<PAGE>
As filed with the Securities and Exchange Commission on July 9, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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ALTEON WEBSYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 3679 77-0429769
(State or other (Primary Standard (I.R.S Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
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50 Great Oaks Boulevard
San Jose, California 95119
(408) 360-5500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Dominic P. Orr
President and Chief Executive Officer
Alteon WebSystems, Inc.
50 Great Oaks Boulevard
San Jose, California 95119
(408) 360-5500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Eric C. Jensen, Esq. Laird H. Simons III, Esq.
Cooley Godward LLP Dennis R. Debroeck, Esq.
Five Palo Alto Square Edward M. Urschel, Esq.
3000 El Camino Real Fenwick & West LLP
Palo Alto, CA 94306 Two Palo Alto Square
(650) 843-5000 Palo Alto, CA 94306
(650) 494-0600
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
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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,
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 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. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Title of each Class of Maximum Amount of
Securities to be Aggregate Registration
Registered Offering Price Fee
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<S> <C> <C>
Common Stock, par value $.001 per share.................... $51,000,000 $14,178
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act
of 1933, as amended.
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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 that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<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 jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated July , 1999
PROSPECTUS
Shares
[LOGO]
Common Stock
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This is our initial public offering of shares of common stock. We are
offering shares. No public market currently exists for our
shares. We propose to list our shares on the Nasdaq
National Market under the symbol "ATON." We expect
the public offering price to be between and
per share.
Investing in our shares involves risks. "Risk Factors" begin on page 7.
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price.............................................. $ $
Underwriting Discount.............................................. $ $
Proceeds to Alteon WebSystems...................................... $ $
</TABLE>
We have granted the underwriters a 30 day option to purchase up to
additional shares of common stock solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers expects to deliver the shares on or about , 1999.
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Lehman Brothers BancBoston Robertson Stephens
Thomas Weisel Partners LLC
, 1999
<PAGE>
[Description of Inside Front Cover Graphic: Graphic depicts a toy race car.
Caption states "Speed doesn't kill slow kills." Graphic also has the name
Alteon WebSystems and the phrase "Web speed for e-business." Graphic also lists
Alteon customers.]
[Description of gatefold graphics: Graphic depicts three interlocking gears,
with boxes on the top of each gear representing our products and different
users of our products. Caption in upper left-hand corner states "Enhancing Web
Performances for E-Business/Shifting Gears to Web-working." The graphic also
contains our name and logo with the phrase, "Web Speed for e-Business." The
graphic also has the following captions:
WEB HOSTERS
We help Web hosters serve more customers, reduce operating expenses and offer
new services by improving infrastructure availability, load balancing Web
servers and controlling traffic flow.
E-COMMERCE COMPANIES
We help e-commerce companies improve customers' Web experiences by enhancing
the performance of Web servers and firewalls and by improving availability.
ISPs
We help Internet Service Providers improve performance and reduce bandwidth
costs by automatically redirecting and load balancing Web requests to caches.
PORTALS
We help portals increase page views, improve availability and enhance user Web
experience by load balancing their Web traffic across local and geographically
dispersed server farms.
CONTENT PUBLISHERS
We help content publishers improve content availability by load balancing their
Web traffic across both local and geographically dispersed server farms.
ENTERPRISES
We help enterprises keep pace with Web traffic growth by enabling them to
upgrade their Web data center infrastructure to Gigabit Ethernet while load
balancing firewalls and Web servers to improve overall system performance.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................................................... 4
Risk Factors.......................................................... 7
Use of Proceeds....................................................... 19
Dividend Policy....................................................... 19
Capitalization........................................................ 20
Dilution.............................................................. 21
Selected Consolidated Financial Data.................................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................................... 24
Business.............................................................. 30
Management............................................................ 48
Related Party Transactions............................................ 57
Principal Stockholders................................................ 59
Description of Capital Stock.......................................... 61
Shares Eligible for Future Sale....................................... 63
Underwriting.......................................................... 65
Legal Matters......................................................... 67
Experts............................................................... 67
Where You Can Find More Information................................... 67
Index to Consolidated Financial Statements............................ F-1
</TABLE>
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ABOUT THIS PROSPECTUS
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is not an offer to sell or a
solicitation of an offer to buy common stock in any jurisdiction where it is
unlawful. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock. This preliminary prospectus is
subject to completion prior to this offering.
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," and elsewhere
in this prospectus are "forward-looking statements." These forward-looking
statements include, but are not limited to, statements about our plans,
objectives, expectations and intentions and other statements contained in the
prospectus that are not historical facts. When used in this prospectus, the
words "anticipates," "believes," "continue," "could," "estimates," "expects,"
"intends," "may," "plans," "seeks," "should" or "will" or the negative of
these terms or similar expressions are generally intended to identify forward-
looking statements. Because these forward-looking statements involve risks and
uncertainties, there are important factors that could cause actual results to
differ materially from those expressed or implied by these forward-looking
statements, including our plans, objectives, expectations and intentions and
other factors discussed under "Risk Factors."
We have filed for federal trademark registration for Alteon and the Alteon
logo. Other trademarks and trade names appearing in this prospectus are the
property of their holders.
Until , 1999, all dealers selling shares of 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.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements and notes appearing
elsewhere in this prospectus. Unless otherwise indicated, information in this
prospectus assumes that the underwriters do not exercise their over-allotment
option, assumes the conversion of all of our preferred stock into common stock
upon completion of this offering and reflects the 3 for 2 split of our common
stock that occurred on June 28, 1999.
We are a leading provider of next generation Internet infrastructure
solutions that are designed to enable e-businesses to meet the demands
resulting from the rapid growth of the Internet. Our Web data center products,
which include switches, server adapters and software, are optimized to meet the
specific challenges of managing Web traffic and provide the high performance
and availability of leading networking infrastructure solutions. We refer to
this combination of capabilities as Web-working. Our solutions are designed to
increase the performance, availability, scalability, manageability and control
of Web servers and Web data center infrastructure. Our solutions are built on a
technology core that consists of our Web operating system, or Web OS, Internet
traffic management software, a distributed processing architecture and our
family of custom semiconductors, which we refer to as WebICs. We provide our
Web-working solutions to e-commerce companies, Web portals, content publishers,
Web hosting companies, Internet service providers and enterprises. Our
customers include Compaq Computer Corporation, Concentric Network Corp.,
Frontier GlobalCenter, Hewlett-Packard Company, IBM Corporation, Intermedia
Communications Inc., NEC Corporation (Japan), Ticketmaster Online-Citysearch
Inc., 3Com Corporation, UUNet Technologies Inc., WebTV Networks, Inc. and
Yahoo!.
According to International Data Corporation, an industry research firm, the
number of users of the Internet will increase from 97 million in 1998 to 502
million by the end of 2003. With the emergence of faster access technologies
such as digital subscriber line, cable modem and wireless, the speed and
flexibility with which users are accessing the Internet are also increasing.
Because of the increasing capabilities and accessibility of the Internet,
companies are building their business models around the Internet and developing
mission-critical business applications. These e-businesses rely on the Web to
communicate with customers, access and share business information, engage in
marketing activities and conduct e-commerce transactions. However, existing
Internet traffic management solutions, consisting of traditional switches and
routers as well as single function, software-based traffic management devices,
generally lack the combination of speed and intelligence required to manage Web
traffic efficiently.
All of our products are designed to enhance the performance of Web data
centers for e-businesses. Our products include the ACEdirector and Alteon 180
Series of Web switches, Web OS and our ACEnic server adapters, as well as our
Alteon 700 Series of Web switches, which is scheduled to begin early customer
testing in July 1999. The key benefits of our products include:
. High-Speed, Web Intelligent Switching. Our Web switches and Web OS
combine high performance Fast Ethernet and Gigabit Ethernet connectivity
and Web session switching capabilities with a broad set of Web traffic
control functions. Our current Web switches offer Web session management
at a rate of approximately 74,000 sessions per second on a Fast Ethernet
port, which we believe is the maximum possible session switching rate, or
"wire speed," for Fast Ethernet.
. Rapid and Efficient Scalability. Web OS, our distributed architecture and
WebICs allow the capacity of our Web switches to be increased rapidly and
efficiently simply by adding more ports.
. System-Level High Availability. Our Web switches monitor the status and
performance of each server, server farm and server location and redirect
traffic to alternate servers and Web data centers in the event of a
system failure or server overload.
4
<PAGE>
. Increased Flexibility. Our Web switches are designed to select and direct
Internet traffic flexibly and transparently, enabling e-businesses to
increase infrastructure efficiency.
. Enhanced Control. Our Alteon 700 Series of Web switches is designed to
allow Web data center administrators to allocate and prioritize bandwidth
to control resource usage.
. Cost Effectiveness. Our Web data center infrastructure solutions
integrate multiple traffic management functions in a single Web switch,
which is intended to allow e-businesses to reduce capital, management and
training costs.
Our objective is to be the leading supplier of Web-working infrastructure
solutions. The key elements of our strategy are to:
. Extend our early market leadership in the Web-working market;
. Leverage our Web-working technology leadership;
. Build our relationships with key players in the Internet marketplace;
. Increase our penetration of leading e-businesses;
. Expand our supplier relationships with leading server manufacturers; and
. Enhance our customer service and support.
Our principal executive offices are located at 50 Great Oaks Boulevard, San
Jose, California 95119. Our telephone number is (408) 360-5500. We were
incorporated in Delaware on March 18, 1996. Our Web site address is
www.alteon.com. Information contained on our Web site does not constitute part
of this prospectus.
THE OFFERING
<TABLE>
<C> <S>
Common stock offered by Alteon WebSystems.......... shares
Common stock to be outstanding after the offering.. shares
Use of proceeds.................................... For working capital and
other general corporate
purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............. "ATON"
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of June 30, 1999, and excludes:
. 4,336,865 shares underlying options outstanding as of June 30, 1999 at a
weighted average exercise price of $0.92 per share;
. 6,018,202 shares available for future grants under our option plan; and
. 1,500,000 shares available for issuance under our employee stock
purchase plan.
5
<PAGE>
Summary Consolidated Financial Data
The following tables summarize our consolidated financial data. The pro forma
information contained in the consolidated statements of operations data and the
pro forma column of the balance sheet data give effect to the automatic
conversion of each outstanding share of convertible preferred stock into common
stock upon the completion of this offering. The pro forma as adjusted column of
the balance sheet data reflects the sale of shares of our common stock at an
assumed initial public offering price of per share, after deducting the
estimated underwriting discount and offering expenses payable by us.
<TABLE>
<CAPTION>
Nine Months
March 18, 1996 Year Ended June 30, Ended March 31,
(Inception) to --------------------- ----------------
June 30, 1996 1997 1998 1998 1999
-------------- --------- ---------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Net sales............... $ -- $ 178 $ 13,572 $ 9,775 $18,388
Cost of sales........... -- 637 7,893 5,801 9,381
------ --------- ---------- ------- -------
Gross profit (loss)..... -- (459) 5,679 3,974 9,007
Operating expenses:
Sales and marketing... 19 1,921 6,485 4,318 8,934
Research and
development.......... 176 4,782 8,816 6,416 7,086
General and
administrative....... 98 744 1,505 973 1,813
------ --------- ---------- ------- -------
Total operating
expenses........... 293 7,447 16,806 11,707 17,833
------ --------- ---------- ------- -------
Loss from operations.... (293) (7,906) (11,127) (7,733) (8,826)
Interest income (ex-
pense), net............ 20 122 322 341 189
------ --------- ---------- ------- -------
Loss before income tax-
es..................... (273) (7,784) (10,805) (7,392) (8,637)
Income taxes............ 1 1 1 -- --
------ --------- ---------- ------- -------
Net loss................ $ (274) $ (7,785) $ (10,806) $(7,392) $(8,637)
====== ========= ========== ======= =======
Basic and diluted loss
per common share....... $(0.48) $ (5.15) $ (2.18) $ (1.58) $ (1.19)
====== ========= ========== ======= =======
Basic and diluted common
shares used in
computation............ 569 1,511 4,951 4,670 7,245
====== ========= ========== ======= =======
Pro forma basic and di-
luted loss per common
share.................. $ (0.53) $ (0.36)
========== =======
Shares used in pro forma
basic and diluted loss
per common share....... 20,323 24,169
========== =======
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
-----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and equivalents............................. $ 9,430 $ 9,430
Working capital.................................. 7,934 7,934
Total assets..................................... 19,875 19,875
Long-term obligations, less current portion...... 1,488 1,488
Stockholders' equity:
Convertible preferred stock.................... 37,134 --
Common stock................................... 1,913 39,047
Total stockholders' equity..................... 9,966 9,966
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in our common stock is risky. You should carefully consider the
following risks, as well as the other information contained in this prospectus.
If any of the following risks actually occurs, our business could be harmed. In
that case, the trading price of our common stock could decline, and you might
lose all or part of your investment. The risks and uncertainties described
below are not the only ones facing us. Additional risks and uncertainties not
presently known to us, or that we currently see as immaterial, may also harm
our business.
Because we have a limited operating history, it is difficult to evaluate our
business.
We were founded on March 18, 1996 and have a limited operating history, which
makes an evaluation of our prospects difficult. In addition, the revenues and
income potential of our business and market are unproven. You must consider our
business and prospects in light of the risks and difficulties typically
encountered by companies in their early stages of development, particularly
those in new and rapidly evolving markets such as the Internet traffic
management industry. Some of the specific risks we face include our ability to:
. successfully develop, commercially produce and achieve significant market
acceptance of our next generation of products, including our Alteon 700
Series of Web switches;
. educate prospective customers about the benefits and uses of Internet
traffic management solutions in general, and our products in particular;
. develop and maintain strong relationships with server vendors, other
original equipment manufacturers, or OEMs, and resellers;
. expand our domestic and international sales efforts;
. continue to attract and retain qualified personnel, particularly in the
areas of sales, marketing and engineering; and
. manage growing operations.
Our quarterly operating results are volatile and may cause our stock price to
fluctuate.
Our quarterly operating results have varied significantly in the past and are
likely to vary significantly in the future, which makes it difficult for us to
predict our future operating results. Factors that could cause our operating
results to fluctuate include:
. changes in the mix of products we sell;
. the timing of the development and release of our Alteon 700 Series of Web
switches, as well as other product enhancements or new products, and our
ability to manage product transitions;
. deferrals of customer orders in anticipation of product enhancements or
new products;
. announcement or market acceptance of product enhancements or new products
offered by our competitors;
. the length and variability of our sales cycle;
. the mix of channels through which we sell our products;
. the timing and amount of orders from our OEMs' and resellers' customers;
. deferrals of customer orders by our potential customers as companies
attempt to stabilize their computer systems in order to reduce the risk
of computer system problems associated with the occurrence of the Year
2000; and
. general economic conditions and economic conditions specific to the
Internet traffic management industry.
Because of these factors, we believe that period-to-period comparisons of our
results of operations are not meaningful and should not be relied upon as an
indicator of our future performance. Our operating results will likely be below
the expectations of public market analysts and investors in some future quarter
or quarters. If this occurs, the price of our common stock will probably
decline.
7
<PAGE>
In addition, a significant portion of our sales has occurred near the end of
a quarter. Accordingly, a delay in an anticipated sale past the end of a
particular quarter may harm our results of operations for that quarter.
Furthermore, we base our decisions regarding our operating expenses on
anticipated revenue trends, and our expense levels are relatively fixed.
Consequently, if revenue levels fall below our expectations, we may suffer
unexpected losses because only a small portion of our expenses vary with our
revenues.
We have incurred losses, and we expect to incur significant future operating
expenses and losses.
We have experienced operating losses in each quarterly and annual period
since inception. We incurred net losses of $10.8 million for the year ended
June 30, 1998, our fiscal 1998, and $8.6 million for the nine-month period
ended March 31, 1999. Although our net sales have grown in recent quarters, we
may not be able to achieve future revenue growth or achieve or sustain
profitability. We intend to increase our operating expenses substantially,
particularly expenses related to expanding our sales and marketing activities,
developing new distribution channels and increasing levels of research and
development. If we fail to achieve and sustain significant increases in our
quarterly net sales, we may not be able to increase our investment in these
areas. We cannot predict when we will be profitable, if at all. If we continue
to incur net losses and never attain profitability, our stock price is likely
to decline.
Our business reputation and future revenues depend on the successful
development and volume production of products incorporating our next generation
of WebICs and Web OS, including our Alteon 700 Series of Web switches.
We expect to derive a significant portion of our revenues from sales of
products containing our next generation of WebICs. We expect to begin customer
testing of the first product using this generation of WebICs, our Alteon 700
Series of Web switches, in July 1999. The WebIC in this product is very
complicated, and its development has been delayed repeatedly. We have not
completed internal testing of this WebIC. If we discover significant defects,
commercial release of our next-generation Web switch could be delayed
significantly, particularly if the WebIC must be re-manufactured by LSI Logic
Corporation, our WebIC manufacturer. Our next generation of Web switches also
requires the successful development of a new version of Web OS. Development of
this software is also complex and could be subject to delay.
To date, we have produced only a few of our Alteon 700 Series of Web switches
and do not have any experience in manufacturing them. Because of the complexity
of the WebICs and the supporting Web OS software, there is a risk that we will
experience unanticipated problems with the manufacturing, volume shipment or
performance of these products.
If we fail to launch commercially our Alteon 700 Series of Web switches in a
timely manner:
. revenues from our existing products could be inadequate to cover our
expenses, including the cost of selling, marketing, developing and
manufacturing new products;
. our brand and reputation will be damaged; and
. our competitors' products could achieve market acceptance and we would
lose market share.
If our Alteon 700 Series of Web switches or other new products or product
enhancements fail to achieve customer acceptance, or if we fail to manage
product transitions, our business would be harmed.
Our industry is characterized by very rapid technological change, frequent
new product introductions and enhancements, changes in customer demands and
evolving industry standards. Our existing products will be rendered less
competitive or obsolete if we fail to introduce new products or product
enhancements that anticipate the features and functionality that customers
demand or ensure that they interoperate with current and emerging networking
technologies. Our Alteon 700 Series of Web switches is still under development
and has not been commercially released to customers, and we cannot assure you
that it will achieve customer
8
<PAGE>
acceptance. The success of our Alteon 700 Series of Web switches and other new
product introductions will depend on:
. the ability of our products to meet customer needs and expectations
regarding features, performance and robustness;
. our ability to accurately anticipate industry trends and changes in
technology standards; and
. timely completion and introduction of new product designs and features.
In addition, the introduction of new or enhanced products also requires that
we manage the transition from older products to minimize disruption in customer
ordering patterns and ensure that adequate supplies of new products can be
delivered to meet customer demand. In particular, we expect our Alteon 700
Series of Web switches to begin early customer testing in July 1999. Our
failure to manage the transition to this new product series would harm our
business.
Because the Internet infrastructure consists primarily of products manufactured
by Cisco Systems, Inc., Cisco has the ability to alter the fundamental
technology underlying computer networking, which could render our products less
competitive or obsolete.
Our products are developed based on the current Internet infrastructure,
consisting primarily of routers, switches and a network of hardware and
software. Cisco is the leader in developing and marketing equipment and
software that forms the backbone of this infrastructure. Cisco has a dominant
market share and an extensive, loyal and entrenched customer base. If Cisco
introduced or made an announcement regarding a new technology or product that
had the potential to alter the manner in which computing devices communicated
with each other over the Internet infrastructure, our products might be
rendered less competitive or obsolete.
In addition, Cisco offers a variety of Internet appliances and software that
manage Internet traffic volume and we believe that Cisco plans to introduce a
product that would compete directly with our products. Cisco has a longer
operating history and significantly greater financial, technical, marketing and
other resources than we do. Cisco also has broad strategic relationships with
server vendors, OEMs, resellers and other software and hardware providers. As a
result of these factors, Cisco may be able to respond more quickly than us to
new or emerging technologies and changes in customer requirements than we can.
In addition, Cisco may adopt an aggressive pricing policy to gain market share.
This policy would harm our business because it would force us to reduce our
prices significantly .
Future consolidation in the networking industry may harm our business.
The networking industry is characterized by continued consolidation. We may
not be able to compete successfully in an increasingly consolidated industry.
Consolidation in our industry may result in a smaller number of competitors
with greater resources and broader product lines, which could cause us to
reduce the prices of our products or result in a loss of market share.
Additionally, because we depend on strategic relationships with third parties
in our industry, any consolidation involving these parties could reduce the
demand for our products or otherwise harm our business.
Our markets are highly competitive, and customers may choose to purchase our
competitors' products.
We compete in a new, rapidly evolving and highly competitive sector of the
networking industry. We expect competition to intensify in the future.
Increased competition would likely reduce our prices, which would reduce our
gross margins. Increased competition would likely cause us to lose market
share. Our principal competitors include:
. Large telecommunications and networking equipment companies. We face
competition from large telecommunications and networking equipment
companies such as Cisco and Nortel Networks Corporation. These companies
have greater financial resources, longer operating histories,
9
<PAGE>
broader customer relationships, greater brand recognition and a broader set
of products than we do. For example, Cisco offers a variety of Internet
traffic management appliances and software that manage Internet traffic
volume and we believe that it intends to introduce a product that would
compete with our products. If Cisco or other companies bundled their
products, incorporated an Internet traffic management component into
existing switches or formed alliances with, or acquired competing Web
traffic management products or companies, even if their products do not have
comparable capabilities, they would be significant competitors and their
activities could cause us to reduce our prices.
. Other vendors of Internet traffic management services. A number of other
private and public companies offer products designed to provide Internet
traffic management solutions. Some of these companies offer products
focused on a particular function, such as bandwidth management or load
balancing. These products, with respect to a particular function, may be
superior to ours. Some of these companies have longer operating
histories, more resources and broader customer relationships than we do.
Our competitors may respond more quickly to emerging technologies than we
do. In the past, we have lost customers to competitors because we were not
able to respond to their requests for additional features in a timely fashion.
We may not be able to maintain or improve our competitive position against
current or potential competitors, especially those with greater resources.
The timing of our revenues is difficult to predict because of our variable
sales cycle.
We cannot predict the timing of our revenues accurately because of the
length and variability of our sales cycles and our limited experience in
selling our products. As a result, if sales forecasted from specific customers
for a particular quarter are not realized in that quarter, we may be unable to
compensate for the revenue shortfall and our operating results would be
harmed. The sales cycle for our products has ranged from two to three months
for sales to smaller customers to one year or more for sales to large,
established enterprises. Customers frequently begin by evaluating our products
on a limited basis before deciding to purchase them. Generally, they consider
a wide range of issues before committing to purchase our products, including
product benefits, ability to interoperate with networking equipment and
product reliability. Our competitors offer a wide variety of hardware or
software products that purport to serve the needs addressed by our products.
