provided generally or in a specific instance, all
contracts, agreements, endorsements, assignments, transfers, stock powers, or
other instruments shall be signed by the President, any Executive Vice
President, any Vice President, the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer. The Board of Directors may, however, in
its discretion, require any or all such instruments to be signed by any two or
more of such officers, or may permit any or all of such instruments to be signed
by such other officer or officers, agent or agents, as it shall be thereunto
authorize from time to time.
SECTION 8.3 EXECUTION OF PROXIES. The President, any Executive Vice
President or any Vice President, and the Secretary, the Treasurer, any Assistant
Secretary or any Assistant Treasurer, or any other officer designated by the
Board of Directors, may sign on behalf of the Corporation proxies to vote upon
shares of stock of other companies standing in the name of the Corporation.
ARTICLE 9
INSPECTION OF BOOKS
The Board of Directors shall determine from time to time whether, and if
allowed, to what extent and at what time and places and under what conditions
and regulations, the accounts
<PAGE>
and books of the Corporation (except such as may by law be specifically open to
inspection) or any of them, shall be open to the inspection of the
stockholders, and no stockholder shall have any right to inspect any account or
book or document of the Corporation, except as conferred by the laws of the
State of Delaware, unless and until authorized so to do by resolution of the
Board of Directors or of the stockholders of the Corporation.
ARTICLE 10
FISCAL YEAR
The fiscal year of the Corporation shall be determined from time to time by
vote of the Board of Directors.
ARTICLE 11
AMENDMENTS
These By-Laws may be altered, amended, changed or repealed and new By-Laws
adopted by the stockholders or, to the extent provided in the Certificate of
Incorporation, by the Board of Directors, in either case at any meeting called
for that purpose at which a quorum shall be present. Any by-law, whether made,
altered, amended, changed or repealed by the stockholders or the Board of
Directors may be repealed, amended, changed, further amended, changed, repealed
or reinstated, as the case may be either by the stockholders or by the Board of
Directors, as herein provided; except that this Article may be altered, amended,
changed or repealed only by vote of the stockholders.
ARTICLE 12
INDEMNIFICATION
SECTION 12.1 INDEMNIFICATION.
12.1.1 The Corporation shall indemnify and hold harmless, to the
fullest extent permitted by applicable law as it presently exists or may
hereafter be amended, any person who was or is a party or is threatened to
be made a party or is otherwise involved in 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, or a person for whom he is
the legal representative, is or was a director, trustee, partner, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise or
non-profit entity against all liability, losses, expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest 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 contenders
<PAGE>
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 interest of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable
Cause to believe that his conduct was unlawful.
12.1.2 The Corporation shall indemnify any person 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 a director,
trustee, partner, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise or non-profit entity against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit 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 for negligence or misconduct in the performance
of his duty to the Corporation unless and only to the extent that the Court
of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of the State of Delaware or such other
court shall deem proper.
12.1.3 To the extent that any person referred to in paragraphs (a) or
(b) has been successful on the merits or otherwise in defense of any action
suit or proceeding referred to therein, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
SECTION 12.2 AUTHORIZATION. Any indemnification under Section 1 of this
Article (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, trustee, partner, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 of this Article. Such determination shall be made: (a) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in written opinion, or (c) by the
stockholders.
SECTION 12.3 EXPENSE ADVANCE. Expenses (including attorneys' fees) incurred
by an officer or director of the Corporation in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the manner provided in
Section 2 of this Article upon receipt of an undertaking by or on behalf of such
officer or director to repay such amount unless it shall ultimately be
determined that he is
<PAGE>
entitled to be indemnified by the Corporation as authorized in this Article.
Such expenses (including attorneys' fees) incurred by other employees or agents
of the Corporation may be so paid upon such terms and conditions, if any, as the
Board of Directors deems appropriate.
SECTION 12.4 NONEXCLUSIVITY. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this Article
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
SECTION 12.5 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, partner, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise or
non-profit entity against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article or Section 145 of Title 8 of the Delaware Code
relating to the General Corporation Law of the State of Delaware.
SECTION 12.6 "THE CORPORATION". For the purposes of this Article,
references to "the Corporation" shall include the resulting corporation and,
to the extent that the Board of Directors of the resulting corporation so
decides, all constituent corporations (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents so that any person who is or was a
director, officer, employee or agent of such a constituent corporation or is
or was serving at the request of such constituent corporation as director,
trustee, partner, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or non-profit entity
shall stand in the same position under the provisions of this Article with
respect to the resulting or surviving corporation if its separate existence
had continued.
SECTION 12.7 OTHER INDEMNIFICATION. The Corporation's obligation, if any,
to indemnify any person who was or is serving at its request as a director,
trustee, partner, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or non-profit entity shall
be reduced by any amount such person may collect as indemnification from such
other corporation, partnership, joint venture, trust or other enterprise or
non-profit entity or from insurance.
SECTION 12.8 OTHER DEFINITIONS. For purposes of this Article, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at
<PAGE>
the request of the Corporation" shall include any service as a director,
trustee, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, trustee, officer, employee, or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and a person who acted in good faith and in a manner he reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article.
SECTION 12.9 CONTINUATION OF INDEMNIFICATION. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article shall,
unless otherwise provided when authorized or ratified, continue as to a person
who has ceased to be a director, trustee, partner, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators of
such a person.
SECTION 12.10 AMENDMENT OR REPEAL. No amendment or repeal of the provisions
of this Article shall adversely affect any right or protection hereunder of any
person in respect of any act or omission occurring prior to the time of such
amendment or repeal.
<PAGE>
Exhibits 3.5 and 4.2
FORM OF AMENDED AND RESTATED
BY-LAWS
OF
NETSCOUT SYSTEMS, INC.
<PAGE>
BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 - Stockholders.................................................................................1
1.1 Place of Meetings.................................................................................1
1.2 Annual Meeting....................................................................................1
1.3 Special Meetings..................................................................................1
1.4 Notice of Meetings................................................................................1
1.5 Voting List.......................................................................................1
1.6 Quorum............................................................................................2
1.7 Adjournments......................................................................................2
1.8 Voting and Proxies................................................................................2
1.9 Action at Meeting.................................................................................3
1.10 Introduction of Business at Meetings.............................................................3
A. Annual Meetings of Stockholders.................................................................3
B. Special Meetings of Stockholders................................................................4
C. General.........................................................................................5
1.11 Action without Meeting...........................................................................6
ARTICLE 2 - Directors....................................................................................6
2.1 General Powers....................................................................................6
2.2 Number; Election and Qualification................................................................7
2.3 Classes of Directors..............................................................................7
2.4 Terms in Office...................................................................................7
2.5 Allocation of Directors Among Classes in the Event of Increases or Decreases in
the Number of Directors...............................................................................7
2.6 Tenure............................................................................................7
2.7 Vacancies.........................................................................................8
2.8 Resignation.......................................................................................8
2.9 Regular Meetings..................................................................................8
2.10 Special Meetings.................................................................................8
2.11 Notice of Special Meetings.......................................................................8
2.12 Meetings by Telephone Conference Calls...........................................................8
2.13 Quorum...........................................................................................8
2.14 Action at Meeting................................................................................9
2.15 Action by Written Consent........................................................................9
</TABLE>
<PAGE>
<TABLE>
<S> <C>
2.16 Removal..........................................................................................9
2.17 Committees.......................................................................................9
2.18 Compensation of Directors.......................................................................10
2.19 Amendments to Article...........................................................................10
ARTICLE 3 - Officers....................................................................................10
3.1 Enumeration......................................................................................10
3.2 Election.........................................................................................10
3.3 Qualification....................................................................................10
3.4 Tenure...........................................................................................10
3.5 Resignation and Removal..........................................................................10
3.6 Vacancies........................................................................................11
3.7 Chairman of the Board and Vice-Chairman of the Board.............................................11
3.8 President........................................................................................11
3.9 Vice Presidents..................................................................................11
3.10 Secretary and Assistant Secretaries.............................................................11
3.11 Treasurer and Assistant Treasurers..............................................................12
3.12 Salaries........................................................................................12
3.13 Action with Respect to Securities of Other Corporations.........................................12
ARTICLE 4 - Capital Stock...............................................................................13
4.1 Issuance of Stock................................................................................13
4.2 Certificates of Stock............................................................................13
4.3 Transfers........................................................................................13
4.4 Lost, Stolen or Destroyed Certificates...........................................................13
4.5 Record Date......................................................................................14
ARTICLE 5 - General Provisions..........................................................................14
5.1 Fiscal Year......................................................................................14
5.2 Corporate Seal...................................................................................14
5.3 Notices..........................................................................................14
5.4 Waiver of Notice.................................................................................14
5.5 Evidence of Authority............................................................................15
5.6 Facsimile Signatures.............................................................................15
5.7 Reliance upon Books, Reports and Records.........................................................15
5.8 Time Periods.....................................................................................15
5.9 Certificate of Incorporation.....................................................................15
5.10 Transactions with Interested Parties............................................................15
5.11 Severability....................................................................................16
5.12 Pronouns........................................................................................16
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 6 - Amendments..................................................................................16
6.1 By the Board of Directors........................................................................16
6.2 By the Stockholders..............................................................................16
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
NETSCOUT SYSTEMS, INC. (the "Corporation")
ARTICLE 1 - STOCKHOLDERS
1.1 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 Chairman of the Board (if any), the board of directors of
the Corporation (the "Board of Directors") or the President or, if not so
designated, at the registered office of the Corporation.
1.2 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 Chairman
of the Board (if any), Board of Directors 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 Chairman of the Board, the Board of Directors or the
President and stated in the notice of the meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be called at
any time by the Chairman of the Board (if any), a majority of the Board of
Directors or the President and shall be held at such place, on such date and at
such time as shall be fixed by the Board of Directors or the person calling the
meeting. 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.
1.4 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 is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his or her address as it appears
on the records of the Corporation.
1.5 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, either at a place within the city where the
meeting is to be held, which place shall be specified in
<PAGE>
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. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
1.6 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. Shares held by brokers which such
brokers are prohibited from voting (pursuant to their discretionary authority on
behalf of beneficial owners of such shares who have not submitted a proxy with
respect to such shares) on some or all of the matters before the stockholders,
but which shares would otherwise be entitled to vote at the meeting ("Broker
Non-Votes") shall be counted, for the purpose of determining the presence or
absence of a quorum, both (a) toward the total voting power of the shares of
capital stock of the Corporation and (b) as being represented by proxy. If a
quorum has been established for the purpose of conducting the meeting, a quorum
shall be deemed to be present for the purpose of all votes to be conducted at
such meeting, provided that where a separate vote by a class or classes, or
series thereof, is required, a majority of the voting power of the shares of
such class or classes, or series, present in person or represented by proxy
shall constitute a quorum entitled to take action with respect to that vote on
that matter. If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the voting power of the shares of stock
entitled to vote who are present, in person or by proxy, may adjourn the meeting
to another place, date, or time.
1.7 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.
1.8 VOTING AND PROXIES. At any meeting of the stockholders, each
stockholder shall have one vote for each share of stock entitled to vote at such
meeting held of record by such stockholder and a proportionate vote for each
fractional share so held, unless otherwise provided in the Certificate of
Incorporation. Each stockholder of record entitled to vote at a meeting of
stockholders, or to express consent or dissent to corporate action in writing
without a meeting (to the extent not otherwise prohibited by the Certificate of
Incorporation or these By-laws), may vote or express such consent or dissent in
person or may authorize another person or persons to vote or act for such
stockholder by written proxy executed by such stockholder or his or her
authorized agent or by a transmission permitted by law and delivered to the
Secretary of the Corporation. No such proxy shall be voted or acted upon after
three years from the date of its
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execution, unless the proxy expressly provides for a longer period. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this Section 1.8 may be substituted or used in
lieu of the original writing or transmission for any and all purposes for which
the original writing or transmission could be used, provided that such copy,
facsimile telecommunication or reproduction shall be a complete reproduction of
the entire original writing or transmission.
All voting or appointment of proxies, including on the election of
directors but excepting where otherwise required by law or the Certificate of
Incorporation, may take place via a voice vote or over the Internet. Any vote
not taken by voice shall be taken by ballots, each of which shall state the
name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting.
1.9 ACTION AT MEETING. When a quorum is present at any meeting of
stockholders, the holders of a majority of the stock present or represented and
voting on a 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) shall decide any matter to be voted upon by the stockholders at such
meeting (other than the election of directors), except when a different vote is
required by express provision of law, the Certificate of Incorporation or these
By-Laws. Any election of directors by the stockholders shall be determined by a
plurality of the votes cast by the stockholders entitled to vote at such
election, except as otherwise provided by the Certificate of Incorporation. For
the purposes of this paragraph, Broker Non-Votes represented at the meeting but
not permitted to vote on a particular matter shall not be counted, with respect
to the vote on such matter, in the number of (a) votes cast, (b) votes cast
affirmatively, or (c) votes cast negatively.
1.10 INTRODUCTION OF BUSINESS AT MEETINGS.
A. ANNUAL MEETINGS OF STOCKHOLDERS.
(1) Nominations of persons for election to the Board of
Directors and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a)
pursuant to the Corporation's notice of meeting, (b) by or at the
direction of the Board of Directors or (c) by any stockholder of
the Corporation who was a stockholder of record at the time of
giving of notice provided for in this Section 1.10, who is
entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 1.10.
(2) For nominations or other business to be properly
brought before an annual meeting by a stockholder pursuant to
clause (c) of paragraph (A)(1) of this Section 1.10, the
stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely,
a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the
close of business on the one hundred twentieth (120th) day nor
earlier than the close
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of business on the one hundred fiftieth (150th) day prior to the
first anniversary of the date of the proxy statement delivered to
stockholders in connection with the preceding year's annual
meeting; provided, however, that if either (i) the date of the
annual meeting is more than thirty (30) days before or more than
sixty (60) days after such an anniversary date or (ii) no proxy
statement was delivered to stockholders in connection with the
preceding year's annual meeting, notice by the stockholder to be
timely must be so delivered not earlier than the close of business
on the ninetieth (90th) day prior to such annual meeting and not
later than the close of business on the later of (x) the sixtieth
(60th) day prior to such annual meeting and (y) the tenth (10th)
day following the day on which public announcement of the date of
such meeting is first made by the Corporation. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director, all
information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a
director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such stockholder and
the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial
owner and (ii) the class and number of shares of capital stock of
the Corporation that are owned beneficially and held of record by
such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this Section 1.10 to the contrary, in the
event that the number of directors to be elected to the Board of
Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for
director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first
anniversary of the preceding year's annual meeting (or, if the
annual meeting is held more than thirty (30) days before or sixty
(60) days after such anniversary date, at least seventy (70) days
prior to such annual meeting), a stockholder's notice required by
this Section 1.10 shall also be considered timely, but only with
respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the
principal executive office of the Corporation not later than the
close of business on the tenth (10th) day following the day on
which such public announcement is first made by the Corporation.
B. SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall
be conducted at a special meeting of stockholders as shall have
been brought before the meeting pursuant to the Corporation's
notice of meeting. Nominations of persons for
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election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected
pursuant to the Corporation's notice of meeting (a) by or at the
direction of the Board of Directors or (b) provided that the Board
of Directors has determined that directors shall be elected at
such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice of the
special meeting, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section
1.10. If the Corporation calls a special meeting of stockholders
for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons
(as the case may be), for election to such position(s) as
specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this Section
1.10 shall be delivered to the Secretary at the principal
executive offices of the Corporation not earlier than the
ninetieth (90th) day prior to such special meeting nor later than
the later of (x) the close of business on the sixtieth (60th) day
prior to such special meeting or (y) the close of business on the
tenth (10th) day following the day on which public announcement is
first made of the date of such special meeting and of the nominees
proposed by the Board of Directors to be elected at such meeting.
C. GENERAL.
(1) Only such persons who are nominated in accordance with
the procedures set forth in this Section 1.10 shall be eligible to
serve as directors and only such business shall be conducted at a
meeting of stockholders as shall have been brought before the
meeting in accordance with the procedures set forth in this
Section 1.10. Except as otherwise provided by law, the Certificate
of Incorporation or these By-Laws, the chairman of the meeting
shall have the power and duty to determine whether a nomination or
any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures
set forth in this Section 1.10 and, if any proposed nomination or
business is not in compliance herewith, to declare that such
defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 1.10, "public
announcement" shall mean disclosure in a press release reported by
the Dow Jones News Service, Associated Press or comparable
national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this
Section 1.10, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth herein. Nothing
in this Section 1.10 shall be deemed to affect any rights (i) of
stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to
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Rule 14a-8 under the Exchange Act or (ii) of the holders of any
series of Preferred Stock to elect directors under specified
circumstances.
1.11 ACTION WITHOUT MEETING. Stockholders of the Corporation may not
take any action by written consent in lieu of a meeting. Notwithstanding any
other provision of law, the Certificate of Incorporation or these By-Laws, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast at any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Section 1.11.
ARTICLE 2 - DIRECTORS
2.1 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 or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law or the
Certificate of Incorporation, may exercise the powers of the full Board of
Directors until the vacancy is filled. Without limiting the foregoing, the Board
of Directors may:
(a) declare dividends from time to time in accordance with law;
(b) purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(c) authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, to borrow funds and guarantee
obligations, and to do all things necessary in connection therewith;
(d) remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon any
other person for the time being;
(e) confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
(f) adopt from time to time such stock option, stock purchase, bonus or
other compensation plans for directors, officers, employees, consultants
and agents of the Corporation and its subsidiaries as it may determine;
(g) adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees, consultants and agents
of the Corporation and its subsidiaries as it may determine; and
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(h) adopt from time to time regulations, not inconsistent herewith, for
the management of the Corporation's business and affairs.
2.2 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
(or, if so determined by the Board of Directors pursuant to Section 10 hereof,
at a special meeting of stockholders), by such stockholders as have the right to
vote on such election. Directors need not be stockholders of the Corporation.
2.3 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.
2.4 TERMS IN OFFICE. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, however, that each initial director in Class I
shall serve for a term ending on the date of the annual meeting next following
the end of the Corporation's fiscal year ending March 31, 2000; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting next following the end of the Corporation's fiscal year ending March 31,
2001; and each initial director in Class III shall serve for a term ending on
the date of the annual meeting next following the end of the Corporation's
fiscal year ending March 31, 2002.
2.5 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 until the expiration of such director's current term or his or her prior
death, removal or resignation 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, subject to the
second sentence of Section 2.3. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the earliest dates following such
allocation, unless otherwise provided for from time to time by resolution
adopted by a majority of the directors then in office, although less than a
quorum. No decrease in the number of directors constituting the whole Board of
Directors shall shorten the term of an incumbent Director.
2.6 TENURE. Notwithstanding any provisions to the contrary contained
herein, each director shall hold office until his or her successor is elected
and qualified, or until his or her earlier death, resignation or removal.
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2.7 VACANCIES. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement thereof, may be filled 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 for the unexpired term of
his or her predecessor in office, if any, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next election of directors of the class for which such director was
chosen and until his or her successor is elected and qualified, or until his or
her earlier death, resignation or removal.
2.8 RESIGNATION. Any director may resign by delivering his or her
written resignation to the Corporation at its principal office or to the
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.
2.9 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.
2.10 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 (if any), the President, two
or more directors, or by one director in the event that there is only a single
director in office.
2.11 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 48 hours in advance of the meeting, (ii) by sending a telegram or
delivering written notice by facsimile transmission or by hand, to his or her
last known business or home address at least 48 hours in advance of the meeting,
or (iii) by mailing written notice to his or her 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.
2.12 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members
of any committee designated by the Board of 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 be deemed to constitute presence in person at such meeting.
2.13 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
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 such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the total number of the whole Board of Directors constitute a quorum.
In the
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absence of a quorum at any such meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice other than
announcement at the meeting, until a quorum shall be present.
2.14 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.15 ACTION BY WRITTEN 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 of
Directors or committee, as the case may be, consent to such action in writing,
and the written consents are filed with the minutes of proceedings of the Board
of Directors or committee.
2.16 REMOVAL. Unless otherwise provided in the Certificate of
Incorporation, any one or more or all of the directors may be removed, only for
cause, by the holders of at least seventy-five percent (75%) of the shares then
entitled to vote at an election of directors. Any one or more or all of the
directors may be removed with cause only by the holders of at least a majority
of the shares then entitled to vote at an election of directors.
2.17 COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members of such committee present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at such 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 or as provided herein, 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. Adequate provisions shall be made for notice to members of all
meeting of committees. One-third (1/3) of the members of any committee shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
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2.18 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.
2.19 AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of
law, the Certificate of Incorporation or these By-Laws, and notwithstanding the
fact that a lesser percentage may be specified by law, the affirmative vote of
the holders of a least seventy-five percent (75%) of the votes which all the
stockholders would be entitled to cast at 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 2.
ARTICLE 3 - OFFICERS
3.1 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, but not limited to,
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.
3.2 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.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his or
her successor is elected and qualified, unless a different term is specified in
the vote choosing or appointing such officer, or until his or her earlier death,
resignation or removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering his
or her written resignation to the Chairman of the Board (if any), to the Board
of Directors at a meeting thereof, to the Corporation at its principal office or
to the 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.
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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 or her resignation or removal, or any right to
damages on account of such removal, whether his or her 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.
3.6 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 or her successor is elected and qualified, or
until his or her earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Chairman
of the Board, if any, shall preside at all meetings of the Board of Directors
and stockholders at which he or she is present and shall perform such duties and
possess such powers as are designated by the Board of Directors. If the Board of
Directors appoints a Vice-Chairman of the Board, he or she 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 designated by the Board of
Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
Corporation. Unless otherwise provided by the Board of Directors, and provided
that there is no Chairman of the Board or that the Chairman and Vice-Chairman,
if any, are not available, the President shall preside at all meetings of the
stockholders, and, if a director, at all meetings of the Board of Directors.
Unless the Board of Directors has designated another person as the 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 Board of Directors may from time to time prescribe. The
President shall have the power to enter into contracts and otherwise bind the
Corporation in matters arising in the ordinary course of the Corporation's
business.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and, when so performing, shall have all the powers of
and be subject to all the restrictions upon the President. 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. Unless otherwise determined by the Board of Directors, any Vice
President shall have the power to enter into contracts and otherwise bind the
Corporation in matters arising in the ordinary course of the Corporation's
business.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are
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incident to the office of 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 President 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.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. 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 for 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 President 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.
3.12 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.
3.13 ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS. Unless
otherwise directed by the Board of Directors, the President or any officer of
the Corporation authorized by the President shall have power to vote and
otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which the Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
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ARTICLE 4 - CAPITAL STOCK
4.1 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 issued, 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.
4.2 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 such stockholder 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 such 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 any agreement among any number of
shareholders or among such holders and the Corporation shall have conspicuously
noted on the face or back of such certificate either the full text of such
restriction or a statement of the existence of such restriction.
4.3 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.
4.4 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
President may prescribe, including the presentation of reasonable evidence of
such loss, theft or destruction and the giving of such indemnity as the
President may require for the protection of the Corporation or any transfer
agent or registrar.
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<PAGE>
4.5 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, to the extent permitted by the
Certificate of Incorporation and these By-laws, to express consent (or dissent)
to corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other 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 entitled
to express consent to corporate action in writing without a meeting (to the
extent permitted by the Certificate of Incorporation and these By-laws) when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. 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 5 - GENERAL PROVISIONS
5.1 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
5.2 CORPORATE SEAL. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 NOTICES. Except as otherwise specifically provided herein or
required by law or the Certificate of Incorporation, all notices required to be
given under these By-laws shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the mails, postage paid, or by sending such notice by prepaid telegram
or facsimile transmission. Any such notice shall be addressed to the recipient
thereof at his or her last known address as the same appears on the books of the
Corporation. The time when such notice is received shall be deemed to be the
time of the giving of the notice.
5.4 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 telegraph, facsimile transmission
or any other available method, whether before, at or after the
-14-
<PAGE>
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.
5.5 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.
5.6 FACSIMILE SIGNATURES. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these By-Laws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
5.7 RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director, each
member of any committee designated by the Board of Directors, and each officer
of the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its officers or employees or committees
of the Board of Directors so designated, or by any other person as to matters
which such director or committee member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
5.8 TIME PERIODS. In applying any provision of these By-Laws that
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
5.9 CERTIFICATE OF INCORPORATION. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
5.10 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 such 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, her or their votes are counted for such purpose, if:
(1) The material facts as to his or her 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 vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
-15-
<PAGE>
(2) The material facts as to his or her 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
(3) 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.
5.11 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.
5.12 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 persons or persons so designated may require.
ARTICLE 6 - AMENDMENTS
6.1 BY THE BOARD OF DIRECTORS. Except as is otherwise set forth in
these By-Laws, these By-Laws may be altered, amended or repealed, or new by-laws
may be adopted, by the affirmative vote of a majority of the directors present
at any regular or special meeting of the Board of Directors at which a quorum is
present.
6.2 BY THE STOCKHOLDERS. Except as otherwise set forth in these
By-Laws, these By-Laws may be altered, amended or repealed or new by-laws may be
adopted by the affirmative vote of the holders of at least seventy-five percent
(75%) of the voting power of all the then outstanding shares of the capital
stock of the Corporation entitled to vote at any regular meeting of
stockholders, or at any special meeting of stockholders, voting together as a
single class; provided notice of such alteration, amendment, repeal or adoption
of new by-laws shall have been stated in the notice of such special meeting.
-16-
<PAGE>
Exhibit 10.1
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- -----------------------------------------------------------------
NetScout Systems, Inc.
(A Delaware Corporation)
1990 STOCK OPTION PLAN
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- -----------------------------------------------------------------
<PAGE>
NetScout Systems, Inc.
1990 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
- --------------------------------------------------------------------------------
<S> <C> <C>
1. PURPOSE .............................................................. 1
2. ADMINISTRATION OF THE PLAN ........................................... 1
3. OPTION SHARES ........................................................ 1
4. AUTHORITY TO GRANT OPTIONS ........................................... 2
5. WRITTEN AGREEMENT .................................................... 2
6. ELIGIBILITY .......................................................... 2
7. OPTION PRICE ......................................................... 2
8. DURATION OF OPTIONS .................................................. 3
9. AMOUNT EXERCISABLE ................................................... 4
10. EXERCISE OF OPTION ................................................... 4
11. TRANSFERABILITY OF OPTIONS ........................................... 5
12. TERMINATION OF EMPLOYMENT OR INVOLVEMENT OF OPTIONEE WITH
THE COMPANY .......................................................... 5
13. REQUIREMENTS OF LAW................................................... 6
14. NO RIGHTS AS STOCKHOLDER.............................................. 7
15. EMPLOYMENT OBLIGATION ................................................ 7
16. FORFEITURE FOR DISHONESTY ............................................ 7
17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE ........................... 7
18. AMENDMENT OR TERMINATION OF PLAN ..................................... 9
19. REPURCHASE RIGHTS OF THE COMPANY ..................................... 9
20. EFFECTIVE DATE AND DURATION OF THE PLAN ............................. 13
</TABLE>
<PAGE>
NetScout Systems, Inc.
(A Delaware Corporation)
1990 STOCK OPTION PLAN
1. PURPOSE
The purpose of this 1990 Stock Option Plan (the "PLAN") is to encourage
directors, consultants and key employees of NetScout Systems, Inc. (the
"COMPANY") and its Subsidiaries (as hereinafter defined) to continue their
association with the Company, by providing favorable opportunities for such
persons to participate in the ownership of the Company and in its future growth
through the granting of stock options, some of which, as specially designated
under Section 4 hereof, are designed to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "CODE"). The term "SUBSIDIARY" as used in the Plan means a
corporation of which the Company owns, directly or indirectly through an
unbroken chain of ownership, fifty percent (50%) or more of the total combined
voting power of all classes of stock.
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board Of Directors, which shall
have the authority to adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of the Plan. All questions
of interpretation and application of such rules and regulations, of the Plan or
of options granted thereunder (the "OPTIONS") shall be subject to the
determination, which shall be final and binding, of a majority of the Board of
Directors. The Plan shall be administered in such a manner as to permit those
Options granted hereunder and specially designated under Section 4 hereof to
qualify as "incentive stock options" as described in Section 422 of the Code.
3. OPTION SHARES
The stock subject to Options under the Plan shall be shares of the
Company's common stock, par value $0.010 per share (the "STOCK"). The total
amount of the Stock with respect to which Options may be granted shall not
exceed in the aggregate 2,257,333 shares of Non-Voting Common Stock (the "Option
Pool"); provided that such aggregate number of shares shall be subject to
adjustment in accordance with the provisions of Section 17.1 In the event
- --------
(1) The Plan was adopted initially by Frontier Software Development, Inc., a
Massachusetts corporation, and was assumed by Frontier Software Development,
Inc. (currently NetScout Systems, Inc.), a Delaware corporation, in connection
with the reincorporating of Frontier in Delaware. Each share of Frontier
Massachusetts became 50 shares of Frontier Delaware. The Option Pool reflects
all stock splits effected to date.
<PAGE>
that any outstanding Option shall expire for any reason or shall terminate by
reason of the death or severance of employment of the optionee, the surrender of
any such Option, or any other cause, the shares of Stock allocable to the
unexercised portion of such Option may again be subject to an option under the
Plan.
4. AUTHORITY TO GRANT OPTIONS
The Board of Directors may grant from time to time, to such eligible
individuals as it shall from time to time determine, an Option or Options to buy
a stated number of shares of Stock under the terms and conditions of the Plan,
each of which Option or Options shall be designated at the time of grant either
a nonqualified option or an "incentive stock option" within the meaning of
Section 422 of the Code. Subject only to any applicable limitations set forth
elsewhere in the Plan, the number of shares of Stock to be covered by any Option
shall be as determined by the Board of Directors.
5. WRITTEN AGREEMENT
Each Option granted hereunder shall be embodied in a written option
agreement which shall be subject to the terms and conditions prescribed herein
and shall be signed by the optionee and by the President or any Vice President
of the Company for and in the name and on behalf of the Company. Such an option
agreement shall indicate whether the subject Option has been designated a
nonqualified option or an incentive stock option. The written option agreement
for any Option shall contain such provisions not inconsistent with this Plan as
the Board of Directors in its discretion shall deem advisable.
6. ELIGIBILITY
The individuals who shall be eligible for grant of Options under the
Plan shall be key employees (including officers who may be members of the
Board), directors who are not employees and other individuals who render
services of special importance to the management, operation, or development of
the Company or a Subsidiary, and who have contributed or may be expected to
contribute materially to the success of the Company or a Subsidiary. Options
designated incentive stock options shall not be granted to any individual who is
not an employee of the Company or a Subsidiary.
7. OPTION PRICE
The price at which shares may be purchased pursuant to an Option shall
be specified by the Board of Directors at the time the Option is granted, but in
the case of an incentive stock option shall not be less than the fair market
value of the shares of Stock on the date the Option is granted. For purposes of
the Plan, the "fair market value" of a share of Stock at any particular date
shall be determined according to the following rules: (i) if the Stock is not at
the time listed or admitted to trading on a stock exchange, the fair market
value shall be the mean between the lowest reported bid price and highest
reported asked price of the Stock on the date in
<PAGE>
question in the over-the-counter market, as such prices are reported in a
publication of general circulation selected by the Board of Directors and
regularly reporting the price of the Stock in such market; provided, however,
that if the price of the Stock is not so reported, the fair market value shall
be determined by the Board of Directors, which may take into consideration (1)
the price paid for the Stock in the most recent trade of a substantial number of
shares known to the Board of Directors to have occurred at arm's length between
willing and knowledgeable investors, or (2) an appraisal by an independent
party, or (3) any other method of valuation undertaken in good faith by the
Board of Directors or some or all of the above as the Board of Directors shall
in its discretion elect; or (ii) if the Stock is at the time listed or admitted
to trading on any stock exchange, then the fair market value shall be the mean
between the lowest and highest reported sale prices of the Stock on the date in
question on the principal exchange on which the Stock is then listed or admitted
to trading. If no reported sale of Stock takes place on the date in question on
the principal exchange, then the reported closing asked price of the Stock on
such date on the principal exchange shall be determinative of fair market value.
In the case of any employee of the Company or a Subsidiary who owns,
directly or indirectly, Stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of any
corporation which on the date of grant of an Option is a Subsidiary, the price
at which shares may be so purchased pursuant to an incentive stock option shall
be not less than one hundred ten percent (110%) of the fair market value of the
Stock on the date the Option is granted.
8. DURATION OF OPTIONS
The duration of any Option shall be specified by the Board of
Directors, but no Option designated an incentive stock option shall be
exercisable after the expiration of ten (10) years from the date such Option is
granted; and no incentive stock option granted to an employee of the Company or
a Subsidiary who owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or a Subsidiary
shall be exercisable after the expiration of five (5) years from the date such
Option is granted. The Board of Directors, in its discretion, may provide that
an Option shall be exercisable during its entire duration or during any lesser
period of time.
9. AMOUNT EXERCISABLE
Each Option may be exercised so long as it is valid and outstanding
from time to time, in part or as a whole, in such manner and subject to such
conditions as the Board of Directors in its discretion may provide in the option
agreement; provided, however, that incentive stock options granted to an
employee under the Plan (and any other incentive stock option plans of the
Company and its Subsidiaries) shall not, in the aggregate, become exercisable
for the first time in any one calendar year for shares of Stock with an
aggregate fair market value (determined as of the respective date or dates of
grant) of more than $100,000.
<PAGE>
10. EXERCISE OF OPTIONS
Options shall be exercised by the delivery of written notice to the
Company setting forth the number of shares with respect to which the Option is
to be exercised, accompanied by payment of the option price of such shares,
which payment shall be made, subject to the alternative provisions of this
Section, in cash or by such cash equivalents, payable to the order of the
Company in an amount in United States dollars equal to the option price of such
shares, as the Board of Directors in its discretion shall consider acceptable.
Such notice shall be delivered in person to the Secretary of the Company or
shall be sent by registered mail, return receipt requested, to the Secretary of
the Company, in which case delivery shall be deemed made on the date such notice
is deposited in the mail.
Alternatively, payment of the option price may be made, in whole or in
part, in shares of Stock previously acquired by the optionee. If payment is made
in whole or in part in shares of Stock, then the optionee shall deliver to the
Company in payment of the option price of the shares with respect of which such
Option is exercised (i) certificates registered in the name of such optionee
representing a number of shares of Stock legally and beneficially owned by such
optionee, free of all liens, claims and encumbrances of every kind and having a
fair market value on the date of delivery of such notice equal to the option
price of the shares with respect to which such Option is to be exercised, such
certificates to be accompanied by stock powers duly endorsed in blank by the
record holder of the shares represented by such certificates; and (ii) if the
option price of the shares with respect to which such Option is to be exercised
exceeds such fair market value, cash or such cash equivalents payable to the
order to the Company, in an amount in United States dollars equal to the amount
of such excess, as the Board of Directors in its discretion shall consider
acceptable. Notwithstanding the foregoing provisions of this Section, the Board
of Directors, in its sole discretion, may refuse to accept shares of Stock in
payment of the option price of the shares with respect to which such Option is
to be exercised and, in that event, any certificates representing shares of
Stock which were delivered to the Company with such written notice shall be
returned to such optionee together with notice by the Company to such optionee
of the refusal of the Board of Directors to accept such shares of Stock.
Alternatively, if the option agreement so specifies, payment of the
option price may be made in part by a promissory note executed by the optionee
and collaterally secured by the Stock obtained upon exercise of the Option,
providing for repayment at such time or times as the Board of Directors shall
specify; provided, however, (a) that such promissory note shall provide for
repayment no later than five (5) years from the date of exercise and for
interest at a rate not less than the "base" rate announced on the date of
exercise by BayBank Middlesex, N.A., (b) that in any event an amount not less
than the par value of the shares of Stock with respect to which the Option is
being exercised must be paid in cash, cash equivalents, or shares of Stock in
accordance with this Section and (c) the payment of such exercise price by
promissory note does not violate any applicable laws or regulations, including,
without limitation, margin lending rules. The decision as to whether to permit
partial payment by a promissory note for Stock to be issued
<PAGE>
upon exercise of any Option granted shall rest entirely in the discretion of the
Board of Directors.
As promptly as practicable after the receipt by the Company of (i)
written notice from the optionee setting forth the number of shares with respect
to which such Option is to be exercised and (ii) payment of the option price of
such shares in the form required by the foregoing provisions of this Section,
the Company shall cause to be delivered to such optionee certificates
representing the number of shares with respect to which such Option has been so
exercised.
11. TRANSFERABILITY OF OPTIONS
Options shall not be transferable by the optionee otherwise than by
will or under the laws of descent and distribution, and shall be exercisable
during his or her lifetime only by the optionee.
12. TERMINATION OF EMPLOYMENT OR INVOLVEMENT OF OPTIONEE WITH THE
COMPANY
For purposes of this Section, employment by a Subsidiary shall be
considered employment by the Company. Non-qualified options shall be exercisable
following an optionee's termination of employment or involvement with the
Company to the extent provided below with respect to incentive stock options,
unless otherwise set forth in the option agreement for such non-qualified
options. Except as may be otherwise expressly provided herein, Options
designated incentive stock options shall be exercisable after the optionee's
termination of employment with the Company only within the period of three (3)
months after the date the optionee ceases to be in the employ of the Company,
and only to the extent to which the optionee was entitled to exercise the Option
immediately prior to the termination of his or her employment. If, before the
date of expiration of the Option, the optionee shall be retired in good standing
from the employ of the Company for reasons of age under the then established
rules of the Company, the Option shall terminate on the earlier of such date of
expiration or three (3) months after the date of such retirement. In the event
of the death of the holder of an Option before the date of expiration of such
Option and while in the employ of the Company or during the three (3) month
period described in the preceding sentence, or in the event of the retirement of
the optionee for reasons of disability (within the meaning of Section 22(e)(3)
of the Code), such Option shall terminate on the earlier of such date of
expiration or one (l) year following the date of such death or retirement. After
the death of the optionee, his or her executors, administrators or any persons
to whom his or her Option may be transferred by will or by the laws of descent
and distribution shall have the right at any time prior to such termination to
exercise the Option to the extent to which the optionee was entitled to exercise
the Option on the date of his or her death.
Authorized leave of absence or absence on military or government
service shall not constitute severance of the employment relationship between
the Company and the optionee for purposes of the Plan, provided that either (i)
such absence is for a period of no more than ninety (90) days or (ii) the
<PAGE>
Employee's right to re-employment after such absence is guaranteed either by
statute or by contract.
For optionees who are not employees of the Company, options
shall be exercisable for such periods following the termination of the
optionee's involvement with the Company as may be set forth in the specific
written option agreement with the optionee.
13. REQUIREMENTS OF LAW
The Company shall not be required to sell or issue any shares upon the
exercise of any Option if the issuance of such shares shall constitute or result
in a violation by the optionee or the Company of any provisions of any law,
statute or regulation of any governmental authority. Specifically, in connection
with the Securities Act of 1933, as amended (the "SECURITIES ACT"), upon
exercise of any Option the Company shall not be required to issue such shares
unless the Board of Directors has received evidence satisfactory to it to the
effect that the holder of such Option will not transfer such shares except
pursuant to a registration statement in effect under the Securities Act or
unless an opinion of counsel satisfactory to the Company has been received by
the Company to the effect that such registration is not required. Any
determination in this connection by the Board of Directors shall be final,
binding and conclusive. The Company shall not be obligated to take any other
affirmative action in order to cause the exercise of an Option or the issuance
of shares pursuant thereto to comply with any law or regulations of any
governmental authority, including, without limitation, the Securities Act or
applicable state securities laws.
The Company shall not be required to sell or issue any shares upon the
exercise of any Option if the Board of Directors is advised by counsel that the
issuance of such shares would result in the termination of any then effective
election of the Company to be taxed as an S corporation pursuant to the Code.
14. NO RIGHTS AS STOCKHOLDER
No optionee shall have rights as a stockholder with respect to shares
covered by his or her Option until the date of issuance of a stock certificate
for such shares; except as otherwise provided in Section 17 no adjustment for
dividends or otherwise shall be made if the record date therefor is prior to the
date of issuance of such certificate.
15. EMPLOYMENT OBLIGATION
The granting of any Option shall not impose upon the Company or any
Subsidiary any obligation to employ or continue to employ any optionee, or to
engage or retain the services of any person and the right of the Company or any
Subsidiary to terminate the employment or services of any person shall not be
diminished or affected by reason of the fact that an Option has been granted to
him or her. The existence of any Option shall not be taken into
<PAGE>
account in determining any damages relating to termination of employment for any
reason.
16. FORFEITURE AS A RESULT OF TERMINATION FOR CAUSE
Notwithstanding anything to the contrary in the Plan, if the Board of
Directors determines, after full consideration of the facts presented on behalf
of both the Company and an optionee, that
(a) the optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or proven dishonesty in the course of his or her
employment by or involvement with the Company or a Subsidiary, which
damaged the Company or a Subsidiary, or has made unauthorized
disclosure of trade secrets or other proprietary information of the
Company or a Subsidiary or of a third party who has entrusted such
information to the Company or a Subsidiary,
(b) the optionee's employment or involvement was otherwise terminated
for "cause", as defined in any employment agreement with the optionee,
if applicable, or if there is no such agreement, as determined by the
Board of Directors, which may determine that "cause" includes among
other matters the failure of the optionee to carry out his or her
assigned duties diligently and in a manner satisfactory to the Company,
then the optionee's right to exercise an Option shall terminate as of the date
of such termination and the optionee shall forfeit all unexercised Options. If
an optionee whose behavior the Company asserts falls within the provisions of
(a) or (b) above attempts to exercise an Option prior to a decision of the Board
of Directors, the Company shall not be required to recognize such exercise until
the Board of Directors has made its decision; provided, however, if the Board of
Directors finds in favor of the optionee then the optionee will be deemed to
have exercised such Options retroactively as of the date he or she originally
gave written notice of his or her attempt to exercise. The decision of the Board
of Directors as to the cause of an optionee's discharge and the damage done to
the Company or a Subsidiary shall be final, binding and conclusive. No decision
of the Board of Directors, however, shall affect in any manner the finality of
the discharge of such optionee by the Company or a Subsidiary.
17. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE
The existence of outstanding Options shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business or any merger or consolidation of
the Company or any issue of bonds, debentures, preferred or preference stock,
whether or not convertible into the Stock or other securities, ranking prior to
the Stock or affecting the rights thereof, or warrants, rights or options to
acquire the same, or the dissolution or liquidation of the Company or any sale
or transfer of all or any part of its assets or business or any other corporate
act or proceeding, whether of a similar character or otherwise.
<PAGE>
The number of shares of Stock in the Option Pool (less the number of
shares theretofore delivered upon exercise of Options) and the number of shares
of Stock covered by any outstanding Option and the price per share payable upon
exercise thereof (provided that in no event shall the option price be less than
the par value of such shares) shall be proportionately adjusted for any increase
or decrease in the number of issued and outstanding shares of Stock resulting
from the subdivision, split, combination or consolidation of shares of Stock or
any other capital adjustment, the payment of a Stock dividend or any other
increase in such shares effected without receipt of consideration by the Company
or any other decrease therein effected without a distribution of cash or
property in connection therewith.
In the event the Company merges or consolidates with one or more
corporations and the Company is the surviving corporation, thereafter upon any
exercise of an Option, the holder thereof shall be entitled to purchase in lieu
of the number of shares of Stock as to which the Option shall then be
exercisable, the number and class of shares of stock and securities to which the
holder would have been entitled pursuant to the terms of the agreement of merger
or consolidation if immediately prior to such merger or consolidation, the
holder had been the holder of record of shares of Stock as to which the Option
is then exercisable.
In the event the Company merges or consolidates with a wholly-owned
subsidiary for the purpose of reincorporating itself under the laws of another
jurisdiction, the optionees will be entitled to acquire shares of the common
stock of the reincorporated Company upon the same terms and conditions as were
in effect immediately prior to such reincorporation (unless such reincorporation
involves a change in the number of shares, in which case proportional
adjustments shall be made as provided above) and the Plan, unless otherwise
rescinded by the Board, will remain the Plan of the reincorporated Company.
Except as otherwise provided in the preceding paragraph, if the Company
is merged into or consolidated with another corporation under circumstances
where the Company is not the surviving corporation, or in other circumstances in
which the Board in its discretion deems it appropriate for the provisions of
this paragraph to apply, or if the Company is liquidated or sells or otherwise
disposes of all or substantially all of its assets to another corporation while
unexercised Options remain outstanding under the Plan, (i) subject to the
provisions of clause (iii) below, after the effective date of such merger,
consolidation or sale, as the case may be, each holder of an outstanding Option
shall be entitled, upon exercise of such Option, to receive in lieu of shares of
Stock, shares of such stock or other securities as the holders of shares of
Stock received pursuant to the terms of the merger, consolidation or sale; (ii)
the Board may waive any limitations imposed pursuant to Section 9 or Section 19
so that all Options from and after a date prior to the effective date of such
merger, consolidation, liquidation or sale, as the case may be, specified by the
Board, shall be exercisable in full; and (iii) all outstanding Options may be
cancelled by the Board as of the effective date of any such merger,
consolidation, liquidation or sale provided that notice of such cancellation
shall be given to each holder of an Option not less than thirty (30) days
preceding the effective date of such merger, consolidation, liquidation, sale or
disposition and provided that the Board may in its sole discretion waive any
limitations imposed pursuant to
<PAGE>
Section 9 or Section 19 with respect to any Option so that such Option shall be
exercisable in full or in part, as the Board may determine, during such thirty
(30) day period.
Except as expressly provided herein, the issue by the Company of shares
of Stock or other securities of any class or securities convertible into or
exchangeable or exercisable for shares of Stock or other securities of any class
for cash or property or for labor or services either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number, class or price of shares of Stock then subject to
outstanding Options.
18. AMENDMENT OR TERMINATION OF PLAN
The Board may modify, revise or terminate the Plan at any time and from
time to time; provided, however, that without the further approval of the
holders of at least a majority of the outstanding shares of Stock having voting
rights pursuant to the Company's Certificate of Incorporation, as amended from
time to time, the Board may not (i) materially increase the benefits accruing to
optionees under the Plan or make any "modifications" as that term is defined
under Section 453(h)(3) (or its successor) of the Code if such increase in
benefits or modifications would adversely affect(a) the availability to the Plan
of the protections of Section 16(b) of the Securities Exchange Act of 1934, if
applicable to the Company, or (b) the qualification of the Plan or any Options
for Incentive Stock Option treatment under Section 422 of the Code; (ii) change
the aggregate number of shares of Stock which may be issued under Options
pursuant to the provisions of the Plan; (iii) reduce the option price at which
incentive stock options may be granted to an amount less than the fair market
value per share at the time the Option is granted; or (iv) change the class of
persons eligible to receive incentive stock options. Notwithstanding the
preceding sentence, the Board of Directors shall in all events have the power to
make such changes in the Plan and in the regulations and administrative
provisions hereunder or in any outstanding Option as, in the opinion of counsel
for the Company, may be necessary or appropriate from time to time to enable any
Option granted pursuant to the Plan to qualify as an incentive stock option or
such other stock option as may be defined under the Code, as amended from time
to time, so as to receive preferential federal income tax treatment.
19. REPURCHASE RIGHTS OF THE COMPANY
Unless an optionee's option agreement specifically provides to the
contrary, or an optionee has entered into an employment, stockholder or other
agreement with the Company which provides for the repurchase of options or stock
in the event such optionee's employment or involvement with the Company
terminates, the provisions of this Section 19 shall apply to each Option granted
under the Plan and to the shares of Stock acquired on exercise thereof.
<PAGE>
VOLUNTARY OR INVOLUNTARY TRANSFERS OF STOCK. Shares of Stock acquired
by an optionee pursuant to the exercise of an Option or Options granted under
the Plan shall not be voluntarily transferred by the optionee without the
written consent of the Board which consent may be withheld or conditioned as the
Board sees fit. If such Stock is subject to an involuntary transfer, including
by reason of death, a divorce settlement or judicial proceeding, the Company
shall have the right to repurchase all or any shares of such Stock (including
any Stock subsequently acquired by the optionee upon exercise of an Option if
the Stock so acquired is subject to such involuntary transfer) at a price equal
to the Repurchase Price at the time of the involuntary transfer event. The
Company may exercise its repurchase right no later than 180 days following the
later of (a) the date of such involuntary transfer of such shares of Stock, (b)
the date of any such subsequent acquisition of Stock upon exercise of an Option
and (c) the Board of Director's receipt of written notice of the occurrence of
such transfer event. Any such shares of Stock as to which the Company does not
exercise its repurchase rights within such period shall thereafter be free of
the restrictions of this Section 19.
REPURCHASE PRICE. As used herein the term "REPURCHASE PRICE"
shall mean the fair market value of a share of Stock as determined in good faith
by a majority of the disinterested members of the Board of Directors of the
Company. In making their determination of fair market value of a share of Stock
the Directors will not take into account that the Stock may be illiquid or may
constitute a minority interest in the Company.
TERMINATION OF EMPLOYMENT OR INVOLVEMENT. If the optionee's employment
by or involvement with the Company (including, for this purpose, any Subsidiary)
shall terminate for any reason other than the optionee's death or a Justifiable
Termination or optionee's retirement for reasons of age or disability in
accordance with the then policy of the Company, the Company shall have the right
to repurchase all or any of such shares of Stock at a price equal to the
Repurchase Price at the time of such repurchase. In addition, if at the time of
such termination an optionee holds an Option granted under the Plan which is by
its terms exercisable after such termination, the Company shall have the right
to repurchase all or any part of the shares of Stock acquired pursuant to the
exercise of such Option, at the Repurchase Price. In the case of a Justifiable
Termination (which term shall mean termination on account of the optionee's
malfeasance or optionee's violation of any agreement with the Company or any
similar justifiable cause) the Company shall have the right to repurchase all or
any of such shares of Stock at the option exercise price per share. If the
option price for any repurchased shares has been paid by the optionee's
promissory note pursuant to Section 10, then the repurchase price for such
shares of Stock shall be first applied to the repayment of the outstanding
amount, if any, due under such note in respect of the repurchased shares, and
any accrued but unpaid interest thereon. The Company's right to repurchase
shares of Stock may be exercised at any time during the period beginning on the
date of the optionee's termination of employment or involvement and ending
ninety (90) days after the later of (i) the date of such termination and (ii)
the date on which shares of Stock subject to the repurchase rights of this
Section are acquired by the optionee. Any such shares of Stock as to which the
Company does not exercise its repurchase rights within such period shall
thereafter be free of the restrictions of this Section.
<PAGE>
SECURITIES LAWS; TRANSFERS IN VIOLATION OF PLAN. Notwithstanding any
other provision of this Plan the Company may refuse to permit transfer of the
Offered Shares if in the opinion of its legal counsel such transfer would
violate securities laws or subject the Company to liability thereunder. Any
sale, transfer, pledge or other disposition of shares of Stock which is not in
accordance with the provisions of this Section 19 shall be void and of no effect
and shall not be recognized by the Company.
20. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective and shall be deemed to have been
adopted on October 4, 1990 subject only to ratification by the holders of at
least a majority of the outstanding shares of Stock within twelve (12) months
after such date. Unless the Plan shall have terminated earlier, the Plan shall
terminate on the tenth (10th) anniversary of its effective date, and no Option
shall be granted pursuant to the Plan after the day preceding the tenth (10th)
anniversary of its effective date.
<PAGE>
Exhibit 10.2
NETSCOUT SYSTEMS, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE AND ELIGIBILITY
The purpose of this 1999 Stock Option and Incentive Plan (the "PLAN")
of NetScout Systems, Inc. (the "COMPANY") is to provide stock options and other
equity interests in the Company (each an "AWARD") to employees, officers,
directors, consultants and advisors of the Company and its Subsidiaries, all of
whom are eligible to receive Awards under the Plan. Any person to whom an Award
has been granted under the Plan is called a "PARTICIPANT". Additional
definitions are contained in Section 8.
2. ADMINISTRATION
a. ADMINISTRATION BY BOARD OF DIRECTORS. The Plan will be administered
by the Board of Directors of the Company (the "BOARD"). The Board, in its sole
discretion, shall have the authority to grant and amend Awards, to adopt, amend
and repeal rules relating to the Plan and to interpret and correct the
provisions of the Plan and any Award. All decisions by the Board shall be final
and binding on all interested persons. Neither the Company nor any member of the
Board shall be liable for any action or determination relating to the Plan.
b. 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"). All references in
the Plan to the "BOARD" shall mean such Committee or the Board.
c. 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 grant Awards and exercise such other powers under the Plan
as the Board may determine, PROVIDED THAT the Board shall fix the maximum number
of Awards to be granted and the maximum number of shares issuable to any one
Participant pursuant to Awards granted by such executive officers.
3. STOCK AVAILABLE FOR AWARDS
a. NUMBER OF SHARES. Subject to adjustment under Section 3(c), the
aggregate number of shares of Common Stock of the Company (the "COMMON STOCK")
that may be issued pursuant to the Plan is 6,750,000 shares. If any Award
expires, or is terminated, surrendered or forfeited, in whole or in part, the
unissued Common Stock covered by such Award shall again be available for the
grant of Awards under the Plan. If shares of Common Stock issued pursuant to the
Plan are repurchased by, or are surrendered or forfeited to, the Company at no
more than
<PAGE>
cost, such shares of Common Stock shall again be available for the grant of
Awards under the Plan; PROVIDED, HOWEVER, that the cumulative number of such
shares that may be so reissued under the Plan will not exceed 6,750,000 shares.
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 3(c), no
Participant may be granted Awards during any one fiscal year to purchase more
than 1,000,000 shares of Common Stock.
c. ADJUSTMENT TO COMMON STOCK. In the event of any stock split, stock
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, combination, exchange of shares, liquidation, spin-off, split-up,
or other similar change in capitalization or event, (i) the number and class of
securities available for Awards under the Plan and the per-Participant share
limit, (ii) the number and class of securities, vesting schedule and exercise
price per share subject to each outstanding Option, (iii) the repurchase price
per security subject to repurchase, and (iv) the terms of each other outstanding
stock-based Award shall be adjusted by the Company (or substituted Awards may be
made) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is appropriate. If Section 7(e)(i) applies for any
event, this Section 3(c) shall not be applicable.
4. 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 and the Common Stock
issued upon the exercise of each Option, including vesting provisions,
repurchase provisions and restrictions relating to applicable federal or state
securities laws, as it considers advisable.
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 be granted only 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 Board and the Company shall have no liability if an Option
or any part thereof that is intended to be an Incentive Stock Option does not
qualify as such. An Option or any part thereof that does not qualify as an
Incentive Stock Option is referred to herein as a "NONSTATUTORY STOCK OPTION".
c. EXERCISE PRICE. The Board shall establish the exercise price (or
determine the method by which the exercise price shall be determined) 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.
<PAGE>
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 4(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 shall be paid for by one or any combination of the following forms of
payment:
(i) by check payable to the order of the Company;
(ii) except as otherwise explicitly provided in the applicable
option agreement, and only if the Common Stock is then publicly traded, 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; or
(iii) to the extent explicitly provided in the applicable
option agreement, by (x) delivery of shares of Common Stock owned by the
Participant valued at fair market value (as determined by the Board or as
determined pursuant to the applicable option agreement), (y) delivery of a
promissory note of the Participant to the Company (and delivery to the Company
by the Participant of a check in an amount equal to the par value of the shares
purchased), or (z) payment of such other lawful consideration as the Board may
determine.
5. RESTRICTED STOCK
a. GRANTS. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to (i) delivery to the Company by the
Participant of a check in an amount at least equal to the par value of the
shares purchased, and (ii) the right of the Company to repurchase all or part of
such shares at their issue price or other stated or formula price from the
Participant 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, a
"RESTRICTED STOCK AWARD").
b. TERMS AND CONDITIONS. The Board shall determine the terms and
conditions of any such Restricted Stock Award. 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). After 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 by a Participant, in a manner determined by the Board, 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.
<PAGE>
6. 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, without limitation, the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the grant
of stock appreciation rights, phantom stock awards or stock units.
7. 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.
b. DOCUMENTATION. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine or as executed by
an officer of the Company pursuant to authority delegated by the Board. Each
Award may contain terms and conditions in addition to those set forth in the
Plan PROVIDED THAT such terms and conditions do not contravene the provisions of
the Plan.
c. BOARD DISCRETION. 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, or the Participant's legal
representative, conservator, guardian or Designated Beneficiary, may exercise
rights under the Award.
e. ACQUISITION OF THE COMPANY
(i) CONSEQUENCES OF AN ACQUISITION.
(A) ACCELERATION OF VESTING. Upon the consummation
of an Acquisition, the vesting provisions of all Awards shall become
accelerated by a period of one year. Unless otherwise expressly provided in
the applicable Option or Award, upon the occurrence of an Acquisition, the
<PAGE>
Board or the board of directors of the surviving or acquiring entity (as used
in this Section 7(e)(i)(A), also the "BOARD"), shall, as to outstanding
Awards (on the same basis or on different bases, as the Board shall specify),
make appropriate provision for the continuation of such Awards by the Company
or the assumption of such Awards by the surviving or acquiring entity and by
substituting on an equitable basis for the shares then subject to such Awards
either (a) the consideration payable with respect to the outstanding shares
of Common Stock in connection with the Acquisition, (b) shares of stock of
the surviving or acquiring corporation or (c) such other securities as the
Board deems appropriate, the fair market value of which (as determined by the
Board in its sole discretion) shall not materially differ from the fair
market value of the shares of Common Stock subject to such Awards immediately
preceding the Acquisition. In addition to or in lieu of the foregoing, with
respect to outstanding Options, the Board may, upon written notice to the
affected optionees, provide that one or more Options must be exercised, to
the extent then exercisable or to be exercisable as a result of the
Acquisition, within a specified number of days of the date of such notice, at
the end of which period such Options shall terminate; or terminate one or
more Options in exchange for a cash payment equal to the excess of the fair
market value (as determined by the Board in its sole discretion) of the
shares subject to such Options (to the extent then exercisable or to be
exercisable as a result of the Acquisition) over the exercise price thereof.
(B) ACQUISITION DEFINED. An "ACQUISITION" shall mean:
(x) any merger or consolidation after which the voting securities of the Company
outstanding immediately prior thereto represent (either by remaining outstanding
or by being converted into voting securities of the surviving or acquiring
entity) less than 50% of the combined voting power of the voting securities of
the Company or such surviving or acquiring entity outstanding immediately after
such event; or (y) any sale of all or substantially all of the assets or capital
stock of the Company (other than in a spin-off or similar transaction) or (z)
any other acquisition of the business of the Company, as determined by the
Board.
(ii) ASSUMPTION OF OPTIONS UPON CERTAIN EVENTS. In connection
with a merger or consolidation of an entity with the Company or the acquisition
by the Company of property or stock of an entity, the Board may grant Awards
under the Plan in substitution for stock and stock-based awards issued by such
entity or an affiliate thereof. The substitute Awards shall be granted on such
terms and conditions as the Board considers appropriate in the circumstances.
(iii) POOLING-OF INTERESTS-ACCOUNTING. If the Company proposes
to engage in an Acquisition intended to be accounted for as a
pooling-of-interests, and in the event that the provisions of this Plan or of
any Award hereunder, or any actions of the Board taken in connection with such
Acquisition, are determined by the Company's or the acquiring company's
independent public accountants to cause such Acquisition to fail to be accounted
for as a pooling-of-interests, then such provisions or actions shall be amended
or rescinded by the Board, without the consent of any Participant, to be
consistent with pooling-of-interests accounting treatment for such Acquisition.
<PAGE>
(iv) PARACHUTE AWARDS. Notwithstanding the provisions of
Section 7(e)(i)(A), if, in connection with an Acquisition described therein, a
tax under Section 4999 of the Code would be imposed on the Participant (after
taking into account the exceptions set forth in Sections 280G(b)(4) and
280G(b)(5) of the Code), then the number of Awards which shall become
exercisable, realizable or vested as provided in such section shall be reduced
(or delayed), to the minimum extent necessary, so that no such tax would be
imposed on the Participant (the Awards not becoming so accelerated, realizable
or vested, the "PARACHUTE AWARDS"); PROVIDED, HOWEVER, that if the "AGGREGATE
PRESENT VALUE" of the Parachute Awards would exceed the tax that, but for this
sentence, would be imposed on the Participant under Section 4999 of the Code in
connection with the Acquisition, then the Awards shall become immediately
exercisable, realizable and vested without regard to the provisions of this
sentence. For purposes of the preceding sentence, the "AGGREGATE PRESENT VALUE"
of an Award shall be calculated on an after-tax basis (other than taxes imposed
by Section 4999 of the Code) and shall be based on economic principles rather
than the principles set forth under Section 280G of the Code and the regulations
promulgated thereunder. All determinations required to be made under this
Section 7(e)(iv) shall be made by the Company.
f. WITHHOLDING. Each Participant shall pay to the Company, or make
provisions satisfactory to the Company 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 by transferring shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their fair market value (as determined by the Board or as
determined pursuant to the applicable option agreement). 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 AWARDS. 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, except as otherwise provided in Section 7(e)(iii), 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.
<PAGE>
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 be free of some or 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, despite the fact that the foregoing actions may (i) cause the
application of Sections 280G and 4999 of the Code if a change in control of the
Company occurs, or (ii) disqualify all or part of the Option as an Incentive
Stock Option.
8. MISCELLANEOUS
a. DEFINITIONS.
(i) "COMPANY," for purposes of eligibility under the Plan,
shall include any present or future subsidiary corporations of NetScout Systems,
Inc., as defined in Section 424(f) of the Code (a "SUBSIDIARY"), and any present
or future parent corporation of NetScout Systems, Inc., as defined in Section
424(e) of the Code. For purposes of Awards other than Incentive Stock Options,
the term "COMPANY" shall include any other business venture in which the Company
has a direct or indirect significant interest, as determined by the Board in its
sole discretion.
(ii) "CODE" means the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder.
(iii) "EMPLOYEE" for purposes of eligibility under the Plan
shall include a person to whom an offer of employment has been extended by the
Company.
b. 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.
c. 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 thereof.
d. 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 date on which the Plan was
adopted by the Board, but Awards previously granted may extend beyond that date.
e. AMENDMENT OF PLAN. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.
<PAGE>
f. GOVERNING LAW. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors on
April 14, 1999
Approved by the stockholders on
---------------
<PAGE>
EXHIBIT 10.3
NETSCOUT SYSTEMS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ARTICLE 1--PURPOSE.
This 1999 Employee Stock Purchase Plan (the "Plan") is intended to
encourage stock ownership by all eligible employees of NetScout Systems, Inc.
(the "Company"), a Delaware corporation, and its participating subsidiaries (as
defined in Article 17) so that they may share in the growth of the Company by
acquiring or increasing their proprietary interest in the Company. The Plan is
designed to encourage eligible employees to remain in the employ of the Company
and its participating subsidiaries. The Plan is intended to constitute an
"employee stock purchase plan" within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE 2--ADMINISTRATION OF THE PLAN.
The Plan may be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"). The Committee shall consist of not
less than two members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, however caused, shall be filled by the
Board of Directors. The Committee may select one of its members as Chairman, and
shall hold meetings at such times and places as it may determine. Acts by a
majority of the Committee, or acts reduced to or approved in writing by a
majority of the members of the Committee, shall be the valid acts of the
Committee.
The interpretation and construction by the Committee of any provisions of
the Plan or of any option granted under it shall be final, unless otherwise
determined by the Board of Directors. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best,
provided that any such rules and regulations shall be applied on a uniform basis
to all employees under the Plan. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
In the event the Board of Directors fails to appoint or refrains from
appointing a Committee, the Board of Directors shall have all power and
authority to administer the Plan. In such event, the word "Committee" wherever
used herein shall be deemed to mean the Board of Directors.
ARTICLE 3--ELIGIBLE EMPLOYEES.
All employees of the Company or any of its participating subsidiaries
whose customary employment is more than 20 hours per week and for more than five
months in any calendar year shall be eligible to receive options under the Plan
to purchase common stock of the Company, and all eligible employees shall have
the same rights and privileges hereunder. Persons who are eligible employees on
the first business day of any Payment Period (as defined in Article 5) shall
receive their options as of such day. Persons who become eligible employees
after any date on which options are granted under the Plan shall be granted
options on the first day of the next succeeding Payment Period on which options
are granted to eligible employees under the Plan. In no event, however, may an
employee be granted an option if such employee, immediately after the option was
granted, would be treated as owning stock
<PAGE>
possessing five percent or more of the total combined voting power or value of
all classes of stock of the Company or of any parent corporation or subsidiary
corporation, as the terms "parent corporation" and "subsidiary corporation" are
defined in Section 424(e) and (f) of the Code. For purposes of determining stock
ownership under this paragraph, the rules of Section 424(d) of the Code shall
apply, and stock which the employee may purchase under outstanding options shall
be treated as stock owned by the employee.
ARTICLE 4--STOCK SUBJECT TO THE PLAN.
The stock subject to the options under the Plan shall be shares of the
Company's authorized but unissued common stock, par value $.001 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company, including
shares purchased in the open market. The aggregate number of shares which may be
issued pursuant to the Plan is 750,000, subject to adjustment as provided in
Article 12. If any option granted under the Plan shall expire or terminate for
any reason without having been exercised in full or shall cease for any reason
to be exercisable in whole or in part, the unpurchased shares subject thereto
shall again be available under the Plan.
ARTICLE 5--PAYMENT PERIOD AND STOCK OPTIONS.
The first Payment Period during which payroll deductions will be
accumulated under the Plan shall commence on [the later to occur of October 1,
1999 and the first day of the first calendar month following effectiveness of
the Form S-8 registration statement filed with the Securities and Exchange
Commission covering the shares to be issued pursuant to the Plan] and shall end
on March 31, 2000. For the remainder of the duration of the Plan, Payment
Periods shall consist of the six-month periods commencing on April 1 and
October 1 and ending on September 30 and March 31 of each calendar year.
Twice each year, on the first business day of each Payment Period, the
Company will grant to each eligible employee who is then a participant in the
Plan an option to purchase on the last day of such Payment Period, at the Option
Price hereinafter provided for, a maximum of 500 shares, on condition that such
employee remains eligible to participate in the Plan throughout the remainder of
such Payment Period. The participant shall be entitled to exercise the option so
granted only to the extent of the participant's accumulated payroll deductions
on the last day of such Payment Period. If the participant's accumulated payroll
deductions on the last day of the Payment Period would enable the participant to
purchase more than 500 shares except for the 500-share limitation, the excess of
the amount of the accumulated payroll deductions over the aggregate purchase
price of the 500 shares shall be promptly refunded to the participant by the
Company, without interest. The Option Price per share for each Payment Period
shall be the lesser of (i) 85% of the average market price of the Common Stock
on the first business day of the Payment Period and (ii) 85% of the average
market price of the Common Stock on the last business day of the Payment Period,
in either event rounded up to the nearest cent. The foregoing limitation on the
number of shares subject to option and the Option Price shall be subject to
adjustment as provided in Article 12.
For purposes of the Plan, the term "average market price" on any date
means (i) the average (on that date) of the high and low prices of the Common
Stock on the principal national securities exchange on which the Common Stock is
traded, if the Common Stock is then traded on a national securities exchange; or
(ii) the last reported sale price (on that date) of the Common Stock on the
Nasdaq National Market, if the Common Stock is not then traded on a national
securities exchange; or (iii) the average of
2
<PAGE>
the closing bid and asked prices last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the Nasdaq National Market; or (iv) if the Common Stock is not
publicly traded, the fair market value of the Common Stock as determined by the
Committee after taking into consideration all factors which it deems
appropriate, including, without limitation, recent sale and offer prices of the
Common Stock in private transactions negotiated at arm's length.
For purposes of the Plan, the term "business day" means a day on which
there is trading on the Nasdaq National Market or the aforementioned national
securities exchange, whichever is applicable pursuant to the preceding
paragraph; and if neither is applicable, a day that is not a Saturday, Sunday or
legal holiday in Massachusetts.
No employee shall be granted an option which permits the employee's right
to purchase stock under the Plan, and under all other Section 423(b) employee
stock purchase plans of the Company and any parent or subsidiary corporations,
to accrue at a rate which exceeds $25,000 of fair market value of such stock
(determined on the date or dates that options on such stock were granted) for
each calendar year in which such option is outstanding at any time. The purpose
of the limitation in the preceding sentence is to comply with Section 423(b)(8)
of the Code. If the participant's accumulated payroll deductions on the last day
of the Payment Period would otherwise enable the participant to purchase Common
Stock in excess of the Section 423(b)(8) limitation described in this paragraph,
the excess of the amount of the accumulated payroll deductions over the
aggregate purchase price of the shares actually purchased shall be promptly
refunded to the participant by the Company, without interest.
ARTICLE 6--EXERCISE OF OPTION.
Each eligible employee who continues to be a participant in the Plan on
the last day of a Payment Period shall be deemed to have exercised his or her
option on such date and shall be deemed to have purchased from the Company such
number of full shares of Common Stock reserved for the purpose of the Plan as
the participant's accumulated payroll deductions on such date will pay for at
the Option Price, subject to the 500-share limit of the option and the Section
423(b)(8) limitation described in Article 5. If the individual is not a
participant on the last day of a Payment Period, the he or she shall not be
entitled to exercise his or her option. Only full shares of Common Stock may be
purchased under the Plan. Unused payroll deductions remaining in a participant's
account at the end of a Payment Period by reason of the inability to purchase a
fractional share shall be carried forward to the next Payment Period.
ARTICLE 7--AUTHORIZATION FOR ENTERING THE PLAN.
An employee may elect to enter the Plan by filling out, signing and
delivering to the Company an authorization:
A. Stating the percentage to be deducted regularly from the
employee's pay;
B. Authorizing the purchase of stock for the employee in each
Payment Period in accordance with the terms of the Plan; and
C. Specifying the exact name or names in which stock purchased for
the employee is to be issued as provided under Article 11 hereof.
3
<PAGE>
Such authorization must be received by the Company at least ten days before the
first day of the next succeeding Payment Period and shall take effect only if
the employee is an eligible employee on the first business day of such Payment
Period.
Unless a participant files a new authorization or withdraws from the Plan,
the deductions and purchases under the authorization the participant has on file
under the Plan will continue from one Payment Period to succeeding Payment
Periods as long as the Plan remains in effect.
The Company will accumulate and hold for each participant's account the
amounts deducted from his or her pay. No interest will be paid on these amounts.
ARTICLE 8--MAXIMUM AMOUNT OF PAYROLL DEDUCTIONS.
An employee may authorize payroll deductions in an amount (expressed as a
whole percentage) not less than one percent (1%) but not more than ten percent
(10%) of the employee's total compensation, including base pay or salary and any
overtime, bonuses or commissions.
ARTICLE 9--CHANGE IN PAYROLL DEDUCTIONS.
Deductions may not be increased or decreased during a Payment Period.
However, a participant may withdraw in full from the Plan.
ARTICLE 10--WITHDRAWAL FROM THE PLAN.
A participant may withdraw from the Plan (in whole but not in part) at any
time prior to the last day of a Payment Period by delivering a withdrawal notice
to the Company.
To re-enter the Plan, an employee who has previously withdrawn must file a
new authorization at least ten days before the first day of the next Payment
Period in which he or she wishes to participate. The employee's re-entry into
the Plan becomes effective at the beginning of such Payment Period, provided
that he or she is an eligible employee on the first business day of the Payment
Period.
ARTICLE 11--ISSUANCE OF STOCK.
Certificates for stock issued to participants shall be delivered as soon
as practicable after each Payment Period by the Company's transfer agent.
Stock purchased under the Plan shall be issued only in the name of the
participant, or if the participant's authorization so specifies, in the name of
the participant and another person of legal age as joint tenants with rights of
survivorship.
ARTICLE 12--ADJUSTMENTS.
Upon the happening of any of the following described events, a
participant's rights under options granted under the Plan shall be adjusted as
hereinafter provided:
4
<PAGE>
A. In the event that the shares of Common Stock shall be
subdivided or combined into a greater or smaller number of shares or if,
upon a reorganization, split-up, liquidation, recapitalization or the like
of the Company, the shares of Common Stock shall be exchanged for other
securities of the Company, each participant shall be entitled, subject to
the conditions herein stated, to purchase such number of shares of Common
Stock or amount of other securities of the Company as were exchangeable
for the number of shares of Common Stock that such participant would have
been entitled to purchase except for such action, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or exchange; and
B. In the event the Company shall issue any of its shares as a
stock dividend upon or with respect to the shares of stock of the class
which shall at the time be subject to option hereunder, each participant
upon exercising such an option shall be entitled to receive (for the
purchase price paid upon such exercise) the shares as to which the
participant is exercising his or her option and, in addition thereto (at
no additional cost), such number of shares of the class or classes in
which such stock dividend or dividends were declared or paid, and such
amount of cash in lieu of fractional shares, as is equal to the number of
shares thereof and the amount of cash in lieu of fractional shares,
respectively, which the participant would have received if the participant
had been the holder of the shares as to which the participant is
exercising his or her option at all times between the date of the granting
of such option and the date of its exercise.
Upon the happening of any of the foregoing events, the class and aggregate
number of shares set forth in Article 4 hereof which are subject to options
which have been or may be granted under the Plan and the limitations set forth
in the second paragraph of Article 5 shall also be appropriately adjusted to
reflect the events specified in paragraphs A and B above. Notwithstanding the
foregoing, any adjustments made pursuant to paragraphs A or B shall be made only
after the Committee, based on advice of counsel for the Company, determines
whether such adjustments would constitute a "modification" (as that term is
defined in Section 424 of the Code). If the Committee determines that such
adjustments would constitute a modification, it may refrain from making such
adjustments.
If the Company is to be consolidated with or acquired by another entity in
a merger, a sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Committee or the board of directors of any
entity assuming the obligations of the Company hereunder (the "Successor Board")
shall, with respect to options then outstanding under the Plan, either (i) make
appropriate provision for the continuation of such options by arranging for the
substitution on an equitable basis for the shares then subject to such options
either (a) the consideration payable with respect to the outstanding shares of
the Common Stock in connection with the Acquisition, (b) shares of stock of the
successor corporation, or a parent or subsidiary of such corporation, or (c)
such other securities as the Successor Board deems appropriate, the fair market
value of which shall not materially exceed the fair market value of the shares
of Common Stock subject to such options immediately preceding the Acquisition;
or (ii) terminate each participant's options in exchange for a cash payment
equal to the excess of (a) the fair market value on the date of the Acquisition,
of the number of shares of Common Stock that the participant's accumulated
payroll deductions as of the date of the Acquisition could purchase, at an
option price determined with reference only to the first business day of the
applicable Payment Period and subject to the 500-share, Code Section 423(b)(8)
and fractional-share limitations on the amount of stock a participant would be
entitled to purchase, over (b) the result of multiplying such number of shares
by such option price.