As a result, we must educate potential customers on the benefits of our
products. While potential customers are evaluating our products and before
they place an order with us, we may incur substantial sales and marketing
expenses and expend significant management effort. Consequently, if orders for
our products forecasted in a particular quarter do not occur in that quarter,
our operating results for that quarter could be harmed.
If Internet traffic management solutions do not achieve widespread commercial
acceptance, we will not be able to sell our products and our ability to
increase revenues would be harmed.
Widespread commercial acceptance of our products is critical to our future
success. The market for Internet traffic management solutions is relatively
new and rapidly evolving. Rather than utilizing comprehensive Internet traffic
management solutions, most Web data center administrators manage Internet
traffic by adding servers and interconnecting a variety of single function
traffic management tools. Our ability to increase revenues in the future
depends on the extent to which our potential customers recognize the value of
our integrated Internet traffic management solutions. The acceptance of our
products may be hindered by:
. the failure of prospective customers to recognize the value of Internet
traffic management solutions;
. the reluctance of our prospective customers to replace or expand their
current networking solutions, which may be supplied by more established
vendors, with our products; and
. the emergence of new technologies or industry standards which could cause
our products to be less competitive or obsolete.
10
<PAGE>
In addition, because the market for Internet traffic management solutions is
in an early stage of development, we cannot assess the size of the market
accurately, and we have limited insight into trends that may emerge and affect
our business. For example, we may have difficulty in predicting customer needs,
developing products that could address those needs, and establishing a
distribution strategy for these products. We may also have difficulties in
predicting the competitive environment that will develop.
Our dependence on single source suppliers exposes us to supply interruption.
We purchase several key product components from single source vendors for
which alternative sources are either not currently available or difficult to
develop. The inability to obtain sufficient quantities of these components may
result in delays or reductions in product shipments which would harm our
business. We presently purchase two key components from vendors for which there
are currently no alternative suppliers: WebICs and power supplies. The sole
manufacturer of our WebICs is LSI. The process used to manufacture our WebICs
is proprietary to LSI. If LSI terminated our relationship, we would be required
to redesign our WebICs to make them compatible with the manufacturing process
of a new supplier and develop or license additional technology. We estimate
that this process could take as long as twelve months and cost $4.0 million
dollars or more. Furthermore, we would lose significant revenue opportunities
while working to achieve volume production with a new vendor. In addition,
while our financial performance depends on our ability to obtain sufficient
quantities of key components from our single source vendors, we do not have
supply contracts with LSI or other sole source vendors. In the event of a
reduction or interruption of supply of any such components, a period of twelve
months or longer could pass before we would begin receiving adequate supplies
from alternative suppliers, if at all, and our business would be harmed. It is
possible that our sources may not be available for us or be in a position to
satisfy our production requirements at acceptable prices and on a timely basis,
if at all.
In addition, the manufacture of some of these single source components,
particularly WebICs, is complex and time consuming, and our reliance on the
suppliers of these components exposes us to potential production difficulties
and quality variations, including, in the case of WebICs, yield issues, which
could increase prices and delay delivery of our products. Any significant
interruption in the supply or degradation in the quality of any component could
harm our business.
We depend on a single independent manufacturer, which could result in product
delivery delays.
We currently use a single independent manufacturer, Celestica Thailand Ltd.,
a subsidiary of Celestica Inc., to provide some of our printed circuit boards,
chassis and subassemblies and to complete final assembly and testing of our
products. Our reliance on a single independent manufacturer involves a number
of risks, including possible limitations on manufacturing capacity and reduced
control over delivery schedules, manufacturing yields and costs. In addition,
as our relationship with Celestica develops, manufacturing yields or product
performance could be adversely affected due to difficulties associated with
adapting our technology and product design to Celestica's manufacturing
process. In addition, we currently do not have a supply contract with
Celestica. As a result, Celestica is not obligated to supply products to us for
any specific period, in any specific quantity or at any specific price, except
as may be provided in a particular purchase order. If Celestica is unable or
unwilling to continue manufacturing our components in required volumes, we will
have to identify acceptable alternative manufacturers, which could take six
months or more. Any significant interruption in the manufacturing of our
products would also result in product shortages or delivery delays, which could
harm our customer relationships and our business and reputation. Moreover,
because substantially all of our final assembly is performed in one facility,
located in Chanburi, Thailand, any fire or other disaster at this facility
would harm our business.
11
<PAGE>
We derive a substantial portion of our revenues from a small number of
customers, and our revenues may decline significantly if any major customer
cancels or delays a purchase of our products.
A relatively small number of our OEM and reseller customers account for a
significant portion of our revenues. In our fiscal 1998, sales to Sun
Microsystems, Inc. accounted for 42% of net sales, sales to Fuji Xerox
accounted for 14% of net sales and sales to 3Com Corporation accounted for 10%
of net sales. We expect that revenues from a relatively small number of our OEM
and reseller customers will continue to account for a significant portion of
revenues. Accordingly, unless and until we diversify and expand our customer
base, our future success will depend upon the timing and size of future
purchase orders, if any, from our largest customers and, in particular:
. the success of these customers in marketing solutions, including our
products;
. the product requirements of these customers; and
. the financial and operational success of these customers.
Some of our customers are significantly larger than we are and have
sufficient bargaining power to demand lower prices and better terms. The loss
of any one of our major customers or the delay of significant orders from these
customers, could reduce or delay our recognition of revenues, harm our
reputation in the industry, and reduce our ability to accurately predict cash
flow.
We have experienced rapid growth that has placed a strain on our resources, and
our failure to manage our growth could harm our business.
We have experienced rapid growth and expansion since our inception. From June
30, 1998 to June 30, 1999, we increased the number of our employees from 77 to
142. This growth has placed, and will continue to place a significant strain on
our management system and operational and financial resources. To effectively
manage our growth, we must continue to improve our operational, financial and
management controls. Although we believe that our management and information
systems are adequate for the next twelve months, depending on the volume of our
sales, we may have to replace or enhance our management and information systems
sooner than anticipated. We expect that the cost of implementing these new
systems would be approximately $2.0 million. If we have to implement
modifications sooner than we expected, we will incur substantial additional
expense earlier than anticipated. If we fail to scale our management systems to
accomodate our growth, our operating results would be adversely impacted and
our business would be harmed.
If we do not substantially expand our sales channels, our business could be
harmed.
We sell our products both directly and through OEMs in North America, and we
sell our products internationally primarily through resellers. Our distribution
strategy focuses primarily on:
. developing and expanding our direct sales organization; and
. expanding our indirect distribution channels by establishing
relationships with vendors of complementary technology, OEMs and
resellers.
We expect to nearly double the number of direct sales personnel in the next
six months in order to both support and develop leads for our indirect
distribution channels and increase the direct sale of our products. This
expansion will significantly increase personnel costs and related expenditures.
Sales personnel will not be productive immediately and we can not assure you
that costs of this expansion will not exceed the revenues generated by the
sales personnel. To achieve broader distribution of our products, we expect to
increase our reliance on indirect sales channels both internationally and in
North America. If we fail to develop and maintain relationships with
significant OEMs and resellers, or if these OEMs and resellers are not
successful in their sales efforts, sales of our products may decrease or fail
to increase as expected.
Currently, we only have a few agreements with OEMs and resellers, most of
which are not exclusive. Generally, these relationships may be terminated with
little or no notice. Many of these OEMs and resellers sell or may develop
competitive products or have, or may have, pre-existing relationships with our
current or
12
<PAGE>
potential competitors, which may reduce their efforts in selling our products.
Also, these OEMs and resellers may directly compete with each other with
respect to sales of our products in a particular market or region. We cannot
assure you that our existing OEM and reseller customers will market our
products effectively or continue to devote the resources necessary to provide
us with effective sales, marketing and technical support. Also, we may not be
able to retain our OEM or reseller customers. Our inability to effectively
establish our indirect sales channels will harm our business and results of
operations.
The demand for our products is difficult to predict because of our use of
indirect sales channels.
We expect to have difficulties predicting the demand for our products because
we rely on indirect sales channels. For example, one aspect of our sales
strategy is to develop relationships with OEMs and resellers that sell our
products under either our label or their own label. However, the level and
timing of orders placed by OEMs and resellers varies due to many factors,
including their attempts to balance their inventories, changes in their
manufacturing strategies and variation in demand for their products. Our
inability to forecast the level of orders from these indirect sales channels
may make it difficult to schedule production, manage the manufacturing of our
products or forecast our revenues. The orders that we anticipate from our
current or future OEM and reseller customers may not materialize or delivery
schedules may be deferred as a result of changes in their business needs. This
fluctuation in orders and general sales cycle variability contributes to the
uncertainty of our operating results.
Our ability to sustain or grow our business may be harmed if we are unable to
develop and maintain strategic relationships with third parties.
We depend upon our strategic alliances to expand our distribution channels
and marketing efforts. We have developed relationships with server vendors as
well as other key players in the Internet marketplace. We believe that these
relationships will provide us with valuable insights into industry trends and
technologies and help us supply more complete solutions to joint customers.
However, the amount and timing of resources which our strategic partners devote
to our business is not within our control. Our strategic partners may not
perform as expected. Many of our strategic relationships are relatively new,
and we cannot be certain that any revenue will be derived from these
arrangements. In addition, our arrangements with strategic partners typically
do not restrict them from working with competitors. If any of these
relationships are terminated, we may not be able to maintain or develop
strategic relationships or to replace strategic partners.
If we lose key personnel or are unable to hire additional qualified personnel
as necessary, we may not be able to successfully manage our business or achieve
our objectives.
Our success depends to a significant degree upon the continued contributions
of our key management, product development, sales and marketing and finance
personnel, many of whom would be difficult to replace. In particular, we rely
on our President and Chief Executive Officer, Dominic Orr. If we were to lose
the services of Mr. Orr, our business and results of operations could be
harmed. We do not have employment contracts or maintain key person life
insurance for any of our key personnel.
International sales of our products account for a significant portion of our
net sales, which exposes us to risks inherent in international operations.
Our ability to grow will depend in part on the expansion of international
sales and operations which are likely to continue to be a significant portion
of our net sales. Sales to customers outside of North America accounted for
approximately 28% of our net sales in fiscal 1998 and 20% of net sales in the
nine months ended March 31, 1999. Conducting business internationally involves
many risks, including:
. longer accounts receivable collection cycles;
. difficulties in managing operations in different locations;
. difficulties associated with enforcing agreements through foreign legal
systems;
13
<PAGE>
. seasonal reductions in business activities in some parts of the world,
such as during the summer months in Europe;
. import or export licensing requirements;
. potential adverse tax consequences, including higher tax rates generally
in Europe;
. unexpected changes in foreign regulatory requirements, especially those
relating to telecommunications and the Internet;
. volatility in the political and economic conditions of foreign countries,
particularly China, Taiwan, Japan, Malaysia and North and South Korea;
and
. fluctuations in foreign currency exchange rates.
China, Taiwan, Japan and South Korea comprise substantial markets for our
products. Consequently, any political instability in these countries, such as
hostilities between North and South Korea, could significantly reduce demand
for our products from some of our major customers. Currently, most of our
international sales are denominated in U.S. dollars. As a result, an increase
in the value of the U.S. dollar relative to foreign currencies could make our
products less competitive in international markets. In addition, we have
elected to invoice some of our Japanese customers in yen and plan to engage in
currency hedging activities. However, we cannot guarantee that these activities
will shield us from fluctuations in exchange rates between the U.S. dollar and
the Japanese yen.
The average selling prices of our products may decrease, which may reduce gross
profits.
We anticipate that the average selling prices of our products will decrease
in the future in response to competitive pricing pressures, increased sales
discounts, new product introductions by us or our competitors or other factors.
Therefore, in order to maintain our gross profits, we must develop and
introduce new products and product enhancements on a timely basis and
continually reduce our product costs. Our failure to do so will cause our net
sales and gross profits to decline, which will harm our operating results and
cause the price of our common stock to decline. In addition, we may experience
substantial period-to-period fluctuations in future operating results due to
the decrease in our average selling prices.
If our products contain defects, we may be subject to significant liability
claims from our customers or their customers.
Because our products are designed to provide critical communications services
to emerging Web applications such as e-commerce, we may be subject to
significant liability claims if our products contain undetected or unresolved
errors. Our agreements with customers typically contain provisions intended to
limit our exposure to liability claims. However, these limitations may not
preclude all potential claims resulting from a defect in one of our products.
Although we maintain product liability insurance up to $5.0 million covering
damages arising from implementation and use of our products, our insurance may
not cover every claim brought against us. Liability claims could require us to
spend significant time and money in litigation or to pay significant damages.
As a result, any liability claims, whether or not successful, could harm our
reputation and our business.
Our success depends on our ability to attract, train and retain qualified
marketing, sales and customer support personnel.
Our products require a complex marketing and sales effort targeted at several
levels within a prospective customer's organization. Unless we expand our sales
force, we will not be able to increase revenues. We have recently expanded our
sales force. In addition, in order to support and develop leads for our
indirect distribution channels and increase the direct sale of our products, we
expect to nearly double the number of sales personnel in the next six months.
Competition for qualified sales personnel is intense, and we might not be able
to hire the kind and number of sales personnel we are targeting. Our inability
to retain and hire qualified sales personnel may harm our results of operations
and our ability to increase market share. On the other hand, if we are
successful in hiring our target number of sales personnel, we will be faced
with significantly increased
14
<PAGE>
personnel costs and related expenditures. Sales personnel will not be
productive immediately and we can not assure you that the revenues generated by
the sales personnel will exceed the costs of our planned expansion.
We have a small customer support organization and will need to increase our
staff to support new customers and the expanding needs of existing customers.
The installation of Internet traffic management solutions, the integration of
these solutions into existing networks and the ongoing support can be complex.
Accordingly, we need highly-trained customer support personnel. Hiring customer
support personnel is very competitive in our industry due to the limited number
of people available with the necessary technical skills and understanding of
our products. Our inability to attract, train or retain highly qualified
customer support personnel would harm our business and results of operations.
Our failure to comply with regulations and evolving industry standards could
delay our introduction of new products.
The market for our products is characterized by the need to meet
communications regulations and standards, some of which are evolving as new
technologies are deployed. To meet the requirements of our customers, our
products may be required to comply with various regulations including standards
established by Underwriters Laboratories and Bell Communications Research.
Failure of our products to comply or delays in compliance with the various
existing and evolving industry regulations and standards, could delay the
introduction of our products. Moreover, enactment by federal, state or foreign
governments of new laws or regulations, changes in the interpretation of
existing laws or regulations or a reversal of the trend toward deregulation in
the telecommunications industry could have a harmful effect on our customers,
and therefore harm our business.
Our business will be harmed if we are unable to protect our intellectual
property rights from third-party challenges.
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We also enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and control access to and
distribution of our software, documentation and other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology.
Monitoring use of our products is difficult and we cannot be certain that the
steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States.
We could become subject to litigation regarding intellectual property rights,
which could harm our business.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. Currently, we are
involved in trademark litigation with Alteon Incorporated, a pharmaceutical
company, over the use of the name and mark Alteon. If we lose the litigation
with Alteon Incorporated, we will not be able to use the Alteon name and our
business may be harmed. This claim and future claims and any resulting
lawsuits, if successful, could subject us to significant liability for damages
and invalidation of our proprietary rights. These lawsuits, regardless of their
outcome, would likely be time-consuming and expensive to resolve and would
divert management time and attention. Any potential intellectual property
litigation also could force us to do one or more of the following:
. stop selling, incorporating or using our products that use the challenged
intellectual property;
. obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or
. redesign those products that use the relevant technology.
If we are forced to take any of these actions, our business may be harmed.
Although we carry general liability insurance, our insurance may not cover
potential claims of this type or may not be adequate to indemnify us for all
liability that may be imposed.
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<PAGE>
Potential Year 2000 problems could harm our business.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. Products containing this capability
are generally considered to be "Year 2000 compliant." As a result, over the
next few months, computer systems and/or software products used by many
companies may need to be upgraded to be Year 2000 compliant. We may be exposed
to a loss of revenues and our operating expenses could increase if the systems
on which we are dependent to conduct our operations are not Year 2000
compliant. Our potential areas of exposure include our products, products
purchased from or manufactured by third parties, and our internal management
information systems. Although, we have expended resources to review our
products and our internal management information systems to remedy those
systems that are not Year 2000 compliant, there can be no assurance that the
modifications we made were successful. If our systems are not Year 2000
compliant, our business could be harmed.
In addition, although all of our significant suppliers, service providers and
our sole manufacturer have indicated that they are or are expecting to achieve
Year 2000 compliance by December 31, 1999, we cannot be certain that the
representations of these third parties are accurate or that they will reach
Year 2000 compliance in a timely manner. If we determine that the progress of
these third parties toward Year 2000 compliance is insufficient, we intend to
change to other suppliers and service providers and an alternate manufacturer
that have demonstrated Year 2000 readiness. If any of our significant
suppliers, service providers or our sole manufacturer do not achieve Year 2000
compliance successfully and in a timely manner and we are unable to replace
them with alternate sources, our business would be harmed.
Conversely, concerns regarding Year 2000 compliance could cause a significant
number of companies, including our current customers, to reevaluate their
current needs and, as a result, consider deferring the purchase of our
products. Although we have not experienced the effects of this type of trend to
date, if customers defer purchases of our products, it could harm our business.
We may need to raise additional funds, which may not be available.
We expect that the net proceeds from this offering, cash from operations and
borrowings available under our credit facility will be sufficient to meet our
working capital and capital expenditure needs for at least the next twelve
months. After that, we may need to raise additional funds, and additional
financing may not be available on favorable terms, if at all. Further, if we
issue additional equity securities, stockholders may experience dilution, and
the new equity securities may have rights, preferences or privileges senior to
those of existing holders of our common stock. If we cannot raise funds on
acceptable terms, we may not be able to develop new products or enhance our
existing products, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements. This could harm our
business.
Our existing stockholders will be able to exercise significant control over all
matters requiring stockholder approval.
On completion of this offering, executive officers, directors and their
affiliates and 5% stockholders will beneficially own, in the aggregate,
approximately % of our outstanding common stock. As a result, these
stockholders will be able to exercise significant control over all matters
requiring stockholder approval, including the election of directors and
approval of significant corporate transactions, which may have the effect of
delaying or preventing a third party from acquiring control over us.
New investors in our common stock will experience immediate and substantial
dilution.
The assumed initial public offering price is substantially higher than the
book value per share of our common stock. Investors purchasing common stock in
this offering will, therefore, incur immediate dilution of $ in net tangible
book value per share of common stock. Investors will incur additional dilution
upon the exercise of outstanding stock options.
16
<PAGE>
We may engage in future acquisitions that dilute our stockholders, cause us to
incur debt or assume contingent liabilities.
We may acquire businesses that would complement our current product
offerings, augment our market coverage or enhance our technical capabilities,
or that may otherwise offer growth opportunities. While we have no current
agreements with respect to any acquisitions, we may acquire businesses,
products or technologies in the future. We may not be able to successfully
integrate any businesses, products, technologies or personnel that we might
acquire in the future, and our failure to do so could harm our business.
We are at risk of securities class action litigation due to our expected stock
price volatility.
An active public market for our common stock may not develop or be sustained
after this offering. Although the initial public offering price will be
determined based on several factors, the market price for our common stock will
vary from the initial offering price after this offering. The market price of
our common stock may fluctuate significantly in response to a number of
factors, some of which are beyond our control. In the past, securities class
action litigation has often been brought against a company following periods of
volatility in the market price of its securities. We may in the future be the
target of similar litigation. Regardless of its outcome, securities litigation
may result in substantial costs and divert management's attention and
resources, which could harm our business and results of operations.
Provisions in our corporate charter and bylaws may discourage take-over
attempts and thus depress the market price of our stock.
Provisions of our amended and restated certificate of incorporation and
bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would benefit our stockholders.
These provisions include:
. establishing a classified board of directors such that not all members of
the board may be elected at one time;
. authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
. prohibiting cumulative voting in the election of directors, which would
otherwise allow less than a majority of stockholders to elect director
candidates;
. limitations on who may call a special meeting of stockholders;
. prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
. establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and the
terms of our stock option plans may discourage, delay or prevent a third party
from acquiring us.
The substantial number of shares that will be eligible for sale in the near
future may cause the market price for our common stock to decline.
Sales of substantial number of shares of our common stock in the public
market following this offering could depress the market price for our common
stock. The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law and under
agreements that our stockholders have entered into with the underwriters and
with us. Those agreements restrict our stockholders from selling, pledging or
otherwise disposing of their shares for a period of 150 days after the date of
this prospectus without the prior written consent of Lehman Brothers Inc.
However, Lehman Brothers Inc. may, in its sole discretion, release all or any
portion of the common stock from the restrictions of these agreements at any
time. The following table indicates approximately when the 33,606,455 shares of
our common stock that
17
<PAGE>
are not being sold in the offering but which were outstanding as of June 30,
1999 will be eligible for sale into the public market:
<TABLE>
<CAPTION>
Eligibility of Restricted Shares for
Sale in Public Market
------------------------------------
<S> <C>
At effective date.................. --
150 days after date of this
prospectus........................ 28,255,315
At various times after 150 days
after date of this prospectus..... 5,351,140
</TABLE>
Additionally, of the 4,336,865 shares issuable upon exercise of options to
purchase our common stock outstanding as of June 30, 1999, approximately
1,115,219 shares will be vested and eligible for sale 150 days after the
completion of this offering.
18
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of $ , or
$ if the underwriters exercise their over-allotment option in full. We will
use the net proceeds for working capital and for other general corporate
purposes, including expansion of sales and marketing capabilities, product
development, potential acquisitions and other working capital requirements.
Pending these uses, we intend to invest the proceeds in investment-grade,
interest-bearing investments.
The principal purposes of this offering are to increase our capitalization
and financial flexibility, to provide a public market for our common stock and
to facilitate access to public equity markets. As of the date of this
prospectus we cannot specify with certainty all of the particular uses for the
remaining net proceeds we will have upon completion of the offering.
Accordingly, our management will have broad discretion in the application of
net proceeds.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently anticipate that we will retain all available funds for use in our
business and do not anticipate paying any cash dividends in the foreseeable
future. In addition, our loan and security agreement with Silicon Valley Bank
prohibits us from paying dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. Our
capitalization is presented:
. on an actual basis and to reflect our 3 for 2 stock split of our common
stock which occurred on June 28, 1999;
. to reflect the increased authorized shares of common and preferred stock
approved in June 1999;
. on a pro forma basis to give effect to the automatic conversion of all
outstanding shares of Series A preferred stock, Series B preferred stock
and Series C preferred stock into an aggregate of 16,923,729 shares which
will occur upon the closing of this offering; and
. on a pro forma as adjusted basis to reflect our receipt of the net
proceeds from the sale of shares of common stock in this offering at an
assumed initial public offering price of per share after deducting
the estimated underwriting discount and offering expenses.
<TABLE>
<CAPTION>
As of March 31, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -------------
(in thousands, except share data)
<S> <C> <C> <C>
Long-term obligations, less current
portion................................ $ 1,488 $ 1,488 $ 1,488
----------- ----------- ----------
Stockholders' equity:
Preferred stock $0.001 par value;
15,000,000 shares authorized;
11,290,494 issued and outstanding,
actual; 5,000,000 shares authorized
and none issued and outstanding, pro
forma and pro forma as adjusted...... 37,134 --
Common stock, $0.001 par value;
300,000,000 shares authorized;
12,127,563 shares issued and
outstanding, actual; 29,051,292
shares issued and outstanding, pro
forma; and shares issued and
outstanding, pro forma as adjusted... 1,913 39,047
Notes receivable from stockholders.... (1,579) (1,579)
Accumulated deficit................... (27,502) (27,502)
----------- ----------- ----------
Total stockholders' equity.......... 9,966 9,966
----------- ----------- ----------
Total capitalization.............. $ 11,454 $ 11,454 $
=========== =========== ==========
</TABLE>
The number of shares of common stock to be outstanding after this offering is
based on the number of shares outstanding as of June 30, 1999 and excludes:
. 4,336,865 shares underlying options outstanding as of June 30, 1999 at a
weighted average exercise price of $0.92 per share;
. 6,018,202 shares available for future grants under our option plan; and
. 1,500,000 shares available for issuance under our employee stock purchase
plan.
See "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto included in this prospectus.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the common stock as of March 31,
1999 was $9,966,000, or $0.34 per share, after giving effect to the automatic
conversion of all outstanding shares of preferred stock into an aggregate of
16,923,729 shares of common stock which will occur upon the closing of the
offering. After giving effect to the sale of the common stock pursuant to this
offering at an assumed initial public offering price of per share, assuming
that the underwriters' over-allotment option is not exercised, and after
deducting the estimated underwriting discount and expenses of the offering, the
adjusted pro forma net tangible book value at March 31, 1999, would have been
$ , or $ per share.
Pro forma net tangible book value per share before the offering has been
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock
outstanding at March 31, 1999. The offering will result in an increase in pro
forma net tangible book value per share of $ to existing stockholders and
dilution in pro forma net tangible book value per share of $ to new
investors who purchase shares in the offering. Dilution is determined by
subtracting pro forma net tangible book value per share from the assumed
initial public offering price of $ per share. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................ $
Pro forma net tangible book value per share at March 31, 1999... $
Increase attributable to sale of common stock in the offering...
----
Pro forma net tangible book value per share after the offering...
----
Dilution of net tangible book value per share to persons who
purchase shares in the offering................................. $
====
</TABLE>
If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after the offering would be $ per
share, the increase in net tangible book value per share to existing
stockholders would be $ per share and the new investors with respect to the
number of shares of common stock purchased from us based on an assumed initial
public offering price of $ per share.
The following table summarizes, on a pro forma basis as of March 31, 1999,
the differences between the total consideration paid and the average price per
share paid by the existing stockholders and the new investors with respect to
the number of shares of common stock purchased from us based on an assumed
public offering price of $ per share:
<TABLE>
<CAPTION>
Shares Total Consideration Average
-------------- --------------------- Price
Number Percent Amount Percent per Share
------ ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Shares purchased in the
offering.................... % $ % $
Shares owned by existing
stockholders................
--- ----- --------- ---------- ----
Total...................... 100.0% $ 100.0%
=== ===== ========= ==========
</TABLE>
These tables do not assume exercise of stock options outstanding at March 31,
1999. At March 31, 1999, there were 3,586,887 shares of common stock issuable
upon exercise of outstanding stock options at a weighted average exercise price
of $0.71 per share.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents historical consolidated financial data of Alteon. You
should read carefully the consolidated financial statements included in this
prospectus, including the notes to the consolidated financial statements. The
selected data in this section is not intended to replace the consolidated
financial statements.
We derived the statement of operations data for the period from March 18,
1996 (inception) to June 30, 1996 and for the years ended June 30, 1997 and
1998 and the balance sheet data as of June 30, 1997 and 1998 from the audited
consolidated financial statements included in this prospectus. Deloitte &
Touche LLP, our independent auditors, audited these consolidated financial
statements. We derived the balance sheet data as of June 30, 1996 from audited
consolidated financial statements that are not included in the prospectus. We
derived the statement of operations data for the nine months ended March 31,
1998 and 1999 and the balance sheet data as of March 31, 1999 from the
unaudited consolidated financial statements included in this prospectus. We
believe that the unaudited consolidated financial statements contain all
adjustments needed to present fairly the information included in those
statements, and that the adjustments made consist only of recurring
adjustments. See notes 1 and 12 of the consolidated financial statements for an
explanation of the method used to determine the number of shares used in
computing basic and diluted loss per share and pro forma basic and diluted loss
per share.
The pro forma balance sheet data column gives effect to the automatic
conversion of each of the outstanding shares of convertible preferred stock
into one and one-half shares of common stock immediately before the completion
of the offering. The pro forma as adjusted column gives effect to receipt of
the net proceeds from the sale of shares of common stock offered by us at an
assumed offering price of $ per share after deducting the estimated
underwriting discount and offering expenses payable by us.
22
<PAGE>
<TABLE>
<CAPTION>
Period from
March 18,
1996 Nine Months
(inception) Year Ended June 30, Ended March 31,
to June 30, --------------------- ----------------
1996 1997 1998 1998 1999
----------- --------- ---------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Net sales................ $ -- $ 178 $ 13,572 $ 9,775 $18,388
Cost of sales............ -- 637 7,893 5,801 9,381
------ --------- ---------- ------- -------
Gross profit (loss)...... -- (459) 5,679 3,974 9,007
Operating expenses:
Sales and marketing.... 19 1,921 6,485 4,318 8,934
Research and
development........... 176 4,782 8,816 6,416 7,086
General and
administrative........ 98 744 1,505 973 1,813
------ --------- ---------- ------- -------
Total operating
expenses............ 293 7,447 16,806 11,707 17,833
------ --------- ---------- ------- -------
Loss from operations..... (293) (7,906) (11,127) (7,733) (8,826)
Interest income
(expense), net.......... 20 122 322 341 189
------ --------- ---------- ------- -------
Loss before income
taxes................... (273) (7,784) (10,805) (7,392) (8,637)
Income taxes............. 1 1 1 -- --
------ --------- ---------- ------- -------
Net loss................. $ (274) $ (7,785) $ (10,806) $(7,392) $(8,637)
====== ========= ========== ======= =======
Basic and diluted loss
per common share........ $(0.48) $ (5.15) $ (2.18) $ (1.58) $ (1.19)
====== ========= ========== ======= =======
Basic and diluted common
shares used in
computation............. 569 1,511 4,951 4,670 7,245
====== ========= ========== ======= =======
Pro forma basic and
diluted loss per common
share................... $ (0.53) $ (0.36)
========== =======
Shares used in pro forma
basic and diluted loss
per common share........ 20,323 24,169
========== =======
</TABLE>
<TABLE>
<CAPTION>
As of June 30, As of March 31, 1999
---------------------- -------------------------
Pro Forma
Pro As
1996 1997 1998 Actual Forma Adjusted
------ ------- ------- ------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and equivalents......... $3,830 $14,242 $ 9,047 $ 9,430 $ 9,430
Working capital.............. 3,592 12,892 9,843 7,934 7,934
Total assets................. 3,996 16,443 19,542 19,875 19,875
Long-term obligations, less
current portion ............ -- 700 1,371 1,488 1,488
Stockholders' equity:
Convertible preferred
stock..................... 3,993 21,721 29,862 37,134 --
Common stock............... 38 345 1,079 1,913 39,047
Total stockholders' equi-
ty........................ 3,757 13,782 11,228 9,966 9,966
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
the related notes included elsewhere in this prospectus. Our actual results
could differ significantly from those discussed in these forward-looking
statements as a result of certain factors, including those described under
"Risk Factors" and elsewhere in this prospectus.
Overview
We provide next generation Internet infrastructure solutions that are
designed to increase the performance, availability, scalability, manageability
and control of Web servers and Web data centers. Our products include switches,
server adapters and software that combine intelligent Web session management
with the high performance and availability of leading networking infrastructure
solutions. We refer to this combination of capabilities as Web-working.
We provide our solutions to e-commerce companies, Web portals, content
publishers, Web hosting companies, Internet service providers and enterprises.
Our Web switches integrate high-performance Web-working services, including
local and global server load balancing, cache, firewall and router load
balancing, bandwidth management and server security, with greater performance
and cost-effectiveness than using a combination of traditional switches and
traffic management appliances. From our inception on March 18, 1996 through
April 1997, we were primarily engaged in research and development and a
substantial portion of our operating expenses during this period was related to
these activities. In July 1997, we commercially released our line of ACEswitch
Gigabit Ethernet Switches and ACEnic Gigabit Ethernet server adapters. In March
1998, we commercially released our Alteon 180 Series of Web switches and our
Web OS Internet traffic management software. We expect to begin early customer
testing of our Alteon 700 Series of Web switches in July 1999. Our Alteon 700
Series represents our most advanced offering of Web switches. We have incurred
significant net losses since inception and, as of March 31, 1999, had an
accumulated deficit of $27.5 million.
We derive revenues primarily from direct product sales and sales to original
equipment manufacturers, or OEMs, and resellers. Revenues are generally
recognized upon product shipment unless significant Alteon obligations remain.
Revenues are recorded net of sales returns, and allowances are calculated based
on actual historical and expected results.
We market our products through our direct sales force, OEMs and resellers. We
sell our products both directly and through OEMs in North America, and we sell
our products internationally primarily through resellers. A majority of our
sales to date have been to customers located in North America. In the nine
months ended March 31, 1999, sales in North America accounted for approximately
80% of net sales. We expect sales in North America to continue to account for
the majority of our revenues.
A small number of our OEM and reseller customers account for a significant
portion of our revenues. In the fiscal year ended June 30, 1998, our fiscal
1998, sales to Sun Microsystems accounted for 42% of net sales, sales to Fuji
Xerox accounted for 14% of net sales and sales to 3Com accounted for 10% of net
sales. We expect that sales to a small number of customers will continue to
account for a significant portion of our revenues.
We have a limited operating history, which makes it difficult to predict
future operating results. We believe our success requires expanding our
customer base and successfully introducing next generation products, including
the Alteon 700 Series of Web switches. We intend to continue to invest
significantly in sales, marketing and research and development and expect to
incur operating losses for the foreseeable future. Our operating expenses are
relatively fixed and are based on anticipated revenue trends, and therefore a
delay in revenues from product sales could cause significant variation in
operating results and result in unforeseen
24
<PAGE>
losses. Competition in our market is intense and may result in price reductions
and loss of market share. In addition, a significant portion of our sales has
occurred near the end of a quarter. Accordingly, a delay in an anticipated sale
past the end of a quarter may harm our results of operations for that quarter.
Our operating results will be affected by many factors, including the
following:
. demand for our products;
. changes in the mix of products that we sell;
. new product introductions by us and our competitors;
. changes in our pricing policy and those of our competitors;
. the mix of channels through which our products are sold; and
. the mix of domestic and international sales.
As a result, we believe that period-to-period comparisons of our results of
operations are not meaningful and should not be relied upon as an indicator of
our future performance. Our operating results will likely be below the
expectations of public market analysts and investors in some future quarter or
quarters. If this occurs, the price of our common stock is likely to decline.
Results of Operations
Nine Months Ended March 31, 1998 and 1999
Net Sales. Net sales grew to $18.4 million in the nine months ended March 31,
1999 from $9.8 million in the nine months ended March 31, 1998. This increase
was due to increased unit sales of server adapter products introduced in 1997
as well as the introduction of our Web switch products in February 1998.
Cost of Sales. Cost of sales consists primarily of costs related to product
components, contract manufacturing and testing, warranty and quality assurance
for products as well as costs of associated personnel. Cost of sales increased
to $9.4 million for the nine months ended March 31, 1999 from $5.8 million for
the nine months ended March 31, 1998. This increase was due primarily to an
increase in component and manufacturing costs associated with increased product
sales. Gross profit as a percentage of net sales, or gross margin, increased to
49% in the nine months ended March 31, 1999 from 41% in the nine months ended
March 31, 1998. This increase in gross margin was due primarily to change in
product mix to include more Web switches, which generally have higher average
gross margin than server adapter products. Decreased manufacturing and testing
costs due to an increasing shift toward offshore contract manufacturing and
testing functions also contributed to this increase in gross margin.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel costs, including sales commissions, and product marketing and
promotion costs. Sales and marketing expenses increased to $8.9 million in the
nine months ended March 31, 1999 from $4.3 million in the nine months ended
March 31, 1998. $2.0 million of this increase was due to increased personnel
costs, including commissions, associated with establishing a significant
domestic sales force and supporting increased marketing efforts. $1.6 million
of this increase was due to increased product marketing costs related primarily
to our Web switches. We expect that sales and marketing expenses will increase
as a percentage of net sales as we add personnel to support domestic and
international sales efforts.
Research and Development. Research and development expenses consist
primarily of salaries and related costs of employees engaged in research,
design and development activities. We have not capitalized any software
development costs. These costs are expensed as incurred because we believe our
current development process is completed at essentially the same time as
establishment of technological feasibility. Research and development expenses
increased to $7.1 million in the nine months ended March 31, 1999 from $6.4
million in the nine months ended March 31, 1998. $585,000 of this increase was
due to increased personnel associated with the design and development of
products based on our next generation of WebICs, including our Alteon 700
Series of Web switches. We expect that research and development expenses will
increase as a percentage of sales as we continue to develop new products and
product enhancements.
25
<PAGE>
General and Administrative. General and administrative expenses consist
primarily of personnel costs for our administrative and financial groups, as
well as legal, accounting and other professional fees. General and
administrative expenses increased to $1.8 million in the nine months ended
March 31, 1999 from $973,000 in the nine months ended March 31, 1998. This
increase was due to increased personnel costs and professional fees in
connection with supporting our growth. We expect that general and
administrative expenses will increase as we establish the infrastructure to
support growing operations and due to the reporting requirements imposed on a
public company.
Interest Income (Expense), Net. Interest income (expense), net consists of
interest income on earnings on cash and equivalent balances offset by interest
expense associated with debt obligations. Interest income (expense), net
decreased to $189,000 in the nine months ended March 31, 1999 from $341,000 in
the nine months ended March 31, 1998. This decrease was due primarily to higher
interest expense associated with an equipment loan established in March 1998
and, to a lesser degree, lower interest income due to lower balances of cash
and equivalents.
Years Ended June 30, 1997 and 1998
Net Sales. Net sales grew to $13.6 million in the twelve month period ended
June 30, 1998, our fiscal 1998, from $178,000 in the twelve month period ended
June 30, 1997, our fiscal 1997. This increase was due to sales of our
ACEdirector and ACEnic products introduced in July 1997. Net sales during
fiscal 1997 represented limited sales of our ACEnic products for customer
testing.
Cost of Sales. Cost of sales increased to $7.9 million for fiscal 1998 from
$637,000 for fiscal 1997. This increase was due primarily to component and
manufacturing costs associated with commercial product sales. Gross margin was
42% in fiscal 1998 and was negative in fiscal 1997. This improvement in gross
margin was due primarily to commencement of large scale manufacturing and
offshore contract production resulting in reduced product costs.
Sales and Marketing. Sales and marketing expenses increased to $6.5 million
in fiscal 1998 from $1.9 million in fiscal 1997. $2.4 million of this increase
was due to increased personnel costs, including commissions, associated with
establishing a sales force and commencing marketing efforts.
Research and Development. Research and development expenses increased to
$8.8 million in fiscal 1998 from $4.8 million in fiscal 1997. $1.9 million of
this increase was due to increased personnel costs associated with the design
and development of our Web switch products and continued development of our
server adapter products.
General and Administrative. General and administrative expenses increased to
$1.5 million in fiscal 1998 from $744,000 in fiscal 1997. $287,000 of this
increase was due to increased personnel and other costs incurred in connection
with our growth and commencing commercial production of products.
Interest Income (Expense), Net. Interest income (expense), net increased to
$322,000 in fiscal 1998 from $122,000 in fiscal 1997. This increase was due
primarily to higher balances of cash and equivalents.
Income Taxes
As of June 30, 1998, we had available net operating loss carryforwards for
federal and state income tax purposes of approximately $14.1 million. These net
operating loss carryforwards will expire at various dates through 2012 if they
are not used. Utilization of the net operating loss carryforwards may be
subject to annual limitations due to ownership change provisions. Annual
limitations may result in the expiration of the net operating losses before
they can be utilized. We have recorded a full valuation allowance against our
deferred tax asset due to uncertainties surrounding the realization of this
asset.
26
<PAGE>
Quarterly Results of Operations
The following table depicts statements of operations data for each of the
seven quarters ended March 31, 1999. You should read the following table in
conjunction with the consolidated financial statements and related notes in
this prospectus. In our opinion, this unaudited information has been prepared
on the same basis as our consolidated financial statements and includes all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the unaudited quarterly results. The operating results for any
quarter are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------
Sept 30, Dec 31, Mar 31, June 30, Sept 30, Dec 31, Mar 31,
1997 1997 1998 1998 1998 1998 1999
-------- ------- ------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $ 1,667 $ 4,193 $ 3,915 $ 3,797 $ 5,127 $ 6,559 $ 6,702
Cost of sales........... 1,202 2,108 2,491 2,092 2,549 3,675 3,157
------- ------- ------- ------- ------- ------- -------
Gross profit ........... 465 2,085 1,424 1,705 2,578 2,884 3,545
Gross margin............ 27.9% 49.7% 36.4% 44.9% 50.3% 44.0% 52.9%
Operating expenses:
Sales and marketing.... 1,075 1,298 1,945 2,167 2,516 3,072 3,346
Research and
development........... 1,540 2,100 2,776 2,400 2,165 2,641 2,280
General and
administrative........ 261 350 362 532 492 631 690
------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 2,876 3,748 5,083 5,099 5,173 6,344 6,316
------- ------- ------- ------- ------- ------- -------
Loss from operations.... (2,411) (1,663) (3,659) (3,394) (2,595) (3,460) (2,771)
Interest income
(expense), net......... 154 124 63 (20) 65 91 33
------- ------- ------- ------- ------- ------- -------
Net loss................ $(2,257) $(1,539) $(3,596) $(3,414) $(2,530) $(3,369) $(2,738)
======= ======= ======= ======= ======= ======= =======
Basic and diluted loss
per common share....... $ (0.50) $ (0.38) $ (0.65) $ (0.59) $ (0.39) $ (0.46) $ (0.35)
======= ======= ======= ======= ======= ======= =======
Shares used in basic and
diluted loss per common
share.................. 4,474 3,998 5,540 5,790 6,539 7,310 7,886
======= ======= ======= ======= ======= ======= =======
</TABLE>
Our quarterly operating results have fluctuated significantly, and we expect
that future operating results will be subject to similar fluctuations for a
variety of reasons, many of which are substantially outside our control.
Liquidity and Capital Resources
Since inception in March 1996, we have financed our operations and capital
requirements primarily from the sale of $35.6 million of preferred stock and
net borrowings of $2.2 million under an equipment loan. Net cash used in
operating activities was $4.6 million for the nine months ended March 31, 1999.
Net cash used in operating activities was $13.3 million in fiscal 1998 and $6.6
million in fiscal 1997. Cash used in operating activities consisted primarily
of cash utilized to fund operating losses and for working capital. As of March
31, 1999, we had cash and equivalents of $9.4 million.
We have a revolving bank line of credit totaling $3.0 million, which expires
in December 1999. As of March 31, 1999, there were no borrowings outstanding
under this line. We also have a borrowing arrangement for up to $4.0 million
for the purchase of equipment, payable in monthly installments, through
December 1999. At March 31, 1999, we had approximately $2.2 million outstanding
on this equipment loan, which bears interest at the rate of prime plus 0.75%.
At June 30, 1999, this rate was 8.5%.
During the nine months ended March 31, 1999, we acquired $2.1 million in
property and equipment, primarily computer hardware and software, leasehold
improvements and office furniture and equipment. We expect capital expenditures
during fiscal 2000 to be approximately $5.0 million.
In future periods, we anticipate significant increases in working capital on
a period-to-period basis primarily as a result of planned increased product
sales and higher relative levels of inventory. We also anticipate we will
continue to invest significant amounts on property and equipment related to
expansion of our
27
<PAGE>
facilities and to support ongoing research and development activities. We
believe that our current balances of cash and equivalents, together with the
net proceeds from the sale of common stock in this offering and amounts
available under our credit facilities, will satisfy our expected working
capital and capital expenditure requirements for at least the next twelve
months. Thereafter, we may require additional funds to support our working
capital and operating expenses or for other purposes and may seek to raise
additional funds through public or private offerings or debt financings. We
cannot assure you that additional financings will be available, or if
available, will be on reasonable terms, nor can we assure you that these
financings will not be dilutive to our stockholders.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS No. 133 will be effective for
our fiscal year ending June 30, 2001. We believe that this statement will not
have a significant impact on our financial results.
In March 1998, the American Institute of Certified Public Accountants, or
AICPA, issued Statement of Position, or SOP, No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP No. 98-
1 requires that entities capitalize certain costs related to internal-use
software once certain criteria have been met. SOP No. 98-1 will be effective
for Alteon's fiscal year ending June 30, 2000. We believe that this statement
will not have a significant impact on our financial results.
Year 2000 Compliance
Background of Year 2000 issues. Many currently installed computer and
communications systems and software products are unable to distinguish dates
following December 31, 1999 from dates prior to such date. This situation could
result in system failures or miscalculations causing business disruptions. As a
result, many companies' software and computer and communications systems may
need to be upgraded or replaced to become Year 2000 compliant as specified
below.