The Committee or Successor Board shall determine the adjustments to be
made under this Article 12, and its determination shall be conclusive.
5
<PAGE>
ARTICLE 13--NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS.
An option granted under the Plan may not be transferred or assigned and
may be exercised only by the participant.
ARTICLE 14--TERMINATION OF EMPLOYEE'S RIGHTS.
Whenever a participant ceases to be an eligible employee because of
retirement, voluntary or involuntary termination, resignation, layoff,
discharge, death or for any other reason, his or her rights under the Plan shall
immediately terminate, and the Company shall promptly refund, without interest,
the entire balance of his or her payroll deduction account under the Plan.
Notwithstanding the foregoing, eligible employment shall be treated as
continuing intact while a participant is on military leave, sick leave or other
bona fide leave of absence, for up to 90 days, or for so long as the
participant's right to re-employment is guaranteed either by statute or by
contract, if longer than 90 days.
ARTICLE 15--TERMINATION AND AMENDMENTS TO PLAN.
The Plan may be terminated at any time by the Company's Board of Directors
but such termination shall not affect options then outstanding under the Plan.
It will terminate in any case when all or substantially all of the unissued
shares of stock reserved for the purposes of the Plan have been purchased. If at
any time shares of stock reserved for the purpose of the Plan remain available
for purchase but not in sufficient number to satisfy all then unfilled purchase
requirements, the available shares shall be apportioned among participants in
proportion to the amount of payroll deductions accumulated on behalf of each
participant that would otherwise be used to purchase stock, and the Plan shall
terminate. Upon such termination or any other termination of the Plan, all
payroll deductions not used to purchase stock will be refunded, without
interest.
The Committee or the Board of Directors may from time to time adopt
amendments to the Plan provided that, without the approval of the stockholders
of the Company, no amendment may (i) increase the number of shares that may be
issued under the Plan; (ii) change the class of employees eligible to receive
options under the Plan, if such action would be treated as the adoption of a new
plan for purposes of Section 423(b) of the Code; or (iii) cause Rule 16b-3 under
the Securities Exchange Act of 1934 to become inapplicable to the Plan.
ARTICLE 16--LIMITS ON SALE OF STOCK PURCHASED UNDER THE PLAN.
The Plan is intended to provide shares of Common Stock for investment and
not for resale. The Company does not, however, intend to restrict or influence
any employee in the conduct of his or her own affairs. An employee may,
therefore, sell stock purchased under the Plan at any time the employee chooses,
subject to compliance with any applicable federal or state securities laws and
subject to any restrictions imposed under Article 21 to ensure that tax
withholding obligations are satisfied. THE EMPLOYEE ASSUMES THE RISK OF ANY
MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.
6
<PAGE>
ARTICLE 17--PARTICIPATING SUBSIDIARIES.
The term "participating subsidiary" shall mean any present or future
subsidiary of the Company, as that term is defined in Section 424(f) of the
Code, which is designated from time to time by the Board of Directors to
participate in the Plan. The Board of Directors shall have the power to make
such designation before or after the Plan is approved by the stockholders.
ARTICLE 18--OPTIONEES NOT STOCKHOLDERS.
Neither the granting of an option to an employee nor the deductions from
his or her pay shall constitute such employee a stockholder of the shares
covered by an option until such shares have been actually purchased by the
employee.
ARTICLE 19--APPLICATION OF FUNDS.
The proceeds received by the Company from the sale of Common Stock
pursuant to options granted under the Plan will be used for general corporate
purposes.
ARTICLE 20--NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
By electing to participate in the Plan, each participant agrees to notify
the Company in writing immediately after the participant transfers Common Stock
acquired under the Plan, if such transfer occurs within two years after the
first business day of the Payment Period in which such Common Stock was
acquired. Each participant further agrees to provide any information about such
a transfer as may be requested by the Company or any subsidiary corporation in
order to assist it in complying with the tax laws. Such dispositions generally
are treated as "disqualifying dispositions" under Sections 421 and 424 of the
Code, which have certain tax consequences to participants and to the Company and
its participating subsidiaries.
ARTICLE 21--WITHHOLDING OF ADDITIONAL INCOME TAXES.
By electing to participate in the Plan, each participant acknowledges that
the Company and its participating subsidiaries are required to withhold taxes
with respect to the amounts deducted from the participant's compensation and
accumulated for the benefit of the participant under the Plan, and each
participant agrees that the Company and its participating subsidiaries may
deduct additional amounts from the participant's compensation, when amounts are
added to the participant's account, used to purchase Common Stock or refunded,
in order to satisfy such withholding obligations. Each participant further
acknowledges that when Common Stock is purchased under the Plan the Company and
its participating subsidiaries may be required to withhold taxes with respect to
all or a portion of the difference between the fair market value of the Common
Stock purchased and its purchase price, and each participant agrees that such
taxes may be withheld from compensation otherwise payable to such participant.
It is intended that tax withholding will be accomplished in such a manner that
the full amount of payroll deductions elected by the participant under Article 7
will be used to purchase Common Stock. However, if amounts sufficient to satisfy
applicable tax withholding obligations have not been withheld from compensation
otherwise payable to any participant, then, notwithstanding any other provision
of the Plan, the Company may withhold such taxes from the participant's
accumulated payroll deductions and apply the net amount to the purchase of
Common Stock, unless the participant pays to the Company, prior to the exercise
date, an amount sufficient to satisfy such withholding obligations. Each
7
<PAGE>
participant further acknowledges that the Company and its participating
subsidiaries may be required to withhold taxes in connection with the
disposition of stock acquired under the Plan and agrees that the Company or any
participating subsidiary may take whatever action it considers appropriate to
satisfy such withholding requirements, including deducting from compensation
otherwise payable to such participant an amount sufficient to satisfy such
withholding requirements or conditioning any disposition of Common Stock by the
participant upon the payment to the Company or such subsidiary of an amount
sufficient to satisfy such withholding requirements.
ARTICLE 22--GOVERNMENTAL REGULATIONS.
The Company's obligation to sell and deliver shares of Common Stock under
the Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
identify shares of Common Stock issued under the Plan on its stock ownership
records and send tax information statements to employees and former employees
who transfer title to such shares.
ARTICLE 23--GOVERNING LAW.
The validity and construction of the Plan shall be governed by the laws of
Delaware, without giving effect to the principles of conflicts of law thereof.
ARTICLE 24--APPROVAL OF BOARD OF DIRECTORS AND STOCKHOLDERS OF THE COMPANY.
The Plan was adopted by the Board of Directors on April 14, 1999 and was
approved by the stockholders of the Company on __________.
8
<PAGE>
EXHIBIT 10.4
NETSCOUT SYSTEMS, INC.
STOCK PURCHASE AND REDEMPTION AGREEMENT
AS OF DECEMBER 31, 1998
<PAGE>
NETSCOUT SYSTEMS, INC.
Stock Purchase and Redemption Agreement
As of December 31, 1998
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. PURCHASE AND SALE; REDEMPTION..........................................................................2
1.1 Description of Securities............................................................................2
1.2 Sale and Purchase; Redemption........................................................................2
1.3 Closing..............................................................................................2
1.4 Use of Proceeds by the Company; Repayment of Founder Notes...........................................3
1.5 Transfer Taxes.......................................................................................3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDERS.............................3
2.1 Organization and Corporate Power.....................................................................3
2.2 Authorization and Non-Contravention..................................................................4
2.3 Corporate Records....................................................................................4
2.4 Capitalization.......................................................................................5
2.5 Subsidiaries; Investments............................................................................6
2.6 Financial Statements; Projections....................................................................6
2.7 Absence of Undisclosed Liabilities...................................................................6
2.8 Absence of Certain Developments......................................................................7
2.9 Accounts Receivable; Accounts Payable................................................................9
2.10 Transactions with Affiliates........................................................................9
2.11 Title to Properties.................................................................................9
2.12 Tax Matters........................................................................................10
2.13 Certain Contracts and Arrangements.................................................................11
2.14 Intellectual Property Rights; Employee Restrictions................................................12
2.15 Litigation.........................................................................................14
2.16 Labor Matters......................................................................................14
2.17 List of Certain Employees and Suppliers............................................................15
2.18 Permits; Compliance with Laws......................................................................15
2.19 Employee Benefit Programs..........................................................................16
2.20 Environmental Matters..............................................................................16
2.21 Insurance..........................................................................................17
2.22 Investment Banking; Brokerage......................................................................17
2.23 Customers; Relationship with CISCO Systems.........................................................17
2.24 Warranty and Related Matters.......................................................................18
2.25 Solvency...........................................................................................18
2.26 Year 2000 Compliance...............................................................................18
2.27 Information Supplied by the Company................................................................19
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.......................................................19
3.1 Investment Status...................................................................................19
</TABLE>
[Stock Purchase and Redemption Agreement]
(i)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3.2 Authority...........................................................................................20
3.3 Investment Banking; Brokerage Fees..................................................................20
SECTION 4. REPRESENTATIONS OF THE SELLING STOCKHOLDERS TO THE COMPANY............................................20
4.1 Authorization and Non-Contravention.................................................................20
4.2 Title to and Validity of Redemption Shares..........................................................21
SECTION 5. CONDITIONS OF PURCHASE BY THE INVESTORS...............................................................21
5.1 Satisfaction of Conditions..........................................................................21
5.2 Opinion of Counsel..................................................................................21
5.3 Authorization.......................................................................................21
5.4 Charter Amendment...................................................................................21
5.5 Hart-Scott-Rodino...................................................................................21
5.6 Delivery of Documents...............................................................................22
5.7 Stockholders Agreement..............................................................................22
5.8 Amended and Restated Rights Agreement...............................................................22
5.9 Releases............................................................................................22
5.10 Non-Competition Agreements.........................................................................22
5.11 No Material Adverse Change.........................................................................23
5.12 All Proceedings Satisfactory.......................................................................23
5.13 Investors' Fees....................................................................................23
5.14 No Violation or Injunction.........................................................................23
5.15 Consents and Waivers...............................................................................23
5.16 Election of Directors..............................................................................23
SECTION 6. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SELLING STOCKHOLDERS.....................................24
6.1 Representations; Warranties; Covenants..............................................................24
6.2 Certain Agreements..................................................................................24
6.3 Hart-Scott-Rodino...................................................................................24
6.4 Funding.............................................................................................24
6.5 Releases............................................................................................24
6.6 No Violation or Injunction..........................................................................24
SECTION 7. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED...........................................................24
7.1 Termination.........................................................................................24
7.2 Effect of Termination...............................................................................25
7.3 Right to Proceed....................................................................................25
SECTION 8. SURVIVAL; INDEMNIFICATION............................................................................25
8.1 Survival of Representations; Warranties and Covenants; Assignability of
Rights.........................................................................................25
8.2 Transaction Related Indemnification.................................................................26
8.3 Indemnification for Vicarious Liability.............................................................27
8.4 Notice; Payment of Losses; Defense of Claims........................................................29
</TABLE>
[Stock Purchase and Redemption Agreement]
(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.5 Exclusive Remedy....................................................................................31
SECTION 10. DEFINITIONS.........................................................................................31
SECTION 10. GENERAL.............................................................................................33
10.1 Amendments, Waivers and Consents...................................................................33
10.2 Legend on Securities...............................................................................33
10.3 Governing Law......................................................................................33
10.4 Section Headings and Gender........................................................................33
10.5 Counterparts.......................................................................................33
10.6 Notices and Demands................................................................................34
10.7 Dispute Resolution.................................................................................34
10.8 Remedies; Severability.............................................................................35
10.9 Integration........................................................................................35
10.10 Greylock Fees.....................................................................................36
10.11 Waivers...........................................................................................36
</TABLE>
[Stock Purchase and Redemption Agreement]
(iii)
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A - Selling Stockholders and Stock Ownership
Exhibit B - Investors
Exhibit C - Form of Amended and Restated Certificate of Incorporation
Exhibit D - Opinion of Testa, Hurwitz & Thibeault, LLP
Exhibit E - Opinion of Hale and Dorr LLP
Exhibit F - Form of Stockholders Agreement
Exhibit G - Form of Amended and Restated Rights Agreement
Exhibit H - Form of Release Agreement
Exhibit I - Form of Non-Competition Agreement
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
DISCLOSURE SCHEDULE
<S> <C>
Section 2.1 - Foreign Qualification
Section 2.4 - Capitalization
Section 2.5 - Subsidiaries; Investments
Section 2.6 - Financial Matters
Section 2.7 - Undisclosed Liabilities
Section 2.8 - Certain Developments
Section 2.9 - Accounts Payable
Section 2.10 - Transactions with Affiliates
Section 2.11 - Properties
Section 2.12 - Tax Matters
Section 2.13 - Certain Contracts and Arrangements
Section 2.14 - Intellectual Property Rights; Employee Restrictions
Section 2.15 - Litigation
Section 2.16 - Labor Matters
Section 2.17 - List of Certain Employees and Suppliers
Section 2.19 - Employee Benefit Programs
Section 2.21 - Insurance
Section 2.23 - Customers
Section 2.26 - Product and Service Warranties
Section 2.26 - Information
</TABLE>
<PAGE>
STOCK PURCHASE AND REDEMPTION AGREEMENT
THIS STOCK PURCHASE AND REDEMPTION AGREEMENT is made as of this 31st
day of December, 1998, by and among NetScout Systems, Inc., a Delaware
corporation (together with any predecessors or successors thereto as the context
requires, the "Company"), Narendra Popat and Anil Singhal (each a "Founder" and
together, the "Founders"), Greylock Equity Limited Partnership ("Greylock"), the
persons listed under the heading "Other Selling Stockholders" on the signature
page hereto (collectively, the "Other Selling Stockholders" and each
individually, an "Other Selling Stockholder") and the investors named in
EXHIBIT B attached hereto (collectively, the "Investors" and each
individually, an "Investor"). The Founders, Greylock and the Other Selling
Stockholders shall be referred to herein collectively as the "Selling
Stockholders" and each individually as a "Selling Stockholder." Except as
otherwise indicated herein, capitalized terms used herein are defined in
Section 9 hereof.
WHEREAS, the Founders are the holders of shares of the Company's Voting
Common Stock, $0.001 par value per share (the "Voting Common");
WHEREAS, Greylock is the holder of shares of the Company's Series A
Preferred Stock, $0.001 par value per share (the "Series A Preferred"), which
are convertible at the option of such holder into shares of the Company's
Non-Voting Common Stock, $0.001 par value per share (the "Non-Voting Common"),
in accordance with the terms of the Company's Amended and Restated Certificate
of Incorporation as in effect on the date hereof;
WHEREAS, the Other Selling Stockholders are the holders of shares or
options to purchase shares of the Company's Non-Voting Common Stock;
WHEREAS, the Company has authorized the issuance and sale to the
Investors of 6,977,254 shares of Class B Convertible Common Stock, $0.001 par
value per share (the "Class B Common"), having the rights and preferences set
forth in EXHIBIT C attached hereto for an aggregate purchase price of
$44,571,054; and
WHEREAS, the Company has agreed to redeem and the Founders, Greylock
and the Other Selling Stockholders severally have agreed to sell to the Company
shares of Voting Common, shares of Series A Preferred and shares of Non-Voting
Common in accordance with the terms and conditions contained herein (such shares
shall be referred to herein collectively as the "Redemption Shares"), for an
aggregate purchase price of $44,571,054 in accordance with the terms and
conditions contained herein.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
<PAGE>
SECTION 1. PURCHASE AND SALE; REDEMPTION
1.1 DESCRIPTION OF SECURITIES. As of the Closing Date (as defined in
Section 1.3 hereof), the Company's authorized capital stock consists of Voting
Common, Non-Voting Common, Class B Common and Series A Preferred, with the
rights, preferences and other terms set forth in EXHIBIT C attached hereto. For
purposes of this Agreement, the shares of Class B Common to be acquired by the
Investors from the Company hereunder are referred to as the "Class B Common
Shares" and the shares of Voting Common issuable upon conversion of the Class B
Common Shares are referred to as the "Conversion Shares" and the Class B Common
Shares and the Conversion Shares are sometimes referred to herein together as
the "Securities." The Company has authorized and reserved, and covenants to
continue to reserve, a sufficient number of shares of its Voting Common
necessary to satisfy the rights of conversion of the holders of Class B Common
as set forth in EXHIBIT C.
1.2 SALE AND PURCHASE; REDEMPTION. Upon the terms and subject to the
conditions herein, and in reliance on the representations and warranties set
forth in Section 2, at the Closing (as defined in Section 1.3 hereof) each of
the Investors shall purchase from the Company, and the Company shall issue and
sell to each of the Investors, the number of Class B Common Shares set forth
opposite the name of such Investor in EXHIBIT B for the purchase price of
$6.388051 per share, or an aggregate of 6,977,254 Class B Common Shares for an
aggregate purchase price of $44,571,054 (the "Purchase Price"). Concurrently
therewith, the Company shall acquire from each of the Selling Stockholders, and
each of the Selling Stockholders shall sell to the Company, the number of
Redemption Shares set forth opposite the name of such Selling Stockholder in the
section of EXHIBIT A relating to such Selling Stockholder for an aggregate
redemption price of $44,571,054 (the "Redemption Price").
1.3 CLOSING. The closing of the purchase and sale of the Class B
Common Shares hereunder (the "Closing") shall take place at the offices of
Goodwin, Procter & Hoar LLP, located at Exchange Place, 53 State Street, Boston,
Massachusetts, at 10:00 a.m., Boston time, on the date (the "Closing Date") that
is three (3) business days after all of the conditions to Closing set forth in
Sections 5 and 6 hereof are satisfied or, if applicable, waived, or as otherwise
mutually agreed to by the Company, the Investors, the Founders and Greylock;
PROVIDED, that such date shall not be earlier than January 7, 1999. At the
Closing, (i) the Company shall issue and deliver stock certificates representing
the applicable number of Class B Common Shares to be sold by the Company
hereunder to each of the Investors, free and clear of all liens, claims,
options, charges, pledges, security interests, voting agreements, trusts,
encumbrances, rights or restrictions of any nature, except as contemplated by
this Agreement ("Liens"), (ii) each of the Selling Stockholders shall deliver to
the Company a stock certificate or certificates representing the Redemption
Shares to be sold by such Selling Stockholder hereunder, duly endorsed in blank
or accompanied by duly executed stock transfer powers, together with such
signature guarantees and such other documents as may be required by the Company
to effect a valid transfer to the Company of good title to such Redemption
Shares, free and clear of all Liens, (iii) each of the Investors shall pay to
the Company the Purchase Price as set forth opposite such Investor's name under
the column entitled "Purchase Price Paid at Closing" in EXHIBIT B hereto and
(iv) the Company shall pay to each of the Selling Stockholders the Redemption
Price as set forth opposite such Selling
[Stock Purchase and Redemption Agreement]
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Stockholder's name under the column entitled "Redemption Price to be Paid at
Closing" in the section of EXHIBIT A hereto relating to such Selling
Stockholder. Each Selling Stockholder shall be entitled access to only that
section of EXHIBIT A which sets forth information regarding such Selling
Stockholder, and shall not be entitled to any information on EXHIBIT A with
respect to the other Selling Stockholders. All payments hereunder shall be made
by wire transfer of next day available funds.
1.4 USE OF PROCEEDS BY THE COMPANY; REPAYMENT OF FOUNDER NOTES.
Subject to the terms and conditions contained herein, the proceeds from the sale
of the Class B Common Shares hereunder shall be used by the Company to
repurchase the Redemption Shares from the Selling Stockholders as set forth in
Sections 1.2 and 1.3 hereof. Immediately following the repurchase by the Company
of the Redemption Shares held by the Founders, the Founders shall use a portion
of the proceeds from such repurchase to pay in full the outstanding amounts due
to the Company under the promissory notes dated June 28, 1996 in the aggregate
original principal amount of $2,000,000.
1.5 TRANSFER TAXES. All transfer taxes, fees and duties under
applicable law incurred in connection with the sale and transfer of the Class B
Common Shares under this Agreement will be borne and paid by the Company and the
Company shall promptly reimburse the Investors for any such tax, fee or duty
which any of them is required to pay under applicable law.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SELLING STOCKHOLDERS
In order to induce the Investors to enter into this Agreement and
consummate the transactions contemplated hereby, each of the Company and each of
the Selling Stockholders hereby severally and not jointly makes to the Investors
as of the date hereof the representations and warranties contained in this
Section 2; provided, however, that (i) the Selling Stockholders identified with
an asterisk in EXHIBIT A attached hereto shall not make the representations and
warranties contained in Sections 2.4(a) and 2.17(a) hereof and (ii) Greylock
shall only make the representations and warranties contained in Sections 2.2 and
2.4(b) hereof (which representations of Greylock shall apply solely to Greylock
and not to the Company, any other Selling Stockholder or any other Person or
entity). Such representations and warranties are subject to the qualifications
and exceptions set forth in the disclosure schedule delivered to the Investors
pursuant to this Agreement (the "Disclosure Schedule"); PROVIDED, HOWEVER, that
any information set forth in a Section of the Disclosure Schedule shall not be
incorporated (unless by specific reference) to any other Section of the
Disclosure Schedule. For purposes hereof unless otherwise indicated, all
references to the Company shall include all Subsidiaries of the Company.
2.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, and is duly qualified or registered to do business as a foreign
corporation (a) in each jurisdiction listed in SECTION 2.1 OF THE DISCLOSURE
SCHEDULE and (b) in each jurisdiction in which the failure to be so qualified or
registered would have a Material Adverse Effect. The Company has all required
corporate power and authority to carry on its business as presently conducted,
to enter into and perform this
[Stock Purchase and Redemption Agreement]
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Agreement and the agreements contemplated hereby to which it is a party and to
carry out the transactions contemplated hereby and thereby. The copies of the
Amended and Restated Certificate of Incorporation and By-laws of the Company, as
amended to date (the "Certificate of Incorporation" and "By-laws,"
respectively), which have been furnished to the Investors by the Company, are
correct and complete at the date hereof, and the Company is not in violation of
any term of its Certificate of Incorporation or By-laws.
2.2 AUTHORIZATION AND NON-CONTRAVENTION.
(a) This Agreement and all documents executed pursuant hereto
are valid and binding obligations of the Company and, if applicable, such
Selling Stockholder, as the case may be, enforceable in accordance with their
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditor's rights generally, and as limited
by laws relating to the availability of specific performance, injunctive relief,
or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in Section 8.3 or in the Rights Agreement may be limited by
applicable federal or state securities laws, or public policy considerations.
The execution, delivery and performance of this Agreement and all agreements,
documents and instruments contemplated hereby, the sale and delivery of the
Class B Common Shares and, upon conversion of the Class B Common Shares, the
Conversion Shares, have been duly authorized by all necessary corporate or other
action of the Company. Such Selling Stockholder has full authority, power and
capacity to enter into this Agreement and all agreements, documents and
instruments contemplated hereby which are to be executed by such Selling
Stockholder.
(b) The execution of this Agreement, the sale and delivery of
the Class B Common Shares and, upon conversion of the Class B Common Shares, the
issuance of the Conversion Shares, and the performance of any transaction
contemplated hereby will not (i) violate, conflict with or result in a default
under any material contract or obligation to which the Company or such Selling
Stockholder is a party or by which the Company or such Selling Stockholder or
their assets are bound, or any provision of the Amended Charter or By-laws of
the Company, or cause the creation of any encumbrance upon any of the material
assets of the Company or such Selling Stockholder; (ii) violate or result in a
violation of, or constitute a default (whether after the giving of notice, lapse
of time or both) under, any provision of any law, regulation or rule, or any
order of, or any restriction imposed by any court or other governmental agency
applicable to the Company or such Selling Stockholder except for violations
which, individually or in the aggregate, would not have a Material Adverse
Effect; (iii) except as contemplated by Sections 5.4 and 5.5 hereof, require
from the Company any notice to, declaration or filing with, or consent or
approval of any governmental authority or other third party other than pursuant
to state securities or blue sky laws; or (iv) accelerate any obligation under,
or give rise to a right of termination of, any material agreement, permit,
license or authorization to which the Company or such Selling Stockholder is a
party or by which the Company or such Selling Stockholder is bound.
2.3 CORPORATE RECORDS. The corporate record books of the Company
accurately record all corporate action required by law to be taken by its
stockholders and board of directors
[Stock Purchase and Redemption Agreement]
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and committees. The copies of the corporate records of the Company, as made
available to the Investors or their counsel for review, are true and complete
copies of the originals of such documents.
2.4 CAPITALIZATION.
(a) As of the Closing and after giving effect to the
transactions contemplated hereby, the authorized capital stock of the Company
will consist of (i) 51,178,872 shares of Common Stock, of which (A) 33,589,436
shares shall be designated as Voting Common, of which 11,250,502 shares will be
issued and outstanding and 4,749,498 shares shall be held in treasury, (B)
10,612,182 shares shall be designated as Non-Voting Common, of which 2,901,220
shares will be issued and outstanding and 964,600 shares shall be held in
treasury, and (C) 6,977,254 shares shall be designated as Class B Common, all of
which will be issued and outstanding, and (ii) 631,579 shares of Series A
Preferred, of which 315,790 shares will be issued and outstanding and 315,789
shares shall be held in treasury. The outstanding shares of Voting Common,
Non-Voting Common and Series A Preferred are held beneficially and of record by
the persons identified in SECTION 2.4 OF THE DISCLOSURE SCHEDULE in the amounts
indicated thereon. SECTION 2.4 OF THE DISCLOSURE SCHEDULE sets forth the name of
each holder of options for Non-Voting Common, the number of shares that such
options are exercisable for with respect to each holder and the applicable
exercise price. Except as otherwise disclosed in SECTION 2.4 OF THE DISCLOSURE
SCHEDULE, there are no outstanding subscriptions, options, warrants,
commitments, preemptive rights, agreements, arrangements or commitments of any
kind for or relating to the issuance, or sale of, or outstanding securities
convertible into or exchangeable for, any shares of capital stock of any class
or other equity interests of the Company. Except as set forth in the Amended
Charter, the Company has no obligation to purchase, redeem, or otherwise acquire
any of its capital stock or any interests therein. As of the Closing, and after
giving effect to the transactions contemplated hereby, all of the outstanding
shares of capital stock of the Company will have been duly and validly
authorized and issued and will be fully paid and non-assessable and will have
been offered, issued, sold and delivered in compliance with applicable federal
and state securities laws and not subject to any preemptive rights which have
not been otherwise waived. The Company has duly and validly authorized and
reserved 6,977,254 shares of Voting Common for issuance upon conversion of the
Class B Common and the shares of Voting Common so issued will, upon conversion
as provided in the Amended Charter, be validly issued, fully paid and
non-assessable. As of the Closing, the relative rights, preferences and other
provisions relating to the Class B Common will be as set forth in EXHIBIT C
attached hereto. Except as otherwise disclosed in SECTION 2.4 OF THE DISCLOSURE
SCHEDULE, as of the Closing and after giving effect to the transactions
contemplated hereby, other than rights set forth herein or in the Amended
Charter or in the Rights Agreement or in the Stockholders Agreement, there are
(i) no preemptive rights, rights of first refusal, put or call rights or
obligations or anti-dilution rights imposed by or through the Company with
respect to the issuance, sale or redemption of the Company's capital stock, (ii)
no rights imposed by or through the Company to have the Company's capital stock
registered for sale to the public in connection with the laws of any
jurisdiction, and (iii) there are no documents, instruments or agreements,
relating to the voting of the Company's voting securities or restrictions on the
transfer of the Company's capital stock to which the Company is a party.
[Stock Purchase and Redemption Agreement]
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(b) Such Selling Stockholder is the sole legal and beneficial
owner of, and has good, valid and marketable title to, the shares of Voting
Common, Non-Voting Common and Series A Preferred, as applicable, set forth
opposite his or its name on the applicable section of EXHIBIT A attached hereto,
free and clear of any Liens.
2.5 SUBSIDIARIES; INVESTMENTS. Except as disclosed in SECTION 2.5 OF
THE DISCLOSURE SCHEDULE, the Company does not have and has not had any direct or
indirect Subsidiaries. Except as disclosed in SECTION 2.5 OF THE DISCLOSURE
SCHEDULE, neither the Company nor either of the Founders has a strategic
partnership or similar relationship with or owns or has any direct or indirect
interest in or control over any corporation, partnership, joint venture or other
entity of any kind, except for passive investments of less than 2% in
publicly-traded companies. The term "control" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
2.6 FINANCIAL STATEMENTS; PROJECTIONS. Included in SECTION 2.6 OF THE
DISCLOSURE SCHEDULE are the following financial statements of the Company, all
of which statements (including the footnotes and schedules thereto) were
prepared in accordance with generally accepted accounting principles ("GAAP")
consistently applied during the periods covered thereby (subject, in the case of
unaudited financial statements, to normal, recurring adjustments that would be
made in the course of an audit and the absence of footnotes) and fairly present
the financial condition of the Company on the dates of such statements and the
results of their operations and cash flows for the periods covered thereby: (a)
audited balance sheets as of March 31, 1996, 1997 and 1998 and the related
statements of income and cash flows for the fiscal years then ended, certified
by the independent certified public accountants of the Company (the audited
balance sheet as of March 31, 1998 is hereafter referred to as the "Base Balance
Sheet"); and (b) an unaudited balance sheet as of October 31, 1998 (the "Most
Recent Balance Sheet") and the related statements of income and cash flows for
the period ended October 31, 1998 certified by the Vice President of Finance or
the Chief Financial Officer of the Company. The Company recognized all revenue
reflected in the financial statements with respect to fiscal years 1996 and 1997
relating to its software products in accordance with SOP 91-1 and with respect
to fiscal year 1998 relating to its software products in accordance with SOP
97-2. Nothing has come to the attention of the Company or such Selling
Stockholder since such respective dates which would indicate that such financial
statements were not true and correct in all material respects as of the date
thereof. Included in SECTION 2.6 OF THE DISCLOSURE SCHEDULE are projections for
fiscal years ending March 31, 1999 and 2000, which represent management's good
faith estimates of the Company's future financial performance based on
assumptions which are set forth therein and which management in good faith
believes were reasonable when made and continue to believe to be reasonable as
of the date hereof; PROVIDED, HOWEVER, that the foregoing is not a guarantee of
the future financial performance of the Company and actual financial performance
may vary significantly from such projections.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise, asserted or unasserted, known or unknown (including, without
limitation, liabilities as guarantor or otherwise
[Stock Purchase and Redemption Agreement]
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with respect to obligations of others, or liabilities for Taxes due or then
accrued or to become due, regardless of whether claims in respect thereof had
been asserted as of such date), except liabilities or obligations (i) stated or
adequately reserved against in the Most Recent Balance Sheet or not required
under GAAP to be stated or reserved, (ii) incurred in the ordinary course of
business of the Company since the date of the Most Recent Balance Sheet and
which have not had a Material Adverse Effect or (iii) incurred as a result of or
arising out of the transactions contemplated under this Agreement.
2.8 ABSENCE OF CERTAIN DEVELOPMENTS. Since the date of the Most Recent
Balance Sheet through the date of this Agreement, the Company has conducted its
business only in the ordinary course consistent with past practice and, except
as contemplated herein or as set forth in SECTION 2.8 OF THE DISCLOSURE
SCHEDULE, there has not been:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of the Company, which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had a Material Adverse Effect;
(b) any material mortgage, encumbrance or lien placed on any
of the properties of the Company;
(c) any material purchase, sale or other disposition, or any
agreement or other arrangement for the purchase, sale or other disposition, of
any properties or assets by the Company, including any of its Intellectual
Property Rights, other than in the ordinary course of business;
(d) any damage, destruction or loss to the Company's property
or assets, whether or not covered by insurance, which has had a Material Adverse
Effect;
(e) any declaration, setting aside or payment of any dividend
by the Company, or the making of any other distribution in respect of the
capital stock of the Company, or any direct or indirect redemption, purchase or
other acquisition by the Company of its own capital stock;
(f) any labor trouble or claim of unfair labor practices
involving the Company, any change in the compensation payable or to become
payable by the Company to any of its officers or employees other than normal
merit increases in accordance with its usual practices, or any bonus payment or
arrangement made to or with any of such officers or employees or any
establishment or creation of any employment (other than customary at-will
employment), deferred compensation or severance arrangement or employee benefit
plan with respect to such persons or the amendment of any of the foregoing;
(g) any change in the executive officers of the Company or
material loss of personnel of the Company or change in the terms and conditions
of the employment of the Company's executive officers or key personnel;
[Stock Purchase and Redemption Agreement]
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(h) any payment or discharge of a material lien or liability
of the Company which was not shown on the Most Recent Balance Sheet or incurred
in the ordinary course of business thereafter;
(i) any contingent liability incurred by the Company as
guarantor or otherwise with respect to the obligations of others or any
cancellation of any material debt or monetary claim owing to, or waiver of any
material payment right of, the Company, including any write-off or compromise of
any accounts receivable, other than in the ordinary course of business;
(j) any obligation or liability incurred by the Company to any
of its officers, directors, stockholders or employees, or any loans or advances
made by the Company to any of its officers, directors, stockholders or
employees, except normal compensation and expense allowances payable to
officers, directors or employees and except for loans or advances made by the
Company to its employees which are less than $10,000 individually and $50,000 in
the aggregate;
(k) any change in accounting methods or practices, collection
policies, pricing policies or payment policies of the Company, other than
changes not materially adverse to the Company;
(l) any loss, or to the knowledge of the Company or such
Selling Stockholder, any development that is reasonably likely to result in a
loss, of any significant supplier, customer, distributor or account of the
Company;
(m) any amendment or termination of any material contract or
agreement to which the Company is a party or by which it is bound;
(n) any arrangements relating to any royalty, dividend or
similar payment based on the sales volume of the Company, whether as part of the
terms of the Company's capital stock or by any separate agreement, other than
transactions in the ordinary course of business;
(o) any agreement with respect to the endorsement of the
Company's products or services, other than transactions in the ordinary course
of business;
(p) any transaction or agreement involving fixed price terms
or fixed volume arrangements, other than transactions in the ordinary course of
business;
(q) any other material transaction entered into by the Company
other than transactions in the ordinary course of business; or
(r) any agreement or understanding whether in writing or
otherwise, for the Company to take any of the actions specified in paragraphs
(a) through (q) above.
[Stock Purchase and Redemption Agreement]
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2.9 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE..
(a) All of the accounts receivable of the Company are valid
and enforceable claims, are subject to no set-off or counterclaim, and are fully
collectable in the normal course of business, after deducting the allowance for
doubtful accounts stated in the Most Recent Balance Sheet in accordance with
GAAP. Since the date of the Base Balance Sheet, the Company has collected its
accounts receivable in the ordinary course and in a manner which is consistent
with past practices and has not accelerated any such collections. Except as set
forth in SECTION 2.9(a) OF THE DISCLOSURE SCHEDULE, as of the date hereof, the
Company does not have any accounts receivable from any Person which is known by
the Company to be affiliated with it or any of its directors, executive
officers, employees or stockholders, except for loans or advances to employees
which are less than $10,000 individually and $50,000 in the aggregate.
(b) Except as set forth in SECTION 2.9(b) OF THE DISCLOSURE
SCHEDULE, all accounts payable and notes payable of the Company arose in bona
fide arms' length transactions in the ordinary course of business and no such
account payable or note payable which is material to the Company is delinquent
by more than sixty (60) days in its payment. Since the date of the Base Balance
Sheet, the Company has paid its accounts payable in the ordinary course and in a
manner which is consistent with its past practices. Except as set forth in
SECTION 2.9(b) OF THE DISCLOSURE SCHEDULE, as of the date hereof, the Company
has no account payable in excess of $10,000 individually or $100,000 in the
aggregate to any Person which is known by the Company to be affiliated with it
or any of its directors, officers, employees or stockholders.
2.10 TRANSACTIONS WITH AFFILIATES. Except for their ongoing, regular
employment relationships with the Company, the transactions contemplated by this
Agreement and the agreements related hereto, and as set forth in SECTION 2.10 OF
THE DISCLOSURE SCHEDULE, there are no loans, leases or other continuing
transactions between the Company and such Selling Stockholder or any present or
former stockholder, director, officer or employee of the Company, or, to the
knowledge of the Company and such Selling Stockholder, any member of such
Selling Stockholder's, officer's, director's, employee's or stockholder's
immediate family, or any person controlled by such Selling Stockholder, officer,
director, employee or stockholder or his or her immediate family. Except as set
forth in SECTION 2.10 OF THE DISCLOSURE SCHEDULE, no director, executive officer
or employee of the Company, any of their respective spouses or immediate family
members, owns directly or indirectly on an individual or joint basis any
interest in, or serves as an officer or director or in another similar capacity
of, any competitor, customer or supplier of the Company, or any organization
which has a material contract or arrangement with the Company. Except as set
forth in SECTION 2.10 OF THE DISCLOSURE SCHEDULE, neither such Selling
Stockholder nor any of his spouse or immediate family members, owns directly or
indirectly on an individual or joint basis any interest in, or serves as an
officer or director or in another similar capacity of, any competitor, customer
or supplier of the Company, or any organization which has a material contract or
arrangement with the Company.
2.11 TITLE TO PROPERTIES. The Company does not own any real property.
SECTION 2.11 OF THE DISCLOSURE SCHEDULE sets forth the addresses and uses of all
real property that the Company leases or subleases. The Company has good, valid
and (if applicable) marketable title to all of its
[Stock Purchase and Redemption Agreement]
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assets, free and clear of all liens, restrictions or encumbrances and none of
such assets is subject to any mortgage, pledge, lien or conditional sale
agreement. Such assets constitute all property which is necessary to the
business of the Company and all equipment included therein is in good condition
and repair (ordinary wear and tear excepted) and all leases of real or personal
property to which the Company is a party are fully effective and afford the
Company peaceful possession of the subject matter of the lease and true and
complete copies thereof have been delivered to the Investors or their counsel.
The Company is not in violation of any zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation
of its owned or leased properties which violation would have a Material Adverse
Effect, nor has it received any notice of such violation. There are no defaults
by the Company, or, to the knowledge of the Company and such Selling
Stockholder, by any other party, which might curtail in any material respect the
present use of the property of the Company. The performance by the Company of
this Agreement and the transactions contemplated hereby will not result in the
termination of, or in any increase of any amounts payable under, any of its
leases for real property or material liens for personal property or will require
the consent or approval from any other parties to such leases.
2.12 TAX MATTERS. The Company has timely and properly filed all
federal, state, local and foreign tax returns required to be filed by it through
the date hereof, and, subject to the following sentence, has paid or caused to
be paid all Taxes required to be paid by it through the date hereof whether
disputed or not, except Taxes which have not yet accrued or otherwise become
due. The provisions for Taxes in the Most Recent Balance Sheet are sufficient as
of its date for the payment of any accrued and unpaid Taxes of any nature of the
Company. All Taxes and other assessments and levies which the Company was or is
required to withhold or collect have been withheld and collected and have been
paid over to the proper governmental authorities. Except as set forth in SECTION
2.12 OF THE DISCLOSURE SCHEDULE, (i) the Company has never received notice of
any audit or of any proposed deficiencies from the Internal Revenue Service (the
"IRS") or any other taxing authority (other than routine audits undertaken in
the ordinary course and which have been resolved on or prior to the date
hereof); (ii) there are in effect no waivers of applicable statutes of
limitations with respect to any Taxes owed by the Company for any year; (iii)
neither the IRS nor any other taxing authority is now asserting or, to the
knowledge of the Company and such Selling Stockholder, threatening to assert
against the Company any deficiency or claim for additional Taxes or interest
thereon or penalties in connection therewith in respect of the income or sales
of the Company; and (iv) the Company has never been a member of an affiliated
group of corporations filing a combined federal income Tax return nor does the
Company have any liability for Taxes of any other Person under Treasury
Regulations ss.1.1502-6 (or any similar provision of foreign, state or local
law) or otherwise. The Company is not a party to any Tax allocation or sharing
arrangement. The Company is not a party to any contract, agreement, plan or
arrangement covering any employee or former employee thereof, that, individually
or collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Section 280G or 162 of the Code. The Company is not a
"foreign person" within the meaning of Section 145 of the Code and Treasury
Regulations Section 1.1445-2.
[Stock Purchase and Redemption Agreement]
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2.13 CERTAIN CONTRACTS AND ARRANGEMENTS. Except as set forth in
SECTION 2.13 OF THE DISCLOSURE SCHEDULE (with true and correct copies delivered
to the Investors), the Company is not a party or subject to or bound by:
(a) any contract or agreement involving potential commitment
or payment by the Company in excess of $200,000 or which is otherwise
material and not entered into in the ordinary course of business,
except for the leases described in Section 2.11;
(b) any contract, lease or agreement involving potential
commitment or payment by the Company in excess of $25,000 which is not
cancelable by the Company without penalty on not less than 60 days
notice, except for the leases described in Section 2.11 and purchase
orders, contracts and agreements in the ordinary course of business;
(c) any contract containing covenants directly or explicitly
limiting in any material respect the freedom of the Company to compete
in any line of business or with any person or entity;
(d) any contract or agreement involving potential commitment
or payment by the Company in excess of $25,000 relating to the
licensing, distribution, development, purchase, sale or servicing of
its software and hardware products, except for purchase orders,
contracts and agreements in the ordinary course of business;
(e) any indenture, mortgage, promissory note, loan agreement,
guaranty or other agreement or commitment for borrowing by the Company
or any pledge or security arrangement by the Company;
(f) any employment contracts, noncompetition agreements or
other agreements with officers, directors, employees or stockholders of
the Company or Persons related to or affiliated with such persons;
(g) any stock redemption or purchase agreements or other
agreements affecting or relating to the capital stock of the Company,
including without limitation any agreement with any stockholder of the
Company which includes, without limitation, anti-dilution rights,
registration rights, voting arrangements or operating covenants;
(h) any pension, profit sharing, retirement or stock options
plans;
(i) any royalty, dividend or similar arrangement based on the
revenues or profits of the Company or any contract or agreement
involving fixed price or fixed volume arrangements not executed in the
ordinary course of business;
(j) any joint venture, partnership, manufacturer, development
or supply agreement, except any manufacturer, development or supply
agreement executed in the ordinary course of business;
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[Stock Purchase and Redemption Agreement]
<PAGE>
(k) any acquisition, merger or similar agreement; or
(l) any other material contract not executed in the ordinary
course of business.
All such contracts, agreements, leases and instruments are valid and
are in full force and effect and constitute legal, valid and binding obligations
of the Company, and are enforceable in accordance with their respective terms.
Neither the Company nor such Selling Stockholder has any knowledge of any notice
or threat to terminate any such contracts, agreements, leases or instruments
which termination would have a Material Adverse Effect. The Company is not in
violation of any term or provision of, or in default in complying with any
provisions of, any such contract, agreement, lease or instrument, and no
condition or event or fact exists which, with notice, lapse of time or both
would constitute a default thereunder on the part of the Company, except for any
such violation, default, condition, event or fact that, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
2.14 INTELLECTUAL PROPERTY RIGHTS; EMPLOYEE RESTRICTIONS. SECTION 2.14
OF THE DISCLOSURE SCHEDULE sets forth a complete list and brief description of
all Intellectual Property Rights owned by or registered in the name of the
Company or of which the Company is the licensor or licensee or in which the
Company has any material right (other than with respect to "off-the-shelf"
software which is generally commercially available).
Except as set forth in SECTION 2.14 OF THE DISCLOSURE SCHEDULE:
(a) The Company has exclusive ownership of, free and clear of
claims or rights of any other person, with full right to use, sell, license,
sublicense, dispose of, and bring actions for infringement of, or possesses
exclusive licenses or other rights to use, all Intellectual Property Rights
listed in SECTION 2.14 OF THE DISCLOSURE SCHEDULE, which rights are sufficient
for the conduct of its business as presently conducted or proposed to be
conducted (other than with respect to "off-the-shelf" software which is
generally commercially available). All Intellectual Property Rights that are
used or incorporated into the Company's products or products actively under
development and which are proprietary to the Company were developed by or for
the Company by the current or former employees, consultants or independent
contractors of the Company or its predecessors in interest or purchased by the
Company or its predecessors in interest and are owned exclusively by the
Company, free and clear of claims and rights of any other Person.
(b) The business of the Company as presently conducted and the
production, marketing, licensing, use and servicing of any products or services
of the Company do not infringe or conflict with any patent, trademark,
copyright, trade secret rights of any third parties or any other Intellectual
Property Rights of any third parties and the Company has not received written
notice from any third party asserting that any Intellectual Property Rights
owned or licensed by the Company, or which the Company otherwise has the right
to use, is invalid or unenforceable by the Company and, to the knowledge of the
Company and such Selling Stockholder there is no valid basis for any such claim
(whether or not pending or threatened).
[Stock Purchase and Redemption Agreement]
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<PAGE>
(c) No claim is pending or, to the knowledge of the Company
and such Selling Stockholder, threatened against the Company or such Selling
Stockholders nor has the Company or such Selling Stockholder received any
written notice or other written claim from any Person asserting that any of the
Company's present or contemplated activities infringe or may infringe any
Intellectual Property Rights of such Person nor, to the knowledge of the Company
and such Selling Stockholder, is there a valid basis for any such claim (whether
or not pending or threatened), and neither the Company nor such Selling
Stockholder is aware of any infringement by any other Person of any rights of
the Company under any Intellectual Property Rights.
(d) All licenses or other agreements under which the Company
is granted Intellectual Property Rights (excluding licenses to use off-the-shelf
software utilized in the Company's internal operations and which is generally
commercially available) are listed in SECTION 2.14 OF THE DISCLOSURE SCHEDULE.
All such licenses or other agreements are in full force and effect, to the
knowledge of the Company and such Selling Stockholder, there is no material
default by any party thereto and, except as set forth in SECTION 2.14 OF THE
DISCLOSURE SCHEDULE, to the knowledge of the Company and such Selling
Stockholder, all of the rights of the Company thereunder are freely assignable.
True and complete copies of all such licenses or other agreements, and any
amendments thereto, have been provided to the Investors and neither the Company
nor such Selling Stockholder has any reason to believe that the licensors under
such licenses and other agreements do not have and did not have all requisite
power and authority to grant the Intellectual Property Rights purported to be
conferred thereby.
(e) All currently outstanding licenses or other agreements
involving amounts in excess of $200,000 or which are otherwise material under
which the Company has licensed Intellectual Property Rights to OEMs or has
licensed or made available source code to others (including all end-user
agreements) are listed in SECTION 2.14 OF THE DISCLOSURE SCHEDULE. All of said
licenses or other agreements are in full force and effect and, to the knowledge
of the Company and such Selling Stockholder, there is no material default by any
party thereto. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been made available to the
Investors or their counsel.
(f) To the knowledge of the Company and such Selling
Stockholder, the Company is not making unlawful use of any Intellectual Property
Rights of any other Person, including, without limitation, any former employer
of any past or present employees of the Company. Except as disclosed in SECTION
2.14 OF THE DISCLOSURE SCHEDULE, to the knowledge of the Company and such
Selling Stockholder, neither the Company nor any of its employees or consultants
has any agreements or arrangements with former employers of such employees or
consultants relating to any Intellectual Property Rights of such employers,
which materially interfere or conflict with the performance of such employee's
or consultant's duties for the Company or results in any former employers of
such employees and consultants having any rights in, or claims on, the Company's
Intellectual
[Stock Purchase and Redemption Agreement]
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<PAGE>
Property Rights. To the knowledge of the Company and such Selling
Stockholder, the activities of the Company's employees and consultants do not
violate any agreements or arrangements which any such employees have with former
employers which has had a Material Adverse Effect. The Company has taken steps
required in accordance with sound business practices to establish and preserve
its ownership of all of its Intellectual Property Rights; except as set forth in
SECTION 2.14 OF THE DISCLOSURE SCHEDULE, each current or former employee,
independent contractor or consultant of the Company who had or has
responsibility for coding the Company's products or who had or has access to
source code or other proprietary product information of a similar nature has
executed an agreement regarding confidentiality, proprietary information and
assignment of inventions and copyrights to the Company, and the Company has not
received notice that any employee, consultant or independent contractor is in
violation of any agreement or in breach of any agreement or arrangement with
former or present employers relating to proprietary information or assignment of
inventions. Without limitation of any of the foregoing and except as otherwise
expressly disclosed in SECTION 2.14 OF THE DISCLOSURE SCHEDULE: (i) the Company
has taken all security measures required in accordance with sound business
practices to guard against unauthorized disclosure or use of any of its
Intellectual Property Rights; and (ii) neither the Company nor such Selling
Stockholder has any reason to believe that any Person (including, without
limitation, any former employee of the Company) has unauthorized possession of
any of its Intellectual Property Rights, or any part thereof, or that any Person
has obtained unauthorized access to any of its Intellectual Property Rights.
2.15 LITIGATION. Except as set forth in SECTION 2.15 OF THE DISCLOSURE
SCHEDULE, there is no litigation or governmental or administrative proceeding or
investigation pending or, to the knowledge of the Company and such Selling
Stockholder, threatened against the Company or affecting the properties or
assets of the Company, or, as to matters related to the Company, against any
officer, director or stockholder or key employee of the Company, nor, to the
knowledge of the Company and such Selling Stockholder, has there occurred any
event nor does there exist any condition on the basis of which any such valid
claim may be asserted; except in each case for litigation, proceedings,
investigations or claims which individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect. Since March 31, 1997,
no valid claim has been asserted against the Company for renegotiation or price
redetermination of any business transaction, except for any business transaction
involving less than $25,000. SECTION 2.15 OF THE DISCLOSURE SCHEDULE includes a
description of all known litigation, material claims, governmental proceedings
or governmental investigations involving the Company or any of its officers,
directors, stockholders or key employees in connection with the business of the
Company occurring, arising or existing during the past three (3) years.
2.16 LABOR MATTERS. As of the date hereof, the Company employs
approximately 195 full-time employees and five part-time employees and has
contracts with five independent contractors. The Company is not delinquent in
payments to any of its employees or independent contractors for any wages,
salaries, commissions, bonuses or other direct compensation for any services
performed for it to the date hereof or amounts required to be reimbursed to such
employees or independent contractors. Except as set forth in SECTION 2.16 OF THE
DISCLOSURE SCHEDULE or as required by law, upon termination of the employment of
any of such employees or independent contractors, no severance or other payments
will become due. Except as set forth in SECTION 2.16 OF THE DISCLOSURE SCHEDULE,
the Company has no policy, practice, plan or program of paying severance pay or
any form of severance compensation in connection with the termination of
employment or services. The Company is and for the past three (3) years has been
in compliance in all material respects with all applicable laws and regulations
respecting labor,
[Stock Purchase and Redemption Agreement]
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<PAGE>
employment, fair employment practices, terms and conditions of employment, and
wages and hours. There are no charges of employment discrimination, sexual
harassment or unfair labor practices except as set forth in SECTION 2.16 OF THE
DISCLOSURE SCHEDULE, nor are there any strikes, slowdowns, stoppages of work, or
any other concerted interference with normal operations existing, pending or, to
the knowledge of the Company and such Selling Stockholder, threatened against or
involving the Company. There are no union organizing activities pending, or, to
the knowledge of the Company and such Selling Stockholder, threatened with
respect to the Company and no question concerning representation exists
respecting the employees of the Company. To the knowledge of the Company and
such Selling Stockholder, there are no grievances, complaints or charges that
have been filed under any dispute resolution procedure (including, but not
limited to, any proceedings under any dispute resolution procedure under any
collective bargaining agreement) that might reasonably be expected to have a
Material Adverse Effect. No arbitration or similar proceeding is pending and, to
the knowledge of the Company and such Selling Stockholder, no claim therefor has
been asserted against the Company. To the knowledge of the Company and such
Selling Stockholder, no collective bargaining agreement is in effect or is
currently being or is about to be negotiated by the Company. The Company is, and
at all times the Company has been, in compliance in all material respects with
the requirements of the Immigration Reform Control Act of 1986. There are no
changes pending or, to the knowledge of the Company and such Selling
Stockholder, threatened with respect to (including, without limitation, the
resignation of senior management or any key employee or independent contractors
of the Company nor has the Company received any notice or information concerning
any prospective change with respect to such senior management, key employees or
independent contractors.
2.17 LIST OF CERTAIN EMPLOYEES AND SUPPLIERS.
(a) The Company has provided the Investors with a list of all
managers, employees, consultants, independent contractors, brokers and sales
persons of the Company who, individually, have received compensation for the
fiscal year ended March 31, 1998 in excess of $100,000, including the current
job title and aggregate annual compensation of each such individual.
(b) SECTION 2.17 OF THE DISCLOSURE SCHEDULE sets forth a list
of all suppliers and vendors of the Company to whom during the fiscal year ended
March 31, 1998 the Company made payments aggregating $250,000 or more, showing,
with respect to each, the name, address and dollar volume involved. Since March
31, 1997, no such supplier or vendor has canceled or otherwise terminated or
materially reduced its business with the Company or materially and adversely
modified its relationship with the Company nor to the knowledge of the Company
and such Selling Stockholder does any such supplier or vendor have any plan or
intention to do so.
2.18 PERMITS; COMPLIANCE WITH LAWS. The Company has all Permits
necessary to permit it to own its property and to conduct its business as it is
presently conducted or proposed to be conducted and all such Permits are valid
and in full force and effect, except where the failure to obtain such a Permit
would not have a Material Adverse Effect. No Permit is subject to termination as
a result of the execution of this Agreement or consummation of the transactions
[Stock Purchase and Redemption Agreement]
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<PAGE>
contemplated hereby. The Company is not in violation of any term or provision of
any judgment, decree, order, statute, rule or government regulation applicable
to it or to which it is a party and is now and has heretofore been in compliance
with all applicable statutes, ordinances, orders, rules and regulations
promulgated by any federal, state, municipal or other governmental authority,
which apply to the conduct of its business, except for violations which,
individually or in the aggregate, or where the failure to so comply, would not
have a Material Adverse Effect. The Company has never entered into or been
subject to any judgment, consent decree, compliance order or administrative
order with respect to any aspect of the business, affairs, properties or assets
of the Company or received any material request for information, notice, demand
letter, administrative inquiry or formal or informal complaint or claim from any
regulatory agency with respect to any aspect of the business, affairs,
properties or assets of the Company.
2.19 EMPLOYEE BENEFIT PROGRAMS..
(a) SECTION 2.19 OF THE DISCLOSURE SCHEDULE sets forth a list
of every Employee Program that has been maintained by the Company or to which
the Company has contributed at any time during the past three (3) years and (i)
is subject to ERISA, (ii) involves the issuance of options or other securities,
or (iii) is otherwise material.
(b) The terms and operation of each Employee Program comply in
all material respects with all applicable laws and regulations relating to such
Employee Program. There are no unfunded obligations of the Company under any
retirement, pension, profit-sharing, deferred compensation plan or similar
program. If required, each Employee Program which has been maintained by the
Company and which has at any time been intended to qualify under Section 401(a)
or 501(c)(9) of the Code has received a favorable determination or opinion or
approval letter from the IRS regarding its qualification under such Section (or
an application for such a determination or opinion or approval letter is not yet
due to be filed with the IRS with respect to any "disqualifying provision"
within the meaning of Treasury Regulation, Section 1.401(b)-1 or has been timely
filed and is pending with the IRS) and has, in fact, been qualified under the
applicable Section of the Code from the effective date of such Employee Program
through and including the Closing (or, if earlier, the date that all of such
Employee Program's assets were distributed). No event or omission has occurred
which would cause any such Employee Program to lose its qualification under the
applicable Code section. The Company is not required to make any payments or
contributions to any Employee Program pursuant to any collective bargaining
agreement or any applicable labor relations law, and all Employee Programs are
terminable at the discretion of the Company without liability to the Company
upon or following such termination. The Company has never maintained or
contributed to any Employee Program providing or promising any health or other
nonpension benefits to terminated employees, other than as required by Code
Section 4980B.
2.20 ENVIRONMENTAL MATTERS. To the knowledge of the Company and such
Selling Stockholder, no hazardous wastes, substances or materials or oil or
petroleum products have been improperly generated, transported, used, disposed,
stored or treated by the Company and the Company has not caused any hazardous
wastes, substances or materials, or oil or petroleum products to have been
released, discharged, disposed, transported, placed or otherwise caused to
[Stock Purchase and Redemption Agreement]
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<PAGE>
enter the soil or water in, under or upon any real property owned, leased or
operated by the Company.
2.21 INSURANCE. The physical properties, assets, business, operations,
employees, officers and directors of the Company are insured by the Company, to
the extent disclosed in SECTION 2.21 OF THE DISCLOSURE SCHEDULE. Except as set
forth in SECTION 2.21 OF THE DISCLOSURE SCHEDULE and claims for health care
benefits in the ordinary course, there is no material claim by the Company
pending under any such policies. Said insurance policies and arrangements are in
full force and effect, all premiums with respect thereto are currently paid, and
the Company is in compliance in all material respects with the terms thereof.
Said insurance is sufficient for compliance by the Company with all requirements
of applicable law and all agreements and leases to which it is a party and
otherwise is of the type and in amounts customarily carried by persons
conducting business similar to that conducted by the Company. Each such
insurance policy shall continue to be in full force and effect immediately
following consummation of the transactions contemplated by this Agreement. To
the knowledge of the Company and such Selling Stockholder, there is no
threatened termination of any such policies or arrangements.
2.22 INVESTMENT BANKING; BROKERAGE. There are no claims for investment
banking fees, brokerage commissions, finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants) in connection with
the transactions contemplated by this Agreement payable by the Company or based
on any arrangement or agreement made by or on behalf of the Company or the
Selling Stockholders.
2.23 CUSTOMERS; RELATIONSHIP WITH CISCO SYSTEMS. SECTION 2.23 OF THE
DISCLOSURE SCHEDULE sets forth the name of each customer of the Company who
accounted for more than five percent (5%) of the revenues of the Company for the
fiscal year ended March 31, 1998 and for the seven month period ended October
31, 1998 (the "Customers"). To the knowledge of the Company and such Selling
Stockholder, the relationships of the Company with its Customers are good
commercial working relationships. Since March 31, 1997, except as set forth in
SECTION 2.23 OF THE DISCLOSURE SCHEDULE, no Customer of the Company has canceled
or otherwise terminated its relationship with the Company, or has decreased
materially its purchases of the services or products of the Company. No
Customer, has, to the knowledge of the Company and such Selling Stockholder, any
plan or intention to terminate, to cancel or otherwise materially and adversely
modify its relationship with the Company or to decrease materially or limit its
purchase or distribution of the services or products of the Company. To the
knowledge of the Company and such Selling Stockholder, as of the date hereof,
the Company has a good working commercial relationship with CISCO Systems, Inc.
("CISCO"). Since March 31, 1997, CISCO has not (i) canceled or otherwise
terminated its relationship with the Company, (ii) decreased in any material
manner its purchases of any of the Company's services or products or (iii)
otherwise renegotiated, modified or changed in any material and adverse manner
its relationship with the Company and the Company has no reasonable indication
that CISCO has any plan or intention to do any of the foregoing. Neither the
Company nor such Selling Stockholder makes any representation or warranty as to
the commercial relationship between the Company and CISCO after the date hereof.
[Stock Purchase and Redemption Agreement]
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<PAGE>
2.24 WARRANTY AND RELATED MATTERS. SECTION 2.24 OF THE DISCLOSURE
SCHEDULE sets forth a list of all outstanding product and service warranties and
guarantees on any of the products or services that the Company distributes,
services, markets, sells or produces for itself, a customer or a third party
(each such product or service shall be referred to herein as a "Company
Product"). There are no existing or, to the knowledge of the Company and such
Selling Stockholder, threatened in writing, product liability, warranty or other
similar claims against the Company alleging that any Company Product is
defective or fails to meet any product or service warranties except as set forth
in SECTION 2.24 OF THE DISCLOSURE SCHEDULE and to the extent of warranty
reserves. There are (a) no material inherent design defects or systemic or
chronic problems in any Company Product and (b) no liabilities for warranty or
other claims or returns with respect to any Company Product relating to any such
defects or problems.
2.25 SOLVENCY. The Company has not: (a) made a general assignment for
the benefit of creditors; (b) filed any voluntary petition in bankruptcy or
suffered the filing of any involuntary petition by its creditors; (c) suffered
the appointment of a receiver to take possession of all, or substantially all,
of its assets; (d) suffered the attachment or other judicial seizure of all, or
substantially all, of its assets; (e) admitted in writing its inability to pay
its debts as they come due; or (f) made an offer of settlement, extension or
composition to its creditors generally.
2.26 YEAR 2000 COMPLIANCE. Except as set forth in SECTION 2.26 OF THE
DISCLOSURE SCHEDULE, to the knowledge of the Company and such Selling
Stockholder all computer software products that are (a) owned by the Company,
(b) exclusively licensed to the Company (other than "off-the-shelf" software
which is generally commercially available) or (c) currently licensed, sold or
otherwise distributed to others by the Company and embedded in the Company's
products (as opposed to products for which the Company is a reseller or a
distributor) (collectively, "Software") are Year 2000 Compliant, except to the
extent any failure has not had and could not reasonably be expected to have a
Material Adverse Effect. As used herein, "Year 2000 Compliant" shall mean with
respect to any such Software, the ability of such Software to perform the
following date-related functions: (i) consistently handle date information
before, during and after January 1, 2000, including, but not limited to,
accepting date input, providing date output and performing calculations on dates
or portions of dates; (ii) function accurately in accordance with the
documentation relating to the applicable software and without interruption
before, during and after January 1, 2000, without any change in operations
associated with the advent of the new century; (iii) respond to two-digit date
input in a way that resolves any ambiguity as to the century; and (iv) store and
provide output of date information in ways that are unambiguous as to century.
[Stock Purchase and Redemption Agreement]
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<PAGE>
2.27 INFORMATION SUPPLIED BY THE COMPANY.
(a) This Agreement, the Disclosure Schedule and the
certificates and statements furnished pursuant to this Agreement by or on behalf
of the Company or such Selling Stockholder, together with all other information
provided by the Company and such Selling Stockholder to the Investors in
connection with the transactions contemplated hereby, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading in the light of the
circumstances under which they were made. To the knowledge of the Company and
such Selling Stockholder, there is no material fact directly relating to the
business, operations or condition of the Company (other than facts which relate
to general economic or industry trends or conditions) that materially adversely
affects the same that has not been set forth in this Agreement or in the
Disclosure Schedule. To the knowledge of the Company or such Selling
Stockholder, except as disclosed in SECTION 2.27 OF THE DISCLOSURE SCHEDULE,
neither such Selling Stockholder nor any of the executive officers or directors
of the Company has been (a) subject to voluntary or involuntary petition under
the federal bankruptcy laws or any state insolvency law or the appointment of a
receiver, fiscal agent or similar officer by a court for his business or
property; (b) convicted in a criminal proceeding or named as a subject of a
pending criminal proceeding (excluding traffic violations and other minor
offenses); (c) subject to any order, judgment, or decree (not subsequently
reversed, suspended or vacated) of any court of competent jurisdiction
permanently or temporarily enjoining him from, or otherwise imposing limits or
conditions on his, engaging in any securities, investment advisory, banking,
insurance or other type of business or acting as an officer or director of a
public company; or (d) found by a court of competent jurisdiction in a civil
action or by the Securities and Exchange Commission or the Commodity Futures
Trading Commission to have violated any federal or state commodities, securities
or unfair trade practices law, which such judgment or finding has not been
subsequently reversed, suspended, or vacated.
(b) The Company or such Selling Stockholder has provided to,
or made available for inspection and copying by, the Investors and their counsel
true, correct and complete copies of all documents referred to in this Section 2
or in the Disclosure Schedule.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
As a material inducement to the Company and the Selling Stockholders to
enter into this Agreement and consummate the transactions contemplated hereby,
each Investor hereby makes to the Company and the Selling Stockholders the
representation and warranties contained in this Section 3.
3.1 INVESTMENT STATUS. Each Investor represents that it is an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act of 1933, as amended (the "Securities Act"). Each Investor represents to the
Company that it is purchasing the Class B Common Shares for its own account, for
investment only and not with a view to, or any present intention of, effecting a
distribution of such securities or any part thereof except pursuant to a
registration or an available exemption under applicable law. Each such Investor
acknowledges that the Class
[Stock Purchase and Redemption Agreement]
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B Common Shares have not been registered under the Securities Act or the
securities laws of any state or other jurisdiction and cannot be disposed of
unless they are subsequently registered under the Securities Act and any
applicable state laws or exemption from such registration is available.
3.2 AUTHORITY. Each Investor represents that it has full right,
authority and power under its charter, by-laws or governing partnership
agreement, as applicable, to enter into this Agreement and each agreement,
document and instrument to be executed and delivered by or on behalf of such
Investor pursuant to or as contemplated by this Agreement and to carry out the
transactions contemplated hereby and thereby, and the execution, delivery and
performance by such Investor of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary action
required by law under such Investor's charter, by-laws or governing partnership
agreement, as applicable. This Agreement and each agreement, document and
instrument executed and delivered by each Investor pursuant to or as
contemplated by this Agreement constitute, or when executed and delivered will
constitute, valid and binding obligations of each of the Investors enforceable
in accordance with their respective terms.
3.3 INVESTMENT BANKING; BROKERAGE FEES. No Investor has incurred or
become liable for any broker's or finder's fee, banking fees or similar
compensation relating to or in connection with the transactions contemplated
hereby.
SECTION 4. REPRESENTATIONS OF THE SELLING STOCKHOLDERS TO THE COMPANY
In order to induce the Company to enter into this Agreement and
consummate the transactions contemplated hereby, each of the Selling
Stockholders hereby severally and not jointly makes to the Company the
representations and warranties contained in this Section 4.
4.1 AUTHORIZATION AND NON-CONTRAVENTION. Such Selling Stockholder has
the legal power, right and authority to enter into and perform this Agreement
and all documents executed pursuant hereto to which such Selling Stockholder is
a party, and to perform each of his or its obligations hereunder. All action on
such Selling Stockholder's part required for the lawful execution and delivery
of this Agreement and all documents executed pursuant hereto to which such
Selling Stockholder is a party have been or will have been taken prior to the
Closing. The execution, delivery and performance by such Selling Stockholder of
this Agreement and all documents executed pursuant hereto to which such Selling
Stockholder is a party (a) require no action by or in respect of, or filing
with, or consent of, any governmental body, agency or official or any other
entity or individual on such Selling Shareholder's part and (b) do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of any agreement, judgment, injunction, order, decree or any other
instrument binding upon such Selling Stockholder. This Agreement and all
documents executed pursuant hereto to which the Selling Stockholder is a party
have been duly executed and delivered by such Selling Stockholder and constitute
a valid and binding obligation of such Selling Stockholder, enforceable in
accordance with their terms.
[Stock Purchase and Redemption Agreement]
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4.2 TITLE TO AND VALIDITY OF REDEMPTION SHARES. Such Selling
Stockholder is the sole record and beneficial owner of, and has good, valid and
marketable title to, the Redemption Shares to be sold by such Selling
Stockholder to the Company hereunder, free and clear of any and all Liens. Such
Selling Stockholder has full right, power, capacity and authority to sell,
transfer and deliver the Redemption Shares hereunder. Upon payment of the
Redemption Price by the Company for the Redemption Shares, the Company will
acquire good title to such Selling Stockholder's Redemption Shares, free and
clear of any and all Liens, other than those that may be imposed under Federal
or state securities laws.
SECTION 5. CONDITIONS OF PURCHASE BY THE INVESTORS
Each Investor's obligation to purchase and pay for the Class B Common
Shares to be purchased by it shall be subject to compliance by the Company and
the Selling Stockholders with the agreements herein contained and to the
fulfillment to the Investors' satisfaction, or the waiver by the Investors, on
or before and at the Closing Date of the following conditions:
5.1 SATISFACTION OF CONDITIONS. The representations and warranties of
the Company and the Selling Stockholders contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date and each
of the conditions specified in this Section 5 shall have been satisfied or
waived in writing by the Investors.
5.2 OPINION OF COUNSEL. The Investors shall have received from Testa,
Hurwitz & Thibeault, LLP an opinion dated as of the Closing Date substantially
in the form attached hereto as EXHIBIT D and from Hale and Dorr LLP an opinion
dated as of the Closing Date substantially in the form attached hereto as
EXHIBIT E.
5.3 AUTHORIZATION. The Board of Directors and stockholders of the
Company shall have duly adopted resolutions in the form reasonably satisfactory
to the Investors and shall have taken all action necessary for the purpose of
authorizing the Company to consummate all of the transactions contemplated
hereby (including, without limitation, the issuance of the Class B Common Shares
as contemplated by Section 1.2 hereof).
5.4 CHARTER AMENDMENT. The Company shall have duly and properly
authorized and filed with the Delaware Secretary of State the Amended Charter
which shall create the Class B Common, and the Amended Charter shall be in
effect as of the Closing Date on the terms set forth in EXHIBIT C hereto. The
Company shall have delivered to the Investors a copy of the Company's Amended
Charter certified as of a recent date by the Delaware Secretary of State.
5.5 HART-SCOTT-RODINO. All required filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") shall have
been made and the waiting period specified in the HSR Act, including any
extensions thereof, shall have expired or otherwise terminated, and none of the
Company, the Selling Stockholders or the Investors shall be subject to any
injunction or temporary restraining order against consummation of the
transactions contemplated hereby.
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5.6 DELIVERY OF DOCUMENTS. The Company shall have executed and/or
delivered to the Investors (or shall have caused to be executed and delivered to
the Investors by the appropriate Persons) the following:
(a) Certificates for the Class B Common Shares;
(b) Certificates issued by (i) the Secretary of State of the
State of Delaware certifying that the Company has legal existence and is in good
standing; (ii) the Secretary of State (or similar authority) of such
jurisdictions in which the Subsidiaries are incorporated certifying that each
Subsidiary has legal existence and is in good standing; and (iii) the Secretary
of State (or similar authority) of each jurisdiction in which each of the
Company and its Subsidiaries has qualified to do business as a foreign
corporation (or is required to be so qualified) as to such foreign
qualification;
(c) Certificates executed by the Chief Executive Officer of
the Company and each of the Selling Stockholders to the effect that the
representations and warranties of the Company and such Selling Stockholder made
hereunder, are true and correct in all material respects on and as of the
Closing Date shall have been delivered to the Investors;
(d) A certificate of the Secretary of the Company which shall
certify (i) the resolutions adopted by the Board of Directors and stockholders
as contemplated in Section 5.3 hereof, (ii) the Company's By-laws and (iii) the
names of the officers of the Company authorized to sign this Agreement and the
other documents, instruments or certificates to be delivered pursuant to this
Agreement by the Company or any of its officers, together with the true
signatures of such officers; and
(e) Such other supporting documents and certificates as the
Investors may reasonably request and as may be required pursuant to this
Agreement.
5.7 STOCKHOLDERS AGREEMENT. The Company, the Investors, the Founders
and Greylock shall have entered into the Stockholders Agreement in substantially
the form attached hereto as EXHIBIT F.
5.8 AMENDED AND RESTATED RIGHTS AGREEMENT. The Company, the Investors,
the Founders and Greylock shall have entered into the Rights Agreement in
substantially the form attached hereto as EXHIBIT G.
5.9 RELEASES. Each of the Selling Stockholders shall have executed and
delivered a Release Agreement in substantially the form of EXHIBIT H attached
hereto.
5.10 NON-COMPETITION AGREEMENTS. Each of the Founders shall have
entered into an agreement containing non-competition, non-solicitation,
invention assignment and confidentiality provisions with the Company
substantially in the form of EXHIBIT I hereto (the "Non-Competition Agreement").
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5.11 NO MATERIAL ADVERSE CHANGE. There shall not have been any
material adverse change in the financial condition, properties, assets,
liabilities, business or operations of the Company or any of its Subsidiaries
taken as a whole, whether or not in the ordinary course of business, nor any
material adverse change in the United States or world financial markets.
5.12 ALL PROCEEDINGS SATISFACTORY. All corporate and other proceedings
taken prior to or at the Closing in connection with the transactions
contemplated by this Agreement, and all documents and instruments related
thereto, shall be reasonably satisfactory in form and substance to the Investors
and the issuance and sale of the Class B Common Shares shall be made in
compliance with applicable federal and state laws.
5.13 INVESTORS' FEES. The Company shall have paid $165,000 in legal
fees and related expenses incurred by the Investors in connection with the
transactions contemplated by this Agreement. In the event that the transactions
contemplated under this Agreement are not consummated due to factors which are
not attributable to the Investors, the Company shall be obligated to reimburse
the Investors such fees and expenses incurred by such Investors.
5.14 NO VIOLATION OR INJUNCTION. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
5.15 CONSENTS AND WAIVERS. The Company and the Selling Stockholders
shall have made all filings with and notifications of governmental authorities,
regulatory agencies and other entities required to be made prior to the Closing
by such parties in connection with the execution and delivery of this Agreement,
the performance of the transactions contemplated hereby and the continued
operation of the business of the Company and its Subsidiaries subsequent to the
Closing. The Company, the Selling Stockholders and the Investors shall have
received all authorizations, waivers, consents and permits, in form and
substance reasonably satisfactory to the Investors, including any and all
notices, consents and waivers required from all third parties, including,
without limitation, applicable governmental authorities, regulatory agencies,
lessors, lenders and contract parties, required to permit the continuation of
the business of the Company and its Subsidiaries subsequent to the Closing and
the consummation of the transactions contemplated by this Agreement, and to
avoid a breach, default, termination, acceleration or modification of any
indenture, loan or credit agreement or any other material agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment,
injunction, decree, determination or arbitration award as a result of, or in
connection with, the execution and performance of this Agreement.
5.16 ELECTION OF DIRECTORS. The Company shall have taken proper
corporate action to fix the size of the Board of Directors at five (5) members,
the members of which shall be as set forth in the Amended Charter, and two
designees of the holders of Class B Common shall have been elected as directors
of the Company (the "Investors' Nominees") in accordance with the terms of the
Amended Charter.
[Stock Purchase and Redemption Agreement]
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SECTION 6. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND SELLING
STOCKHOLDERS
The obligation of the Company and Selling Stockholders to consummate
this Agreement and the transactions contemplated hereby is subject to the
fulfillment, prior to or at the Closing, of the following conditions precedent:
6.1 REPRESENTATIONS; WARRANTIES; COVENANTS. The representations and
warranties of the Investors contained in Section 3 and the Selling Stockholders
contained in Section 4 shall be true and correct in all material respects on and
as of the Closing Date as though made on and as of the Closing and each of the
conditions specified in this Section 6 shall have been satisfied or waived in
writing by the Company, the Founders and Greylock.
6.2 CERTAIN AGREEMENTS. On the Closing Date, the Investors shall have
executed and delivered the Stockholders Agreement and the Rights Agreement.