We have defined Year 2000 compliant as the ability to:
. Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
. Function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
. Respond to two-digit date input in a way that resolves the ambiguity as
to century in a disclosed, defined and predetermined manner;
. Store and provide output of date information in ways that are unambiguous
as to century if the date elements in interfaces and data storage specify
the century; and
. Recognize year 2000 as a leap year.
Our product testing and licensing. We have tested all of our current products
for Year 2000 compliance. We derived our testing method from our review and
analysis of the Year 2000 testing practices of software vendors, relevant
industry Year 2000 compliance standards and the specific functionality and
operating environments of our products. The tests are run on all supported
platforms for each current release of our product and include testing for date
calculations and internal storage of date information with test numbers
starting in 1999 and going beyond the Year 2000. Based on these tests, we
believe our products to be Year 2000 compliant with respect to date
calculations and internal storage of date information.
28
<PAGE>
Customer claims. We may be subject to customer claims to the extent our
products are not Year 2000 compliant. Liability may result to the extent our
products are not able to store, display, calculate, compute and otherwise
process date-related data. We could also be subject to claims based on the
failure of our products to work with software or hardware from other vendors.
Our external vendors. We have identified and contacted our significant
suppliers, service providers and sole manufacturer to determine the extent to
which our interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues. All of our significant suppliers, service
providers and our sole manufacturer have indicated that they are or are
expecting to achieve Year 2000 compliance by December 31, 1999. We are
continuing to monitor the progress of third parties that are critical to our
business. We cannot be certain that the representations of these third parties
are accurate or that they will reach Year 2000 compliance in a timely manner.
If we determine that the progress of specific suppliers, service providers or
our sole manufacturer toward Year 2000 compliance is insufficient, we intend to
change to other suppliers and service providers and an alternate manufacturer
that have demonstrated Year 2000 readiness. We may not find alternative
suppliers, service providers, or an alternate manufacturer. In the event that
any of our significant suppliers, service providers or our sole manufacturer do
not achieve Year 2000 compliance successfully and in a timely manner, and we
are unable to replace them with alternate sources, our business would be
harmed.
Our internal business software. During fiscal 1999, we upgraded our internal
business software to a version that the software vendor has indicated is Year
2000 compliant. This upgrade has been fully implemented. As a result, we
believe that we are in full compliance with our internal financial systems.
However, if due to unforeseen circumstances, the upgrade fails to store,
display, calculate, compute and otherwise process date-related data, the Year
2000 could have a material impact on our operations.
Our internal non-financial software and equipment. We have taken an inventory
of all of our non-financial software and equipment that may be affected by the
Year 2000 and have identified the non-financial software and equipment that is
critical to our operations. We believe that our non-financial software and
equipment will be Year 2000 compliant by the end of 1999. If we are unable to
achieve Year 2000 compliance for our major non-financial systems and equipment,
the Year 2000 could have a material impact on our operations.
Costs of addressing Year 2000 compliance. Based on our preliminary
evaluations, we have not in the past, and do not believe that in the future, we
will incur significant expenses or be required to invest heavily in additional
computer system improvements to be Year 2000 compliant. We do not believe the
cost of addressing the Year 2000 non-compliance issues identified to date will
exceed $250,000. However, significant uncertainty exists concerning the
potential costs and effects associated with Year 2000 compliance. Any Year 2000
compliance problem experienced by us or our customers could decrease demand for
our products, which could harm our business.
Contingency planning. We have not formulated a contingency plan at this time
but expect to have specific contingency plans in place prior to December 1999.
Recent legislation. Legislation was recently passed by Congress that purports
to limit liability for failure to be Year 2000 compliant. We cannot assure you
that this legislation will limit our liability.
Year 2000 issues affecting our business, if not adequately addressed by us,
our significant suppliers, service providers and our sole manufacturer could
have a number of "worst case" consequences. These include:
. our inability to ship our products due to the failure of our sole
suppliers, service providers and our sole manufacturer to achieve Year
2000 compliance;
. claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our products and services
to function properly; and
. our inability to manage our own business.
29
<PAGE>
BUSINESS
Overview
We are a leading provider of next generation Internet infrastructure
solutions that are designed to enable e-businesses to meet the demands
resulting from the rapid growth of the Internet. Our Web data center products,
which include switches, server adapters and software, are optimized to meet the
specific challenges of managing Web application traffic and provide the high
performance of leading networking infrastructure solutions. We refer to this
combination of capabilities as Web-working. Our solutions are designed to
increase the performance, scalability, manageability, availability and control
of Web servers and Web data center infrastructure. Our solutions are built on a
technology core that consists of our Web OS traffic management software, a
distributed processing architecture and our family of custom semiconductors,
which we refer to as WebICs. We provide our Web-working solutions to e-commerce
companies, Web portals, content publishers, Web hosting companies, Internet
service providers and enterprises. Our customers include Compaq Computer
Corporation, Concentric Network Corp., Frontier GlobalCenter, Hewlett-Packard
Company, IBM Corporation, Intermedia Communications Inc., NEC Corporation
(Japan), Ticketmaster Online-Citysearch, Inc., 3Com Corporation, UUnet
Technologies Inc., WebTV Networks, Inc. and Yahoo!.
Industry Background
The Internet, a vast network of interconnected public and private data
networks, has emerged as an important communications and commerce medium for
consumers and enterprises. International Data Corporation, or IDC, an industry
research firm, estimates that the number of users of the Internet will increase
from 97 million in 1998 to 502 million by the end of 2003. With the emergence
of faster access technologies such as digital subscriber line, cable modem and
wireless, the speed and flexibility with which users are accessing the Internet
are also increasing. Furthermore, the advent of the World Wide Web has
facilitated the transmission of new, more complex content types, such as
graphics, audio and video, significantly expanding the capabilities of the
Internet. As a result, a growing number of companies are building business
models around the Internet and developing mission-critical business
applications. These "e-businesses" include:
. e-commerce companies, which sell goods or services over the Web;
. Web portals, frequently used starting points for Web browsing;
. content publishers, which are Web sites providing information to
consumers or business users;
. Web hosting companies, which house and manage Web sites for other
companies;
. Internet service providers, or ISPs, which largely operate the Internet
access and transport networks; and
. enterprises, such as corporations and universities.
E-businesses rely on the Web to communicate with customers and suppliers,
access and share business information, engage in marketing activities, provide
Web-based services and conduct e-commerce transactions. IDC projects that
worldwide e-commerce revenue will grow from $50.3 billion in 1998 to $1.3
trillion in 2003.
Increasing Demands on Web Servers
The growing use of the Internet as a medium for commerce and mission-critical
business applications is placing a significant processing burden on the
computer servers, called Web servers, that function as the main repositories of
e-business applications and information. As businesses increasingly depend on
the Web to conduct operations, Web server availability and performance are
becoming increasingly important for generating revenue and communicating with
customers and vendors. For example, delayed Web server response times may
encourage frustrated customers to pursue business with an on-line competitor or
drive them away indefinitely, particularly if the customer has a time-sensitive
request. A survey by Jupiter Communications, an industry research firm, showed
that 32% of users who have trouble accessing a Web site stop using it or find
an alternative. In almost all cases, the availability and performance of Web
servers and the quality of a customer's Web site experience directly impact
revenue generation capacity for an e-business.
At the same time, the amount of Web application traffic that servers are
required to process is increasing as a result of the growth in the number of e-
businesses. Web application traffic involves the exchange of
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multiple packets of related data associated with a single transaction, often
from multiple servers. We refer to these exchanges as "Web sessions." Examples
of Web sessions include a user filling a "shopping cart" at an e-commerce site
or a business verifying the status of an order from a vendor. The effective
management of Web session traffic is extremely complex and can consume a
substantial portion of a Web server's processing power.
In response to the rapid growth and complexity of Internet traffic and the
increasingly mission-critical nature of Web applications, e-businesses are
buying Web servers at an increasing rate. IDC estimates that corporate spending
on Internet servers will increase from $1.6 billion in 1998 to $5.9 billion in
2002. In addition, to facilitate the increase or "scaling" of Web server
capacity, e-businesses are dividing applications among multiple function-
specific servers to identify and isolate server bottlenecks more easily and add
additional server resources without disrupting the entire application. E-
businesses are also building redundant groups of Web servers, called server
farms, in multiple locations in an attempt to minimize downtime. The need to
quickly and cost-effectively scale applications across multiple servers and
server farms without affecting users has created significant operational and
economic challenges for e-businesses. Furthermore, the growing number of Web
servers, along with the additional infrastructure equipment required to
interconnect these servers, has increased the complexity of Web data centers
and is presenting significant management challenges. The inability of an e-
business to manage Web data centers effectively can result in lost revenues and
disappointed customers.
Limitations of Existing Infrastructure Equipment
The rapid growth in Web session traffic and the increase in the complexity of
Web data centers are creating a need for advanced Internet traffic management
solutions. Traditional networking equipment, consisting of devices known as
switches and routers, generally lacks the capability to manage Web session
traffic. The routers and switches that largely comprise the Internet
communications infrastructure today process traffic at the Internet Protocol,
or IP, layer of the Open System Interconnect, or OSI, reference model, a model
used to characterize communications between computers. The IP layer is also
known as Layer 3. In Layer 3 communications, data is processed in individual,
discrete packets. Each data packet on its own does not carry information about
the status of a Web session or information regarding the specific type of
content requested from a Web server by a user. To direct traffic on the basis
of Web session information, a device must be able to combine related packets
and process information contained at Layers 4 and above in the OSI reference
model, which we refer to as the Web session layers. To permit the management of
Web session traffic and to improve the manageability and scalability of Web
server farms, e-businesses are implementing new Internet traffic management
appliances that are capable of operating at Web session layers. These Internet
traffic management appliances include:
. Local server load balancers, which group a number of Web servers at the
same location into a large virtual server, monitor the status and usage,
or "load," on the actual servers and direct user requests to the best
performing and most available server;
. Global server load balancers, which enable geographic distribution of Web
servers and content to speed the access to information by determining the
geographical location of a requesting user and directing the user's
request to the best performing, most available and closest server farm
that contains the requested information;
. Bandwidth managers, which improve the performance, reliability and
effective capacity of a Web server farm by classifying, prioritizing and
controlling server traffic based on application type, user identity,
destination Web site, content type and other characteristics; and
. Non-server load balancers, which provide load balancing for "in-line
devices," or devices that are located directly in the traffic path
between users and Web servers. Examples of in-line devices commonly used
in a Web data center include firewalls and transparent caches. Firewalls
filter and pre-process traffic entering and exiting a network to enforce
security. Transparent caches store copies of previously requested
information from remote Web servers, transparently intercept user
requests to the
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Internet and fulfill the requests with locally-stored information to
reduce wide area network usage and to accelerate user response time.
While these existing Internet traffic management appliances are capable of
performing Web session management functions, they are typically built on PC-
based platforms and commercial operating systems that generally lack the
combination of performance capabilities, high availability and scalability
required to support mission-critical Web data centers. These Internet traffic
management appliances rely principally upon a centralized processor, such as a
PowerPC or an Intel Pentium, to perform Web session management functions. As
Web traffic increases in volume and complexity, the performance of centralized
processor-based appliances generally declines. Most existing appliances are
single-function devices that do not integrate multiple functions, such as
local and global load balancing, into a single device. If multiple Web traffic
management functions are to be implemented, this lack of integration adds to
the complexity and management challenges of Web data center.
[Description of Graphic: Graphic depicts components of the current Web data
center infrastructure. It depicts the Internet at the center, connected to
"Remote POPs" with Web cache redirectors and reverse proxy caches as
components; "Data Centers," with Web servers and application servers, local
load balancers Layer 2/3 switches, bandwidth managers, global load balancers
and firewalls as components; and "Mirrored Data Centers." Graphic is captioned
"Current Web Data Center Infrastructure."]
New Requirements of the Web Data Center
As e-businesses attempt to scale their Web server infrastructure to
accommodate the growth in Web session traffic, improving the reliability and
performance of Web data centers is driving a new set of requirements for
Internet infrastructure solutions. These solutions should offer:
High Speed Packet and Web Session Switching. Because Web data centers
increasingly have a multi-tiered, application-specific server structure,
infrastructure equipment must support traffic not only between Web servers and
end users but also among servers within the Web data center and between Web
data centers. In addition, the increasing amount of Internet traffic and, in
particular, the increasing amount of bandwidth-intensive audio and video
traffic are driving the need for high-speed connectivity within the Web data
center. Increasingly, Web data center infrastructure solutions must be capable
of supporting multiple Fast Ethernet, or 100 megabits per second, and Gigabit
Ethernet, or 1,000 megabits per second, connections. Ethernet is the
predominant data transmission technology for local area and wide area
networks. Next generation Web data center infrastructure solutions must be
able to manage data packets and Web sessions at these high data transmission
speeds.
Scalability and Manageability. Next generation Web data center
infrastructure solutions should be scalable and upgradable within the rapidly
growing Web data center environment with minimal downtime and administrative
complexity. Given the rapid growth in Internet applications and the emergence
of new content types, next generation Web data center infrastructure solutions
must meet today's performance requirements while providing an architecture
that can be managed easily and expanded cost-effectively as a business grows.
High Availability. To support the increasing mission-criticality of e-
business applications, next generation Web data center infrastructure
solutions must be designed to ensure high system uptime for the Web data
center. This includes redundancy and automatic recovery, known as "failover,"
in the event of an outage at the application, content, server, server link,
switch or network level. Furthermore, these solutions should ensure Web data
center availability upon the failure of an in-line device, such as a firewall
or cache.
Bandwidth and Traffic Control. E-businesses increasingly want to apportion
and manage bandwidth based on a range of criteria, including Web site,
application type, content type, time sensitivity and user identity. The
ability to control the allocation and usage of bandwidth and to optimize the
usage of network and system resources through traffic redirection helps to
ensure that critical applications and key users are assigned the proper
resources.
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Cost Effectiveness. Next generation Web data center infrastructure solutions
should reduce operating costs by simplifying the provisioning and management of
Web data center services. These solutions should also provide Web data center
administrators with the ability to relocate, remove and add servers and other
infrastructure equipment without service disruption. In addition, e-businesses
increasingly seek to capture statistics and accounting data to protect and
generate revenue by offering preferential services and verifying service
levels.
To date, networking equipment has primarily addressed speed and performance
requirements. On the other hand, although existing PC-based Web traffic
management appliances have the intelligence to manage Web sessions, they often
lack the performance, scalability and reliability required for mission-critical
Web data centers. Accordingly, to meet the requirements of their Web data
centers, e-businesses increasingly need solutions that integrate the
intelligence of Web session management capabilities with the speed and
resiliency of leading networking infrastructure equipment.
The Alteon WebSystems Solution
We provide next generation Internet infrastructure solutions that are
designed to increase the performance, scalability, manageability, availability
and control of Web servers and Web data centers. Our Web data center products
include Gigabit Ethernet switches, server adapters and software that combine
intelligent Web session management with the high performance of leading
networking infrastructure solutions. We refer to this combination of
capabilities as Web-working.
We provide our Web-working solutions to e-commerce companies, Web portals,
content publishers, Web hosting companies, Internet service providers and
enterprises. Our Web data center switches, which we call Web switches,
integrate multiple high-performance Web-working services, including local and
global server load balancing, cache, firewall and router load balancing,
bandwidth management and server security, with greater performance and cost-
effectiveness than using a combination of traditional switches and Internet
traffic management appliances. Greater integration can improve our customers'
responsiveness to Web users by reducing delay, removing multiple points of
potential system failure and simplifying management of the Web data center. It
also can reduce the overall capital costs associated with building, maintaining
and growing a Web data center. Our server adapters provide Gigabit Ethernet
connectivity to servers and can increase their access speed while off-loading
server processing tasks. Our switch and adapter architectures are scalable to
accommodate a customer's growth. We believe that these features are crucial to
e-businesses operating Web data centers today and will become increasingly
important in the future.
Our Web-working solutions are based on our core software and hardware
technologies:
Web OS. All of our Web switches support our Web OS, a suite of Web traffic
control software tools for e-businesses. Web data center administrators to
deploy features in any combination and to enable new features as new
requirements arise. Web OS is designed to offer the following features:
. Local server load balancing;
. Global server load balancing;
. Policy-based traffic redirection, which enables cache, firewall and
router load balancing;
. High availability configurations;
. Server security; and
. Bandwidth management.
Distributed Processing Architecture Using WebICs. Our Web switches implement
a distributed processing architecture that is optimized for processing-
intensive, Web session management. We have developed application specific
integrated circuits, or ASICs, which have been designed specifically to address
the requirements of the Web data center. Our ASICs, which we call WebICs, are
deployed in our Web switches in a distributed architecture with a WebIC at each
port or port group, providing dedicated processing capacity. Our current Web
switches can support a session switching rate of approximately 74,000 sessions
per second on
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a single port, which we believe is the maximum session rate possible, or "wire
speed," on a single Fast Ethernet port. Our WebICs are also programmable,
providing the flexibility to integrate new Web traffic management capabilities
through software upgrades.
[Description of Graphic: Graphic depicts components of a new generation of Web
data center networks. It depicts the Internet at the center, connected to
"Remote POPs," with Layer 2-7 Web data center switches and reverse proxy caches
as components, "Data Centers" with load balancing web servers and application
servers, layer 2-7 Web data center switches and load balancing firewalls as
components and "Mirrored Data Centers." Graphic is captioned. "Next Generation
Web Data Center Infrastructure."]
The key benefits of our solutions are:
High-Speed, Web Intelligent Switching. Our Web OS and Web switches combine
Fast Ethernet and Gigabit Ethernet connectivity with both Layer 3 data packet
forwarding and high-performance Web session switching to provide a broad set of
Web traffic control capabilities. By intergrating multiple Web traffic
management functions into a single platform, our solutions are designed to
reduce the delay created by multiple, single-function appliances located in the
data path. Our Alteon 700 Series of Web switches, like our existing families of
Web switches, offers robust Web session switching capabilities based on Web OS.
In addition, the Alteon 700 Series of Web switches is designed to offer wire
speed Web session management for many more switch ports.
Rapid and Efficient Scalability. Our Web OS software is designed to let e-
businesses scale their Web data center infrastructure as their businesses
expand. E-businesses can add Web traffic management functions on an as-needed
basis through a software upgrade . In addition, our Web switches are scalable
in performance, port density and feature support. Our distributed architecture,
which includes a WebIC on every port or port group, is designed to allow the
capacity of our Web switches to be increased rapidly and cost-effectively
simply by adding more ports.
System-Level High Availability. Local and global server load balancing
capabilities enable our Web switches to monitor the status and performance of
each server, server farm and server site and to redirect traffic to alternate
servers and Web data centers in the event of a system failure or server
overload. All of our Web switches feature automatic failover to redundant
switches upon failure. Unlike two port Internet traffic management appliances,
our switches also support multiple input and output connections, referred to as
"full-meshed topology," with redundant network links.
Increased Flexibility and Control. Our Web switches give Web data center
administrators the ability to select and direct traffic flexibly and
transparently through a designated network path or to a specific device or
device group based on a defined set of policies, regardless of the original
traffic destination. This feature, known as policy-based traffic redirection,
helps Web data center administrators optimize network and server resources. In
addition, bandwidth management features on our Alteon 700 Series of Web
switches are designed to allow Web data center administrators to allocate and
prioritize bandwidth to control resource usage.
Cost Effectiveness. We believe that our Web data center solutions provide
significant cost savings for our customers. Our solutions integrate multiple
functions in a single Web switch, reducing capital, management and training
costs. In addition, because our Web OS software can be implemented
incrementally, Web data center administrators can typically deploy additional
services without costly hardware upgrades. Our Web data center infrastructure
solutions increase Web server efficiency by offloading processing tasks from
servers, thereby allowing them to support more users and applications.
The Alteon WebSystems Strategy
Our objective is to be the leading supplier of Web-working infrastructure
solutions. The key elements of our strategy are:
Extend Early Market Leadership in the Web-working Market. We pioneered Web-
working by shipping the first Web switch in February 1998. Our focus on
providing infrastructure solutions optimized for managing
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traffic in the Web data center has enabled us to build a strong position in the
Web-working market. Unlike the Layer 3 switching and routing market, which is
dominated by a few large companies, we believe the market for solutions
optimized for managing traffic at the Web session layers is in its infancy. We
believe our infrastructure solutions are among the most comprehensive Web
traffic management solutions available today that address the increasingly
stringent performance, scalability and reliability requirements of mission-
critical Web data centers. Our newest family of Web switches, the Alteon 700
Series, is scheduled for early customer testing in July 1999. The Alteon 700
Series is designed to extend our performance leadership. Based on product
simulations, we believe it will have the ability to process up to 12,000,000
million sessions per second per switch, which we believe would be the highest
session switching rate in the industry. We believe this capacity, combined with
port density of up to 128 Fast Ethernet or 32 Gigabit Ethernet ports, will
allow us to provide our customers with a cost-effective and easily-managable
upgrade path as they grow their Web data centers.
Leverage our Web-working Technology Leadership. Acuitive, Inc., an industry
research company, has described our Web switches as demonstrating industry
leading performance. We offer customers a rich set of value-added Web traffic
control functions based on our ability to manage traffic at the Web session
layers. By integrating these functions on a single platform, we believe that
our solutions offer higher performance and are more scalable and cost-effective
than existing Web traffic management appliances that use standard processors
and commercial operating systems. We intend to leverage Web OS and our
distributed WebIC architecture to integrate many new traffic control features
in our products. We believe that our ability to provide enhanced features using
a common platform offers a significant competitive advantage. As an example of
our technical leadership, we developed a specification for extending the
standard Ethernet frame size to improve the performance of high-speed systems.
This technology, known as Jumbo Frames, is supported by Compaq, IBM, Microsoft
Corporation, Silicon Graphics, Inc. and other server suppliers. We co-authored
a proposal for this capability with UUNet, Juniper Networks Inc. and Packet
Engines/Alcatel and submitted it in June 1999 to the Internet Engineering Task
Force with the objective of making it an industry standard.
Build Relationships with Key Players in the Internet Marketplace. We intend
to complement our direct sales force with a broader set of Internet-focused
resellers, system integrators and Web service outsourcing leaders. In June
1999, we entered into an agreement with Lucent under which Lucent has the
ability to include Alteon Web switches in its carrier networks offerings from
their InterNetworking System Unit. Under this agreement, Lucent can resell our
Web switches as part of the "Integrated IP Solutions for Service Providers"
program. We formed our open platform technology program, or OPTECH, to
facilitate cooperation among suppliers of products for Web data centers, is an
important component of our distribution and technology integration strategy.