6.3 HART-SCOTT-RODINO. All required filings under the HSR Act shall
have been contemplated and the waiting period specified in the HSR Act,
including any extensions thereof, shall have expired or otherwise terminated,
and none of the Company, the Selling Stockholders or the Investors shall be
subject to any injunction or temporary restraining order against consummation of
the transactions contemplated hereby.
6.4 FUNDING. The Company shall have received the full purchase price
for the Class B Common Shares.
6.5 RELEASES. Each of the Selling Stockholders shall have executed and
delivered a Release Agreement in substantially the form of EXHIBIT H attached
hereto.
6.6 NO VIOLATION OR INJUNCTION. The consummation of the transactions
contemplated by this Agreement shall not be in violation of any law or
regulation, and shall not be subject to any injunction, stay or restraining
order.
SECTION 7. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED
7.1 TERMINATION. At any time prior to the Closing, this Agreement may
be terminated as follows:
(a) by mutual written consent of the Company, the Investors,
Greylock and the Founders;
(b) by the Company, the Founders and Greylock, provided that
none of the Company, the Founders or Greylock is in material breach of this
Agreement, (i) if the Investors are in material breach of this Agreement and
such breach shall remain uncured for a period of ten
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(10) business days after such parties shall have given written notice of such
breach to the Investors, or (ii) if the Closing has not occurred on or before
February 15, 1999; or
(c) by the Investors, provided that the Investors are not in
material breach of this Agreement, (i) if any of the Company, the Founders or
Greylock is in material breach of this Agreement and such breach shall remain
uncured for a period of ten (10) business days after the Investors shall have
given written notice of such breach to such parties, or (ii) if the Closing has
not occurred on or before February 15, 1999.
7.2 EFFECT OF TERMINATION. All obligations of the parties hereunder
shall cease upon any termination pursuant to Section 7.1; PROVIDED, HOWEVER,
that (i) the provisions of Section 5.13 and this Section 7 hereof shall survive
any termination of this Agreement; (ii) nothing herein shall relieve any party
from any liability for any willful, material breach of this Agreement; and (iii)
any party may proceed as further set forth in Section 7.3 below.
7.3 RIGHT TO PROCEED. Anything in this Agreement to the contrary
notwithstanding, (i) if any of the conditions specified in Section 5 hereof have
not been satisfied, the Investors shall have the right to proceed with the
transactions contemplated hereby without waiving any of their rights hereunder,
and (ii) if any of the conditions specified in Section 6 hereof have not been
satisfied, the Company and the Selling Stockholders shall have the right to
proceed with the transactions contemplated hereby without waiving any of their
rights hereunder.
SECTION 8. SURVIVAL; INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS; WARRANTIES AND COVENANTS;
ASSIGNABILITY OF RIGHTS. All covenants, agreements, representations and
warranties of the Company, the Selling Stockholders and the Investors made
herein and in the certificates or schedules or other written information
delivered or furnished to any Investor pursuant hereto in connection herewith
(a) are material, shall be deemed to have been relied upon by the party or
parties to whom they are made and shall survive the Closing, provided that the
representations and warranties of the Company and the Selling Stockholders made
in Section 2 hereof and in the certificates or schedules or other written
information delivered or furnished to the Investors pursuant hereto shall
survive until September 30, 1999, except for the last sentence of Section 2.2(a)
and Sections 2.4(b) and 2.12 hereof, which shall survive for the period set
forth in Section 8.2(b)(i) hereof, and in respect of Litigation Claims (as
defined herein), which shall survive for the period set forth in Section
8.2(b)(i) hereof, regardless of any investigation on the part of such party or
its representatives, and (b) shall bind the parties' successors and assigns
(including, without limitation, any successor to the Company by way of
acquisition, merger or otherwise), whether so expressed or not, and, except as
otherwise provided in this Agreement, all such covenants, agreements,
representations and warranties shall inure to the benefit of the Investors'
successors and assigns and to their transferees of Securities, whether so
expressed or not.
[Stock Purchase and Redemption Agreement]
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8.2 TRANSACTION RELATED INDEMNIFICATION.
(a) Each Selling Stockholder (other than Greylock) (on its
behalf and on behalf of its successors, executors, administrators, estate,
heirs, and assigns) (collectively, for the purposes of this Section 8, the
"Indemnifying Parties"), severally and not jointly, agrees to defend, indemnify
and hold the Investors, their affiliates and respective direct and indirect
partners (including partners of partners and stockholders and members of
partners), members, stockholders, directors, officers, employees, attorneys and
agents of each of the foregoing and each person who controls any of them within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act (parties receiving the benefit of the indemnification agreement herein shall
be referred to collectively as "Indemnified Parties" and individually as an
"Indemnified Party") harmless from and against any and all damages, liabilities,
losses, obligations, deficiencies, actions, suits, proceedings, demands,
assessments, orders, judgments, fines, Taxes, penalties, costs and expenses
(including without limitation, reasonable fees of counsel, accountants or
consultants) of any kind or nature whatsoever ("Claims") (whether or not arising
out of third-party claims and including all amounts paid in defense or
settlement of the foregoing) which may be sustained or suffered by any such
Indemnified Party (a "Loss" or "Losses"), based upon, arising out of, by reason
of or otherwise in respect of (i) any inaccuracy in or breach of any
representation or warranty made by the Company and/or such Indemnifying Party in
this Agreement, or in any Schedule or certificate delivered by the Company or by
or on behalf of such Indemnifying Party as part of or pursuant to this
Agreement, or any claim, action or proceeding asserted or instituted or arising
out of any matter or thing covered by such inaccuracy in or breach of such
representations or warranties (collectively, the "Warranty Claims") or (ii) the
litigation matter described in Item 2 of SECTION 2.15 OF THE DISCLOSURE SCHEDULE
but only to the extent Losses related to such litigation matter exceed $200,000
(the "Litigation Claims"); PROVIDED, that Loss and Losses shall not include any
special, indirect, consequential or speculative damages. For purposes of
clarification, losses suffered or sustained by the Company shall not give rise
to indemnification hereunder unless to the extent the same results in a Loss to
an Indemnified Party.
(b) The right of Indemnified Parties to indemnification under
Section 8.2(a) shall be subject to the following provisions:
(i) Indemnification with respect to Warranty Claims
shall expire on September 30, 1999; PROVIDED, HOWEVER, that the
limitation of this clause (i) shall not apply to Warranty Claims
involving fraud or intentional misrepresentation or under the last
sentence of Section 2.2(a) and Sections 2.4(b) and 2.12 hereof
(collectively, the "Primary Warranty Claims"), for which the period for
making such claims shall expire on the date which is six (6) months
after the termination of the applicable statute of limitations relating
thereto. Following such respective dates, such representations and
warranties and, subject to the next sentence, Warranty Claims shall
expire. If prior to the relevant date of expiration a specific state of
facts shall have become known which may constitute or give rise to any
Warranty Claim as to which indemnity may be payable and an Indemnified
Party shall have given reasonable notice of such facts and Warranty
Claims to the Selling Stockholders then the right to indemnification
with respect thereto shall remain in effect solely to the extent stated
in the Warranty Claim without regard to when such matter shall
[Stock Purchase and Redemption Agreement]
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have been finally determined and disposed of, according to the date on
which notice of the applicable claim is given. Indemnification with
respect to Litigation Claims shall expire on the date which is six (6)
months after the date such Litigation Claims are finally settled in
writing or finally adjudicated and disposed of.
(ii) No indemnification shall be payable with respect
to Warranty Claims (other than Primary Warranty Claims) and/or
Litigation Claims unless the total of all Warranty Claims and/or
Litigation Claims exceeds $1,000,000 in the aggregate, whereupon the
full amount of such claims shall be recoverable in accordance with the
terms hereof.
(iii) No Indemnifying Party shall be obligated to
indemnify the Indemnified Parties for Warranty Claims (other than
Primary Warranty Claims) and/or Litigation Claims in an aggregate
amount which exceeds the lesser of (A) (x) the total amount received by
such Indemnifying Party pursuant to the redemption of such Indemnifying
Party's Redemption Shares as set forth in Sections 1.2 hereof less (y)
the sum of the aggregate amount of federal and state Taxes paid by such
Indemnifying Party with respect thereto and, in the case of Tracey
Steele, Michael Szabados and Jerry Stabile who have acquired or are
acquiring shares to be redeemed hereunder upon the exercise of stock
options, the aggregate exercise price thereof or (B) such Indemnifying
Party's pro rata share as set forth opposite such Indemnifying Party's
name in the section of EXHIBIT A relating to such Indemnifying Party
for such Warranty Claims (the aggregate amount payable under this
Section 8.2(b)(iii) shall be referred to as the "Maximum Warranty Claim
Amount").
(iv) The Indemnifying Parties identified with an
asterisk in EXHIBIT A attached hereto shall not be obligated to
indemnify the Indemnified Parties for Warranty Claims under Sections
2.4(a) and 2.17(a) hereof or with respect to Litigation Claims
hereunder.
(v) The amount of any Losses suffered, sustained,
incurred or required to be paid by any Indemnifying Party shall be
reduced (A) by the amount of any insurance proceeds paid as a result of
such Loss, (B) to take account of any Tax Benefit to the Indemnified
Party and (C) by the amount of any recoveries from third parties. As
used herein, the term "Tax Benefit" shall mean the Federal, state and
local tax savings that have resulted or will result from any tax
deduction or tax credit that (x) the Indemnified Party has claimed or
will claim on a Federal, state or local tax return and (y) is directly
attributable to such Loss.
8.3 INDEMNIFICATION FOR VICARIOUS LIABILITY.
(a) Without limitation of any other provision of this
Agreement but except with respect to matters governed by Section 8.2 hereof, the
Company agrees to defend, indemnify and hold each Investor and its direct and
indirect partners, members, agents and representatives (collectively, the
"Indemnitees" and individually an "Indemnitee") harmless from and against any
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and all losses, claims, damages, obligations, liens, assessments, judgments,
fines, liabilities, and other reasonable costs and expenses (including, without
limitation, interest, penalties and any reasonable legal and other expenses)
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted by any third party or governmental
agency based on so-called control person liability, including, without
limitation, in connection with any such third party or governmental action or
claim relating to any action taken or omitted to be taken or alleged to have
been taken or omitted to have been taken by any Indemnitee as director or
controlling person of the Company (including, to the extent not covered by the
Rights Agreement, any and all losses under the Securities Act, the Exchange Act
or other federal or state statutory law or regulation, at common law or
otherwise, which relates directly or indirectly to the registration, purchase,
sale or ownership of any securities of the Company or to any fiduciary
obligation owed with respect thereto); PROVIDED, HOWEVER, that the Company will
not be liable to the extent that such loss, claim, damage, obligation, lien,
assessment, judgment, fine, cost, expense or liability arises from and is based
on (A) an untrue statement or omission or alleged untrue statement or omission
in a registration statement or prospectus which is made in reliance on and in
conformity with written information furnished to the Company in an instrument
duly executed by or on behalf of such Indemnitee specifically stating that it is
for use in the preparation thereof, (B) a knowing and willful violation of the
federal securities laws by an Indemnitee, as finally determined by the
arbitrator selected pursuant to Section 10.7 hereof; (C) an Indemnitee's gross
negligence or willful misconduct as finally determined by the arbitrator
selected pursuant to Section 10.7 hereof; or (D) where an Indemnitee did not act
in good faith and in a manner in the best interests of the Company or, with
respect to a criminal matter, the Indemnitee's conduct was unlawful, in each
case as finally determined by the arbitrator selected pursuant to Section 10.7
hereof; and PROVIDED FURTHER, HOWEVER, that the Company shall have no
indemnification liability to the extent prohibited by law, including, without
limitation, the General Corporation Laws of Delaware.
(b) If the indemnification provided for in Section 8.3(a)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnitee in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the Company, in lieu of indemnifying
such Indemnitee thereunder, shall contribute to the amount paid or payable by
such Indemnitee as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Investors, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Investors in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations.
Each of the Company and the Investors agrees that it would not
be just and equitable if contribution pursuant to this Section 8.3(b) were
determined by pro rata or per capita allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be
[Stock Purchase and Redemption Agreement]
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entitled to contribution from any person who was not found guilty of such
fraudulent misrepresentation.
(c) The indemnification and contribution provided for in this
Section 8.3 will remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnitees or any officer, director, partner,
member, employee, agent or controlling person of the Indemnitees. The Company
shall have the right to select counsel for the defense, subject to the consent
of a majority-in-interest of the Indemnitees, which consent shall not be
unreasonably withheld. If the Company assumes such defense in accordance with
the preceding sentence, it shall have the right, with the consent of a
majority-in-interest of the Indemnitees, which consent shall not be unreasonably
withheld, to settle all indemnifiable matters related to claims by third parties
which are susceptible to being settled provided the Company's obligation to
indemnify such Indemnitees therefor will be fully satisfied by payment of money
by the Company and the settlement includes a complete release of such
Indemnitees. The Company shall provide such Indemnitees that information
regarding the status of the claim that is reasonably requested by such
Indemnitees. Notwithstanding anything herein stated, such Indemnitees shall at
all times have the right to reasonably participate in such defense at its own
expense directly or through counsel; PROVIDED, HOWEVER, if the named parties to
the action or proceeding include both the Company and the Indemnitees and
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, the reasonable expense of separate
counsel for such Indemnitees shall be paid by the Company to the extent
indemnification is required hereunder. If no such notice of intent to dispute
and defend is given by the Company, or if such diligent good faith defense is
not being or ceases to be conducted, such Indemnitees shall, at the expense of
the Company, undertake the defense of (with counsel selected by such
Indemnitees), and shall have the right to compromise or settle, such claim,
liability or expense. If such claim, liability or expense is one that by its
nature cannot be defended solely by the Company, then such Indemnitees shall
make available all information and assistance that the Company may reasonably
request and shall cooperate with the Company in such defense.
(d) The provisions of this Section 8.3 are in addition to and
shall supplement those set forth in the Rights Agreement.
(e) Except with respect to matters governed by Section 8.2
hereof, the Company agrees to pay and hold the Investors harmless against
liability for payment of all reasonable fees and disbursements of counsel in
connection with the enforcement, amendment, modification or waiver of this
Agreement and the agreements, documents and instruments contemplated hereby and
executed pursuant hereto.
8.4 NOTICE; PAYMENT OF LOSSES; DEFENSE OF CLAIMS.
(a) An Indemnified Party shall give written notice to the
Indemnifying Party promptly (with a copy to the Company), and in any event not
later than thirty (30) business days after assertion of any written claim by any
third party, specifying in reasonable detail the amount, nature and source of
the claim, and including therewith copies of any notices or other documents
received from third parties with respect to such claim; PROVIDED, HOWEVER, that
failure to give such
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notice shall not limit the right of an Indemnified Party to recover indemnity or
reimbursement except to the extent that the Indemnifying Party suffers any
prejudice as a result of such failure. The Indemnified Party shall also provide
the Indemnifying Party with such further information concerning any such claims
as the Indemnifying Party may reasonably request by written notice. In all
matters for which an Indemnified Party seeks indemnification under this
Agreement or defends, contests, settles or negotiates any related claim, such
Indemnified Party shall act in a manner consistent with that which a reasonably
prudent person with no access to indemnity would take to mitigate any Losses it
may suffer.
(b) Within forty-five (45) days after receiving notice of a
claim for indemnification or reimbursement, the Indemnifying Party shall, by
written notice to the Indemnified Party, either (1) concede or deny liability
for the claim in whole or in part, or (2) in the case of a claim asserted by a
third party, advise that the matters set forth in the notice are, or will be,
subject to contest or legal proceedings not yet finally resolved. If the
Indemnifying Party concedes liability in whole or in part, it shall, within ten
(10) business days of such concession, pay the amount of the claim to the
Indemnified Party to the extent of the liability conceded. Any such payment
shall be made in immediately available funds equal to the amount of such claim
so payable. If the Indemnifying Party denies liability in whole or in part or
advises that the matters set forth in the notice are, or will be, subject to
contest or legal proceedings not yet finally resolved, then the Indemnifying
Party shall make no payment until the matter is resolved in accordance with this
Agreement.
In the case of any third party claim, if within twenty (20) days after
receiving the notice described in the preceding paragraph the Indemnifying Party
or Parties give written notice to the Indemnified Party or Parties stating that
they would be liable under the provisions hereof for indemnity in the amount of
such indemnification claim if such indemnification claim were valid and that
they dispute and intend to defend against such indemnification claim, liability
or expense at their own cost and expense, then counsel for the defense shall be
selected by the Company or the Indemnifying Party or Parties (subject to the
consent of a majority-in-interest of the Indemnified Parties which consent shall
not be unreasonably withheld) and such Indemnified Party or Parties shall not be
required to make any payment with respect to such claim, liability or expense as
long as the Indemnifying Party or Parties are conducting a good faith and
diligent defense at their own expense; PROVIDED, HOWEVER, that the assumption of
defense of any such matters by the Indemnifying Party or Parties shall relate
solely to the claim, liability or expense that is subject or potentially subject
to indemnification and, PROVIDED, FURTHER, that the Indemnifying Party and the
Indemnified Party shall jointly control any claim which is reasonably likely to
involve damages or costs which are reasonably likely to cause the Maximum
Warranty Claim Amount to be exceeded. If the Indemnifying Party or Parties
assume such defense in accordance with the preceding sentence, they shall have
the right, with the consent of a majority-in-interest of the Indemnified
Parties, which consent shall not be unreasonably withheld, to settle all
indemnifiable matters related to claims by third parties which are susceptible
to being settled provided the Indemnifying Party or Parties' obligation to
indemnify such Indemnified Party or Parties therefor will be fully satisfied by
payment of money by the Indemnifying Party and the settlement includes a
complete release of such Indemnified Party or Parties. The Indemnifying Party or
Parties shall provide such Indemnified Party or Parties that information
regarding the
[Stock Purchase and Redemption Agreement]
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status of the claim that is reasonably requested by the Indemnified Party or
Parties. Notwithstanding anything herein stated, such Indemnified Party or
Parties shall at all times have the right to reasonably participate in such
defense at its own expense directly or through counsel; PROVIDED, HOWEVER, if
the named parties to the action or proceeding include both the Indemnifying
Party or Parties and the Indemnified Party or Parties and representation of both
parties by the same counsel would be inappropriate under applicable standards of
professional conduct, the reasonable expense of separate counsel for such
Indemnified Party or Parties shall be paid by the Indemnifying Party or Parties
to the extent indemnification is required hereunder. If no such notice of intent
to dispute and defend is given by the Indemnifying Party or Parties, or if such
diligent good faith defense is not being or ceases to be conducted, such
Indemnified Party or Parties shall, at the expense of the Indemnifying Party or
Parties, undertake the defense of (with counsel selected by such Indemnified
Party or Parties subject to the consent of the Indemnifying Party or Parties
which consent shall not be unreasonably withheld), and shall have the right to
compromise or settle, such claim, liability or expense (subject to the consent
of the Indemnifying Party or Parties which consent shall not be unreasonably
withheld). If such claim, liability or expense is one that by its nature cannot
be defended solely by the Indemnifying Party or Parties, then such Indemnified
Party or Parties shall make available all information and assistance that the
Indemnifying Party or Parties may reasonably request and shall cooperate with
the Indemnifying Party or Parties in such defense.
8.5 EXCLUSIVE REMEDY. The Indemnifying Parties and the Indemnified
Parties agree and acknowledge that subsequent to the Closing the indemnification
rights provided in this Section 8 shall be the exclusive remedy of the
Indemnified Parties against the Indemnifying Parties for breaches of this
Agreement and the schedules and certificates and other written information
delivered as part or pursuant to or in connection with this Agreement, and shall
be subject to the terms and conditions set forth herein, except with respect to
(a) Claims against any Selling Stockholder involving fraud or intentional
misrepresentations by such Selling Stockholder or (b) any equitable remedies to
which any party may be entitled hereunder. The Indemnifying Parties shall not
have any right of indemnity or contribution from the Company with respect to any
Claim hereunder.
SECTION 9. DEFINITIONS
Unless the context specifically requires otherwise, capitalized terms
used in this Agreement shall have the meaning specified below:
"AMENDED CHARTER" means the Company's Amended and Restated Certificate
of Incorporation in the form of EXHIBIT C hereto.
"CODE" means the Internal Revenue Code of 1986, as amended.
"ERISA" means the Employee Retirement Income Security Act of 1979, as
amended, and the regulations promulgated thereunder.
[Stock Purchase and Redemption Agreement]
-31-
<PAGE>
"EMPLOYEE PROGRAM" means any employee benefit or welfare plan, stock
option, bonus or incentive plan, severance pay policy or agreement, deferred
compensation agreement or any similar plan or agreement.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"INTELLECTUAL PROPERTY RIGHTS" means all intellectual property rights,
including all patents, patent applications, patent rights, trademarks, trademark
applications, trade names, service marks, service mark applications, copyrights,
copyright applications, computer programs and other computer software
(including, without limitation, all source and object code, algorithms,
architecture, structure, display screens, layouts and development tools),
inventions, designs, samples, specifications, schematics, know-how, trade
secrets, proprietary processes and formulae, and development tools, promotional
materials, databases, customer lists, supplier, vendor and dealer lists and
marketing research, and all documentation and media constituting, describing or
relating to the foregoing, including without limitation, manuals, memoranda and
records.
"MATERIAL ADVERSE EFFECT" means any change or effect that is materially
adverse to the properties, assets, business, condition (financial or otherwise)
or results of operations of the Company and its Subsidiaries, taken as a whole.
"PERMITS" means any franchises, authorizations, approvals, orders,
consents, licenses, certificates, permits, registrations, qualifications or
other rights and privileges.
"PERSON" means any individual, corporation, partnership, joint venture,
trust or unincorporated organization or any government or any agency or
political subdivision thereof.
"RIGHTS AGREEMENT" means the Amended and Restated Rights Agreement in
the form of EXHIBIT G hereto to be executed by the Company, the Founders,
Greylock and the Investors.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCKHOLDERS AGREEMENT" means the Stockholders Agreement in the form
of EXHIBIT F hereto to be executed by and among the Company, the Founders,
Greylock and the Investors.
"SUBSIDIARY" means any corporation more than 50% of the outstanding
voting securities of which, or any partnership, joint venture or other entity
more than 50% of the total equity interest of which, is directly or indirectly
owned by the Company or any other entity otherwise controlled by or under common
control with the Company; PROVIDED, that Frontier Software Development India
Pvt. Ltd. shall not be deemed to be a Subsidiary.
"TAXES" means any federal, state, local, foreign or other taxes,
including without limitation income taxes, estimated taxes, excise taxes, sales
taxes, use taxes, gross receipts taxes, franchise taxes, employment and payroll
related taxes, withholding taxes, stamp taxes, transfer taxes and property
taxes, whether or not measured in whole or in part by net income.
[Stock Purchase and Redemption Agreement]
-32-
<PAGE>
SECTION 11. GENERAL
11.1 AMENDMENTS, WAIVERS AND CONSENTS. For the purposes of this
Agreement and all agreements executed pursuant hereto, no course of dealing
between or among any of the parties hereto and no delay on the part of any party
hereto in exercising any rights hereunder or thereunder shall operate as a
waiver of the rights hereof and thereof. No provision hereof may be waived
otherwise than by a written instrument signed by the party or parties so waiving
such covenant or other provision. No amendment to this Agreement may be made
without the written consent of the Company, the Investors holding a majority of
the outstanding Class B Common Shares, the Founders and Greylock. Any actions
required to be taken or consents, approvals, votes or waivers required or
contemplated to be given by the Investors herein shall require a vote of a
majority of the Investors based on the relative holdings of capital stock of the
Company of the Investors as a group at the relevant time and any such action by
such percentage of Investors shall bind all of the Investors.
11.2 LEGEND ON SECURITIES. The Company, the Investors and the Selling
Stockholders acknowledge and agree that the following legend (or one
substantially similar thereto) shall be typed on each certificate evidencing any
of the securities issued hereunder held at any time by an Investor:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE
SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH
SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY
LAWS.
11.3 GOVERNING LAW. This Agreement shall be deemed to be a contract
made under, and shall be construed in accordance with, the laws of the
Commonwealth of Massachusetts, without giving effect to conflict of laws
principles thereof.
11.4 SECTION HEADINGS AND GENDER. The descriptive headings in this
Agreement have been inserted for convenience only and shall not be deemed to
limit or otherwise affect the construction of any provision thereof or hereof.
The use in this Agreement of the masculine pronoun in reference to a party
hereto shall be deemed to include the feminine or neuter, and vice versa, as the
context may require.
11.5 COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, each of which when so executed and delivered shall
be taken to be an original; but such counterparts shall together constitute but
one and the same document.
[Stock Purchase and Redemption Agreement]
-33-
<PAGE>
11.6 NOTICES AND DEMANDS. Any notice or demand which is required or
provided to be given under this Agreement shall be deemed to have been
sufficiently given and received for all purposes when delivered by hand,
telecopy, telex or other method of facsimile, or five (5) days after being sent
by certified or registered mail, postage and charges prepaid, return receipt
requested, or two (2) days after being sent by overnight delivery providing
receipt of delivery, to:
(a) if to the Company, c/o NetScout Systems, Inc., 4
Technology Park Drive, Westford, MA 01886, or at such other address designated
by the Company to the Investors and the other parties hereto in writing;
(b) if to the Selling Stockholders, at the mailing addresses
shown on EXHIBIT A attached hereto, or at such other address designated by a
Selling Stockholder to the Investors and the other parties hereto in writing;
and
(c) if to the Investors, at the mailing addresses as shown on
EXHIBIT B attached hereto, or at such other address designated by an Investor to
the Company and the Selling Stockholders in writing.
11.7 DISPUTE RESOLUTION. Except as provided below, any dispute
arising out of or relating to this Agreement or the breach, termination or
validity hereof shall be finally settled by binding arbitration conducted
expeditiously in accordance with the J.A.M.S./Endispute Comprehensive
Arbitration Rules and Procedures (the "J.A.M.S. Rules"). The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Sections
1-16, and judgment upon the award rendered by the arbitrators may be entered
by any court having jurisdiction thereof. The place of arbitration shall be
Boston, Massachusetts.
Such proceedings shall be administered by the neutral arbitrator in
accordance with the J.A.M.S. Rules as he/she deems appropriate, however, such
proceedings shall be guided by the following agreed upon procedures:
(i) mandatory exchange of all relevant
documents, to be accomplished within
forty-five (45) days of the initiation of
the procedure;
(ii) no other discovery;
(iii) hearings before the neutral arbitrator which
shall consist of a summary presentation by
each side of not more than three (3) hours;
such hearings to take place on one or two
days at a maximum; and
(iv) decision to be rendered not more than ten
(10) days following such hearings.
[Stock Purchase and Redemption Agreement]
-34-
<PAGE>
Notwithstanding anything to the contrary contained herein, the
provisions of this Section 10.7 shall not apply with regard to any equitable
remedies to which any party may be entitled hereunder.
Each of the parties hereto (a) hereby irrevocably submits to the
jurisdiction of any United States District Court of competent jurisdiction for
the purpose of enforcing the award or decision in any such proceeding, (b)
hereby waives, and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution (except as protected
by applicable law), that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or by
such court, and hereby waives and agrees not to seek any review by any court of
any other jurisdiction which may be called upon to grant an enforcement of the
judgment of any such court. Each of the parties hereto hereby consents to
service of process by registered mail at the address to which notices are to be
given. Each of the parties hereto agrees that its or his submission to
jurisdiction and its or his consent to service of process by mail is made for
the express benefit of the other parties hereto. Final judgment against any
party hereto in any such action, suit or proceeding may be enforced in other
jurisdictions by suit, action or proceeding on the judgment, or in any other
manner provided by or pursuant to the laws of such other jurisdiction.
11.8 REMEDIES; SEVERABILITY. Notwithstanding Section 10.7, it is
specifically understood and agreed that any breach of the provisions of this
Agreement by any person subject hereto will result in irreparable injury to the
other parties hereto, that the remedy at law alone will be an inadequate remedy
for such breach, and that, in addition to any other remedies which they may
have, such other parties may enforce their respective rights by actions for
specific performance (to the extent permitted by law). The Company may refuse to
recognize any unauthorized transferee as one of its shareholders for any
purpose, including, without limitation, for purposes of dividend and voting
rights, until the relevant party or parties have complied with all applicable
provisions of this Agreement, the Amended and Restated Co-Sale Agreement and the
Amended and Restated Rights Agreement. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be deemed
prohibited or invalid under such applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, and such
prohibition or invalidity shall not invalidate the remainder of such provision
or the other provisions of this Agreement.
11.9 INTEGRATION. This Agreement, including the exhibits, documents
and instruments referred to herein, constitutes the entire agreement, and
supersedes all other prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, including, without
limitation, the letter of intent dated November 8, 1998 between the Investors
and the Founders in respect of the transactions contemplated herein, other than
the "no-shop" provisions of such letter of intent that were extended by the
letter agreement, dated as of December 10, 1998, between the Investor and the
Founders, which such provisions and letter
[Stock Purchase and Redemption Agreement]
-35-
<PAGE>
agreement shall survive the date of this Agreement until the earlier of the
Closing or termination of this Agreement.
11.10 GREYLOCK FEES. The Company shall pay the reasonable fees and
expenses of Wilson, Sonsini, Goodrich & Rosati, P.C. and Hale and Dorr, LLP,
counsel to Greylock, in connection with the transactions contemplated by this
Agreement, provided that such fees and expenses shall not exceed $10,000 in the
aggregate.
11.11 WAIVERS. The Company hereby waives compliance by the Selling
Stockholders with any notice or other requirements under the Stockholders
Agreement dated as of January 1, 1994 with respect of the sale by the Selling
Stockholders of the Redemption Shares to the Company hereunder. Greylock hereby
waives compliance by the Company and the Selling Stockholders with any notice or
other requirements under the Series A Preferred Stock Purchase Agreement, the
Rights Agreement and the Co-Sale Agreement, each dated as of February 20, 1996.
[SIGNATURE PAGE FOLLOWS]
[Stock Purchase and Redemption Agreement]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
and Redemption Agreement to be duly executed and delivered by their proper and
duly authorized representatives as of the day and year first above written.
THE COMPANY:
NETSCOUT SYSTEMS, INC.
By: /s/ Narendra Popat
-----------------------------
Narendra Popat, President
FOUNDERS:
/s/ Narendra Popat
---------------------------------
Narendra Popat
/s/ Anil Singhal
---------------------------------
Anil Singhal
GREYLOCK:
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: Greylock Equity GP Limited Partnership
By: /s/ Henry F. Mccance
-----------------------------
Henry F. McCance, General Partner
[Stock Purchase and Redemption Agreement]
-39-
<PAGE>
OTHER SELLING STOCKHOLDERS:
/s/ Charles Tillett
----------------------------------
Charles Tillett
/s/ Ralph Lowry
----------------------------------
Ralph Lowry
/s/ Nathan Kalowski
----------------------------------
Nathan Kalowski
/s/ Ashwani Singhal
----------------------------------
Ashwani Singhal
/s/ Joseph G. Hadzima, Jr.
----------------------------------
Joseph G. Hadzima, Jr.
/s/ Michael Szabados
----------------------------------
Michael Szabados
/s/ Jerry Stabile
----------------------------------
Jerry Stabile
/s/ Tracey Steele
----------------------------------
Tracey Steele
[Stock Purchase and Redemption Agreement]
-40-
<PAGE>
INVESTORS:
TA/ADVENT VIII, L.P.
By: TA Associates VIII, LLC, its general
partner
By: TA Associates, Inc., its manager
By: /s/ Kenneth T. Schiciano
-------------------------------------
Kenneth T. Schiciano, Principal
ADVENT ATLANTIC & PACIFIC III, L.P.
By: TA Associates AAP III Partners, L.P., its
general partner
By: TA Associates, Inc., its general partner
By: /s/ Kenneth T. Schiciano
-------------------------------------
Kenneth T. Schiciano, Principal
TA EXECUTIVES FUND, LLC
By: TA Associates, Inc., its manager
By: /s/ Kenneth T. Schiciano
-------------------------------------
Kenneth T. Schiciano, Principal
TA INVESTORS, LLC
By: TA Associates, Inc., its manager
By: /s/ Kenneth T. Schiciano
-------------------------------------
Kenneth T. Schiciano, Principal
EGAN-MANAGED CAPITAL, L.P.
By: EMC Partners, L.P., its general partner
By: /s/ Michael H. Shanahan
-------------------------------------
Michael H. Shanahan, General Partner
[Stock Purchase and Redemption Agreement]
-41-
<PAGE>
Exhibit 10.5
-------------------------------------
NETSCOUT SYSTEMS, INC.
AMENDED AND RESTATED RIGHTS AGREEMENT
JANUARY 15, 1999
-------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1 -CERTAIN DEFINITIONS...............................................................4
SECTION 2 -PIGGYBACK RIGHTS..................................................................7
2.1 Notice of Registration................................................................7
2.2 Underwriting..........................................................................7
2.3 Right to Terminate Registration.......................................................8
2.4 Termination of Piggy-back Rights......................................................8
SECTION 3 -DEMAND REGISTRATION...............................................................8
3.1 Demand Registration...................................................................8
3.2 Underwritten Public Offering..........................................................9
3.3 Inclusion of Additional Shares........................................................9
3.4 Limitations...........................................................................9
3.5 Termination of Demand Rights.........................................................10
SECTION 4 -FORM S-3 REGISTRATION............................................................10
4.1 Registrations on Form S-3............................................................10
4.2 Termination of S-3 Rights............................................................10
SECTION 5 -OBLIGATIONS OF COMPANY...........................................................11
SECTION 6 -EXPENSES OF REGISTRATION.........................................................11
SECTION 7 -INDEMNIFICATION..................................................................12
7.1 The Company..........................................................................12
7.2 Holders..............................................................................12
7.3 Defense of Claims....................................................................13
SECTION 8 -RULE 144 REPORTING...............................................................13
SECTION 9 -STANDOFF AGREEMENT...............................................................14
SECTION 10 -LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS...................................14
SECTION 11 -INFORMATION RIGHTS..............................................................14
11.1 Delivery of Financial Statements....................................................14
11.2 Inspection..........................................................................15
SECTION 12 -COVENANTS OF THE COMPANY........................................................15
12.1 Conduct of Business.................................................................16
12.2 Insurance...........................................................................16
12.3 Key Person Insurance................................................................16
12.4 Affiliated Transactions.............................................................16
12.5 Management Compensation.............................................................16
12.6 Financings..........................................................................17
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12.7 Enforcement of Certain Agreements...................................................17
12.8 Employee Confidentiality, Non-Competition and Invention Assignment Agreements.......17
12.9 Adverse Changes.....................................................................17
12.10 Meetings...........................................................................18
12.11 Committees of the Board............................................................18
12.12. No Conflicting Agreements.........................................................18
12.13 Charter and Bylaw Amendments.......................................................18
SECTION 13 -ADDITIONAL COVENANTS............................................................18
3.1 Confidentiality......................................................................18
SECTION 14 -TERMINATION OF RIGHTS...........................................................19
SECTION 15 -MISCELLANEOUS...................................................................19
15.1 Assignment.........................................................................19
15.2 Governing Law.......................................................................20
15.3 Counterparts........................................................................20
15.4 Titles and Subtitles................................................................20
15.5 Notices.............................................................................20
15.6 Attorney's Fees....................................................................20
15.7 Amendments and Waivers.............................................................20
15.8 Dispute Resolution.................................................................20
15.9 Severability........................................................................21
15.10 Delays or Omissions................................................................22
15.11 Entire Agreement...................................................................22
</TABLE>
<PAGE>
NETSCOUT SYSTEMS, INC.
AMENDED AND RESTATED RIGHTS AGREEMENT
THIS AMENDED AND RESTATED RIGHTS AGREEMENT is entered into as of
January 15, 1999, by and among NetScout Systems, Inc., a Delaware corporation
(the "Company"), the stockholder listed under the heading "Series A Holder" on
the signature page (the "Series A Holder") and the stockholders listed under the
heading "Class B Holders" on the signature page (each a "Class B Holder" and
collectively the "Class B Holders"). The Series A Holder and the Class B Holders
shall be referred to herein collectively as the "Holders."
RECITALS
A. The Series A Holder has purchased shares of Series A Preferred Stock
(the "Series A Preferred") pursuant to the terms of the Series A Preferred Stock
Purchase Agreement dated as of February 20, 1996 by and between the Company and
the Series A Holders.
B. The Class B Holders have purchased shares of Class B Convertible
Common Stock, $0.001 par value per share (the "Class B Common"), pursuant to the
terms of a Stock Purchase and Redemption Agreement, dated as of December 31,
1998, by and among the Company, the Class B Holders, the Series A Holder and
certain other individuals named therein (the "Purchase Agreement").
C. The execution of this Agreement is a condition to the closing of the
transactions contemplated by the Purchase Agreement.
D. The Company desires to enter into this Agreement and grant the
Holders the rights contained herein in order to fulfill such condition.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1
CERTAIN DEFINITIONS
Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
1.1 "CERTIFICATE OF INCORPORATION" shall mean the Company's Amended and
Restated Certificate of Incorporation.
1.2 "COMMON STOCK" shall mean the Voting Common Stock, $0.001 par value
per share, and Non-Voting Common Stock, $0.001 par value per share, of the
Company and any
<PAGE>
other shares of stock issued or issuable with respect thereto (whether by way of
a stock dividend or stock split or in exchange for or in replacement of or upon
conversion of such shares or otherwise in connection with a combination of
shares, recapitalization, merger, consolidation or other corporate
reorganization).
1.3 "CONFIDENTIALITY AGREEMENTS" shall mean the Confidentiality
Agreements referred to in Section 5.10 of the Purchase Agreement.
1.4 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder, all as
the same shall be in effect at that time.
1.5 "FOUNDERS" shall mean Anil Singhal and Narendra Popat.
1.6 "INITIAL PUBLIC OFFERING" or "IPO" means the Company's initial sale
of its Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement under the Securities Act.
1.7 "MATERIAL ADVERSE EFFECT" shall mean any change or effect that is
materially adverse to the properties, assets, business, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole.
1.8 "MERGER" means any merger or consolidation in which the holders of
Class B Common receive net proceeds of at least $12.80 per share of Class B
Common (as appropriately adjusted for any stock split, dividend, combination,
recapitalization or the like) as a result of such transaction, payable at such
time and in such manner as the holders of Common Stock are paid with respect to
their Common Stock on such transaction, or such other merger or consolidation as
approved by the holders of Class B Common as set forth in Article Fourth,
Section 3(d) of the Company's Certificate of Incorporation.
1.9 "NON-COMPETITION AGREEMENTS" shall mean the Non-Competition
Agreement referred to in Section 5.10 of the Purchase Agreement.
1.10 "PERSON" means any individual, corporation, partnership, joint
venture, trust or unincorporated organization or any government or any agency or
political subdivision thereof.
1.11 "PUBLIC OFFERING" means the Company's sale of its Common Stock in
a bona fide, firm commitment underwriting pursuant to a registration statement
under the Securities Act.
1.12 "QUALIFIED PUBLIC OFFERING" shall mean a public offering,
underwritten on a firm commitment basis by a nationally recognized investment
banking organization or organizations, pursuant to an effective registration
statement under the Securities Act, covering the offer and sale of shares of
Common Stock (i) at a price per share of Common Stock, after underwriter
discounts and commissions, of not less than $12.80 per share (appropriately
adjusted for any stock split, dividend, combination, recapitalization or the
like), (ii) for an aggregate offering
<PAGE>
price (after deduction of underwriter discounts and commissions) of not less
than $40,000,000 and (iii) with respect to which such Common Stock is listed for
trading on either the New York Stock Exchange or the Nasdaq National Market.
1.13 THE TERMS "REGISTER", "REGISTERED" AND "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (as defined below), and the declaration or
ordering of the effectiveness of such registration statement.
1.14 "REGISTRABLE SECURITIES" means (i) the shares of Common Stock of
the Company issuable or issued upon conversion of the Series A Preferred or the
Class B Common of the Company (the "Stock"), and (ii) any other shares of the
Company's Common Stock issued as (or issuable upon conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to or exchange for or replacement of the Series A
Preferred or the Class B Common of the Company or the Stock, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which a Holder's rights under this Agreement are not assigned; provided,
however, that Registrable Securities shall only be treated as Registrable
Securities if and so long as, they have not been (A) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction or (B) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
thereto are removed upon the consummation of such sale.
1.15 "RELEASES" shall mean the Releases referred to in Section 5.9 of
the Purchase Agreement.
1.16 "SALE" shall mean the sale, exchange, transfer or other
disposition of all or substantially all of the assets of the Company in which
the holders of Class B Common receive net proceeds of at least $12.80 per share
of Class B Common (as appropriately adjusted for any stock split, dividend,
combination, recapitalization or the like) as a result of such transaction,
payable at such time and in such manner as the holders of Common Stock are paid
with respect to their Common Stock on such transaction, or such other sale,
exchange, transfer or disposition as approved by the holders of Class B Common
as set forth in Article Fourth, Section 3(d) of the Company's Certificate of
Incorporation.
1.17 "SEC" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
1.18 "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder, all as
the same shall be in effect at the time.
1.19 "STOCKHOLDERS AGREEMENT" shall mean the Stockholders Agreement,
dated as of the date hereof, by and among the Company, the Holders and the other
parties named therein, as amended or modified from time to time.
<PAGE>
1.20 "SUBSIDIARY" shall mean any corporation more than 50% of the
outstanding voting securities of which, or any partnership, joint venture or
other entity more than 50% of the total equity interest of which, is directly or
indirectly owned by the Company or any other entity otherwise controlled by or
under common control with the Company; PROVIDED, that Frontier India (as defined
herein) shall not be deemed to be a Subsidiary.
1.21 AN "AFFILIATE" of an entity referenced herein shall mean (i) any
entity who controls, is controlled by, or is under common control with such
entity, or (ii) any constituent partner or stockholder of such entity.
SECTION 2
PIGGYBACK RIGHTS
2.1 NOTICE OF REGISTRATION. If at any time or from time to time, the
Company shall determine to register any of its equity securities for its own
account or pursuant to Section 3.1 hereof on the account of any Holder in an
underwritten public offering, the Company will:
(i) promptly give to the Holders written notice
thereof; and
(i) include in such registration (and any related
qualification under blue sky laws or other compliance), and
underwriting, all the Registrable Securities (subject to cutback as set
forth in Section 2.2) specified in a written request or requests made
within thirty (30) days after receipt of such written notice from the
Company by any Holder.
2.2 UNDERWRITING. The right of any Holder to registration pursuant to
this Section 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. If any Holder proposes to distribute its securities
through such underwriting, such Holder shall (together with the Company and any
other stockholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities to
be included in such registration. The Company shall so advise such Holder and
the other stockholders distributing their securities through such underwriting
pursuant to piggyback registration rights similar to this Section 2, and the
number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be allocated among such
Holder and any other participating stockholders in proportion, as ready as
practicable, to the respective amounts of Registrable Securities held by such
Holder and other securities held by other stockholders at the time of filing the
registration statement, provided such other stockholders do not have senior
registration rights. To facilitate the allocation of shares in accordance with
the above provisions, the Company or the underwriters may round the
<PAGE>
number of shares allocated to such Holder or other stockholders to the nearest
100 shares. If any Holder or other stockholders disapprove of the terms of any
such underwriting, he or she may elect to withdraw therefrom by written notice
to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, and
shall not be transferred in a public distribution prior to ninety (90) days (or
180 days in the case of an Initial Public Offering) after the effective date of
the registration statement relating thereto.
2.3 RIGHT TO TERMINATE REGISTRATION. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 2
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
2.4 TERMINATION OF PIGGY-BACK RIGHTS. The rights of any Holder to
receive notice and to participate in a registration pursuant to the terms of
this Section 2 shall terminate at such time as such Holder could sell all of
Registrable Securities held by such Holder under the terms of Rule 144(k) under
the Securities Act.
SECTION 3
DEMAND REGISTRATION
3.1 DEMAND REGISTRATION. Beginning on February 20, 2001, the Series A
Holders holding at least forty percent (40%) of the Registrable Securities then
owned by all Series A Holders shall be entitled to have the Company effect one
(1) demand registration of Registrable Securities then owned by such Series A
Holders requesting such registration. Upon the earlier of (a) three (3) years
from the date hereof or (b) six (6) months following the closing of the
Company's Initial Public Offering, the Class B Holders holding at least forty
percent (40%) of the Registrable Securities then owned by all Class B Holders
shall be entitled to have the Company effect two (2) demand registrations of
Registrable Securities then owned by such Class B Holders requesting such
registration. Any request for a registration pursuant to the preceding two
sentences (a "Registration Request") of Registrable Securities must be made in
writing, and such Registrable Securities must have an offering value of at least
$2,500,000. The Company shall use its reasonable best efforts to cause the
Registrable Securities specified in such Registration Request to be registered
as soon as reasonably practicable so as to permit the sale thereof, and in
connection therewith shall prepare and file a registration statement with the
SEC under the Securities Act to effect such registration. Such registration
statement shall contain such required information pursuant to the rules and
regulations promulgated under the Securities Act and such additional information
as deemed necessary by the managing underwriter or if there is no managing
underwriter, as deemed necessary by mutual agreement between the Holders
requesting registration and the Company. Such Registration Request shall (i)
specify the number of shares intended to be offered and sold; (ii) express the
present intention of the requesting Holders to offer or cause the offering of
such shares for distribution; (iii) describe the nature or method of the
proposed offer and sale thereof; and (iv) contain the undertaking of the
requesting Holders to provide all such information and materials and take all
such action as may be required
<PAGE>
in order to permit the Company to comply with all applicable requirements of the
SEC and to obtain any desired acceleration of the effective date of such
registration statement.
3.2 UNDERWRITTEN PUBLIC OFFERING. If requested in the Registration
Request, and provided that the underwriter or underwriters are reasonably
satisfactory to the Company, the Company and the Holders including shares in
such registration (together with all officers, directors and other third parties
proposing to distribute their securities through such underwriting pursuant to
Section 3.3 hereof) shall enter into an underwriting agreement with an
investment banking firm or firms containing representations, warranties,
indemnities and agreements then customarily included by an issuer in
underwriting agreements with respect to secondary distributions. The Company
shall not cause the registration under the Securities Act of any other shares of
its Common Stock to become effective (other than registration of an employee
stock plan, or registration in connection with any Rule 145 or similar
transaction) during the effectiveness of a registration requested hereunder for
an underwritten public offering if, in the judgment of the underwriter or
underwriters, marketing factors would adversely affect the price of the
Registrable Securities subject to such underwritten registration.
3.3 INCLUSION OF ADDITIONAL SHARES. The Company may include in a
registration pursuant to this Section 3 securities for its own account and by
other third parties (including officers and employees of the Company), in
amounts as determined by the Company's Board of Directors (the "Additional
Securities"). In the event that such Additional Securities are included in a
registration pursuant to this Section 3, and if the underwriter of such
registration advises the stockholders or the Company registering shares of
Common Stock in writing that marketing factors require a limitation on the
number of shares to be underwritten, then the Registrable Securities of the
Holders, the securities of the Company, the securities held by officers or
directors of the Company and the securities held by other third parties shall be
excluded from the underwriting by reason of the underwriter's marketing
limitation to the extent so required by such limitation, PROVIDED that the
number of shares of Registrable Securities and other securities that may be
included in the registration and underwriting shall be allocated among the
Holders, any other participating stockholders and the Company in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities or
other securities proposed to be offered by each Holder, other stockholder or the
Company in such registration. No securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any officer, director or other stockholder (including Holders)
who has requested inclusion in such registration as provided above disapproves
of the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the underwriter and the Holders requesting
registration. In the event that 20% or more of the Registrable Securities
proposed to be offered by any Holder in a registration pursuant to this Section
3 are excluded from such proposed registration in accordance with the terms of
this Section 3.3, then the Holders as a group shall be entitled to an additional
demand registration pursuant to the terms of this Section 3.
3.4 LIMITATIONS. Notwithstanding the foregoing, if at the time of any
request to register Registrable Securities pursuant to this Section 3, the
Company is engaged, or has fixed plans to engage within ninety (90) days of time
of the request, in a registered public offering or
<PAGE>
any other activity or has material non-public information that, in the good
faith determination of the Board of Directors of the Company, 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 one hundred twenty (120) days from the effective date of
such offering, or the date of commencement of such other material activity, as
the case may be. Such rights to delay a request to be exercised by the Company
may not be exercised more than once in any twelve month period.
3.5 TERMINATION OF DEMAND RIGHTS. The rights of any Holder to receive
notice and to participate in a registration pursuant to the terms of this
Section 3 shall terminate at such time as such Holder could sell all of
Registrable Securities held by such Holder under the terms of Rule 144(k) under
the Securities Act.
SECTION 4
FORM S-3 REGISTRATION
4.1 REGISTRATIONS ON FORM S-3. Holders shall be entitled to request (an
"S-3 Registration Request") an unlimited number of registrations of Registrable
Securities then owned by such requesting Holders on a Form S-3 registration
statement under the Securities Act (an "S-3 Registration"). The S-3 Registration
Request must be made in writing and the S-3 Registration Request shall (i)
specify the number of shares intended to be offered and sold; (ii) express the
present intention of the requesting Holders to offer or cause the offering of
such shares for distribution; (iii) describe the nature or method of the
proposed offer and sale thereof and (iv) contain the undertaking of the
requesting Holders to provide all such information and materials and take all
such action as may be required in order to permit the Company to comply with all
applicable requirements of the SEC and to obtain any desired acceleration of the
effective date of such registration statement. The Company shall, as soon as
practicable, file a S-3 Registration and proceed to obtain all such
qualifications and compliance as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of the requesting
Holders' Registrable Securities as are specified in the S-3 Registration
Request, within 30 days after receipt of such written notice by the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 4 if (i)
Form S-3 is not available for such offering by the requesting Holders; (ii) the
requesting Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate gross price to the
public of less than $1,000,000; or (iii) the Company has, within the twelve (12)
month period preceding the date of such request, already effected a registration
on Form S-3 for any Holder pursuant to this Section 4.
4.2 TERMINATION OF S-3 RIGHTS. The rights of any Holder to request a
registration pursuant to the terms of this Section 4 shall terminate at such
time as such Holder could sell all of Registrable Securities held by such Holder
under the terms of Rule 144(k) under the Securities Act.
<PAGE>
SECTION 5
OBLIGATIONS OF COMPANY
Whenever the Company is required by the provisions of this Agreement to
use its reasonable best efforts to effect the registration of the Registrable
Securities, the Company shall (i) prepare and, as soon as possible, file with
the SEC a registration statement with respect to the Registrable Securities, and
use its reasonable best efforts to cause such registration statement to become
effective and to remain effective until the earlier of the sale of the
Registrable Securities so registered or ninety (90) days subsequent to the
effective date of such registration; (ii) prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to make and to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all securities
proposed to be registered in such registration statement until the earlier of
the sale of the Registrable Securities so registered or ninety (90) days
subsequent to the effective date of such registration statement, (iii) furnish
to any Holder such number of copies of any prospectus (including any preliminary
prospectus and any amended or supplemented prospectus), in conformity with the
requirements of the Securities Act, as such Holder may reasonably request in
order to effect the offering and sale of the Registrable Securities to be
offered and sold, but only while the Company shall be required under the
provisions hereof to cause the registration statement to remain current; (iv)
use its commercially reasonable efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or blue
sky laws of such states as Holder shall reasonably request, maintain any such
registration or qualification current until the earlier of the sale of the
Registrable Securities so registered or ninety (90) days subsequent to the
effective date of the registration statement, and take any and all other actions
either necessary or reasonably advisable to enable Holders to consummate the
public sale or other disposition of the Registrable Securities in jurisdictions
where such Holders desire to effect such sales or other disposition; and (v)
take all such other actions either necessary or reasonably desirable to permit
the Registrable Securities held by a Holder to be registered and disposed of in
accordance with the method of disposition described herein. Notwithstanding the
foregoing, the Company shall not be required to register or to qualify an
offering of the Registrable Securities under the laws of a state if as a
condition to so doing the Company is required to qualify to do business or to
file a general consent to service of process in any such state or jurisdiction,
unless the Company is already subject to service in such jurisdiction.
SECTION 6
EXPENSES OF REGISTRATION
The Company shall pay all of the reasonable out-of-pocket expenses
incurred in connection with any registration statements that are initiated
pursuant to this Agreement, including, without limitation, all SEC and blue sky
registration and filing fees, printing expenses, transfer agent and registrar
fees, the fees and disbursements of the Company's outside counsel and
independent accountants and the reasonable fees and disbursements of one counsel
for all of
<PAGE>
the Holders. Any underwriting discounts, fees and disbursements of counsel to
the Holders, selling commissions and stock transfer taxes applicable to the
Registrable Securities registered on behalf of Holders shall be borne by the
Holders of the Registrable Securities included in such registration.
SECTION 7
INDEMNIFICATION
7.1 THE COMPANY. The Company will indemnify Holders and each person
controlling Holders within the meaning of Section 15 of the Securities Act, and
each underwriter if any, of the Company's securities, with respect to any
registration, qualification or compliance which has been effected pursuant to
this Agreement, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse Holders and each person controlling Holders, and each
underwriter, if any, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by such Holder or controlling person or
underwriter seeking indemnification.
7.2 HOLDERS. Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected (the "Indemnifying Holder"),
indemnify the Company, each of its directors and officers and each underwriter,
if any, of the Company's securities covered by such registration statement and
each person who controls the Company within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof), arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
such Holder of any rule or regulation promulgated under the Securities Act
applicable to such Holder in connection with any such registration,
qualification or compliance, and will reimburse the Company, such directors,
officers or control persons or underwriters for any legal or any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim,
<PAGE>
loss, damage, liability or action, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such
Indemnifying Holder, provided that in no event shall any indemnity under this
Section 7.2 exceed the lesser of (a) the net proceeds of the offering
received by such Indemnifying Holder and (b) such Indemnifying Holder's pro
rata share of such claims, losses, damages and liabilities
7.3 DEFENSE OF CLAIMS. Each party entitled to indemnification under
this Section 7 (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
unreasonably be withheld), and 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 the Indemnified Party by 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, 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 Section 7 unless
the failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action. 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
to such claim or litigation. No Indemnifying Party shall be required to
indemnify any Indemnified Party with respect to any settlement entered into
without such Indemnifying Party's prior consent.
SECTION 8
RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the SEC which may at any time permit the sale of the Registrable
Securities to the public without registration, the Company agrees to use its
best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
from and after ninety (90) days following the effective date of the IPO;
(b) File with the SEC 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
<PAGE>
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time from and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company, and such other reports and documents so filed as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing such Holder to sell any such securities without registration.
SECTION 9
STANDOFF AGREEMENT
In connection with any Public Offering by the Company, if requested by
the Company and the managing underwriter, each Holder agrees not to sell, make
any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities (other than those included in such Public
Offering, if any) without the prior written consent of the Company or the
underwriters for such period of time (not to exceed one hundred eighty (180)
days in connection with the Company's Initial Public Offering and ninety (90)
days in connection with any Public Offering other than the Company's Initial
Public Offering) as may be requested by the Company and the managing
underwriter, provided that all officers directors and 5% stockholders of the
Company enter into similar agreements.
SECTION 10
LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
From and after the date of this Agreement, the Company shall not,
without the prior written consent of Holder(s) of at least a majority of the
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company giving such holder or
prospective holder any registration rights the terms of which are more favorable
than the registration rights granted to Holders hereunder or to require the
Company to effect a registration earlier than the date on which Holders can
first require a registration under Section 3.1.
SECTION 11
INFORMATION RIGHTS
11.1 DELIVERY OF FINANCIAL STATEMENTS.
<PAGE>
(a) The Company shall deliver to each Holder that holds shares of the
Series A Preferred and Class B Common, as soon as practicable, but in any event
within ninety (90) days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the Company as of the
end of such year, and a schedule as to the sources and applications of funds for
such year, such year-end financial reports to be in reasonable detail, prepared
in accordance with generally accepted accounting principles, and audited and
certified by independent public accountants of nationally recognized standing
selected by the Company.
(b) The Company shall deliver to each Holder for so long as the Holder
is a stockholder of the Company:
(i) within thirty (30) days after the end of each month and
forty-five (45) days after the end of each quarter, an unaudited income
statement and schedule as to the sources and applications of funds and
balance sheet and comparison to budget for and as of the end of such
month or quarter, as the case may be, in reasonable detail;
(ii) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for
the next fiscal year, prepared on a monthly basis, including balance
sheets and sources and applications of funds statements for such months
and, as soon as prepared, any other budgets or revised budgets prepared
by the Company; and
(iii) such other information relating to the financial conditions,
business, prospects or corporate affairs of the Company as each Holder;
or any assignee of such Holder may from time to time request; provided,
however, that the Company shall not be obligated to provide information
which it deems in good faith to be proprietary.
11.2 INSPECTION. The Company shall permit each Holder, at such Holder's
expense, to visit and inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs, finances and accounts
with its officers, all at such reasonable times as may be requested by such
Holder; provided, however, that the Company shall not be obligated pursuant to
this Section 11.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
SECTION 12
COVENANTS OF THE COMPANY
The Company (which term shall be deemed to include, for purposes
of this Section 12, any Subsidiary of the Company) agrees with the Class B
Holders that it shall comply with the following covenants except as shall
otherwise be expressly agreed pursuant to a written consent of the Class B
Holders holding at least a majority of the outstanding shares of Class B Common
then held by such Class B Holders; PROVIDED, HOWEVER, that the Company shall be
obligated to comply with the covenants set forth in Section 12 only for so long
as TA/Advent
<PAGE>
VIII, L.P., Advent Atlantic & Pacific III, L.P., TA Executives Fund, LLC or TA
Investors, LLC or any of their respective Affiliates hold 1,666,042 shares of
Class B Common (as appropriately adjusted for any stock split, combination,
reorganizations, recapitalization, stock distribution, stock dividend or similar
event).
12.1 CONDUCT OF BUSINESS. The Company will continue to engage
principally in the business now conducted by the Company or a business or
businesses similar thereto or reasonably compatible therewith.
12.2 INSURANCE. The Company will keep its insurable properties insured,
upon reasonable business terms, by financially sound and reputable insurers
against liability, and the perils of casualty, fire and extended coverage in
amounts of coverage at least equal to those customarily maintained by companies
in the same or similar business as the Company. The Company will also maintain
with such insurers insurance against other hazards and risks and liability to
persons and property to the extent and in the manner customary for companies
engaged in the same or similar business.
12.3 KEY PERSON INSURANCE. The Company shall maintain key-man term life
insurance policies in favor of the Company on the lives of Anil Singhal and
Narendra Popat for so long as they are employed by the Company, each in an
amount of $2,000,000. The Company hereby agrees that such policies shall not be
assigned, borrowed against or pledged.
12.4 AFFILIATED TRANSACTIONS. All transactions by and between the
Company and any officer, employee, director or stockholder of the Company or
persons controlling, controlled by, under common control with or otherwise
affiliated with such officer, employee, director or stockholder shall be
conducted on an arm's-length basis, shall be on terms and conditions no less
favorable to the Company than could be obtained from nonrelated persons and,
with respect to any transaction or series of related transactions in which the
amount involved exceeds $60,000 in any fiscal year, shall require the approval
in advance by the majority of the disinterested members of the Board of
Directors; PROVIDED, HOWEVER, that the Company may enter into and continue a
consulting arrangement with Frontier Software Development India Pvt. Ltd.
("Frontier India") with respect to the year ending December 31, 1999 and
transact business thereunder without the approval of the majority of the
disinterested members of the Board of Directors so long as total expenditures by
the Company with Frontier India for such year are less than $1,000,000; and
PROVIDED FURTHER, that management compensation shall be governed by Section 12.5
and not this Section 12.4. In the event that the Company is offered the
opportunity to purchase shares of capital stock in connection with its first
refusal rights under Section 2.2 of the Stockholder Agreement, the determination
of whether the Company will elect to exercise such rights shall be made by a
majority of the disinterested members of the Board of Directors.
12.5 MANAGEMENT COMPENSATION. Subject to the following sentences,
compensation paid by the Company to its management and other employees will be
no greater than compensation paid to similarly situated employees in companies
in the same or similar businesses of similar size and maturity and with
comparable financial performance as the Company, as determined by the
Compensation Committee. The Founders shall be paid $250,000
<PAGE>
annually in base salary and $250,000 annually in non-discretionary bonus. No
compensation (including salary and bonus, but excluding other benefits) shall be
paid by the Company to either of the Founders in excess of $500,000 annually
without the approval by the Class B Holders holding at least a majority of the
outstanding shares of Class B Common then held by the Class B Holders; provided,
that if such Class B Holders do not approve of such compensation in excess of
$500,000 and the Founder believes such compensation would be comparable to
compensation paid to similarly situated executives in companies in the same or
similar businesses of similar size and maturity and with comparable financial
performance as the Company, then such Holders and the Founder shall retain a
consulting firm of national reputation which is mutually acceptable to such
Holders and Founders with expertise in the area of executive compensation to
make a recommendation with respect to such matter, the expense of which shall be
borne by the Company (it being acknowledged and agreed that such Founder's
compensation shall not be reduced below $500,000 pursuant to this proviso). To
the extent that such firm recommends that a Founder's annual compensation be in
excess of $500,000, the Company shall pay such Founder compensation in
accordance with such recommendation. Any grants of capital stock or options to
employees, officers, directors or consultants of the Company shall be made
pursuant to option and stock plans adopted by the Compensation Committee of the
Board of Directors and conditioned upon the grantee agreeing to be bound by the
terms of an option and/or stock agreement containing first refusal rights of the
Company with respect to transfers of such stock or options and such other
provisions as determined by the Compensation Committee.
12.6 FINANCINGS. The Company will promptly upon availability provide to
the Board of Directors the details and terms of, and any brochures or investment
memoranda prepared by the Company related to, any possible financing of any
nature for the Company, whether initiated by the Company or any other Person.
12.7 ENFORCEMENT OF CERTAIN AGREEMENTS. The Company agrees that it will
diligently enforce all of its rights under this Agreement, the Stockholders
Agreement, the Non-Competition Agreements, and the Releases and will not make
any amendment or modification thereto, unless otherwise approved by a majority
of the disinterested members of the Board of Directors.
12.8 EMPLOYEE CONFIDENTIALITY, NON-COMPETITION AND INVENTION ASSIGNMENT
AGREEMENTS. The Company shall obtain confidentiality and invention assignment
agreements in the form approved by the Board of Directors from time to time from
all employees and consultants who are exposed to technical and other proprietary
information of the Company and the Company will diligently enforce all of its
rights under such agreements.
12.9 ADVERSE CHANGES. To the extent not disclosed in the financial
statements to be provided under Section 11.1, the Company will promptly upon
becoming aware of the same advise the Class B Holders of any event which
represents a material adverse change in the condition (business, financial or
otherwise) or prospects of the Company, and of each suit or proceeding commenced
or threatened against the Company which, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect. The Company will
also promptly notify the Class B Holders of any recall of the Company's
products, any other adverse
<PAGE>
developments relating to the Company's products and any suit or proceeding
commenced or known by the Company to be threatened which is related to the
Company's products.
12.10 MEETINGS. The Company will ensure that meetings of the Board of
Directors are held at least four (4) times each year at intervals of not more
than four (4) months. The Company shall pay such Directors for their reasonable
travel and other reasonable expenses incurred in connection with attending such
meetings. The Company's Certificate of Incorporation and By-Laws will provide
for exculpation and indemnification of the directors and limitations on the
liability of the directors to the fullest extent permitted under applicable
state law, and the Company shall obtain and maintain directors' and officers'
liability insurance coverage, on terms satisfactory to the Company's Board of
Directors covering, among other things, violations of federal or state
securities laws.
12.11 COMMITTEES OF THE BOARD. The Company will establish a
Compensation Committee (which shall be charged with exclusive authority over all
compensation and employee stock and option matters (subject to Section 12.5
hereof)) and an Audit Committee (which shall be charged with reviewing the
Company's financial statements and accounting practices). Each of the
Compensation Committee and the Audit Committee shall consist of three (3)
Directors, one (1) of whom shall be a Class B Director (as defined in the
Company's Certificate of Incorporation), one (1) of whom shall be a Director who
is not an employee of the Company and who is appointed by a majority of the
members of the Board of Directors and one (1) of whom shall be a Common Director
(as defined in the Company's Certificate of Incorporation). The Compensation
Committee and Audit Committee shall act by majority consent of its members.
12.12. NO CONFLICTING AGREEMENTS. The Company will not enter into or
amend any agreement, contract, commitment or understanding which would restrict
or prohibit the exercise by the Class B Holders of any of their rights under
this Agreement, the Purchase Agreement or any of the other documents, agreements
or instruments contemplated hereunder or thereunder.
12.13 CHARTER AND BYLAW AMENDMENTS. The Company shall not amend or
repeal any provision of, or add any provision to, the Company's Certificate of
Incorporation or Bylaws if such action would alter or change the preferences,
rights, privileges or powers of, or the restrictions provided for the benefit
of, the Class B Common or increase or decrease the number of shares of
authorized Class B Common.
SECTION 13
ADDITIONAL COVENANTS
3.1 CONFIDENTIALITY. Each of the Holders agrees to keep confidential
and not to disclose to persons other than its employees, professional
consultants and advisors any information concerning the Company which is
confidential or proprietary ("Confidential Information"), except as otherwise
required by law or as deemed necessary by a Holder to be disclosed to its own
partners. No Confidential Information shall be used or disclosed by a
<PAGE>
Holder for any purpose except in connection with the transactions contemplated
by the Purchase Agreement and the agreements executed and delivered in
connection with the Purchase Agreement and in the enforcement of its rights
thereunder. Each Holder shall use no less a level of care with the Confidential
Information than it uses with its own confidential information. Notwithstanding
the foregoing, the restrictions set forth in this Section 13.1 shall not be
applicable to any information that is publicly available through no fault of a
Holder, any information independently developed by a Holder or its professional
consultants, any information known to a Holder or its professional consultants
before the disclosure thereof by the Company, or any information disclosed to a
Holder by a person without any confidentiality duty to the Company.
SECTION 14
TERMINATION OF RIGHTS
Unless otherwise specified hereunder to terminate earlier, the rights
and provisions of this Agreement shall terminate on the fifth (5th) anniversary
of the date of the Company's Initial Public Offering, provided that the
covenants contained in Sections 11 and 12 hereof shall terminate and be of no
further force and effect upon the earlier of the consummation of (x) a Qualified
Public Offering, (y) a Merger or (z) a Sale.
SECTION 15
MISCELLANEOUS
15.1 ASSIGNMENT. Subject to compliance with Section 3.2 of the
Stockholders Agreement by the Series A Holders, the rights to cause the Company
to register Registrable Securities granted to the Holders by the Company under
this Agreement may be transferred or assigned by the Holders to an Affiliate of
any Holder or a transferee which acquires the greater of (i) 40% of the
Registrable Securities originally purchased by such Holder or (ii) 400,000
shares of Registrable Securities (as appropriately adjusted for any stock split,
combination, reorganization, recapitalization, stock distribution, stock
dividend or similar event); provided that the Company is given written notice at
the time of or within a reasonable time after said transfer or assignment,
stating the name and address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and, provided further, that the transferee or assignee of such
rights assumes the obligations of such Holder under this Agreement. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
Any transferee or assignee shall thereafter be treated as a Holder of the
applicable shares as transferred, subject to the limitations herein. Until the
Company receives actual notice of any transfer or assignment, it shall be
entitled to rely on the then existing list of Holders and the failure to notify
the Company of any transfer or assignment shall not affect the validity of a
notice properly given by the Company to the Holders pursuant to lists maintained
by the Company.
<PAGE>
15.2 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Massachusetts as applied to agreements
entered into solely between residents of and to be performed entirely within,
such state.
15.3 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.4 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
15.5 NOTICES.
(a) All notices, requests, demands and other communications under
this Agreement or in connection herewith shall be given to or made upon any
Holder at the addresses set forth in the Company's records and, if to the
Company, to: NetScout Systems, Inc., 4 Technology Park Drive, Westford, MA
01886, attention: Chief Executive Officer.
(b) All notices, requests, demands and other communications given
or made in accordance with the provisions of this Agreement shall be in writing,
and shall be sent by airmail, return receipt requested, or by facsimile with
confirmation of receipt, and shall be deemed to be given or made when receipt is
so confirmed.
(c) Any party may, by written notice to the other, alter its
address or respondent, and such notice shall be considered to have been given
three (3) days after the airmailing or faxing thereof.
15.6 ATTORNEY'S FEES. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorney's fees costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
15.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
with the written consent of the Company and the holders of at least a majority
of the outstanding Registrable Securities. Any amendment or waiver effected in
accordance with this Section 15.7 shall be binding upon the Holders and each
transferee of the Registrable Securities, each future holder of all such
Registrable Securities, and the Company.
15.8 DISPUTE RESOLUTION. Except as provided below, any dispute arising
out of or relating to this Agreement or the breach, termination or validity
hereof shall be finally settled by binding arbitration conducted expeditiously
in accordance with the J.A.M.S./Endispute Comprehensive Arbitration Rules and
Procedures (the "J.A.M.S. Rules"). The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. Section 1-16, and judgment upon the
award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. The place of arbitration shall be Boston, Massachusetts.
<PAGE>
Such proceedings shall be administered by the neutral arbitrator in
accordance with the J.A.M.S. Rules as he/she deems appropriate, however, such
proceedings shall be guided by the following agreed upon procedures:
(i) mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the
initiation of the procedure;
(ii) no other discovery;
(iii) hearings before the neutral arbitrator which shall
consist of a summary presentation by each side of not
more than three (3) hours; such hearings to take place
on one or two days at a maximum; and
(iv) decision to be rendered not more than ten (10) days
following such hearings.
Notwithstanding anything to the contrary contained herein, the
provisions of this Section 15.8 shall not apply with regard to any equitable
remedies to which any party may be entitled hereunder.
Each of the parties hereto (a) hereby irrevocably submits to the
jurisdiction of any United States District Court of competent jurisdiction for
the purpose of enforcing the award or decision in any such proceeding, (b)
hereby waives, and agrees not to assert, by way of motion, as a defense, or
otherwise, in any such suit, action or proceeding, any claim that it is not
subject personally to the jurisdiction of the above-named courts, that its
property is exempt or immune from attachment or execution (except as protected
by applicable law), that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is improper
or that this Agreement or the subject matter hereof may not be enforced in or by
such court, and hereby waives and agrees not to seek any review by any court of
any other jurisdiction which may be called upon to grant an enforcement of the
judgment of any such court. Each of the parties hereto hereby consents to
service of process by registered mail at the address to which notices are to be
given. Each of the parties hereto agrees that its or his submission to
jurisdiction and its or his consent to service of process by mail is made for
the express benefit of the other parties hereto. Final judgment against any
party hereto in any such action, suit or proceeding may be enforced in other
jurisdictions by suit, action or proceeding on the judgment, or in any other
manner provided by or pursuant to the laws of such other jurisdiction.
15.9 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
<PAGE>
15.10 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, or by law or otherwise afforded to any Holder, shall be cumulative
and not alternative.
15.11 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof and any other written or oral agreements between the
parties hereto are expressly canceled. The parties hereto acknowledge and agree
that the Rights Agreement, dated as of February 20, 1996, by and among the
Company and the Series A Holders is hereby amended and restated in its entirety
and is of no further force and effect.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
the day and year first above written.
COMPANY:
NETSCOUT SYSTEMS, INC.
By: /s/ Narendra Popat
-------------------------------------------------
Narendra Popat, President
SERIES A HOLDER:
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: Greylock Equity GP Limited Partnership
By: /s/ Henry F. McCance
-------------------------------------------------
Henry F. McCance, General Partner
<PAGE>
CLASS B HOLDERS:
TA/ADVENT VIII, L.P.
By: TA Associates VIII, LLC, its general partner
By: TA Associates, Inc., its manager
By: /s/ Kenneth T. Schiciano
-------------------------------------------------
Kenneth T. Schiciano, Principal
ADVENT ATLANTIC & PACIFIC III, L.P.
By: TA Associates AAP III Partners, L.P., its general
partner
By: TA Associates, Inc., its general partner
By: /s/ Kenneth T. Schiciano
-------------------------------------------------
Kenneth T. Schiciano, Principal
TA EXECUTIVES FUND, LLC
By: TA Associates, Inc., its manager
By: /s/ Kenneth T. Schiciano
-------------------------------------------------
Kenneth T. Schiciano, Principal
TA INVESTORS, LLC
By: TA Associates, Inc., its manager
By: /s/ Kenneth T. Schiciano
-------------------------------------------------
Kenneth T. Schiciano, Principal
EGAN-MANAGED CAPITAL, L.P.
By: EMC Partners, L.P., its General Partner
By:/s/ Michael H. Shanahan
-------------------------------------------------
Michael H. Shanahan, General Partner
<PAGE>
Exhibit 10.6
LEASE BETWEEN
MICHELSON FARM - WESTFORD TECHNOLOGY
PARK IV
LIMITED PARTNERSHIP
AND
NETSCOUT SYSTEMS, INC.
FOR
WESTFORD TECHNOLOGY PARK
BUILDING FOUR
<PAGE>
ARTICLE I
TERMS DEFINED
1.1 SUBJECTS REFERRED TO:
Each reference in this Lease to any of the following terms shall mean:
<TABLE>
<S> <C>
Landlord: Michelson Farm - Westford Technology Park IV
Limited Partnership
Managing Agent: The Gutierrez Company
Landlord's and Managing Michelson Farm - Westford Technology Park IV
Agent's Address: Limited Partnership
c/o The Gutierrez Company
One Wall Street
Burlington, Massachusetts 01803
Landlord's Representative: John A. Cataldo
Tenant: NetScout Systems, Inc.
Tenant's Address: 321 Billerica Road
(for Notice and Billing) Chelmsford, Massachusetts 01824
Tenant's Representative: Charles Tillett
Building: The Building, commonly known as Building Four in The
Michelson Farm - Westford Technology Park,
containing approximately 97,500 rentable square feet
on the lot (the "Lot") shown as Lot 4B on a plan
entitled " Definitive Plan of Land, Westford Technology
Park in Westford, Massachusetts" attached to this Lease
as Exhibit "A-2" and recorded with the Middlesex
County North District Registry of Deeds at Book 192,
Plan 24 (Part 2 of 3)
Tenant's Design Completion Date: September 1, 1997
Scheduled Term
Commencement Date: December 1, 1997
Outside Delivery Date: March 1, 1998
</TABLE>
<PAGE>
-3-
<TABLE>
<S> <C>
Term Expiration Date: November 30, 2002
Fixed Rent Year 1: $828,750.00/year; $69,062.50/month ($8.50/sf)
Year 2: $828,750.00/year; $69,062.50/month ($8.50/sf)
Year 3: $926,250.00/year; $77,187.50/month ($9.50/sf)
Year 4: $1,023,750.00/year; $85,312.50/month ($10.50/sf)
Year 5: $1,023,750.00/year, $85,312.50/month ($10.50/sf)
Special Provisions: Option to Extend - Article III
Signage - Section 12.2
Permitted Uses: Uses: Administration, sales and
other general office purpose,
research and development
(including engineering
laboratories), storage and light
manufacturing (including design,
assembly, reassembly and testing
of electronic products and
components) as long as such uses
are permitted uses with respect to
local zoning bylaws and
ordinances.