Current members of OPTECH include Internet infrastructure providers such as
CacheFlow, Inc., Check Point Software Technologies Ltd., Hewlett-Packard
Company, Inktomi Corporation, Network Appliance, Inc., Novell Inc., Sandpiper
Networks Inc. and WebSpective Software Inc. We believe that these relationships
provide an important competitive advantage by helping us to anticipate industry
trends and supply compatible solutions to joint customers. For example,
Intermedia Communications Inc./Digex, Incorporated became a customer as a
result of our relationship with Inktomi, their cache vendor.
Increase Penetration of Leading E-businesses. We are focusing our near-term
sales and marketing initiatives on leading e-commerce companies, Web portals,
content publishers, Web hosting companies, Internet service providers and
enterprises. Similar to the way universities led the adoption of router
backbones, we believe that these early adopters of Internet technologies will
lead the way to widespread adoption of Web-working infrastructure solutions.
Expand our Supplier Relationships with Leading Server Manufacturers. We
believe our ACEnic Gigabit Ethernet server adapter products have helped us
establish close relationships with a majority of leading server vendors. These
OEM customers provide us with valuable insights into Web server and Web data
center application trends and technologies. Because our Web switches and server
vendors' hardware and software offerings target a common environment, the Web
data center, we should mutually benefit from increased cooperation in
marketing, distribution, service and joint technology development. We plan to
broaden our
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distribution and service relationships with leading server vendors to include
not only our ACEnic server adapters but also our Web switch and Web OS
products.
Enhance Customer Service and Support. We believe that our ability to provide
high-quality customer service and support is a key factor in attracting and
retaining customers. Prior to the installation of our Internet traffic
management solutions, our systems engineering team works with customers to
analyze and understand their specific network needs. Our worldwide technical
support team provides remote support through a full time, or "24x7," help desk
and assists our customers with online queries and software upgrades. In
addition, we provide consulting services to our customers. We intend to enhance
our existing sales and customer service efforts by expanding our system
engineering and customer support service organizations on a worldwide basis.
Given the increasingly mission-critical nature of our customers' Web data
centers, we believe our ability to provide differentiated service and support
is a competitive advantage.
Technologies
All of our Web switches are built on a technology core that consists of our
Web OS traffic management software, our distributed processing architecture and
our family of WebICs. This technology core forms the basis of our advanced Web
switch and Gigabit Ethernet server adapter products, which are designed to
optimize Web data center performance, availability, scalability and
managability.
Web OS Software
Our Web switches run Web OS, a suite of Web traffic management software
features. These features are designed to offload processing from Web servers,
scale Web servers and applications, and increase the availability, managability
and control of Web data center infrastructures. In addition to offering a
variety of Web traffic management features, Web OS allows our Web switches to
communicate and be dynamically controlled by external servers and network
management devices. This enables customers with unique traffic management
requirements to customize Web OS operations to meet their specific needs. Web
OS is easily expandable, allowing customers to purchase and download additional
Web traffic management features as they become available through the use of a
simple software key.
Distributed Processing Architecture
Our distributed processing architecture is the key to our scalable, high-
performance and cost-effective solutions for Web data center traffic
management. The distributed processing architecture used in our Web switch
products is specifically designed for processing-intensive Web traffic
management. With two reduced instruction set computing, or RISC, processors
located on every port or port group on the switch, the processing tasks for
each Web session are distributed across the four RISC processors at the input
and output ports for parallel operations. This not only increases Web session
throughput, but also reduces delay as the processing queues are shortened with
parallel processing. Our Web switches can support wire speed switching rates on
a single Fast Ethernet port. Based on internal testing, we believe that
distributed processing also enables our Web switches' performance to increase
linearly as additional ports are added. As a result, administrators can scale
their Web data centers by adding servers and router connections without eroding
the performance of our Web switch. Because of the significant processing
capacity provided by our distributed architecture, future Web traffic
management features can be added with minimal performance impact.
Proprietary WebICs
Each port on our ACEdirector and ACEswitch 180 Series Web switches has a
dedicated WebIC that consists of a hardware-assisted forwarding engine and two
RISC processors. Two additional centralized RISC processors provide support for
switch-wide management functions. On each port, the WebIC forwarding engine
handles hardware-assisted packet forwarding, and the two RISC processors handle
Web traffic management functions, such as load balancing and traffic
redirection, in addition to traditional Layer 3 packet forwarding. Background
processing tasks, including Simple Network Management Protocol, or SNMP,
routing updates,
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server monitoring and global server site performance updates, are provided
separately by the two centralized management RISC processors. In our current
generation of Web switches, up to ten WebICs are interconnected, which permits
up to 20 RISC processors to be cost-effectively implemented in a single Web
switch. We believe that this could enable our current generation of Web
switches to process up to 296,000 sessions per second. We believe that the
processing capacity and scalability enabled by the integration of RISC
processors into our WebICs significantly differentiates our Web traffic
management products.
Our Alteon 700 Series, which is scheduled for early customer testing in July
1999, is designed to improve on our current generation of Web switches by
integrating a new one million gate WebIC. This new WebIC also has two RISC
processors that exclusively support service-specific features. The WebIC
implements traditional Ethernet and Layer 3 packet switching, as well as
processing-intensive Web session layer functions, directly in hardware rather
than handling them in software within the RISC processors. For example, in
implementing server load balancing, only Web session setup, which consists of
selecting the best server based on the user-configured load balancing
algorithm, is performed by the RISC processors. Once the server is identified,
all packets in the same Web session are switched to the selected server using
hardware only, bypassing the RISC processors. This means that the two RISC
processors have significant excess capacity, permitting the addition of new
capabilities in the future. This new WebIC is also capable of extracting
information embedded in the data portion of packets, a capability known as Web
content parsing, which allows processing-intensive features such as the
following to be implemented with minimal performance impact:
. URL-based load balancing, which is the ability to redirect Web sessions
to servers based on the uniform resource locator, otherwise known as a
URL, or Web address; and
. SSL session-identifier load balancing, which is the ability to load
balance SSL sessions to specific Web servers based on the session
identifiers embedded in the secure sockets layer, or SSL, a popular
protocol. SSL is used for e-commerce data encryption.
As e-commerce applications embed more and more user-specific information in a
Web session, high-speed Web content parsing will become increasingly important.
Our new WebIC also implements traffic-prioritization support in hardware, while
granular bandwidth management tasks such as usage metering and bandwidth
control are implemented in the two RISC processors. In the high-end model of
our Alteon 700 Series, the Alteon 714, up to 34 of our new WebICs are
interconnected. This is designed to enable data throughput rates of up to
12,000,000 Web sessions per second.
Our current-generation WebIC is also used across our ACEnic Gigabit Ethernet
server adapter line. The two embedded RISC processors are used to implement
many intelligent functions. Our WebIC allows our ACEnic to be highly effective
in reducing host central processing unit, or CPU, utilization. This frees up
Web server processing cycles for applications. This capability has resulted in
this product being chosen by many high-end server vendors, including IBM,
Compaq, Hewlett-Packard, Silicon Graphics, Network Appliance and EMC
Corporation, as part of their networking solutions.
Products
Web OS Software
Web OS offers a rich set of features that can be implemented as needed,
providing Web data center administrators control of Web data center traffic
without sacrificing performance. Web OS includes local and global server load
balancing, policy-based traffic redirection, high availability configurations,
bandwidth management and server security services as well as a full complement
of Web switch management capabilities. Web OS was introduced in February 1998
and is implemented on our ACEdirector 2 and 3 and Alteon 180 Series and will be
available on our Alteon 700 Series of Web switches.
Local Server Load Balancing. This feature allows network administrators to
transparently distribute Web session traffic across a group of physical servers
at the same location, thereby creating one large virtual server.
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This allows Web data center administrators to scale Web application performance
by simply aggregating more servers, with no changes required to the application
or to the user's configuration. By continuously monitoring server, application
and content status and server load, this function ensures that traffic is sent
to the best-performing servers. For each Web session request received, a Web
switch running Web OS identifies the desired application and the target server
group based on information in the headers of the session request and, if
appropriate, the URL or SSL session identifiers embedded in the session
request. Web OS identifies the best server within the target server group to
handle each Web session using one of its load balancing algorithms. Web OS can
also interface with external programs running on a server or a management
device to dynamically change its server selection method.
Global Server Load Balancing. Web OS global server load balancing allows
content and servers to be distributed to locations around the world and directs
user requests to the best locations based on Web server and Web data center
performance, proximity to the client and Web server response time. If a Web
data center has suddenly failed or is overloaded, requests are redirected to
the next best location to help ensure application availability. Each Web switch
participating in global server load balancing monitors the status, response
time and performance of all the other load balancing locations and exchanges
its measurements with the Web switches in those locations. With a complete and
global view of each location's status and performance, the Web switch running
Web OS directs requests to locations near each requesting user in proportion to
their available capacity. As a result, the best performing locations receive
more connection requests than other locations, in proportion to their ability
to handle additional requests. This is designed to optimize response times and
provide consistent user performance.
Policy-based Traffic Redirection. This feature allows Web data center
administrators to use powerful filtering capabilities available in Web OS to
intercept traffic based on a variety of Web session attributes and redirect the
traffic to a designated Web server or server farm. Filters can be configured
based on source and destination IP address or Web session addresses. When
traffic is redirected to a server farm, a Web switch running our Web OS
software automatically performs load balancing across the server farm. The
following are examples of policy-based traffic redirection:
. Web Cache Redirection. This feature enables the use of transparent Web
caches without placing them in the data path. A Web switch running Web OS
can be configured to redirect outgoing Web traffic to a cache or cache
farm. By analyzing Web requests based on the embedded URL, Web OS further
improves cache server efficiency by only redirecting to the cache
requests for cachable objects from cachable sites. When a Web switch is
instructed to redirect traffic to a cache farm, the switch employs an
algorithm to load balance Web requests across the individual caches while
maximizing cache hits. Cache servers are continually monitored and
requests are forwarded either to a backup cache or directly to the
Internet upon a cache failure or overload.
. Firewall and Router Load Balancing. Web data center administrators can
also use redirection filters to extend the scalability and availability
benefits of server load balancing to in-line packet processing devices,
such as firewalls and routers, thereby increasing overall Web data center
throughput. For instance, application redirection enables a firewall or
router in standby mode to become fully active and available to process
its share of traffic with no software or hardware change. This feature
not only increases Web data center performance but also increases a
customer's return on invested capital, because these devices would
otherwise be inactive until failures occur in the primary firewall or
router.
High Availability. We have designed all Web OS services to enable ongoing
service in the event of any Web data center infrastructure failure involving a
firewall, cache, server, application, content or even an entire server farm or
network failure. In addition, redundant Web switches running Web OS can be
deployed in an "active-active" configuration with multiple "peer" switches
sharing Web session processing load. Upon detection of a peer switch failure, a
healthy switch automatically assumes the failed switch's load to prevent
service outage. Additionally, Web switches support full-meshed topologies,
eliminating system-wide single points of failure that can occur with
standalone, two-port Internet traffic management devices.
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Bandwidth Management and Class of Service (CoS). These capabilities provide
bandwidth control for traffic entering and leaving Web servers. Because our Web
switches are designed to connect directly to servers, they are positioned to
meter server input and output and to control bandwidth usage. This feature
allows e-businesses to record a variety of traffic statistics for accounting,
service level agreement reporting and capacity planning.
Server Security. This feature automatically protects Web servers against
unwanted intrusion by discarding illegitimate sessions. This function also
supports access control filtering and generic network address translation to
allow implementation of private Internet addresses.
Web Switches
ACEdirector Series. Our ACEdirector product line represents our first series
of stackable, fixed configuration Web switches. Based on our WebIC technology
and distributed processing architecture, the ACEdirector Series supports
Ethernet and Layer 3 switching and most Web OS Internet traffic control
features. The ACEdirector Series includes the ACEdirector 2 and ACEdirector 3
products. The ACEdirector 3 supports more memory than the ACEdirector 2,
enabling expanded network configurations. Both products offer eight Fast
Ethernet ports, with the ACEdirector 3 supporting one additional Gigabit
Ethernet port. We began shipping our ACEdirector product line in April 1998.
Cache Director. Our Cache Director is a Web traffic management appliance
designed to provide single-function, policy-based traffic redirection, at an
entry-level price. The Cache Director incorporates the same WebIC technology as
our ACEdirector Series and is based on the same distributed processing
architecture as all of our Web switches. We have shipped this product since
December 1998.
Alteon 180 Series. Like our ACEdirector series, our Alteon 180 Series is
stackable, with fixed-configuration Web switches. The Alteon 180 Series
consists of the Alteon 180, which supports Ethernet and Layer 3 switching, and
the Alteon 180Plus, which is additionally configured with Web OS functions to
enable advanced Web traffic management features. The Alteon 180 Series supports
nine Gigabit Ethernet ports, eight of which provide a Fast Ethernet option and
automatically select the appropriate speed based on the connection. We have
shipped Alteon 180 Series products since February 1998.
Alteon 700 Series. Our Alteon 700 Series represents our most advanced
offering of Web switches and was developed using our next-generation WebIC
technology. Early customer testing of our Alteon 700 Series is scheduled to
begin in July 1999. Like our existing families of Web switches, the Alteon 700
Series offers robust Web session switching capabilities using our suite of Web
OS software products. In addition, with the advanced processing capabilities of
our new generation WebIC, the Alteon 700 Series of Web switches enable high
performance Web session management for a large number of switch ports, an
important capability for rapidly growing e-business Web data center
implementations. The Alteon 700 Series is comprised of the Alteon 708 and the
Alteon 714. The Alteon 708 can support up to 64 Fast Ethernet or 16 Gigabit
Ethernet ports in flexible combinations while the Alteon 714 can support up to
128 Fast Ethernet or 32 Gigabit Ethernet ports. Both the Alteon 708 and the
Alteon 714 are housed in modular switch chassis, providing multiple slots for
mixed connectivity. The Alteon 700 Series is designed to offer wire speed
packet and session switching throughput. All removable components are
interchangeable between the 708 and 714 products, enhancing our customers'
flexibility and ability to leverage their existing infrastructure investment.
The Alteon 708 offers redundant power supplies and cooling fans, while the
Alteon 714 also offers redundant core semiconductor interconnections. Both
switches can support all Web OS functions.
39
<PAGE>
The following table summarizes the features and performance capabilities of
our Web switches:
<TABLE>
<CAPTION>
Alteon 180
ACEdirector 2/3 Cache Director Plus Alteon 708 Alteon 714
------------------- ------------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Maximum Configurations..
8 Fast Ethernet; 8 Fast Ethernet 8 selectable Up to 64 Fast Up to 128 Fast
ACEdirector 3 10/100/1000 Ethernet or 16 Ethernet or 32
also supports 1 Ethernet plus 1 Gigabit Ethernet Gigabit Ethernet
Gigabit Ethernet Gigabit Ethernet
uplink uplink
Web Session Switching .. Yes Yes Yes Yes Yes
Sessions per Second per
Port (approximate)...... 74,000 74,000 74,000 74,000 74,000
(Fast Ethernet) (Fast Ethernet)
740,000 740,000
(Gigabit Ethernet) (Gigabit Ethernet)
Sessions per Second per
Switch (approximate).... 296,000 296,000 296,000 6,000,000 12,000,000
Modularity.............. Stackable Stackable Stackable Modular Modular
Fixed configuration Fixed configuration Fixed configuration 4 input/output 8 input/output
slots for mixed slots for mixed
connectivity connectivity
Physical Redundancy..... None None None Redundant power Redundant power,
and management fabric and
module management module
Fabric Capacity......... 8 Gbps 8 Gbps 8 Gbps 90 Gbps 180 Gbps
Per Port List Price
Range of Fully-
Configured System Fast Ethernet: Fast Ethernet: Fast and Gigabit Fast Ethernet: Fast Ethernet:
(U.S.).................. $1,375 $687 Ethernet: $387-$583 $350-$545
Gigabit Ethernet: $1,667-$2,444 Gigabit Ethernet: Gigabit Ethernet:
$2,000 $2,149-$2,930 $2,042-$2,824
</TABLE>
The session per second per port performance for the Alteon 708 and Alteon 714
are design objectives that have been verified through design simulation.
The session per second per switch performance is based on internal testing
and extrapolation of port performance data.
ACEnic Gigabit Ethernet Server Adapters
We shipped the industry's first Gigabit Ethernet server adapter, the Alteon
ACEnic, in late 1997. In 1998, according to IDC, Alteon ACEnics garnered 47% of
the Gigabit Ethernet adapter market.
The key design principle of the ACEnic is to offload processing from the
server CPU onto the ACEnic server adapter to free up server central processing
unit, or CPU, capacity for application processing. Our ACEnic features a WebIC
with two built-in RISC processors that enables it to offload network processing
from the server, provide downloadable updates and support value-added feature
enhancements.
We believe our ACEnic server adapters are among the best performing in the
industry. Industry-leading server performance results have been publicized by a
number of companies using our ACEnic server adapters. For example, Microsoft
has stated that it has demonstrated 920 Mbps throughput on a single-CPU Pentium
II Xeon server (400MHz), and IBM has announced 989 Mbps throughput for an
RS/6000 platform using our ACEnic server adapter.
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<PAGE>
The ACEnic is currently available for Peripheral Component Interconnect, or
PCI bus, and Sun bus, or Sbus, with software drivers available for leading
operating systems such as Microsoft NT 4.0 and Windows 2000, Sun Solaris and
Solaris x86, Linux and FreeBSD. A number of our OEMs have written drivers for
many other operating environments, including:
. AIX, OS/400 and OS/390 from IBM;
. Tru64, NT (Alpha) and OpenVMS from Compaq;
. IRIX from SGI; and
. Mac OS from Apple Computer, Inc.
We believe that the breadth of operating systems that we support and the
software drivers written by our server and other OEM partners will continue to
be a strong asset as Gigabit Ethernet is increasingly deployed in volume during
the next few years.
Our ACEnic server adapters, as well as all of our Web switches, support
Ethernet frame sizes above the standard 1,500 bytes, known as Jumbo Frames.
Jumbo Frames is an optional performance extension to Ethernet that we propose
to Gigabit Ethernet solution providers. Using larger frame sizes during large
block transfers minimizes consumption of server processing capacity. In
publicly-conducted performance tests, Jumbo Frames has been shown to
significantly increase server throughput. Importantly, among the top 33
SPECweb96 Web server performance results published in April 1999, 10 of them
were achieved by Web servers connected with Alteon ACEnics and Alteon 180
switches running Jumbo Frames. SPECweb96 is an industry software benchmark
designed to measure a system's ability to act as a World Wide Web server for
static pages. For this reason, almost all of our ACEnic OEM partners have
implemented Jumbo Frame support in their drivers. We believe that the
widespread endorsement of Jumbo Frames among high-speed adapter suppliers will
be a significant leverage for our Web switches in server farm networks.
Customers
Our customers include e-commerce companies, Web portals, content publishers,
Web hosting companies, Internet service providers and enterprises. The
following companies have purchased at least $100,000 of our products:
Agence France-Presse (France) Hewlett-Packard Company
Airtel Movil S.A. (Spain) Hong Kong Telecom IMS Ltd.
Cable & Wireless plc. (UK) IBM Corporation
China Telecom (Hong Kong) Ltd. Intermedia Communications
Compaq Computer Corp. Inc./Digex, Incorporated
Concentric Network Corp. KDD Corporation (Japan)
Dacom Corporation (Korea) Lyonnaise Cable (France)
Datek Online Microsoft Corporation
DDI Corporation (Japan) NTL, Inc. (UK)
Dun & Bradstreet Corp/DE/ Nippon Tel & Tel Ads (Japan)
EMC Corporation Rogers Communications Inc. (Canada)
E*TRADE Group, Inc. (Japan) Sandpiper Networks, Inc.
Exodus Communications, Inc. Telefonica S.A. (Spain)
France Telecom (France) 3Com Corporation
Fuji Xerox Information Services Uni2 (Spain)
(Japan) UUNET Technologies, Inc.
We sell our Gigabit Ethernet server adapters primarily to original equipment
manufacturers, or OEMs. The following OEMs have purchased more than $100,000 of
our server adapters:
Compaq Computer Corp. IBM Corporation
EMC Corporation NEC Corporation (Japan)
Hewlett-Packard Company 3Com Corporation
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<PAGE>
In our fiscal 1998, sales to Sun Microsystems accounted for 42% of net sales,
sales to Fuji Xerox accounted for 14% of net sales and sales to 3Com accounted
for 10% of net sales. We expect that revenues from a relatively small number of
customers will continue to account for a significant portion of revenues.
Unless and until we diversify and expand our customer base, our future success
will significantly depend upon the timing and size of future purchase orders
from our largest customers.
Sales to customers outside of North America accounted for approximately 28%
of our net sales in fiscal 1998 and 20% of our net sales in the nine months
ended March 31, 1999.
The following examples illustrate how our customers use our products to
enhance service offerings.
Dacom Corporation. Dacom is the second leading telecommunications carrier and
the leading Internet service provider in Korea. The company was named by Data
Communications Magazine as the best business Internet service provider in Asia
Pacific and is currently the most profitable ISP in Korea. According to Dacom,
a key reason for the company's success as an e-business is their aggressive
application of advanced technologies in their Internet infrastructure to
improve customer service and control costs. Dacom began deploying Alteon's Web
switches in May 1998 to enable transparent caching on their Trans-Pacific link.
To enable caching without requiring their customers to modify their browsers to
send traffic to the cache, we installed an Alteon 180Plus next to the transit
router. This Web switch transparently intercepts non-domestic outbound traffic
and redirects it to the cache. As a result, Dacom has reduced bandwidth cost by
30% per month and, more importantly, improved their customers' response time.
Dacom has purchased over 40 Alteon Web switches and is deploying them in all of
their caching locations. Dacom also uses our Web switches to load balance all
of their servers, including file transfer, mail, news and domain name service
servers, for high availability and server capacity scaling. Dacom has also
installed our Web switches to offload access list processing from their
expensive backbone routers. Dacom recommends Alteon Web switches to their co-
location customers for load balancing and traffic redirection.