Premises: The Building and the areas which are the subject of all appurtenant
rights and easements set forth or referred to in Section 2.1 below.
Broker: Lynch Murphy Walsh & Partners
Whittier Partners
</TABLE>
1.2 EXHIBITS - The Exhibits listed below in this Section are
incorporated in this Lease by reference and are to be construed as part of this
Lease:
<TABLE>
<S> <C>
EXHIBIT A Plan Showing Premises, Plan Showing the Lot and the
Park, Plan Showing Common Easements
EXHIBIT B Rules and Regulations
EXHIBIT C Office Park Covenants
EXHIBIT D Deed
EXHIBIT E Subordination, Non-Disturbance and Attornment Agreement
EXHIBIT F Complete Plans
EXHIBIT G Estoppel Certificate
</TABLE>
<PAGE>
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<TABLE>
<S> <C>
EXHIBIT H Form of Work Change Order
EXHIBIT I Certificate of Substantial Completion
</TABLE>
ARTICLE II
DESCRIPTION OF PREMISES
2.1 DEMISE OF PREMISES: In consideration of the rents and
covenants herein stipulated to be paid and performed and upon the terms and
conditions hereinafter specified, Landlord hereby demises and lets to Tenant,
and Tenant hereby leases from Landlord, for the respective terms hereinafter
described, the Premises as described in Article I hereof, which Premises include
the appurtenances described below and in Section 26.10 hereof. The Premises
shall be leased in "as is" condition and specifically and expressly without any
warranties, representations or guarantees, either express or implied, on behalf
of Landlord to Tenant, except as otherwise expressly set forth herein.
Tenant shall have, as appurtenant to the Building, the right to use in
common with others entitled thereto, subject to reasonable rules and regulations
of general applicability to tenants and owners of other lots in Michelson
Farm-Westford Technology Park (the "Office Park" or the "Park") from time to
time made by Landlord according to Section 12.8 of this Lease of which Tenant is
given notice: all common areas (the "Common Areas") shown on the Plan of Common
Easements of the Office Park attached as part of Exhibit "A", including, without
limitation, a right to access to the Premises at all times, use of all service
areas, use of all utility lines including those for electricity, gas, water and
sewage disposal, use of all facilities for drainage of surface water runoff,
including storm drainage systems and detention areas, use of all grades,
driveways, sidewalks and footways, lighting systems and traffic flow patterns
and, if any, all parking areas designated as common or visitors parking areas
for use of the entire Office Park, if
<PAGE>
-5-
any, including, without limitation, all rights appurtenant to the Lot and the
Building created in the deed (attached as Exhibit D) to Landlord.
In addition, the Tenant shall have, as appurtenant to the Premises, (i)
the exclusive right and easement with respect to the Lot to use all improvements
thereon including, without limitation, all parking areas, loading areas, service
areas and the like, (ii) the common right and easement with respect to the Lot
to use all means of access to and from the Building and to the Common Areas,
including, without limitation, all sidewalks, and the driveways, grades, roads
and the like, (iii) the common right and easement with respect to the Lot to use
all utility lines, electricity, water, sewage treatment plant, and (iv) the
common right and easement with respect to the Lot to use all facilities for
drainage of surface water runoff; all of the foregoing rights being subject to
reasonable rules and regulations of general applicability to Tenant, tenants,
and owners of lots in the Office Park from time to time made by Landlord
according to Section 12.8 of this Lease.
ARTICLE III
TERM
3.1 ORIGINAL TERM - To have and to hold for a period (the "Term")
commencing when the Premises are deemed ready for occupancy as provided in
Section 9.2 or if the tenant improvement work is not to be performed by
Landlord's general contractor pursuant to the provisions of Article IX, Section
9.1, on the Scheduled Term Commencement Date (whichever of said dates is
appropriate being hereafter referred to as the "Commencement Date") and
continuing until the Term Expiration Date, unless sooner terminated as provided
in Section 9.2 or Article XIII or in Article XIX or unless extended as provided
in Section 3.2.
Landlord shall deliver possession of the Premises on the Commencement
Date in broom
<PAGE>
-6-
clean condition, free of all tenants and occupants and in accordance with the
terms and provisions of Article IX and Article VII (c) of this Lease.
3.2 EXTENDED TERM - The Tenant has the option to extend this Lease for
one (1) term of five (5) years ("Extended Term") provided the Tenant shall give
to the Landlord written notice of the exercise of this option no later than the
30th day of November, 2001, and such Extended Term shall be upon the same terms,
covenants and conditions hereof, except that the Fixed Rent for the Extended
Term shall be the then Market Rent (as hereinafter defined in Section 4.3).
Landlord shall, within 15 days of receipt of notice of Tenant's election to
extend the Term of this Lease, provide Tenant with notice of the Market Rent in
accordance with the provisions of Article IV. Landlord and Tenant shall, in
accordance with the provisions of Section 4.3 of this Lease, establish the
Market Rent for the Extended Term.
ARTICLE IV
RENT
4.1 FIXED RENT - The Fixed Rent for the Premises during the Term shall
be as set forth in Article I of this Lease and shall be payable on the first day
of each calendar month during the Term hereof in equal monthly installments also
as set forth in said Article, except that the rent (including both said Fixed
Rent and additional rent pursuant to Section 5.1 hereof) for any portion of a
calendar month during the Term hereof shall be apportioned for such portions.
Rental payments shall be made to the Landlord's and Landlord's Managing Agent's
Address set forth in Article I of this Lease or at such other address as
Landlord may from time to time designate by written notice to the Tenant. All
other payments required by this Lease to be made by Tenant during the Term
thereof as additional rent shall be paid as set forth elsewhere in this Lease.
The term "Annual Rent" for any period of twelve calendar months shall mean Fixed
Rent
<PAGE>
-7-
plus any additional rent payable under the Lease with respect to such period.
All rent payable by Tenant pursuant to this Lease shall be paid without setoff,
adjustment, deduction or abatement, except as otherwise expressly set forth in
this Lease.
4.2 PAYMENTS - All payments of Annual Rent shall be made payable to
Managing Agent, or to such other person as Landlord may from time to time
designate by written notice to Tenant. If any installment of Annual Rent is paid
more than seven (7) business days after written notice from Landlord that such
rent has not been paid, it shall bear interest at a rate equal to the prime
commercial rate from time to time established by Fleet Bank, or its successor,
plus 4% per annum from the date such installment was due, which interest shall
be immediately due and payable as further additional rent.
4.3. MARKET RENT - The Market Rent for the Premises, during the
Extended Term, shall be determined as follows:
The Market Rent shall be proposed by Landlord within fifteen (15) days
of receipt of Tenant's notice that it intends to exercise its option to extend
the Term pursuant to Section 3.2 hereof (the "Landlord's Proposed Market Rent").
The Landlord's Proposed Market Rent shall be the Market Rent unless Tenant
notifies Landlord, within fifteen (15) days of Tenant's receipt of Landlord's
Proposed Market Rent, that Landlord's Proposed Market Rent is not satisfactory
to Tenant and that Tenant desires to have appraisers determine the Market Rent
("Tenant's Appraisal Notice"), which notice shall specify the name and address
of the appraiser designated by Tenant.
1. Landlord shall within five (5) days after receipt of
Tenant's Appraisal Notice, notify Tenant of the name
and address of the appraiser designated by Landlord.
Such two appraisers shall, within twenty (20) days
after the
<PAGE>
-8-
Landlord's designation of an appraiser, make their
determinations of the Market Rent in writing and give
notice thereof to each other and to Landlord and
Tenant. Such two (2) appraisers shall have twenty
(20) days after the receipt of notice of each other's
determination to confer with each other and to
attempt to reach agreement as to the determination of
the Market Rent. If such appraisers shall concur in
such determination, they shall give notice thereof to
Landlord and Tenant and such concurrence shall be
final and binding upon Landlord and Tenant. If such
appraisers shall fall to concur as to such
determination within said twenty (20) day period,
they shall give notice thereof to Landlord and Tenant
and shall immediately designate a third appraiser. If
the two appraisers shall fail to agree upon the
designation of such third appraiser within five (5)
days after said twenty (20) day period, then they or
either of them shall give notice of such failure to
agree to Landlord and Tenant and if Landlord and
Tenant fail to agree upon the selection of such third
appraiser within five (5) days after the appraiser(s)
appointed by the parties give notice as aforesaid,
then either party on behalf of both may apply to the
American Arbitration Association or any successor
thereto, or on his or her failure, refusal or
inability to act, to a court of competent
jurisdiction, for the designation of such third
appraiser.
2. All appraisers shall be real estate appraisers or
consultants who shall have had at least seven (7)
years continuous experience in the business of
appraising or leasing real estate in the suburban
Boston area.
<PAGE>
-9-
3. The third appraiser shall conduct such hearings and
investigations as he or she may deem appropriate and
shall, within ten (10) days after the date of his or
her designation, make an independent determination of
the Market Rent.
4. If none of the determinations of the appraisers
varies from the mean of the determinations of the
other appraisers by more than ten (10%) percent, the
mean of the determinations of the three (3)
appraisers shall be the Market Rent for the Premises.
If, on the other hand, the determination of any
single appraiser varies from the mean of the
determinations of the other two (2) appraisers by
more than ten (10%) percent, the mean of the
determination of the two (2) appraisers whose
determinations are closest shall be the Market Rent.
5. The determination of the appraisers, as provided
above, shall be conclusive upon the parties and shall
have the same force and effect as a judgment made in
a court of competent jurisdiction.
6. Each party shall pay fees, costs and expenses of the
appraiser selected by it and its own counsel fees and
one-half (1/2) of all other expenses and fees of any
such appraisal.
Notwithstanding the foregoing Section 4.3, Fixed Rent for the Extended
Term shall not be less than the Fixed Rent for the original Term.
ARTICLE V
OPERATING AND MAINTENANCE COSTS
AND REAL ESTATE TAXES
<PAGE>
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5.1. COMMON AREA MAINTENANCE - Tenant shall pay to Landlord as
additional rent an additional payment on the first day of each month occurring
during the Term hereof one-twelfth (1/12) of the amount of "Common Area
Maintenance Costs" (as hereinafter defined) for each twelve month period
beginning on each December 1st occurring within the Term, as reasonably
estimated by Landlord from time to time according to this Section 5.1 (Common
Area Maintenance Costs are currently estimated at $89,000 for the year ending
12/31/97). The "Common Area Maintenance Costs" include the expenses in the
following categories and shall be prorated in accordance with the prorations set
forth within each category:
1. Building and Lot Related Expenses, which shall be
allocated 100% to Tenant, shall include maintenance
of water tight integrity of the roof walls, windows
and skylights of the Building (Landlord and Tenant
hereby agreeing that in the event that any item for
maintenance of the water tight integrity exceeds
$5,000, then Tenant shall have the right to require
Landlord to obtain 3 competitive bids from a list of
subcontractors mutually agreed upon by Landlord,
Tenant and Landlord's manufacturer of the item so
being maintained); the annual amortized portion for
Landlord's cost of Capital Replacements, as defined
in Section 6. 1, for any capital items purchased by
Landlord in accordance with Section 6. 1, maintenance
and repair of, sewer (i.e. on site sewer system),
utility, fire main and fire hydrant facilities, and
drainage facilities exclusively serving the Building;
maintenance of the Building entrance sign;
maintenance, repair and striping, snow removal and
sanding of the parking and loading area(s) and
driveways on the Lot; fertilization, mowing, and
watering of
<PAGE>
-11-
lawns on the Lot and landscaping and care of
shrubbery and general grounds upkeep of the Lot;
changing of street-lamp lights, walk-way lights, and
parking lights, and keeping same in proper working
condition, and any other services, repairs, or
maintenance performed solely for the benefit of the
Building; management and Building supervision fees,
and insurance premiums procured by Landlord on
Tenant's behalf as specified in Article XV;
2. Traffic Related Expenses, which shall be allocated on
the basis of the ratio of the number of parking
spaces exclusively for Tenant's use under this Lease
to the aggregate total number of parking spaces
within the Office Park, shall include snow removal
and sanding of common drives and parking lots,
maintenance and repair of the Office Park entrance
signs, maintenance and repair of Office Park
lighting, traffic signals, and traffic control
personnel required for the Office Park, maintenance
and repair of Office Park walks, and Office Park
non-exclusive parking and any other traffic or common
Office Park roadway or walk-way related expenses;
3. Landscaping/Drainage/Other General Office Park
Related Expenses, which shall be allocated on the
basis of the ratio of the square footage of the
Building to the aggregate square footage of all
completed buildings including the Building in the
Office Park, as such buildings are completed from
time to time, shall consist of the maintenance and
repair of sewer, utilities, and drainage facilities,
maintenance and repair of detention and fire main and
fire hydrant facilities which service the Office Park
generally
<PAGE>
-12-
and are not exclusive to any single building within
the Office Park; fertilization, mowing, and watering
of lawns and landscaping and care of shrubbery and
general grounds upkeep of access drives, entrance
areas and other such portions of the Office Park the
landscaping of which actually and substantially
benefits the Premises; and liability insurance costs
for the Common Areas of the Office Park;
4. Sewer Treatment Plant Expenses, including real estate
taxes associated with sewer treatment plant land and
buildings, shall consist of the expenses of
operating, maintaining and repairing the sewage
treatment plant, which expenses shall be allocated on
the basis of the ratio of the square footage of the
Building to the aggregate square footage of all
completed buildings including the Building on all
lots in the Park, as such buildings are completed and
connected for service from time to time to the sewer
treatment plant, and the annual amortized portion for
Capital Replacements or improvements to the plant
shall be allocated on the ratio of the Building
square footage to the aggregate square footage of all
completed buildings in the Office Park.
Notwithstanding any contrary provision of this Lease, if Landlord
incurs any Common Area Maintenance Cost that is properly classifiable as a
capital expenditure according to generally accepted accounting principles and
good building management practices and the regulations and directives of the
Internal Revenue Service, then such Common Area Maintenance Cost shall be
amortized over its useful life according to such principles, practices,
regulations and directives, and only the annual amortized portion shall be
included in Common Area
<PAGE>
-13-
Maintenance Costs for any twelve month period within the Term.
Notwithstanding anything to the contrary in this Lease contained,
Tenant shall not be required to pay any Common Area Maintenance Costs
attributable to:
1. Repairs which are the responsibility of the Landlord
as set forth in Article VI, including, structural
repairs, as well as repairs or other work occasioned
by fire or other casualty or by the exercise of
eminent domain;
2. Leasing commissions, attorneys' fees, costs and
disbursements and other expenses incurred in
connection with negotiations or disputes with other
tenants, occupants or prospective tenants or
occupants of the Office Park;
3. Interest, principal, ground rent, or other payments
under any mortgage, ground lease or other financing
of the Lot or the Office Park;
4. Any advertising or promotional expenditures;
5. Services or work provided for other tenants and
occupants of the Office Park and not substantially
benefiting Tenant on a commensurate basis and any
expense for which Landlord is entitled to be
reimbursed directly by any such other tenant or
tenants;
6. Overhead or profit increment paid to subsidiaries or
affiliates of Landlord for services on or to the
Premises to the extent that the costs of such
services exceed competitive costs of such services
were they not so rendered by a subsidiary or
affiliate.
7. Expenses related to salaries, wages, benefits and
other expenses of executives, principals,
administration staff and other employees of Landlord
or Landlord's Management Agent not involved directly
in the
<PAGE>
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operations of the Building or Office Park;
8. Expenses related to leasehold improvements made in
connection with the preparation of any portion of the
Building or Office Park or occupancy by a new or
existing tenant which is not generally beneficial to
all tenants of the Building;
9. Expenses related to efforts to procure new tenants
for other buildings or premises located in the Office
Park, including advertising expenses, leasing
commissions and attorneys fees;
10. Expenses related to Landlord's general overhead not
directly related to the management or operations of
the Building or Office Park;
11. Expenses related to depreciation of the Building;
12. Expenses related to Landlord or Landlord's Managing
Agents breach or violation of a law, lease or other
obligations, including fines, penalties and
attorney's fees;
13. Expenses related to compensation paid to employees or
other persons in connection with commercial
concessions operated by Landlord or Landlord's
Managing Agent;
14. Expenses related to fees for licenses, permits or
inspections resulting from the act or negligence of
Landlord, Landlord's Management Agent or any other
tenant of the Office Park;
15. Expenses related to any items with respect to which
Landlord receives reimbursement from insurance
proceeds or from a third party;
<PAGE>
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16. Costs and expenses of construction related to an
expansion of the rentable area of the Building or
Office Park or the parking areas serving the Building
or Office Park;
17. Expenses related to costs or charges properly
chargeable or attributable to a particular tenant or
tenants,
18. Expenses related to any utility or other service used
or consumed by other tenants or occupants of the
Office Park;
19. Expenses related to environmental testing,
remediation and compliance, Landlord and Tenant
hereby agreeing, that this exclusion is not intended
to limit the provisions of Section 16.2 of this
Lease;
20. Expenses related to compliance by Landlord with laws
existing as of the date of this Lease, including
without limitation the American with Disabilities Act
and the regulations of the standards thereunder,
except to the extent that any such non-compliance was
created by Tenant's use of the Premises; and
21. Management and building supervision fees exceeding
2.5% of annual Fixed Rent.
Tenant shall be solely responsible for paying all utilities including,
but not limited to electricity, water, consumed in the Building or on the Lot,
and the electrical bill shall be placed in the Tenant's name and billed directly
by the utility to Tenant. If Tenant fails to pay any such bills and such failure
continues after written notice to Tenant and the expiration of the applicable
grace period, Landlord shall have the right to pay such bills, and to recover
such payment from Tenant with any interest and/or penalties chargeable thereon
as additional rent. Written notice to
<PAGE>
-16-
Tenant and grace period will not be applicable in case of emergency with respect
to potential damage to persons or property.
Tenant recognizes that Landlord may retain the services of such
independent contractors or affiliates as may be necessary for Landlord to
fulfill its obligations hereunder. Landlord shall provide to Tenant within 120
days of the end of each calendar year an annual accounting, in writing, of
actual Common Area Maintenance Costs for such calendar year, and Landlord shall
maintain complete books and records relating to Common Area Maintenance Costs
sufficient to verify these charges and Tenant, its accountants and agents shall
have access to such books and records at reasonable times with prior written
notice. If the total of Tenant's estimated payments on account of Common Area
Maintenance Costs for such calendar year exceeds the actual Common Area
Maintenance Costs for such year, Landlord shall repay to Tenant such excess
thirty (30) days after the delivery to Tenant of such annual accounting. If the
total of Tenant's estimated payments on account of Common Area Maintenance Costs
for such calendar year falls short of the actual Common Area Maintenance Costs
for such year, Tenant shall pay to Landlord such shortage thirty (30) days after
Tenant's receipt of such accounting.
Based on reasonable estimates of increases in costs covered by this
Section, Landlord reserves the right to adjust the amount of Tenant's estimated
payments on account of Common Area Maintenance Costs annually at the time of
such accounting effective on the first day of each calendar year during the Term
hereof upon thirty (30) days' prior written notice to Tenant and upon providing
Tenant with documentation supporting such estimates. Any such change shall be
effective retroactively to the first day of the calendar year during which the
adjustment is made. Notwithstanding anything contained herein, Landlord reserves
the right to separately invoice Tenant for Tenant's proportionate share of any
actual Common Area Maintenance Costs which
<PAGE>
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exceeds the amount for such item in Landlord's then current estimate of Common
Area Maintenance Costs by greater than five percent (5%). Any such change shall
be effective retroactively to the first day of the calendar year during which
the adjustment is made. None of such Common Area Maintenance Costs shall exceed
amounts which are charged for such expenses in the Westford, Massachusetts area
for property of the same general type and size as in the Office Park. Landlord
agrees that all services to be provided as part of Common Area Maintenance Costs
shall be obtained by Landlord at commercially reasonable, competitive market
rates consistent with the operation of comparable office buildings in the
Westford, Massachusetts area.
5.2 TAX EXPENSE Tenant shall pay directly to the relevant taxing
authority (or to Landlord if required by Landlord's mortgagee) real estate taxes
assessed with respect to any period included in the Term hereof (on a pro rata
basis at the beginning or end of the Term) attributable to the Lot and the
Building and any assessment, levy, penalty, imposition or tax (including any tax
which may replace or be assessed in lieu of any of the foregoing), and any
interest due thereon, assessed with respect to any period included in the Term
by any authority and agency having the direct power to tax against the Lot and
the Building (the "Tax Expense"); provided, however, (i) if the amount of any
real estate taxes or any such assessment, levy, penalty, imposition or tax may
lawfully be paid in installments, Tenant may pay such amount over the maximum
period permitted by law, and only the portion of such amount required to be paid
with respect to any period in the Term shall be included in the Tax Expense for
such period, (ii) if the Term includes a partial fiscal tax year at its
beginning or end, the real estate taxes or any such assessment, levy, penalty,
imposition or tax for such tax years shall be prorated according to the
satisfaction of the total number of days in such tax year that are within the
Term,
<PAGE>
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and only such prorated portion shall be included in the Tax Expense; and (iii)
Tenant shall have no obligation to pay any assessment, levy, penalty, imposition
or tax arising out of a breach or violation by Landlord or any previous owner or
occupancy of the Lot or the Building of any law or obligation. The term "real
estate taxes" means the real estate taxes, betterment assessments, water and
sewer use rents, rates or charges, and such other governmental charges and
impositions which are or may be charged, levied, assessed, imposed or become due
and payable with respect to the Lot, Building, and other improvements comprising
the Premises. All such payments shall be made no later than ten (10) days prior
to the date when interest or penalty would accrue for non-payment or ten (10)
days after Landlord provides Tenant with the real estate tax bill, whichever is
later. Tenant shall furnish to Landlord copies of such bills and receipts
evidencing payment for Landlord's records. Real Estate Taxes are currently
estimated at $51,000 for fiscal year 1998.
Tenant shall also pay all personal property taxes for Tenant's personal
property on the Premises or used in connection therewith. To the extent
permitted by law, Tenant shall pay, when due, taxes levied or assessed against
Landlord by reason of this Lease on the rental or any other payment required to
be made hereunder whether said taxes are assessed solely on the rental payment
hereunder or jointly with other rentals collected pursuant to any law or
ordinance now existing or hereafter enacted (other than taxes levied on the net
income of Landlord derived therefrom as part of a state or federal income tax
law applicable to Landlord's income, and any income, franchise, gross receipts,
corporation, capital levy, excess profits, revenue, rent, inheritance,
devolution, gift, estate, payroll or stamp tax by whatsoever authority, imposed
or howsoever designated or any tax upon the sale, transfer and/or assignment of
Landlord's title or estate which at any time may be assessed against or become a
lien upon all or any part of the
<PAGE>
-19-
Premises or this leasehold). Notwithstanding the foregoing, Tenant shall have no
responsibility for late payment penalty or interest if Tenant's payment was
timely as above provided.
5.3. TAX ABATEMENT - Tenant shall have the right to contest in good
faith by appropriate proceedings diligently pursued the imposition or amount of
any real estate taxes assessed against the Lot or the Building or such personal
property taxes payable by it hereunder, including the right on behalf of, and in
the name of the Landlord, to seek abatements thereto. The Landlord shall
reasonably cooperate with Tenant, at Tenant's sole expense, in any such contest
or abatement proceedings. In the event that Tenant determines not to contest
such taxes and Landlord desires to file such contest, Landlord shall give
written notice of that fact to Tenant and shall have the sole right as to such
tax bill to contest in good faith by appropriate proceedings diligently pursued
the imposition or amount of any real estate taxes assessed against the Lot or
the Building or such other taxes payable by Tenant hereunder, including the
right to seek abatements thereto. In such event, the Tenant shall reasonably
cooperate with Landlord, at Landlord's sole expense, in any such contest or
abatement proceedings. Any tax abatement or rebate received shall be allocated
to the parties in the same proportion as payment.
If Landlord shall receive on behalf of the Lot or the Building a rebate
or abatement on any tax paid by Tenant, then after deducting therefrom any costs
reasonably incurred by Landlord in obtaining such rebate or abatement, all of
such net rebate or abatement relating to the Lot or the Building or to personal
property taxes assessed against the Tenant's personal property shall be returned
to Tenant to the extent that such rebate or abatement relates to payment made by
the Tenant and not reimbursed by Landlord. If Tenant shall receive on behalf of
the Lot or the Building a rebate or abatement on any tax paid by Tenant, then
after deducting therefrom any costs reasonably incurred by Tenant in obtaining
such rebate or abatement, all of such net rebate
<PAGE>
-20-
or abatement related to the Lot, the Building or to personal property taxes
assessed against the Tenant's property shall be retained by Tenant, as its sole
property, to the extent such rebate or abatement relates to a payment made by
Tenant and not reimbursed by Landlord. The remaining portion of such net rebate
or abatement shall promptly be returned to Landlord.
ARTICLE VI
LANDLORD'S COVENANTS
6.1 LANDLORD'S COVENANTS DURING THE TERM - Landlord shall be
responsible during the Term, at Landlord's expense and not as a cost allocable
to Tenant under Section 5.1, for the structural integrity of the Building and
damage and destruction due to casualty or eminent domain (except as set forth in
Article XIII or below in this Section 6.1 or in Section 11.1 to the contrary).
Landlord shall perform necessary repairs to maintain the structural integrity of
the Building (except that such repairs shall not be required in the case of
settling or sagging of the above items within standard engineering tolerance
provided that the settling and sagging does not affect the surface or structural
integrity of the Building or render the Building unsafe or unfit for normal use,
or for damage or deterioration resulting from overloading by Tenant breaching
the loading provisions of this Lease, or from misuse or negligence of Tenant).
Landlord shall also be responsible for (i) all exterior maintenance,
repairs and replacements necessary to keep in good condition and working order
the trees, shrubs, plants, landscaping, parking areas, driveways and walkways on
the Lot, (ii) for such repairs as are required by Article XIII hereof, (iii)
compliance with all laws applicable to the Building, the Lot or Office Park, and
(iv) all Capital Replacements (as hereinafter defined) to the heating,
ventilating, air conditioning, plumbing, electrical, emergency and other
mechanical equipment and systems of the Building (collectively, the "Building's
Systems"), so long as such
<PAGE>
-21-
replacement was not required due to negligence or excessive use of such capital
items by Tenant. "Capital Replacement" shall mean any replacement, the cost of
which is classifiable as a capital expenditure according to generally accepted
accounting principles or the regulations or directives of the Internal Revenue
Service. Landlord will be commercially reasonable and shall use good building
management standards in making Capital Replacement decisions. All costs and
expenses under this Section 6.1 shall be chargeable to Tenant pursuant to the
provisions of Article V, except as otherwise expressly provided in Section 5.1
or this Section 6.1. All other repairs and maintenance, except as specifically
otherwise provided herein, shall be the responsibility of the Tenant.
In the event that Tenant gives notice to Landlord of a condition which
Tenant believes requires Landlord's repairs or a condition which, if left
uncorrected, will necessitate Landlord's repair, then, in accordance with the
terms of this Section 6.1, Landlord shall respond promptly to investigate such
condition and, if such repairs are Landlord's obligation hereunder, Landlord
shall commence promptly to repair same and to diligently complete said repair.
Tenant agrees during the Term to provide Landlord notice as soon as reasonably
possible of any condition known to Tenant which might require, or if left
uncorrected will necessitate, Landlord's repair pursuant to this Section 6.1.
Tenant shall have the right to require, at reasonable times and with reasonable
notice, a representative of Landlord to inspect the Building for repairs which
may be the responsibility of Landlord.
6.2 INTERRUPTIONS - Landlord shall not be liable to Tenant for any
compensation or reduction of rent by reason of inconvenience or annoyance or for
loss of business arising from power losses or shortages to the Building or from
the necessity of Landlord's entering the Premises, subject to Section 12.3, for
any of the purposes in this Lease authorized, or for
<PAGE>
-22-
repairing the Premises or any portion of the Building or improvements or the Lot
or Park, provided, however, (i) Landlord shall use reasonable efforts to remedy
such losses or shortages as quickly as possible and (ii) Landlord, in making any
such entry, repairs or improvements shall not materially interfere with Tenant's
use and occupancy of the Premises. In case Landlord is prevented or delayed from
making any repairs, alterations or improvements, or furnishing any service or
performing any other covenant or duty to be performed on Landlord's part, by
reason of any cause beyond Landlord's reasonable control, Landlord shall not be
liable to Tenant therefor, nor, except as expressly otherwise provided in
Article XIII hereof, shall Tenant be entitled to any abatement or reduction of
rent by reason thereof, nor shall the same give rise to a claim in Tenant's
favor that such failure constitutes actual or constructive, total or partial,
eviction from the Premises. Landlord agrees to provide Tenant with reasonable
advance notice prior to entering the Premises except in the case of emergency.
Landlord reserves the right to stop any service or utility system when
necessary by reason of accident or emergency or until necessary repairs have
been completed, provided that (i) the Landlord shall complete repairs as soon as
reasonably possible and (ii) Landlord makes reasonable efforts to end the
stoppage. Except in case of emergency repairs, Landlord will give Tenant
reasonable advance notice of any contemplated stoppage and will use reasonable
efforts to avoid interference with Tenant's use and occupancy of the Premises.
ARTICLE VII
LANDLORD'S WARRANTIES
Landlord warrants and represents and covenants and areas as follows:
(a) Fee simple title to the Premises is vested in the Landlord.
(b) Landlord has the power and authority to enter into this Lease and
perform the
<PAGE>
-23-
obligations of Landlord hereunder. This Lease and all other documents executed
and delivered by Landlord constitute legal, valid, binding and enforceable
obligations of Landlord, and there are no claims or defenses, personal or
otherwise, or offsets whatsoever to the enforceability or validity of the Lease.
(c) Landlord agrees to put all HVAC, mechanical and electrical
equipment currently in the Building in good operating condition prior to the
date of Tenant's permitted access thereto as set forth in Section 9.2.
ARTICLE VIII
USE OF PREMISES
Tenant may use the Premises for the Permitted Uses specified in Section
1.1 of this Lease.
ARTICLE IX
PREPARATION OF THE PREMISES
9.1 INITIAL CONSTRUCTION
Tenant shall, on or before Tenant's Design Completion Date, provide to
Landlord for approval: a complete set of construction drawings and
specifications (collectively, the "Complete Plans"), which shall be prepared at
Tenant's expense by "Tenant's Architect", (hereinafter defined) showing and
listing all improvements Tenant intends to make to the Premises, (collectively,
the "Tenant's Work"). The Complete Plans shall include but shall not be limited
to:
a. Built-in Furniture and Equipment Layout Plans
b. Dimensioned Partition Plans
c. Electrical and Telephone Outlet Plans
<PAGE>
-24-
d. Reflected Ceiling Plans
e. Door and Hardware Schedules
f Room Finish Schedule including wall, carpet, and floor tile
colors
g. Electrical and Mechanical Engineering Plans
Landlord and Tenant shall initial the Complete Plans after the same
have been submitted by Tenant and approved by Landlord. At the time of such
approval by Landlord, Landlord agrees to notify or indicate what items will be
required to be removed by Tenant at the Term Expiration Date, or any extensions
thereto.
Landlord acknowledges that Tenant has selected Newbury Design
Associates as "Tenant's Architect", which architect is acceptable to Landlord.
Landlord and Tenant acknowledge that the Complete Plans may not be
finalized at the time of Lease execution.
"Tenant's Finish Work" which includes specification, coordination,
supply and installation of furniture, furnishings, telephones and movable
equipment will be the responsibility of Tenant. All of Tenant's Finish Work, and
later changes or additions shall be coordinated with the Tenant's Work being
performed by Landlord in such a manner as to maintain harmonious labor relations
and not damage the Building or Lot or interfere with Building operations. Except
for the Tenant's Finish Work (which such term includes as aforesaid the
installation of the telephone systems, which must be performed by Tenant's
telephone contractor at Tenant's direction and expense (all telephone equipment,
including the telephone interface, shall be installed within the Premises), all
Tenant's Work shall be performed at Tenant's expense by Landlord or a general
contractor selected by Tenant, if prior written approval is granted from
Landlord, which approval shall not be unreasonably withheld,
<PAGE>
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conditioned, or delayed. In the event Tenant elects to use a contractor other
than Landlord, Tenant shall notify Landlord by September 15, 1997 and (i) Tenant
agrees to pay Landlord on the Commencement Date a fee of one and one half
percent (1.5%) of the cost of the Tenant's Work and (ii) Landlord may require
Tenant's general contractor to use a roofing contractor selected by Landlord if
any work is to be done to the roof. Notwithstanding anything contained in
Section 9.2 of this Lease, in the event Tenant elects to use a general
contractor other than Landlord, the Term shall commence on the Scheduled Term
Commencement Date and Fixed Rent shall commence on such date, regardless of
whether or not the Tenant's Work is completed by that date.
In the event Tenant elects to use Landlord to perform the Tenant's
Work, Tenant shall pay therefor to Landlord within ten (10) days of receipt of
Landlord's Construction Statement (as defined below) (x) the cost of the
Tenant's Work specified in the Complete Plans listed on the "Landlord's
Construction Statement" (hereinafter defined) as completed, plus a Landlord's
contractor's of six percent (6%) of such cost (collectively, the "Tenant
Improvement Reimbursement" or "TIR") and (y) an additional amount equal to the
cost of any changes from the Complete Plans initiated by Tenant by submission to
Landlord of a Form of Work Change Order as hereinafter provided, less any
holdbacks by Landlord to subcontractors or for any "Punch List Work" (as defined
in Section 9.2), which amount shall be due and payable as construction of the
Tenant's Work progresses, on submission by Landlord to Tenant of a statement (
the "Landlord's Construction Statement") on or about the fifth day of each month
listing the Tenant's Work completed as of the date of the Landlord's
Construction Statement, the construction costs incurred for the preceding month
for such completed Tenant's Work, the aforementioned 6% fee and any costs
related to such changes from Tenant's Work. The
<PAGE>
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Landlord's Construction Statement shall be accompanied by a certificate of
Landlord's contractor that all payments then due to laborers, materialmen, and
subcontractors have been made. Landlord shall be responsible for all payments
due to laborers, materialmen, and subcontractors in connection with Tenant's
Work, such that the Premises shall on the Commencement Date be free of all
materialmen or mechanics liens. In no event shall any of the foregoing costs
remain unpaid as of the Commencement Date.
A copy of all Landlord's Construction Statements shall be sent to
Tenant's Architect for approval in order to verify that all work listed therein
has been satisfactory completed. Tenant's Architect shall also have the right to
periodically inspect the quality and progress of Tenant's Work.
If Landlord is selected by Tenant to construct the Tenant's Work, then
Landlord shall provide Tenant with construction cost estimates based on the
Complete Plans, including a breakdown thereof, the name of the subcontractor, if
available, and the work and/or materials provided. Unless otherwise mutually
agreed upon by Landlord and Tenant, in the pricing of the cost of the Tenant's
Work, Landlord agrees to obtain three (3) bids from qualified subcontractors
selected from a master list of subcontractors mutually prepared by Landlord and
Tenant prior to the soliciting of bids for any item of the Tenant's Work, but
only to the extent that the same exceeds ten thousand dollars ($10,000.00).
Giving due consideration to factors such as price, delivery commitments, and to
Landlords' construction experience, Landlord shall have the right to select
which subcontractor shall be awarded the work.
Landlord will not approve any construction, alterations, or additions
requiring unusual expense to readapt the Premises so that the Premises can be
used for the Permitted Uses under this Lease on lease termination or increasing,
the cost of construction, insurance or taxes on the
<PAGE>
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Building or of Landlord's services called for by Section 5.1, unless
Tenant first gives assurances acceptable to Landlord that such readaptation will
be made prior to such termination without expense to Landlord and makes
provisions acceptable to Landlord for payment of such increased cost. Landlord
will also disapprove any alterations or additions requested by Tenant which will
delay completion of the Tenant's Work. All changes and additions shall be part
of the Building, except such items as Landlord determines in writing at the time
of approval shall be either removed or left in the Premises or Building on
termination of this Lease.
The Tenant may request changes to Tenant's Work by altering, adding to,
or deducting from Tenant's Work as set forth in the Complete Plans, subject to
Landlord's prior written approval, which such approval shall not to be
unreasonably withheld, conditioned or delayed, and in accordance with the form
of Work Change Order attached hereto as Exhibit H. Any Work Change Order which
constitutes a reduction or increase in the overall cost of Tenant's Work shall
be credited against or added to the cost of the Tenant's Work, as the case may
be.
9.2 PREPARATION OF PREMISES FOR OCCUPANCY
If Landlord is obligated to perform the Tenant's Work pursuant to
Section 9.1 and the Complete Plans, Landlord agrees to use reasonable efforts to
have the Premises ready for occupancy on or before the Scheduled Term
Commencement Date, which shall, however, be extended for a period equal to that
of any delays due to governmental regulations, unusual scarcity of or inability
to, obtain labor or materials, labor difficulties, casualty or other causes
reasonably beyond Landlord's control. The Premises shall be deemed ready for
occupancy on the earlier of:
(a) The date on which Tenant occupies all or any part of the
Premises for the Permitted Uses under the Lease; or
<PAGE>
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(b) The date on which the Tenant's Work, as specified on the
Complete Plans, are Substantially Completed, as
hereinafter defined, as certified by Tenant's Architect
and Landlord's architect; and Landlord has delivered to
Tenant copies of all permits and approvals required to be
obtained from any governmental agency prior to occupancy
of the Premises by Tenant, including, without limitation,
a certificate of occupancy from the Town of Westford or a
temporary certificate of occupancy from the Town of
Westford which allows Tenant to use and occupy the
Premises for the Permitted Uses (including the
elevators), and which temporary certificate of occupancy
is not conditional on the performance of any work other
than the Punch List Work, as defined below, except that
such permit(s) and approval(s) shall not be required as a
condition of Substantial Completion (as hereinafter
defined) if Landlord is unable to secure the same due
solely to Tenant's failure to complete Tenant's Finish
Work as specified in Section 9.1 above (which date,
subject to additional terms and provisions of this
Section 9.2, shall hereinafter be referred to as the date
of "Substantial Completion".
The date of "Substantial Completion" shall mean that (i) Tenant's
Architect and Landlord's architect have certified that the Tenant's Work has
been completed fully except for Punch List Work (as hereinafter defined), (ii)
all such permits and approvals as set forth above in Section 9.2(b) have been
obtained by Landlord and delivered to Tenant and (iii) Tenant can use and occupy
the Premises for the Permitted Uses. "Punch List Work" shall mean those matters
(x) which while incomplete do not materially interfere with Tenant's use and
occupancy of the
<PAGE>
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Premises for the Permitted Uses and (y) the completion of which will not
unreasonably interfere with Tenant's use and occupancy of the Premises for the
Permitted Uses.
On the date of Substantial Completion, Landlord and Tenant shall
prepare a punch list signed by the Landlord and Tenant listing the Punch List
Work and an agreed-upon cost therefor. One Hundred and Fifty Percent (150%) of
the cost of completion of the Punch List Work shall be withheld from the last
TIR; and at such time as Landlord shall complete the Punch List Work and
Tenant's Architect and Landlord's architect have approved the completion of the
Punch List Work, Tenant shall deliver or cause to be delivered to Landlord the
amount stated in the punch list for the Punch List Work which has been
completed. If completion of the Punch List Work has not been accomplished within
thirty days after the date of Substantial Completion, Tenant may have the Punch
List Work completed by its contractor(s) and deduct the cost of such work from
the retainage from the last TIR as aforesaid.
If Landlord is unable to complete construction due to delay in Tenant's
compliance with the provisions of Section 9.1 of this Lease, then the Premises
shall be deemed ready for occupancy no later than the Scheduled Term
Commencement Date.
Landlord shall permit Tenant access to the Building sixty (60) days
prior to the Scheduled Term Commencement Date for the purpose of completing the
Tenant's Finish Work in the Premises prior to the Term when it can be done
without material interference with Landlord's remaining work or for allowing
Tenant's general contractor to complete the Tenant's Work, as the case may be.
All of such work to be constructed by Tenant, or its contractors, shall be
completed in such manner as to not materially damage the Premises or Lot or
materially interfere with the operation of the Building. In addition, such
access shall be subject to the following conditions: (i) Tenant's contractors,
agents or employees work in a harmonious labor
<PAGE>
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relationship with Landlord's general contractor, and (ii) reasonable prior
written notice is given to Landlord or its general contractor specifying the
work to be done and Landlord approves Tenant's construction drawings, which
approval shall not be unreasonably withheld, conditioned or delayed. During the
period of any preoccupancy of the Premises by Tenant (or its contractors) prior
to the commencement of the Term, no Fixed Rent or additional rent or other
charges shall accrue or be payable, but otherwise such pre-occupancy shall be
subject to and with the benefit of all the terms, covenants and conditions
contained in this Lease.
In the event of Tenant's failure to comply with the provisions of
Section 9.1 of this Lease, or to submit information, or to deliver construction
drawings and specifications which meet Landlord's approval, Landlord shall,
exercisable by notice to Tenant, deem the Commencement Date to have occurred on
the Scheduled Term Commencement Date. Notwithstanding the foregoing provisions,
if the Premises are not deemed ready for occupancy, as set forth above in
Section 9.2, on or before the Outside Delivery Date for whatever reason, other
than Tenant's default, Tenant may elect to cancel this Lease at any time after
5:00 PM on the day following the Outside Delivery Date, while the Premises are
not deemed ready for occupancy, as set forth above in Section 9.2, by giving
notice to Landlord of such cancellation which shall be effective when given, it
being understood that said election shall be Tenant's sole remedy at law or in
equity for Landlord's failure to have the Premises ready for occupancy.
9.3 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION
All construction work required or permitted by this Lease, whether
performed by Landlord or by Tenant shall be done in a good and workmanlike
manner and in compliance with all applicable laws and all lawful ordinances,
regulations and orders of governmental authority and insurers of the Building.
If Landlord is selected to perform the Tenant's Work, then
<PAGE>
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Tenant's Architect may inspect the quality and progress of Tenant's Work at
reasonable times and shall promptly give notice of observed defects. If Tenant's
Work is not performed by Landlord, then Landlord's architect shall have the
right to inspect Tenant's Work at reasonable times and shall promptly give
notice of observed defects pertaining to the structure of the Building.
9.4 REPRESENTATIVES
Each party authorizes the other to rely in connection with their
respective rights and obligations under this Article IX upon approval and other
actions on the party's behalf by Landlord's Representative in the case of
Landlord or Tenant's Representative in the case of Tenant or by any person
designated in substitution or addition by notice to the party relying.
ARTICLE X
COMPLIANCE WITH LAW
10.1 TENANT COMPLIANCE - Tenant shall comply, at Tenant's sole expense,
with all applicable laws, ordinances, regulations and orders of any governmental
authority (collectively "the Laws") if such compliance is necessitated by reason
of Tenant's actual use of the Premises, which use shall in any event be in
conformity with the Permitted Uses as specified in Section 1.1 of this Lease.
Except for Tenant's obligations under the preceding sentence, Landlord shall
comply with all Laws applicable to the Building, the Lot or the Office Park.
10.2 NOTICE - Tenant shall have the right upon giving notice to
Landlord to contest any obligation imposed upon Tenant pursuant to the
provisions of this Article and provided the enforcement of such requirement or
law is stayed during such contest and such contest will not subject the Landlord
to criminal penalty or jeopardize the title to the Premises or otherwise affect
the Premises in any material adverse way. Landlord and Tenant shall each
cooperate with the
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other in any such contest and shall execute any documents reasonably required in
the furtherance of such purpose.
ARTICLE XI
ALTERATIONS, ADDITIONS AND IMPROVEMENTS
11.1 ALTERATIONS - Tenant may, from time to time, at its own cost and
expense and without the consent of Landlord, make non-structural non-roof
alterations, additions or improvements to the interior of the Premises
(collectively herein called "Alterations") whose cost in any one instance is
Thirty Thousand Dollars and 00/100 Dollars ($30,000.00) or less, provided Tenant
first notifies Landlord in writing of any such Alterations. If Tenant desires to
make any non-structural non-roof Alterations costing in excess of Thirty
Thousand Dollars and 00/100 Dollars ($30.000.00) in any one instance or any
other alteration, Tenant must first obtain the consent of Landlord thereto,
which consent shall not be unreasonably withheld, conditioned or delayed. In the
instances where Landlord consent is required above, if Landlord reasonably
concludes that the Alterations involve any construction, alterations or
additions requiring unusual expense to readapt the Premises so that the Premises
can be used for the Permitted Uses as defined in this Lease on the Term
Expiration Date, then Landlord shall require by written notice to Tenant at the
time of approval that such readaptation will be made prior to such Term
Expiration Date without expense to Landlord.
If Tenant desires to make any structural or roof alterations to the
Premises, Tenant must first obtain the consent of Landlord thereto. If Landlord
consents to alterations affecting such structural components or the roof,
Landlord shall be relieved of further maintenance and repair responsibility for
the structural components affected by such alterations, and Tenant shall assume
such responsibility, with respect to that portion of the structural components
(in its entirety), if
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any, to which the consent relates, except that Landlord agrees upon request of
Tenant to have such alterations be performed by Landlord or a contractor hired
by Landlord, at Tenant's expense, in which event Landlord shall not be relieved
of any responsibility it may have to the component to be altered.
Except as permitted in Section 12.2, if Tenant desires to make any
alterations to the precast panels, or to the exterior of the Building, or Lot,
Tenant must first obtain the prior written consent of Landlord thereto, which
may be withheld in Landlord's sole discretion.
Any and all such Alterations may be done by any general contractor
chosen by Tenant provided any such general contractor is reputable, bondable by
reputable bonding companies, carries the kind of insurance and in the amounts
set forth in Section 11.5 below. Notwithstanding the foregoing, no such bonding
is required for non-structural, non-roof Alterations.
11.2 LANDLORD PERFORMANCE OF ALTERATIONS - If Tenant, in its sole
discretion, wishes Landlord to perform the work of making Alterations for
Tenant, other than the Tenant's Work to be completed under Article IX, such work
shall be performed at actual cost, plus a fee of fifteen (15%) percent.
11.3 TENANT PERFORMANCE OF ALTERATIONS - Tenant in making any
Alterations shall cause all work to be done in a good and workmanlike manner
using materials equal to or better than those used in the construction of the
Tenant's Work and shall comply with or cause compliance with all laws and with
any direction given by any public officer pursuant to law. Tenant shall obtain
or cause to be obtained and maintain in effect, as necessary, all building
permits, licenses, temporary and permanent certificates of occupancy and other
governmental approvals which may be required in connection with the making of
the Alterations. Landlord shall cooperate with
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Tenant in the obtaining thereof and shall execute any documents reasonably
required in furtherance of such purpose, provided any such cooperation shall be
without expense and/or liability to Landlord.
11.4 REMOVAL OF ALTERATIONS - At any time during the Term of this
Lease, or on the Term Expiration Date, Tenant may remove any Alterations made,
unless Landlord has indicated in writing at the time of approval of such
Alterations that such Alterations are required to remain on the Premises. In the
event of a removal of any Alterations by Tenant, Tenant shall, at its sole cost,
repair any damage to the Premises caused by such removal.
11.5 GENERAL PROVISIONS At least annually if such Alterations have
occurred during the past calendar year, Tenant shall furnish to Landlord
as-built sepias and, if applicable, operating manuals, of the work done by
Tenant during such past year and copies of all permits issued in connection
therewith. For all of Tenant's Alterations, whose cost in any one instance is in
excess of $30,000.00, all of Tenant's construction drawings must be prepared at
Tenant's expense by an architect or engineer approved by the Landlord and
Landlord's engineer, which approval shall not be unreasonably withheld or
delayed. Landlord and Tenant shall initial the construction drawings after the
same have been submitted by Tenant to Landlord and approved by Landlord. All of
Tenant's alterations which cost in any instance is in excess of $30,000.00,
shall be constructed by a reputable general contractor, and Landlord may require
that the electrical, heating ventilation and air conditioning, and sprinkler
subcontractors be approved by Landlord, such approval not to be unreasonably
withheld or delayed.
Tenant shall have its contractor procure and maintain in effect during
the term of such Alterations, the following insurance coverages with an
insurance company or companies authorized to do business in the Commonwealth of
Massachusetts.
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(a) Worker's Compensation and Occupational Disease Insurance in
accordance with the laws of the Commonwealth of Massachusetts, along with a "All
States" and "Voluntary Compensation" coverage endorsement.
(b) Employees Liability insurance with a limit of $100,000.00 per
person per accident, $100,000.00 per person by disease, and $500,000.00 per
policy by disease.
(c) Comprehensive General Liability including Personal Injury and
Property Damage in the amount of a combined single limit of $2,000,000.00 each
occurrence. Coverage must include the following:
(1) premises - operations;
(2) elevators and hoists;
(3) independent contractor;
(4) contractual liability assumed under this contract.
(d) Comprehensive Auto Liability including Personal Injury and Property
Damage in the amount of a combined single limit of $500,000.00 each occurrence.
Coverage must include the following:
(1) owned vehicles;
(2) leased vehicles;
(3) hired vehicles;
(4) non-owned vehicles.
(e) Owner and Contractor Protective Liability including Personal Injury
and Property Damage in the amount of a combined single limit of $1,000,000.00
each occurrence.
ARTICLE XII TENANT'S
COVENANTS
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12.1 MAINTENANCE AND REPAIR - Except as provided in Sections 6.1 with
respect to maintenance, repair and other such obligations of Landlord and 13.1
except with respect to repair and restoration of damage or destruction arising
out of a fire or other casualty or the exercise of eminent domain, and except as
to reasonable wear and tear, Tenant shall: keep the Premises and all fixtures
thereon and therein in good repair, operating condition and working order; make
all structural repairs necessitated by Tenant's misuse or negligence; make and
perform or cause to be made or performed all interior maintenance, repairs, and
replacements necessary to keep the Premises in such condition, including,
without limitation, by their inclusion, interior repainting, and replacement of
glass damaged or broken and of floor and wall coverings worn or damaged; keep
all roof drains clear of blockage by snow and other obstructions or debris;
except for Capital Replacements (except as otherwise set forth in Section 6.1),
keep all plumbing, lighting, elevator, heating, ventilating, air conditioning
and other utility and mechanical systems in the Premises properly maintained and
operating in good operating condition; and except for Capital Replacements
(except as otherwise set forth in Section 6. 1), properly maintain the plumbing,
lighting, elevator, heating, ventilating, air conditioning and other utility and
mechanical systems in accordance with any manufacturers warranty and product
standards with fully licensed contractors and under contracts, each reasonably
acceptable to Landlord, qualified to perform the service. Landlord and its
agents reserve the right to inspect the systems to insure proper maintenance in
accordance with Section 12.3 of this Lease. If Landlord, in Landlord's
reasonable judgment, determines such systems have not been properly and
adequately maintained, as herein required, then Landlord, after written notice
to Tenant and the expiration of the applicable grace period, shall have the
right to remedy such maintenance deficiency and
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apportion all reasonable costs of such inspections and maintenance to Tenant's
Common Area Maintenance Costs specified in Article V, Landlord and Tenant hereby
agreeing that written notice or grace period not to be applicable in case of
emergency with respect to persons or property.
Tenant further covenants to (i) neither commit nor suffer waste and
(ii) at the expiration or termination of this Lease peaceably to yield up the
Premises in such order, repair and condition as Tenant is required to maintain
hereunder, first removing all goods and effects of Tenant which Tenant is
required to remove or which Tenant is permitted to remove and desires to remove
and (iii) to repair all damage caused by such removal leaving the Premises clean
and neat and in a condition as required under the terms of this Lease.
12.2 SIGNS - Tenant shall not, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed (but may be withheld in Landlord's sole discretion if Tenant is not
leasing at least sixty-six percent (66%) of the Building), (a) paint, place or
replace any signs on the Lot or the Premises or anywhere on the exterior of the
Building (notwithstanding the provisions of Section 11.1 to the contrary), or
(b) place any curtains, blinds (other than standard vertical blinds), shades,
awnings, or flagpoles, or the like, in the Premises or anywhere on or in the
Building visible from outside the Building. Tenant shall pay the expenses
involved in the erection of any sign and of obtaining permits therefor. Tenant
warrants that it shall obtain (and furnish copies thereof to Landlord) all
necessary permits and approvals in compliance with local codes and ordinances
prior to erecting any such sign (s) and, at Landlord's request, Tenant shall
remove said sign (s) upon the termination of this Lease.
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12.3 ENTRY AND INSPECTION - Tenant shall permit Landlord and Landlord's
agents and invitees at reasonable times and upon reasonable advance notice
except in emergency in which case notice may be given by telephone or in person,
during Tenant's regular business hours: to examine the Premises, and, if
Landlord shall so elect, to exercise its rights and perform its obligations
under this Lease; to show the Premises to prospective purchasers, prospective or
actual mortgagees, and prospective or actual institutional investors; and, at
any time within twelve (12) months preceding the expiration of the Term, to show
the Premises to prospective tenants, and to affix to any suitable part of the
exterior of the Building and/or the Premises, but not so as to interfere
unreasonably with any of the signs or the windows of the Tenant, a notice to
letting or selling the Premises, and to keep the same so affixed without
hindrance; provided, however, Landlord shall not unreasonably interfere with
Tenant's use or occupancy of the Premises.
12.4 MISCELLANEOUS Tenant agrees during the Term and so long as
Tenant's occupancy continues:
(a) Not to permit its employees and officers to use any parking spaces
other than those described in Exhibit "A" and in Section 2.1 of this Lease, and
to make every reasonable effort to keep its invitees from using any spaces other
than those on the Premises; any governmental charges or surcharges or other
monetary obligations imposed by a governmental agency relative to parking rights
with respect to the Premises shall be considered as a Tax Expense and shall be
payable by Tenant in the manner and to the extent provided under the provisions
of Article V, subject to the Tenant's right to contest the same at Tenant's
expense in good faith and by appropriate proceedings.
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(b) Not to injure or deface the Premises, or Lot; and not to permit in
the Premises any public auction, nuisance or the emission from the Premises of
any objectionable noise or odor; nor any use thereof which is contrary to law or
ordinances or liable to invalidate or materially increase the premiums for any
insurance on the Building or its contents or liable to render necessary any
alteration or addition to the Premises, unless Tenant is willing to pay for, at
its sole cost and expense, and conduct such alteration or addition, including
obtaining any and all necessary permits and approvals in connection with such
construction thereof.
12.5 SAFETY APPLIANCES - Tenant agrees to keep the interior of the
Building equipped with all safety appliances, required by law or ordinance or
any other regulation of any public authority and to procure all licenses and
permits so required because of the Permitted Uses.
12.6 LOADING - Tenant covenants and agrees not to place a load upon the
Premises exceeding 100 pound load per square foot of floor area above the first
floor of which the Premises are constructed, and 200 pounds live load per square
foot of floor area for at grade slab.
12.7 LABOR OR MATERIALMEN'S LIENS - Tenant covenants and agrees not to
cause or permit any liens for labor or materials performed or furnished at the
request of Tenant or its agents, employees or contractors to attach to the
Premises, or in the event of any such lien so attached to the Premises, Tenant,
within ten (10) days after receiving notice of such lien, shall discharge or
bond over any such liens which may so attach. Tenant may contest any such lien
in good faith at Tenant's sole expense and by appropriate proceedings so long as
the Landlord's interest in the Premises is not jeopardized.
12.8 RULES AND REGULATIONS - Tenant agrees to comply with the Rules and
Regulations set forth in Exhibit "B" and all other reasonable Rules and
Regulations of general applicability to
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tenants and owners of other lots in the Office Park, hereafter made by Landlord,
of which Tenant has been given advance written notice, for the care and use of
the Premises, the Building, the Common Areas and the Office Park and approaches
as further described in the Office Park Covenants attached hereto as Exhibit
"C". Such Rules and Regulations shall not unreasonably interfere with Tenant's
use or occupancy of the Premises, and to the extent any such Rules and
Regulations conflict with this Lease, this Lease shall control. Landlord shall
enforce all such Rules and Regulations uniformly against all tenants.
12.9 TENANT'S COVENANTS - Tenant has the power and authority to enter
into this Lease and perform the obligations of Tenant hereunder. This Lease and
all other documents executed and delivered by Tenant constitute legal, valid,
binding and enforceable obligations of Tenant.
ARTICLE XIII
CASUALTY AND CONDEMNATION
13.1 CASUALTY - In case during the Term all or any substantial part
(i.e. requiring greater than twelve (12) months to rebuild, as reasonably
determined by Landlord's architect) of the Building is damaged by fire or any
other casualty ("Substantial Casualty"), then this Lease shall, except as
hereinafter provided, terminate at Landlord or Tenant's election, which may be
made by written notice given to the other party within thirty (30) days after
the casualty, which notice of termination shall specify the effective date of
termination which shall not be more than sixty (60) days after the date of
receipt of notice of such termination. In the event of any such Substantial
Casualty, the Fixed Rent and additional rent shall be abated entirely as of the
date of such casualty. In the event of any fire or casualty to the Building,
unless the Lease is so terminated, Landlord shall with reasonable diligence,
repair, replace and restore the Building into substantially the same condition
as it was prior to the casualty for use and occupation to the
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extent of the proceeds of insurance, less adjuster's fees, and other reasonable
expenses of collection plus insurance deductibles to be paid by Tenant as
hereunder provided. However, if such damage is not repaired and the Building
restored to substantially the same condition as it was prior to such damage
within a period of twelve (12) full calendar months from the date of such
damage, Tenant within thirty (30) days from the expiration of such period or
from the expiration of any extension thereof pursuant to the terms hereof may
terminate this Lease by notice to Landlord, specifying, a date not more than
sixty (60) days after the giving of such notice on which the term of this Lease
shall terminate. The period within which the required repairs may be
accomplished shall also be extended by the number of days lost as a result of
unavoidable delays, which term shall be defined to include all delays referred
to as Force Majeure in 26.12. up to a maximum period of sixty (60) days. Tenant
shall, in any fire or other casualty which creates a Landlord repair obligation
in accordance with the terms of this Article, upon receipt of written notice and
supporting back up documentation, pay to Landlord prior to Landlord commencing
construction of such repair the then applicable insurance deductible. In
addition, Tenant shall pay Fixed Rent as required by this Lease for any portion
of the Term not covered by rent insurance as required to be obtained by Landlord
in Section 15. 1.
If the Premises shall be damaged by fire or other casualty, the Fixed
Rent and other charges payable by Tenant under this Lease shall abate or be
reduced proportionately for the period in which, by reason of such damage, there
is substantial interference with Tenant's use and/or occupancy of the Premises.
Such abatement or reduction shall end, if and when, Landlord shall have restored
the Premises to substantially the same condition in which the Premises were
prior to such damage.
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13.2 ADDITIONAL CASUALTY PROVISIONS
(a) Landlord shall not be required to repair or replace any of Tenant's
business machinery, equipment, cabinet work, furniture, personal property and no
damages, compensation or claim shall be payable by Landlord for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Premises, necessitated by a fire or other casualty; provided,
however, Landlord shall use reasonable efforts not to interfere with Tenant's
use and occupancy of the Premises.
(b) In the event of any termination of this Lease pursuant to this
Article XIII, the Term of this Lease shall expire as of the effective
termination date as fully and completely as if such date were the date herein
originally scheduled as the Term Expiration Date. Tenant shall have access to
the Premises at Tenant's sole risk for a period of thirty (30) days after the
date of termination in order to remove Tenant's personal property except as
prohibited by any applicable Governmental agency or official.
13.3 CONDEMNATION/EMINENT DOMAIN - In the event that the whole or
substantially all of the Building shall be permanently taken or appropriated by
eminent domain or shall be condemned for any public or quasi-public use, then
(and in any such event) this Lease and the Term hereof shall automatically be
terminated as of the effective date of such taking, appropriation or
condemnation.
In the event that more than a material part (i.e. greater than 30%) of
the floor area of the Building, or any material part of the means of access (
"material" in the case of access shall mean so as to substantially interfere
with the use of the Building), or any material parking ("material" in the case
of parking shall mean the reduction of parking spaces to less than three
(3)parking spaces per 1,000 square feet of Building), shall be so taken,
appropriated or condemned for a
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period in excess of one year, then (and in any such event) this Lease and the
Term hereof may be terminated at the election of Tenant by a notice in writing
to Landlord of its election so to terminate within sixty (60) days following the
effective date of such taking, appropriation or condemnation. With respect to
reductions in parking, Landlord may suspend the effectiveness of such notice by
giving its own notice to Tenant within five (5) days of receipt of Tenant's
notice that Landlord shall either (i) remove the impairment to Tenant's use of
the Building by repairing the Building as soon as practicable, or (ii) provide
substitute parking spaces equal to the number taken within reasonable proximity
to the Premises within a reasonable time period, it being agreed that reasonable
time includes weather-related delays associated with winter and spring site work
and paving.
In the event of any such termination, this Lease and Term hereof shall
expire as of the date specified in such notice of termination from Tenant, which
date shall not be more than sixty (60) days after the date of such notice, as
fully and completely as if such date were the date herein originally scheduled
as the Term Expiration Date. If this Lease is not terminated as above set forth,
Landlord shall, with reasonable diligence and up to the amount of the award,
restore the remainder of the Premises, and the remainder of the means of access,
as nearly as practicably may be to the same condition as obtained prior to such
taking, appropriation or condemnation in which event (i) a just proportion of
the Fixed Rent and additional rent, according to the nature and extent of the
taking, appropriation or condemnation and the resulting permanent injury to the
Premises and the means of access thereto and parking shall be permanently
abated, and (ii) a just proportion of tile remainder of the Fixed Rent and
additional rent, according to the nature and extent of the taking, appropriation
or condemnation and the resultant injury sustained by the Premises and the means
of access thereto and parking shall be abated until what remains of the
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Premises and the means of access thereto and parking, shall have been restored
as fully as may be for permanent use and occupation by Tenant hereunder.
13.4 RESERVATION OF AWARD - Landlord reserves to itself any and all
rights to receive awards made for damages to the Premises, Building or Lot and
the leasehold hereby created, or any one or more of them accruing by reason of
exercise of eminent domain and Tenant hereby releases and assigns to Landlord
all Tenant's rights to such awards, and covenants to deliver such further
assignments and assurances thereof as Landlord may from time to time request. It
is understood and agreed, however, that Landlord does not reserve to itself, and
Tenant does not assign to Landlord, any damages payable for (i) Tenant's
Property as defined in Section 18.1 of this Lease, or (ii) relocation expenses
recoverable by Tenant from such authority in a separate action.
ARTICLE XIV
RIGHTS OF MORTGAGEES
14.1 PRIORITY OF LEASE - Landlord shall use reasonable efforts to
provide to Tenant a Subordination Non-Disturbance and Attornment Agreement (in
the form attached as Exhibit E) from any present holder (a "Mortgagee") of any
mortgage (a "Mortgage") now affecting the Premises. Landlord shall use
reasonable efforts to obtain from any future Mortgagee and any future lessor
under any ground lease or superior lease affecting the Premises a Subordination,
Non-Disturbance and Attornment Agreement (in the form attached as Exhibit E or
in such other form as may be reasonably acceptable to Tenant). Provided that
Landlord has delivered to Tenant such a Subordination, Non-Disturbance and
Attornment Agreement from each such present or future Mortgagee, this Lease
shall be subject and subordinate to the lien of any Mortgage of the Premises.
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14.2 LIMITATION ON MORTGAGEE'S LIABILITY - Upon entry and taking
possession of the Premises for any purpose, the holder of a mortgage shall have
all rights of Landlord and, during the period of such possession or ownership,
the duty to perform all Landlord's obligations hereunder. Except during such
period of possession and from and after Foreclosure (as defined in Exhibit E),
no such holder shall be liable, either as mortgagee or as holder of a collateral
assignment of this Lease, to perform, or be liable in damages for failure to
perform, any of the obligations of Landlord, unless and until such holder shall
enter and take possession of the Mortgaged Premises for the purpose of
foreclosing a mortgage. Upon entry for the purpose of foreclosing a mortgage,
such holder shall be liable to perform all of the obligations of Landlord
accruing after said entry, provided that a discontinuance of any foreclosure
proceeding shall terminate the liability of the holder as Landlord.
14.3 NO PREPAYMENT OR MODIFICATION, ETC. - No Fixed Rent, additional
rent, or any other charge shall be paid more than thirty (30) days prior to the
due dates thereof, and payments made in violation of this provision shall
(except to the extent that such payments are actually received by a Mortgagee in
possession or in the process of foreclosing its mortgage) be a nullity as
against such Mortgagee, and, Tenant shall be liable to such Mortgagee for the
amount of such advance payments made from and after a default under the
applicable Mortgage. No agreement to make or accept any surrender, termination
or cancellation of this Lease and no agreement to modify so as to reduce the
rent, change the Term, or otherwise materially change the rights of Landlord
under this Lease, or to relieve Tenant of any obligations or liability under
this Lease, shall be binding on a Mortgagee unless consented to in writing by
Landlord's Mortgagee of record, if any, such consent not to be unreasonably
withheld or delayed.
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14.4 NO RELEASE OF TERMINATION - No act or failure to act on the part
of Landlord which would entitle Tenant under the terms of this Lease, or by law,
to be relieved of Tenant's obligations hereunder or to terminate this Lease,
shall result in a release or termination of such obligations or a termination of
this Lease unless (i) Tenant shall have first given written notice of Landlord's
act or failure to act to Landlord's mortgagee of record, if any, of which
Landlord has given written notice to Tenant of their name and address,
specifying the act or failure to act on the part of Landlord which could or
would give a basis to Tenant's rights and (ii) such mortgagees, after receipt of
such notice, have failed or refused to correct or cure the condition complained
of within thirty (30) days from receipt of such notice, or if cure cannot be
effected within said thirty (30) day period thereafter due to the nature of the
default, Lender shall have a reasonable time to cure, provided that it commences
cure within said thirty (30) day period of time and diligently carries such cure
to completion; but nothing contained in this Section 14.4 shall be deemed to
impose any obligation on any such mortgagee to correct or cure any such
condition.
14.5 Intentionally Deleted
ARTICLE XV
INSURANCE
15.1 INSURANCE - If Landlord is selected by Tenant to Construct the
Tenant's Work, Landlord shall procure and continue in force during the
construction of the Tenant's Work Builders Risk insurance whereby Tenant shall
be named additional insured. In addition, Landlord shall procure and continue in
force during the Term and the Extended Term hereof, at Tenant's expense payable
in the manner set forth in Article V, fire and extended coverage insurance,
including vandalism, sprinkler leakage, and malicious mischief, upon the
Building on
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a full replacement basis, agreed value endorsement with agreed values for the
Building. The beginning coverage shall be in the amount as is required by
Landlord and its mortgagee up to the full replacement value. The policies
evidencing such insurance shall provide that loss, if any, payable thereunder
shall be payable to the Landlord and/or the Tenant and/or any mortgagee of the
Premises as their respective interests may appear. A certificate of insurance
evidencing the foregoing shall be delivered to the Tenant prior to the execution
of this Lease, and certificates evidencing the renewal of such insurance shall
be delivered to Tenant, upon Tenant's request, at least thirty (30) days before
the expiration of any such policies and providing that the insurance shall not
be canceled within thirty (30) days prior written notice to Tenant. All such
policies shall be placed with responsible companies authorized to do business in
the State wherein the Premises are located. The coverages required by this
Article may be provided by a single "package" policy.
Tenant shall be responsible for notifying Landlord of additions,
alterations and improvements completed to the interior of the Premises for which
Tenant intends to insure under this Section 15.1. Notification shall include the
cost and description of such work and the date on which coverage should
commence.
Landlord shall also procure and continue in force during the Term and
Extended Term hereof, at Tenant's expense payable in the manner set forth in
Article V, rental interruption insurance for twelve (12) months or the maximum
obtainable.
15.2 TENANT LIABILITY INSURANCE - The Tenant shall maintain Commercial
General Liability Insurance at Tenant's expense, including a standard
contractual liability endorsement, with respect to the Premises throughout the
Term with combined single limit coverage of Two Million Dollars ($2,000,000).
The Tenant shall deliver to the Landlord within thirty (30) days of
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Landlord's written request a certificate evidencing the aforesaid coverage
issued by insurance companies authorized to do business in Massachusetts and
providing that the insurance indicated therein shall not be canceled without at
least thirty (30) days prior written notice to Landlord. The Landlord will be
named as an additional named insured on such policy.
15.3 WAIVER OF SUBROGATION - The Landlord and Tenant hereby waive all
causes and rights of recovery against each other, their agents, officers and
employees for any loss occurring to the real or personal property of Landlord or
Tenant, regardless of cause or origin. Landlord and Tenant agree that any
policies presently existing or obtained on or after the date hereof (including
renewals of present policies) shall include a clause or endorsement (a "Waiver
of Subrogation") to the effect that any such release shall not adversely affect
or impair said policies or prejudice the right of the insured to recover
thereunder and that the insurer expressly waives its rights of subrogation
against Landlord or Tenant as the case may be, with respect to any claims under
any such policies. The parties further agree that if said Waiver of Subrogation
shall become unobtainable or unenforceable or shall void the respective
policies, then the respective insurance policies shall not be invalidated, and
said waiver shall become null and void and of no further force and effect.
ARTICLE XVI
INDEMNIFICATION
16.1 TENANT'S INDEMNITY The Tenant shall, upon timely receipt of
written notice, indemnify, defend and hold the Landlord harmless from and
against any and all suits, claims, and demands arising out of injury or damage
occurring at the Premises or Lot or Office Park because of the negligence or
willful acts of Tenant, its agents, servants, or employees including any
construction activity undertaken by Tenant pursuant to the terms of this Lease.
In no event is
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Tenant obligated to indemnify, defend or save harmless Landlord from any loss,
injury, or damage, or part thereof, not attributable to Tenant's negligence or
willful act or those of its agents, servants, or employees.
In the event the Landlord is notified of a claim, action or proceeding,
or becomes aware of an occurrence, which may result in indemnification by Tenant
as provided above, the Landlord shall give prompt written notice to Tenant and
provide complete particulars known by the Landlord. The Landlord shall
immediately forward to the Tenant every demand, notice, summons or other process
received by Landlord or its representatives.
Tenant has the exclusive right and obligation to defend any claim,
action, or proceeding wherein Landlord is entitled to indemnification under the
provisions of this Article, and Tenant may settle any such claim, action, or
proceeding, without Landlord's consent or approval.
The Landlord will fully cooperate with the Tenant in the defense or
settlement of any claim, action, or proceeding.
16.2 HAZARDOUS MATERIALs - Tenant shall not (either with or without
negligence) cause or permit its employees, agents, contractors or invitees to
cause the escape, disposal or release of any "Hazardous Substances and
Materials" (as defined below) onto or in the vicinity of the Premises other than
the ordinary disposal or release of customary office and cleaning supplies.
Tenant shall not allow the storage or use of such substances or materials in any
manner not sanctioned by law, nor allow to be brought into the Premises any such
materials or substances except to use in the ordinary course of Tenant's
business, and then, except with respect to customary office and cleaning
supplies, only after written notice is given to Landlord of the identity of such
substances or materials. Without limitation, for purposes of this Lease,
"Hazardous Substances and Materials" shall include biohazardous materials and
those materials
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or substances regulated by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq., the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901 et seq., the Massachusetts Hazardous Waste Management Act, as amended,
M.G.L. c.21C, the Massachusetts Oil and Hazardous Material Release Prevention
and Response Act, as amended, M.G.L. c.21E, any applicable local ordinance or
bylaw, and the regulations adopted under these acts (collectively, the
"Hazardous Waste Laws"). If any lender or governmental agency shall ever require
testing to ascertain whether or not there has been any release of hazardous
substances or materials, then the reasonable costs thereof shall be reimbursed
by Tenant to Landlord upon demand as additional charges if such requirement
applies to the Premises and if on such reasonable basis it is determined Tenant
caused the release. If Tenant receives from any federal, state or local
governmental agency any notice of violation or alleged violation of any
Hazardous Waste Law, or if Tenant is obligated to give any notice under any
Hazardous Waste Law, Tenant agrees to forward to Landlord a copy of any such
notice within three (3) days of Tenant's receipt or transmittal thereof. In
addition, Tenant shall execute affidavits, representations and the like from
time to time at Landlord's reasonable request concerning Tenant's best knowledge
of belief regarding the presence of hazardous substances or materials on the
Premises. In all events, Tenant shall indemnify Landlord in the manner provided
in Section 16.1 of this Lease from any release of hazardous substances or
materials on the Premises occurring while Tenant is in possession, or elsewhere
if caused by Tenant, its agents, employees or contractors. Landlord retains the
right to inspect the Premises at all reasonable times, upon reasonable notice to
Tenant, to ensure compliance with this paragraph. The within covenants shall
survive the expiration or
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earlier termination of the Lease Term.
16.3 LANDLORD'S INDEMNIFICATION FOR HAZARDOUS MATERIALS. Landlord
represents and warrants to Tenant that (i) Landlord has delivered to Tenant
copies of all reports, assessments, tests, notices and other documentation in
Landlord's possession relating to the presence, use, storage, release or
disposal of any biologically or chemically active or other hazardous substances
or materials on, in, under, onto, from or in the vicinity of the Premises, and
(ii) to the best of Landlord's knowledge, no such substances or materials have
been used, stored, released or disposed of on, in, under, onto, from or in the
vicinity of the Premises, except for the use, storage, release or disposal of
customary office and cleaning supplies in customary quantities and in accordance
with all applicable laws. If Landlord receives from any federal, state or local
governmental agency any notice of violation or alleged violation of any
Hazardous Waste Law, or if Landlord is obligated to give any notice under any
Hazardous Waste Law in connection with the Office Park, Landlord agrees to
forward to Tenant a copy of any such notice within three (3) days of Landlord's
receipt or transmittal thereof.
Landlord shall indemnify, defend and hold harmless Tenant from all
suits, claims, demands, liabilities, damages, costs and expenses arising out to
the use, storage, release or disposal of any such substances or material on, in,
under, onto, from or in the vicinity of the Premises because of the negligence
or willful acts of Landlord, its agents, servants, or employees including any
construction activity undertaken by Landlord pursuant to the terms of this
Lease. In no event is Landlord obligated to defend or hold harmless Tenant from
any loss, injury, or damage, or part thereof, not attributable to Landlord's
negligence or willful act or those of its agents, servants, or employees.
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In the event the Tenant is notified of a claim, action or proceeding,
or becomes aware of an occurrence, which may result in indemnification by
Landlord as provided above, the Tenant shall give prompt written notice to
Landlord and provide complete particulars known by the Tenant. The Tenant shall
immediately forward to the Landlord every demand, notice, summons or other
process received by Tenant or its representatives.
Landlord has the exclusive right and obligation to defend any claim,
action, or proceeding wherein Tenant is entitled to indemnification under the
provisions of this Article, and Landlord may settle any such claim, action, or
proceeding without Tenant's consent or approval.
The Tenant will fully cooperate with the Landlord in the defense or
settlement of any claim, action or proceeding.
ARTICLE XVII
ASSIGNMENT AND SUBLETTING
17.1 TENANT SUBLET - Landlord hereby grants to Tenant the right to
assign this Lease or to sublet all or any portion of the Premises throughout the
Term, provided Tenant first obtains Landlord's consent to such assignment or
subletting in writing. Landlord's consent shall not be unreasonably withheld,
delayed, or conditioned. Landlord's consent to an assignment or subletting shall
be accompanied by a statement addressed to Tenant and the assignee or subtenant,
upon which statement Tenant and the assignee or subtenant may conclusively rely,
stating that Tenant is not in default under the Lease (or setting forth what
respects Tenant is in default), that this Lease has not been amended or modified
(or setting forth such amendments or modifications), the expiration date of this
Lease, and the date to which rent has been paid to Landlord hereunder. It shall
not be unreasonable for Landlord to withhold its consent or disapprove a
sublease or assignment if the proposed sublessee or assignee conflicts with any
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exclusionary provision (s) of other leases in the Office Park. As additional
rent, Tenant shall reimburse Landlord promptly for reasonable legal and other
expenses incurred by Landlord in connection with any request by Tenant for
consent to assignment or subletting. No assignment or subletting shall affect
the continuing primary liability of Tenant (which, following assignment, shall
be joint and several with the assignee).
17.2 CONSENT - If the Tenant requests Landlord's consent to a
subletting of all of the Premises for the then balance of the Term, Landlord
shall have the right to terminate this Lease. Landlord shall exercise this
right, if at all, within thirty (30) days of Tenant's request for consent to the
subletting. If Landlord exercises this right, the Lease shall be terminated on
the effective date of the proposed subletting.
Notwithstanding the foregoing, Landlord's right to terminate the Lease
will be null and void if Landlord receives written notice by Tenant of its
intent to withdraw its request to sublet on or before the fifth day immediately
following Landlord's notice to Tenant of its intention to terminate.
17.3 LANDLORD'S RESPONSE - In the event Landlord does not respond to
the written request for such consent or exercise its right of recapture within
thirty (30) days of the date of such request from Tenant, Landlord's consent
shall be deemed given.
17.4 SUBSIDIARY ASSIGNMENT - Notwithstanding anything to the contrary
herein contained, Tenant may assign or sublet all or any portion(s) of the
Premises at any time to a subsidiary of Tenant, to the entity with which or into
which Tenant may merge, to any entity with which Tenant is affiliated, or to a
successor to all or substantially all the assets of Tenant or a division of
Tenant without the need for Landlord's consent to such assignment or subletting,
so long as Tenant remains primarily liable, and without any right on the part of
Landlord to suspend
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this Lease as hereinabove set forth and without any obligation of Tenant to
share Rent Differential as set forth in Section 17.5.
17.5 SUBLEASE AND ASSIGNMENT RENT DIFFERENTIAL - If Landlord consents
to a sublease or assignment, and said sublease or assignment is for a greater
rent than the Fixed Rent or additional rent due from Tenant to Landlord under
this Lease, Tenant shall pay to Landlord (or to any mortgagee in possession or
successor to Landlord through a Foreclosure) on a monthly basis during the term
of any approved sublease or assignment as additional rent hereunder, in addition
to the Fixed Rent and other payments due under this Lease, an amount equal to 50
% of the difference between all fixed rent and additional rent from the time
actually received by Tenant under the sublease or assignment and the Fixed Rent
and additional rent and other payments due under this Lease, after Tenant has
recouped its out-of-pocket expenses with respect to such sublease or assignment
including without limitation, reasonable real estate brokerage commissions,
reasonable legal fees and the reasonable costs of refurbishment of the Premises
for such sublease or assignment (the "Rent Differential"). In case any Fixed
Rent or additional rent is prepaid to Tenant under the sublease or assignment,
only so much as exceeds the net present value of Tenant's obligations to pay
Fixed Rent and additional rent (reasonably estimated) for the balance of the
Term for the portion of the Premises subject to such sublease or assignment
shall be taken into account in computing the Rent Differential or the amounts
due any foreclosing mortgagee or other successor landlord under the next
succeeding sentence. In the event that a tax exempt entity becomes a mortgagee
in possession or a landlord under this Lease through foreclosure or deed in lieu
of foreclosure by reason of a default under the applicable mortgage or through a
participating mortgage transaction or otherwise, in calculating the amount due
in the immediately preceding sentence, there shall be no credit given to Tenant
for its out-of-pocket
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expenses involved in such assignment or subletting. In the event the sublease is
for less than the full Premises hereunder, the above rent adjustment shall be
pro rated on a square foot basis. Anything contained in the foregoing provisions
of this Section to the contrary notwithstanding, neither Tenant nor any other
person having interest in the possession, use, occupancy, or utilization of the
Premises shall enter into any lease, sublease, license, concession, or other
agreement for use, occupancy, or utilization of space in the Premises which
provides for rental or other payment for such use, occupancy, or utilization
based, in whole or in part, on the net income or profits derived by any person
from the Premises leased, used, occupied, or utilized (other than an amount
based on a fixed percentage or percentages of receipts or sales), and any such
purported lease, sublease, license, concession, or other agreement shall be
absolutely void and ineffective as a conveyance of any right or interest in the
possession, use, occupancy, or utilization of any part in the Premises.
ARTICLE XVIII
TENANT'S PROPERTY
18.1 TENANT'S PERSONAL PROPERTY - Tenant's trade fixtures, equipment
and personal property (collectively called "Tenant's Property") however
installed or located on the Premises shall be and remain the property of the
Tenant and may be removed. Tenant shall repair any damage caused by such removal
or installation. Tenant's Property shall be at the sole risk and hazard of
Tenant, and if the whole or any part thereof shall be destroyed or damaged by
fire, water or otherwise, or by the leakage or bursting of water pipes, steam
pipes or other pipes, by theft or from any other cause, unless caused by the
negligence or intentional misconduct of Landlord, its employees, agents or
contractors. No part of said loss or damage is to be charged to or be borne by
Landlord.
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18.2 REMOVAL - Upon the expiration or termination of this Lease, the
Tenant will remove Tenant's Property from the Premises; if within ten (10) days
after such expiration or termination, Tenant shall not have removed same, it
shall be deemed abandoned by Tenant. Tenant shall pay to Landlord upon demand
the costs and expenses thereafter incurred by Landlord in removing and storing
Tenant's Property and repairing any damage caused to the Premises or to the
Building caused by the removal of same.
18.3 NO LIEN - In no event (including a default under this Lease) shall
Landlord have any lien or other security interest in any of Tenant's Property
located in the Premises or elsewhere and Landlord hereby expressly waives and
releases any such lien or other security interest however created or arising.
ARTICLE XIX
TENANT'S DEFAULT
19.1 EVENTS OF DEFAULT:
(a) If the Tenant shall default in the payment of rent or other
payments required by this Lease and shall fail to cure said default within seven
(7) business days after receipt of written notice of said default from the
Landlord; or
(b) If the Tenant shall default in the performance or observance of any
other agreement or condition on its part to be performed or observed, and if the
Tenant shall fail to cure said default within thirty (30) days after receipt of
written notice of said default from the Landlord (or if said default shall
require longer than thirty (30) days to cure and the Tenant fails to commence
curing said default within thirty (30) days after receipt of written notice
thereof and to prosecute the curing of the same to completion with due
diligence); or
(c) If the Tenant shall file a voluntary petition in bankruptcy or
shall be adjudicated a
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bankrupt or insolvent, or shall file any petition or answer seeking any
arrangement, composition, liquidation or dissolution under any present or future
Federal, State, or other statute, law or regulation relating, to bankruptcy,
insolvency or other relief for debtors, or shall seek or consent to or acquiesce
in the appointment of any trustee, receiver or liquidator of the Tenant or of
all or any substantial part of its properties, or of the Premises, or shall make
any general assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due; or
(d) If a court shall enter an order, judgment or decree approving a
petition filed against the Tenant seeking any arrangement, composition,
liquidation, dissolution or similar relief under the present or future Federal,
State or other statute, law or regulation relating to bankruptcy, insolvency or
other relief for debtors, and such order, judgment or decree shall remain
un-vacated or un-stayed for an aggregate of sixty (60) days (whether or not
consecutive) (any of the events or conditions described in (a), (b), (c) or (d)
above being called an "Event of Default" in this Lease), then, if any Event of
Default has occurred, the Landlord at any time thereafter may give written
notice to the Tenant specifying the occurrence giving a rise to such Event of
Default and stating that this Lease and the Term hereby demised shall expire and
terminate on the date specified in such notice which shall be at least ten (10)
days after the giving of such notice, and upon the date specified in such
notice, this Lease and the Term, estate and interest hereby demised shall expire
and terminate by limitation and all rights of the Tenant under this Lease shall
cease. In the event the Lease is terminated on account of an Event of Default of
Tenant under any of the provisions contained in this Article, Tenant shall pay
punctually to Landlord all of the sums which Tenant covenants in this Lease to
pay and Landlord's reasonable costs of performing any obligations of the Tenant
under this Lease that
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Tenant fails to perform, in the same manner and to the same extent and at the
same time as if this Lease had not been terminated, including all reasonable and
necessary costs and expenses incurred by or on behalf of Landlord, including
reasonable attorney's fees and expenses of employees, arising out of any Event
of Default by the Tenant under this Lease.
19.2 REPOSSESSION - At any time after any such expiration or
termination of this Lease, the Landlord, without further notice, may enter upon
and reenter the Premises to repossess itself of the Premises, by summary
proceedings, ejectment or otherwise, and may remove the Tenant and all other
persons and any and all property from the Premises (including without limitation
Tenant's Property) as hereinabove provided.
ARTICLE XX
NOTICES
20.1 NOTICES GENERALLY - All notices, demands, requests and other
instruments which may or are required to be given by either party to the other
under this Lease shall be given in writing. All notices, demands, requests and
other instruments from the Landlord to the Tenant shall be deemed to have been
given when mailed by United States Registered or Certified Mail, postage
prepaid, return receipt requested, addressed to the Tenant at Tenant's Address
with a copy to Testa, Hurwitz & Thibeault LLP, High Street Tower, 125 High
Street Boston, MA 02110 Attn: Real Estate Department; and all notices, demands,
requests and other instruments from Tenant to the Landlord shall be deemed to
have been given when mailed by United States Registered or Certified Mail,
postage prepaid, return receipt requested, addressed to the Landlord at
Landlord's Address with a copy to Hinckley, Allen & Snyder, One Financial
Center, Boston, Massachusetts 02111 Attn: Paul Hedstrom; except that where any
period of time commences under this Lease with notice, such notice shall be
deemed given, and such period shall be deemed
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to commence, when postal records indicate delivery was first attempted or
rendered for delivery if refused.
20.2 INTENTIONALLY DELETED
ARTICLE XXI
QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing the terms, covenants and conditions on
Tenant's part to be observed and performed, Tenant may peaceably and quietly
enjoy the Premises demised hereby.
ARTICLE XXII
HOLDING OVER
In the event that Tenant occupies any portion of the Premises beyond
the Term Expiration Date, such holding over shall constitute an agreement by
Tenant to pay 150% of the Fixed Rent and additional rent then applicable for
each month or portion thereof in which Tenant shall retain possession of the
Premises or any part there after termination of this Lease, whether by lapse of
time or otherwise due hereunder. In addition, Tenant agrees to pay all damages
(including consequential damages) sustained by Landlord on account of such
holdover. The provisions of this subsection shall not operate as a waiver by
Landlord of any right of re-entry provided in this Lease.
ARTICLE XXIII
MEMORANDUM OF LEASE
At the time of the execution of this Lease, Landlord and the Tenant
shall execute an instrument recordable in form containing those provisions
including but not limited to the Term, the commencement and expiration date, and
such other information as necessary or appropriate to protect the interests of
Tenant hereunder and to satisfy the notice of lease statute of
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Massachusetts. The Tenant may record the same.
ARTICLE XXIV
SURRENDER OF PREMISES
Upon the expiration of the Term or early termination thereof, Tenant
shall promptly peaceably yield up and surrender the Premises in a good and clean
condition, and in the same condition as Tenant is required to maintain the
Premises hereunder during the Term, reasonable wear and tear and damage by fire,
casualty or eminent domain excepted.
ARTICLE XXV
ESTOPPEL CERTIFICATES
Upon the written request of either party, at any time and from time to
time, Landlord and Tenant agree to execute and deliver to the other within
fifteen (15) business days after receipt of such request, a written instrument,
duly executed:
(1) Certifying that, if true, this Lease has not been modified and
is in full force and effect or, if there has been a
modification of this Lease, that this Lease is in full force
and effect as modified, stating such modifications;
(2) Specifying the date to which the rent has been paid;
(3) Stating whether or not to the best knowledge, information and
belief of the party executing such instrument, the other party
hereto is in default and, if such party is in default, stating
the nature of such default;
(4) Stating the commencement date of the Term; and
(5) Stating which options to extend the Term have been exercised,
if any.
ARTICLE XXVI
ADDITIONAL PROVISIONS
26.1 BROKER - Landlord and Tenant warrant to each other that no
Broker(s) other than
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that specified in Section 1.1 of the Lease have been retained by the warranting
party in connection with the negotiation and consummation of this Lease. Each
party agrees to defend, indemnify and save the other harmless from and against
any and all claims for a commission arising out of a breach of the warranty made
by such party in the first sentence of this Section 26.1. This Section 26.1
shall survive the expiration or earlier termination of this Lease.
26.2 BIND AND INURE - The obligations of this Lease shall run with the
land, and this Lease shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns except that only the
Landlord named herein shall be liable for obligations accruing before the
beginning of the Term and thereafter each successive owner of the Premises,
after giving to Tenant written notice of its assumption of the obligations of
Landlord under this Lease shall be liable only for obligations accruing during
the period of its ownership, said liability terminating as to future liability
upon termination of such ownership and passing to the successor in ownership and
the giving of such notice.
26.3 PROVISIONS SEPARABLE - It is agreed that if any provisions of this
Lease shall be determined to be void by any court of competent jurisdiction in
Massachusetts, then such determination shall not affect any other provision of
this Lease, all of which other provisions shall remain in full force and effect;
and 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
void, and the other of which would render the provision valid, then the
provision shall have the meaning which renders it valid.
26.4 ENTIRE AGREEMENT - This instrument contains the entire and only
agreement between the parties as to the Premises, and no oral statements or
representations or prior written matter not contained in this instrument shall
have any force or effect. This Lease shall not be
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modified in any way except by a writing subscribed by both parties.
26.5 GOVERNING LAW - This Lease shall be governed by and construed and
enforced in accordance with the laws and courts of the Commonwealth of
Massachusetts.
26.6 NO WAIVER - Failure of either party to complain of any act or
omission on the part of the other party, no matter how long the same may
continue, shall not be deemed to be a waiver of any rights hereunder. No waiver
by either party at any time, express or implied, or any breach of any provisions
of this Lease shall be deemed a waiver of a breach of any other provision of
this Lease or a consent to any subsequent breach of the same or any other
provision. If any action of any party shall require the consent or approval of
the other party, the consent to or approval of such action on any one occasion
shall not be deemed a consent to or approval of said action on any subsequent
occasion or a consent to or approval of any other action on the same or any
subsequent occasion, and such consent or approval shall not be unreasonably
withheld or delayed.
26.7 RIGHTS SEPARATE - Any and all rights and remedies which either
party may have under this Lease or by operation of law, either at law or in
equity, upon any breach, shall be distinct, separate and cumulative and shall
not be deemed inconsistent with each other; no one of them whether exercised by
the other party or not, shall be deemed to be exclusive of any other, and any
two or more of all of such rights and remedies may be exercised at the same
time.
26.8 SINGULAR AND PLURAL - Words and phrases used in the singular shall
be deemed to include the plural and vice versa, and nouns and pronouns used in
any particular gender shall be deemed to include any other gender.
26.9 HEADINGS - The various terms which are defined in Articles of this
Lease or are defined in Exhibits annexed hereto shall have the meanings
specified in such Articles and such
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Exhibits for the purposes of this Lease and all agreements supplemental thereto,
unless the context clearly indicates the contrary.
26.10 PARKING - Tenant's occupancy of the Premises shall include the
exclusive use of 341 parking spaces located upon the Lot.
26.11 NON-RECOURSE - Tenant agrees to look solely to Landlord's then
equity interest in the Premises and the proceeds thereof at the time owned for
recovery of any judgment from Landlord; it being agreed that neither Landlord
(original or successor), nor any partner (general or limited), associate,
participant, principal (disclosed or undisclosed), agent, employee, trustee or
other fiduciary, beneficiary, officer, or other person or entity in or of any
partnership, association, joint venture, corporation or other entity, trust, or
estate from time to time owning Landlord's interest in this Lease, shall ever be
personally liable for any such judgment or for the payment of any monetary
obligation to Tenant with respect to matters arising out of this Lease (it being
agreed by Tenant that such exoneration from personal liability is and shall be
absolute and complete with no exception whatsoever). With respect to any
services to be furnished or obligations to be performed by Landlord to Tenant,
except with respect to the negligence of Landlord, its employees, agents or
contractors, Landlord shall never be liable for failure to furnish or perform
the same when prevented from doing so by strike or lockout (not limited to the
Premises or the Office Park), breakdown, accident, order or regulation of or by
any governmental authority, or failure of supply, or inability by the exercise
of reasonable diligence to obtain supplies, parts or employees necessary to
furnish such services, or because of war or other emergency, or for any act of
God or other Force Majeure, as defined below, causes beyond Landlord's
reasonable control, or for any cause due to any act or negligence of Tenant,
Tenant's invitees, customers, servants, agents, employees, licensees or any
person claiming by, through or
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under Tenant.
With respect to any obligations to be performed by Tenant to Landlord,
other than the payment of rent and other sums due under this Lease, except with
respect to the negligence Tenant, its employees, agents or contractors, Tenant
shall never be liable for failure to furnish or perform the same when prevented
from doing so by strike or lockout (not limited to the Premises or the Office
Park), breakdown, accident, order or regulation of or by any governmental
authority, or failure of supply, or inability by the exercise of reasonable
diligence to obtain supplies, parts or employees necessary to furnish such
services, or because of war or other emergency, or for any act of God or other
Force Majeure, as defined below, causes beyond Tenant's reasonable control, or
for any cause due to any act or negligence of Landlord, Landlord's invitees,
customers, servants, agents, employees, licensees or any person claiming by,
through or under Landlord.
26.12 FORCE MAJEURE - As used in this Article and elsewhere in this
lease , "Force Majeure" shall mean a time extension equal to that of any delays
due to (i) acts of God, (ii) changes in governmental regulations, (iii)
casualty, (iv) strike or other labor difficulties (not limited to the Premises
or the Office Park), (v) unusual weather conditions, (vi) inability despite the
exercise of diligence, to obtain supplies, parts or employees to furnish
services, or (vii) other acts reasonably beyond Landlord's or Tenant's control,
but in no event shall the term include economic or financing difficulties.
26.13 INTENTIONALLY DELETED
26.14 CONFIDENTIALITY - This Lease document is a confidential document
by and between Landlord and Tenant and shall not be disclosed, copied,
distributed or circulated to any person(s) other than to such parties, and their
respective employees, agents, consultants, contractors,
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architects, brokers, lenders, shareholders, directors and investors, mortgagees,
successors or assigns, or to any prospective sublessees and assignees of Tenant,
and to the legal counsel and accountants of any of the foregoing persons or
entities, without the prior written consent of the Landlord, which shall not be
unreasonably withheld or delayed. This Section 26.14 is not applicable when
disclosure, copying, distribution or circulation of this Lease document is
necessitated by disclosure requirements due to Tenant's nature as a public
corporation, if applicable, or by other requirements of Law or by order of the
court.
26.15 SECURITY DEPOSIT Landlord acknowledges receipt of a letter of
credit in the amount of $560,625 as security for Tenant's obligations under the
Lease (the "Security Deposit"). The Security Deposit will decrease by one-fifth
(1/5) each year during the five (5) year Lease Term, commencing on the first
anniversary of the Commencement Date and on each successive anniversary of the
Commencement Date (each, a "Reduction Date"). On each Reduction Date, Landlord
shall return the Security Deposit to Tenant provided that Tenant has delivered a
replacement (or amended) letter of credit, in an amount reduced by twenty
percent (20%) from the amount of the previous letter of credit. After the
reduction of the Security Deposit to $0, Tenant shall have no further obligation
to maintain a Security Deposit hereunder.
If all or any part of the Security Deposit is applied to an obligation
of Tenant hereunder, Tenant shall immediately, upon request by Landlord, restore
the Security Deposit to its original amount. Tenant shall not have the right to
call upon Landlord to apply all or any part of the Security Deposit to cure any
default or fulfill any obligation of Tenant, but such use shall be solely in the
discretion of Landlord. Upon any conveyance by Landlord of its interest under
this Lease, the Security Deposit may be delivered by Landlord to Landlord's
grantee or transferee. Upon any such delivery, Tenant hereby releases Landlord
herein named of any and all liability
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with respect to the Security Deposit, its application and return, and Tenant
agrees to look solely to such grantee or transferee. It is further understood
that this provision shall also apply to subsequent grantees and transferees.
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as
of this 18TH day of AUGUST, 1997
Tenant: NetScout Systems, Inc. LANDLORD: Michelson Farm - Westford
Technology Park IV Limited Partnership
By: /s/ Charles Tillett By: The Gutierrez Company as the sole
------------------- General Partner
Its: VP FINANCE ADMINISTRATION By: /s/ Arturo Gutierrez
------------------------- ---------------------------
Its: President
---------------------------
<PAGE>
-67-
EXHIBIT A
[EASEMENT PLAN]
<PAGE>
-68-
EXHIBIT "B"
RULES AND REGULATIONS
1. Tenant must, upon the termination of its tenancy, restore
to Landlord all keys of offices and toilet rooms, either
furnished to or otherwise procured by Tenant, and in the
event of the loss of any keys so furnished, Tenant shall
pay to landlord the replacement cost.
2. Canvassing, soliciting and peddling in the Building or on
the Lot or in the Office Park are prohibited, and Tenant
shall cooperate to prevent the same.
3. Tenant shall comply with all reasonable security measures
from time established by Landlord and of which Tenant
receives written notice, for the Lot or Office Park, so
long as (i) the same do not breach or violate Tenant's
lights under the Lease or the requirements of any
governmental security regulations to which Tenant is
subject, and (ii) such reasonable security measures do not
deprive Tenant of reasonable access to the Premises at all
times or otherwise unreasonably interfere with Tenant's
use or occupancy of the Premises.
4. Tenant shall comply with the Office Park Covenants
attached hereto as Exhibit "C" to which the Lot is
subject.
<PAGE>
-69-
EXHIBIT "C"
MICHELSON FARM - WESTFORD TECHNOLOGY PARK
OFFICE/RESEARCH AND DEVELOPMENT
PARK COVENANTS
Landlord agrees with Tenant to enforce, or cause to be enforced, and
comply with these Park Covenants with all due diligence to preserve the quality
and appearance of the Park (as hereinafter defined).
The land is located in an approximately 85 acre office/research and
development park, commonly known as Westford Technology Park (hereinafter,
together with any additions thereto, called the "Park").
All lots of land comprising the Park (which lots are individually
called the "Parcel" and collectively the "Parcels") are subject to the following
restrictions which shall bind Michelson Farm Westford Technology Park Trust
("Grantor") as owner of the Park and its successors in title, including but not
limited to Landlord and its successor.
A. All parcels shall have facilities for parking, loading and
unloading sufficient to serve any uses to the Parcels without
using adjacent streets for such purpose. On -street parking
shall be prohibited. All parking, trucking and vehicular
maneuvering areas for a Parcel shall be contained within such
Parcel.
B. No exterior loading platforms shall be visible from any
primary way or proposed primary way serving the Park.
Screening and planting may be used for this purpose.
C. No open or outside storage shall be done on any Parcel.
D. Signs shall conform to the sign ordinances of the Town. Any
variance from such ordinance granted by the Town must also be
approved by Grantor in the manner provided below in Section I.
E. No condition or use of any Parcel will be permitted which is
objectionable by reason of noise, odor, vibration, smoke,
radiation, the hazardous nature of the use, or the violation
of environmental standards adopted by the Town, the
<PAGE>
-70-
Commonwealth, the Federal Government or any Court.
F. All utilities serving a Parcel shall be placed underground,
unless prohibited by the utility company. Any exterior
lighting on a Parcel shall either be indirect or of such
controlled focus and intensity as not to disturb street
traffic or the occupancy of any adjacent Parcel.
G. The exterior appearance of any buildings in the Park,
including landscaping thereon, shall be kept neat and orderly
and free from litter.
H. No building, exterior sign, fence, wall, exterior lighting or
other structure shall be erected or allowed to remain on any
portion of the Park or exterior structural alteration or
addition made, except pursuant to plans approved in writing by
Grantor as to landscaping, parking and architectural
conformity with existing buildings in the Park.
I. The Grantor may from time to time by written instrument in
recordable form grant variances from any one or more of these
restrictions (except Restriction H for which variances may not
be granted) where the Grantor reasonably determines that the
variance can be granted without substantial detriment to the
intent and purpose of the restrictions and without substantial
detriment to the Land, and portions of the Park theretofore
built upon.
J. Written approval by the Grantor as to any buildings, signs,
structures, alterations, additions and landscaping approved by
Grantor in good faith shall be conclusive evidence of
compliance with these restrictions. The Grantor agrees to
furnish to any grantee as evidence of such compliance.
K. The term "Grantor, as herein used, shall mean the Michelson
Farm - Westford Technology Park Trust and any successors in
title to whom the Grantor has expressly granted of record the
rights to enforce these restrictions.
<PAGE>
-71-
EXHIBIT "D"
MICHELSON FARM-WESTFORD TECHNOLOGY PARK
QUITCLAIM DEED
ARTURO J. GUTIERREZ AND JOHN A. CATALDO, CLASS A TRUSTEES, AND JOHN
PIKE AND THOMAS E. LEGGAT, CLASS B TRUSTEES, TRUSTEES OF THE MICHELSON
FARM-WESTFORD TECHNOLOGY PARK TRUST, under Declaration of Trust dated October 1,
1984, recorded with the Middlesex North District Registry of Deeds in Book 2863,
Page 235, having an address c/o The Gutierrez Company, One Wall Street,
Burlington, Massachusetts 01803 (hereinafter referred to as the "Grantor"), for
consideration paid and in full consideration of Ten Dollars ($10.00) grants to
MICHELSON FARM - WESTFORD TECHNOLOGY PARK IV LIMITED PARTNERSHIP, a
Massachusetts limited partnership, having an address c/o The Gutierrez Company,
One Wall Street, Burlington, Massachusetts 01803 (hereinafter collectively,
referred to as the "Grantee"), with QUITCLAIM COVENANTS, a certain parcel of
land together with the buildings and improvements situated thereon, located in
Westford, Middlesex County, Massachusetts, being shown as Lot 4B on a plan
entitled "Definitive Plan of Land, Westford Technology Park in Westford,
Massachusetts", Prepared by Howe Surveying Associates, Inc., Scale 1" = 100',
dated June 3, 1996, revised July 12, 1996 and recorded with the Middlesex North
Registry of Deeds on at Plan Book 192, Plan 24 (the "Plan"). Said Lot 4B
contains 362,973 square feet of land, more or less, according to said Plan.
Said parcel is conveyed subject to and with the benefit of all rights,
easements, restrictions and reservations of record, in so far as in force and
applicable.
<PAGE>
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For reference to Grantor's title, see deed of Michelson Farm-Westford
Technology Park IV Limited Partnership Trust dated September 4, 1996, recorded
herewith, and see deed of Michelson Farm-Westford Technology Park Trust, dated
June 18, 1987, recorded with said Deeds in Book 4117, Page 156.
EXECUTED under seal this 4th day of September, 1996.
MICHELSON FARM - WESTFORD
TECHNOLOGY PARK TRUST
/s/ Arturo J. Gutierrez
----------------------
Arturo J. Gutierrez, as Class A Trustee
and not individually
/s/ John Pike
-------------
John Pike, as Class B Trustee and not
individually
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. September 4, 1996
Then personally appeared the above-named Arturo J. Gutierrez, Class A
Trustee of Michelson Farm - Westford Technology Park Trust, and acknowledged the
foregoing instrument to be his free act and deed as Trustee as aforesaid, before
me,
/s/ A. P. Gottlieb
------------------
Notary Public
My commission expires:
COMMONWEALTH OF MASSACHUSETTS
Suffolk, ss. September 4, 1996
Then personally appeared the above-named John Pike, Class B Trustee of
Michelson Farm - Westford Technology Park Trust, and acknowledged the foregoing
instrument to be his free act and deed as Trustee as aforesaid before me,
<PAGE>
-73-
/s/ Marie E. Wolf
Notary Public
My commission expires:
<PAGE>
-74-
Exhibit "E"
SUBORDINATION, NONDISTURBANCE AND
ATTORNMENT AGREEMENT
AGREEMENT made this 18th day of August, 1997 by and among THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, with an
office at One Ravinia Drive, Suite 1400, Atlanta, Georgia 30346-2110
("Mortgagee"), NETSCOUT SYSTEMS, INC., with an address at 321 Billerica Road,
Chelmsford, Massachusetts 01824 ("Tenant"), and MICHELSON FARM-WESTFORD
TECHNOLOGY PARK IV LIMITED PARTNERSHIP, a Massachusetts limited partnership,
with an address at c/o The Gutierrez Company, One Wall Street, Burlington,
Massachusetts 01803 ("Borrower").
W I T N E S S E T H:
WHEREAS, Mortgagee is the holder of a mortgage from Borrower dated
March 10, 1988, and a separate assignment of lessor's interest in leases and
assignment of rentals, both dated March 10, 1988, which documents are recorded
with Middlesex North District Registry of Deeds in Book 4435, beginning at Page
155, and have been subsequently amended by instruments recorded in said registry
(said mortgage as amended are herein collectively referred to as the
"Mortgage"), which Mortgage covers certain premises in Westford, Middlesex
County, Massachusetts, as more fully described therein ("Mortgaged Property");
and
WHEREAS, by virtue of a lease (the "Lease") dated as of August 18,
1997, between Borrower, as Landlord therein, and Tenant, as Tenant therein, true
and correct copies of which have been delivered to Mortgagee, Tenant has leased
from Borrower the Premises, as defined in the Lease, which Premises form a part
of the Mortgaged Property.
<PAGE>
-75-
NOW THEREFORE:
In consideration of the sum of One Dollar ($1.00) by each party in hand
said to the other, receipt of which is hereby acknowledged, and in consideration
of the mutual covenants and agreements hereinafter contained, the parties
hereto, intending to be legally bound hereby, hereby agree as follows:
1. Tenant hereby agrees;
(a) subject to and to the extent not inconsistent with this Agreement,
the Lease and Tenant's leasehold estate and any and all estates, options, and
rights therein contained or created thereby are, and shall be and remain,
subject and subordinate in all respects to the lien of the Mortgage and to all
of the terms, conditions and provisions thereof, to all advances made or to be
made thereunder, and to any renewals, extensions, modifications,
consolidations-or replacements thereof.
(b) from time to time, upon request by written notice from Mortgagee,
it shall within fifteen business days of receipt of such a request provide
Mortgagee with an estoppel certificate, in the form attached to the Lease as
Exhibit G, certifying to the best knowledge, information and belief of Tenant
that there is no default on the part of Borrower under the Lease or, if Borrower
is in default, stating the nature of such default.
(c) it will forward to Mortgagee in the manner provided herein for
notices, copies of any notice of any default of Borrower pursuant to the Lease
given or made by Tenant;
(d) without the prior written consent of Mortgagee, (i) the Lease shall
not be terminated by Tenant except as provided therein nor shall Tenant be
released from liability thereunder in connection with any assignment or
subletting in accordance with Article XVII of the Lease nor shall Tenant
surrender the Lease or the Mortgaged Property except incident to a
<PAGE>
-76-
termination provided for in the Lease, and (ii) the Lease shall not be
subordinated to any encumbrance hereafter placed on the Mortgaged Property.
Landlord shall not enforce against Tenant any obligation under the Lease so to
subordinate without obtaining Mortgagee's prior written consent.
(e) in the event of any default by Borrower under the Lease which would
give Tenant the right to terminate the Lease, Tenant will not exercise such
right until it shall have given written notice of such act or omission to
Mortgagee ("Tenant's Notice"), and (ii) if it so elects, Mortgagee shall have
the right (but not the obligation) to cure any default by Borrower under the
Lease, including, if necessary to cure defaults, the right of access to the
Mortgaged Property, subject to compliance by Mortgagee with all of the notice
and other restrictions upon access by Borrower to the Mortgaged Property under
the Lease, including Section 12.3 thereof. Tenant shall not take any such action
to terminate the Lease thereunder unless Mortgagee, after receipt of Tenant's
Notice, falls to cure, or cause to be cured, the specified default within the
time allowed therefor for cure by Borrower under the Lease plus a reasonable
time thereafter if Mortgagee shall within thirty days of receipt of Tenant's
Notice give Tenant notice ("Mortgagee's Notice") of its intention to, and
commences and continues to remedy such act or omission, or cause the same to be
remedied with reasonable diligence. "Reasonable time" as used herein includes a
reasonable time necessary with reasonable diligence to obtain possession of the
Mortgaged Property if the default cannot be cured without such possession.
Tenant shall accept such cure as if made by Borrower. Nothing in this Paragraph
1 (e) shall, however, in any way limit or affect Tenant's right at law or in
equity to cure any default of Borrower and deduct the cost thereof from rent
due;
<PAGE>
-77-
(f) in the event that Mortgagee or Purchaser (hereinafter defined), or
anyone claiming from or through Mortgagee, shall enter into and lawfully become
possessed of the Mortgaged Property, or shall succeed to the rights of Borrower
under the Lease, either through foreclosure of said Mortgage or otherwise,
Tenant shall attorn to, and recognize, Mortgagee or Purchaser as its Landlord
under the Lease for the unexpired balance of the term of the Lease and any
extension thereof, subject to all of the terms and conditions of the Lease,
which shall continue in full force and effect as a direct Lease between
Mortgagee or Purchaser and Tenant;
(g) Tenant shall make all payments payable by Tenant under the Lease
directly to Mortgagee or Purchaser subsequent to receipt of Mortgagee's or
Purchaser's written instructions by notice to Tenant and Borrower agrees that
such payments shall be deemed paid under the Lease with the same effect as if
paid directly by Tenant to Borrower.
(h) Mortgagee or Purchaser shall have no responsibility, liability or
obligation to cure any defaults by Borrower under the Lease, nor be subject to
claims, defenses or offsets under the Lease or against Borrower possessed by
Tenant and which arose or existed prior to foreclosure of the Mortgage or deed
given in lieu of foreclosure or entry and taking possession of the Mortgaged
Property by Mortgagee or Purchaser, except to the extent hereinafter provided.
(i) the institution of any action or other proceedings by Mortgagee
under the Mortgage in order to realize upon the Borrower's interest in the
Mortgaged Property shall not by operation of law, or otherwise, result in the
cancellation or termination of the Lease or Tenant's obligations thereunder and
Mortgagee may, at its election, subordinate the Mortgage to the Lease without
the consent of Borrower or Tenant.
(j) during the period of time that Mortgagee has given Mortgagee's
Notice of its intention, and is attempting with reasonable diligence, to effect
a cure of any condition of the
<PAGE>
-78-
Mortgaged Property, but is prevented by reason of operation of law or court
order (the "Prevention Period") from effecting such cure, the time to remedy any
such condition prior to any right of Tenant to terminate the Lease shall be
extended by the number of days in the Prevention Period, unless the Prevention
Period is caused by Mortgagee's negligence, willful misconduct or violation of
any laws, statutes, ordinances, rules or regulations applicable to the Mortgaged
Property or to the enforcement of Mortgagee's rights under the Mortgage.
(k) Upon any foreclosure of the Mortgage or deed given in lieu of
foreclosure or entry and taking possession of the Mortgaged Property by
Mortgagee or Purchaser, Tenant agrees to reissue the letter of credit
contemplated by Section 26.15 of the Lease to Mortgagee or Purchaser, provided
the existing letter of credit issued to Landlord is simultaneously surrendered
to Tenant or to the issuing bank or has otherwise previously expired, terminated
or been so surrendered.
2. Mortgagee hereby consents to, and approves and recognizes Tenant's
rights under the Lease and agrees that so long as Tenant is not in default
(beyond all applicable periods given Tenant under the Lease to cure such
default):
(i) Tenant's possession and occupancy of the Mortgaged Property and
Tenant's rights and privileges under the Lease, or any extension thereof which
may be effected in accordance with the terms of the Lease, shall not be
disturbed, affected or impaired by, nor will the Lease or the term of the Lease
be terminated or otherwise affected by, (a) any suit, action or proceeding upon
the Mortgage or the note or other obligation secured thereby, or for the
foreclosure of the Mortgage or the enforcement of any rights under the Mortgage
or any other documents held by Mortgagee, or by any judicial sale or execution
or other sale of the Mortgaged Property, or by any deed given in lieu of
foreclosure, or by the exercise of any other rights given to Mortgagee by any
other documents or as a matter of law, or (b) any default under the Mortgage or
the note
<PAGE>
-79-
or other obligation secured thereby;
(ii) Mortgagee shall not, except as required by law, name or join
Tenant as party to any action, suit or proceeding brought to foreclose the
Mortgage or to enforce anY rights under the Mortgage or any other documents held
by Mortgagee or the note or other obligation secured thereby.
(iii) the amount of any insurance proceeds, less adjusters' fees and
other reasonable expenses of collection, paid or payable with respect to the
Mortgaged Property and received by Mortgagee shall be applied to the repair and
restoration of the Mortgaged Property, subject to reasonable construction loan
type conditions, provided that Tenant has executed an agreement with Borrower
and Mortgagee at or prior to the commencement of such repair or restoration,
extending for a reasonable time, if necessary, the time periods for such repair
or restoration set forth in Article XIII of the Lease;
(iv) after a condemnation proceeding, if the Mortgaged Property is
capable of being restored, in Mortgagee's reasonable discretion, to a viable
economic unit, the amount of any condemnation awards, less all costs and
expenses of collection, including reasonable attorneys' fees, paid or payable
with respect to the Mortgaged Property and received by Mortgagee shall be
applied to the repair and restoration of the Mortgaged Property, subject to
reasonable construction loan type conditions, provided that Tenant has executed
an agreement with Borrower and Mortgagee, at or prior to the commencement of
such repair or restoration, extending for a reasonable time, if necessary, the
time periods for such repair or restoration set forth in Article XIII of the
Lease;
(v) During any period in which Mortgagee, its successors and assigns,
or
<PAGE>
-80-
Purchaser, hold title and possession of the Mortgaged Premises, Mortgagee,
its successors and assigns or Purchaser, shall be bound by and perform, fulfill
and observe all of the agreements and obligations of Borrower under the Lease
which shall continue in full force and effect as a direct Lease between
Mortgagee, its successors and assigns or Purchaser, and Tenant, but Mortgagee
and its successors and assigns or Purchaser shall not, however, be:
(a) bound by any rent or other payment which Tenant might have paid
more than thirty (30) days in advance of the time stipulated for payment under
the Lease;
(b) bound by any amendment or modification of the Lease made without
its written consent, which Mortgagee agrees shall not be unreasonably withheld,
conditioned or delayed;
(c) liable for any act or omission of any prior landlord (including
Borrower) unless such act or omission continues without cure within a reasonable
time after Mortgagee, its successors or assigns, or Purchaser, take title and
possession to the Mortgaged Premises;
(d) subject to any offset or defense which Tenant might have against
any prior landlord (including Borrower) except for any offset expressly
permitted by the terms of the Lease; and
(e) liable to Tenant for return or reduction of the letter of credit
delivered to Landlord as a Security Deposit under Section 26.15 of the Lease,
unless such letter of credit has been delivered to Mortgagee or Purchaser or
reissued to Mortgagee or Purchaser under the provisions of Paragraph 1(k) above.
(vi) Mortgagee or Purchaser shall accept attornment made by Tenant
pursuant to the provisions of paragraph 1 hereof.
3. Any notice, demand or consent hereunder shall be in writing and
shall be given or mailed by mailing the same by registered or certified mail,
return receipt requested, addressed, if intended for Mortgagee, to The
Prudential Insurance Company of America, Commercial Loan
<PAGE>
-81-
Division, P.O. Box 16082, Van Nuys, California 91410-0082, Attn: Servicing
Department with a copy to The Prudential Insurance Company Of America, One
Ravinia Drive, Suite 1400, Atlanta, Georgia 30346 Attn: Customer Service, Re:
Loan No. 7 501 325, and if intended for Tenant, addressed to Tenant at the
address set forth on the first page of this Agreement with a copy to: Testa,
Hurwitz and Thibeault, LLP, 125 High Street, High Street Tower, Boston,
Massachusetts, 02110, Attn: Real Estate Department, and if intended for
Borrower, addressed to Borrower at the address set forth in the first page of
this Agreement with a copy to Hinckley, Allen & Snyder, One Financial Center,
Suite 4600, Boston, Massachusetts 02108 Attn: Paul A. Headstrom, Esquire. Any
party may designate a new address by notice in writing to the other parties. Any
notice given in accordance herewith shall be effective upon deposit in the
United States mails in accordance herewith except that where any time period
commences hereunder or under the Lease from notice, such time period shall
commence when postal records indicate delivery was made or first attempted.
4. Prior to foreclosure of the Mortgaged Property or any deed given in
lieu of foreclosure or entry under the Mortgage and taking possession of the
Mortgaged Property by Mortgagee (collectively or individually, "Foreclosure"),
Mortgagee shall have only such rights of Borrower as are necessary to preserve
the integrity of the Lease as security and such other rights as are set forth in
this Agreement. Upon Foreclosure, Mortgagee shall have all rights of Borrower
under the Lease. Notwithstanding the provisions of Paragraph 1 (a) of this
Agreement but subject to all other provisions of this Agreement, in the event of
any inconsistency between the Lease and the Mortgage, as between Tenant and
Mortgagee, the Lease shall control and be binding upon Mortgagee, except as
follows. Upon Foreclosure, Mortgagee shall not be bound by, nor have any
obligations under, the environmental indemnity of Borrower contained in
<PAGE>
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Section 16.3 of the Lease. Mortgagee does agree upon Foreclosure, for so long as
Mortgagee owns the Mortgaged Property, to comply with all Hazardous Waste Laws
(as defined in the Lease).
5. All trade fixtures, equipment and other property owned by Tenant
located or installed in or on the Mortgaged Property regardless of the manner or
mode of attachment, shall be and remain the property of Tenant and may be
removed by Tenant at any time subject to the terms of the Lease. In no event
(excepting only a judgment lien following a default under the Lease at a time
when Mortgagee shall have succeeded the rights of Borrower as landlord ) shall
Mortgagee have any liens, rights or claim in Tenant's property; and Mortgagee
expressly waives all rights of levy, distraint, or execution with respect to
said property (other than a judgment lien).
6. This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of each of the parties hereto, including grantees under
any deed given in lieu of foreclosure, purchasers at a foreclosure sale, or any
party acquiring an interest in the Mortgaged Property by any other method, and
their successors and assigns (such grantees, purchasers at foreclosure and
acquiring parties and their respective successors and assigns collectively
referred to herein as "Purchaser").
This Agreement shall be governed by, and construed under the laws of
the Commonwealth of Massachusetts.
<PAGE>
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IN WITNESS WHEREOF, the parties hereto have caused the execution hereof
as a sealed instrument as of the day and year first written above.
TENANT:
NETSCOUT SYSTEMS, INC.
By: /s/ Charles W. Tillett
------------------------------
Title: VP Finance & Administration
MORTGAGEE:
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:[Illegible Signature]
--------------------
Vice President
LANDLORD/BORROWER:
MICHELSON FARM-WESTFORD
TECHNOLOGY PARK IV
LIMITED PARTNERSHIP
By: THE GUTIERREZ COMPANY,
general partner
By: /s/ Arturo J. Gutierrez
-----------------------
Title: President
<PAGE>
-84-
COMMONWEALTH OF MASSACHUSETTS
Middlesex, ss: August 18, 1997
Then personally appeared before me the above-named Charles Tillett of
NetScout Systems, Inc. and acknowledged the foregoing instrument to be the free
act and deed of NetScout Systems, Inc.
[Illegible Signature]
-------------------
Notary Public
My Commission expires: 6/7/02
STATE OF GEORGIA
Dekalb, ss: August 26, 1997
Then personally appeared before me the above-named David A. Graham,
Vice President of The Prudential Insurance Company of America and acknowledged
the foregoing instrument to be the free act and deed of The Prudential Insurance
Company of America
[Illegible Notary Signature]
--------------------------
COMMONWEALTH OF MASSACHUSETTS
Middlesex, ss: August 28, 1997
Then personally appeared before me the above-named Arturo J. Gutierrez
of The Gutierrez Company, General Partner of Michelson Farm-Westford Technology
Park IV Limited Partnership and acknowledged the foregoing instrument to be the
free act and deed of said Limited Partnership.
/s/ J. Stevens
--------------
Notary Public
<PAGE>
-85-
EXHIBIT "F"
INTENTIONALLY DELETED
<PAGE>
-86-
EXHIBIT "G"
ESTOPPEL CERTIFICATE
THIS CERTIFICATE is made to
with respect to a Lease between
as Landlord and the undersigned, covering a building located
in such lease being dated , as amended by (list all amendments):
The undersigned has been advised that
as Trustee as aforesaid (the "Bank"), is about to enter into a
transaction whereby the Bank is making a loan secured by the aforesaid real
estate and the Lease to the undersigned, and under which the Bank may acquire an
ownership interest in such real estate. In connection with this transaction, the
entire interest of the Landlord under the Lease to the undersigned will be
assigned to the Bank. The undersigned acknowledges that the Bank is and will be
relying upon the truth, accuracy and completeness of this letter in proceeding
with the transaction described above.
The undersigned, for the benefit of the Bank, their successors and
assigns, hereby certifies, represents, warrants, agrees and acknowledges that:
1. The Lease is in full force and effect in accordance with its terms
without modification or amendment except as noted above and the
undersigned is the holder of the Tenant's interest under the Lease.
2. The undersigned is in possession of all of the Premises described in
the Lease under and pursuant to the Lease and is doing business
thereon; and the Premises are completed as required by the Lease.
3. The undersigned has no claims or offsets with respect to any of its
obligations as Tenant under the Lease, and neither the undersigned nor
the Landlord is claimed to be in default under the Lease.
4. The undersigned has not paid any rental or installments thereof in
advance of the due date as set forth in the Lease.
5. The undersigned has no notice of prior assignment, hypothecation or
pledge of rents of the Lease or the Landlord's interest thereunder or
of the Tenant's interest thereunder.
6. The term of the Lease has commenced and is presently scheduled to
expire on. If there are any rights of extension or renewal under the
terms of the Lease, the same have not, as of the date of this letter,
been exercised.
7. Until such time as the Bank shall become the Landlord, if the
undersigned should assert a
<PAGE>
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claim that the Landlord has failed to perform an obligation to the
undersigned under the terms of the Lease or otherwise, notice thereof
shall promptly be furnished to the Bank; and the undersigned agrees
that the undersigned will not exercise any rights which the undersigned
might otherwise have on account of any such failure until notice
thereof has been given to the Bank, and the Bank has had the same
opportunity to cure any such failure as the Landlord may have under the
terms of the Lease, or such additional time as may be set forth in the
Lease.
8. Each of the statements set forth in Paragraphs 1 through 7 are true,
accurate and complete except as follows (state specifically any
exception):
DATED:
ATTEST:
BY: By:
-------------------------------- ----------------------------------
<PAGE>
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EXHIBIT "H"
LANDLORD, TENANT, CONTRACTOR
CHANGE PROPOSAL FORM
Project:
---------------------------------------------
R NR
--------------------------------------------- --------- -------
Proposal No. Date BB TW
-------------------------- -------------- ------- -------
From: (Landlord)
-----------------------------------------
To: (Contractor)
-----------------------------------------
CC: (Tenant)
---------------------------------------------
- --------------------------------------------------------------------------------
Step 1: Contractor: Provide an estimate for the described work.
Architect: Develop proper plans and specifications to clarify
described work.
DESCRIPTION: (List Drawings)
Landlord: Reason:
----------------------------- -----------------------
John A. Cataldo, Trustee
- --------------------------------------------------------------------------------
Step 2: Contractor: Provide with work as definitive plans become
available.
Landlord: Date:
------------------------------- ------------------------
John A. Cataldo, Trustee
- --------------------------------------------------------------------------------
Step 3: Cost of Work
a. Cost of the work $
(See attached breakdown) ---------------
b. Add construction fee at 4% $
---------------
Total Cost of Work $
---------------
Submitted by:
------------------------------------------ ------------------
Dennis G. Bailey, Vice President & Construction Manager Date
- --------------------------------------------------------------------------------
Step 4: The submitted Cost of Work has been reviewed and is (not) approved.
----------------------------------- ----------------
Architect Date
Design Fees - $
---------------
TOTAL COST OF PROPOSAL $
---------------
<PAGE>
-89-
- --------------------------------------------------------------------------------
Step 5: FINAL ACTION
a. The Tenant _______________________ Hereby agrees to reimburse the
Name of Firm
Landlord the Total Cost of Proposal shown in Step 4 above.
---------------------------------- ----------------
Authorized Tenant's Representative Date
b. This bulletin is approved (rescinded) and the work above is
(not) to be performed. Cost of this work shall be included in
Change Order No.________
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Landlord Date
<PAGE>
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EXHIBIT "I"
Intentionally Deleted
<PAGE>
Exhibit 10.7
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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
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<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
1 ACCOUNTING AND OTHER TERMS............................................................1
2 LOAN AND TERMS OF PAYMENT.............................................................1
2.1 Credit Extensions................................................................1
2.1.1 Revolving Advances...........................................................1
2.1.2 Letters of Credit............................................................2
2.1.3 Cash Management Services Sublimit............................................2
2.2 Overadvances.....................................................................2
2.3 Interest Rate, Payments..........................................................2
2.4 Fees.............................................................................3
3 CONDITIONS OF LOANS...................................................................3
3.1 Conditions Precedent to Initial Credit Extension...............................3
3.2 Conditions Precedent to all Credit Extensions..................................3
4 CREATION OF SECURITY INTEREST.........................................................4
4.1 Grant of Security Interest.......................................................4
5 REPRESENTATIONS AND WARRANTIES........................................................4
5.1 Due Organization and Authorization...............................................4
5.2 Collateral.......................................................................4
5.3 Litigation.......................................................................4
5.4 No Material Adverse Change in Financial Statements...............................5
5.5 Solvency.........................................................................5
5.6 Regulatory Compliance............................................................5
5.7 Subsidiaries.....................................................................5
5.8 Full Disclosure..................................................................5
6 AFFIRMATIVE COVENANTS.................................................................6
6.1 Government Compliance............................................................6
6.2 Financial Statements, Reports, Certificates......................................6
6.3 Inventory; Returns...............................................................7
6.4 Taxes............................................................................7
6.5 Insurance........................................................................7
6.6 Primary Accounts.................................................................7
6.7 Financial Covenants..............................................................7
6.8 Further Assurances...............................................................7
7 NEGATIVE COVENANTS....................................................................8
7.1 Dispositions.....................................................................8
7.2 Changes in Business, Ownership, Management or Business Locations.................8
7.3 Mergers or Acquisitions..........................................................8
7.4 Indebtedness.....................................................................8
7.5 Encumbrance......................................................................8
7.6 Distributions; Investments.......................................................9
7.7 Transactions with Affiliates.....................................................9
7.8 Subordinated Debt................................................................9
7.9 Compliance.......................................................................9
8 EVENTS OF DEFAULT.....................................................................9
8.1 Payment Default..................................................................9
8.2 Covenant Default.................................................................9
8.3 Material Adverse Change.........................................................10
8.4 Attachment......................................................................10
8.5 Insolvency......................................................................10
8.6 Other Agreements................................................................10
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.7 Judgments.......................................................................11
8.8 Misrepresentations..............................................................11
9. BANK'S RIGHTS AND REMEDIES..........................................................11
9.1 Rights and Remedies.............................................................11
9.2 Power of Attorney...............................................................12
9.3 Accounts Collection.............................................................12
9.4 Bank Expenses...................................................................12
9.5 Bank's Liability for Collateral.................................................12
9.6 Remedies Cumulative.............................................................13
9.7 Demand Waiver...................................................................13
10 NOTICES.............................................................................13
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER..........................................13
12 GENERAL PROVISIONS..................................................................14
12.1 Successors and Assigns.........................................................14
12.2 Indemnification................................................................14
12.3 Time of Essence................................................................14
12.4 Severability of Provision......................................................14
12.5 Amendments in Writing, Integration.............................................14
12.6 Counterparts...................................................................15
12.7 Survival.......................................................................15
12.8 Confidentiality................................................................15
12.9 Effect of Amendment and Restatement............................................15
12.10 Countersignatures.............................................................15
13 DEFINITIONS.........................................................................16
13.1 Definitions....................................................................16
</TABLE>
<PAGE>
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated March
12, 1998, between SILICON VALLEY BANK ("Bank"), a California-chartered bank with
its principal place of 3003 Tasman Drive, Santa Clara, California 95054 with a
loan production office located at 40 William St., Ste. 350, Wellesley ,
Massachusetts 02181 doing business as "Silicon Valley East" and NETSCOUT
SYSTEMS, INC. ("Borrower"), whose address is 4 Technology Park Drive, Westford,
Massachusetts 01886.
RECITALS
A. Bank and Borrower are parties to a Promissory Note, Commercial
Security Agreement and Letter Agreement, and Commercial Security Agreement, each
dated March 13, 1995, as amended (collectively, the "Original Agreement").
B. Borrower and Bank desire in this Agreement to set forth their
agreement with respect to a working capital loan and to amend and restate in its
entirety without novation the Original Agreement in accordance with the
provisions herein.
AGREEMENT
The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 Revolving Advances.
(a) Bank will make Advances not exceeding (i) the lesser of (A)
the Committed Revolving Line minus the Cash Management Services Sublimit or (B)
the Borrowing Base, whichever is less, minus (ii) the amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit). Amounts
borrowed under this Section may be repaid and reborrowed during the term of this
Agreement.
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(b) To obtain an Advance, Borrower must notify Bank by facsimile
or telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving
Maturity Date, when all Credit Extensions and other amounts due under this
Agreement are immediately payable.
2.1.2 Letters of Credit.
Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding (i) the lesser of the Committed Revolving Line or the Borrowing
Base minus (ii) the outstanding principal balance of the Advances minus the Cash
Management Sublimit; however, the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed $1,000,000. Each Letter of Credit will be secured by
cash on terms acceptable to Bank at any time after the Revolving Maturity Date
if the term of this Agreement is not extended by Bank.
2.1.3 Cash Management Services Sublimit.
Borrower may use up to $100,000 for Bank's Cash Management Services,
which will include PC-ACH services identified in various cash management
services agreements related to such services (the "Cash Management Services").
All amounts Bank pays for any Cash Management Services will be treated as
Advances under the Committed Revolving Line.
2.2 Overadvances.
If Borrower's Obligations under Section 2.1.1 and 2.1.2 exceed the
lesser of either (i) the Committed Revolving Line or (ii) the Borrowing Base,
Borrower must immediately pay Bank the excess.
2.3 Interest Rate, Payments.
(a) Interest Rate. Advances accrue interest on the outstanding
principal balance at a per annum rate equal to the Prime Rate. After an Event of
Default, Obligations accrue interest at 5 percent above the rate effective
immediately before the Event of Default. The interest rate increases or
decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is
payable on the eleventh (11th) of each month. Bank may debit any of Borrower's
deposit accounts including
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Account Number ______________ for principal and interest payments or any amounts
Borrower owes Bank. Bank will notify Borrower when it debits Borrower's
accounts. These debits are not a set-off. Payments received after 12:00 noon
Pacific time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue.
2.4 Fees.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of
$5,000 due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable
attorneys' fees and expenses) incurred through and after the date of this
Agreement, are payable when due.
3 CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires.
3.2 Conditions Precedent to all Credit Extensions.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties of Section 5 remain true.
4 CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest.
Borrower continues to grant Bank a continuing security interest in all
presently existing and later acquired Collateral to secure all Obligations and
performance of each of Borrower's duties under the Loan Documents. Any UCC-1
financing statements, or amendments thereto, or filings with respect to
Borrower's intellectual property, filed by Bank to secure the Obligations of
Borrower shall remain in full force and effect. All security interests granted
under the
<PAGE>
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Original Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Agreement. Except for Permitted Liens, any
security interest will be a first priority security interest in the Collateral.
Bank may place a "hold" on any deposit account pledged as Collateral.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
5.2 Collateral.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. The Accounts are bona fide, existing obligations, and the
service or property has been performed or delivered to the account debtor or its
agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower; has no notice of any actual or imminent Insolvency Proceeding
of any account debtor whose accounts are an Eligible Account in any Borrowing
Base Certificate. All Inventory is in all material respects of good and
marketable quality, free from material defects.
5.3 Litigation.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 No Material Adverse Change in Financial Statements.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
<PAGE>
-5-
5.5 Solvency.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 Regulatory Compliance.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations G, T and U of the Federal Reserve Board of Governors). Borrower has
complied with the Federal Fair Labor Standards Act. Borrower has not violated
any laws, ordinances or rules, the violation of which could cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to continue
its business as currently conducted.
5.7 Subsidiaries.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 Full Disclosure.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements misleading.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 Government Compliance.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a material
adverse effect on Borrower's business or operations. Borrower will comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it
<PAGE>
-6-
is subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
(a) Borrower will deliver to Bank: (i) no later than 30 days
after the end of each fiscal quarter, a company prepared consolidated balance
sheet and income statement covering Borrower's consolidated operations during
the period, in a form and certified by a Responsible Officer acceptable to Bank;
(ii) as soon as available, but no later than 120 days after the last day of
Borrower's fiscal year, audited consolidated financial statements prepared under
GAAP, consistently applied, together with an unqualified opinion on the
financial statements from an independent certified public accounting firm
acceptable to Bank; (iii) a prompt report of any legal actions pending or
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $100,000 or more; and (iv) budgets, sale
projections, operating plans or other financial information Bank requests.
(b) Within 30 days after the last day of each fiscal quarter,
Borrower will deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in the form of Exhibit C, with aged listings of accounts
receivable.
(c) Within 30 days after the last day of each month, if there are
outstanding Advances and prior to the initial Advance when there are no
outstandings, otherwise, within 30 days after the last day of each fiscal
quarter, Borrower will deliver to Bank with the quarterly financial statements a
Compliance Certificate signed by a Responsible Officer in the form of Exhibit D.
(d) If outstanding Advances exceed $500,000, Bank has the right
to audit Borrower's Accounts at Borrower's expense, but the audits will be
conducted no more often than every year unless an Event of Default has occurred
and is continuing.
6.3 Inventory; Returns.
Borrower will keep all inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.
6.4 Taxes.
Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.
6.5 Insurance.
<PAGE>
-7-
Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
6.6 Primary Accounts.
Borrower will maintain its primary depository and operating accounts
with Bank.
6.7 Financial Covenants.
Borrower will maintain as of the last day of each month when there are
outstanding Advances, otherwise as of the last day of each fiscal quarter:
(i) Quick Ratio [Adjusted]. A ratio of Quick Assets to Current
Liabilities minus Deferred Maintenance Revenue of at least 1.50 to 1.00.
(ii) Profitability. Borrower will have minimum quarterly profits
of $250,000.
6.8 Further Assurances.
Borrower will execute any further instruments and take further action
as Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 Dispositions.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business, (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower, or its Subsidiaries in the ordinary course
of business, or (iii) of worn-out or obsolete Equipment.
7.2 Changes in Business, Ownership, Management or Business Locations.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of
<PAGE>
-8-
greater than 25%. Borrower will not, without at least 30 days prior written
notice, relocate its chief executive office or add any new offices or business
locations.
7.3 Mergers or Acquisitions.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, if no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement or
result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge or
consolidate a Subsidiary into another Subsidiary or into Borrower.
7.4 Indebtedness.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 Encumbrance.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 Distributions; Investments.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.7 Transactions with Affiliates.
Directly or indirectly enter or permit any material transaction with
any Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.8 Subordinated Debt.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
<PAGE>
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7.9 Compliance.
Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Advance for that purpose; fail to meet the
minimum funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could have a material adverse effect on Borrower's business or operations or
cause a Material Adverse Change, or permit any of its Subsidiaries to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 Payment Default.
If Borrower fails to pay any of the Obligations;
8.2 Covenant Default.
If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts within 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional period (of not
more than 30 days) to attempt to cure the default. During the additional time,
the failure to cure the default is not an Event of Default (but no Credit
Extensions will be made during the cure period);
8.3 Material Adverse Change.
(i) If there occurs a material impairment in the perfection or
priority of the Bank's security interest in the Collateral or in the value of
such Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 Attachment.
If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material
<PAGE>
-10-
part of its business or if a judgment or other claim becomes a Lien on a
material portion of Borrower's assets, or if a notice of lien, levy, or
assessment is filed against any of Borrower's assets by any government agency
and not paid within 10 days after Borrower receives notice. These are not Events
of Default if stayed or if a bond is posted pending contest by Borrower (but no
Credit Extensions will be made during the cure period);
8.5 Insolvency.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 Other Agreements.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
8.7 Judgments.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 Misrepresentations.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if
an Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's
benefit under this Agreement or under any other agreement between Borrower and
Bank;
<PAGE>
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(c) Settle or adjust disputes and claims directly with account
debtors for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower,
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 Power of Attorney.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable; and
(v) transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.
9.3 Accounts Collection.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
<PAGE>
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9.4 Bank Expenses.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 Bank's Liability for Collateral.
If Bank complies with reasonable banking practices it is not liable
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other person. Borrower bears
all risk of loss, damage or destruction of the Collateral.
9.6 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.
9.7 Demand Waiver.
Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
<PAGE>
-13-
EACH OF BORROWER AND BANK HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS LOCATED IN THE COMMONWEALTH OF MASSACHUSETTS, BUT IF
FOR ANY REASON THE BANK IS DENIED ACCESS TO SUCH COURTS, THEN THE VENUE WILL BE
IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SANTA CLARA, STATE OF
CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12 GENERAL PROVISIONS
12.1 Successors and Assigns.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 Indemnification.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence.
Time is of the essence for the performance of all obligations in this
Agreement.
<PAGE>
-14-
12.4 Severability of Provision.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 Amendments in Writing, Integration.
All amendments to this Agreement must be in writing. This Agreement
represents the entire agreement about this subject matter, and supersedes prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of this Agreement merge into this Agreement and the Loan
Documents.
12.6 Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 Survival.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 Confidentiality.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 Effect of Amendment and Restatement.
This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and shall continue to be
outstanding under this Agreement. All security interests
<PAGE>
-15-
granted under the Original Agreement are hereby confirmed and ratified and shall
continue to secure all Obligations under this Agreement.
12.10 Countersignatures.
This Agreement shall become effective only when it shall have been
executed by Borrower and Bank (provided, however, in no event shall this
Agreement become effective until signed by an officer of Bank in California).
13 DEFINITIONS
13.1 Definitions.
In this Agreement:
"Accounts" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advance(s)" means a loan advanced under the Committed
Revolving Line.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"Borrower's Books" are all Borrowers books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"Borrowing Base" is 80% of Eligible Accounts as determined by Bank from
Borrower's most recent Borrowing Base Certificate.
"Business Day" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"Cash Management Services" are defined in Section 2.1.3.
<PAGE>
-16-
"Closing Date" is the date of this Agreement.
"Code" is the Massachusetts Uniform Commercial Code.
"Collateral" is the property described on EXHIBIT A.
"Committed Revolving Line" is an Advance of up to $3,000,000.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to Protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Credit Extension" is each Advance, Letter of Credit, or any other
extension of credit by Bank for Borrower's benefit.
"Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
BUT Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have
not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 35% of all Accounts, for the amounts
that exceed that percentage, unless the Bank approves in writing;
<PAGE>
-17-
(e) Accounts for which the account debtor does not have its principal
place of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department. agency, or instrumentality;
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on
approval, bill and hold, or other terms if account debtor's payment may
be conditional;
(i) Accounts for which the account debtor is Borrowers Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only
up to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business:
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"Equipment" is all present and future machinery, equipment, tenant
improvements. furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"GAAP" is generally accepted accounting principles.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Inventory" is present and future inventory in which Borrower has any
interest including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of
<PAGE>
-18-
every kind and description now or later owned by or in the custody or
possession, actual or constructive, of Borrower, including inventory temporarily
out of its custody or possession or in transit and including returns on any
accounts or other proceeds (including insurance proceeds) from the sale or
disposition of any of the foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"Material Adverse Change" is defined in Section 8.3.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"Original Agreement" has the meaning set forth in recital paragraph A.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or any
other Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business: and
(e) Indebtedness secured by Permitted Liens.
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing
Date; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating
<PAGE>
-19-
from either Standard & Poor's Corporation or Moody's Investors Service, Inc.,
and (iii) Bank's certificates of deposit issued maturing no more than 1 year
after issue.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents:
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, IF the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrowers business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"Quick Assets" is, on any date, the Borrowers consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" is March 11, 1999.
"Schedule" is any attached schedule of exceptions.
<PAGE>
-20-
"Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"Subsidiary" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
BORROWER:
NETSCOUT SYSTEMS, INC.
By: /s/ Charles Tillett
---------------------
Title: Vp Finance & Administration
----------------------------
BANK:
SILICON VALLEY BANK, doing business as SILICON VALLEY EAST
By: /s/ Mark Pasculani
---------------------
Title: VP
---------------------
SILICON VALLEY BANK
By: /s/ Michelle Gramm
---------------------
Title: AVP
---------------------
<PAGE>
-21-
EXHIBIT A
The Collateral consists of all of Borrowers right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrowers custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower,
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrowers Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrowers Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
<PAGE>
-22-
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ____________
FAX: (408) 496-2426 TIME: ____________
- --------------------------------------------------------------------------------
FROM: NETSCOUT SYSTEMS, INC.
---------------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
-------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-----------------------------------------------------------
PHONE NUMBER:
-------------------------------------------------------------------
FROM ACCOUNT# TO ACCOUNT #
---------------- --------------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- ---------------------------- ----------------------------------
PRINCIPAL INCREASE (ADVANCE) $
---------------------------------
PRINCIPAL PAYMENT (ONLY) $
---------------------------------
INTEREST PAYMENT (ONLY) $
---------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
---------------------------------
OTHER INSTRUCTIONS:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
All Borrower's representations and warranties in the Amended and Restated Loan
and Security Agreement are true, correct and complete in all material respects
on the date of the telephone request for and Advance confirmed by this Borrowing
Certificate; but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
that date.
BANK USE ONLY
<PAGE>
-23-
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account; and is known to me.
- ------------------------------------- -------------------------------------
Authorized Requester Phone #
- ------------------------------------- -------------------------------------
Received By (Bank) Phone #
------------------------------------
Authorized Signature (Bank)
<PAGE>
-24-
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: NETSCOUT SYSTEMS, INC. Lender: Silicon Valley East
40 William St, Ste. 350
Wellesley, MA 02181
Commitment Amount: $3,000,000
<TABLE>
<S> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $____________
2. Additions (please explain on reverse) $____________
3. TOTAL ACCOUNTS RECEIVABLE $____________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $____________
5. Balance of 50% over 90 day accounts $____________
6. Credit balances over 90 day $____________
7. Concentration Limits* $____________
5. Foreign Accounts $____________
9. Governmental Accounts $____________
10. Contra Accounts $____________
11. Promotion or Demo Accounts $____________
12. Intercompany/Employee Accounts $____________
13. Other (please explain on reverse) $____________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $____________
15. Eligible Accounts,(#3 minus #14) $____________
16. LOAN VALUE OF ACCOUNTS (80% of #15) $____________
* 35%
BALANCES
17. Maximum Loan Amount $____________
18. Total Funds Available [Lesser of #17 or #16] $____________
19. Present balance owing on Line of Credit $____________
20. Outstanding under Sublimits (LC/Cash Manag.) $____________
21. RESERVE POSITION (#18 minus #19 and #20) $____________
</TABLE>
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THIS IS TRUE, COMPLETE AND CORRECT,
AND THAT THE INFORMATION IN THIS BORROWING BASE CERTIFICATE COMPLIES WITH THE
REPRESENTATIONS AND WARRANTIES IN THE AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT BETWEEN THE UNDERSIGNED AND SILICON VALLEY BANK.
<PAGE>
-25-
COMMENTS:
BANK USE ONLY
NETSCOUT SYSTEMS, INC.
- ----------------------------------- Received by:
Authorized Signature -----------------------
Authorized Signer
Date:
------------------------------
Verified:
--------------------------
Authorized Signer
Date:
------------------------------
<PAGE>
-26-
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: Silicon Valley East
40 William St, Ste. 350
Wellesley, MA 02181
FROM: NETSCOUT SYSTEMS, INC.
The undersigned authorized officer of NETSCOUT SYSTEMS, INC. certifies
that under the terms and conditions of the Amended and Restated Loan and
Security Agreement between Borrower and Bank (the "Agreement'), (i) Borrower is
in complete compliance for the period ending with all required covenants except
as noted below and (ii) all representations and warranties in the Agreement are
true and correct in all material respects on this date. Attached are the
required documents supporting the certification. The Officer certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) consistently applied from one period to the next except as explained in
an accompanying letter or footnotes. The Officer acknowledges that no borrowings
may be requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement and that compliance is
determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No
under "Complies" column.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements + CC Monthly within 30 days* Yes No
Annual (Audited) FYE within 120 days Yes No
A/P Agings + BBC Monthly within 30 days* Yes No
</TABLE>
*If there are outstanding Advances and prior to the initial Advance, otherwise,
quarterly within 30 days.
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Monthly Basis, if there are outstanding Advances, other Quarterly Basis:
Minimum Quick Ration (Adjusted) 1.50:1.00 ____: 1.00 Yes No
Profitability: Quarterly ** $_______ Yes No
</TABLE>
**profits of at least $250,000.
<PAGE>
-27-
Comments Regarding Exceptions: See Attached. --------------------------------
BANK USE ONLY
Sincerely,
NETSCOUT SYSTEMS, INC.
Received by:
- ------------------------------------------- --------------------
Signature Authorized Signer
- -------------------------------------------
Title
Date:
- ------------------------------------------- ---------------------------
Date Verified:
-----------------------
Authorized Signer
Date:
--------------------------
Compliance Status: Yes No
--------------------------------
<PAGE>
EXHIBIT 10.8
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of March 11, 1999,
by and between Netscout Systems, Inc. ("Borrower") and Silicon Valley Bank
("Bank"), a California chartered bank doing business as Silicon Valley East.
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among other
documents, an Amended and Restated Loan and Security Agreement, dated March 12,
1998, as may be amended from time to time, (the "Loan Agreement'). The Loan
Agreement provided for, among other things, a Committed Revolving Line in the
original principal amount of Three Million Dollars ($3,000,000). Defined terms
used but not otherwise defined herein shall have the same meanings as in the
Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."
2. DESCRIPTION OF COLLATERAL AND GUARANTIES. Repayment of the Indebtedness is
secured by the Collateral as described in the Loan Agreement.
Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS
A. MODIFICATION(S) TO LOAN AGREEMENT
1. The dollar amount referenced in Section 2.1.2 entitled "Letters of
Credit" is hereby increased from $1,000,000 to $2,000,000.
2. The dollar amount referenced in Section 2.1.3 entitled "Cash
Management Services Sublimit" is hereby increased from $100,000 to
$200,000.
3. Section 6.2 entitled "Financial Statements, Reports, Certificates"
is hereby amended to read as follows:
6.2 Financial Statements, Reports, Certificates.
(a) Borrower will deliver to Bank: (i) as soon as available, but
no later than 45 days after the last day of each quarter, a
company prepared consolidated balance sheet and income statement
covering Borrower's consolidated operations during the period, in
a form acceptable to Bank
<PAGE>
and certified by a Responsible Officer, (ii) as soon as
available, but no later than 120 days after the end of Borrower's
fiscal year, audited consolidated financial statements prepared
under GAAP, consistently applied, together with an unqualified
opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank; (iii) (upon Borrower's
successful initial public offering) within 5 days of filing,
copies of all statements, reports and notices made available to
Borrower's security holders or to any holders of Subordinated
Debt and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission; (iv) a prompt report of any
legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of $100,000 or more; and (v) budgets, sales
projections, operating plans or other financial information Bank
requests.
(b) Within 30 days after the last day of each month (or 45 days
after the last day of each quarter if no outstanding Advances
exist), Borrower will deliver to Bank a Borrowing Base
Certificate signed by a Responsible Officer with aged listings of
accounts receivable.
(c) Within 45 days after the last day of each quarter, Borrower
will deliver to Bank with the quarterly financial statements a
Compliance Certificate signed by a Responsible Officer.
(d) If outstanding Advances exceed $500,000, Bank has the right
to audit Borrower's Collateral at Borrower's expense, but the
audits will be conducted no more often than once every year
unless an Event of Default has occurred and is continuing.
4. Borrower shall maintain the financial covenants as stated in Section
6.7 entitled "Financial Covenants" on a quarterly (rather than a
monthly/quarterly) basis.
5. The following terms as defined in Section 13.1 entitled
"Definitions" are hereby amended to read as follows:
"Committed Revolving Line" means an Advance up to $5,000,000.
"Revolving Maturity Date" means March 10, 2000.
6. The Collateral as described in Exhibit "A" to the Loan Agreement is
hereby amended to the Collateral described in Exhibit "A" to this
Loan Modification Agreement.
<PAGE>
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of Ten
Thousand Dollars ($10,000) (the "Loan Fee") plus all out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor signing
below) agrees that, as of the date hereof, it has no defenses against the
obligations to pay any amounts under the Indebtedness.
7. CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing below)
understands and agrees that in modifying the existing Indebtedness, Bank is
relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to modifications
to the existing Indebtedness pursuant to this Loan Modification Agreement in no
way shall obligate Bank to make any future modifications to the Indebtedness.