Sandpiper Networks, Inc. Sandpiper Networks provides an outsourced service,
helping Web publishers distribute their content reliably around the globe over
Sandpiper's content delivery network. To implement this service in a manner
that can scale and is completely reliable, Sandpiper has developed and
integrated a hardware and software solution called Footprint. In a FootPrint
Content Distributor location, an Alteon WebSystems ACEdirector connects to
Sandpiper customer Web cache servers that store their customers' content. The
ACEdirector is used for automatic failover. The ACEdirector evenly distributes
incoming requests between the two Web cache servers. It periodically executes a
comprehensive check of the Web cache server hardware and software to determine
if the Content Distributors are performing properly. If there is a failure, or
significant degradation in server performance, the AceDirector will direct all
traffic to the best-performing server. The ACEdirector is also capable of
evenly distributing incoming requests among the servers in the farm. Sandpiper
has deployed over 50 Alteon ACEdirectors for their service. As OPTECH members,
Sandpiper and Alteon also engage in joint product development activities that
are intended to enable Sandpiper to enhance their product offerings.
Concentric Network Corp. Concentric Network Corp. is a leading Internet
service provider that provides value-added IP network and Web hosting services
for large and small businesses. Concentric operates an extensive backbone
network that interconnects more than 20 SuperPOPs in the United States that
provide nationwide coverage for dial, digital subscriber line and T1/T3
connectivity. In addition, Concentric operates four Web hosting data centers
around the United States. Concentric has many hundreds of co-located or managed
servers. In an effort to provide its customers with high availability, fault
tolerance and scalability for their server-based applications, Concentric
introduced new local and distributed server environment services. Concentric
sought to offer these services through a uniform switching architecture, with a
low cost of deployment per customer and the ability to support a redundant
failover configuration. To meet these challenges, Concentric has already
deployed 16 Alteon Web switches in redundant configurations in the majority of
its data centers. Our Web switches provide Gigabit Ethernet connectivity for
their data center routers and the Ethernet switches used to connect servers.
Our Web switches are also used to load balance traffic between multiple
customer Web servers and to provide rapid failover services in the event of a
port, link,
42
<PAGE>
switch or server failure. The ACEdirectors also provide Concentric with
automatic and transparent redirection of any IP traffic type based on specific
traffic engineering needs. Using our Web switches, Concentric successfully
launched its Local Server Environment services with 99.97% service level
guarantees and a low cost of deployment. Concentric also uses our Web servers
to load balance servers supporting its consumer dial service.
Marketing, Sales and Customer Support
We sell our products through our direct sales force, OEMs and resellers. In
North America we sell our products both directly and through OEMs, and we sell
our products internationally primarily through resellers. We are actively
establishing new sales channels and increasing our direct sales force, both
domestically and internationally. Our direct sales teams typically consist of a
sales representative covering specific geographic regions and a systems
engineer. Our systems engineers provide technical support and implementation
expertise during the evaluation process. We expect to nearly double the number
of direct sales personnel in the next six months in order to both support and
develop leads for our indirect distribution channels and increase the direct
sale of our products. This expansion will significantly increase personnel
costs and related expenditures. Sales personnel will not be productive
immediately and we can not assure you that costs of this expansion will not
exceed the revenues generated by the sales personnel.
To achieve broader and more geographically dispersed distribution of our
products, we expect to increase our reliance on OEMs and resellers. For
example, in June 1999, we signed an agreement with Lucent under which Lucent
has the ability to integrate and resell Alteon Web switches with their solution
offerings in their "Integrated IP Solutions for Service Providers" program. We
cannot assure you that our existing OEM and reseller customers will market our
products effectively or continue to devote the resources necessary to provide
us with effective sales, marketing and technical support. Furthermore, current
OEM customers have developed, or may be developing, competitive products, or
may have pre-existing relationships with our current or potential competitors
which may reduce their efforts in selling our products. We may also be unable
to retain current or future OEM customers. Generally, OEM relationships can be
terminated with little or no notice. If our relationship with any current or
future OEM customers is terminated by either party, we may not be successful in
replacing the customer on a timely basis, or at all, with another suitable OEM.
We sell our Web switches and our Web OS primarily through our direct sales
force to e-businesses, including e-commerce companies, Web portals, content
publishers, Web hosting companies, Internet service providers and enterprises.
We sell our server adapters primarily to OEMs. We believe that our customers
evaluate our products primarily on the basis of performance, features,
manageability and speed of delivery.
We believe that alliances with vendors of complementary technologies are
important in our rapidly-evolving market. As a result, we have established our
OPTECH program, which has three components: product interoperation/integration,
joint marketing and joint sales. Through this program, we attempt to offer our
customers more complete, integrated Web data center solutions. OPTECH members
include Internet infrastructure providers such as Cacheflow, Check Point
Software Technologies, Hewlett-Packard, Inktomi, Network Appliance, Novell,
Sandpiper Networks and WebSpective Software. Alliances such as OPTECH and our
relationship with Lucent help us to expand our sales effort, penetrate new
accounts, and ensure interoperability with industry leading products and
compliance with industry standards.
Once our products are sold to end users, our system engineering team
continues to work to address the evolving needs of their networks. We assist
our OEMs and resellers in providing support for products they sell. The sales
price for all of our products includes a one-year full warranty, and an
additional five-year service plan can be purchased separately. Our technical
support team provides worldwide support through a help desk and assists our
customers with online service updates and software upgrades. We also provide
on-site support for critical problem resolution. In addition, we provide a full
range of consulting services to our customers, including comprehensive network
management and performance and capacity analysis to assist in predicting future
network requirements. We believe that we have leading customer service and
support capabilities and we plan to continue to invest in this area in the
future.
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<PAGE>
Research and Development
To be successful, we must continue to enhance and build on our WebIC and Web
OS technologies and to develop competitive new products. We have assembled a
team of highly experienced hardware, software and test engineers and system
architects. Our engineering team possesses expertise in the areas of high
performance server connectivity, high performance, highly-integrated ASIC and
system design and internetworking.
We take an aggressive, team-oriented approach to product development, with
hardware and software engineers working together with product marketing to
combine high performance with rapid time-to-market, which we believe are
critical to maintaining a leadership position in the Web-working market. Our
product development efforts focus on:
. defining product features;
. developing product specifications and architecture;
. implementing design;
. performing extensive design verification and testing; and
. initiating field testing.
As of June 30, 1999, we employed 47 full-time employees in research and
development. During fiscal 1998, we spent $8.8 million on research and
development. In the nine months ended March 31, 1999, we spent $7.1 million on
research and development.
Our industry is characterized by very rapid technological change, frequent
new product introductions and enhancements, changes in customer demands and
evolving industry standards. Our existing products will be rendered less
competitive or obsolete if we fail to introduce new products or product
enhancements that anticipate the features and functionality that customers
demand or insure that our products interoperate with current and emerging
networking technologies. In the past, we have lost customers to competitors
because we were not able to respond to their requests for additional features
in a timely fashion.
Manufacturing
Our manufacturing operations consist primarily of prototype development and
quality control. We outsource substantially all of the manufacturing and
testing of our hardware platforms to a contract manufacturer, Celestica, on a
turn-key basis. We purchase our custom components from third party suppliers
and deliver those components to Celestica on a consignment basis for assembly
in our hardware platforms. We design and direct Celestica's manufacturing
processes with the goal of ensuring compliance with our quality standards and
cost improvement initiatives. Our reliance on a single independent manufacturer
involves a number of risks, including the absence of adequate manufacturing
capacity and reduced control over delivery schedules, manufacturing yields and
costs. In addition, as our relationship with Celestica develops, manufacturing
yields or product performance could be adversely affected due to difficulties
associated with adapting our technology and product design to Celestica's
process technology and design rules. In addition, Celestica is not obligated to
supply products to us for any specific period, in any specific quantity or at a
specific price, except as may be provided in a particular purchase order. If
Celestica is unable or unwilling to continue manufacturing our components in
required volumes, we will have to identify acceptable alternative
manufacturers, which could take in excess of six months.
We purchase several key product components that are contained in our products
from only one source and alternative sources for these components are either
not currently available or are difficult to develop. The inability to obtain
sufficient quantities of these components may result in delays or reductions in
product shipments, which would harm our business. For example, the only
manufacturer for our WebICs is LSI. The process used to manufacture our WebICs
is proprietary to LSI. We do not have a supply agreement with LSI. If LSI
terminated our relationship, we would be required to redesign our WebICs to
make them compatible with the manufacturing process of a new supplier. We
estimate that this process could take as long as twelve months and cost $4.0
million dollars or more.
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<PAGE>
In order to maintain our competitive edge, we plan to focus our manufacturing
efforts on:
. new product introduction;
. building prototypes of new products;
. ensuring that products are designed for low cost;
. ensuring that product design and manufacturing processes yield high
quality;
. process design;
. constant yield improvement;
. failure analysis of field and factory failures;
. constant cost reduction;
. ensuring a very high level of customer satisfaction; and
. aggressively managing overhead and period costs to an absolute minimum.
Competition
We compete in the highly competitive, next generation Internet infrastructure
market. We expect competition to intensify in the future. We believe our
ability to compete successfully in this market will be driven primarily by the
reliability, performance and distinctive features of our products and by the
quality of our customer service. Our principal competitors include:
. Large telecommunications and networking companies. We face competition
from large telecommunications and networking companies, including Cisco
and Nortel Networks Corporation. These companies have a longer operating
history, broader customer relationships, greater brand recognition and a
broader set of products than we do. For example, Cisco offers a variety
of Internet networking appliances and software that manage traffic
volume, and we believe that Cisco plans to introduce a product that would
compete with our products. If Cisco or other companies were to bundle
their products, incorporate an Internet traffic management component into
existing products or form alliances with, or acquire competing Web
traffic management products or companies, even if their products do not
have comparable capabilities, they would be significant competitors and
their activities could cause us to reduce our prices.
. Other vendors of traffic management solutions. A number of other private
and public companies offer products designed to provide Internet traffic
management solutions. Some of these companies offer products focused on a
particular function, such as bandwidth management or load balancing. With
respect to a particular function, these products may be superior to ours.
Other companies offer sophisticated Web traffic management solutions with
a variety of features. Some of these companies have longer operating
histories, an extensive knowledge of our industry, more resources and
broader customer relationships than we do.
In order to compete successfully in this emerging market, we need to:
. continuously improve our time-to-market with new features and
capabilities, thus reducing the risk of one traffic management function
being made obsolete or less competitive and maintaining a significant
barrier to entry;
. commercialize product features that take advantage of the Web session
layers hardware switching and switching-assist capabilities in our next
generation WebIC; and
. build relationships with networking equipment providers that lack
Internet traffic management solutions.
Intellectual Property
Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights. We rely primarily
on a combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws to accomplish these goals.
45
<PAGE>
We have two U.S. patent applications pending. It is possible that the patents
that we have applied for, if issued, or our potential future patents may be
successfully challenged or that no patents will be issued from our patent
applications. It is also possible that we may not develop proprietary products
or technologies that are patentable, that any patent issued to us may not
provide us with any competitive advantages, or that the patents of others will
harm our ability to do business.
We seek to avoid disclosure of our trade secrets, including but not limited
to, requiring employees, customers and others with access to our proprietary
information to execute confidentiality agreements with us and restricting
access to our source code. We also seek to protect our software, documentation
and other written materials under trade secret and copyright laws. Despite our
efforts to protect our proprietary rights, existing laws and our contractual
arrangements provide only limited protection. Unauthorized parties may attempt
to copy or otherwise obtain and use our products or technology. Monitoring
unauthorized use of our products is difficult and we cannot be certain that the
steps we have taken will prevent unauthorized use of our technology,
particularly in foreign countries where the laws may not protect our
proprietary rights as fully as in the United States. Expensive litigation may
be necessary in the future to enforce our intellectual property rights. Our
failure to enforce and protect our intellectual property rights could harm our
business.
We incorporate technology that is licensed from several third parties into
our products. These licenses are either perpetual or are for technologies for
which alternative sources are generally available. In addition, our WebICs are
manufactured using technology owned by LSI. If we lost access to this LSI
technology, we would be required to re-design our products and develop or
license additional technology.
We expect that we will be subject to infringement claims as the number of
products and competitors in our markets grows and the functionality of products
overlaps. Currently, we are involved in trademark litigation over the use of
the name and mark Alteon and Alteon Networks. The results of any litigation
matter are inherently uncertain. In the event of an adverse result in any
litigation with third parties that could arise in the future, we could be
required to pay substantial damages, including treble damages if we are held to
have willfully infringed, to cease the manufacture, use and sale of infringing
products, to expend significant resources to develop non-infringing technology,
or to obtain licenses to the infringing technology. In addition, lawsuits,
regardless of their success, would likely be time-consuming and expensive to
resolve and would divert management time and attention. Any potential
intellectual property litigation also could damage our business by forcing us
to do one or more of the following:
. stop selling, incorporating or using our products that use the challenged
intellectual property;
. obtain from the owner of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms, or at all; or
. redesign those products that use such technology.
Employees
As of June 30, 1999, we employed 142 employees. Of the total number of full-
time employees, 47 were in engineering, 67 were in sales and marketing and
business development and 28 were in operations and administration. Our
employees do not have any collective bargaining agreement, and we have never
experienced a work stoppage. We believe our employee relations are good.
Facilities
Our corporate headquarters are located in San Jose, California, under a lease
that expires in 2003, but which may be renewed for an additional five years. We
occupy approximately 48,000 square feet in this facility and sublease
approximately 30,000 square feet under a sublease that expires in 2003. We also
lease space in Japan for our sales personnel. We believe that our existing
facilities are adequate for current requirements and that additional space can
be obtained on commercially reasonable terms to meet future requirements.
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<PAGE>
Legal Proceedings
Alteon Incorporated, a pharmaceutical company, filed a lawsuit against us on
March 2, 1998 alleging trademark infringement and related claims arising from
our use of the name and mark Alteon and Alteon Networks. An answer denying the
claims of Alteon Incorporated was filed on May 1, 1998. Alteon Incorporated is
seeking a preliminary and permanent injunction against our use of these names,
damages (including treble damages), costs and attorney's fees. We believe we
have strong defenses and we intend to defend ourselves vigorously. However, we
cannot assure you that we will prevail in the action. If we do not prevail in
this action, we would not be able to use the Alteon name for our company
products, Web site or for other purposes. We could be required to pay
substantial damages and change our name, either of which could harm our
business.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth information regarding our executive officers
and directors as of June 30, 1999.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Dominic P. Orr........... 48 Chief Executive Officer, President and Director
Joe T. Booker............ 58 Vice President of Operations and Director
Selina Y. Lo............. 39 Vice President of Marketing and Product Management
James G. Burke........... 56 Chief Financial Officer and Secretary
Barton M. Burstein....... 46 Vice President of Business Development
Anthony Narducci......... 54 Vice President of Worldwide Sales
Shirish S. Sathaye....... 38 Vice President of Engineering
Tench Coxe............... 41 Director
Adam Grosser............. 38 Director
Andrew W. Verhalen....... 43 Director
</TABLE>
Dominic P. Orr has served as our Chief Executive Officer and President and as
a member of our board of directors since November 1996. From 1994 to 1996, Mr.
Orr served as Senior Vice President at Bay Networks, a computer-networking
company. From 1982 to 1996, Mr. Orr held various positions at Hewlett Packard
Co., a computer and office equipment company, including Director of Marketing
and Product Operations in Asia Pacific for its computer systems organization.
Mr. Orr holds a B.S. in Physics from the City University of New York and a M.S.
in Theoretical Physics and a Ph.D. in Neurophysiology from the California
Institute of Technology.
Joe T. Booker has served as our Vice President of Operations since February
1997 and as a member of our board of directors since September 1997. From
August 1994 to February 1997, Mr. Booker served as Vice President and General
Manager of the Commercial Business Unit at Bay Networks, a networking company.
Selina Y. Lo has served as our Vice President of Marketing and Product
Management since September 1996. In 1993, Ms. Lo co-founded Centillion
Networks, Inc., a networking company that was acquired by Bay Networks, Inc. in
May 1995, and served as Vice President of Marketing from May 1995 to July 1996.
Ms. Lo holds a B.S. in Computer Science from the University of California at
Berkeley.
James G. Burke has served as our Chief Financial Officer and Secretary since
October 1998. From April 1997 to October 1998, Mr. Burke worked as an
independent consultant. From October 1992 to April 1997, Mr. Burke served as
Vice President of Finance and Administration, Chief Financial Officer and
Secretary of C-Cube Microsystems, Inc., a semiconductor company. Mr. Burke
holds a B.S.E.E. and B.N.S. from the University of Wisconsin and an M.B.A. from
Harvard University Graduate School of Business Administration.
Barton M. Burstein has served as our Vice President of Business Development
since August 1998 and has worked at Alteon since January 1997. From January
1995 to January 1997, Mr. Burstein worked at Bay Networks in a variety of
positions, including Director of Advanced Technology Sales/ICON. From 1985 to
1994, Mr. Burstein worked at UB Networks, Inc., a networking company, in a
variety of positions, including Director of Latin America and Asia Sales. Mr.
Burstein holds a B.A. from Antioch College and a Masters in Computer Science
from the University of Michigan.
Anthony Narducci has served as our Vice President of Worldwide Sales since
November 1998. From October 1997 to October 1998, Mr. Narducci served as Vice
President of Sales for Shomiti Systems, Inc. a networking company. From 1994 to
1997, Mr. Narducci served as Vice President, North American Business Unit at
Network Equipment Technologies, Inc. a networking company. Mr. Narducci holds a
B.S. in Management from Lehigh University.
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Shirish S. Sathaye has served as our Vice President of Engineering since May
1997. From June 1994 to May 1997, Mr. Sathaye worked at FORE Systems, Inc. a
networking company, in a variety of positions, including Product Group
Director. From June 1986 to May 1994, Mr. Sathaye worked at Digital Equipment
Corporation, a computer company in a variety of positions, including Principal
Engineer. He has published several technical papers, and has numerous patents
issued and pending on high-speed network design and performance analysis. Mr.
Sathaye holds a Ph.D. in Computer Engineering from Carnegie Mellon University.
Tench Coxe has served as a member of our board of directors since May 1996.
Mr. Coxe has served as a managing director of the general partner of Sutter
Hill Ventures, a venture capital investment firm in Palo Alto, California,
since 1989. From 1984 to 1987, Mr. Coxe served as a Director of Marketing and
in other management positions with Digital Communications Associates, a
telecommunications company. Mr. Coxe currently serves on the board of directors
of Clarus Corporation, Copper Mountain Networks, Inc., Edify Corporation and
NVidia Corporation. He holds a B.A. in Economics from Dartmouth College and an
M.B.A. from Harvard University Graduate School of Business Administration.
Adam Grosser has served as a member of our board of directors since June
1999. Since February 1997, Mr. Grosser has held various positions with At Home
Corporation, including Senior Vice President. Prior to that time, Mr. Grosser
was the President and Chief Executive Officer of Catapult Entertainment, Inc.,
a provider of networking services for personal computers and console video
games that he co-founded in April 1994 and sold in November 1996. Catapult
filed a voluntary petition for bankruptcy under Chapter 11 of the U.S.
bankruptcy code in October 1996. This filing was made in connection with the
acquisition of Catapult by Mpath Interactive, Inc., which occurred following
conclusion of this bankruptcy filing in November 1996. From August 1993 to
April 1994, Mr. Grosser was the Senior Vice President of New Media at Sony
Pictures. From August 1990 to August 1992, he was the General Manager of the
New Media Group at Lucas Arts Entertainment. Mr. Grosser holds B.A., M.S. and
M.B.A. degrees from Stanford University.
Andrew W. Verhalen has served as a member of our board of directors since May
1996. Mr. Verhalen has been a partner of Matrix Partners, a venture capital
investment firm, since April 1992. Mr. Verhalen currently serves on the board
of directors of Copper Mountain Networks, Inc., Phone.com, Inc. and WatchGuard
Technologies, Inc. He also serves on the boards of several private technology
companies. Prior to Matrix, Mr. Verhalen held senior management positions at
3Com Corporation and Intel Corporation. Mr. Verhalen holds B.S.E.E., M.Eng. and
M.B.A. degrees from Cornell University.
Our executive officers are appointed by the board of directors and serve
until their successors are elected or appointed. There are no family
relationships among any of our directors or executive officers. No director has
a contractual right to serve as a member of our board of directors.
Board Committees
. Audit Committee. Our audit committee, consisting of Mr. Coxe and Mr.
Verhalen, reviews our internal accounting procedures and consults with
and reviews the services provided by our independent auditors.
. Compensation Committee. Our compensation committee, consisting of Mr.
Coxe and Mr. Verhalen, reviews and recommends to the board of directors
the compensation and benefits of all our officers and establishes and
reviews general policies relating to compensation and benefits of our
employees.
Election of Directors
Upon the closing of the offering, we will have authorized five directors.
Upon the closing of the offering, under the terms of our certificate of
incorporation, our board of directors will be divided into three classes:
. class I directors, whose term will expire at the annual meeting of
stockholders to be held in 2000;
. class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2001; and
. class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2002.
49
<PAGE>
Our class I directors will be Mr. Booker and Mr. Verhalen, our class II
directors will be Mr. Orr and Mr. Coxe, and our class III director will be Mr.
Grosser. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will
be elected to serve from the time of election and qualification until the third
annual meeting following election. Any additional directorships resulting from
an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the board of directors may have the
effect of delaying or preventing changes in control or management of Alteon.
Compensation of Directors
We do not provide cash compensation to any member of our board of directors
for their services as members of the board or for attendance at committee
meetings. Members of the board are reimbursed for some expenses in connection
with attendance at board and committee meetings. In June 1999, our non-employee
directors, Mr. Coxe, Mr. Verhalen and Mr. Grosser, each received options to
purchase an aggregate of 41,250 shares of common stock at an exercise price per
share of $5.67. The exercise price was equal to the fair market value of the
common stock on the date of grant as determined by the board of directors.
These options were fully vested on the date of grant.
Compensation Committee Interlocks And Insider Participation
The compensation committee is currently comprised of Mr. Coxe and Mr.
Verhalen. Neither Mr. Coxe nor Mr. Verhalen has at any time been an officer or
employee of Alteon. No interlocking relationship exists between our board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has any interlocking relationship existed
in the past.
Executive Compensation
The following table sets forth information concerning the compensation that
we paid during the fiscal year ended June 30, 1999 to our Chief Executive
Officer and each of our four other most highly compensated executive officers
who earned more than $100,000 during that fiscal year. All option grants were
made under our 1999 Equity Incentive Plan.
Summary Annual Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------- ---------------------
Securities Underlying
Name and Principal Position Salary ($) Bonus ($) Options
- --------------------------- ---------- --------- ---------------------
<S> <C> <C> <C>
Dominic P. Orr...................... $175,000 -- 375,000
Chief Executive Officer and
President
Barton M. Burstein.................. $160,000 $40,000 37,500
Vice President of Business
Development
Joe T. Booker....................... $175,000 -- --
Vice President of Operations
Shirish S. Sathaye.................. $160,000 -- --
Vice President of Engineering
Selina Y. Lo........................ $155,000 -- 187,500
Vice President of Marketing and
Product Management
</TABLE>
50
<PAGE>
The following table sets forth summary information regarding the option
grants made to our Chief Executive Officer and each of our four other most
highly compensated executive officers during the fiscal year ended June 30,
1999, our fiscal 1999. All option grants were made under our 1999 Equity
Incentive Plan. The exercise price per share was equal to the fair market value
of our common stock on the date of grant as determined by the board of
directors. Percentage of total options as set forth below was calculated based
on an aggregate of 3,909,300 shares of common stock granted under the 1999
Equity Incentive Plan in fiscal 1999. The potential realizable value as set
forth below was calculated based on the ten-year term of the option and assumed
rates of stock appreciation of 5% and 10%, compounded annually from the date
the options were granted to their expiration date based on the fair market
value of the common stock on the date of grant.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percent of Annual Rates of
Number of Total Stock Price
Securities Options Appreciation
Underlying Granted to for Option Term
Options Employees Exercise Price Expiration ---------------------
Name Granted In Fiscal Year (per share) Date 5% 10%
- ---- ---------- -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dominic P. Orr.......... 375,000 9.6% $5.67 6/30/09 $1,337,187 $3,388,695
Barton M. Burstein...... 37,500 1.0% $4.00 6/01/09 $ 194,334 $ 239,061
Joe T. Booker........... -- -- -- -- -- --
Shirish S. Sathaye...... -- -- -- -- -- --
Selina Y. Lo............ 187,500 4.8% $5.67 6/30/09 $ 668,594 $1,694,347
</TABLE>
The options listed in the table above are subject to vesting. The option
shares vest in a series of equal monthly installments beginning from the
vesting start date and extending through the next four years of service. See
"Benefit Plans" for a description of the material terms of these options.
The following table sets forth for our Chief Executive Officer and each of
our four most highly compensated executive officers information regarding
shares acquired upon exercise of options in our fiscal, 1999 and the number and
value of options held as of June 30, 1999, the last day of fiscal 1999. Options
granted to executive officers under the 1999 Equity Incentive Plan are
generally immediately exercisable. However, we have the right to repurchase any
unvested portion, at cost, in the event of an officers' termination of
employment. Amounts shown under the value realized column were calculated based
on the difference between the option exercise price and the fair market value
of the common stock on the date of exercise, without taking into account any
taxes that may be payable in connection with the transaction, multiplied by the
number of shares of common stock underlying the option. Exercise prices ranged
from $0.053 to $5.67. Amounts shown under the value of unexercised in-the-money
options at June 30, 1999 column are based on the assumed initial public
offering price of $ , without taking into account any taxes that may be
payable in connection with the transaction, multiplied by the number of shares
underlying the option, less the exercise price payable for these shares.
Aggregate Option Exercises in Last Fiscal Year
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options at
at June 30, 1999 June 30, 1999
Shares Acquired Value ----------------------- -------------------------
Name On Exercise Realized Vested Unvested Exercisable Unexercisable
- ---- --------------- -------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dominic P. Orr.......... -- -- 0 375,000
Barton M. Burstein...... -- -- 0 37,500
Joe T. Booker........... -- -- 31,250 43,750
Shirish S. Sathaye...... 300,000(1) $750,000 9,375 290,625
Selina Y. Lo............ -- -- 0 187,500
</TABLE>
- --------
(1) As of June 30, 1999, approximately 12,500 shares held by Mr. Sathaye were
unvested and subject to repurchase by us.
51
<PAGE>
Benefit Plans
1999 Equity Incentive Plan
Our board adopted, and our stockholders approved, the 1996 Stock Option Plan
in April 1996. The board subsequently amended, and the stockholder approved the
amendments to, the stock option plan in 1996, 1997 and 1998. The board amended
and restated the stock option plan as the 1999 Equity Incentive Plan in June
1999, subject to stockholder approval.
Share Reserve. We have reserved 18,810,000 shares for issuance under the
incentive plan. The share reserve automatically will increase on June 30 every
year, starting in 2000, by a number equal to 5% of the outstanding shares on a
fully diluted basis. However, no more than an aggregate of 18,810,000 shares
will be available for incentive stock options. If stock awards granted under
the incentive plan expire or otherwise terminate without being exercised, the
shares not acquired pursuant to such stock awards again become available for
issuance under the incentive plan. If we repurchase unvested shares issued
under stock awards, the repurchased shares become available for reissuance
under the incentive plan.
Administration. The board has delegated the administration of the incentive
plan to a committee. The board has the authority to construe, interpret and
amend the incentive plan as well as to determine:
. the grant recipients;
. the grant dates;
. the number of shares subject to the award;
. the exercisability of the award;
. the exercise price;
. the type of consideration; and
. the other terms of the award.
Eligibility. The board may grant incentive stock options that qualify under
Section 422 of the Internal Revenue Code of 1986, as amended, to our employees,
including officers of Alteon or its affiliates. The board may grant
nonstatutory stock options, stock bonuses, restricted stock purchase awards,
and stock appreciation rights to employees, directors, and consultants of
Alteon or its affiliates.
. A stock option is a contractual right to purchase a specified number of
our shares at a specified price (exercise price) for a specified period
of time.
. An incentive stock option is a stock option that has met the
requirements of Section 422 of the Internal Revenue Code. Such an
option is free from regular tax at both the date of grant and the
date of exercise. If two holding period tests are met (two years
between grant date and sale date and one year between exercise date
and sale date), the profit on the option is long-term capital gain
income. If the holding periods are not met, there has been a
disqualifying disposition, and the difference between the exercise
price and the fair market value of the shares on the exercise date
will be taxed at ordinary income rates. The difference between the
fair market value on date of exercise and the exercise price is an
item of alternative minimum tax unless there is a disqualifying
disposition in the year of exercise.
. A nonstatutory stock option is a stock option not meeting the
Internal Revenue Code criteria for qualifying incentive stock options
and, therefore, triggering a tax upon exercise. This type of option
requires payment of state and federal income tax and, if applicable,
FICA/FUTA on the difference between the exercise price and the fair
market value on the exercise date.
. A restricted stock purchase award is a right to purchase shares at a
price either at or near the fair market value of the shares. A stock
bonus, on the other hand, is a grant of shares at no cost to the
recipient in consideration for past services rendered. However, we may
reacquire the shares under either type of award at the original purchase
price (which is zero in the case of a stock bonus) if the recipient's
service with us or an affiliate of ours is terminated before the shares
vest.
52
<PAGE>
. A stock appreciation right generally is a right that allows a recipient
to elect to receive cash or stock of a value equal to the appreciation of
optioned rights. The incentive plan authorizes three types of stock
appreciation rights:
. A tandem stock appreciation right is granted along with a stock
option and is subject to the same terms and conditions applicable to
the option. It requires the holder to elect between exercising the
option (and receiving our shares) or surrendering, in whole or in
part, the option and receiving instead cash or stock equal to the
appreciation of the shares that are surrendered.
. A concurrent stock appreciation right also is granted with a stock
option and is subject to the same terms and conditions applicable to
the option. However, it is exercised automatically at the same time
that the recipient exercises the option. Without surrendering any of
the shares subject to the option, the recipient receives cash or
stock equal to the appreciation of the shares exercised.
. On the other hand, an independent stock appreciation right is not
granted with a stock option, although it generally is subject to the
same terms and conditions applicable to nonstatutory stock options.
On exercising the independent stock appreciation right, the recipient
receives cash or stock equal to the appreciation of the share
equivalents that the recipient is exercising.
Limits on Option Grants. There are limits on the number of shares that can be
subject to an option under the incentive plan. First, Section 162(m) of the
Internal Revenue Code, among other things, denies a deduction to publicly held
corporations to certain compensation paid to specific employees in a taxable
year to the extent that the compensation exceeds $1,000,000. When we become
subject to Section 162(m), the board may not grant options and stock
appreciation rights under the incentive plan to an employee covering an
aggregate of more than 2,250,000 shares in any calendar year.
Second, the aggregate fair market value, determined at the grant date, of
incentive stock option shares that are exercisable for the first time during a
calendar year (under the incentive plan and all other stock plans of Alteon and
its affiliates) may not exceed $100,000.
Option Terms. The board may grant incentive stock options with an exercise
price of 100% or more of the fair market value of a share of our common stock
on the grant date. It may grant nonstatutory stock options with an exercise
price as low as 85% of the fair market value of a share on the grant date.
An incentive stock option granted to a person who owns (or is deemed to own)
stock possessing more than 10% of our or our affiliates' total combined voting
power must have an exercise price of at least 110% of the fair market value of
the stock on any of the grant date and an option term of five years or less.
The maximum option term is 10 years. The board may provide for exercise
periods of any length in individual option grants, subject to certain
restrictions. However, generally an option terminates three months after the
optionholder's service with us or our affiliates terminates. If such
termination is due to the optionholder's disability, the exercise period
generally is extended to 12 months. If such termination is due to the
optionholder's death or if the optionholder dies within three months after his
or her service terminates, the exercise period generally is extended to 18
months following death.
Nonstatutory stock options may be transferable, but incentive stock option
are not transferable. However, the optionholder may designate a beneficiary to
exercise the option following the optionholder's death. Otherwise, option
exercise rights will pass by the optionholder's will or by the laws of descent
and distribution.
Terms of Other Awards. The board determines the purchase price of other stock
awards but it may not be less than 85% of the fair market value of our common
stock on the grant date. The board may award stock bonuses in consideration of
past services without a purchase payment. Shares sold or awarded under the
incentive plan may, but need not be, restricted and subject to repurchase by us
in accordance with a vesting schedule that the board determines. The board,
however, may accelerate the vesting of such restricted stock.
53
<PAGE>
Other Provisions. Transactions in which we do not receive consideration, such
as a merger, consolidation, reorganization, stock dividend, or stock split, may
change the class and number of shares subject to the incentive plan and to
outstanding awards. In that event, the board will appropriately adjust the
incentive plan as to the class and the maximum number of shares subject to the
incentive plan, to the cap on shares available for incentive stock options, and
to the Section 162(m) limit. It also will adjust outstanding awards as to the
class, number of shares and price per share subject to these awards.
Upon specified changes in control of Alteon as provided under the incentive
plan, the surviving entity may assume or replace all outstanding awards under
the incentive plan, but generally the vesting and exercisability of outstanding
awards to employees will accelerate as to 25% of the unvested shares whether or
not the surviving entity assumes or replaces outstanding awards. Awards that
are not assumed or replaced will terminate upon the change in control.
Awards Granted. As of June 30, 1999, we have issued 9,343,959 shares upon the
exercise of options under the incentive plan, 889,031 of which have been
repurchased and 3,712,320 of which are subject to repurchase; options to
purchase 4,336,865 shares at a weighted average exercise price of $0.92 were
outstanding; and 6,018,202 shares remained available for future grant. As of
June 30, 1999, the board had not granted any stock bonuses, restricted stock,
or stock appreciation rights under the incentive plan.
Plan Termination. The incentive plan will terminate in 2009 unless the board
terminates it sooner.
1999 Employee Stock Purchase Plan
In June 1999 we adopted the 1999 Employee Stock Purchase Plan, subject to
stockholder approval. The purchase plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Internal Revenue
Code.
Share Reserve. We have reserved 1,500,000 shares of our common stock for
issuance pursuant to purchase rights granted to employees of Alteon or its
designated affiliates. The share reserve automatically will increase every year
for 10 years, starting on June 30, 2000, by the greater of:
. that number of shares equal to 1% of our outstanding shares on a fully
diluted basis, or
. that number of shares that have been issued under the purchase plan
during the prior 12-month period.
The automatic share reserve increase in the aggregate may not exceed
24,000,000 shares over the 10-year period.
Offerings. The purchase plan provides a means by which employees may purchase
our common stock through payroll deductions. We implement this purchase plan by
offerings of purchase rights to eligible employees. Generally, all full-time
employees who have been employed for at least five days before an offering
begins may participate in the purchase plan. However, no employee may
participate in the purchase plan if immediately after we grant the employee a
purchase right, the employee has voting power over, or value of, 5% or more of
either our or our affiliates outstanding capital stock. Under the purchase
plan, we may specify offerings of up to 27 months. The first offering will
begin on the effective date of this initial public offering.
Purchase Price. Unless otherwise determined by our board, common stock is
purchased for accounts of participating employees at a price per share equal to
the lower of:
. 85% of the fair market value of a share of our common stock on the first
day of the offering; or
. 85% of the fair market value of a share on the date of purchase.
The board may provide that employees who become eligible to participate after
the offering begins nevertheless may enroll in the offering. These employees,
however, will purchase our stock at the lower of:
. 85% of the fair market value of a share on the day they were granted a
right to purchase shares; or
. 85% of the fair market value of a share on the date of purchase.
54
<PAGE>
Other Provisions. Employees may authorize payroll deductions of up to 15% of
their specified compensation for the purchase of stock under the purchase
plan. Employees may end their participation in the purchase plan at any time
up to 10 days before a purchase period ends. Participation ends automatically
on termination of employment with us and an affiliate of ours.
We may grant eligible employees purchase rights under this plan only if the
purchase rights together with any other purchase rights granted under other
employee stock purchase plans established by us or an affiliate of ours, if
any, do not permit the employee's rights to purchase our stock to accrue at a
rate that exceeds $25,000 of fair market value of our stock for each calendar
year in which the purchase rights are outstanding.
In case of specified changes of control of Alteon, the board may provide
that the successor corporation will assume or replace outstanding purchase
rights. Alternatively, the board may shorten the offering and provide that
shares will be purchased for participants immediately before the change in
control.
Shares Issued. As of today, no shares of common stock had been purchased
under the purchase plan.
Plan Termination. The board may terminate the purchase plan following any
offering. The purchase plan automatically will terminate when the share
reserve is exhausted.
401(k) Plan
We maintain a retirement and deferred savings plan, the 401(k) Plan, for our
U.S. employees. The 401(k) Plan is intended to qualify as a tax-qualified plan
under Section 401(a) of the Internal Revenue Code. The 401(k) Plan provides
that each participant may contribute up to the maximum percentage allowable of
his or her pre-tax compensation (up to a statutory limit, which is $10,000 in
calendar year 1999). Under the 401(k) Plan, each employee is fully vested in
his or her deferred salary contributions. Employee contributions are held and
invested by the 401(k) Plan's trustee. The 401(k) Plan also permits us to make
matching and discretionary contributions, subject to established limits. We
have not made any matching contributions to the 401(k) Plan to date.
Limitations of Liability; Indemnification of Directors and Officers
In connection with the consummation of this offering, we will adopt and file
an amended and restated certificate of incorporation and amended and restated
bylaws. As permitted by Delaware law, our certificate of incorporation
provides that no director of ours will be personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
. for any breach of duty of loyalty to us or to our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation further provides that we must indemnify our
directors and may indemnify our other officers and employees and agents to the
fullest extent permitted by Delaware law.
In addition, our amended and rested bylaws provide that:
. we are required to indemnify its directors and officers to the fullest
extent permitted by Delaware law, subject to limited exceptions;
55
<PAGE>
. we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors, unless otherwise required by law,
our certificate of incorporation, our bylaws or agreements;
. we are required to advance expenses to our directors and executive
officers as incurred in connection with a legal proceedings against them
for which they may be indemnified; and
. the rights conferred in the bylaws are not exclusive.
We have entered into indemnification agreements with each of our directors
and some of our officers. These agreements, among other things, require us to
indemnify each director and officer to the fullest extent permitted by
Delaware law, including indemnification for expenses such as attorneys' fees,
judgments, fines and settlement amounts incurred by the director or officer in
any action or proceeding, including any action by or in the right of Alteon,
arising out of the person's services as our director or officer, any
subsidiary of ours or any other company or enterprise to which the person
provides services at our request. At present, we are not aware of any pending
or threatened litigation or proceeding involving any of our directors,
officers, employees or agents in which indemnification would be required or
permitted. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.
Employment Agreements
At the time of commencement of employment, our employees generally sign
offer letters specifying basic terms and conditions of employment. In general,
our employees are not subject to written employment agreements. On October 11,
1996, we entered into an employment offer letter with Dominic P. Orr, our
President and Chief Executive Officer which set his initial annual
compensation at $175,000. In addition, we granted Mr. Orr an option to
purchase 1,761,702 shares of common stock at an exercise price of $0.05 per
share. This option vested 25% on the first anniversary of the date of hire
with the remainder vesting monthly over the following three years. Pursuant to
his employment offer letter, in the event Mr. Orr's employment is terminated
without cause, he will receive severance compensation equal to twelve months
salary and his shares will continue to vest over the twelve-month period.
Change of Control Arrangements
Upon specified changes in control of Alteon as provided under the 1999
Equity Incentive Plan, the surviving entity may assume or replace all
outstanding options under this plan. Generally the vesting and exercisability
of 25% of the outstanding unvested shares subject to options held by employees
will accelerate prior to the change in control, and the options will terminate
upon the change in control if they are not assumed or replaced.
We have entered into employment offer letters with each of the following
executive officers: Mr. Orr, our Chief Executive Officer, and the following
three of our four most highly compensated executive officers, Ms. Lo, Mr.
Booker, and Mr. Sathaye. These letters provide for the acceleration of
specified percentages of the outstanding unvested portions of the options held
by such individuals in the event we are acquired or sold. Specifically, if we
are acquired or sold, 80% of the unvested portion of Mr. Orr's options and 50%
of the unvested portion of the options of the other executive officers
described above vest immediately. If these executive officers accept full time
employment with the acquiring company, the remaining unvested portion of their
options continues to vest. If the acquiring company terminates the employment,
materially reduces the duties or compensation of any of these executive
officers without cause, or requires them to relocate, the remaining unvested
portions of their options immediately vest in full. In addition, upon Mr.
Booker's death or disability, 50% of his unvested shares will vest
immediately.
56
<PAGE>
RELATED PARTY TRANSACTIONS
Certain stock option grants to our executive officers and directors are
described in this prospectus under the caption "Management--Executive
Compensation," and "Director Compensation."
The following executive officers, directors or holders of more than five
percent of our voting securities purchased securities in the amounts and as of
the dates set forth below. All the share amounts and prices per share have been
adjusted to reflect the 3 for 2 split of our common stock in June 1999. The
number of shares and price per share of the preferred stock are calculated as
if such shares were converted into common stock.
<TABLE>
<CAPTION>
Shares of Preferred Stock
-------------------------------------
Common
Purchaser Stock Series A Series B Series C Series D
- --------- -------------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Directors and Executive
Officers(1)
Dominic P. Orr........... 1,949,202 -- -- -- --
Joseph T. Booker......... 630,000 -- -- -- --
Selina Y. Lo............. 937,500 -- -- -- --
James G. Burke........... 480,000 -- -- -- --
Barton M. Burstein....... 262,500 -- -- -- --
Anthony Narducci......... 180,000 -- -- -- --
Shirish S. Sathaye....... 300,000 -- -- -- --
Tench Coxe............... -- 133,638 15,171 -- 17,928
Adam Grosser............. -- -- -- -- 36,352
Entities Affiliated with
Directors
Matrix Partners(2)....... -- 3,896,103 450,000 253,349 352,942
Sutter Hill Ventures(3).. -- 3,896,103 450,000 253,349 352,942
Price Per Share.......... $0.05 to $1.63 $ 0.51 $ 3.33 $ 4.67 $ 5.67
Date(s) of Purchase...... 4/97-5/99 5/96 5/97 6/98 6/99
</TABLE>
- --------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
(2) Mr. Verhalen, one of our directors, is a general partner of Matrix
Partners.
(3) Includes shares held by Tench Coxe. Mr. Coxe, one of our directors, is a
general partner of Sutter Hill Ventures.
We have entered into an Investor Rights Agreement with each of the purchasers
of preferred stock set forth above, pursuant to which these and other
stockholders will have registration rights with respect to their shares of
common stock issuable upon conversion of their preferred stock following this
offering.
We have entered into indemnification agreements with our directors and some
of our executive officers for the indemnification of and advancement of
expenses to these persons to the fullest extent permitted by law. We also
intend to enter into indemnification agreements with our future directors and
officers.
57
<PAGE>
We have provided loans to Mr. Orr, our Chief Executive Officer, and the other
four most highly compensated executive officers set forth below in connection
with the exercise of their options prior to vesting. These loans were provided
pursuant to promissory notes that are full-recourse and secured by the shares
in the principal amount of the note. The notes bear interest at a rate of 6.5%
per annum and are due three years from the date of the note or upon termination
of employment. The following table sets forth certain information regarding
these notes:
<TABLE>
<CAPTION>
Name Amount of Note Date of Note
---- -------------- ------------
<S> <C> <C>
Dominic P. Orr................................ $ 55,404 4/07/97
62,500 5/28/98
Joe T. Booker................................. 33,600 4/28/97
Barton M. Burstein............................ 6,400 4/04/97
25,000 7/26/97
12,500 1/15/98
Selina Y. Lo.................................. 30,260 4/21/97
25,000 1/22/98
Shirish S. Sathaye............................ 100,000 5/24/99
</TABLE>
We believe that all of the transactions set forth above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions, including loans, between us and our officers,
directors, principal stockholders and their affiliates will be approved by a
majority of the board of directors, including a majority of the independent and
disinterested directors, and will be on terms no less favorable to us than
could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table summarizes certain information regarding the beneficial
ownership of our outstanding common stock as of June 30, 1999 for:
. each person or group who beneficially owns more than 5% of the common
stock;
. our chief executive officer;
. each of our four other most highly compensated executive officers whose
compensation exceeded $100,000 during our fiscal year ended June 30,
1999;
. each of our directors; and
. all of our directors and executive officers as a group.
Beneficial ownership of shares is determined under the rules of the
Securities and Exchange Commission and generally includes any shares over which
a person exercises sole or shared voting or investment power. Except as
indicated by footnote, and subject to applicable community property laws, each
person identified in the table possesses sole voting and investment power with
respect to all shares of common stock held by them. Shares of common stock
subject to options currently exercisable or exercisable within 60 days of June
30, 1999 and not subject to repurchase as of such date are deemed outstanding
for computing the percentage of the person holding such options, but are not
deemed outstanding for computing the percentage of any other person. Applicable
percentage ownership in the following table is based on 33,606,455 shares of
common stock outstanding as of June 30, 1999, after giving effect to the
conversion of all outstanding shares of preferred stock upon the closing of
this offering, and shares of common stock outstanding immediately following
the completion of this offering. Unless otherwise indicated, the address of
each of the named individuals is c/o Alteon WebSystems, Inc., 50 Great Oaks
Boulevard, San Jose, California 95119.