Nothing in this Loan Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Bank and Borrower to retain as liable
parties all makers and endorsers of Existing Loan Documents, unless the party is
expressly released by Bank in writing. No maker, endorser, or guarantor will be
released by virtue of this Loan Modification Agreement. The terms of this
paragraph apply not only to, this Loan Modification Agreement, but also to all
subsequent loan modification agreements.
8 JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Bank in California).
10. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon Borrowers payment of the Loan Fee.
<PAGE>
This Loan Modification Agreement is executed as of the date first
written above.
<TABLE>
<CAPTION>
BORROWER: BANK:
- --------- -----
<S> <C>
NETSCOUT SYSTEMS, INC. SILICON VALLEY BANK doing business as
SILICON VALLEY EAST
By: /s/ Charles W. Tillett By: /s/ Mark Pasculani
--------------------------------- ---------------------------------
Name: Charles W. Tillett Name: Mark Pasculani
------------------------------- -------------------------------
Title: VP Finance & Administration Title: SVP
------------------------------ ------------------------------
SILICON VALLEY BANK
By: /s/ Michelle D. Giannini
---------------------------------
Name: Michelle D. Giannini
-------------------------------
Title: Asst. Vice Pres.
------------------------------
(to be signed in Santa Clara
County, California)
</TABLE>
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower; and
All Borrower's Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.
<PAGE>
COMPLIANCE CERTIFICATE
TO: Silicon Valley East
40 William St., Ste. 350
Wellesley, MA 02181
FROM: NETSCOUT SYSTEMS, INC.
The undersigned authorized officer of NETSCOUT SYSTEMS, INC.
("Borrower") certifies that under the terms and conditions of the Amended and
Restated Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending
________________ with all required covenants except as noted below and (ii) all
representations and warranties in the Agreement are true and correct in all
material respects on this date. Attached are the required documents supporting
the certification. The Officer certifies that these are prepared in accordance
with Generally Accepted Accounting Principles (GAAP) consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes. The Officer acknowledges that no borrowings may be requested at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date
this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
------------------ -------- --------
<S> <C> <C> <C>
Monthly financial statements + CC Quarterly within 45 days Yes No
Annual (Audited) FYE within 120 days Yes No
A/R Agings + BBC Monthly within 30 days* Yes No
</TABLE>
*Or quarterly within 45 days if there are no outstanding Advances.
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Quick Ratio (Adjusted) 1.50 : 1.00 ____ : 1.00 Yes No
Minimum Quarterly Profitability $250,000 $_________ Yes No
</TABLE>
<PAGE>
<TABLE>
<S> <C>
--------------------------------------------------
COMMENTS REGARDING EXCEPTIONS: See Attached. BANK USE ONLY
Received by:
-------------------------------------
AUTHORIZED SIGNER
Sincerely,
Date:
--------------------------------------------
NETSCOUT SYSTEMS, INC. Verified:
----------------------------------------
AUTHORIZED SIGNER
Date:
- ------------------------------------- --------------------------------------------
SIGNATURE
Compliance Status: Yes No
--------------------------------------------------
- -------------------------------------
TITLE
- -------------------------------------
DATE
</TABLE>
<PAGE>
Exhibit 10.9
SDL Communications Effective Date: 2/3/98
46 Eastman Street
Easton, Massachusetts 02375
USA
SDL COMMUNICATIONS, INC.
OEM AGREEMENT
Dated as of February 3, 1998 between
SDL Communications, Inc.
with its principal place of business at 46 Eastman St., Easton, 02375
(referred to in this Agreement as SDL)
and
NetScout Systems, Inc.
with its principal place of business at 4
Technology Park Drive, Westford, MA 01886
(referred to in this Agreement as Customer)
TERMS OF AGREEMENT
SECTION:
1. SCOPE OF CUSTOMER'S LICENSE
2. OBLIGATIONS OF SDL
3. OBLIGATIONS OF CUSTOMER
4. PRICING & PAYMENT TERMS
5. ORDERS, SHIPMENTS & RETURNS
6. WARRANTIES, INDEMNITIES & REMEDIES
7. CONFIDENTIAL INFORMATION
8. TERM & TERMINATION
9. GENERAL
EXHIBITS:
A. PRODUCT UNDER OEM AGREEMENT
B. PRODUCT PRICING
C. DELIVERY SCHEDULES
SDL COMMUNICATIONS, INC. NETSCOUT SYSTEMS, INC.
By: [ILLEGIBLE SIGNATURE] By: /S/ CHARLES TILLETT
Title: SENIOR V. PRESIDENT Title: VP FINANCE & ADMINISTRATION
<PAGE>
1. SCOPE OF CUSTOMER'S LICENSE
1.01 GRANT OF LICENSE. SDL grants to Customer a non-transferable right and
OEM license to SDL's product or products listed in the statement of
the Terms of Agreement beginning on the first page of this Agreement
(referred to in this Agreement as the Products). The right and license
granted by this Agreement is effective on the date of this Agreement
and will continue in effect by this Agreement, unless terminated in
accordance with Section 8. No right or license to manufacture, copy,
alter, modify or repair the Products is granted to Customer under this
Agreement. SDL will assist the Customer in private labeling options
for the products described in Exhibit A.
1.02 NON-EXCLUSIVE LICENSE. The license granted by SDL to Customer under
this Agreement is nonexclusive. This Agreement shall not limit the
right of SDL to manufacture, market, distribute, sell or promote
anywhere in the world, directly or indirectly, any or all of the
Products being supplied to Customer under this Agreement, or to
license, appoint, hire, or otherwise engage others to do so.
1.03 ESCROW ACCOUNT. SDL will maintain at SDL's expense in an escrow
account, technical information relating to the products in Exhibit A,
solely for the following purpose:
In the event of a filing by or against SDL of a petition for relief
under the United States Bankruptcy Code or similar petition under the
insolvency laws of any jurisdiction, Customer shall have the right to
manufacture all the products being supplied to Customer at that time
under Exhibit A or other products being supplied by SDL to Customer
for a license fee equal to [CONFIDENTIAL TREATMENT REQUESTED]** per
unit of the most recent unit price paid by the Customer.
The "technical information" will include the following:
a) Manufacturing drawings and specifications of raw materials and
components comprising such parts.
b) Manufacturing drawings and specifications covering any special tooling
and the operation thereof.
c) A detailed list of all commercially available parts and components
purchased by SDL on the open market, disclosing the part number, name
and location of the supplier thereof and the price.
d) One (1) complete copy of the then current diagnostics software source
code and all tools used to build the object code from the source code
used in the preparation of any software acquired by Customer by
license or otherwise from SDL.
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
e) All relevant design and user documentation.
f) This information will be updated as design changes occur.
2. OBLIGATIONS OF SDL
2.01 TECHNICAL SUPPORT. Customer will be entitled to ongoing technical
support from SDL, ongoing technical support will be available to
Customer from SDL at no charge. Customer's technical personnel will be
allowed access to all necessary technical documentation and the
appropriate SDL Technical personnel. SDL will make its best efforts to
respond to all technical questions within 8 (eight) business hours. If
deemed necessary by Customer, Customer and SDL will establish a bug
reporting and tracking mechanism that is acceptable to both parties.
SDL will assist Customer with on-site service calls when mutually
agreed upon.
2.02 FULFILLMENT OF PURCHASE ORDERS. SDL shall make it's best effort to
fulfill Customer's purchase orders, this best effort shall be
consistent with the delivery schedule outlined in Exhibit C of this
agreement. In the event there is an event that forces deviation from
the delivery schedule, SDL will inform Customer within 24 hours of
such an event to establish a mutually agreeable next best delivery
date pertaining to the specific product and quantity being delivered.
SDL and Customer will mutually review the delivery schedule for
adjustments, updates,, new products, and agreed upon enhancements at 6
(six) month intervals from the Effective Date of this agreement.
2.03 COMMERCIALLY AVAILABLE PRODUCTS. SDL shall make available all future
non-customized and commercially available products to Customer. SDL
will provide sufficient notification to Customer of the availability
of such products as to allow Customer a reasonable period of time to
integrate such products into Customer, s product offerings. SDL will
also make the relevant technical resources available to Customer to
assist Customer in this product integration process. These products
will be available to Customer for the entire term of this agreement.
Customer will have the right to integrate and utilize such
commercially available SDL products as deemed necessary to Customer's
business interest. SDL will notify Customer on all future commercially
available products within 30 days of the initiation of design by SDL
of all such produces.
2.04 CUSTOMIZED PRODUCTS. SDL may develop mutually defined customized
products for Customer on a forward going basis. SDL and Customer will
define the NRE (Non Recurring Engineering) cost SDL will charge
Customer prior to initiation of the development of such products. In
addition to such costs, Customer will agree to purchase [CONFIDENTIAL
TREATMENT REQUESTED]** upon [CONFIDENTIAL TREATMENT REQUESTED]** of
such customized products from SDL.
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
2.05 ENGINEERING CHANGE ORDERS. In the event SDL determines an Engineering
Change Order (ECO) implementation necessary that does not affect in
any way Customer's end-product (finished product) reliability,
functionality or performance (for all the products listed in Exhibit
A, Commercially Available Products defined in Section 2.03 or
Customized Products as defined in Section 2.04), SDL will inform
Customer within 24 hours of the completion of such an Engineering
Change Order (ECO). Whenever requested by Customer, SDL will make
available to Customer, sample products with such ECO changes to allow
customer to verify that such changes do not affect in any way
Customer's end-product reliability, functionality or performance. SDL
will forward an Electronic copy of this ECO detailing the change.
Whenever possible, SDL shall make an effort to inform Customer in
advance of implementation of such ECOs that do not affect the
Customer's end-product reliability, functionality or performance. SDL
will not implementation any ECOs that affect in any way the Customer's
end-product reliability, functionality or performance without prior
approval of Customer. SDL will make its technical personnel available
to assist Customer in fully understanding the nature of any and all
ECOs implemented to the related products. Upon Customer's request, SDL
shall supply Customer sample products for acceptance testing after
completion of ECOs that affect Customer's end-product reliability,
functionality or performance.
2.06 FUNCTIONALITY, MANUFACTURING & QUALITY. In the event SDL is unable to
meet Customer's needs on mutually agreed upon functionality, or
Customer's needs in manufacturing quantity and or reasonable quality
standards in light of volume and other considerations relevant to the
manufacture of the nonconforming shipments of the products listed in
Exhibit A. Customer and SDL will define a mutually agreeable time
period in which SDL will attempt to meet Customer's requirements. If
SDL is still unable to meet Customer's requirements at the end of this
negotiated period, Customer will then receive the manufacturing rights
for that specific nonconforming product, subject, however, to payment
by Customer of a licensing fee to SDL equal to [CONFIDENTIAL TREATMENT
REQUESTED]** per unit of the last purchase price paid by Customer for
such product.
2.07 CONTINUITY OF PRODUCT SUPPLY. SDL will make all reasonable efforts to
supply products listed in Exhibit A to Customer for a period of
[CONFIDENTIAL TREATMENT REQUESTED]** . If discontinuance of a critical
component from SDL's vendors deems it impossible for SDL to
manufacture a specific product, SDL will inform Customer within 24
hours of receipt of such information by SDL. In this event, SDL will
make all reasonable efforts, upon Customer's approval, to initiate
design of a replacement product that is similar to the product in
jeopardy, taking into account that the replacement product matches the
form, functionality and pricing of the product being replaced.
Customer will
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
make all reasonable efforts to commit the necessary resources to
integrate the replacement product into Customer's product offerings.
2.08 [CONFIDENTIAL TREATMENT REQUESTED]** CUSTOMER. SDL hereby represents
that [CONFIDENTIAL TREATMENT REQUESTED]** for the entire term of this
agreement will [CONFIDENTIAL TREATMENT REQUESTED]** as those that will
be [CONFIDENTIAL TREATMENT REQUESTED]** to any of its other
[CONFIDENTIAL TREATMENT REQUESTED]**. Further, if at any time in the
future, SDL [CONFIDENTIAL TREATMENT REQUESTED]** another [CONFIDENTIAL
TREATMENT REQUESTED]** , SDL shall immediately make those
[CONFIDENTIAL TREATMENT REQUESTED]** to Customer.
2.09 NOTIFICATION OF CHANGE OF CONTROL. SDL will inform Customer within 24
hours of the consummation of a purchase of all or substantially all of
SDL's business by a Third Party. (for purposes hereof, all or
substantially all of SDL's business shall include, the sale of all or
a substantial portion of SDL's right, title and interest in and to the
products listed in Exhibit A or any products being supplied to
Customer at that time.)
2.10 QUALITY ASSURANCE. SDL will establish within 60 days of the effective
date of this Agreement documented quality assurance procedures that
provide the following:
a. Incoming inspection criteria for acceptance, rejection and
purging of material.
b. A product ship or product hold quality process.
c. Minimum Statistical techniques to measure and monitor process
yield.*
d. A signature authority ECO process.*
e. A revision control system for assembly Bill of Materials.*
f. A segregated rejected material location.*
g. The latest test procedures are available to operators.*
* Items c through g have been in place at SDL since November 1, 1997.
2.11 COMPLIANCE. On all products that are developed under Section 2.03
Commercially Available Products and Section 2.04 Customized Products,
SDL will complete the minimum FCC & CE mark Compliance tests necessary
and
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
customary in providing such products to its present OEM Customers.
Wherever applicable, SDL's Engineering design methodologies
incorporate consideration for the above minimum FCC & CE mark
compliance tests in the design process. When requested by Customer,
SDL will present a schedule that provides Customer with the expected
compliance testing completion dates for the above stated compliance
tests for products under Section 2.03 and 2.04. If, due to Customer's
urgent need of completion of the above mentioned Compliance tests,
Customer requests that such compliance test be expedited, and if such
request for action is agreed to by SDL, then Customer will reimburse
SDL for all related expenses specific to such compliance testing, not
including the cost of utilizing SDL's technical personnel in the
conducting or completion of such compliance tests. In the event,
Customer requires Compliance testing for products developed under
Section 2.03 and 2.04 that is above and beyond the minimum FCC and CE
mark compliance testing as described above, Customer will be
responsible for all costs associated with such compliance tests
relating to these products. SDL will, however, provide the necessary
technical personnel in assisting Customer with the completion of such
compliance tests for SDL products incorporated into Customers
end-products (finished products).
2.12 FORCE MAJEURE. Except as to payment due and owing under this
Agreement, neither SDL nor Customer shall be liable to the other party
for failure or delay in performance of any obligation hereunder or for
any damage caused thereby if such delay is due to any cause beyond the
reasonable control of the party. Such cause may, include but is not
limited to natural disasters, war accidents, strikes or utility
shortage or curtailment, governmental regulations, or to any other
cause or causes beyond the control, or without the fault or
negligence, of either party.
2.13 END-USER WARRANTY AND LICENSE. SDL warrants that at the time of
shipment the Product shall be free from defect in material and
workmanship. SDL warrants that the Product will meet the standard
specifications of each product listed in Exhibit A hereto at the time
of shipment. This warranty excludes damage resulting from mishandling,
tampering, improper installation and misuse by the purchaser. SDL
warrants all Products for a period of 12 months from the date of
Invoice.
3. OBLIGATIONS OF CUSTOMER
3.01 TRADEMARKS.
(a) SDL grants to Customer a nonexclusive license to use SDL's trade
name and those of SDL's trademarks and service marks that pertain
to any of the Products, solely in Customer's advertising and
other promotion of the Products. SDL will assist the Customer in
private labeling options for the prouducts described in Exhibit
A. SDL will allow Customer to use its trademark for private
labeling purposes.
<PAGE>
(b) Whenever Customer uses in writing a registered trademark of SDL,
it shall place next to that trademark, at least the first time
that it appears in any given advertisement or publication, an
encircled "R" in superscript and a footnote stating that
trademark is a registered trademark of SDL. Whenever Customer
uses in writing a trademark of SDL for which SDL has applied for
registration, it shall place next to that trademark, at least the
first time that it appears in any given advertisement or
publication, the letters "TNF' in superscript and a footnote
stating that that trademark is a trademark of SDL.
(c) This Agreement shall not provide Customer any interest in SDL's
name or any of its trademarks or service marks except as
expressly provided in this Agreement. Customer's license to use
SDL's name and its trademarks and service marks shall cease upon
the termination of this Agreement.
3.02 END-USER WARRANTY AND LICENSE. Customer shall not make or grant,
orally or in writing, expressly or by implication, any other warranty
or license other than that which SDL has stated in the End-user
warranty and license.
3.03 COMPLIANCE WITH LAWS. Customer shall not, nor shall Customer permit
any other reseller of any of the Products supplied by SDL under this
Agreement, to export any of the Products, directly or indirectly, to
any foreign country in violation of any United States statute or
regulation in effect at the time of export. Customer shall be
responsible for obtaining all required agency, governmental or safety
certifications for the Products listed in Exhibit A.
4. PRICING AND PAYMENT TERMS
4.01 PRODUCT PRICING. Product Pricing to Customer shall be consistent with
the pricing reflected in Exhibit B of this Agreement. Pricing and
Terms for all other products to be supplied by SDL to Customer will be
negotiated separately. SDL will not be responsible for any
International Duties and Taxes relating to the shipment of SDL
products by Customer.
4.02 PURCHASE ORDER CHANGES AND CANCELLATIONS. All changes, rescheduling of
shipment, or cancellations of the Purchase Order must be made in
writing. Customer will be allowed to reschedule a specific Purchase
Order one-time without incurring any rescheduling penalty. Beyond
this, orders rescheduled within [CONFIDENTIAL TREATMENT REQUESTED]**
of shipping date are subject to a rescheduling fee of [CONFIDENTIAL
TREATMENT REQUESTED]** of the net Purchase Order amount. Orders
canceled within [CONFIDENTIAL TREATMENT REQUESTED]** of shipping date
are subject to a restocking charge of [CONFIDENTIAL TREATMENT
REQUESTED]** of the net Purchase Order amount of the items restocked.
Orders that are
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
rescheduled or canceled outside of [CONFIDENTIAL TREATMENT
REQUESTED]** shall not be subject to any charges.
4.03 PRICE CHANGES. SDL may change the prices of any of the Products being
supplied under this Agreement at upon [CONFIDENTIAL TREATMENT
REQUESTED]** prior written notice to customer. In the event there is a
price increase for a specific product or products, SDL will honor all
outstanding orders on existing Purchase Orders from Customer at prices
prior to any and all such price increases.
4.04 RESALE PRICES. SDL shall have no control of the price or prices at
which Customer actually resells SDL's products, which Customer shall
determine without the involvement of SDL.
4.05 CUSTOMER'S FAILURE TO PAY. Customer's failure to pay after a 90 day
period following the due date of any undisputed Invoice shall
constitute a material breach of this Agreement. Before a material
breach can be declared, SDL shall notify Customer in writing of the
outstanding Invoices & amounts due within 45 days after the due date
of such Invoices & allow customer 30 days from date of such notice or
90 days after the due date to pay all such undisputed Invoices in
full. Interest shall accrue on all unpaid amounts at the rate of
[CONFIDENTIAL TREATMENT REQUESTED]** per month, compounded daily, or
the highest rate then permitted by law (whichever is the lower) from
the date on which payment was due through the date on which SDL
receives payment and SDL, at its option, may cancel or defer shipment
of any previously accepted or future orders until it has received
payment in full of all amounts due from Customer, whether or not
overdue.
4.06 CREDIT LIMIT. The maximum amount of credit that SDL is required to
extend to Customer is [CONFIDENTIAL TREATMENT REQUESTED]**. This
Credit Limit can be increased by SDL upon receipt of relevant
Financial Information from Customer allowing SDL to make such a
decision.
4.07 TERMS OF PAYMENT. All Products sold hereunder shall be invoiced in
full upon shipment. Unless otherwise specified. terms of payment are
net thirty (30) days on approved credit. Any undisputed amounts owing
after thirty (30) days shall accrue interest at the rate of
[CONFIDENTIAL TREATMENT REQUESTED]** per month from date of shipment.
SDL shall have the right to change credit terms of the Customer with
60 days prior notice, and to hold up shipment of Products if payment
for a previous order has not been received.
5. ORDERS, SHIPMENTS AND RETURNS
5.01 PURCHASE ORDERS. Purchase Orders shall specify shipment dates no later
than 12 months from the issuance thereof. Customer will provide SDL
with a [CONFIDENTIAL
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
TREATMENT REQUESTED]** of products required for a given Quarter
(90-Day period), no later than Forty Five (45) days before the
beginning of the Quarter in which these purchases are to take place.
5.02 ACKNOWLEDGMENTS. Any terms or conditions specified in the Purchase
Order which differ from or conflict with the terms of this Agreement
in any material respect shall be void unless specifically accepted by
SDL.
5.03 SHIPMENT AND DELIVERY. Shipment shall be F.O.B. from SDL's location in
Easton. Massachusetts, by the method specified by the Customer. If any
conditions arise which prevent compliance with delivery schedules, SDL
will not be liable for any damage for delay in delivery. SDL will,
however, use its best efforts to notify Customer of delays,. SDL will
not make shipment ahead of schedule without Customer's approval. All
freight charges on shipments will be billed to Customer.
5.04 RETURNS. Customer may return Products to SDL only if Customer has
first requested and obtained from SDL a Return Merchandise
Authorization number, to which Customer shall refer in the shipping
documents accompanying the returned Products.
6. WARRANTIES, INDEMNITIES AND REMEDIES
6.01 WARRANTIES. SDL product Warranty is specified in Section 2.13 . SDL
shall repair or replace free of charge any Product that does not
comply with that warranty. Customer may replace any defective SDL
products that it has sold, and SDL shall replace in Customer's
inventory, free of charge, the same number of Products that Customer
has had to replace pursuant to the Warranty specified in Section 2.13.
6.02 INDEMNITY OF SDL. Customer shall Indemnify SDL and hold it harmless
from any and all actions, claims, damages. expenses (including
attorney's fees) and liabilities that arise from Customer's act,
omission or misrepresentation in the marketing, OEM, sale or promotion
of all Products supplied under this Agreement, including particularly
those that arise from Customer's breach of it's obligations.
6.03 INDEMNITY OF CUSTOMER. SDL shall indemnify and hold harmless Customer
from and against any damages, liabilities, costs and expenses
(including reasonable attorneys' fees and court costs) arising out
third party claims alleging that the products being provided in
Exhibit A or any other products supplied by SDL to Customer infringe
on any Patent, Trademark, Copyright or trade secret. Should any of the
products in Exhibit A or any product being supplied by SDL to Customer
become the subject of a claim of infringement, SDL shall (a) obtain
for SDL the right to continue using such specific products pursuant to
the terms and conditions of this Agreement, or (b) replace or modify
the products so that they become non-infringing but functionally
equivalent.
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
6.04 LIMITATIONS OF WARRANTY AND LIABILITY. THE WARRANTY STATED IN THIS
SECTION IS A LIMITED WARRANTY AND IS THE ONLY WARRANTY, EXPRESS OR
IMPLIED, MADE BY SDL. ANY AND ALL OTHER WARRANTIES, INCLUDING
SPECIFICALLY WARRANTIES, OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED. NEITHER SDL NOR CUSTOMER
SHALL BE LIABLE OR OBLIGATED TO THE OTHER IN ANY MANNER FOR ANY MANNER
FOR ANY CONSEQUENTIAL OR INDIRECT DAMAGES EVEN IF IT HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES.
7. CONFIDENTIAL INFORMATION
7.01 SDL and Customer each acknowledges that, during the course of
performing its duties under this agreement, it may obtain information
relating to the business or products of the other that is confidential
and proprietary ("Confidential Information"). Each party shall use the
Confidential Information for the sole purpose of exercising its rights
and performing its duties under this Agreement and shall not disclose
any of the other party's Confidential Information to anyone other than
those of its employees, agents or consultants who (i) have a need to
know the Confidential Information in order to enable the receiving
party to exercise its rights and perform its duties under this
agreement; and (ii) who have signed an agreement with the receiving
party obligating them (a) not to disclose any of the Confidential
Information to anyone other than other employees or agents of the
receiving party who have signed similar agreements with the receiving
party and (b) not to use any of the Confidential Information for any
purpose other than to enable the receiving party to exercise its
rights and perform its duties under this Agreement. Before disclosing
any of the disclosing party's Confidential Information to any of its
employees or agents, the receiving party shall advise each employee or
agent that the disclosing party's Confidential Information is
confidential and subject to the restriction stated in this Agreement.
7.02 The receiving party and its employees and agents shall return to the
disclosing party all of its Confidential Information, including the
originals and copies of documents containing any of the disclosing
party's Confidential Information, upon the termination of this
Agreement. Nothing in this Agreement, nor the disclosure of any
Confidential Information by the disclosing party, shall be construed
to grant to the receiving party any rights of any kind in any of the
Confidential Information.
7.03 This Agreement shall not apple to information that (I) on the date of
this Agreement was already known to the receiving party or available
to the public; (II) after the date of this Agreement becomes known to
the receiving party or available to the public other than unauthorized
disclosure; or (III) was or is developed by the receiving party
Independently without any use of any of the disclosing party's
Confidential Information.
<PAGE>
7.04 The terms and conditions of this Agreement cannot be disclosed by
either party to a third party entity or individual without the express
written consent of the party to this agreement (either SDL or
Customer) that is not initiating this disclosure. The Customer's
trademark cannot be used in any shape or form by SDL without the prior
written consent of the Customer. This agreement shall not provide SDL
any interest in Customer's name or any of its trademarks or service
marks.
8. TERM AND TERMINATION. Subject to the other provisions of this Section 8,
this Agreement shall have a duration of 60 months. Either party may cancel
this Agreement for breaching the obligations of this contract by giving
written notice to the other party at least 60 days before effective date of
the cancellation. Upon termination of this Agreement, (a) each party shall
immediately return to the other all copies of Confidential Information of
the other then in its possession, custody or control and shall cease to use
any of the other party's Confidential Information for any purpose; and (b)
the license granted by this Agreement shall be terminated Immediately.
Customer shall cease to market, distribute, sell or promote any of the
Products, to use SDL's name or any of its trademarks or service marks or
otherwise hold itself out as a customer of SDL's Products.
RIGHTS UPON TERMINATION. Termination of any Purchase Order of this
Agreement shall not affect SDL's right to be paid for undisputed invoices
for Products already shipped. The termination of this Agreement shall not
affect any of the SDL's warranties, indemnification's or obligations
relating to returns, credits or any other matters set forth in this
Agreement that are to survive this termination in order to carry out their
intended purpose all of which shall survive this agreement. Upon
termination of this Agreement, Customer shall discontinue holding itself
out as a Customer of SDL's products. The expiration of the term of this
Agreement shall not affect the obligations of either party to the other
party pursuant to any Purchase Order previously forwarded to SDL.
9. GENERAL
9.01 ASSIGNMENT; BINDING EFFECT. No party may assign any or all of its
rights or delegate any or all of its duties under this Agreement
without the written consent of the other party. A change in control of
the ownership, or a transfer of all or substantially all of the
assets, of SDL or the Customer shall not be deemed an assignment of
this Agreement and shall not require the other party's consent.
9.02 MISCELLANEOUS. The laws of the Commonwealth of Massachusetts,
excluding the conflicts-of-law principles thereof shall govern the
validity and construction of this Agreement. This Agreement states the
entire agreement and understanding of the parties on the subject
matter of the Agreement, and supersedes all previous agreements,
arrangements, communications and understanding relating to that
subject matter. This Agreement may be amended, modified, superseded or
canceled, and any of the terms thereof may be waived, only by a
written document signed by each party to this Agreement or, in case of
waiver, by the party or parties waiving compliance. No person not a
party to this Agreement (including
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
any employee of any party to this Agreement) shall have or acquire any
rights by reason of this Agreement, nor shall any party by this
Agreement have any obligations or liabilities to such other person by
reason of this Agreement. Nothing in this Agreement shall be deemed to
constitute any party a partner, joint venture, employer, employees
master, servant, principal or agent of any other party or any other
person.
<PAGE>
EXHIBIT A: PRODUCTS UNDER OEM AGREEMENT
<TABLE>
<CAPTION>
SDL PRODUCTS PRODUCT DESC. SDL PART NUMBER
<S> <C> <C>
[CONFIDENTIAL TREATMENT REQUESTED]**
</TABLE>
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
EXHIBIT B: PRODUCT PRICING
<TABLE>
<CAPTION>
QUANTITY (UNITS)
SDL PRODUCTS PRODUCT DESC. SDL PART NUMBER 100-299 300+
<S> <C> <C> <C> <C>
[CONFIDENTIAL TREATMENT REQUESTED]**
</TABLE>
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
EXHIBIT C: DELIVERY SCHEDULES
<TABLE>
<CAPTION>
BASED ON PRODUCTS REQUIRED PER SHIPMENT
- ---------------------------------------
<S> <C> <C> <C> <C>
[CONFIDENTIAL TREATMENT REQUESTED]**
Quantity(units): 1-100 101-250 251-500 501+
Delivery Schedule (in working days): 30 35 40 50
[CONFIDENTIAL TREATMENT REQUESTED]**
Quantity(units): 1-100 101-250 251-500 501+
Delivery Schedule (in working days): 30 35 40 50
[CONFIDENTIAL TREATMENT REQUESTED]**
Quantity(units): 1-100 101-250 251-500 501+
Delivery Schedule (in working days). 30 35 40 50
[CONFIDENTIAL TREATMENT REQUESTED]**
Quantity(units): 1-100 101-250 251-500 501+
Delivery Schedule (in working days): 30 40 50 50
[CONFIDENTIAL TREATMENT REQUESTED]**
Quantity(units): 1-100 101-250 251-500 501+
Delivery Schedule (in working days): 30 40 50 50
[CONFIDENTIAL TREATMENT REQUESTED]**
Quantity(units): 1-100 101-250 251-500 501+
Delivery Schedule (in working days): 30 35 40 50
</TABLE>
**[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO
RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
<PAGE>
Exhibit 10.10
CISCO SYSTEMS, INC.
PROJECT DEVELOPMENT AND LICENSE AGREEMENT
This Project Development and License Agreement ("Agreement") is made in
California as of July 13, 1994, by and between Cisco Systems, Inc., a
California corporation having its principal place of business at 1525 O'Brien
Drive, Menlo Park, CA, 94025, ("Cisco"), and Frontier Software Development, Inc.
("Frontier"), a Delaware corporation having its principal place of business at
1501 Main Street, Tewksbury, 01876.
The parties hereto agree as follows:
1. Definitions.
"Derivative Work" means the incremental work constituting enhancements and
modifications to the Software and/or works based on the source code developed as
a result of a porting the Software to Cisco platforms.
"Software" shall mean Frontier's RMON software and Derivative Work, in machine
readable binary and source code form, and all related documentation and tools
necessary to use the software listed in Exhibit A.
"RMON Extensions" shall mean Frontier's proprietary RMON extensions in machine
readable binary and source code form, and all related documentation and tools
necessary to use the software listed in Exhibit A.
"NETscout Manager" shall mean Frontier's network management application software
in machine readable binary form, and all documentation and tools necessary to
use the network management application software listed in Exhibit A.
2. Scope Of Work.
Frontier agrees to use commercially reasonable efforts to develop the Derivative
Work for Cisco's platforms and modify the NETscout Manager to incorporate
Cisco's OEM labeling requirements in accordance with the Specification and
Project Plan ("Specifications") attached hereto as Exhibit A and the Project
Schedule set forth in Exhibit B. Material changes in the Project Schedule or the
Specifications may be agreed to by both of the Project Managers in writing from
time to time during the port of the Software and RMON Extensions. Each party
agrees to negotiate in good faith and in a reasonable manner to reach agreement
for such changes or modifications. Frontier shall provide Cisco with periodic
updates of the status of the development effort in such form as Frontier and
Cisco deem appropriate.
Frontier designates NATE KALOWSKI as the Project Manager and Cisco designates
JAYSHREE ULLAL as the Project Manager for this Agreement. Frontier designates
NATE KALOWSKI as the Marketing Manager and Cisco designates MARK FARINO as the
Marketing Manager for
<PAGE>
this Agreement. The Project Managers, or their representatives, shall meet on a
regular basis throughout the development phase of this Agreement for the purpose
of joint progress reporting and relationship/program management.
The parties agree to use commercially reasonable efforts to provide appropriate
test equipment and engineering assistance to the other party for development of
the Software. Test equipment shall be returned upon request of the loaning
party.
3. Acceptance Testing.
From the date of delivery of each development milestone for the Software and
RMON Extensions, Cisco will have [*] to perform the acceptance tests specified
in the Specifications on the products. If the Software and RMON Extensions do
not conform to the Specifications, or do not otherwise pass the acceptance
tests, Frontier must deliver a detailed plan of how and when the error will be
corrected within [*] and must execute the plan if approved by Cisco. At each
delivery until such products pass the final acceptance tests, Cisco may re-test
the Software and RMON Extensions and Frontier agrees to best efforts cure the
defects.
4. License.
Subject to the terms and conditions hereof including payment, Frontier grants to
Cisco a worldwide, irrevocable (except for breach of the terms of this license
grant), perpetual, and non-exclusive license to use, modify, copy, market,
distribute or otherwise dispose of the Software and RMON Extensions. The license
granted hereunder shall include rights under any applicable patents, copyrights
or trade secrets necessary to use the Software and RMON Extensions.
Frontier also grants Cisco a worldwide, non-exclusive license to market and
distribute NETscout Manager under Cisco's label. The license granted hereunder
shall include rights under any applicable patents, copyrights or trade secrets
necessary to use the NETscout Manager.
5. Restrictions.
In consideration of the License granted herein and a material inducement for
Cisco's entering into this Agreement and paying the amounts required to be paid
hereunder, Frontier agrees, that it will not, directly or indirectly, publicly
announce or disclose any
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
2
<PAGE>
agreement or undertaking relating to license or port of the Software or RMON
Extensions or resale of NETscout Manager with the Cisco competitor's listed in
Exhibit C. The foregoing restriction shall commence upon the execution date of
this Amendment and continue for a period ending on the later of [*] after
execution of this Agreement or [*] from delivery of beta Software and RMON
Extensions that meets a mutually agreed upon test suite.
Cisco shall have no right to sublicense or cross license the Software and RMON
Extensions as a standalone product. Subject to payment of the Software License
Fees set forth in Exhibit D, Cisco shall full right to sublicense, cross-license
or otherwise transfer Cisco protocols that incorporate the Software and RMON
Extensions to any third party; provided however, such third party is restricted
from extracting the Software and RMON Extensions from the Cisco protocols or
otherwise using the Software and RMON Extensions apart from its use with Cisco's
protocol without obtaining a license from Frontier.
6. Title.
Title and full ownership rights to the RMON software and RMON Extensions shall
remain solely with Frontier.
Title and full ownership rights to the Derivative Work developed hereunder shall
vest solely with Cisco.
All rights, whether now existing or hereafter arising, which are not
specifically granted to the receiving party hereunder are retained by their
respective holders.
7. Price/Delivery.
Upon execution of this Agreement, Frontier shall deliver to Cisco one (1) copy
of the Software and RMON Extensions in the format requested by Cisco.
In consideration of the development efforts and rights and licenses granted
herein by Frontier, Cisco's shall pay to Frontier the license fees set forth in
Exhibit D hereto.
All payments required by this Agreement are exclusive of sales, use, rental
receipt, personal property or other taxes or excise taxes which may be levied or
assessed in connection with this Agreement, and Cisco agrees to bear and be
responsible for the payment of all such taxes, except taxes based on Frontier's
income.
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
3
<PAGE>
8. Support/Consulting.
During the first year of this Agreement, Frontier shall provide to Cisco
maintenance, in the form of telephone hotline support, updates, revisions, bug
fixes and new releases to the Software and RMON Extensions shall be provided at
no charge. Thereafter, Cisco may purchase annual maintenance services for an
annual maintenance fee of [*]. All updates, revisions, bug fixes and new
releases provided to Cisco by Frontier shall be subject to the terms and
conditions of this Agreement.
9. Warranty.
Frontier warrants that the Software and the port of the RMON Extensions wild be
designed in accordance with Specifications. Frontier warrants for a period of
ninety days that the software modified or delivered by it will conform to the
Specifications for the Software. In the event that Cisco reports a defect to
Frontier, Frontier will use its best efforts to cure the defect within the
reasonable time periods requested by Cisco.
Frontier warrants that it has and shall throughout the term of the Agreement
have sufficient right, title and interest in the Software and RMON Extensions
provided to the Cisco to enter into this Agreement and to grant the rights it
has under this Agreement. Further, Frontier warrants that no additional rights
or licenses will be necessary to exercise the rights granted hereunder.
EXCEPT FOR THE EXPRESS WARRANTIES STATED IN THIS AGREEMENT, FRONTIER MAKES NO
ADDITIONAL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO ANY MATTER
WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
10. Confidential Information.
Cisco acknowledges Frontier's representation that the Software and RMON
Extensions and the design thereof constitutes a valuable trade secret to
Frontier and agrees that the Software and RMON Extensions and the design thereof
are provided in confidence as proprietary to Frontier, and such Software and
RMON Extensions is provided solely for Cisco's and Cisco's sublicensees'
nonexclusive use subject to the terms of this
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
4
<PAGE>
Agreement. Cisco agrees to employ the same degree of care, but not less than
reasonable care, to protect the Software and RMON Extensions and RMON Extensions
from unauthorized disclosure or use as Cisco uses to protect its own proprietary
information of a similar kind and importance.
Cisco agrees that prior to disclosure of the Software, RMON Extensions or design
thereof to any consultant or sublicensee it shall secure that third party's
agreement to treat the Software and RMON Extensions as confidential information
under restrictions at least as protective as the provisions of this Agreement.
Cisco agrees that it will take appropriate action with its employees,
consultants, and sublicensees by agreement or otherwise, to ensure that they
will take appropriate steps to comply with their obligations with respect to
use, copying, transference, protection and security of the Software and RMON
Extensions.'
Cisco's obligations to hold the Software and RMON Extensions in confidence shall
not apply to any part of the Software or RMON Extensions which:
a. is, or becomes, available to the public other than by breach of any
obligation herein assumed by Cisco; or
b. is furnished to a third party by Frontier without restriction of the
third party's right to disseminate the Software or RMON Extensions; or
c. is independently developed by Cisco without use or access to the
Software, RMON Extensions and the design thereof, or
d. is disclosed to Cisco by a third party having the right to make such
disclosure.
11. Publicity.
Neither party shall disclose, advertise or publish the existence nor the terms
or conditions of this Agreement, except to auditors, counsel, financing sources
and in connection with a merger or sale of all or substantially all of such
parties assets, without the prior written consent of the other party.
12. Term and Termination.
This development portion of this Agreement shall commence on the date first set
forth above and continue until a period of three (3) years. Either party may
terminate this Agreement in the event the other party breaches any term or
condition of this Agreement, and the breaching party fails to cure such breach
within [*] of receipt of
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
5
<PAGE>
notice from the nonbreaching party. Except as expressly set forth below,
Sections 4, 5, 6, 7, 8, 10, 11, 13, 16 and Exhibit B shall survive any
termination or expiration of this Agreement.
Solely in the event Frontier terminates this Agreement as a result of Cisco's
unsecured breach of Section 4, 5 or Exhibit D, Cisco shall cease distributing
and return the RMON Extensions and any copies thereof to Frontier within [*] of
the effective date of termination. Cisco may retain a reasonable number of
copies of the RMON Extensions for support purposes.
In no event shall termination or expiration of this Agreement affect Cisco's
customers or partners sublicense rights in the Software and RMON Extensions.
13. Intellectual Property Indemnification
Frontier warrants that it owns all rights to the Software and RMON Extensions
and that the Software and RMON Extensions does not infringe upon or violate any
patent, copyright or trade secret of any third party. If any claim of
infringement is made by any third party against Cisco or its customers, Cisco
shall promptly notify Frontier, and Frontier shall indemnify, defend, and hold
Cisco harmless against any and all liability, losses, claims, expenses
(including reasonable attorneys' fees), demands of any kind arising out of any
such claim, whether or not that claim is successful, provided that Cisco (i)
gives Frontier notice of such claim, (ii) cooperates with Frontier, at
Frontier's expense, in the defense of such claim, and (iii) gives Frontier the
right to control the defense and settlement of any such claim, except that
Frontier shall not enter into any settlement that affects Cisco's rights or
interest without Cisco's prior written approval. Cisco shall have no authority
to settle any claim on behalf of Frontier.
If by reason of such infringement claim any patent, copyright or trade secret of
any third party, Cisco or its customers shall be prevented or is likely to be
prevented by legal means from selling or using the Software and RMON Extensions,
or if, in Frontier's opinion, such claim is likely to occur, Frontier will use
its best efforts, at its expense, to: (i) obtain all rights required to permit
the sale or use of the Software and RMON Extensions by Cisco and its customers;
or (ii) modify or replace such Software and RMON Extensions to make them
noninfringing (and extend this indemnity thereto), provided that any such
replacement or modified Software and RMON Extensions are satisfactory to Cisco.
If Frontier using its best efforts, is unable to achieve either of the options
set forth above within a reasonable period of time after the issuance of the
injunction, Frontier shall promptly refund to Cisco all fees paid hereunder.
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
6
<PAGE>
The foregoing indemnification shall not extend to any claim based solely upon
the combination, operation or use of the Software or RMON Extensions supplied
hereunder with equipment, devices or software not supplied by Frontier, or any
alteration or modification of the Software and RMON Extensions supplied
hereunder.
THE FOREGOING STATES THE ENTIRE OBLIGATION OF FRONTIER WITH RESPECT TO
INFRINGEMENT OF PATENTS, COPYRIGHTS AND TRADE SECRETS.
14. General.
No waiver of rights under this agreement by either party shall constitute a
subsequent waiver of this or any other right under this Agreement.
Neither party shall be liable for any delay or failure in performance due to
such acts of God, earthquake, labor disputes, riots, war, fire, epidemics, or
transportation difficulties. The obligations and rights of the excused party
shall be extended on a day to day basis for the time period equal to the period
of the excusable delay.
Neither this Agreement nor any rights under this Agreement, other than monies
due or to become due, shall be assigned or otherwise transferred by either party
without the prior written consent of the other party. This Agreement may be
transferred or otherwise assigned to any company or other entity which acquires
all or substantially all of the assets of such party.
In the event that any of the terms of this Agreement become or are declared to
be illegal by any Court or tribunal of competent jurisdiction, such term or
terms shall be null and void and shall be deemed deleted from this Agreement.
All the remaining terms of this Agreement shall remain in full force and effect
provided, however, that if this paragraph becomes applicable and if the effect
thereof is to substantially impair the value of this Agreement to either party,
then the affected party may terminate this Agreement by written notice to the
other.
This Agreement (including the Exhibits hereto) constitutes the entire Agreement
between the parties hereto concerning the subject matter of this Agreement; and
there are no conditions, understandings, agreements, representations, or
warranties, expressed or implied, which are not specified herein. This Agreement
may only be modified by a written document executed by the parties thereto.
Neither party has the right or authority to, and shall not, assume or create any
obligation of any nature whatsoever on behalf of the other party or bind the
other party in any respect whatsoever.
7
<PAGE>
This Agreement shall bind and insure to the benefit of the successors and
permitted assigns of the parties.
This Agreement shall be interpreted and construed and legal relations created
shall be determined in accordance with the Laws of the State of California.
15. Joint Marketing
The parties agree to explore in good faith and, upon mutual consent of the
parties, participate in appropriate marketing and sales activities to leverage
each parties products. Such activities may include, but are not limited to,
trade shows, product training, sales training and product literature.
16. Notice.
Any notice which may be given by a party under this Agreement shall be in
writing and shall be either delivered in person, U.S. Mailed, First Class,
postage prepaid, air courier, or telex or facsimile to the party to be notified,
at the address set forth below.
If to Cisco:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, California 95134
Attn: Vice President - Bus Dev
If to Frontier.
Frontier Software Development, Inc.
1501 Main Street
Tewksbury, MA 01876.
Attn: President
17. Limitation of Liability.
IN NO EVENT SHALL EITHER PARTY BE LIABLE, EXCEPT FOR CLAIMS ARISING UNDER
SECTION 13 INTELLECTUAL PROPERTY INDEMNIFICATION OR CLAIMS OF PERSONAL INJURY OR
DAMAGE TO TANGIBLE PERSONAL PROPERTY RESULTING FROM HE NEGLIGENT ACTS OR
OMISSIONS OF EITHER PARTY, FOR AN AMOUNT WHICH EXCEEDS [*].
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
8
<PAGE>
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES, LOST PROFITS, OR LOST DATA, OR ANY OTHER INDIRECT DAMAGES
EVEN IF SUCH PARTY HAS BEEN INFORMED OF THE POSSIBILITY THEREOF.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first written above.
CISCO SYSTEMS, INC. FRONTIER SOFTWARE
DEVELOPMENT, INC.
By: /s/ Mario Mazzola By: /s/ Narendra Popat
------------------------------- ------------------------------
Name: Mario Mazzola Name: Narendra Popat
----------------------------- --------------------------------
Title: V.P. WBU Title: President
---------------------------- ------------------------------
10
<PAGE>
Exhibit A
[Insert list of deliverables/code lists]
Statement of Work
(This section supports Exhibit A&B)
[*]
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
11
<PAGE>
Exhibit B
[Insert Software Specifications]
12
<PAGE>
Exhibit C
[*]
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
13
<PAGE>
Exhibit D
1. Software License Fees.
Cisco agrees to pay to Frontier a Software License Fee for object code copies of
the Frontier's Proprietary RMON Extensions distributed to any third party
coincident with the sale of Cisco technology in accordance with the following
schedule:
<TABLE>
<CAPTION>
CHASSIS type LICENSE fee
<S> <C>
[*] [*]per card running Frontier's Proprietary RMON
Extensions (Not to exceed ([*] per chassis)
All other Cisco platforms [*] per chassis running Frontier's Proprietary
RMON Extensions
</TABLE>
2. NETscout Manager License Fees.
Frontier agrees that Cisco shall receive a [*] Frontier's published list price
for NETscout Manager sold to any third party.
3. License Fees Payment Terms.
Cisco shall provide Frontier with report which shall be sufficient to allow
Frontier to verify the Software License Fees due and payment of such Software
License Fees within [*] of the end of each calendar quarter.
If at any time during the term of this Agreement Frontier enters into an
agreement with any party under [*] than those provided to Cisco herein, Frontier
shall within [*] its acceptance of the new agreement with the other party,
notify Cisco of such agreement. Within [*] of receipt of Frontier's notice,
Cisco may give written notice to Frontier that this Agreement is [*] Cisco with
the [*] provided to the other party. Such [*] shall be made [*] of the other
party's agreement.
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
<PAGE>
Exhibit 10.11
Amendment No. 1
PROJECT AGREEMENT & DESIGN LICENSE AGREEMENT
This Amendment No. 1 ("Amendment") to the Project Agreement & Design License
Agreement ("Agreement') is made in California as of January 4, 1995, by and
between Cisco Systems, Inc., ("CISCO") a California corporation having its
principal place of business at 170 West Tasman Drive, San Jose CA 95134, and
Frontier Software Development, Inc. ("Frontier') a Delaware corporation having
its principal place of business at 1501 Main Street, Tewksbury, MA 01876.
WHEREAS, Cisco and Frontier have previously entered into the Project Agreement &
Design License Agreement dated February 25,1994; and
WHEREAS, Cisco and Frontier wish to amend the Agreement to clarify NETscout
Manager License Fees;
NOW WHEREFORE, the parties agree to amend the Agreement as follows:
2. EXHIBIT D - SOFTWARE LICENSE FEES. Replace Section 2 NETScout
Manager License Fees with Supplement Exhibit D-1 attached
hereto and made a part hereof.
5. All other term and conditions of the Agreement remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
CISCO SYSTEMS, INC. FRONTIER SOFTWARE
DEVELOPMENT, INC.
By: /s/ Jaysnree Ullal By: /s/ Nathan Kalowski
--------------------------------- ---------------------------------
(Authorized Signature) (Authrized Signature)
Name: /s/ Jaysnree Ullal Name: /s/ Nathan Kalowski
------------------------------- -------------------------------
(Authorized Signature) (Authrized Signature)
Title: Director, Mktg. Title: VP Marketing
------------------------------ ------------------------------
<PAGE>
Supplement
Exhibit D-1
2. NETscout Manager License Fees.
A. Frontier agrees that Cisco shall receive a [*] of [*] off Frontier's
published list price for NETscout Manager sold to any third party. Upon
execution of this Amendment, Cisco agrees to purchase a prepaid license
for fifty (50) NETscout Manager clients for [*].
B. Frontier will provide NETscout Manager clients for inventory on the following
basis:
i. Cisco will purchase inventory at a mutually agreed upon
material cost of [*].
ii. Cisco will pay Frontier licensing fees for copies of NETscout
Manager sold by Cisco during the [*]. Cisco shall provide
Frontier with report which shall be sufficient to allow
Frontier to verify the NETscout Manager License Fees due
iii. Payment of such NETscout Manager License Fees within [*]of the
end of each calendar month.
C. The [*]for NETscout Manager shall [*] for a period of [*] from the date
of this Amendment. Thereafter, Frontier may [*]for NETscout Manager on
[*] prior written notice to Cisco. Orders placed during the notice
period shall be at [*]. [*] shall be effective [*] upon notice from
Frontier.
D. Frontier will provide customization to the Software and Documentation
that uses the title "NetScout for Cisco".
E. Frontier agrees to provide Cisco with [*] Windows licenses for internal
usage only at no charge. These copies will be marked for demonstration
and not for resale.
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
<PAGE>
Exhibit 10.12
PRIVATE LABEL AGREEMENT
THIS PRIVATE LABEL AGREEMENT, including the Exhibits ("Agreement"), effective as
of October 17, 1995 ("Effective Date"), is hereby made by and between Cisco
Systems, Inc., a California corporation, having principal offices at 170 West
Tasman Drive, San Jose, California 95134-1706 ("Cisco") and Frontier Software
Development, Inc., a Delaware corporation, having principal offices at 321
Billerica Road, Chelmsford, Massachusetts 01824 ("Frontier").
1. SALES AND PURCHASES OF PRODUCTS.
1.1 PRODUCTS. Subject to the terms and conditions of this Agreement,
Frontier agrees to sell to Cisco the Frontier products ("Products") which Cisco
may order from Frontier, as described in the Price Schedule attached and
incorporated herein as Exhibit A, as it may be amended from time to time in
accordance with the terms hereof. Products include hardware products and
software imbedded in hardware (or provided separately on disks or other media),
user documentation, packaging and any enhancements, modifications, updates, bug
fixes or releases related thereto ("Software"). Products shall be manufactured
by Frontier according to the functional, technical and other specifications for
each Product set forth in Exhibit C as modified from time to time by written
agreement of the parties ("Specifications"). Subject to the rights and licenses
granted to Cisco in this Agreement, Frontier shall retain ownership in and to
all Product intellectual property that was developed or acquired by Frontier.
1.2 NEW PRODUCT INCLUSION. Frontier agrees to keep Cisco informed of
any new products or improvements to existing Products. Frontier shall use best
efforts to provide Cisco with ninety (90) days written notice (prior to
shipment) of any upgrades to a Product that will alter the form, fit, function
or price of that Product. Cisco will notify Frontier if it wishes to add a new
product or series of products of Frontier's to this Agreement. Cisco and
Frontier shall then proceed to establish pricing and delivery schedules for each
of such new Product. Upon agreement of these items, such product(s) shall be
considered Products under this Agreement, and shall be purchased and sold under
the terms and conditions of this Agreement. Frontier shall notify Cisco when
Frontier is first reasonably prepared to ship more advanced technology of a
similar Product category to customers, and thereafter Cisco may convert any or
all of its future orders of Product to the more advanced technology.
1.3 PRODUCT UPGRADES. All upgrades, Product enhancements and bug fixes
for the Software will be made available to Cisco no later than the date
Frontier's related standard products have been released for shipment and at no
additional charge unless provided Frontier has made such Product upgrades and/or
enhancements available to its general customer base free of charge. In the event
Frontier has charged or plans to charge its general customer base for Product
upgrades and/or enhancements, Frontier reserves the right to charge Cisco a
price to be mutually determined prior to distribution of such Product upgrades
and/or enhancements.
1.4 PROJECT MANAGERS. Each party will appoint a single project manager
("Project Manager") and provide written notification to the other party of the
name of the Project Manager
<PAGE>
within five (5) days of the Effective Date. The Project Managers will act as
liaisons between the parties with respect to their respective performances of
this Agreement and shall provide the parties from time to time with the names
and telephone numbers of additional specific contact persons (e.g., to
communicate specific information regarding support, enhancements, etc.) when
such direct contact is preferable. In the event that either party appoints a new
Project Manager, such party will promptly notify the other.
2. OWNERSHIP; GRANT OF RIGHTS
2.1 OWNERSHIP. As between the parties, Frontier retains title to and
ownership of, and all proprietary rights with respect to, the Software.
2.2 OEM RIGHT. Frontier hereby grants Cisco a nonexclusive, worldwide,
royalty-free right and license to promote, market, resell and distribute the
Products as stand-alone products or incorporated into or in connection with
Cisco's products.
2.3 SOFTWARE LICENSE Frontier hereby grants Cisco a nonexclusive,
worldwide, royalty-free (except as provided below) license to use the Software
(in object code form) subject to the following conditions and for the following
purposes:
(a) For promotion, marketing and distribution to resellers and end
users in connection with Cisco's distribution of the Products;
and
(b) To provide customer support pursuant to Section 8.
2.4 CISCO PROPERTY.
(a) All property, including without limitation designs or
materials, furnished to Frontier by Cisco or paid for by Cisco in
connection with this Agreement (collectively "Cisco Property") shall:
(i) Be clearly marked or tagged as the property
of Cisco;
(ii) Be and remain personal property, and not
become a fixture to real property;
(iii) Be subject to inspection by Cisco at a
mutually agreed upon time;
(iv) Be used only in filling purchase orders from
Cisco and subcontractors, if any, and in
providing service or support for the
Products;
(v) Be kept free of liens and encumbrances;
2
<PAGE>
(vi) Be kept separate from other materials,
tools, or property of Frontier or held by
Frontier; and
(vii) Not be modified in any manner by Frontier.
(b) Cisco shall retain all rights, title and interest in the
Cisco Property, and Frontier agrees to treat and maintain the
Cisco Property with the same degree of care as Frontier uses
with respect to its own valuable equipment. Frontier shall
bear all risk of loss or damage to Cisco Property until it is
returned to Cisco. Upon Cisco's request, Frontier shall
deliver all Cisco Property to Cisco in good condition, normal
wear and tear excepted, without cost to Cisco (exclusive of
freight costs); Cisco shall determine the manner and procedure
for returning the Cisco Property, and shall pay the
corresponding freight costs. Frontier waives any legal or
equitable right it may have to withhold Cisco Property, and
Frontier agrees to execute all documents, or instruments
evidencing Cisco's ownership of the Cisco Property as Cisco
may from time to time request.
3. PRICES; PAYMENT
3.1 PRICES. The prices to Cisco of the Products shall be the prices
contained in the attached Exhibit A less a [*] calculated in accordance with
Exhibit A. Such prices shall be fixed for one (1) year, commencing with the
Effective Date of this Agreement, except that if Frontier's price for a
comparable standard product is reduced, such reduction shall be immediately
effective and shall apply to all unshipped orders of that Product. Sixty (60)
days prior to expiration of the first year an any subsequent years of the
Agreement, the parties shall meet to negotiate, in good faith, pricing and [*]
to be applied to the Products for the ensuing year of the Agreement. All prices
are F.O.B. Frontiers facility in Chelmsford, Massachusetts.
3.2 COST REDUCTIONS. Frontier agrees to work on achieving cost savings
on both materials and processes. In the event cost savings are identified, and
the parties elect to institute any such savings, the parties agree to share the
benefits which shall result from the instituted cost savings. Cost savings
rights and obligations shall apply to materials and processes related rights and
obligations shall apply to materials and processes related to Products
manufactured by Frontier as well as those manufactured by Cisco upon Frontier's
grant of Manufacturing Rights to Cisco pursuant to Section 10 of the Agreement.
In addition, Frontier agree to institute any cost reduction proposals reasonably
suggested by Cisco.
3.3 TAXES. Prices stated in Exhibit A are in U.S. dollars and do not
include applicable U.S. federal or state sales or use taxes which shall be paid
by Cisco if separately indicated on the invoice for the applicable Product
shipment, but do include any duties, export or import charges and the like
unless Cisco requests direct shipment to a non U.S. location.
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[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
3
<PAGE>
3.4 PAYMENT TERMS. Frontier will invoice Cisco with each shipment and
payment terms will be the full invoiced amount payable within [*] after Cisco
receives the invoice and shipment [*]. Cisco shall be entitled to a [*] if
payment is made within [*] after Cisco receives the invoice. No invoice shall be
submitted to Cisco until shipment to Cisco of the items covered by such invoice.
4. PURCHASE ORDERS
4.1 PURCHASE ORDERS. Cisco purchase orders for Products shall be
submitted to Frontier in writing. Each purchase order shall include:
Identification of Products ordered;
Quantity to be purchased;
Price of Products ordered;
Requested delivery dates;
Shipping instructions.
4.2 FORECASTS. Cisco will provide Frontier with nonbinding one hundred
twenty (120) day forecasts of its requirements for Products on a monthly basis.
4.3 PLACEMENT BY CISCO. All purchase orders and invoices under this
Agreement shall be subject only to the terms and conditions hereof. In the event
the terms of any such purchase order, confirmation or similar document conflict
with or are additional to the terms of this Agreement, the terms of this
Agreement alone shall apply and shall govern regardless of execution of such
document by one or both parties, except that the parties may agree to negotiate
non-preprinted terms which shall be effective if executed by both parties. Any
other Frontier terms and conditions shall not apply to this Agreement or the
purchase orders.
4.4 ACCEPTANCE BY FRONTIER. Subject to the establishment of mutually
reasonably agreeable delivery dates, Frontier shall accept and acknowledge in
writing all purchase orders submitted by Cisco within [*] after receipt thereof.
Notwithstanding the foregoing, Frontier shall accept all Cisco purchase orders
requesting shipment [*] (or greater) from the date of Frontier's receipt of the
purchase order and shall keep a sufficient supply of the Products on hand to
enable Frontier to timely fill all such purchase orders. Each acknowledgment
shall include a firm shipping date for the Products ordered in the purchase
order. "Working day" shall mean a regular week day on which Cisco is open for
business.
4.5 [*]. Cisco reserves the right to [*] delivery of any purchase
orders, or part of any purchase order at any time prior to [*] from the
scheduled delivery
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[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
4
<PAGE>
date. Cisco may [*] any purchase orders, or any part of any purchase order at
any time prior to the scheduled delivery date, however, Cisco shall be limited
to [*] per purchase order, and such request, if made within [*] of the initially
scheduled delivery date, may not extend beyond [*] from the initially scheduled
delivery date. [*] made prior to [*] of the initially scheduled delivery date
shall be subject to the following limitations and/or penalties:
<TABLE>
<CAPTION>
[*] TERMS
DAYS FROM SCHEDULED DELIVERY DATE PENALTY CHARGES
<S> <C> <C>
Less than/equal to [*], but greater than [*] [*] [*]
Less than/equal to [*], but greater than [*] [*] [*]
Less than/equal to [*], but greater than [*] [*] [*]
</TABLE>
Frontier will use its best efforts to meet any scheduled ship dates,
but reserves the right to schedule, reschedule or make partial shipments at its
discretion. When Products are in short supply, Frontier will use its best
efforts to allocate equitably among all customers.
Notwithstanding anything to the contrary in this Section 4.5, in the
event Frontier reschedules the delivery of any Product order, or part thereof by
twenty-one (21) days or more, or if Frontier is twenty-one(21) days or more late
in delivering a Product order or part thereof, Cisco shall have the right to
cancel any such rescheduled or late order without penalty.
4.6 ORDER INCREASES. Upon written request from Cisco, Frontier shall
use best efforts to increase the quantities of Product to be delivered to Cisco
under existing purchase orders as follows: (i) from [*] prior to a scheduled
shipping date, Frontier will increase quantities of Products by up to [*]; (ii)
from [*] prior to a scheduled shipping date, Frontier will increase quantities
of Products by up to [*]; and (iii) more than [*] prior to a scheduled shipping
date, Frontier will increase quantities of Products by up to [*].
4.7 RUSH ORDERS. Frontier shall use its best efforts to meet Cisco's
requirements for reasonable rush orders for Products requiring immediate
delivery within [*]. The parties will negotiate in good faith the prices for
such rush orders, taking into consideration Frontier's available inventory and
additional shipping and personnel expense necessary.
4.8 DISCONTINUANCE. In the event that Frontier intends to discontinue
the manufacture and sale of any Product, Frontier shall give at least [*] prior
written notice to Cisco. During such [*] period (the "Discontinuance Period"),
Cisco may place purchase orders for such Product pursuant to this Agreement,
provided however, the last delivery date for such Product shall not be more than
[*] after the end of such Discontinuance Period. In no event shall Frontier sell
such Product to any other of its customers after it stops selling such Product
to Cisco.
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[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
5
<PAGE>
5. PRODUCT ACCEPTANCE AND QUALITY
5.1 INSPECTION AND ACCEPTANCE BY CISCO. Notwithstanding any prior
inspection or payment by Cisco, all Products will be subject to final inspection
and acceptance at Cisco's specified destination after delivery by Frontier. If
and when Frontier qualifies to bypass Cisco's incoming inspection requirement
pursuant to Cisco's Quality Program described in Exhibit G, then Frontier agrees
that any Product which Cisco determines to be nonoperable upon its removal from
its original packaging and initial checkout ("DOA"), whether discovered by
Cisco, its subcontractor or its customer, will be treated as though discovered
during Cisco's final acceptance process and shall be rejectable pursuant to the
terms hereof.
5.2 REJECTION. In case any Product is defective in material or
workmanship, or otherwise not in conformity with the requirements of Cisco's
applicable Specifications, Cisco will have the right, at its sole option, to
reject such Product; to require correction of such Product; to accept such
Product with an adjustment in price; or to return such Product for credit or
refund. Any Product that has been rejected or required to be corrected must
be replaced or corrected by and at the expense of Frontier on a best efforts
basis within [*] after receipt by Frontier of the rejected material. If,
after being requested by Cisco, Frontier fails to promptly replace or correct
any defective item, then Cisco shall have the right, at its sole option, to
(i) replace or correct such Product and charge to Frontier the cost
occasioned thereby, or (ii) without further notice, cancel the applicable
purchase order relative to the rejected material without penalty or this
Agreement for default in accordance with Section 14 below and require refund
of any payments made relative to the rejected purchase order material. In the
event Cisco returns Products due to perceived defects in material and
workmanship and/or nonconformity to Specifications and Frontier determines,
upon its examination and testing of the Products, that Cisco has currently
rejected the Products which are not defective or in conformity to the
Specifications (categorized as "No Problem Found" or "NPF"), Frontier retains
the right to charge Cisco a reasonable fee to cover the necessary processing
and testing of the returned units. Cisco shall further credit Frontier for
any reasonable fees that Frontier may have paid to deliver the replacement
Products to Cisco per Cisco's request. Frontier agrees to provide Cisco with
the review documentation to validate its findings with respect to NPF's. No
fees or credits shall be paid by Cisco unless and until Cisco has validated
Frontier's NPF findings.
5.3 PACKING. Unless otherwise specified by Cisco, Frontier will package
and pack all goods in a manner which is (i) in accordance with good commercial
practice, (ii) acceptable to common carriers for shipment at the lowest rate for
the particular goods, (iii) in accordance with I.C.C. regulations, and (iv)
adequate to insure safe arrival of the goods at the named destination. Frontier
will mark all containers with necessary lifting, handling and shipping
information and with purchase order numbers, date of shipment, and the names of
the consignee and consignor. An itemized packing list must accompany each
shipment which shall include (i) prominently the
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[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
6
<PAGE>
purchase order number and (ii) the description, part number, revision level, and
quantity of the Products so shipped.
5.4 LABELING. Frontier shall label and package all Products pursuant
to the specifications set forth in Exhibit H, which may be amended by Cisco
from time to time upon [*] notice. Frontier acknowledges and agrees that,
except as necessary to fulfill its obligations under this Agreement, it
obtains no rights in Cisco's trade names, trademarks, service marks or other
designations and shall not use any of the Cisco material provided pursuant to
this Section 5.4 other than as expressly permitted herein.
5.5 RETURN PROCEDURE. In the event Cisco rejects Product due to defects
in workmanship or non-conformance to Specifications, Cisco may, at its option,
return the Product to Frontier F.O.B. Cisco's location or retain such Product,
at Frontier's expense, and withhold payment pending Frontier's instructions.
6. PRODUCT SPECIFICATIONS; CHANGES
6.1 SPECIFICATIONS. Frontier agrees to supply materials acceptable to
Cisco's Specifications. Frontier shall not make any changes in the form, fit,
function, design or appearance of the Product purchased hereunder, or to any
Specifications for any Product irrespective of impact on form, fit, or function,
without Cisco's prior written approval.
6.2 PRE-SHIPMENT TESTING. Prior to delivery, Frontier shall test all
Products in accordance with the test procedure set forth in Exhibit D ("Test
Procedure"), and shall not ship Products which fail to meet the Specifications.
Cisco may from time to time and at a mutually acceptable time send its quality
control personnel to Frontier's factory to assist in or observe the testing. In
addition, Cisco may, from time to time, request modifications to Frontier's test
procedure, where repetitive failure to meet Specifications has been noted on
shipped equipment. Frontier shall not unreasonably withhold modifications of
this procedure.
6.3 ENGINEERING CHANGE APPROVAL. Frontier shall not make any changes to
any production process, or the controlled process parameters or sources, types
or grade classifications of materials used, which alter the form, fit or
function of the Product without first obtaining from Cisco an engineering change
approval. Within one (1) working day after learning of any bug or other problem
in a Product which will or already has resulted in an impact to the installed
customer base of such Product, and in any event no later than at the time an
engineering request is made, Frontier will notify Cisco of such problem. For
purposes of the immediately preceding sentence in this Section 6.3, "impact"
shall mean that a significant number of Frontier's customers have been affected
by a bug or any other problem with the Product, and have notified Frontier of
the respective bug or problem. Frontier shall submit a request to make a change
containing engineering data in support of the request. Within ten (10) working
days of receiving
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[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
7
<PAGE>
such request, Cisco shall respond to Frontier's request and shall either (i)
approve the change, (ii) disapprove the change, or (iii) extend the deadline for
the approval or disapproval period for an additional twenty (20) working days.
6.4 CISCO'S ENGINEERING CHANGE REQUEST. When an engineering change
is required by Cisco, Cisco shall provide Frontier all applicable
documentation, specifications and requested effective date of such
engineering change. Frontier will respond initially within [*], advising
Cisco as to (i) implementation and the effective date of such change, (ii)
associated costs and effect to on-hand materials, (iii) on order materials,
work in process, and (iv) the impact of the change upon existing Product
pricing and shipment schedules for the entire period for which purchase
orders are outstanding. Frontier shall also identify any materials issue or
process issue that modifies the shipment schedule that was in effect
immediately prior to the engineering change.
6.5 Where a requested change may create scrap costs, Frontier agrees to
stop work in process and/or orders for materials within [*] of notification by
Cisco. Materials on-hand or on order and work in process which has become
obsolete as a result of the engineering change shall be treated in the same
manner as termination of a purchase order in accordance with Section 14.6
hereunder. Cisco must issue requisite documentation and purchase order release
changes before Frontier will begin the change implementation.
7. END-USER DOCUMENTATION
7.1 SCOPE. Frontier agrees to develop, write, print, manufacture,
maintain, and ship all Product-related end-user documentation so that it will
have a Cisco "look-and-feel" (as defined below).
(a) End-user Product documentation content is determined by
the Product, and Cisco's documentation guidelines. Documentation will
include, without limitation, user guides, hardware installation guides,
software configuration and command reference guides, software release
notes and hardware errata.
(b) Frontier hereby grants to Cisco, for the term of the
Agreement (inclusive of any extensions or associated survival periods),
and pursuant to the terms and conditions of this Section 7, a
royalty-free, non-exclusive, non-transferable license to use, modify
and distribute any of Frontier's standard documentation which has been
incorporated into the "look and feel" documentation developed by
Frontier for Cisco hereunder (the "Cisco Documentation"). While
Frontier shall include all proprietary rights notices on Frontier's
standard documentation during the development process of the Cisco
Documentation, Cisco retains the right to modify the Cisco
Documentation subsequent to Frontier's delivery of the Cisco
Documentation to Cisco, and, as such, shall
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[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
8
<PAGE>
incorporate any such proprietary rights notices which may have been
removed by Cisco during its modification of the Cisco Documentation
prior to distribution of the Cisco Documentation to its end user
customers.
(c) Cisco "look-and-feel" means utilizing and adhering to
Cisco's then current customer documentation templates, style guide, and
printing standards, as defined and specified from time to time by
Cisco.
(d) Cisco will provide at its expense all required templates,
style guides, documentation samples, and printing guidelines.
(e) Frontier agrees not to modify Cisco documentation
templates.
(f) Frontier will develop and maintain all end-user
documentation in [*] templates provided by Cisco. Frontier will
provide any required technical illustrations in [*] format. Frontier
will purchase and maintain the [*] and [*] tools at its own expense.
(g) Cisco will provide reasonable editorial assistance at
alpha, beta, and final draft stages to assist Frontier in complying
with the Cisco "look and feel."
(h) Frontier will provide one (1) printed copy of each
end-user manual with each Product shipped.
7.2 DOCUMENTATION REVIEW CYCLES. Cisco will review all end-user
documentation at alpha, beta, and final draft stages and will provide markups to
Frontier in hard-copy or electronic medium for incorporation into the
documentation. Cisco retains sole and final sign-off approval at the
above-mentioned draft stages for all end-user documentation.
7.3 ELECTRONIC PUBLICATION. Frontier will provide an electronic copy of
the end-user documentation files (including all illustrations) at alpha, beta
and final sign-off stages, and prior to any subsequent revision cycle, for the
life of the manual(s). Cisco shall have the exclusive right to distribute
manual(s) electronically.
7.4 OWNERSHIP. Cisco shall own all right, title and interest in the
Cisco Documentation provided, however, that Frontier retains all rights, title
and interest in the content of Frontier's standard documentation which has been
utilized in the development of the Cisco Documentation. Frontier hereby assigns
to Cisco all right, title and interest to the Cisco Documentation and shall
execute such instruments as Cisco may reasonably may request to effect and
record such assignment. Frontier may not distribute the Cisco Documentation in
any format or medium or for any purpose to any third party without prior written
consent of Cisco. Upon termination or expiration of the Agreement, the Parties
shall cease any development and
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[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
9
<PAGE>
distribution of the Cisco Documentation, except to the extent that Cisco retains
survival rights to distribute any Cisco Documentation with Products remaining in
Cisco's inventory at the time of termination or expiration that are subsequently
sold by Cisco during the survival period of the Agreement and for technical and
support purposes for the installed base of Products. The Parties further agree,
upon termination or expiration, to meet to determine the appropriate disposition
for all work in process and excess, unreserved Cisco Documentation which remains
in either Cisco's inventory or at Frontier's manufacturing facility awaiting
completion and/or delivery to Cisco at the time of termination or expiration.
7.5 PRINT QUALITY. Cisco's written approval is required prior to
printing any end-user documentation with Cisco "look-and-feel."
(a) Cisco retains the right to review and approve any print
vendor selected by Frontier for adherence to Cisco quality practices
and competitive pricing.
(b) Four-color process covers: Cisco will provide at its
expense all film for four-color covers. Frontier will provide, at is
expense, a trimmed composite blueline for Cisco's approval prior to
printing any color process covers.
(c) Self-cover manuals (one-color): Frontier will provide a
trimmed blueline for Cisco approval prior to printing.
(d) Cisco may, at its discretion, require a first-article
prior to accepting delivery of any end-user documentation.
7.6 REVISION CYCLES. Once documentation is "in-print," Frontier will
revise the printed end-user manual(s) as necessary to accurately support the
Product. Frontier and Cisco will agree upon a reasonable revision cycle,
determined by anticipated Product enhancements, documentation errors, and/or
changes.
(a) Frontier will issue Software release notes or hardware
errata in a timely manner, and ship them with their related Cisco
Documentation.
(b) Frontier will notify Cisco within thirty (30) days of
Frontier's intent to revise a printed document.
(c) Document revisions will include all relevant Product
enhancements and new technical information.
(d) Document revisions will receive alpha, beta, and final
draft reviews by Cisco. Cisco retains sole and final draft sign-off
approval.
(e) With each revision, Frontier will provide electronic
copies of files, as specified in Section 7.3.
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(f) Frontier will reprint revised documentation as specified in Section
7.5.
7.7 DOCUMENTATION LIFE-CYCLE. Frontier agrees to maintain end-user
documentation in print until Cisco notifies Frontier it will cease distributing
a particular Product. Frontier will manage the physical documentation inventory.
7.8 DOCUMENTATION NRE. In consideration of Frontier's creation of
the Cisco Documentation hereunder, Cisco agrees to pay Frontier the amount of
[*] upon completion and Cisco's acceptance of the Cisco Documentation.
Cisco further agrees to pay for additions,/modifications to existing Cisco
Documentation or for the creation of new documentation, both of which may be
required as a result of Frontier's addition of new Products to the Agreement,
provided, however, that (i) Cisco has requested and/or authorized the
modifications of the existing documentation or the creation of any new
documentation, and (ii) specification/technical requirements have been
provided by Cisco to Frontier, and (iii) the Parties have reached agreement
with respect to the price to be paid to Frontier for the documentation prior
to Frontier's initiation of any such work.
8. SUPPORT
8.1 CUSTOMER SUPPORT. Cisco will provide all first and second level
customer support in the same manner that it provides such support for its other
similar products. Frontier will provide third-level or other customer support
[*] to Cisco by telephone and e-mail seven days a week, twenty-four hours per
day with a maximum one hour telephone response time. On-site third level problem
support shall be as mutually agreed by Cisco and Frontier, but at a minimum will
include troubleshooting and providing bug fixes in the Software and hardware of
the Product. Cisco shall provide Frontier feedback on any software bugs and
potential fixes, which will then be incorporated into the Software.
8.2 TECHNICAL SUPPORT. Frontier agrees to regularly supply Cisco with
all bug notes or other documentation defining the relevant hardware and software
information, symptoms, solutions or work-arounds for Product problems which
affect form, fit or function. During the term of this Agreement, Frontier will
provide such support to Cisco [*]. This information will be provided via an
electronic means (e.g. an FTP server).
8.3 ENGINEERING CHANGES. Frontier agrees to provide Cisco, with new
releases of maintenance modifications or engineering changes approved by Cisco
pursuant to Section 6.3, suitable for preparation by Cisco as a Product for
distribution to Cisco's customers, at Cisco's discretion. Cisco may request that
Frontier update all of Cisco's customer support documentation and Product
inventory to incorporate modifications or changes. In addition, if the parties
mutually determine that Products or Product parts must be replaced in the field
(including
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Securities Act of 1933, as amended.
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without limitation to rectify epidemic failure), Frontier will, at a minimum,
provide retrofit kits to Cisco [*].
8.4 REPAIR PROCEDURE. After expiration of the Warranty Period,
Frontier will continue to provide repair for Products and Product parts.
Repair is defined as repairing the part or Product and bringing it up to the
current engineering change. Frontier will track Products returned for repair
by serial number and will ship repaired parts within five (5) days from
receipt. Cisco shall be responsible for all inbound and outbound freight
associated with Product repair. Each part will be individually packaged and
meet Cisco packaging specifications. Frontier will provide quarterly part
failure reports on a best efforts basis. Such part failure reports will
include, by serial number, each part repaired, failure symptom, and
determined failure. Frontier will use a [*] or better within the U.S. and
[*] or better internationally (if applicable). Prices and charges for repair
of parts and Products and for spare parts are set forth in Exhibit E.
8.5 EMERGENCY PART SHIPMENT PROCEDURE. In cases of emergency, as
reasonably determined by Cisco, Frontier will ship (at Cisco's expense) to Cisco
part(s) or Product(s) with [*] to Cisco. Such parts or Products shall only be
used for service and support and may not be resold by Cisco other than as part
of Cisco's customer service and support program.
8.6 SUPPORT DOCUMENTATION. Promptly upon Cisco's written request,
Frontier agrees to supply Cisco with all technical documentation and resources
that the Parties reasonably determine to be useful or necessary to perform
customer support and troubleshooting or to analyze the technical benefits and
risks of introducing new software or hardware releases of the Products into
Cisco's customer base. Such support documentation will include, without
limitation: (i) hardware and software specifications, (ii) information on
debugging/support tools, and (iii) lists of all error messages with explanations
as needed and recommended actions.
8.7 PRODUCT REPORTS. Frontier will keep accurate records of Product
deficiencies (bugs) and make such reports available to Cisco at least [*] on a
best efforts basis. Frontier will maintain an electronic means (e.g., an FTP
server) through which Cisco can obtain up-to-date information on bugs, fixes,
and code updates.
8.8 DISCONTINUED PRODUCTS. Frontier will use best efforts to provide
support to Cisco, pursuant to this Section 8, for each discontinued Product for
[*] after the date of such discontinuance.
8.9 SUPPORT PRIORITIZATION AND ESCALATION GUIDELINES, To ensure that
all Product problems and technical inquiries are reported in a standard format,
Frontier will use and comply with the problem priority definitions and
escalation guidelines as set forth in Exhibit F hereto, and Cisco shall assign a
priority to all problems submitted to Frontier. Based on the priority of a
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Securities Act of 1933, as amended.
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Product problem, Frontier agrees to provide Cisco fixes or work-arounds in the
following time frames:
Priority 1: Fix or work-around within [*] of problem report to Frontier
Priority 2: Fix or work-around within [*] of problem report to Frontier
Priority 3: Fix of work-around within [*] of problem report to Frontier
Priority 4: Fix or work-around within [*] of problem report to Frontier
For Priority 3 or 4 problems, if Frontier is [*], the Frontier will provide to
Cisco within [*], at a minimum, a written plan for addressing the problem.
8.10 TRAINING. Frontier shall offer, at its expense, its standard
training and instruction class in the service and maintenance of the Products up
to [*] during the term of this Agreement at Cisco's San Jose headquarters at
times mutually reasonably agreed upon by Frontier and Cisco, such training
classes to last no more than three (3) days each. In addition, this training
will be offered from time to time as requested by Cisco or as otherwise needed
as new Products are added to this Agreement and as existing Products are
enhanced and shall also include compatibility issues, engineering debug
capabilities, customer premises debug capabilities. Frontier will provide
training for new Products prior to initial shipment of each new Product and for
a minimum of twenty-five (25) people at a Frontier facility or a location
mutually reasonably agreed upon by Frontier and Cisco. Training will be provided
at no cost to Cisco, except that Cisco will bear all travel and living expenses
of its employees during such training. Frontier shall pay all costs associated
with shipping training materials to Cisco's San Jose facilities. Additional
terms regarding training classes at Cisco sales offices will be negotiated by
the parties in good faith.
8.11 SUPPORT OF CISCO ENHANCEMENTS. In the event Cisco exercises its
right to make Software enhancements, Frontier is obligated to fix software bugs
only if the problem can be demonstrated to exist in the Software without the
Cisco enhancements.
9. REPRESENTATIONS AND WARRANTIES
9.1 WARRANTY OF TITLE. Frontier warrants and represents to Cisco that
(i) Cisco shall acquire good and clear title to the Products, free and clear of
all liens and encumbrances, (ii) all materials and services provided hereunder
including, without limitation, the Products, are either owned or properly
licensed by Frontier or are in the public domain and the use thereof by Cisco or
its affiliates, customers, representatives, distributors or dealers will not
infringe any proprietary rights of any third party, (iii) Frontier has the full
power to enter into this Agreement, to carry out its obligations under this
Agreement and to grant the rights and licenses granted to Cisco in this
Agreement and (iv) Frontier's compliance with the terms and conditions of this
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treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
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Agreement will not violate any Federal, state or local laws, regulations or
ordinances or any third party agreements.
9.2 PRODUCT WARRANTY. To Cisco and its customers Frontier warrants the
Products will be new and unused, will perform in accordance with the applicable
Specifications and related documentation provided by Frontier (and will achieve
any function described therein), and will be free from defects in materials,
workmanship or design for a period of [*] from the date of shipment (the
"Warranty Period"). Frontier further warrants that repairs will be free from
defects outside the Warranty Period for a period of [*].
9.3 During the Warranty Period, Frontier will repair or replace (at its
option), and return or deliver to the location designated by Cisco within [*]
from receipt, any defective Product or part, provided that the Product or part
is returned to Frontier. Unless Frontier reasonably demonstrates a returned item
is free from defect, Frontier shall pay the costs of all shipping and insurance
of the item (including, upon repair or replacement, return of the same or
replacement item to the original location) and assume the risk of loss during
shipping. All replaced parts become the property of Frontier.
9.4 This limited warranty does not extend to any Products that have
been misused, abused, serviced by anyone other than a Frontier authorized
representative, Cisco or a party authorized by Cisco, or damaged due to accident
or act of God. EXCEPT FOR THE WARRANTIES PROVIDED IN THIS AGREEMENT, NO OTHER
WARRANTIES ARE EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR
THE WARRANTIES PROVIDED BY FRONTIER IN THIS AGREEMENT, NO ADDITIONAL
REPRESENTATION OR WARRANTY, INCLUDING BUT NOT LIMITED TO: STATEMENTS OF
CAPACITY, SUITABILITY FOR USE OR PERFORMANCE, WHETHER MADE BY FRONTIER EMPLOYEES
OR CISCO SHALL BE CONSIDERED TO BE A WARRANTY BY FRONTIER FOR ANY PURPOSE OR
GIVE RISE TO ANY LIABILITY OF FRONTIER WHATSOEVER.
9.5 EPIDEMIC HARDWARE FAILURE. For the purposes of this Agreement
epidemic failure will be deemed to have occurred if more than [*] of the [*]
total installed base of [*] Product should fail in [*] within a time period of
[*]. In the case of epidemic failure Frontier and Cisco will cooperate to
implement the following procedure:
(a) Cisco will immediately notify Frontier upon discovery of
the failure.
(b) Within [*] Frontier will give an initial response
indicating its preliminary plan for diagnosing the problem.
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Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
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(c) [*] will [*] exert [*] efforts to diagnose the problem
and plan a work-around or more permanent solution.
(d) Frontier will apply its engineering change order procedure
in appropriate circumstances for hardware problems originating in the
manufacturing process.
(e) [*] will prepare and consult with [*] regarding an
appropriate [*] as well as an appropriate [*], as an [*], if one is
needed.
(f) [*] will [*] on a recovery plan.
[*] will be responsible for [*] in rectifying any epidemic failure, including
without limitation, for any solution, work-arounds, recovery plan or engineering
changes.
10. MANUFACTURING RIGHTS
10.1 CISCO'S RIGHT TO MANUFACTURE. Frontier grants Cisco, for a period
not to exceed [*] from Cisco's exercise of such grant, a worldwide,
nonexclusive, non-transferable right and license to manufacture or have
manufactured the Products ("Manufacturing Rights") at any time upon occurrence
of any of the events and/or circumstances defined below, provided the parties'
management has met to review the event and/or circumstances causing the transfer
of Manufacturing Rights to Cisco and has failed, after exhausting all reasonable
efforts, to reach an alternative resolution.
(a) If Frontier fails to consistently supply Cisco with
Products meeting the applicable Specifications in the quantities
required in accordance with Cisco purchase orders, and fails to provide
Cisco with a reasonable cure and/or reasonable assurances of an
expeditious cure within [*] of receipt of Cisco's notification of
Frontier's failed performance. For the purposes of this section,
Frontier shall have been deemed to have failed consistently in
performing its obligations to supply Products if: (i) for any [*]
period, Frontier fails to deliver at least [*] of the required
quantities of the Product on or before the scheduled delivery dates;
or, (ii) greater than [*] of the Products delivered over any [*] are
defective in any material respect with regard to materials and
workmanship. Cisco agrees to provide Frontier with a [*] which
identifies the [*] associated with Frontier's [*] to enable Frontier to
review and correct any deficiencies in its performance hereunder. In
the event Cisco fails to provide the required [*] for any of the [*]
which are the basis for Frontier's failed performance hereunder, Cisco
may not invoke its Manufacturing Rights unless and until such time as
Cisco provides Frontier with the
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Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
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required [*] and notice of Frontier's failure for the specified
[*], and Frontier, after receipt of the [*] and notification from
Cisco, fails to provide Cisco with a reasonable cure and/or reasonable
assurances of an expeditious cure within [*] of receipt of said
notification. In the event Frontier cures its failed performance within
the required time frame, Cisco may not invoke any Manufacturing Rights
under this section until such time as Frontier fails to meet delivery
or quality standards for any subsequent [*] period.
(b) If Frontier discontinues manufacturing of the Product and
fails to make a substitute available that, in Cisco's reasonable
judgment, is equivalent in form, fit and function.
(c) If Frontier becomes insolvent or seeks protection under
any bankruptcy, receivership, trust, deed, deed, creditors arrangement,
composition or comparable proceeding, or if such is instituted against
Frontier.
(d) If Frontier assigns or transfers its rights or obligations
under the Agreement to a direct competitor of Cisco's without prior
written consent, including, without limitation, any transfer by sale,
merger or other working combination of ownership of or control over
more than [*] of the voting securities or control of Frontier.
(e) If Cisco terminates the Agreement by reason of any other
material breach by Frontier of its obligations hereunder, and such
obligations remain uncured for the later of [*] or a mutually accepted
period of time after Frontier's receipt of written notice thereof from
Cisco. Notwithstanding Cisco's rights with respect to termination as
defined in this Section 10, Cisco agrees, in the interest of
maintaining the ongoing relationship between the Parties as set forth
by the Agreement, to contact Frontier to schedule a meeting with
Frontier's senior management to discuss and review resolution
alternatives to the material breach prior to delivery of written notice
of termination to Frontier. In the event the Parties fail to identify a
reasonable resolution to the breach during the management meeting,
Cisco may, immediately thereafter, deliver termination notice to
Frontier.
10.2 ROYALTIES AND LICENSE FEES.
(a) In the event Cisco exercises its Manufacturing Rights,
Cisco agrees to [*] on all Products manufactured and distributed by
Cisco hereunder equal to [*] of Cisco's [*] for the Product. All
royalties will be computed on a per unit basis and paid quarterly
within [*] following the end of each Cisco quarter.
(b) Cisco shall be obligated to pay all license fees and
royalties, if any, with respect to any third party proprietary rights
and technologies which are required for the
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Securities Act of 1933, as amended.
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exercise of Cisco's Manufacturing Rights and which are listed in
Exhibit I. All other such third party royalties and licenses which are
not listed in Exhibit I and which are required for Cisco to exercise
the Manufacturing Rights under this Agreement shall be paid by
Frontier.
10.3 AUDIT RIGHTS. In the event Cisco exercises its Manufacturing
Rights as provided hereunder, Cisco agrees to keep and maintain, for a period of
[*] after the end of the year to which they pertain, complete and accurate
records of the Products manufactured and distributed by Cisco in order to
calculate and confirm Cisco's royalty obligations under Section 10.2 above. Upon
reasonable prior notice, Frontier will have the right, exercisable not more than
once every [*], to appoint an independent accounting firm reasonably
acceptable to Cisco, at Frontier's expense, to examine such books, records and
accounts during Cisco's normal business hours to verify the royalties due by
Cisco to Frontier under Section 10.2 above, subject to such independent
accounting firm's execution of Cisco's standard confidentiality agreement;
provided that execution of such agreement will not preclude such firm from
reporting its results to Frontier. In the event such audit discloses an
underpayment or overpayment of royalties due hereunder, the appropriate party
will promptly remit the amounts due to the other party.
10.4 MANUFACTURING INFORMATION ESCROW.
(a) The parties agree that upon request by Cisco, Frontier
will promptly place the following materials into an escrow account: (i)
the source code and applicable documentation for the Products (in
either electronic media form or hard copy) and (ii) certain applicable
manufacturing information ("Escrowed Materials"). Cisco shall select
the escrow agent (subject to Frontier's reasonable approval), and be
responsible for the establishment, administration and cost of the
escrow account. Immediately upon termination of this Agreement, all
Escrowed Materials will be released back to Frontier. The Escrowed
Materials will be released for use by Cisco, subject to the terms and
conditions hereof, only after notice to Frontier and only under
circumstances in which Cisco would otherwise be entitled to exercise
the Manufacturing Rights. Frontier agrees to promptly deposit, at least
[*] per year, into escrow any and all updates, enhancements and
modifications to the Escrowed Materials.
(b) In the event Cisco exercises its Manufacturing Rights
hereunder, at no cost to Cisco, Frontier shall provide Cisco such
technical support and assistance as Cisco may reasonably request in
connection with the manufacture of the Products.
(c) Cisco agrees that it will maintain the Escrowed Material
delivered to it under this Agreement in strict confidence and will
require its contractors to do the same. Any source code which is
delivered as part of the Escrowed Material will be subject to Cisco's
confidentiality obligations set forth in Section 12.
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Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
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(d) Cisco's rights to use the Escrowed Materials, upon the
exercise of Manufacturing Rights, shall be limited to support,
maintenance and manufacture of the Products only. Cisco shall be
prohibited from: (i) disclosing, selling, copying or otherwise
transferring the Escrowed Materials except as necessary to carry out
Cisco's right to support, maintain and manufacture the Products; or
(ii) removing the Escrowed Materials from Cisco's facilities or the
facilities of Cisco's authorized manufacturer(s) of the Products. Cisco
further agrees, at all times while in possession of Frontier's Escrowed
Materials, to protect against unlawful disclosure and ensure the
integrity and protection of Frontier's proprietary rights by
maintaining, as applicable, Frontier's proprietary rights notices (A)
in the source code of the Escrowed Materials, in the comment lines at
the beginning of each significant module; (B) on the terminal screen
when each user starts that program; (C) on the label for the magnetic
media that contains the program; and (D) on all technical manuals and
related documentation for the program.
11. INDEMNIFICATION
11.1 PROPRIETARY RIGHTS.
(a) Frontier agrees to indemnify, defend and hold harmless
Cisco and its officers, directors, employees, shareholders, customers,
agents, successors and assigns from and against any and all loss,
damage, settlement or expense (including legal expenses), as incurred,
resulting from or arising out of any claims which allege that any
Products or the use or sale thereof infringe upon, misappropriate or
violate any patents, copyrights, or trade secret rights or other
proprietary rights of persons, firm or entities who are not parties to
this Agreement except for such claims that result solely (i) from
Frontier's compliance with design specifications and/or data sheets
supplied by Cisco or (ii) from Cisco's alteration or modification of
Products after delivery by Frontier; provided that Cisco (i) promptly
notifies Frontier, in writing, of any notice or claim of such alleged
infringement or misappropriation involving the Products of which it
becomes aware, and (ii) permits Frontier to control, in a manner not
adverse to Cisco, the defense, settlement adjustment or compromise of
any such claim using counsel reasonably acceptable to Cisco. Cisco may
employ counsel, at its own expense (provided that if such counsel is
necessary because of a conflict of interest of either Frontier or its
counsel or because Frontier does not assume control, Frontier will bear
such expense), to assist it with respect to any such claim. Frontier
shall not enter into any settlement that affects Cisco's rights or
interest without Cisco's prior written approval. Cisco shall have no
authority to settle any claim on behalf of Frontier.
(b) If by reason of such infringement claim, Cisco or its
customers shall be prevented or are likely to be prevented by legal
means from selling or using any Products, or if, in Frontier's opinion,
such claim is likely to occur, Frontier will use its best efforts, at
its expense, to: (i) obtain all rights required to permit the sale or
use of the Products by Cisco and its customers; or (ii) modify or
replace such Products to make them non-infringing (and extend this
indemnity thereto), provided that any such replacement or
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modified Products are satisfactory to Cisco. If Frontier is unable to
achieve either of the options set forth above within a reasonable
period of time after the issuance of the injunction, but in no event
longer than thirty (30) days after receipt of notice thereof, Frontier
shall promptly refund to Cisco the invoiced purchase price, plus all
shipping, storage, and associated costs, of any Products returned
freight collect to Frontier which Cisco or its customers are legally
prohibited from selling or using.
11.2 PRODUCT LIABILITY INDEMNIFICATION.
(a) Frontier expressly and unequivocally agrees to and hereby
does indemnify, release, defend and hold Cisco and its officers,
directors, employees, shareholders, agents, successors and assigns
harmless from and against all claims, damages, losses, costs and
expenses, including attorneys' fees, arising in favor of any person,
firm or corporation on account of product liability in any way relating
to the Product, provided that Cisco (i) promptly notifies Frontier, in
writing, of any notice or claim hereunder of which it becomes aware,
and (ii) permits Frontier to control, in a manner not adverse to Cisco,
the defense, settlement, adjustment or compromise of any such claim
using counsel reasonably acceptable to Cisco. Cisco may employ counsel,
at its own expense (provided that if such counsel is necessary because
of a conflict of interest of either Frontier or its counsel or because
Frontier does not assume control, Frontier will bear such expense), to
assist it with respect to any such claim. Frontier shall not enter into
any settlement that affects Cisco's rights or interest without Cisco's
prior written approval. Cisco shall have no authority to settle any
claim on behalf of Frontier. Notwithstanding the indemnification
provisions of this Section 11.2, it is mutually agreed and understood
that any and all obligations, commitments and liabilities with respect
to Product liability as defined in this Section 11.2 shall not apply to
Frontier to the extent Products are manufactured by Cisco in the event
Cisco has exercised its rights to manufacture Frontier's Products
pursuant to Section 10 hereunder, provided that Frontier's Product
liability indemnity obligations under this Section 11.2 shall continue
to apply for defects arising from the design of the Product.
12. CONFIDENTIALITY
Any proprietary information exchanged by the Parties during the term of
this Agreement shall be treated pursuant to the Non-Disclosure Agreement, dated
July 10, 1995.
13. LIMITATION OF LIABILITY
EXCEPT UNDER SECTIONS [*], UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE
LIABLE TO THE OTHER IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT
UNDER ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE OR
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Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
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OTHER LEGAL OR EQUITABLE THEORY, FOR (I) ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, (II) LOST PROFITS OR DATA OR (III) ANY AMOUNTS IN EXCESS
OF THE [*] OR THE [*] FOR THE [*] THAT ARE THE SUBJECT OF THE CLAIM. THIS
SECTION DOES NOT LIMIT EITHER PARTY'S LIABILITY FOR BODILY INJURY OF A PERSON.
14. TERM AND TERMINATION
14.1 TERM. Unless terminated earlier as provided herein, this Agreement
shall have a term of three (3) years commencing from the Effective Date, unless
terminated sooner by written notice given by a party pursuant to this Section
14. The parties may extend the term of this Agreement for up to additional one
(1) year periods by written agreement executed no later than sixty (60) days
prior to the expiration of the then current term period. Upon any expiration or
termination, the rights and obligations of the parties shall continue except
that Frontier will not be required to accept further orders or undertake further
product development.
14.2 TERMINATION FOR CAUSE This Agreement may be terminated by a party
for cause immediately by written notice upon the occurrence of any of the
following events:
(a) If the other ceases to do business, or otherwise
terminates its business operations; or
(b) If the other breaches any provision of this Agreement and
fails to cure such breach within [*] (immediately in the case of a
breach of Section 12) of written notice describing the breach; or
(c) If the other becomes insolvent or seeks protection under
any bankruptcy, receivership, trust deed, creditors arrangement,
composition or comparable proceeding, or if any such proceeding is
instituted against the other (and not dismissed within ninety (90)
days).
14.3 TERMINATION FOR CONVENIENCE. Subject to the terms of this Section
14, Cisco may terminate this Agreement or any purchase order issued hereunder
upon notice to Frontier. Both Cisco and Frontier agree to cooperate in good
faith to minimize the negative impact to both parties. Cisco agrees to execute
any termination for convenience in the following manner.
(a) Written notice informing Frontier of Cisco's intent to
terminate this Agreement or any purchase orders issued hereunder.
(b) A minimum of nine (9) months lead time from the date of
receipt of written notice by Cisco before full termination of Cisco's
requirements.
14.4 FRONTIER'S ACTIONS. Upon receipt of written notice pursuant to
Section 14.3, Frontier will, to the extent and at the times specified by Cisco,
stop all work under the affected purchase order, place no further orders for
materials to complete the work, orders and any
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surviving rights under terminated subcontracts or orders, settle all claims
thereunder after obtaining Cisco's approval, protect all property in which Cisco
has or may acquire an interest, and transfer title and make delivery to Cisco of
all completed Products, articles, raw materials, work in process, and other
things held or acquired by Frontier in connection with the terminated portion of
this purchase order. Frontier will proceed promptly to comply with Cisco's
instructions respecting each of the foregoing without awaiting settlement of
payment of its termination claim.
14.5 CLAIMS. Within [*] after termination according to Section 14.3,
Frontier may submit to Cisco its written claim for any charges due to Frontier
from Cisco. Failure to submit the claim within [*] will constitute a waiver of
all claims and a release of all Cisco's liability arising out of the
termination.
14.6 SETTLEMENT. In the event that Frontier properly files any claims
under Section 14.5 above, Cisco agrees to pay to Frontier the amounts identified
by Frontier in its invoice for any such termination that is promptly submitted
to Cisco. Notwithstanding the foregoing, if Cisco reasonably disputes the
amounts identified by Frontier in the submitted invoice and the parties fail (in
good faith) to reach agreement on an adjusted invoice value, Cisco agrees to pay
and Frontier shall accept the following amounts:
(a) The price for all Products completed (which items were
delivered or available for delivery at the time notice of termination
was given) pursuant to the affected purchase order(s) and not
previously paid for as specified in Exhibit A.
(b) The actual, documented costs incurred by Frontier related
to the terminated portion of the purchase order, including, only to the
extent that any components, materials and other inventory cannot be
used in any of Frontier's non-Cisco products: (i) Frontier's cost of
component inventory for the terminated portion of the purchase
order(s), (ii) Frontiers cost of work in process materials including
manufacturing operations completed at the time of cancellation for the
terminated portion of Cisco's purchase order, and (iii) reasonable
cancellation charges incurred by Frontier from component suppliers for
the terminated portion of Cisco's purchase order.
(c) The reasonable, documented costs incurred by Frontier in
protecting property in which Cisco has or may acquire an interest.
(d) Notwithstanding the foregoing, payments made under this
Section 14.6 shall in no event [*] in the terminated purchase order(s)
less payments otherwise made or to be made. Any amounts payable for
property lost, damaged, stolen or destroyed prior to delivery to Cisco
win be excluded from amounts otherwise payable to Frontier under this
Section 14. THIS SECTION 14.6 SETS FORTH FRONTIER'S ENTIRE REMEDIES
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Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
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WITH RESPECT TO A TERMINATION OF THIS AGREEMENT BY CISCO UNDER SECTION
14.3 ABOVE.
14.7 SURVIVAL; SUPPORT AFTER TERMINATION. Sections 2, 7.4, 9, 11, 12,
13, 14, 15, 16, 17, 18 and 19 and Cisco's right to distribute Products in
inventory or subject to any pending purchase order shall survive termination or
expiration of this Agreement. In the event of any termination or expiration of
this Agreement, Frontier shall continue to provide maintenance support and
hardware repair to Cisco at Frontier's prevailing rates. The support shall be
provided a minimum of three (3) years after termination or expiration.
14.8 Subject to Cisco's Manufacturing Rights under Section 10, upon
Frontier's request, Cisco shall deliver to Frontier all Frontier property loaned
to Cisco under this Agreement, without cost to Frontier (exclusive of freight
costs). Frontier shall determine the manner and procedure for returning the
Frontier property, and shall pay the corresponding freight costs.
15. FORCE MAJEURE
Neither party shall be considered in default of performance of its
obligations under this Agreement to the extent that performance of such
obligations is delayed by force majeure or contingencies or causes beyond the
reasonable control of such party or its suppliers. In the event Frontier fails
to deliver product due to such causes, Cisco may either:
(a) Terminate this Agreement or any part hereof as to
Product(s) not shipped; or
(b) Suspend this Agreement in whole or in part for the
duration of the delaying cause, and at Cisco's option, buy the
Product(s) elsewhere and deduct from any commitment to Frontier the
quantity so purchased. Frontier shall resume performance under this
Agreement immediately after the delaying cause ceases and, at Cisco's
option, extend the then current term period for a period equivalent to
the length of time the excused delay endured.
16. ASSIGNMENT
This Agreement shall be binding on the parties hereto and their
successors and assigns; provided, however, that Frontier shall not assign or
transfer, in whole or in part, this Agreement or any of its rights or
obligations arising hereunder without the prior written consent of Cisco, except
that Frontier may assign this Agreement to a party that acquires all or
substantially all of Frontier's business, stock or assets. Any purported
assignment without such consent shall be null and void. Cisco may freely
transfer, in whole or part, this Agreement and its rights and obligations
hereunder.
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17. NONSOLICITATION
During the term of this Agreement and for one (1) year thereafter, each
party will refrain from (i) soliciting the other party's employees or
consultants for employment or other service or (ii) encouraging the other
party's employees or consultants to leave the such other party for any reason.
18. COMPLIANCE WITH LAWS; IMPORT/EXPORT
18.1 COMPLIANCE WITH LAWS. Frontier warrants that in performance of
work under this Agreement it has complied with or will comply with all
applicable federal, state, local laws and ordinances now or hereafter enacted
including, but not limited to OSHA, the Fair Labor Standards Act of 1938 (29
U.S.C. 201-219), the 8-Hour Law (40 U.S.C. 327-332), the Equal Opportunity and
Affirmative Action Regulations, and laws restraining the use of convict labor.
Frontier warrants that in performance of work under this Agreement it has
complied with all laws, regulations, statutes and ordinances of all governmental
entities including local, state, federal or international, now or hereafter
enacted, which regulate any material because it is radioactive, toxic, hazardous
or otherwise a danger to health, reproduction or the environment including but
not limited to the Comprehensive Environmental Response Compensation and
Liability Act of 1980, the Resource Conservation Recovery Act, the Federal Water
Pollution Control Act, the Clean Air Act, the Montreal Protocol, the Toxic
Substances Control Act and similar laws, rules, statutes, treaties or orders and
international understandings. In addition, Frontier shall secure and maintain
adequate workmen's compensation insurance in accordance with the laws of the
state or states from which Frontier shall furnish Product and/or services for
Cisco. Upon request, Frontier agree to issue certificates certifying compliance
with any of the aforementioned laws or regulations as may be applicable to the
Product and/or services being furnished hereunder.
18.2 IMPORT AND EXPORT. Frontier shall provide all information under
its control which is necessary or useful for Cisco to obtain any export or
import licenses required for Cisco to ship or receive Products, including, but
not limited to, U.S. customs certificates of delivery, affidavits or origin, and
U.S. Federal Communications Commissions identifier, if applicable.
19. GENERAL
19.1 NOTICES. All notices shall be sufficient only if personally
delivered, delivered by telecopy, delivered by a major commercial rapid delivery
courier service or mailed by certified or registered mail, return receipt
requested, to either party at its address set forth below (or such other address
as such party may provide by notice pursuant to this Section):
Cisco Systems, Inc. Frontier Software Development, Inc.
170 West Tasman Drive 321 Billerica
San Jose, CA 95134-1706 Chelmsford, MA 01824
23
<PAGE>
If not received sooner, notice by mail shall be deemed received five
(5) days after deposit in the U.S. mails, properly addressed, with first class
postage prepaid. Notice by telecopy shall be deemed received at the time sent or
the next working day if such time is not during a working day.
19.2 CONTROLLING LAW AND JURISDICTION. This Agreement shall be
governed, controlled, interpreted and defined by and under the laws of the State
of California and the United States, without regard to the conflicts of laws
provisions thereof. Unless waived by Cisco (which it may do in its sole
discretion) the exclusive jurisdiction and venue of any action with respect to
the subject matter of this Agreement shall be the Superior Court of California
for the County of Santa Clara or the United States District Court for the
Northern District of California and each of the parties hereto submits itself to
the exclusive jurisdiction and venue of such courts for the purpose of any such
action. Service of process in any such action may be effected in the manner
provided in Section 19.1 for delivery of notices.
19.3 WAIVERS AND AMENDMENTS. No failure or delay by either party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial waiver thereof include any other right,
power or privilege. This Agreement may not be amended, changed, discharged or
terminated except by a written document signed by duly authorized officers of
the parties.
19.4 SEVERABILITY. In the event that any provision of this Agreement
shall be unenforceable or invalid under any applicable law or be so held by
applicable court decision, such unenforceability or invalidity shall only apply
to such provision and shall not render this Agreement unenforceable or invalid
as a whole; and, in such event, such provision shall be modified or interpreted
so as to best accomplish the objective of such unenforceable or invalid
provision within the limits of applicable law or applicable court decision and
the manifest intent of the parties hereto.
19.5 RELATIONSHIP OF THE PARTIES. In fulfilling its obligations under
this Agreement, each party shall be acting as an independent contractor. This
Agreement does not make either party the employee, agent or legal representative
of the other.
19.6 BASIS OF BARGAIN. EACH PARTY RECOGNIZES AND AGREES THAT THE
WARRANTY DISCLAIMERS AND LIABILITY AND REMEDY LIMITATIONS IN THIS AGREEMENT ARE
MATERIAL BARGAINED FOR BASES OF THIS AGREEMENT AND THAT THEY HAVE BEEN TAKEN
INTO ACCOUNT AND REFLECTED IN DETERMINING THE CONSIDERATION TO BE GIVEN BY EACH
PARTY UNDER THIS AGREEMENT AND IN THE DECISION BY EACH PARTY TO ENTER INTO THIS
AGREEMENT.
19.7 ENTIRE AGREEMENT. This Agreement (including the Exhibits hereto)
constitutes the entire Agreement between the parties hereto concerning the
subject matter of this Agreement; and there are no conditions, understandings,
agreements, representations, or warranties, expressed or implied, which are not
specified herein.
24
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
persons duly authorized as of the date and year first above written.
CISCO SYSTEMS, INC.
By: /s/ MARIO MAZZOLA
-------------------
Title: V.P. AND G.M. WBU
-----------------
FRONTIER SOFTWARE
DEVELOPMENT, INC.
By: /s/ NARENDRA POPAT
-------------------
Title: PRESIDENT
25
<PAGE>
EXHIBIT A
PRODUCTS/PRICING
<TABLE>
<CAPTION>
- ------------------------- ---------------------- ---------------------------------------------------------------------
PRODUCT U.S. [*]
MODEL LIST
NUMBER PRICE
- ------------------------- ---------------------- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
[*]
---------------------------------------------------------------------
[*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
[*] [*] [*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
[*] [*] [*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
[*] [*] [*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
[*] [*] [*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
[*] [*] [*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
[*] [*] [*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
[*] [*] [*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
[*] [*] [*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
[*] [*] [*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
[*] [*] [*] [*] [*]
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
When reference is made in the Agreement or any exhibit to Frontier's
published U.S. List Price of a Product specially modified for Cisco, such
reference shall mean Frontier's published U.S. List Price for Frontier standard
product upon which the Product has been based. If Frontier shall modify, update,
enhance or create a new version of a standard product upon which such a Product
is based, it shall similarly modify, update, enhance or create a new version of
the corresponding Product. Frontier will sell Products specially modified for
Cisco only to Cisco.
- --------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
26
<PAGE>
EXHIBIT B
NOT USED
27
<PAGE>
EXHIBIT C
PRODUCT SPECIFICATIONS
28
<PAGE>
INTELLIGENT RMON PROBES FOR FDDI/CDDI BACKBONES
- - Cost effective RMON probes for 62.5/125 micron multimode FDDI and for
CDDI
- - High Performance 90 Mhz Pentium processor
- - RMON MIB and SMT support FDDI/CDDI for enterprise wide standard
diagnostics
- - Support for Single and Dual attached physical connections
- - Virtual analyzer for 7 layer EnterpriseRMON-TM- monitoring of multiple
network parameters concurrently
- - In Band/Out of band configuration support via BootP, TFTP, and NSlogin
- - Resource Manager-TM- option provides proactive monitoring of SNMP
devices
- - Ethernet or Token Ring interface connections for management
communications
- - Full packet capture and seven level protocol decode for FDDI/CDDI
traffic
- - Integrates with NETscout Manager for comprehensive mutli-topology
monitoring
<TABLE>
<CAPTION>
- ------------------------------------------------------------
NETscout
FDDI/CDDI Probes
- ------------------------------------------------------------ ----------------------------------
- ------------------------- ---------------------------------- ----------------------------------
MODEL DESCRIPTION TOPOLOGY
- ------------------------- ---------------------------------- ----------------------------------
- ------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
7101ET CDDI Probe CDDI/Ethernet
7101TR Single Attached CDDI/Token Ring
- ------------------------- ---------------------------------- ----------------------------------
- ------------------------- ---------------------------------- ----------------------------------
7102ET FDDI Probe FDDI/Ethernet
7102TR Single Attached FDDI/Token Ring
- ------------------------- ---------------------------------- ----------------------------------
- ------------------------- ---------------------------------- ----------------------------------
7103ET FDDI Probe FDDI/Ethernet
7103TR Dual Attached FDDI/Token Ring
- ------------------------- ---------------------------------- ----------------------------------
</TABLE>
NETSCOUT FDDI/CDDI PROBES PROVIDE FULL RMON CAPABILITIES FOR HIGH SPEED
BACKBONES
Distributed networks use a variety of topologies in order to maximize network
performance and utilization. In many cases FDDI and/or CDDI technologies have
been applied to needs for a high speed, high performance backbone connecting the
variety of Ethernet, Token Ring, and WAN segments which typically integrate to
form enterprise wide communications.
Since the development of the RMON standard, first for Ethernet and then extended
to Token Ring, users have quickly adopted this standards based technology to
provide both pro-active as well as reactive diagnostic operations for
increasingly complex network configurations. However, no cost effective
mechanism has exited to address the needs of users to understand the operation
and diagnose problems associated with high speed backbone segments.
The NETscout 7100 Series EnterpriseProbe for FDDI/CDDI networks fills this major
hole in diagnostic capabilities. Depending on the model selected, users may
connect to both FDDI and CDDI network segments in either single or
29
<PAGE>
dual attached configurations. The NETscout's high performance Pentium processor
allows users to gather RMON based statistics for all ring traffic activity.
NETscout's Domain View architecture provides the same capability to subdivide
traffic on the ring and effectively operate multiple concurrent RMON probes on a
single platform. Management from the NETscout RMON management package presents
FDDI/CDDI information in exactly the same forms as for Ethernet and Token Ring
thus presenting a complete and uniform diagnostic mechanism for multi-media
enterprise networks.
30
<PAGE>
INTELLIGENT RMON PROBES AND AGENTS
- - High Performance 486 based multisegment probes and cost effective
software agents
- - Support for Ethernet, Token Ring, FDDI, and WAN
- - Compatible with RMON standards for Ethernet (RFC 1271) and Token Ring
(RFC 1513)
- - Compatible with any SNMP based Network Management System
- - Virtual analyzer for 7 layer EnterpriseRMON-TM- monitoring of multiple
network parameters concurrently
- - Selective packet capture and seven level protocol decode software
- - In Band/Out of Band configuration support via BootP, TFTP, and Nslogin
- - Support for duplicate IP address detection
- - Provides accounting statistics for utilization/bandwidth cost analysis
- - Resource Manager-TM- software option supports proxy SNMP
<TABLE>
<CAPTION>
- ------------------------------------------------------------
NETscout
Product Family
- ------------------------------------------------------------ ----------------------------------
- ------------------------- ------------------------------------- --------------------------------------
MODEL DESCRIPTION TOPOLOGY
- ------------------------- ------------------------------------- --------------------------------------
- ------------------------- ------------------------------------- --------------------------------------
<S> <C> <C>
6010 High performance 486 based Ethernet
6020 intelligent probes Token Ring
6040 WAN (E connection)
6050 Ethernet/WAN
6060 WAN (TR Connection)
6070 Token Ring/WAN
- ------------------------- ------------------------------------- --------------------------------------
- ------------------------- ------------------------------------- --------------------------------------
9510 SPARC based software agents Ethernet
9530 FDDI
- ------------------------- ------------------------------------- --------------------------------------
</TABLE>
A COMPLETE FAMILY OF HIGH PERFORMANCE PROBES AND SOFTWARE AGENTS
Frontier offers the industry's broadest product lines of RMON base hardware
probes and software ______. _______________ family supports Ethernet, Token
Ring, FDDI and WAN. This family of integrated products are fully compatible and
supported from a single monitoring environment. NETscout is also compatible with
any SNMP based network management system. With the NETscout family, the network
administrator can choose different price points matching the performance needs
of the network. The NETscout 6000 series utilizes a high-performance 486
processor and real time operating system delivering excellent price performance.
The NETscout 6000 series has a scaleable architecture that will consistently
________ in performance in __________________________ technology.
_____________________ NETscout ___________ and high ______________ monitoring.
For those users who want to utilize existing SPARC platforms Frontier offers the
NETscout 9500 series and DOS software agents for a cost-effective way to add
RMON to LAN segments. The Ethernet probes and agents support all 9 RMON groups
(RFC 1271). The Token Ring probes and agents support ten groups (RFC 1513). The
WAN probe is ideal for monitoring bandwidth utilization and providing accounting
information. The WAN
31
<PAGE>
probe supports encapsulation and is compatible with Cisco,
Wellfleet, 3COM, DEC, Proteon and other routers. The new Resource Manager Option
lets a single probe proactively monitor both LAN/WAN traffic and any SNMP
device.
32
<PAGE>
NETSCOUT: UNBEATABLE SCALABILITY, FLEXIBLE FOR ENTERPRISE NETWORKS
A typical network can be equipped with multiple Frontier NETscout probes and
agents with one agent or probe connected to each individual network segment. The
agents are managed and controlled from a centrally located network management
console, called the NETscout Manager. The network management console consists of
a number of analysis tools which permit the user to request and examine data
provided by the selected agent. NETscout probes and agents are supported by
Frontier's SNMP compatible management console analysis software which runs with
SunNet Manager, IBM NetView 6000, HP Openview, AT&T and MS Windows. With
Frontier NETscout probes and agents, it is possible to have multiple clients
active so that network diagnostic functions may be performed from multiple
locations such as from primary and secondary network management centers. Also
with NETscout probes multiple segments can be monitored.
PLUG AND PLAY INSTALLATION
NETscout probes can be easily installed by simply typing in the IP address and
connecting the probe to the network. Once connected, NETscout immediately begins
collecting RMON statistics.
INDEPENDENT OPERATION
Frontier's intelligent probes/agents collect statistics continuously, even when
not communicating with the management station. Fault, performance, and
configuration information is accumulated and communicated to the management
station upon a fault or administrators request.
PROACTIVE MONITORING
NETscout intelligent probes/agents are constantly "watching" the network traffic
conditions which can lead to failures. The probes/agents can be configured to
automatically detect error conditions and log these errors upon occurrence. They
will not only notify the management station of the failure, but also provide
historical data for analysis.
VALUE ADDED DATA
Frontier's intelligent probes/agents add significant value to the data it
collects. With the Domain View-TM- architecture NETscout probes and agents can
be directed to focus and "zoom" in on a particular segment, node and type of
traffic in real time and report all RMON statistics to a management station.
This data can be viewed graphically, all from a single screen for easy diagnosis
of a problem.
MULTIPLE MANAGERS
Distributed network environments utilize multiple management stations. NETscout
probes/agents are concurrently accessible from more than one management station.
MULTISEGMENT MONITORING
Frontier's RMON based diagnostics architecture has the capability to monitor
more than one segment at a time. For example, the Model 6010 can monitor two
Ethernet segments concurrently. This provides a cost-effective way to deploy
diagnostic probes.
33
<PAGE>
EXHIBIT D
PRODUCT TEST PROCEDURE
THIS EXHIBIT IS COMBINED WITH EXHIBIT G
34
<PAGE>
EXHIBIT E
REPAIR CHARGES
Maintenance (single repair)
[*]
Replacement Units as Spares:
[*]
Maintenance Agreement (Hardware and Software):
[*]
Spare Part:
This is not applicable since all repairs are done on a factory repair basis.
- --------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
35
<PAGE>
EXHIBIT F
PRIORITIZATION AND ESCALATION GUIDELINES
PROBLEM PRIORITIES DEFINITIONS:
Priority 1: Cisco customer's production network is [*]. [*] is
available. [*] are willing to commit [*] to resolve the
situation.
Priority 2: Cisco customer's production network is [*]. [*] is available.
[*] are willing to commit [*] to resolve the situation.
Priority 3: Cisco customer's Network performance is [*]. Network
functionality is [*] but [*] continue.
Priority 4: [*] requires information or assistance on [*].
ESCALATION GUIDELINE: [Note: these titles need to be adjusted for each
Frontier.]
Elapsed Time Priority 1 Priority 2 Priority 3 Priority 4
[*]
Frontier manager to whom the problem is escalated to will take ownership of the
problem and ensure that updates are provided to the appropriate Cisco personnel.
Cisco-initiated escalations will begin at the [Technical Group Leader level] and
proceed upward using the escalation guideline shown above for reference. This
will allow those most closely associated with the support resources to correct
any service problems quickly.
- --------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
36
<PAGE>
EXHIBIT G
CISCO QUALITY PROGRAM
[*]
- --------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
37
<PAGE>
EXHIBIT H
LABELING REQUIREMENTS
[*]
- --------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
38
<PAGE>
EXHIBIT I
THIRD PARTY PRODUCT ROYALTIES AND LICENSES WHICH EXIST AS OF
THE EFFECTIVE DATE OF THIS AGREEMENT
Cisco shall be obligated to pay all license fees and royalties, if any, with
respect to any third party proprietary rights and technologies which are
required for the exercise of Cisco's Manufacturing Rights and which are listed
below. All other such third party royalties and licenses which are not listed
below and which are required for Cisco to exercise the Manufacturing Rights
under this Agreement shall be paid by Frontier.
39
<PAGE>
Exhibit 10.13
AMENDMENT TO
PRIVATE LABEL AGREEMENT
AND
PROJECT DEVELOPMENT AND LICENSE AGREEMENT
BETWEEN
CISCO SYSTEMS, INC.
AND
FRONTIER SOFTWARE DEVELOPMENT, INC.
This Amendment ("Amendment") is made in California by and between Cisco
Systems, Inc., a California corporation having its principal place of business
at 170 West Tasman Drive, San Jose, CA 95134-1706, U.S.A. ("Cisco"), and
Frontier Software Development, Inc., a Delaware corporation having its principal
place of business at 321 Billerica Road, Chelmsford, Massachusetts 01824
("Frontier").
WHEREAS, Cisco and Frontier entered into the Project Development and
License Agreement on July 13, 1994 ("Software Agreement") pursuant to which
Frontier licensed certain software products (as defined in the Software
Agreement) to Cisco; and
WHEREAS, Cisco and Frontier entered into the Private Label Agreement on
October 17, 1995 ("Hardware Agreement") pursuant to which Frontier would sell
certain products (as defined in the Hardware Agreement) to Cisco; and
WHEREAS, Cisco and Frontier desire to change and add certain terms to
the Software Agreement and Hardware Agreement to change pricing, add products
and to make such agreements more similar, all as specified below.
NOW THEREFORE, in consideration of the covenants and conditions
contained herein, the parties agree as follows:
1. PRODUCTS. Cisco shall have the right to purchase and resell any and all
Frontier products, both current and future (including, without limitation, all
consoles, probes, embedded agents and upgrades in the Frontier product line),
listed on Frontier's then current price list. Except as expressly and
unambiguously stated in the Software Agreement, the terms and conditions of the
sale of products by Frontier to Cisco shall be governed by the Hardware
Agreement. All products purchased by Cisco from Frontier shall be deemed
"Products" as defined in the Hardware Agreement. The parties agree that all
Products purchased or licensed by Cisco under the Hardware Agreement (including
all additional Products added by this Amendment) shall be subject to all the
terms and conditions of the Hardware Agreement.
<PAGE>
2. NETSCOUT MANAGER PRODUCT.
2.1 MANUFACTURING OF UNBOUNDED COPIES. Frontier agrees to manufacture
complete kits for copies of the NETscout Manager Product and private label such
Product as "TrafficDirector" as specified by Cisco (the "TrafficDirector
Product"). In addition, Frontier agrees to make and provide to Cisco all
documentation for the TrafficDirector Product as specified by Cisco. Frontier
will provide finished User Guides and executable copies of the TrafficDirector
Product in CD or electronic format for integration with other Cisco management
software. Frontier agrees that it shall only have the right to sell the
TrafficDirector Product to Cisco. In the event Cisco orders copies of the
TrafficDirector Product with temporary licenses (i.e. a [*]), Frontier agrees to
mark the TrafficDirector boxes with the license expiration date and the Cisco
last ship date (which shall be 40 days before the temporary license expiration
date) as follows:
Example:
CISCO: LAST SHIP DATE _______________
TEMPORARY LICENSE EXPIRATION DATE _______________
Cisco agrees to pay Frontier a mutually agreed upon NRE charge for any
modifications and/or enhancements to the TrafficDirector documentation which
have resulted from a written request from Cisco. No substantive changes shall be
made to the documentation unless expressly agreed to/requested in writing by
Cisco.
2.2 NEW VERSIONS. Within [*] after the release of a new version of the
NETscout Manager Product by Frontier, Frontier shall provide to Cisco a
TrafficDirector branded Product, at a [*] upon [*], if any. TrafficDirector
version 3.3 will be based on NETscout Manager version 3.3. TrafficDirector
version 4.X will be based on NETscout Manager Plus, with the switch management
enhancements.
2.3 LICENSE FEES. Cisco shall pay Frontier for each copy of the
TrafficDirector Product purchased or licensed by Cisco as follows:
(a) if [*] in the [*] or any other [*], the license fee shall
equal [*] of Frontier's [*]. A [*] will be due to Frontier [*] after product
receipt. This amount will then be [*] from the license fee payment due to
Frontier;
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
2
<PAGE>
(b) if sold as an [*], the license fee shall equal [*] of
Frontier's [*]. A [*] will be due to Frontier [*] after product receipt. This
amount will then be [*] from the license fee payment due to Frontier;
(c) the license fee for [*] shall equal [*], per [*], for the
[*] following the signing of the amendment, [*] will be [*] within [*] of the
signing of the amendment;
(d) the license fee for [*] shall equal [*], provided that [*]
licenses for a minimum of [*] shall be [*];
(e) the license fee for [*] shall equal [*] and shall have a
license for [*] or more.
(f) Frontier will provide Cisco with a record and invoice
within [*] after the end of each Cisco fiscal quarter based upon Frontier's Web
page records. Cisco will have [*] to reconcile the invoice to its own records.
Cisco will be obligated to pay Frontier within [*] after the invoice, unless
Cisco presents in writing records showing different sales levels.
In this event, [*] would make a [*] to [*] the [*] in [*] and payment within
[*].
2.4 TRADEMARK. Frontier acknowledges that Cisco retains any and all
rights, title and interest to the tradename, trademark, logo or mark
"TrafficDirector" ("Traffic Director Mark") and agrees not to take any action to
challenge any rights or efforts made by Cisco to register or use the
TrafficDirector Mark, nor will Frontier lodge any filings with respect to the
TrafficDirector Mark or marks confusingly similar to the TrafficDirector Mark,
whether on behalf of Cisco or in its own name or interest, without the prior
written consent of Cisco.
Cisco acknowledges that Frontier shall retain any and all rights, title and
interest to any tradenames, trademarks or trademark logos ("Frontier Marks") in
any documentation developed by Frontier pursuant to Section 2. 1, above. Cisco
agrees not to make any
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
3
<PAGE>
claims to Frontier Marks, or lodge any filings with respect to such Frontier
Marks or marks confusingly similar to Frontier Marks, whether on behalf of
Frontier or in its own name or interest, without the prior written consent of
Frontier.
2.5 Frontier agrees that Cisco has the right to purchase the
TrafficDirector Products as long as Cisco continues to remarket Frontier's
NETscout Probe Products.
3. SWITCHPROBE AGENTS AND EMBEDDED AGENTS.
3.1 MANUFACTURING. Frontier agrees to manufacture copies of the
Frontier SwitchProbe Product with the SwitchProbe Embedded Agent incorporated in
it for resale to Cisco pursuant to the Hardware Agreement.
3.2 LICENSE FEES. Exhibit D, Section 1, to the Software Agreement is
deleted and replaced with the following:
"Cisco agrees to pay to Frontier Software License Fees in accordance with the
following schedule:
[*] [*] per RMON license sold as a revenue unit by Cisco
[*] [*] per RMON license sold as a revenue unit by Cisco
[*] [*] per Resource Manager agent option license sold as a
revenue unit by Cisco
[*] [*] per Switch Monitor agent option license (includes
roving-RMON for all [*] models and mini-RMON proxy support
for the [*]series)
[*] Agent upgrades and technical support for all platforms will
be provided under [*] maintenance fee of [*]. Agent upgrades
will be delivered in a [*] format
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
4
<PAGE>
3.3 PAYMENT TERMS. The payment terms for the license fees due under
this Section 3 shall be in accordance with Exhibit D of the Software Agreement.
3.4 SUPPORT. Frontier agrees to provide Cisco, at no additional charge,
hotline and technical engineering support for all Cisco network monitoring
products that use Frontier technology. Such support shall be subject to the
Customer Support requirements of Section 8.1 of the Hardware Agreement and the
Prioritization and Escalation Guidelines contained in Exhibit F of the Hardware
Agreement.
4. REVISED PRODUCT PRICES.
4.1 PRODUCTS. Exhibit A to the Hardware Agreement is deleted and
replaced with the new attached Exhibit A ("Revised Exhibit A"). Frontier agrees
that during the term of the Hardware Agreement and Software Agreement it [*] its
list price for hardware Products or for Software Products [*] in the event of
[*] in [*] that [*] the [*] of the Product by [*] (this [*] will be directly
passed on without [*]) or in the event Frontier adds [*] to a Software Product.
4.2 [*] PRICING. Frontier represents and warrants to Cisco that the
Product prices/license fees offered to Cisco under this Agreement are [*] than
the Product prices/license fees [*] quantities. In the event Frontier [*]
Product prices/license fees to [*], Frontier will promptly notify Cisco of such
event and [*] Product prices/license fees to Cisco commencing upon the date such
[*] prices/license fees were [*].
5. ESCROW. The parties agree that all Products purchased or licensed by Cisco
under the Hardware Agreement and the Software Agreement shall be subject to the
manufacturing and escrow requirements of Section 10 of the Hardware Agreement.
6. SUPPORT.
6.1 HARDWARE AGREEMENT. Section 8 of the Hardware Agreement is amended
to add the following support provisions:
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
5
<PAGE>
"8.12 LICENSE TO USE OBJECT AND SOURCE CODE FOR CUSTOMER
SUPPORT. Pursuant to the License granted herein, Cisco is licensed to use the
Software source and/or object code for the limited purpose of providing customer
support, including, without limitation, the provision of software bug fixes,
patches and maintenance releases.
"8.13 SOFTWARE SUPPORT. Frontier will support no more than [*]
provided that these releases are no more than [*] apart. Software releases
should be [*] and released at a [*] interval.
"8.14 PRODUCT SHIPMENT PROCEDURE. In case bug fixes cannot be
transferred electronically, Frontier will ship to Cisco, and customer, at
Cisco's discretion, two (2) copies of media (i.e., CD-ROM) containing the bug
fix. Such shipment will be by overnight delivery to Cisco at Cisco's expense.
"8.15 SUPPORT DOCUMENTATION. Frontier agrees to regularly
supply Cisco with all known bug notes or other documentation defining the
relevant hardware and software information, symptoms, solutions or work-arounds
for Product problems. Frontier will keep accurate records of Product
deficiencies (bugs) and make such reports available to Cisco at least quarterly.
Frontier will maintain an electronic means (e.g., an FTP server) through which
Cisco can obtain up-to-date information on bugs, fixes, and code updates. During
the term of this Agreement, Frontier will provide such support to Cisco at no
charge."
6.2 SOFTWARE AGREEMENT. The parties agree that Software products
licensed under the Software Agreement shall be subject to all the support
provisions of the Hardware Agreement.
7. ADDITIONAL FRONTIER OBLIGATION. Frontier agrees to maintain a World Wide Web
site for Software license password generation.
8. GENERAL. Section 17 (Limitation of Liability) of the Software Agreement is
deleted and replaced with Section 13 (Limitation of Liability) of the Hardware
Agreement. Further, any provisions of the Hardware Agreement covering subject
matter which are not included in the Software Agreement are hereby included in
the Software Agreement.
9. ENTIRE AGREEMENT. The "entire agreement" paragraph of Section 14 of the
Software Agreement is deleted and replaced with the following:
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
6
<PAGE>
"This Agreement (including the Exhibits hereto) and the Private Label
Agreement entered into by Cisco and Frontier on October 17, 1995, constitutes
the entire agreement between the parties hereto concerning the subject matter of
this Agreement, and there are no conditions, understandings, agreements,
representations, or warranties, expressed or implied, which are not specified
herein. This Agreement may only be modified by a written document executed by
the parties hereto."
10. NO OTHER CHANGES. Terms capitalized shall have the meaning assigned to them
in the Hardware Agreement and the Software Agreement. All other terms and
conditions of the Hardware Agreement and Software Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their duly authorized representatives.
CISCO SYSTEMS, INC. FRONTIER SOFTWARE
DEVELOPMENT, INC.
/s/ Mario Mazzola /s/ Narendra Popat
- ------------------------------------------ -------------------------------
Signature Signature
Mario Mazzola Narendra Popat
- ------------------------------------------ -------------------------------
Name Name
Vice President/General Manager - WBU President, Frontier Software
- ------------------------------------------ -------------------------------
Title Title
5/15/96 5/15/96
- ------------------------------------------ -------------------------------
Date Date
7
<PAGE>
REVISED EXHIBIT A
PRODUCTS/PRICING
<TABLE>
<CAPTION>
- -------------------- --------------------------------------------------
PRODUCT [*]
MODEL
NUMBER
- -------------------- --------------------------------------------------
<S> <C>
[*]
[*]
[*]
[*]
[*]
[*]
- -------------------- ---------------------------------- ---------------
</TABLE>
When reference is made in the Agreement or any exhibit to Frontier's
[*] of a Product specially modified for Cisco, such reference shall mean
Frontier's [*] for Frontier standard product upon which the Product has been
based. If Frontier shall modify, update, enhance or create a new version of a
standard product upon which such a Product is based, it shall similarly modify,
update, enhance or create a new version of the corresponding Product. Frontier
will sell Products specially modified for Cisco only to Cisco.
Except as specified above, the prices for all Products purchased by Cisco from
Frontier shall be:
(i) [*] of Frontier's [*] for all Frontier hardware Products;
(ii) [*] of Frontier's [*] for all Frontier software Products to be
resold by Cisco unbundled;
(iii) [*] of Frontier's [*] for all Frontier software Products to be
resold by Cisco in a bundle.
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
8
<PAGE>
Exhibit 10.14
AMENDMENT NO. 3 TO
PRIVATE LABEL AGREEMENT
AND
PROJECT DEVELOPMENT AND LICENSE AGREEMENT
BETWEEN
CISCO SYSTEMS, INC.
AND
FRONTIER SOFTWARE DEVELOPMENT, INC.
This Amendment No. 3 ("Amendment #3") is made in California by and
between Cisco Systems, Inc., a California corporation having its principal place
of business at 170 West Tasman Drive, San Jose, CA 95134-1706, U.S.A. ("Cisco"),
and Frontier Software Development, Inc., a Delaware corporation having its
principal place of business at 321 Billerica Road, Chelmsford, Massachusetts
01824 ("Frontier").
WHEREAS, Cisco and Frontier entered into the Project Development and
License Agreement on July 13, 1994 ("Software Agreement"), as amended on January
4, 1995 ("Amendment #1") pursuant to which Frontier licensed certain software
products (as defined in the Software Agreement) to Cisco; and
WHEREAS, Cisco and Frontier entered into the Private Label Agreement on
October 17, 1995 ("Hardware Agreement") pursuant to which Frontier is selling
certain products (as defined in the Hardware Agreement) to Cisco; and
WHEREAS, Cisco and Frontier entered into an Amendment to the Hardware
Agreement and the Software Agreement on May 15, 1996 ("Amendment #2"); and
WHEREAS, Cisco and Frontier desire to change and add certain terms to
the Software Agreement, Hardware Agreement, Amendment #1 and Amendment #2
(collectively, the "Agreement") as specified below.
NOW THEREFORE, in consideration of the covenants and conditions
contained herein, the parties agree as follows:
1.0 DEVELOPMENT WORK. Cisco shall have the right to request that Frontier
perform independent projects specific to Cisco such as, but not limited to,
customization of an interface, addition of features, or integration of
Frontier's RMON products into Cisco products. Frontier agrees that it will not
unreasonably reject such Cisco requests. Such projects shall be subject to the
terms and negotiations agreed upon by the parties. The statement of work
("Statement of Work") for each project shall include, as required, the following
provisions: project specifications, NRE charges and payment terms, prepaid
royalties or per unit royalties, upgrade charges (if different from the policy
agreed upon in the Agreement), schedules, reschedule terms inclusive of
penalties for schedule delays, project cancellation terms inclusive of penalty
charges, acceptance criteria, project review
1
<PAGE>
and approval processes, ownership of the work performed, resale/license
obligations and restrictions of the parties for the modified products, and any
further obligations required by Cisco to complete the project."
Cisco agrees to pay Frontier a [*] fee of [*] for development work [*] to by
the parties and completed [*] of this Amendment #3. The projects covered by this
fee include without limitation: Embedded RMON agents for the [*].
As a Statement of Work is mutually agreed upon and signed by an authorized
representative for each party it will be incorporated into the Agreement as an
amendment. A Statement of Work format is attached as Exhibit A.
2.0 AGENT ROYALTIES. Section 3.2 (License Fees) of Amendment #2 is changed as
follows:
2.1 Royalties for agents shipped prior to the effective date of this
Amendment #3 will be paid per the terms of Amendment #2.
2.2 Royalties for RMON Embedded Agent Software (as defined below in
Section 7.(d)) shipped upon the effective date of this Amendment #3 and
thereafter will be as follows:
(a) Cisco agrees to pay Frontier a [*] royalty of [*] for any
and all copies of the RMON Embedded Agent Software made and distributed by Cisco
and incorporated within [*] or within any other Cisco software environment
except the Cisco products listed in Section 2.2(b) below. Frontier warrants that
the RMON Embedded Agent Software provides, at a minimum, the full functionality
to comply with the [*] specification) plus the [*] specification as it is
released by the [*].
(b) Subject to the conditions in Section 2.3 below, Cisco
agrees to pay Frontier a one-time royalty payment of [*] plus a [*] royalty as
specified in this Section 2.2 below for the following Cisco [*] products ("Cisco
[*] Products"):
[*]
[*] Royalty:
(i) Cisco will pay a [*] royalty of [*] for each
Cisco [*] Product unit incorporating some or all of the functionality specified
as [*].
- -------------------------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
2
<PAGE>
(ii) Cisco will pay a [*] royalty of [*] for each
Cisco [*] Product unit incorporating the functionality specified in this
Paragraph (b)(i) above plus the compete functionality of [*] as it is released
by the [*].
(iii) For a situation in which a Cisco [*] Product
incorporates the functionality of [*] groups of [*], Cisco will pay a
per-unit royalty of [*] plus [*] for each group, or portion of a group, of [*]
incorporated into such product.
2.3 Conditions:
(i) [*] royalty payment as specified above is due for
each Cisco [*] Product shipped by Cisco for revenue in which one or more
instances of RMON Embedded Agent Software are licensed for use by the licensee
for some level of RMON agent functionality whether or not Cisco explicitly
charges its customers for the RMON capability.
(ii) Cisco's obligation to pay a [*] royalty for a
Cisco Catalyst Product under Section 2.2(b)(i) or the [*] base royalty under
Section 2.2(b)(iii) above shall terminate upon the inclusion by Cisco of the [*]
feature(s) as a [*] in the [*] of the respective Cisco [*] Product, provided the
following conditions have been met: (i) Cisco provides evidence to Frontier that
[*] for delivery of the [*] feature(s) in the Cisco [*] Product as a standard no
charge feature(s); and (ii) such evidence indicates that the [*] by Cisco.
Frontier agrees to accept reasonable evidence to establish the foregoing
conditions.
(iii) Cisco's obligation to pay a [*] royalty for a
particular Cisco [*] Product ends when such product is shipped with Cisco's [*],
or when the Agreement expires or is terminated for cause by Cisco, or when Cisco
exercises its right to manufacture Products (in which event the [*] will be as
specified in Section 14 below).
(iv) The per-unit royalties of this Section 2.3 do
not apply to Embedded Probes as defined in Section 3 below.
3.0 EMBEDDED PROBES. For the purposes of the Agreement, "Embedded Probes" shall
mean [*]in which the [*] provides [*] functionality plus extensions as then
agreed to by the parties and executes on hardware which: (i) is used primarily
to execute RMON code, and (ii) such hardware is an optional module that is
inserted into a Cisco chassis.
3.1 An Embedded Probe shall include functionality for [*], and shall
[*]. In the event that the features agreed to for such Products in the
respective Statements of
- ----------------------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
3
<PAGE>
Work are significantly different from the guidelines given herein, the parties
will renegotiate in good faith the Embedded Probe royalties of Section 3.2
below.
3.2 [*] royalties for Embedded Probes shall be as follows:
<TABLE>
<CAPTION>
Per-unit royalty
<S> <C>
For the first [*] revenue units shipped by Cisco [*]
For the next [*] revenue units shipped by Cisco [*]
For units shipped by Cisco for revenue beyond [*] units [*]
</TABLE>
For Embedded Probe shipments for revenue beyond [*] units, the parties
agree to negotiate in good faith the royalties based upon then existing
conditions in the marketplace. Cisco agrees to pay a royalty of [*] per unit
shipped for revenue during the negotiation process. When the new royalty is
agreed to, Frontier will credit Cisco for the net difference for all units
shipped beyond [*] units.
3.3 A Product that meets the conditions for an Embedded Probe as given
in Section 3.0 above and in addition is implemented within [*] shall be subject
to the royalties per Section 3.2 above.
4.0 PROBE INVENTORY BALANCING, Frontier agrees to [*] Cisco a [*] to balance its
inventory of [*] under the following conditions:
4.1 Per the conditions specified in Section 4.2, Cisco can balance up
to [*] probe units as follows:
(i) [*] models for the [*] probes on order but not yet
delivered by Frontier, and
(ii) [*]up to [*] units from [*] at a rate of up to [*] units
per month beginning on the effective date of this Amendment #3 and continuing
for [*] months.
4.2 Conditions for product rotation:
(i) [*] on a one for one basis such that for each unit [*] or
[*] to Frontier by Cisco, Frontier will [*] one [*] unit of the probe model
designated by Cisco.
(ii) Cisco shall [*] of [*] of the original cost to Cisco for
each probe [*]. Cisco will place a [*] on each occasion Cisco exercises its
right to [*] probes.
- ----------------------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
4
<PAGE>
(iii) In the event the total cost [*] of the new products to
be shipped to Cisco is [*] than the [*] of the products being [*] by Cisco
(i.e., the [*]), Cisco will issue a purchase order for the [*] on each occasion
Cisco exercises its right [*].
(iv) In the event the total cost of the new products
(excluding the [*]) to be shipped to Cisco is [*] than the [*] of the
products being [*] by Cisco (i.e., the [*]), Cisco will issue a purchase
order to purchase [*] of a value [*] than the [*], for delivery within [*].
The payment due on such purchase order is the amount by which the new units
exceed the [*].
(v) Cisco will pay the shipping costs for the [*].
(vi) Probe units on order as of the effective date of
Amendment #3 for products other than [*] probes are separate from this balancing
and are not to be [*] the [*] as a result of this balancing.
5.0 PROBE [*]. The parties agree to extend the current standalone probe [*]
structure for an [*] through [*]. Thereafter, the [*] structure will be as
mutually agreed by the parties.
6.0 TRAFFICDIRECTOR UPGRADES TO REVISION 4.1. Cisco will pay the following
upgrade fee to upgrade Cisco customers of TrafficDirector 3.3 and any version of
NetScout Manager to TrafficDirector 4.1 (based upon Frontier's NetScout Manager
Plus 4.1 Software):
[*]
This upgrade fee is payable only for licenses actually upgraded to
TrafficDirector [*]. For subsequent upgrade releases from TrafficDirector [*] to
later versions, Cisco shall pay a royalty fee of [*] per unit as specified in
Amendment #2 Section 2.3(c).
7.0 DEFINITIONS AND LICENSES.
7.1 Definitions.
(a) For purposes of the Agreement, and notwithstanding
anything to the contrary in the Agreement, the term "Software," as respectively
defined in Section 1.1 of the Hardware Agreement and Section 1 of the Software
Agreement, is hereby modified to collectively mean RMON Embedded Agent Software
and Other Software as defined in this Section 7.1 below.
- ----------------------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
5
<PAGE>
(b) For purposes of the Agreement, and notwithstanding
anything to the contrary in the Agreement, the term "source code" shall include
sufficient information for a knowledgeable software engineer to produce
completely functional machine readable binary code for all Software, including
but not limited to, design documentation, technical documentation, design and
functional specifications, software libraries, compilers, utilities, listings,
test suites, build scripts and tools to compile, assemble and test code in
Frontier's possession or under its control . In cases where such tools are
commercially available, source code shall only include the supplier, model and
revision information to uniquely and unambiguously identify each such tool.
(c) The term "Product" shall have the definition specified in
Section 1 of Amendment #2.
(d) For purposes of the Agreement, and not withstanding
anything to the contrary in the Agreement, the term "RMON Embedded Agent
Software" shall mean software providing, the functionality of an RMON agent
embedded within a Cisco product, which agent conforms to the [*]
specification per [*] and the [*] specification as it is released by the [*].
(e) For purposes of the Agreement, and not withstanding
anything to the contrary in the Agreement, the term "Other Software" shall mean
all software, except RMON Embedded Agent Software, provided to Cisco by Frontier
as a Product under this Agreement, regardless of whether embedded or bundled
with a hardware product, or provided as a standalone software product. Other
Software includes, but is not limited to, stand-alone probe Products, Embedded
Probes and TrafficDirector.
(f) For purposes of the Agreement, and not withstanding
anything to the contrary in the Agreement, the term "Derivative Works" shall
mean modifications to RMON Embedded Agent Software made by or for Cisco.
(g) It is understood that RMON Extensions are limited to the
functionalities specified in [*].
The parties agree and acknowledge that nothing in this Amendment # 3 shall be
construed to diminish, restrict or limit any rights or privileges which Cisco is
already entitled to under the Agreement. Any ambiguity arising from the new
definitions of terms in this Section 7 will not be interpreted against Cisco to
diminish rights previously granted to Cisco under the Agreement.
- ----------------------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
6
<PAGE>
7.2 Licenses.
(a) RMON Embedded Agent Software. The license granted in
Section 4, the first paragraph, of the Software Agreement applies in its
entirety to RMON Embedded Agent Software (binary and source code form) and all
related documentation and tools . Frontier shall retain title and full ownership
rights to the RMON Embedded Agent Software as specified in Section 6 of the
Software Agreement for RMON software and RMON Extensions. [*] shall retain
title and full ownership to the Derivative Works as specified in Section 6 of
the Software Agreement. In addition, [*] hereby grants to [*] a worldwide, [*]
and nonexclusive license to [*] of the Derivative Works, provided that such
Derivative Works which are feature enhancements to the RMON Embedded Agent
Software may not be [*] in any manner by [*] to any third party without [*]
prior written consent.
(b) Other Software. Notwithstanding anything to the contrary
in the Agreement, Frontier hereby grants Cisco a [*] license to [*] of [*] in
both machine readable binary and source code form, subject to the following
restrictions:
(i) Cisco's right to [*] the Other Software shall be
[*] for the purpose of [*] and providing software [*].
(ii) [*] shall retain ownership of any [*] that Cisco
makes to the Other Software, and Cisco shall
provide to Frontier in a timely manner all such [*] Cisco makes to the Other
Software.
(iii) Cisco shall have [*] to sublicense or cross
license the Other Software as a standalone product.
7.3 Source Code Restrictions. Cisco shall [*] distribute or sublicense
any source code owned by Frontier unless such source code is distributed or
sublicensed with or as part of Cisco source code or Cisco hardware. In [*] shall
a [*] of the Frontier source code have the right to [*] such source code to [*]
or to [*] of such source code that [*]. Cisco shall protect Software source code
provided hereunder and/or sublicensed to others to the same extent that it
protects its own source code.
7.4 Sublicense Rights. The Agreement is modified by adding the
following:
"Frontier hereby grants Cisco the right to sublicense its license
rights granted under this Agreement, and authorizes the granting of sublicenses
for, the Software, provided to Cisco by Frontier solely as part of or in
connection with Cisco's software or
- ----------------------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
7
<PAGE>
products. Any per copy royalty payments due Frontier shall accrue at the time
Cisco makes and distributes the copy of the applicable Software or at the time
Cisco's OEM makes and distributes the copy of the applicable Software. Cisco is
obligated to account for and make payment for any per-unit royalties for
sublicenses in the same manner it does so for other per-unit license royalties
covered under the Agreement."
7.5 Delivery. Frontier agrees to promptly deliver to Cisco the machine
readable binary and source code for the Software (including without limitation,
all new releases, bug fixes, maintenance fixes, updates and the like for the
Software) as required under the Agreement or as such Software becomes available.
8.0 TERM OF AGREEMENT. The expiration dates of the Hardware Agreement and the
development portion of the Software Agreement are hereby extended to October 31,
2000.
9.0 LICENSE ADMINISTRATION. The parties agree to use commercially reasonable
efforts to implement a license administration system within [*] after the
effective date of this Amendment #3 that is easy and convenient for Cisco and
Cisco's customers to use and acceptable to both parties.
10. RIGHTS IN THE EVENT FRONTIER [*]. In the event that Frontier enters [*]
with another party for that party [*], Frontier will notify Cisco it has [*] to
be acquired [*]. Within [*] Cisco will inform Frontier in writing whether [*].
If Cisco indicates it does [*], Frontier is then [*] to execute an agreement [*]
by another party [*]. If Frontier does not sign a [*] within [*] from the date
of [*], this process restarts (i) on the [*] of Frontier entering into [*], or
(ii) at the end of such [*] if Frontier is then engaged in [*].
If Cisco indicates its [*], Frontier will negotiate in good faith with [*], an
arrangement pursuant to which [*]. Frontier [*] to carry on [*] with other
parties during the [*].
Prior to executing an agreement [*], and at the point at which Frontier has [*]
with third parties, Frontier will notify Cisco that it [*] Frontier.
After completing this process in good faith, Frontier reserves the right to
evaluate [*] from all parties and to [*] as it solely deems appropriate.
[*], and Cisco's [*], starts a [*] between Cisco and Frontier during which
Frontier will [*] from [*] agreement [*] by any third party until [*] it has
followed the [*] and Cisco has
- ----------------------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
8
<PAGE>
had a [*] to [*] including a [*]. The parties will negotiate in good faith at
the time of [*] and during this process to [*] on what constitutes a reasonable
time and process for Cisco to [*].
All [*] between Frontier and Cisco and all offers by Cisco within this [*] shall
be in writing. For purposes of notifying Cisco that Frontier [*], Frontier's
Board of Directors shall determine when Frontier is [*], thereby triggering,
Frontier's obligation to provide such notice to Cisco.
The provisions of this section shall expire on the date a registration statement
filed by Frontier under the Securities Act of 1933, as amended, first becomes
effective.
11.0 PREFERRED RMON VENDOR.
11.1 Definitions:
(a) For the purposes of the Agreement, "Covered RMON" products
shall mean products providing RMON1 and RMON2 functionality plus extensions in
the form of:
(i) Standalone probes for LAN and WAN environments
similar to Frontier's NETscout probes and future enhancements including future
LAN and WAN network topologies,
(ii) Network monitoring and analysis applications
similar to NETscout Manager Plus and future enhancements of such products by
Frontier including the support for future LAN and WAN network topologies, and
(iii) Embedded probes for Cisco's products with
features similar to or a subset of NETscout probes for present and future LAN
and WAN network topologies.
(b) For the purposes of the Agreement, "Other RMON" products
shall mean products other than Covered RMON products which have functionality
conforming to some or all of the groups of the RMON1 or RMON2 standards or
functionality that extends RMON-like capability to new LAN or WAN media or
network environments.
11.2 Preferred RMON Vendor. Beginning on the effective date of this
Amendment #3, Cisco establishes Frontier as its Preferred RMON Vendor. For the
purposes of the Agreement, and subject to the exceptions defined herein, Cisco's
classification of Frontier as its Preferred RMON Vendor shall mean that Cisco
will incorporate in its price list, promote and offer for sale/license, both
directly and indirectly through its resale channels, Products under this
Agreement as its primary solutions to meet Cisco's RMON product needs. For the
duration of the Agreement and subject to
9
<PAGE>
Frontier maintaining its Preferred RMON Vendor status per Section 11.3 below,
Cisco agrees to work in good faith with Frontier as follows:
(a) In the event Cisco identifies a need for a Covered RMON
product or Other RMON product, and a then-existing product from Frontier meets
Cisco's product requirements, Cisco will purchase such Product from Frontier
subject to Subsection 11.2(c) below.
(b) In the event Cisco identifies a need for a Covered RMON
product which is not a then-existing Frontier product, Cisco will notify
Frontier of its needs and will negotiate in good faith for a reasonable period
of time to have Frontier develop (under a Statement of Work) and supply such
Product to Cisco subject to Subsection 11.2(c) below.
(c) To be the selected vendor for a particular Covered RMON
product or Other RMON product, Frontier must meet Cisco's product functionality
and availability requirements and offer the product at a cost to Cisco
(including product cost and development cost) comparable to costs available to
Cisco from other sources for comparable products, with reasonable development
schedules, and commercially reasonable delivery and terms.
(d) After a Covered RMON product has been added as a Product
under the Agreement, Cisco shall not distribute an internally-develop product
that is substantially similar to such Product supplied by Frontier.
(e) Cisco will keep Frontier informed of its ongoing interests
and needs for RMON products and will provide Frontier the opportunity to be
Cisco's OEM supplier of such products.
(f) In the event that Cisco, having followed the process
herein defined in this Section 11.2, obtains a Covered RMON product from another
OEM supplier, Cisco is not subsequently obligated to use a comparable Frontier
product in place of the other product.
(g) In the event Cisco decides to distribute a Covered RMON
product that is developed by Cisco pursuant to this Section 11.2 or by a company
acquired by Cisco, Cisco's then designated Project Manager shall notify Frontier
at the time Cisco makes a firm decision to implement such plans.
11.3 To maintain its status as Preferred RMON Vendor, Frontier must
continuously adhere to all of the following conditions:
(a) Frontier is not in default of any substantive terms of the
Agreement, including, but not limited to, the terms of Section 17 (Sales
activity) and Section 19 (Cost Reduction) of this Amendment #3.
10
<PAGE>
(b) Frontier meets the quality standards for Products as set
by Cisco for all of Cisco's products,
(c) Frontier provides support and maintenance for Products as
reasonably requested by Cisco,
(d) Frontier develops new Products under Statements of Work in
a timely manner to meet Cisco's requirements.
Cisco will determine in it sole discretion whether Frontier is meeting all of
these conditions in this Section 11.3. In the event that Frontier ceases to meet
all of these conditions and thus is in jeopardy of losing its Preferred RMON
Vendor status, Cisco shall notify Frontier that it does not then meet the
conditions for Preferred RMON Vendor status and Cisco and Frontier management
will meet in good faith to resolve those issues which are causing Frontier not
to meet the conditions for Preferred RMON Vendor status. If issues causing
Frontier to lose its Preferred RMON Vendor status are not resolved within a
reasonable and mutually determined time frame after notification, Frontier will
lose its Preferred RMON Vendor status and Cisco is free to use alternative
vendors or to develop and supply Covered RMON products and Other RMON products
to meet Cisco's needs without violation of this Section 11.
11.4 The rights conferred to Frontier as Preferred RMON Vendor in this
Section 11 notwithstanding, Cisco reserves rights to:
(a) Acquire companies providing Covered RMON products and
Other RMON products and to use, sell or license RMON products developed by the
acquired company.
(b) Develop and distribute its own Covered RMON products or
Other RMON products subject to the limitations of Section 11.2 above,
(c) Exercise its Manufacturing Rights in accordance with the
terms of this Agreement,
(d) Develop embedded RMON agents, or make modifications to
Software as specified in this Agreement,
(e) Use, sell, or license Other RMON products from other
vendors subject to the limitations of Section 11.2 above,
(f) Use, sell or license Covered RMON products from other
vendors that are (i) incidental to other of Cisco's business relationships and
which are non-strategic product solutions that will be replaced by Products
under this Agreement within a reasonable time frame subject to Section 11.2(c)
above, (ii) needed to meet
11
<PAGE>
unique customer obligations, subject to notification to Frontier per Section
11.2(e) above, and (iii) Other RMON products committed for inclusion in Cisco's
products prior to the effective date of Amendment #3.
11.5 In the event that Cisco acquires a company that is developing or
marketing Covered RMON products, the parties agree:
(a) at Frontier's request, Cisco shall relinquish its rights
under Section 7.2(b) of this Amendment #3 to source code for Other Software and
immediately return such source code to Frontier, and
(b) Cisco shall relinquish its tights under Section 10 of this
Amendment #3.
12.0 PUBLICITY ON STRATEGIC RMON RELATIONSHIP. The parties agree to publicize
the strategic nature of this relationship for RMON Products with a joint press
announcement. Each party is permitted to refer to this strategic relationship in
their sales collateral and advertising. All such references to this strategic
relationship and use of the other party's name and or logos is subject to the
prior written approval of the other party.
13. SUPPORT PAYMENTS. Section 3.4 of Amendment #2 and Section 8 of the Software
Agreement are hereby changed to include an annual support fee of [*] to
cover the following support activities: i) updates, revisions, bug fixes and
new releases of agent Software for all platforms, ii) bug, fixes for all RMON
Products; iii) on-going consulting, including architectural issues, to Cisco for
existing and future RMON Products.
14. MANUFACTURING RIGHTS AND ESCROW. Section 10 of the Hardware Agreement is
hereby changed as follows:
14.1 Cisco's right to manufacture is increased from [*] from the time
it is exercised. Cisco can exercise this right on a Product by Product basis and
at different times.
14.2 Cisco's right to manufacture survives termination of the Agreement
by Cisco for cause per Section 14.2 of the Hardware Agreement.
14.3 Any source code provided by Frontier to Cisco under the licenses
of the Agreement does not need to be deposited into the escrow as part of the
Escrowed Materials.
- ----------------------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
12
<PAGE>
14.4 The following new paragraph is hereby added to Section 10 of the
Hardware Agreement:
"10.5 SOFTWARE LICENSE UNDER MANUFACTURING RIGHTS. In the
event Cisco exercises its Manufacturing Rights for a Product per Section 10 and
notwithstanding anything to the contrary in the Agreement, Frontier hereby
grants Cisco the additional right and license to [*] of the Other Software (as
defined in Section 7.2(b) of this Amendment #3) for the Product that Cisco has
the right to manufacture. Cisco agrees to limit [*] within such modifications to
Other Software to those features which in Cisco's sole discretion: (i) are [*],
(ii) are [*] competitive products, or (iii) have been previously [*] by Cisco.
Notwithstanding anything to the contrary in the Agreement, [*] shall retain
title and full ownership to the [*] of the Other Software made by or for Cisco
for the Product that Cisco has the right to manufacture. In addition, [*] hereby
grants to [*] a worldwide, [*] and nonexclusive license to [*] of the [*] to the
Other Software made by or for Cisco."
14.5 The following new paragraph is hereby added to Section 10 of the
Hardware Agreement:
"10.6 MINIMUM PERIOD OF MANUFACTURING RIGHTS. In the event
Cisco exercises its Manufacturing Rights for a Product per Section 10 and
notwithstanding anything to the contrary in the Agreement, such right shall
survive termination or expiration of the Agreement such that the minimum period
of Manufacturing Rights for a Product is 2 years, except that Manufacturing
Rights do not survive termination for cause by Frontier or termination for
convenience by Cisco."
14.6 Replace Section 10.2 (a) of the Hardware Agreement with the
following:
"In the event Cisco exercises its Manufacturing Rights for a
Product, Cisco agrees to pay Frontier royalties on all Products manufactured and
distributed by Cisco hereunder as follows:
(i) For Products that are [*] with no [*] content, Cisco shall
[*] under the terms specified under the Agreement for such Products.
(ii) For all other [*], Cisco agrees to pay Frontier a [*]
equal to [*] of Cisco's then current [*].
(iii) All [*] will be computed on a [*] basis and paid
quarterly within [*] following the end of each Cisco quarter."
13
<PAGE>
15. SUPPORT AFTER TERMINATION. Section 14.7 of the Hardware Agreement is changed
such that support shall be provided by Frontier for a Product until [*] after
the last shipment of that Product by Cisco.
16. SUPPORT REQUIREMENTS. The following support-related changes are to be made
to the Agreement:
16.1 Section 8.1 of the Hardware Agreement is changed by adding the
following:
"Frontier shall include bug fixes in all subsequent releases of the
agent software and RMON Products. Support levels are defined as follows:
Level 1 Support: [*].
Level 2 Support: All Level 1 support capabilities plus:
[*]
Level 3 Support: [*]
16.2 Section 6.1 (Paragraph 8.15) of Amendment #2 and Section 8.6 of
the Hardware Agreement are amended to add the following:
"Cisco shall work with Frontier while Frontier is developing products
for Cisco under a Statement of Work, to provide input on debugging/support tools
to help in Cisco's support efforts. For all new releases of Software or hardware
Products developed per Section 1.0 (Development Work) above or upgrades to
existing Products, Frontier will provide advanced versions of Products and all
supporting customer documentation to Cisco's support organization to allow them
to prepare to support such new Products."
16.3 Section 8.9 of the Hardware Agreement is changed to add the
following:
"Upon verifying that a Product defect exists, Frontier shall initiate
work in accordance with the time frames for the assigned priority, toward
development of a fix or work around. If Frontier is not able to verify that a
Product defect exists, Frontier will work with Cisco to determine the source of
the problem until it has been determined that the cause is not related to a
problem with a Frontier Product. In all cases, Cisco shall use reasonable
efforts to identify and demonstrate such Software error prior to contacting
Frontier. If Frontier is unable to meet the time frames listed in Section 8.9
for a problem of any priority, Frontier will provide to Cisco within that time
frame, at a minimum, a
- ----------------------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
14
<PAGE>
written plan for addressing the problem, including an estimate as to the
reasonable time period necessary to correct the problem."
16.4 Section 8. 10 of the Hardware Agreement is changed such that
Frontier will provide training for major releases/new RMON Products prior to
initial shipment of each major release/new RMON Product, for a minimum of
twenty-five (25) people at a Frontier facility, Cisco facility or facility
mutually agreed upon.
16.5 Exhibit F of the Hardware Agreement is changed to use the
following Problem Priority Definitions:
Priority 1: Cisco customer's network is [*] or there is [*]. [*]
is available. [*] are willing to commit [*] to resolve the situation.
Priority 2: Operation of Cisco customer's network is [*] are being [*]
network performance. [*] are willing to commit [*] to resolve the situation.
Priority 3: Operational performance of Cisco customer's Network [*].
Seller, Cisco and customer are willing to [*] to restore service to satisfactory
levels.
Priority 4: [*] requires [*] on [*].
17. SALES ACTIVITIES. The parties agree to conduct sales activities in
accordance with the following guidelines:
(i) The parties will identify situations in which both [*] are [*] to
meet customer's needs for RMON Products.
(ii) The two sales organizations [*] in [*]. [*] regarding joint sales
plans for [*] between the Cisco regional sales manager and Frontier's Vice
President of sales.
(iii) Cisco and Frontier will [*] to [*] such that Frontier has [*]
relating to [*] to allow Frontier to [*] for such sales.
18. NETFLOW MONITOR [*]. Cisco's purchase price for NetFlow Monitor shall be [*]
of Frontier's U.S. list price.
19. COST REDUCTION. The parties agree to meet no less frequently than
semi-annually to review the prices/license fees paid by Cisco for all Products
covered by this Agreement. Frontier agrees to act in good faith to maintain
competitive OEM
- ----------------------------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
15
<PAGE>
pricing/license fees for Products sold to Cisco considering all of the
following: (i) Pricing trends in the RMON product market place; (ii) Reductions
in Frontier's costs for Products; and, (iii) Competition from other suppliers
products. Frontier shall notify Cisco [*] prior to the public announcement of
any price change to its published list price for a Frontier product that is
equivalent to a Product.
20. NO OTHER CHANGES. Terms capitalized shall have the meaning assigned to them
in the Agreement unless specifically defined herein. All other terms and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their duly authorized representatives.
CISCO SYSTEMS, INC. FRONTIER SOFTWARE
DEVELOPMENT, INC.
/s/ Mario Mazzola /s/ Narendra Popat
- -------------------------------------- --------------------------------
Signature Signature
Mario Mazzola Narendra Popat
- -------------------------------------- --------------------------------
Name Name
Vice President/General Manager - Wbu President, Frontier Software
- -------------------------------------- --------------------------------
Title Title
October 29, 1996 October 29, 1996
- -------------------------------------- --------------------------------
Date Date
16
<PAGE>
Exhibit A
Template for Statement of Work
[*]
- --------
[*] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Securities and Exchange Commission pursuant to Rule 406 promulgated under the
Securities Act of 1933, as amended.
<PAGE>
Exhibit 10.15
AMENDMENT NO. 4 TO
PRIVATE LABEL AGREEMENT
AND
PROJECT DEVELOPMENT AND LICENSE AGREEMENT
BETWEEN
CISCO SYSTEMS, INC.
AND
NETSCOUT SYSTEMS, INC.
This Amendment No. 4 ("Amendment #4"), having an Effective Date of
February 23, 1998, is made in California by and between Cisco Systems, Inc., a
California corporation having its principal place of business at 170 West Tasman
Drive, San Jose, CA 95134-1706, U.S.A. ("Cisco"), and NetScout Systems, Inc.,
(Formerly known as Frontier Software Development, Inc.) a Delaware corporation
having its principal place of business at 4 Technology Park Drive, Westford,
Massachusetts 01886 ("NetScout").
WHEREAS, Cisco and NetScout entered into the Project Development and
License Agreement on July 13, 1994 ("Software Agreement"), as amended on January
4, 1995 ("Amendment #1") pursuant to which NetScout licensed certain software
products (as defined in the Software Agreement) to Cisco; and
WHEREAS, Cisco and NetScout entered into the Private Label Agreement on
October 17, 1995 ("Hardware Agreement") pursuant to which NetScout is selling
certain products (as defined in the Hardware Agreement) to Cisco; and
WHEREAS, Cisco and NetScout entered into an Amendment to the Hardware
Agreement and the Software Agreement on May 15, 1996 ("Amendment #2"); and
WHEREAS, Cisco and NetScout entered into an Amendment to the Hardware
Agreement and the Software Agreement on October 29, 1996 ("Amendment #3"); and
WHEREAS, Cisco and NetScout desire to change and add certain terms to
the Software Agreement, Hardware Agreement, Amendment #1, Amendment #2 and
Amendment #3 (collectively, the "Agreement") as specified below.
NOW THEREFORE, in consideration of the covenants and conditions
contained herein, the parties agree as follows:
1.0 DEFINITIONS.
"Embedded Probes" are as defined in Section 3.0 of Amendment #3.
<PAGE>
"Special Pricing" shall mean a [*] structure different from the normal [*] or
royalties per the Agreement and conveyed to Cisco in writing (letter, fax, or
email) to be in effect for specific products, specific customers, and a stated
time period.
"Stand-alone Probes" shall mean all RMON probe product models covered under the
Agreement except Embedded Probes.
2.0 PROBE [*].
Section 5.0 of Amendment #3 entitled "Probe [*]" is hereby replaced
with the following:
(a) [*]. The [*] ("[*]") for Stand-alone Probes shall be [*] off
NetScout's published U.S. List Price (U.S. List Price is defined in the Revised
Exhibit A of Amendment #2). [*] applies to all Stand-alone Probes currently
covered under the Agreement plus any new models of Stand-alone Probes
subsequently added under the Agreement.
(b) Incremental Volume [*]. Based upon the total dollar volume for all
Stand-alone Probes purchased by Cisco during Cisco's previous fiscal quarter,
but excluding any products purchased with Special Pricing, Cisco shall receive
an additional incremental [*] ("Incremental Volume [*]") in addition to the [*]
as follows:
<TABLE>
<CAPTION>
- ----------------------------------- --------------------------
Total Quarterly Stand-alone Probe Incremental Volume [*]
Purchases in Dollars in Percent for Next
Quarter
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
<S> <C>
[*]
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
- ----------------------------------- --------------------------
</TABLE>
Given the need to complete the accounting for Cisco's previous fiscal
quarter to determine the Incremental Volume [*] for the current quarter, the
Incremental Volume [*] for a given quarter shall apply for all purchase orders
placed four or more weeks after the start of said Cisco fiscal quarter and shall
continue through the first four weeks of the
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
Page 2
<PAGE>
subsequent Cisco fiscal quarter. The dollar volume shall be measured in terms of
the actual purchase prices for all purchase orders for Standalone Probes ordered
by Cisco (excluding units purchased under Special Pricing).
(c) Special Pricing. If the parties have agreed to Special Pricing for
a particular competitive situation, Cisco shall reference said Special Pricing
in its purchase orders placed with NetScout for which Special Pricing applies.
(d) Effectivity of [*] for Stand-alone Probes. The [*] per this Section
2 shall apply as of the Effective Date of this Amendment #4 and shall continue
in effect until the termination or expiration of the Agreement. Any Incremental
Volume [*] shall apply beginning with the first complete fiscal quarter after
the Effective Date of this Amendment #4.
(e) Minimum purchase requirement. Should Cisco purchases of probes fall
below [*] for [*], as calculated above, Cisco's price for the subsequent quarter
shall be as specified in the Hardware Agreement, attachment A.
3.0 RMON EMBEDDED AGENT SOFTWARE FOR IOS.
The parties hereby cancel the licensing transaction agreed to in
Section 2.2 (a) of Amendment #3 such that NetScout is not obligated to deliver
or license RMON Embedded Agent Software to Cisco for inclusion in [*] software
and Cisco is not obligated to make the [*] payment to NetScout .
4.0 PROBE SALES INCENTIVE PROGRAM.
The parties hereby establish a [*] which shall: (a) be in effect for
Cisco's [*], beginning [*] and ending on [*] (b) be in effect only for [*] where
Cisco's [*] placed with NetScout in that quarter meet or exceed [*], and (c)
provide a [*] of [*] on the first [*] of [*] product ordered in the quarter (a
maximum [*] of [*] per quarter) at Cisco's applicable [*] per Section 2 above.
The [*] shall be calculated at the end of each quarter, apply to any open [*],
and be issued by NetScout within 45 days of the close of each applicable Cisco
fiscal quarter.
5.0 TRAFFIC DIRECTOR LICENSING.
Notwithstanding anything to the contrary in the Agreement, the
licensing practice for end users of Traffic Director 5.1, and subsequent
releases, embedded within CWSI shall be as follows:
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
Page 3
<PAGE>
(a) Cisco shall apply the same end user license to Traffic Director
embedded within CWSI as Cisco requires of its end user customers for the rest of
the functionality of CWSI. If Cisco changes its licensing practice for CWSI, it
will apply the same new license practice to Traffic Director after consultation
with and approval by NetScout.
(b) Cisco shall apply the [*] in protecting Traffic Director as it does
for [*] in [*] and shall continue to meet all conditions within existing
agreements between the parties to protect NetScout's [*].
(c) In the event that Cisco becomes aware of any [*] of the [*] as
applied to TrafficDirector, Cisco shall apply commercially reasonable efforts to
assure that the [*] of [*] as applied to Traffic Director are met by [*], and
further Cisco shall [*] to NetScout any [*] even in the case in which the [*] to
Cisco.
(d) Cisco shall continue to account for its royalties due for Traffic
Director per the process currently in place between the parties.
6.0 INVENTORY CREDIT.
The parties acknowledge that Cisco [*] NetScout [*] units of [*] which were [*]
by Cisco at a [*] of [*]. NetScout agrees to immediately [*] Cisco for this [*],
in the amount of [*]. Cisco hereby [*] to NetScout [*] of said [*].
7.0 DOCUMENTATION.
For all new products, bug fixes and product updates provided to Cisco
for acceptance testing under this Agreement, NetScout shall apply reasonable
commercial efforts to provide the following documentation:
Functional specifications Design specifications (as available as a
standard NetScout documents) Test plans, test cases, and test results
for key features Test plans, test cases and test results for system
tests
[*]INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION PURSUANT TO RULE 406 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED.
Page 4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their duly authorized representatives effective as of the last date given below.
CISCO SYSTEMS, INC. NETSCOUT SYSTEMS, INC.
/S/ MARIO MAZZOLA /S/ ANIL SINGHAL
- ------------------------------- ----------------------------------
Signature Signature
MARIO MAZZOLA ANIL SINGHAL
- ------------------------------- ----------------------------------
Name Name
SVP ELOB CEO
- ------------------------------- ----------------------------------
Title Title
Page 5
<PAGE>
Exhibit 10.16
AGREEMENT RELATING TO EMPLOYMENT
Agreement dated June 1, 1994, by and between Frontier Software
Development, Inc., a Delaware corporation ("Frontier") and Anil Singhal, a
founder of Frontier ("Mr. Singhal").
INTRODUCTION AND BACKGROUND
Mr. Singhal is one of the founders of Frontier and in that capacity
over the past ten years has worked diligently, for long hours and for relatively
low pay.
As a result of Mr. Singhal's efforts, in the past year Frontier has
begun to experience growth and income as its products have started to become
sought after in the marketplace.
In recognition of Mr. Singhal's efforts and desiring to continue to
retain Mr. Singhal's services, the Board of Directors of Frontier has authorized
the granting of the benefits described in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is
acknowledged, the parties, intending to be legally bound, agree as follows:
1. TITLE AND DUTIES. Frontier hereby employs Mr. Singhal to serve Frontier
in the capacities of Chairman and Chief Executive Officer. In accordance with
such position Mr. Singhal will have appropriate responsibilities, duties and
authority for the management of Frontier, sufficient for the accomplishment of
the goals set for him by the Board of Directors to whom he shall be responsible.
Mr. Singhal shall use his best efforts in directing the business of Frontier
with the objective of providing maximum profit and return on invested capital;
establishing current and long-range objectives, plans and policies subject to
the approval of the Board, and representing Frontier with its major customers,
the financial community and the public.
The term of this Agreement will be for five (5) years
commencing on June 1, 1994 and shall be automatically renewed for additional
one-year periods thereafter unless either Frontier of Mr. Singhal gives the
other written notice of non-renewal at least twelve (12) months prior to the
expiration of the original term or any renewal term hereof.
Mr. Singhal's salary and bonuses will be determined by the
Board of Directors on an annual basis based on the condition and prospects of
Frontier and the achievements of Mr. Singhal. Mr. Singhal will be eligible for
annual merit increases in accordance with Frontier's compensation plan.
2. BONUS PLAN. Mr. Singhal will participate in Frontier's executive
incentive plan with a target level bonus of 40% and a maximum bonus of 50% of
base salary as outlined in Frontier's executive incentive plan as from time to
time in effect.
<PAGE>
3. BENEFITS. Frontier will provide Mr. Singhal with and shall pay for
$2,000,000 in life insurance. In addition Mr. Singhal will be eligible for and
receive all Frontier benefits, including but not limited to, disability
insurance at no less than 100% of salary, eight (8) weeks of paid vacation, and
Frontier's medical, dental and vision care plans providing for family coverage
as from time to time in effect.
4. DEATH OF MR. SINGHAL. If Mr. Singhal's employment terminates by reason
of death, Frontier will have no severance obligations to Mr. Singhal aside from
the foregoing Frontier provided life insurance; provided, however, if the
proceeds of such life insurance are not available to Mr. Singhal's beneficiaries
for any reason, then Frontier will pay such beneficiaries an amount which is
equivalent to Mr. Singhal's Severance Pay (as defined below) as if Mr. Singhal
were terminated without Due Cause.
5. DISABILITY. If Mr. Singhal's employment terminates because Mr. Singhal
is Disabled, then Frontier will pay Mr. Singhal an amount equal to (a) his base
salary minus (b) any payments he actually receives under the disability policy
provided for him by Frontier. This amount will be paid monthly until he is no
longer Disabled. In addition during such period Frontier will provide Mr.
Singhal with all benefits in effect prior to his termination. As used herein the
terms "Disabled" and "Disability" shall have the meanings set forth in the
disability income insurance policy provided for Mr. Singhal by Frontier.
6. TERMINATION WITHOUT DUE CAUSE. In the event that Mr. Singhal is
terminated by Frontier without Due Cause, as defined herein, Frontier's sole
liability to Mr. Singhal will be to pay the amounts set forth in this Section.
Specifically Frontier will pay Mr. Singhal Severance Pay for a period of three
(3) years as follows: (a) for the first twelve (12) month period following such
termination an amount equal to the greater of (i) $175,000 and (ii) Mr.
Singhal's base salary as of the date of termination, and (b) for each subsequent
period of twelve (12) months an amount equal to 120% of the amount of Mr.
Singhal's Severance Pay for the immediately preceding twelve (12) months.
Payments of Severance Pay will be made at such time as Frontier makes its normal
payroll payments. Notwithstanding the foregoing, Mr. Singhal's Severance Pay
will be discontinued if Mr. Singhal secures comparable alternative employment as
to position and pay. During the period in which Frontier is required to make
payments of Severance Pay to Mr. Singhal Frontier will continue to provide to
Mr. Singhal all benefits, reimbursement of expenses for his company car,
reimbursement for full out-placement assistance by a counselor of Mr. Singhal's
choice up to a maximum of $25,000 reimbursement, and reimbursement for
reasonable travel and expenses (to the extent not reimbursed by others)
connected with Mr. Singhal's efforts to seek comparable employment.
7. TERMINATION FOR DUE CAUSE. In the event that Mr. Singhal is terminated
for Due Cause he will not be entitled to any severance payment and Frontier will
have all of the rights and remedies available to it at law and in equity.
"Due Cause", as used herein, shall mean that (a) Mr. Singhal has
committed a willful, serious act, such as embezzlement, against Frontier
intending to enrich himself at the expense of Frontier or, (e) the conviction of
Mr. Singhal of a felonious crime, but not a
-2-
<PAGE>
misdemeanor, involving moral turpitude. For purposes of this paragraph, no act,
or failure to act, on Mr. Singhal's part shall be considered "willful" unless
done, or omitted to be done, by Mr. Singhal, not in good faith and without
reasonable belief that Mr. Singhal's action or omission was in the best interest
of Frontier.
Notwithstanding the foregoing, Mr. Singhal shall not be deemed to
have been terminated for Due Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the unanimous
affirmative vote of all of the members of the Board of Directors (exclusive of
Mr. Singhal) at a meeting of the Board called and held for the purpose (after
reasonable notice to Mr. Singhal and an opportunity for Mr. Singhal, together
with his counsel, to be heard before the Board) finding that in the good faith
opinion of the Board Mr. Singhal was guilty of conduct set forth above and
specifying the particulars thereof in detail.
8. TERMINATION BY MR. SINGHAL FOR GOOD REASON. If in anticipation of or
following a Change in Control of Frontier, or following an investment of at
least $1,000,000 by investors in Frontier or following an initial public
offering of Frontier's stock, Mr. Singhal terminates his employment for Good
Reason he shall be paid the Severance Pay described above. As used herein the
term "Change in Control" shall mean any event as a result of which the
stockholders of Frontier immediately prior to such Change in Control would not
immediately after such Change in Control beneficially own voting securities
representing in the aggregate more than 50% of the combined voting power of the
voting securities of the surviving entity, by the members of the Board of
Directors of Frontier immediately prior to the Change in Control would not
immediately after the Change in Control constitute a majority of the Board of
Directors of the subsequent corporation or entity. As used herein the term "Good
Reason" shall mean:
(a) Without Mr. Singhal's express written consent, the
assignment to Singhal of any duties inconsistent with his positions,
duties, responsibilities and status with Frontier immediately prior to
a Change in Control, as defined above, or a change in his reporting
responsibilities, title or offices as in effect immediately prior to a
Change in Control, or a reduction in job responsibilities or authority
to a position subordinate to that provided for in this Agreement or any
removal of Mr. Singhal from or any failure to re-elect him to any of
such positions, except in connection with the termination of his
employment for Due Cause, disability or retirement or as a result of
his death or by Mr. Singhal other than for Good Reason;
(b) A reduction in Mr. Singhal's base salary or benefits or a
breach of Frontier's obligations undertaken in this Agreement.
9. COMPANY CAR. Frontier will provide Mr. Singhal with or will reimburse
Mr. Singhal for the cost of leasing a company car of make and model comparable
to that provided to senior executives of companies in the computer hardware or
software industries. Frontier will reimburse Mr. Singhal for all operating
expenses, maintenance and fees, including automobile insurance. In the event Mr.
Singhal's employment is terminated Frontier will at its expense purchase and
transfer to Mr. Singhal title to such company car.
-3-
<PAGE>
10. Frontier shall require any successor to all or substantially all of the
business or assets of Frontier to assume and agree to perform this agreement in
the same manner and to the same extent that Frontier would be required to
perform it if no such succession had taken place.
11. The laws of the Commonwealth of Massachusetts shall apply to the
construction, interpretation and enforcement of this Agreement.
FRONTIER SOFTWARE
DEVELOPMENT, INC. MR. SINGHAL:
By: /s/ NARENDRA POPAT /s/ ANIL SINGHAL
------------------------------ ------------------------------
Anil Singhal
Title: PRESIDENT
-------------------------
-4-
<PAGE>
Exhibit 10.17
AMENDMENT NO. 1 TO AGREEMENT RELATING TO EMPLOYMENT
AMENDMENT, dated January 14, 1999, by and between NetScout Systems,
Inc., a Delaware corporation ("NetScout"), and Anil Singhal, a founder of
NetScout ("Mr. Singhal").
WHEREAS, the Company and Mr. Singhal entered into an Agreement Relating
to Employment dated as of June 1, 1994 (the "Employment Agreement");
WHEREAS, the parties desire to amend the Employment Agreement to add
provisions with respect to Mr. Singhal's compensation;
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the parties hereto agree to amend the Employment
Agreement as follows:
1. That Section 2 be amended by deleting it in its entirety and
replacing it with the following:
"BASE SALARY AND BONUS. During the term of this Agreement, the
Company shall pay Mr. Singhal a base salary at an annual rate of at least
$250,000 and a year-end, non-discretionary bonus of at least $250,000. The base
salary shall be payable in installments in accordance with the Company's regular
practices, as such practices may be modified from time to time.
2. This Amendment shall be governed by the laws of the Commonwealth of
Massachusetts and shall be binding upon the heirs, personal representatives,
executors, administrators, successors and assigns of the parties.
3. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed as of the date and
year first above written.
NETSCOUT SYSTEMS, INC.
By: /s/ NARENDRA POPAT
-------------------------------------
Narendra Popat
President
/s/ ANIL SINGHAL
-------------------------------------
Anil Singhal
-2-
<PAGE>
EXHIBIT 10.18
AGREEMENT RELATING TO EMPLOYMENT
Agreement dated June 1, 1994, by and between Frontier Software
Development, Inc., a Delaware corporation ("Frontier") and Narendra Popat, a
founder of Frontier ("Mr. Popat").
INTRODUCTION AND BACKGROUND
Mr. Popat is one of the founders of Frontier and in that capacity over the past
ten years has worked diligently, for long hours and for relatively low pay.
As a result of Mr. Popat's efforts, in the past year Frontier has
begun to experience growth and income as its products have started to become
sought after in the marketplace.
In recognition of Mr. Popat's efforts and desiring to continue to
retain Mr. Popat's services, the Board of Directors of Frontier has authorized
the granting of the benefits described in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is
acknowledged, the parties, intending to be legally bound, agree as follows:
1. TITLE AND DUTIES. Frontier hereby employs Mr. Popat to serve
Frontier in the capacities of President and Chief Operating
Officer. In accordance with such position Mr. Popat will have
appropriate responsibilities, duties and authority for the
management of Frontier, sufficient for the accomplishment of the
goals set for him by the Board of Directors to whom he shall be
responsible. Mr. Popat shall use his best efforts in directing
the business of Frontier with the objective of providing maximum
profit and return on invested capital; establishing current and
long-range objectives, plans and policies subject to the approval
of the Board, and representing Frontier with its major customers,
the financial community and the public.
The term of this Agreement will be for five (5) years commencing
on June 1, 1994 and shall be automatically renewed for additional
one-year periods thereafter unless either Frontier or Mr. Popat
gives the other written notice of non-renewal at least twelve
(12) months prior to the expiration of the original term or any
renewal term hereof.
Mr. Popat's salary and bonuses will be determined by the Board of
Directors on an annual basis based on the condition and prospects
of Frontier and the achievements of Mr. Popat. Mr. Popat will be
eligible for annual merit increases in accordance with Frontier's
compensation plan.
<PAGE>
2. BONUS PLAN. Mr. Popat will participate in Frontier's executive
incentive plan with a target level bonus of 40% and a maximum
bonus of 50% of base salary as outline in Frontier's executive
incentive plan as from time to time in effect.
3. BENEFITS. Frontier will provide Mr. Popat with and shall pay for
$2,000,000 in life insurance. In addition Mr. Popat will be
eligible for and receive all Frontier benefits, including but not
limited to, disability insurance at no less than 100% of salary,
eight (8) weeks of paid vacation, and Frontier's medical, dental
and vision care plans providing for family coverage as from time
to time in effect.
4. DEATH OF MR. POPAT. If Mr. Popat's employment terminates by
reason of death, Frontier will have no severance obligations to
Mr. Popat aside from the foregoing Frontier provided life
insurance; provided, however, if the proceeds of such life
insurance are not available to Mr. Popat's beneficiaries for any
reason, then Frontier will pay such beneficiaries an amount which
is equivalent to Mr. Popat's Severance Pay (as defined below) as
if Mr. Popat were terminated without Due Cause.
5. DISABILITY. If Mr. Popat's employment terminates because Mr.
Popat is Disabled, then Frontier will pay Mr. Popat an amount
equal to (a) his base salary minus (b) any payments he actually
receives under the disability policy provided for him by
Frontier. This amount will be paid monthly until he is no longer
Disabled. In addition during such period Frontier will provide
Mr. Popat with all benefits in effect prior to his termination.
As used herein the terms "Disabled" and "Disability" shall have
the meanings set forth in the disability income insurance policy
provided for Mr. Popat by Frontier.
6. TERMINATION WITHOUT DUE CAUSE. In the event that Mr. Popat is
terminated by Frontier without Due Cause, as defined herein,
Frontier's sole liability to Mr. Popat will be to pay the amounts
set forth in this Section. Specifically Frontier will pay Mr.
Popat Severance Pay for a period of three (3) years as follows:
(a) for the first twelve (12) month period following such
termination an amount equal to the greater of (i) $175,000 and
(ii) Mr. Popat's base salary as of the date of termination, and
(b) for each subsequent period of twelve (12) months an amount
equal to 120% of the amount of Mr. Popat's Severance Pay for the
immediately preceding twelve (12) months. Payments of Severance
Pay will be made at such time as Frontier makes its normal
payroll payments. Notwithstanding the foregoing, Mr. Popat's
Severance Pay will be discontinued if Mr. Popat secures
comparable alternative employment as to position and pay. During
the period in which Frontier is required to make payments of
Severance Pay to Mr. Popat Frontier will continue to provide to
Mr. Popat all benefits, reimbursement of expenses for his company
car, reimbursement for full out-placement assistance by a
counselor of Mr. Popat's choice up to a maximum of $25,000
reimbursement, and reimbursement for
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<PAGE>
reasonable travel and expenses (to the extent not reimbursed by
others) connected with Mr. Popat's efforts to seek comparable
employment.
7. TERMINATION FOR DUE CAUSE. In the event that Mr. Popat is
terminated for Due Cause he will not be entitled to any severance
payment and Frontier will have all of the rights and remedies
available to it at law and in equity.
"Due Cause", as used herein, shall mean that (a) Mr. Popat has
committed a willful, serious act, such as embezzlement, against
Frontier intending to enrich himself at the expense of Frontier
or, (e) the conviction of Mr. Popat of a felonious crime, but not
a misdemeanor, involving moral turpitude. For purposes of this
paragraph, no act, or failure to act, on Mr. Popat's part shall
be considered "willful" unless done, or omitted to be done, by
Mr. Popat, not in good faith and without reasonable belief that
Mr. Popat's action or omission was in the best interest of
Frontier.
Notwithstanding the foregoing, Mr. Popat shall not be deemed to
have been terminated for Due Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted by
the unanimous affirmative vote of all of the members of the Board
of Directors (exclusive of Mr. Popat) at a meeting of the Board
called and held for the purpose (after reasonable notice to Mr.
Popat and an opportunity for Mr. Popat, together with his
counsel, to be heard before the Board) finding that in the good
faith opinion of the Board Mr. Popat was guilty of conduct set
forth above and specifying the particulars thereof in detail.
8. TERMINATION BY MR. POPAT FOR GOOD REASON. If in anticipation of
or following a Change in Control of Frontier, or following an
investment of at least $1,000,000 by investors in Frontier or
following an initial public offering of Frontier's stock, Mr.
Popat terminates his employment for Good Reason he shall be paid
the Severance Pay described above. As used herein the term
"Change in Control" shall mean any event as a result of which the
stockholders of Frontier immediately prior to such Change in
Control would not immediately after such Change in Control
beneficially own voting securities representing in the aggregate
more than 50% of the combined voting power of the voting
securities of the surviving entity, or the members of the Board
of Directors of Frontier immediately prior to the Change in
Control would not immediately after the change in Control
constitute a majority of the Board of Directors of the subsequent
corporation or entity. As used herein the term "Good Reason"
shall mean:
(a) Without Mr. Popat's express written consent, the assignment
to Mr. Popat of any duties inconsistent with his positions,
duties, responsibilities and status with frontier
immediately prior to a Change in Control, as defined above,
or a change in his reporting responsibilities, title or
offices as in effect
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<PAGE>
immediately prior to a Change in Control, or a reduction in
job responsibilities or authority to a position subordinate
to that provided for in this Agreement or any removal of Mr.
Popat from or any failure to re-elect him to any of such
positions, except in connection with the termination of his
employment for Due Cause, disability or retirement or as a
result of his death or by Mr. Popat other than for Good
Reason;
(b) A reduction in Mr. Popat's base salary or benefits or a
breach of Frontier's obligations undertaken in this
Agreement
9. COMPANY CAR. Frontier will provide Mr. Popat with or will
reimburse Mr. Popat for the cost of leasing a company car or make
and model comparable to that provided to senior executives of
companies in the computer hardware or software industries.
Frontier will reimburse Mr. Popat for all operating expenses,
maintenance and fees, including automobile insurance. In the
event Mr. Popat's employment is terminated Frontier will at its
expense purchase and transfer to Mr. Popat title to such company
car.
10. Frontier shall require any successor to all or substantially all
of the business or assets of Frontier to assume and agree to
perform this agreement in the same manner and to the same extent
that Frontier would be required to perform it if no such
succession had taken place.
11. The laws of the Commonwealth of Massachusetts shall apply to the
construction, interpretation and enforcement of this Agreement.
FRONTIER SOFTWARE DEVELOPMENT, INC. MR. POPAT
By: /s/ Anil Singhal /s/ Narendra Popat
------------------------------- -------------------------------
Title: Chairman Narendra Popat
-----------------------
4
<PAGE>
EXHIBIT 10.19
AMENDMENT NO. 1 TO AGREEMENT RELATING TO EMPLOYMENT
AMENDMENT, dated January 14, 1999 by and between NetScout Systems,
Inc., a Delaware corporation ("NetScout"), and Narendra Popat, a founder of
NetScout ("Mr. Popat").
WHEREAS, the Company and Mr. Popat entered into an Agreement Relating
to Employment dated as of June 1, 1994 (the "Employment Agreement");
WHEREAS, the parties desire to amend the Employment Agreement to add
provisions with respect to Mr. Popat's compensation;
NOW, THEREFORE, for good and valuable consideration, the sufficiency
of which is hereby acknowledged, the parties hereto agree to amend the
Employment Agreement as follows:
1. That Section 2 be amended by deleting it in its entirety and
replacing it with the following:
"BASE SALARY AND BONUS. During the term of this Agreement, the
Company shall pay Mr. Popat a base salary at an annual rate of at least $250,000
and a year-end, non-discretionary bonus of at least $250,000. The base salary
shall be payable in installments in accordance with the Company's regular
practices, as such practices may be modified from time to time.
2. This Amendment shall be governed by the laws of the
Commonwealth of Massachusetts and shall be binding upon the heirs, personal
representatives, executors, administrators, successors and assigns of the
parties.
3. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed as of the date
and year first above written.
NETSCOUT SYSTEMS, INC.
By: /s/ Anil Singhal
-------------------------------
Anil Singhal
Chief Executive Officer
/s/ Narendra Popat
-------------------------------
Narendra Popat
2
<PAGE>
EXHIBIT 10.20
SECURED TERM NOTE
PARTIALLY NON-RECOURSE
(Anil Singhal)
US$1,100,000.00 Date: June 28, 1996
FOR VALUE RECEIVED, the undersigned (the "MAKER") hereby promises to
pay to Frontier Software Development, Inc., a Delaware corporation, ("FRONTIER")
at Frontier's principal office in Massachusetts on or before May 31, 2001 the
sum of ONE MILLION ONE HUNDRED THOUSAND DOLLARS AND NO CENTS (US$1,100,000.00)
with interest from the date hereof on the principal amount hereof from time to
time unpaid at the rate of six and forty eight one hundredths percent (6.48%)
per annum compounded semi-annually. Accrued interest hereon shall be payable
annually on the anniversary date of this Note.
The principal amount of this Note may be prepaid in whole or from time
to time in part without premium or penalty of any type whatsoever.
The obligations represented by this Note are secured by shares of
Voting Common Stock of Frontier pledged to Frontier pursuant to a Stock Pledge
Agreement dated as of June 28, 1996 (the "STOCK PLEDGE AGREEMENT"). With respect
to amounts other than interest, the holder of this Note shall have no recourse
to any of the assets of the Maker other than the shares of stock pledged
pursuant to the Stock Pledge Agreement and each holder of this Note shall look
solely to such shares for payment of such amounts. This Note shall be a full
recourse note with respect to interest accrued and owing hereunder.
The undersigned hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note and assents to extensions of the time
of payment, or forbearance or other indulgence without notice.
This Note shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
WITNESS MAKER:
/s/ Charles Tillett /s/ Anil Singhal
- ---------------------------- ----------------------
Print Name: Charles Tillett Anil Singhal
<PAGE>
EXHIBIT 10.21
STOCK PLEDGE AGREEMENT
AGREEMENT, made as of June 28, 1996, between Anil Singhal, an
individual residing at the address set forth at the foot of this Agreement, (the
"PLEDGOR"), and Frontier Software Development, Inc., a Delaware corporation (the
"PLEDGEE").
1. CERTAIN DEFINITIONS.
a. The term "PLEDGED SHARES" as used herein means the number of shares
(as determined from time to time as provided herein) of Voting Common
Stock, par value $0.001 per share, of Frontier Software Development,
Inc. (the "COMPANY"). The Pledged Shares shall initially be those
shares represented by the following stock certificate of the Company:
Certificate No. VC-13 for 141,936 shares.
b. The term "OBLIGATIONS" as used herein means all indebtedness,
obligations and liabilities of the Pledgor to the Pledgee, now
existing or hereafter arising, direct or indirect, absolute or
contingent, due or to become due, matured or unmatured, liquidated or
unliquidated, arising under Pledgor's Secured Term Note (Partially
Nonrecourse) dated the date hereof in the principal amount of
US$1,100,000.00 payable to the order of Pledgee (the "NOTE"), as from
time to time amended, revised or assigned.
c. The term "COLLATERAL" as used herein means the Pledged Shares and any
other property at any time, whether now or hereafter, pledged with and
from time to time held by the Pledgee hereunder (whether described
herein or not) and all income therefrom, increases therein and
proceeds thereof.
d. The term "EVENT OF DEFAULT" shall mean Pledgor's failure to pay any
and all amounts due under the Note, an event of default pursuant to
the terms of any of the documents or instruments evidencing any of the
Obligations or the breach of a covenant or agreement herein contained.
2. SECURITY FOR OBLIGATIONS. This Agreement and the pledge of the Collateral
hereunder is made with the Pledgee as security for the Obligations.
3. PLEDGE OF STOCK. For valuable consideration, receipt of which is hereby
acknowledged by the Pledgor, the Pledgor hereby grants a security interest
in and pledges, assigns and delivers the Pledged Shares to the Pledgee, to
be held by the Pledgee subject to the terms and conditions hereinafter set
forth. All of the Pledged Shares, accompanied by a stock power and
assignment duly executed in blank by the Pledgor, have been delivered to
the Pledgee by the Pledgor.
<PAGE>
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR.
a. CAPITALIZATION, ETC., OF THE COMPANY. The Pledgor represents and
warrants that the Pledged Shares are fully paid and non-assessable.
b. WARRANTY OF TITLE, ETC. The Pledgor warrants that:
(i) he has good and marketable title to the Pledged Shares, subject
to no pledges, liens, charges, options, restrictions or other
encumbrances except the lien of this Agreement, applicable
securities laws restrictions and restrictions arising under or
described in the investment documentation relating to the
issuance of the Company's Series A Preferred Stock;
(ii) he has the full right and power to enter into this Agreement, to
execute in blank stock powers and assignments covering the
Pledged Shares, and to deliver the Pledged Shares in pledge
hereunder and the accompanying stock powers and assignments duly
executed in blank by the Pledgor, and to take any actions
contemplated or permitted by this Agreement to be taken by him,
and pursuant to this Agreement the Pledgee has a valid,
perfected, first priority security interest in the Collateral in
accordance with the terms hereof;
(iii) neither this Agreement, nor the pledge of the Pledged Shares
hereunder, will violate any agreement or commitment to which the
Pledgor is a party or by which Pledgor or any of Pledgor's
property is bound or affected; and
(iv) this Agreement is binding upon the Pledgor, his successors and
assigns.
c. GENERAL COVENANTS. The Pledgor covenants that he will defend the
Pledgee's rights and security interest hereunder in the Pledged Shares
and against the claims and demands of all persons whomsoever, and that
the Pledgor will have the like title to and right to pledge the
Collateral and will likewise defend the Pledgee's rights and security
interests therein.
5. DIVIDENDS, LIQUIDATION, RECAPITALIZATION, ETC. In case any distribution of
capital or stock dividend shall be made on or in respect of any of the
Pledged Shares or payment of any dividend in cash or other property shall
be made in respect of the Pledged Shares, or any money or property shall
otherwise be distributed upon or with respect to any of the Pledged Shares,
including pursuant to a recapitalization or reclassification of the capital
stock of the Company or pursuant to a reorganization or liquidation or
dissolution of the Company, then the capital stock, dividend, principal,
interest or other money or property so distributed with respect to the
Pledged Shares shall be delivered to the Pledgee to be held by it as part
of the Collateral and as security for the Obligations. All capital stock,
dividends, principal, interest and other sums of money and property, if
any, paid or distributed in respect of the Pledged Shares, which are
received by the Pledgor shall, until
2
<PAGE>
paid or delivered to the Pledgee, be held in trust for the Pledgee as part
of the Collateral and as security for the Obligations.
6. VOTING, ETC., PRIOR TO MATURITY. Unless and until an Event of Default shall
have occurred and be continuing, and until notice of such Event of Default
has been given by the Pledgee, the Pledgor shall be entitled to vote the
Pledged Shares and to give consents, waivers and ratifications in respect
of the Pledged Shares; PROVIDED, HOWEVER, that no vote shall be cast, or
consent, waiver or ratification given or action taken
which would be inconsistent with or violate any provisions of any of the
documents or instruments evidencing any of the Obligations or of this
Agreement. Until the occurrence of an Event of Default, the Pledgee shall
execute and deliver to the Pledgor such proxies or other documents in
writing as may be necessary to enable the Pledgor to exercise the foregoing
rights. All such rights of the Pledgor to vote and give consents, waivers
and ratifications shall cease forthwith in case an Event of Default shall
have occurred and be continuing, without any notice (except as provided in
this Section 6) or demand by the Pledgee to the Pledgor.
7. REMEDIES. If an Event of Default shall have occurred and be continuing, the
Pledgee shall thereafter have the following rights and remedies (to the
extent permitted by applicable law) in addition to the rights and remedies
of a secured party under the Uniform Commercial Code of The Commonwealth of
Massachusetts, all such rights and remedies being cumulative, not
exclusive, and enforceable alternatively, successively or concurrently, at
such time or times as the Pledgee deems expedient:
a. The Pledgee may vote any or all of the Pledged Shares (whether or not
the same shall have been transferred into its name or the name of its
nominee or nominees) and give all consents, waivers and ratifications
in respect of the Pledged Shares and otherwise act with respect
thereto as though it were the outright owner thereof (the Pledgor
hereby irrevocably constituting and appointing the Pledgee the proxy
and attorney in-fact of the Pledgor, with full power of substitution,
to do so);
b. The Pledgee may demand, sue for, collect or make any compromise or
settlement the Pledgee deems suitable in respect of any Collateral
held by it hereunder;
c. The Pledgee may sell, resell, assign and deliver, or otherwise dispose
of any or all of the-Collateral, for cash and/or credit and upon such
terms, at such place or places and at such time or times and to such
persons, firms, companies or corporations as the Pledgee deems
expedient, all following demand for performance by and upon notice to
the Pledgor; and
d. The Pledgee may cause all or any part of the Pledged Shares held by it
to be transferred into its name or the name of its nominee or
nominees.
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<PAGE>
If any of the Collateral is sold by the Pledgee upon credit or for
future delivery, the Pledgee shall not be liable for the failure of
the purchaser to pay for the same and in such event the Pledgee may
resell such Collateral.
The Pledgee may buy any part or all of the Collateral at any public
sale and if any part or all of the Collateral is of a type customarily
sold in a recognized market or is of the type which is the subject of
widely-distributed standard price quotations, the Pledgee may, in its
sole discretion, buy at private sale and may make payments therefor by
any means including, without limitation, cancellation of indebtedness
secured thereby.
The Pledgee may, in its sole discretion, apply the cash proceeds
actually received from any sale or other disposition to the reasonable
expenses of retaking, holding, preparing for sale, selling and the
like, to reasonable attorneys' fees, and all legal expenses, travel
and other expenses which may be incurred by the Pledgee in attempting
to collect the Obligations or to enforce this Agreement or any
instrument evidencing the Obligations or in the prosecution or defense
of any action or proceeding related to the subject matter of this
Agreement or any instrument evidencing the Obligations, and then to
the Obligations with respect to principal or interest, or both, or
other fees and expenses, in such proportions as the Pledgee, in its
sole discretion, shall determine, and any surplus shall be paid to the
Pledgor.
The Pledgor recognizes that the Pledgee may be unable to effect a
public sale of the Pledged Shares by reason of certain prohibitions
contained in the United States Securities Act of 1933, as amended, or
in other applicable laws, regulations or agreements to which such
Pledged Shares may be subject but may be compelled to resort to one or
more private sales thereof to a restricted group of purchasers. The
Pledgor agrees that any such private sales may be at prices and other
terms less favorable to the seller than if sold at public sales and
that such private sales shall be deemed to have been made in a
commercially reasonable manner. The Pledgee shall be under no
obligation to delay a sale of any of the Pledged Shares for the period
of time necessary to permit the issuer of such securities to register
such securities for public sale under the said Securities Act or other
applicable law, even if the issuer would agree to do so.
8. MARSHALING. The Pledgee shall not be required to marshal any present or
future security for (including but not limited to this Agreement and the
Collateral pledged hereunder), or guaranties of, the Obligations or any of
them, or to resort to such security or guaranties in any particular order;
and all of the rights hereunder and in respect of such securities and
guaranties shall be cumulative and in addition to all other rights, however
existing or arising to the extent that it lawfully may, the Pledgor hereby
agrees that it will not invoke any law relating to the marshaling of
collateral which might cause delay in or impede the enforcement of the
Pledgee's rights under this Agreement or under any other instrument
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or guaranteed,
and to the extent that it lawfully may the Pledgor hereby irrevocably
waives the benefits of all such laws.
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<PAGE>
9. PLEDGOR'S OBLIGATIONS NOT AFFECTED. The obligations of the Pledgor
hereunder shall remain in full force and effect without regard to, and
shall not be impaired by (a) any bankruptcy, insolvency, arrangement,
readjustment, composition or the like of the Pledgor; (b) any exercise or
non-exercise, or any waiver, by the Pledgee of any right, remedy, power or
privilege under or in respect of any of the Obligations or any security
therefor (including this Agreement); (c) any amendment to or modification
of any of the Obligations; (d) any amendment to or modification of any
instrument (other than this Agreement) evidencing or securing or
guaranteeing any of the Obligations; or (e) the taking of additional
security for, or any guaranty of, any of the Obligations or the release or
discharge or termination of any security or guaranty for any of the
Obligations; whether or not the Pledgor shall have notice or knowledge of
any of the foregoing.
10. FURTHER ASSURANCES. The Pledgor will do all such acts, and will furnish to
the Pledgee all such financing statements, certificates, legal opinions and
other documents and will obtain such governmental consents and approvals
and will do or cause to be done all such other things, including without
limitation the execution and delivery of further agreements and
instruments, as the Pledgee may reasonably request from time to time in
order to give full effect to this Agreement and to secure the rights of the
Pledgee hereunder.
11. PLEDGEE'S EXONERATION. Under no circumstances shall the Pledgee be deemed
to assume any responsibility for or obligation or duty with respect to any
part or all of the Collateral of any nature or kind, or any matter or
proceedings arising out of or relating thereto, but the same shall be at
the Pledgor's sole risk at all times. The Pledgee shall not be required to
take any action of any kind to collect, preserve or protect its or the
Pledgor's rights in the Collateral or against other parties thereto. The
Pledgee's prior recourse to any part or all of the Collateral shall not
constitute a condition of any demand, suit or proceeding for payment or
collection of the Obligations.
12. NO WAIVER, ETC. No act, failure or delay by the Pledgee shall constitute a
waiver of its rights and remedies hereunder or otherwise. No single or
partial waiver by the Pledgee of any default or right or remedy which it
may have shall operate a waiver of any other default, right or remedy or of
the same default, night or remedy on a future occasion. The Pledgor hereby
waives presentment, notice of dishonor and protest of all instruments,
included in or evidencing any of the Obligations or the Collateral, and any
and all other notices and demands whatsoever (except as expressly provided
herein).
13. NOTICES, ETC. All notices, requests and other communications hereunder
shall be in writing and shall be delivered in hand or by telex or telecopy
or where telex or telecopy communication is not possible, by mail, return
receipt requested, or by a nationally known overnight courier service
addressed as follows:
a. If to the Pledgor:
To the address set forth at the foot of this agreement
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<PAGE>
with a copy to such person or persons as Pledgor may designate
from time to time
b. If to the Pledgee:
Frontier Software Development, Inc.
321 Billerica Road
Chelmsford, Massachusetts 01824
with a copy to such person or persons as Pledgee may designate
from time to time
or to such other address as the party to receive any such communication or
notice may have designated by written notice to the other party from time
to time.
14. TERMINATION. Upon payment and performance in full of the Obligations in
accordance with their terms and the performance by the Pledgor of all of
his covenants and agreements hereunder, this Agreement shall terminate and
the Pledgor shall be entitled to the return, at the Pledgor's expense, of
such of the Collateral in the possession or control of the Pledgee as has
not theretofore been disposed of pursuant to the provisions hereof,
together with any moneys and other property at the time held by the Pledgee
hereunder.
15. MISCELLANEOUS PROVISIONS. Neither this Agreement nor any term hereof may be
changed, waived, discharged or terminated except
by a written instrument expressly referring to this Agreement and to the
provisions so modified or limited, and executed by the party to be charged
therewith. This Agreement and all obligations of the Pledgor hereunder
shall be binding upon the successors and assigns of the Pledgor, and shall,
together with the rights and remedies of the Pledgee hereunder, inure to
the benefit of the Pledgee and the Pledgee's successors and assigns. This
Agreement and the obligations of the Pledgor hereunder shall be governed by
and construed in accordance with the laws of The Commonwealth of
Massachusetts. The descriptive section headings herein have been inserted
for convenience of reference only and do not define or limit the provisions
hereof. If any terms of this Agreement shall be held to be invalid, illegal
or unenforceable, the validity of all other terms hereof shall be in no way
affected thereby, and this Agreement shall be construed and be enforceable
as if such invalid, illegal or unenforceable term had not been included
herein. The Pledgor acknowledges receipt of a copy of this Agreement. Terms
used herein without definition which are defined in the Uniform Commercial
Code of The Commonwealth of Massachusetts have such defined meanings
herein, unless the context otherwise indicate or requires.
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this
Agreement to be duly executed, as an instrument under seal, as of the date first
above written.
6
<PAGE>
PLEDGOR:
/s/ Anil Singhal
----------------------------------
Anil Singhal
Address: 61 CHIVAS CIRCLE
-------------------------
Tewksbury, MA 01876
-------------------------
PLEDGEE:
FRONTIER SOFTWARE DEVELOPMENT, INC.
By: /s/ Charles W. Tillett
-------------------------------
Title: VP Finance
----------------------------
7
<PAGE>
Exhibit 10.22
SECURED TERM NOTE
PARTIALLY NON-RECOURSE
(Narendra Popat)
US$900,000.00 Date: June 28, 1996
FOR VALUE RECEIVED, the undersigned (the "MAKER") hereby promises to pay to
Frontier Software Development, Inc., a Delaware corporation, ("FRONTIER") at
Frontier's principal office in Massachusetts on or before May 31, 2001 the sum
of NINE HUNDRED THOUSAND DOLLARS AND NO CENTS (US$900,000.00) with interest from
the date hereof on the principal amount hereof from time to time unpaid at the
rate of six and forty eight one hundredths percent (6.48%) per annum compounded
semi-annually. Accrued interest hereon shall be payable annually on the
anniversary date of this Note.
The principal amount of this Note may be prepaid in whole or from time to
time in part without premium or penalty of any type whatsoever.
The obligations represented by this Note are secured by shares of Voting
Common Stock of Frontier pledged to Frontier pursuant to a Stock Pledge
Agreement dated as of June 28, 1996 (the "STOCK PLEDGE AGREEMENT"). With respect
to amounts other than interest, the holder of this Note shall have no recourse
to any of the assets of the Maker other than the shares of stock pledged
pursuant to the Stock Pledge Agreement and each holder of this Note shall look
solely to such shares for payment of such amounts. This Note shall be a full
recourse note with respect to interest accrued and owing hereunder.
The undersigned hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note and assents to extensions of the time
of payment, or forbearance or other indulgence without notice.
This Note shall be governed by and construed in accordance with the laws of
The Commonwealth of Massachusetts.
WITNESS MAKER:
/s/ Charles Tillett /s/ Narendra Popat
- ------------------------------------ ----------------------------------
Print Name: Charles Tillett Narendra Popat
<PAGE>
EXHIBIT 10.23
STOCK PLEDGE AGREEMENT
AGREEMENT, made as of June 28, 1996, between Narendra Popat, an
individual residing at the address set forth at the foot of this Agreement, (the
"PLEDGOR"), and Frontier Software Development, Inc., a Delaware corporation (the
"Pledgee").
1. CERTAIN DEFINITIONS.
a. The term "PLEDGED SHARES" as used herein means the number of
shares (as determined from time to time as provided herein)
of Voting Common Stock, par value $0.001 per share, of
Frontier Software Development, Inc. (the "COMPANY"). The
Pledged Shares shall initially be those shares represented
by the following stock certificate of the Company:
Certificate No. VC-11 for 116,130 shares.
b. The term "OBLIGATIONS" as used herein means all
indebtedness, obligations and liabilities of the Pledgor to
the Pledgee, now existing or hereafter arising, direct or
indirect, absolute or contingent, due or to become due,
matured or unmatured, liquidated or unliquidated, arising
under Pledgor's Secured Term Note (Partially Nonrecourse)
dated the date hereof in the principal amount of
US$900,000.00 payable to the order of Pledgee (the "NOTE"),
as from time to time amended, revised or assigned.
c. The term "COLLATERAL" as used herein means the Pledged
Shares and any other property at any time, whether now or
hereafter, pledged with and from time to time held by the
Pledgee hereunder (whether described herein or not) and all
income therefrom, increases therein and proceeds thereof.
d. The term "EVENT OF DEFAULT" shall mean Pledgor's failure to
pay any and all amounts due under the Note, an event of
default pursuant to the terms of any of the documents or
instruments evidencing any of the Obligations or the breach
of a covenant or agreement herein contained.
2. SECURITY FOR OBLIGATIONS. This Agreement and the pledge of the
Collateral hereunder is made with the Pledgee as security for the
Obligations.
3. PLEDGE OF STOCK. For valuable consideration, receipt of which is
hereby acknowledged by the Pledgor, the Pledgor hereby grants a
security interest in and pledges, assigns and delivers the
Pledged Shares to the Pledgee, to be held by the Pledgee subject
to the terms and conditions hereinafter set forth. All of the
Pledged Shares, accompanied by a stock power and assignment duly
executed in blank by the Pledgor, have been delivered to the
Pledgee by the Pledgor.
<PAGE>
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR.
a. CAPITALIZATION, ETC., OF THE COMPANY. The Pledgor represents
and warrants that the Pledged Shares are fully paid and
non-assessable.
b. WARRANTY OF TITLE, ETC. The Pledgor warrants that:
(i) he has good and marketable title to the Pledged Shares,
subject to no pledges, liens, charges, options,
restrictions or other encumbrances except the lien of
this Agreement, applicable securities laws restrictions
and restrictions arising under or described in the
investment documentation relating to the issuance of
the Company's Series A Preferred Stock;
(ii) he has the full right and power to enter into this
Agreement, to execute in blank stock powers and
assignments covering the Pledged Shares, and to deliver
the Pledged Shares in pledge hereunder and the
accompanying stock powers and assignments duly executed
in blank by the Pledgor, and to take any actions
contemplated or permitted by this Agreement to be taken
by him, and pursuant to this Agreement the Pledgee has
a valid, perfected, first priority security interest in
the Collateral in accordance with the terms hereof;
(iii) neither this Agreement, nor the pledge of the Pledged
Shares hereunder, will violate any agreement or
commitment to which the Pledgor is a party or by which
Pledgor or any of Pledgor's property is bound or
affected; and
(iv) this Agreement is binding upon the Pledgor, his
successors and assigns.
c. GENERAL COVENANTS. The Pledgor covenants that he will defend
the Pledgee's rights and security interest hereunder in the
Pledged Shares and against the claims and demands of all
persons whomsoever, and that the Pledgor will have the like
title to and right to pledge the Collateral and will
likewise defend the Pledgee's rights and security interests
therein.
5. DIVIDENDS, LIQUIDATION, RECAPITALIZATION, ETC. In case any distribution of
capital or stock dividend shall be made on or in respect of any of the
Pledged Shares or payment of any dividend in cash or other property shall
be made in respect of the Pledged Shares, or any money or property shall
otherwise be distributed upon or with respect to any of the Pledged Shares,
including pursuant to a recapitalization or reclassification of the capital
stock of the Company or pursuant to a reorganization or liquidation or
dissolution of the Company, then the capital stock, dividend, principal,
interest or other money or property so distributed with respect to the
Pledged Shares shall be delivered to the Pledgee to be held by it as part
of the Collateral and as security for the Obligations. All capital stock,
dividends, principal, interest and other sums of money and property, if
any, paid or distributed in respect of the Pledged Shares, which are
received by the Pledgor shall, until
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<PAGE>
paid or delivered to the Pledgee, be held in trust for the Pledgee as part
of the Collateral and as security for the Obligations.
6. VOTING, ETC., PRIOR TO MATURITY. Unless and until an Event of Default
shall have occurred and be continuing, and until notice of such Event of
Default has been given by the Pledgee, the Pledgor shall be entitled to
vote the Pledged Shares and to give consents, waivers and ratifications,
in respect of the Pledged Shares; PROVIDED, HOWEVER, that no vote shall
be cast, or consent, waiver or ratification given or action taken which
would be inconsistent with or violate any provisions of any of the
documents or instruments evidencing any of the Obligations or of this
Agreement. Until the occurrence of an Event of Default, the Pledgee
shall execute and deliver to the Pledgor such proxies or other documents
in writing as may be necessary to enable the Pledgor to exercise the
foregoing rights. All such rights of the Pledgor to vote and give
consents, waivers and ratifications shall cease forthwith in case an
Event of Default shall have occurred and be continuing, without any
notice (except as provided in this Section 6) or demand by the Pledgee
to the Pledgor.
7. REMEDIES. If an Event of Default shall have occurred and be continuing, the
Pledgee shall thereafter have the following rights and remedies (to the
extent permitted by applicable law) in addition to the rights and remedies
of a secured party under the Uniform Commercial Code of The Commonwealth of
Massachusetts, all such rights and remedies being cumulative, not
exclusive, and enforceable alternatively, successively or concurrently, at
such time or times as the Pledgee deems expedient:
a. The Pledgee may vote any or all of the Pledged Shares (whether or not
the same shall have been transferred into its name or the name of its
nominee or nominees) and give all consents, waivers and ratifications
in respect of the Pledged Shares and otherwise act with respect
thereto as though it were the outright owner thereof (the Pledgor
hereby irrevocably constituting and appointing the Pledgee the proxy
and attorney in-fact of the Pledgor, with full power of substitution,
to do so);
b. The Pledgee may demand, sue for, collect or make any compromise or
settlement the Pledgee deems suitable in respect of any Collateral
held by it hereunder;
c. The Pledgee may sell, resell, assign and deliver, or otherwise dispose
of any or all of the-Collateral, for cash and/or credit and upon such
terms, at such place or places and at such time or times and to such
persons, firms, companies or corporations as the Pledgee deems
expedient, all following demand for performance by and upon notice to
the Pledgor; and
d. The Pledgee may cause all or any part of the Pledged Shares held by it
to be transferred into its name or the name of its nominee or
nominees.
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If any of the Collateral is sold by the Pledgee upon credit or for future
delivery, the Pledgee shall not be liable for the failure of the
purchaser to pay for the same and in such event the Pledgee may resell
such Collateral.
The Pledgee may buy any part or all of the Collateral at any public sale
and if any part or all of the Collateral is of a type customarily sold
in a recognized market or is of the type which is the subject of
widely-distributed standard price quotations, the Pledgee may, in its
sole discretion, buy at private sale and may make payments therefor by
any means including, without limitation, cancellation of indebtedness
secured thereby.
The Pledgee may, in its sole discretion, apply the cash proceeds
actually received from any sale or other disposition to the
reasonable expenses of retaking, holding, preparing for sale,
selling and the like, to reasonable attorneys' fees, and all legal
expenses, travel and other expenses which may be incurred by the
Pledgee in attempting to collect the Obligations or to enforce this
Agreement or any instrument evidencing the Obligations or in the
prosecution or defense of any action or proceeding related to the
subject matter of this Agreement or any instrument evidencing the
Obligations, and then to the Obligations with respect to principal or
interest, or both, or other fees and expenses, in such proportions
as the Pledgee, in its sole discretion, shall determine, and any
surplus shall be paid to the Pledgor.
The Pledgor recognizes that the Pledgee may be unable to effect a public
sale of the Pledged Shares by reason of certain prohibitions contained
in the United States Securities Act of 1933, as amended, or in other
applicable laws, regulations or agreements to which such Pledged Shares
may be subject but may be compelled to resort to one or more private
sales thereof to a restricted group of purchasers. The Pledgor agrees that
any such private sales may be at prices and other terms less favorable to
the seller than if sold at public sales and that such private sales
shall be deemed to have been made in a commercially reasonable manner. The
Pledgee shall be under no obligation to delay a sale of any of the Pledged
Shares for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the said
Securities Act or other applicable law, even if the issuer would agree to
do so.
8. MARSHALING. The Pledgee shall not be required to marshal any present or
future security for (including but not limited to this Agreement
and the Collateral pledged hereunder), or guaranties of, the Obligations or
any of them, or to resort to such security or guaranties in any particular
order; and all of the rights hereunder and in respect of such securities
and guaranties shall be cumulative and in addition to all other rights,
however existing or arising to the extent that it lawfully may, the Pledgor
hereby agrees that it will not invoke any law relating to the marshaling of
collateral which might cause delay in or impede the enforcement of the
Pledgee's rights under this Agreement or under any other instrument
evidencing any of the Obligations or under which any of the Obligations is
outstanding or by which any of the Obligations is secured or guaranteed,
and to the extent that it lawfully may the Pledgor hereby irrevocably
waives the benefits of all such laws.
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<PAGE>
9. PLEDGOR'S OBLIGATIONS NOT AFFECTED. The obligations of the Pledgor
hereunder shall remain in full force and effect without regard to, and
shall not be impaired by (a) any bankruptcy, insolvency, arrangement,
readjustment, composition or the like of the Pledgor; (b) any exercise or
non-exercise, or any waiver, by the Pledgee of any right, remedy, power or
privilege under or in respect of any of the Obligations or any security
therefor (including this Agreement); (c) any amendment to or modification
of any of the Obligations; (d) any amendment to or modification of any
instrument (other than this Agreement) evidencing or securing or
guaranteeing any of the Obligations; or (e) the taking of additional
security for, or any guaranty of, any of the Obligations or the release or
discharge or termination of any security or guaranty for any of the
Obligations; whether or not the Pledgor shall have notice or knowledge of
any of the foregoing.
10. FURTHER ASSURANCES. The Pledgor will do all such acts, and will furnish to
the Pledgee all such financing statements, certificates, legal opinions and
other documents and will obtain such governmental consents and approvals
and will do or cause to be done all such other things, including without
limitation the execution and delivery of further agreements and
instruments, as the Pledgee may reasonably request from time to time in
order to give full effect to this Agreement and to secure the rights of the
Pledgee hereunder.
11. PLEDGEE'S EXONERATION. Under no circumstances shall the Pledgee be deemed
to assume any responsibility for or obligation or duty with respect to any
part or all of the Collateral of any nature or kind, or any matter or
proceedings arising out of or relating thereto, but the same shall be at
the Pledgor's sole risk at all times. The Pledgee shall not be required to
take any action of any kind to collect, preserve or protect its or the
Pledgor's rights in the Collateral or against other parties thereto. The
Pledgee's prior recourse to any part or all of the Collateral shall not
constitute a condition of any demand, suit or proceeding for payment or
collection of the Obligations.
12. NO WAIVER, ETC. No act, failure or delay by the Pledgee shall constitute a
waiver of its rights and remedies hereunder or otherwise. No single or
partial waiver by the Pledgee of any default or right or remedy which it
may have shall operate a waiver of any other default, right or remedy or of
the same default, night or remedy on a future occasion. The Pledgor hereby
waives presentment, notice of dishonor and protest of all instruments,
included in or evidencing any of the Obligations or the Collateral, and any
and all other notices and demands whatsoever (except as expressly provided
herein).
13. NOTICES, ETC. All notices, requests and other communications hereunder
shall be in writing and shall be delivered in hand or by telex or telecopy
or where telex or telecopy communication is not possible, by mail, return
receipt requested, or by a nationally known overnight courier service
addressed as follows:
a. If to the Pledgor:
To the address set forth at the foot of this agreement
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<PAGE>
with a copy to such person or persons as Pledgor may designate from
time to time
b. If to the Pledgee:
Frontier Software Development, Inc.
321 Billerica Road
Chelmsford, Massachusetts 01824
with a copy to such person or persons as Pledgee may designate from
time to time
or to such other address as the party to receive any such
communication or notice may have designated by written notice to the
other party from time to time.
14. TERMINATION. Upon payment and performance in full of the Obligations in
accordance with their terms and the performance by the Pledgor of all of
his covenants and agreements hereunder, this Agreement shall terminate and
the Pledgor shall be entitled to the return, at the Pledgor's expense, of
such of the Collateral in the possession or control of the Pledgee as has
not theretofore been disposed of pursuant to the provisions hereof,
together with any moneys and other property at the time held by the Pledgee
hereunder.
15. MISCELLANEOUS PROVISIONS. Neither this Agreement nor any term hereof may
be changed, waived, discharged or terminated except by a written
instrument expressly referring to this Agreement and to the provisions
so modified or limited, and executed by the party to be charged
therewith. This Agreement and all obligations of the Pledgor hereunder
shall be binding upon the successors and assigns of the Pledgor, and
shall, together with the rights and remedies of the Pledgee hereunder,
inure to the benefit of the Pledgee and the Pledgee's successors and
assigns. This Agreement and the obligations of the Pledgor hereunder
shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts. The descriptive section headings herein
have been inserted for convenience of reference only and do not define
or limit the provisions hereof. If any terms of this Agreement shall be
held to be invalid, illegal or unenforceable, the validity of all other
terms hereof shall be in no way affected thereby, and this Agreement
shall be construed and be enforceable as if such invalid, illegal or
unenforceable term had not been included herein. The Pledgor
acknowledges receipt of a copy of this Agreement. Terms used herein
without definition which are defined in the Uniform Commercial Code of
The Commonwealth of Massachusetts have such defined meanings herein,
unless the context otherwise indicate or requires.
IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this
Agreement to be duly executed, as an instrument under seal, as of the date first
above written.
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<PAGE>
PLEDGOR:
/s/ Narendra Popat
-----------------------------------------
Narendra Popat
-----------------------------------------
Address: 14 Livery Road
-------------------------------
Chelmsford, MA 01820
-------------------------------
PLEDGEE:
FRONTIER SOFTWARE DEVELOPMENT, INC.
By: /s/ Charles W. Tillett
-------------------------------------
Title: VP Finance
------------
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<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF NETSCOUT
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
- ---- -----------------------------
<S> <C>
NetScout Systems Security Corporation Massachusetts
NetScout Systems Canada Inc. Ontario, Canada
NetScout Systems Foreign Sales Corporation Barbados
NetScout Systems (UK) Limited* England and Wales
</TABLE>
*The shares of NetScout Systems (UK) Limited were originally issued to Anil
Singhal and Narendra Popat. Messrs. Singhal and Popat are in the process of
having ownership of the shares transferred to NetScout.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 2, 1998, except
as to Note 8 which is as of April 14, 1999, relating to the consolidated
financial statements of NetScout Systems, Inc., which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedules for the three years ended March 31, 1998 listed under
Item 16(b) of this Registration Statement when such schedules are read in
conjunction with the consolidated financial statements referred to in our
report. The audits referred to in such report also included these schedules.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 21, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1997 APR-01-1998
<PERIOD-END> MAR-31-1998 DEC-31-1998
<CASH> 6,341 22,024
<SECURITIES> 8,834 0
<RECEIVABLES> 5,358 8,139
<ALLOWANCES> 1,063 1,021
<INVENTORY> 3,054 2,632
<CURRENT-ASSETS> 24,933 33,457
<PP&E> 6,389 8,062
<DEPRECIATION> 2,348 3,770
<TOTAL-ASSETS> 31,220 40,195
<CURRENT-LIABILITIES> 10,820 11,677
<BONDS> 0 0
0 0
5,964 5,964
<COMMON> 29 30
<OTHER-SE> 14,407 22,524
<TOTAL-LIABILITY-AND-EQUITY> 20,400 28,518
<SALES> 34,990 36,737
<TOTAL-REVENUES> 42,829 48,880
<CGS> 13,422 14,452
<TOTAL-COSTS> 35,084 37,231
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 643 667
<INCOME-PRETAX> 8,488 12,316
<INCOME-TAX> 3,056 4,435
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,432 7,881
<EPS-PRIMARY> .19 .27
<EPS-DILUTED> .16 .22
</TABLE>