<TABLE>
<CAPTION>
Amount and Nature of Shares Beneficially Owned as of June 30, 1999
-------------------------------------------------------------------------------------
Shares Issuable Percent of
pursuant to options Outstanding Shares
exercisable within ---------------------------------
Outstanding Shares 60 days of June 30, Before the After the
Name of Common Stock 1999 Offering Offering
- ---- -------------------- --------------------- --------------- --------------
<S> <C> <C> <C> <C>
Entities affiliated with 4,952,394 -- 14.7%
Matrix Partners(1).....
2500 Sand Hill Road,
Suite 113
Menlo Park, CA 94025
Entities affiliated with 4,952,394 -- 14.7%
Sutter Hill Ventures...
a California Limited
Partnership(2)
755 Page Mill Road,
Suite A-200
Palo Alto, CA 94304
Dominic P. Orr.......... 1,226,319(3) 7,812 3.6%
Barton M. Burstein...... 262,500(4) 1,562 *
Joe T. Booker........... 630,000(5) 34,375 2.0%
Shirish S. Sathaye...... 300,000(6) 28,125 1.0%
Selina Y. Lo............ 913,875(7) 3,906 2.7%
Tench Coxe(8)........... 4,952,394 41,250 14.8%
Adam Grosser............ 36,352 41,250 *
Andrew W. Verhalen(9)... 4,952,394 41,250 14.8%
All executive officers
and directors as a
group
(10 people)(10)........ 13,933,834 199,530 41.8%
</TABLE>
- --------
* Less than 1%
(1) Includes 4,704,775 shares held by Matrix Partners IV, L.P. and 229,972
shares held by Matrix IV Entrepreneurs Fund, L.P.
(2) Includes 3,714,719 shares held by Sutter Hill Ventures, a California
Limited Partnership and 1,237,675 shares held by parties related to Sutter
Hill Ventures. Sutter Hill Ventures disclaims voting power and beneficial
ownership to the shares held by these related parties.
59
<PAGE>
(3) Includes 637,215 shares subject to a right of repurchase by Alteon.
(4) Includes 89,375 shares subject to a right of repurchase by Alteon.
(5) Includes 242,635 shares subject to a right of repurchase by Alteon.
(6) Includes 6,250 shares subject to a right of repurchase by Alteon.
(7) Includes 325,220 shares subject to repurchase by Alteon.
(8) Includes 3,714,719 shares held by Sutter Hill Ventures, a California
Limited Partnership, and 1,062,249 shares held by parties related to Sutter
Hill Ventures and 166,737 shares held by Mr. Coxe and 8,689 shares held by
Wells Fargo Bank, Trustee SHV M/P/T FBO Tench Coxe. Mr. Coxe is a managing
partner of Sutter Hill Ventures. Mr. Coxe disclaims beneficial the shares
held by the related parties except to the extent of his proportionate
partnership interest in these shares.
(9) Includes 4,704,775 shares held by Matrix Partners IV, L.P. and 229,972
shares held by Matrix IV Entrepreneurs Fund, L.P, of which Mr. Verhalen is
a general partner. Mr. Verhalen disclaims beneficial ownership of these
shares except to the extent of his proportionate partnership interest in
these shares..
(10) Includes shares described in the notes above, as applicable.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of 300 million shares of common stock, $0.001 par value, and five million
shares of preferred stock, $0.001 par value.
Common Stock
As of June 30, 1999, there were 33,606,455 shares of common stock outstanding
that were held of record by approximately 276 stockholders after giving effect
to the conversion of our preferred stock into common stock. Upon the closing of
this offering, each share of Series A preferred stock, Series B preferred
stock, Series C preferred stock and Series D preferred stock will convert into
1.5 shares of common stock. There will be shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options) after giving effect to the sale of the shares
of common stock offered by this prospectus.
The holders of common stock are entitled to one vote per share on all matters
submitted to a vote of our stockholders. Subject to preferences that may be
applicable to any preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive ratably any
dividends out of assets legally available therefor as our board of directors
may from time to time determine. Upon liquidation, dissolution or winding up of
Alteon, holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable.
Preferred Stock
Pursuant to our amended and restated certificate of incorporation, our board
of directors will have the authority, without further action by the
stockholders, to issue up to fifteen million shares of preferred stock in one
or more series. The board will be able to fix the rights, preferences,
privileges and restrictions of the preferred stock, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of this series. The issuance of preferred stock could adversely
affect the voting power of holders of common stock, and the likelihood that
holders of preferred stock will receive dividend payments and payments upon
liquidation may have the effect of delaying, deferring or preventing a change
in control of Alteon, which could depress the market price of our common stock.
We have no present plan to issue any shares of preferred stock.
Registration Rights of Stockholders
Upon completion of this offering, holders of 21,444,469 shares of common
stock or their transferees will be entitled to rights to register these shares
under the Securities Act of 1933. If we propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other securityholders, the holders of these shares will be entitled
to notice of the registration and will be entitled to include, at our expense,
their shares of common stock. In addition, the holders of these shares may
require us, at our expense and on not more than two occasions at any time
beginning approximately six months from the date of the closing of this
offering, to file a registration statement under the Securities Act with
respect to their shares of common stock, and we will be required to use our
best efforts to effect the registration. Further, the holders may require us at
our expense to register their shares on Form S-3 when this form becomes
available. These rights shall terminate on the earlier of five years after the
effective date of this offering, or when a holder is able to sell all its
shares pursuant to Rule 144 under the Securities Act in any 90 day period.
Anti-Takeover Provisions of Delaware and Charter Provisions
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any
61
<PAGE>
interested stockholder for a period of three years following the date that the
stockholder became an interested stockholder unless:
. prior to the date, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder's
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 those shares owned by persons who are
directors and also officers, and employee stock plans in which shares held
subject to the plan will be tendered in a tender or exchange offer; or
. on or subsequent to the 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 that is not owned by the
interested stockholder.
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 involving the interested
stockholder of 10% or more of the assets of the corporation;
. subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to 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 and any entity or person affiliated with or controlling or
controlled by the entity or person.
Our bylaws provide that candidates for director may be nominated only by the
board of directors or by a stockholder who gives written notice to us no later
than 60 days prior nor earlier than 90 days prior to the first anniversary of
the last annual meeting of stockholders. The authorized number of directors is
fixed in accordance with our certificate of incorporation. The board currently
consists of five members divided into three different classes. As a result,
only one class of directors will be elected at each annual meeting of
stockholders of Alteon, with the other classes continuing for the remainder of
their respective terms. The board may appoint new directors to fill vacancies
or newly created directorships.
Our amended and restated certificate of incorporation requires that upon
completion of the offering, any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. Our certificate
of incorporation also provides that the authorized number of directors may be
changed only by resolution of the board of directors. Delaware law and these
charter provisions may have the effect of deterring hostile takeovers or
delaying changes in control of our management, which could depress the market
price of our common stock.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be American
Securities Transfer & Trust, Inc.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices. Furthermore, since no shares
will be available for sale shortly after this offering because of contractual
and legal restrictions on resale as described below, sales of substantial
amounts of our common stock in the public market after these restrictions lapse
could adversely affect the prevailing market price and our ability to raise
equity capital in the future.
Upon completion of this offering, we 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, all
of the shares sold in this offering will be freely tradable without restriction
or further registration under the Securities Act, unless these shares are
purchased by affiliates. The remaining 33,606,455 shares of common stock held
by existing stockholders are restricted securities. Restricted securities may
be sold in the public market only if registered or if they qualify for an
exemption from registration described below under Rules 144, 144(k) or 701
promulgated under the Securities Act.
As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be
available for sale in the public market as follows:
. no shares will be eligible for immediate sale on the date the
registration statement of which this prospectus is a part is declared
effective;
. no shares will be eligible for sale prior to 150 days from the date the
registration statement of which this prospectus is a part is declared
effective;
. 28,255,315 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, 150 days after the date this
offering is declared effective; and
. 1,115,219 shares will be eligible for sale upon the exercise of vested
options 150 days after the date this offering is declared effective.
Lock-Up Agreements. All of our officers, directors, stockholders and option
holders have agreed not to transfer or dispose of, directly or indirectly, any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for shares of our common stock, for a period of 150 days after the
date the registration statement of which this prospectus is a part is declared
effective. Transfers or dispositions can be made sooner with the prior written
consent of Lehman Brothers Inc.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date the registration statement of which this prospectus is a
part is declared effective, a person or persons whose shares are aggregated,
who has beneficially owned restricted securities for at least one year,
including the holding period of any prior owner except an affiliate, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
. 1% of the number of shares of our common stock then outstanding which
will equal approximately shares immediately after this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about
Alteon.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates 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 an affiliate, is
entitled to sell these
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<PAGE>
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. 10,728,813 shares will qualify as
"144(k) shares" within 150 days after the date the registration statement, of
which this prospectus is a part, is declared effective.
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchases or receives shares from us in connection with a compensatory
stock purchase plan or option plan or other written agreement will be eligible
to resell their shares beginning 90 days after the effective date of the
registration statement of which this prospectus is a part, subject only to the
manner of sale provisions of Rule 144, and by affiliates under Rule 144 without
compliance with its holding period requirements.
Registration Rights. Upon completion of this offering, the holders of
14,280,205 shares of our common stock, or their transferees, will be entitled
to rights with respect to the registration of their shares under the Securities
Act. Registration of their shares under the Securities Act would result in such
shares becoming freely tradable without restriction under the Securities Act,
except for shares purchased by affiliates, immediately upon the effectiveness
of such registration.
Stock Options. Following this offering, we intend to file a registration
statement under the Securities Act covering the shares of common stock reserved
for issuance under our 1999 Equity Incentive Plan and 1999 Employee Stock
Purchase Plan. The registration statement is expected to be filed and become
effective as soon as practicable after the closing of this offering.
Accordingly, shares registered under the registration statements will, subject
to Rule 144 volume limitations applicable to affiliates, be available for sale
in the open market, beginning 150 days after the effective date of the
registration statement of which this prospectus is a part.
64
<PAGE>
UNDERWRITING
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., BancBoston Robertson Stephens Inc. and
Thomas Weisel Partners LLC are acting as representatives, have each agreed to
purchase from us the respective number of shares of common stock shown opposite
its name below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ------------ ---------
<S> <C>
Lehman Brothers Inc...................................................
BancBoston Robertson Stephens Inc.....................................
Thomas Weisel Partners LLC............................................
---------
Total...............................................................
=========
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of
common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock which the underwriters have
agreed to purchase under the underwriting agreement, must be purchased. The
conditions contained in the underwriting agreement include the requirement that
the representations and warranties made by us to the underwriters are true,
that there is no material change in the financial markets and we deliver to the
underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at this public offering price less a selling concession not
in excess of per share. The underwriters may allow, and the dealers may
reallow, a concession not in excess of per share to brokers and dealers.
After completion of the offering, the underwriters may change the offering
price and other selling terms.
We have granted the underwriters an option to purchase up to additional
shares of common stock, exercisable solely to cover over-allotments, if any, at
the public offering price less the underwriting discount shown on the cover
page of this prospectus. The underwriters may exercise this option at any time
until 30 days after the date of the underwriting agreement. If this option is
exercised, each underwriter will be committed, so long as the conditions of the
underwriting agreement are satisfied, to purchase a number of additional shares
of common stock proportionate to the underwriter's initial commitment as
indicated in the table above and we will be obligated, under the over-allotment
option, to sell the shares of common stock to the underwriters.
We have agreed that, without the prior consent of Lehman Brothers Inc., we
will not, directly or indirectly, offer, sell or otherwise dispose of any
shares of common stock or any securities which may be converted into or
exchanged for any such shares of common stock for a period of 150 days from the
date of this prospectus. All of our executive officers and directors, and
stockholders holding an aggregate of shares of our capital stock, have
agreed under lock-up agreements that, without the prior written consent of
Lehman Brothers Inc., they will not, directly or indirectly, offer, sell or
otherwise dispose of any shares of common stock or any securities which may be
converted into or exchanged for any such shares for the period ending 150 days
after the date of this prospectus. See "Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions:
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<PAGE>
. our historical performance and capital structure;
. estimates of our business potential and earning prospects;
. an overall assessment of our management; and
. the consideration of the above factors in relation to market valuations
of companies in related businesses.
Thomas Weisel Partners LLC, one of the representatives of the underwriters,
was organized and registered as a broker-dealer in December 1998. Since
December 1998, Thomas Weisel Partners LLC has been named as a lead or co-
manager on 40 filed public offerings of equity securities, of which 24 have
been completed, and has acted as a syndicate member in an additional 19 public
offerings of equity securities. Thomas Weisel Partners LLC does not have any
material relationship with us or any of our officers, directors or other
controlling persons, except with respect to its contractual relationship with
us under the underwriting agreement entered into in connection with this
offering.
Application has been made to have our common stock approved for quotation on
the Nasdaq National Market under the symbol "ATON."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
the representations and warranties contained in the underwriting agreement, and
to contribute to payments that the underwriters may be required to make for
these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.
The representatives also may impose a penalty bid on underwriters and selling
group members. This means that, if the representatives purchase shares of
common stock in the open market to reduce the underwriters' short position or
to stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of these purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common stock. In addition, neither we nor
any of the underwriters makes any representation that the representatives will
engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada in which
the sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
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<PAGE>
At our request, the underwriters have reserved up to shares of the
common stock offered by this prospectus for sale to our officers, directors,
employees and their family members and to our business associates at the
initial public offering price set forth on the cover page of this prospectus.
These persons must commit to purchase no later than the close of business on
the day following the date of this prospectus. The number of shares available
for sale to the general public will be reduced to the extent these persons
purchase the reserved shares.
LEGAL MATTERS
Cooley Godward LLP, Palo Alto, California, will provide Alteon with an
opinion as to the validity of the common stock offered under this prospectus.
Fenwick & West LLP, Palo Alto, California, will pass upon certain legal matters
related to this offering for the underwriters.
EXPERTS
The consolidated financial statements as of June 30, 1997 and 1998, the
period from March 18, 1996 (inception) through June 30, 1996, and for each of
the two years in the period ended June 30, 1998 included in this prospectus and
the related financial statement schedule included elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing in this prospectus and elsewhere in the
registration statement, and have been included in reliance upon the report of
this firm given upon their authority as experts in accounting and auditing.
WHERE CAN YOU FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered under this prospectus. This prospectus does not contain
all of the information in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect
to us and our common stock, we refer you to the registration statement and to
the exhibits and schedules filed with 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, we
refer you to the copy of the contract or other document filed as an exhibit to
the registration statement. Each of these statements is qualified in all
respects by this reference. You may inspect a copy of the registration
statement without charge at the SEC's principal office in Washington, D.C., and
copies of all or any part of the registration statement may be obtained from
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of fees prescribed by the SEC. The SEC maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of the Web site is http://www.sec.gov. The SEC's toll free investor
information service can be reached at 1-800-SEC-0330. Information contained on
our website does not constitute part of this prospectus.
Upon completion of the offering, we will be subject to the information
reporting requirements of the Securities Exchange Act of 1934, as amended, and
we will file reports, proxy statements and other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and
quarterly reports for the first three fiscal quarters of each fiscal year
containing unaudited interim financial information.
67
<PAGE>
ALTEON WEBSYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Alteon WebSystems, Inc.
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of June 30, 1997 and 1998 and March 31,
1999 (Unaudited)......................................................... F-3
Consolidated Statements of Operations for the Period from March 18, 1996
(Inception) to June 30, 1996, the Years Ended June 30, 1997 and 1998 and
the (Unaudited) Nine Months Ended March 31, 1998 and 1999 ............... F-4
Consolidated Statements of Stockholders' Equity for the Period from March
18, 1996 (Inception) to June 30, 1996, the Years Ended June 30, 1997 and
1998 and the (Unaudited) Nine Months Ended March 31, 1999 ............... F-5
Consolidated Statements of Cash Flows for the Period from March 18, 1996
(Inception) to June 30, 1996, the Years Ended June 30, 1997 and 1998 and
the (Unaudited) Nine Months Ended March 31, 1998 and 1999 ............... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
Alteon WebSystems, Inc.:
We have audited the accompanying consolidated balance sheets of Alteon
WebSystems, Inc. and subsidiary (collectively, the "Company") as of June 30,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the period from March 18, 1996
(inception) to June 30, 1996 and the years ended June 30, 1997 and 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at June 30, 1997 and
1998, and the results of its operations and its cash flows for the period from
March 18, 1996 (inception) to June 30, 1996 and the years ended June 30, 1997
and 1998 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
San Jose, California
August 14, 1998
(June 30, 1999 as to Note 14)
F-2
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Consolidated Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Pro Forma
June 30, June 30, March 31, March 31,
1997 1998 1999 1999
-------- -------- ----------- -----------
(Unaudited) (Unaudited)
(Note 1)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and equivalents............... $14,242 $ 9,047 $ 9,430 $ 9,430
Accounts receivable (net of
allowance of $70 in 1997, $465 in
1998, $1,184 at March 31, 1999)... 90 2,567 3,844 3,844
Inventory.......................... 431 4,906 2,586 2,586
Prepaid expenses and other current
assets............................ 90 266 372 372
------- -------- -------- --------
Total current assets............. 14,853 16,786 16,232 16,232
Property and equipment, net......... 1,548 2,690 3,600 3,600
Other long-term assets.............. 42 66 43 43
------- -------- -------- --------
Total assets........................ $16,443 $ 19,542 $ 19,875 $ 19,875
======= ======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................... $ 835 $ 2,441 $ 2,219 $ 2,219
Accrued compensation and related
liabilities....................... 639 1,303 1,521 1,521
Other accrued expenses............. 290 1,623 3,341 3,341
Line of credit..................... -- 802 -- --
Current portion of capital lease
obligations....................... 197 232 262 262
Current portion of note payable to
bank.............................. -- 542 955 955
------- -------- -------- --------
Total current liabilities........ 1,961 6,943 8,298 8,298
------- -------- -------- --------
Note payable to bank................ -- 903 1,220 1,220
Capital lease obligations........... 700 468 268 268
Sublease deposits................... -- -- 123 123
Commitments and contingencies (Notes
7 and 10)
Stockholders' equity:
Convertible preferred stock--
$0.001 par value; 15,000,000
shares authorized:
Series A; designated, 6,000,000
shares; outstanding, 5,592,804
shares in 1997, 1998 and 1999
(liquidation preference $4,306)... 4,351 4,351 4,351 --
Series B; designated, 4,000,000
shares; outstanding, 3,478,000
shares in 1997, 3,562,000 shares
in 1998 and 1999 (liquidation
preference $17,390 in 1997 and
$17,810 in 1998 and 1999)......... 17,370 17,873 17,873 --
Series C; designated, 2,500,000
shares; outstanding, none in
1997, 1,093,960 shares in 1998
and 2,135,690 shares at March 31,
1999 (liquidation preference
$7,658 and $14,950 in 1998 and
1999, respectively)............... -- 7,638 14,910 --
Common stock--$0.001 par value;
authorized, 300,000,000 shares;
outstanding 11,329,059 shares in
1997, 11,590,803 shares in 1998
and 12,127,563 in 1999............ 345 1,079 1,913 39,047
Notes receivable from
stockholders...................... (225) (848) (1,579) (1,579)
Accumulated deficit................ (8,059) (18,865) (27,502) (27,502)
------- -------- -------- --------
Total stockholders' equity.......... 13,782 11,228 9,966 9,966
------- -------- -------- --------
Total liabilities and stockholders'
equity............................. $16,443 $ 19,542 $ 19,875 $ 19,875
======= ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Consolidated Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period from
March 18, 1996 Nine Months Ended
(Inception) to Years Ended June 30, March 31,
June 30, --------------------- ------------------
1996 1997 1998 1998 1999
-------------- ---------- ---------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 178 $ 13,572 $ 9,775 $ 18,388
Cost of sales........... -- 637 7,893 5,801 9,381
------ --------- ---------- -------- --------
Gross profit (loss)..... -- (459) 5,679 3,974 9,007
Operating expenses:
Sales and marketing... 19 1,921 6,485 4,318 8,934
Research and
development.......... 176 4,782 8,816 6,416 7,086
General and
administrative....... 98 744 1,505 973 1,813
------ --------- ---------- -------- --------
Total operating
expenses........... 293 7,447 16,806 11,707 17,833
------ --------- ---------- -------- --------
Loss from operations.... (293) (7,906) (11,127) (7,733) (8,826)
Interest income......... 20 197 493 445 395
Interest expense........ -- (75) (171) (104) (206)
------ --------- ---------- -------- --------
Loss before income
taxes.................. (273) (7,784) (10,805) (7,392) (8,637)
Income taxes............ 1 1 1 -- --
------ --------- ---------- -------- --------
Net loss................ $ (274) $ (7,785) $ (10,806) $ (7,392) $ (8,637)
====== ========= ========== ======== ========
Basic and diluted loss
per common share....... $(0.48) $ (5.15) $ (2.18) $ (1.58) $ (1.19)
====== ========= ========== ======== ========
Basic and diluted common
shares used in
computation............ 569 1,511 4,951 4,670 7,245
====== ========= ========== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Convertible Preferred Stock
---------------------------------------------------- Notes
Series A Series B Series C Common Stock Receivable Total
---------------- ----------------- ----------------- ------------------ from Accumulated Stockholders'
Shares Amount Shares Amount Shares Amount Shares Amount Stockholders Deficit Equity
--------- ------ --------- ------- --------- ------- ---------- ------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, March
18, 1996
(inception).... -- $ -- -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Sales of Series
A preferred
stock (net of
issuance cost
of $7)......... 5,194,804 3,993 3,993
Sales of common
stock for
services....... 4,929,300 33 33
Issuance of
common stock
for services... 770,745 5 5
Net loss........ (274) (274)
--------- ------ --------- ------- --------- ------- ---------- ------ ------- -------- -------
Balances, June
30, 1996....... 5,194,804 3,993 -- -- -- -- 5,700,045 38 -- (274) 3,757
Sale of Series A
preferred stock
(net of
issuance cost
of $5)......... 398,000 358 358
Sale of Series B
preferred stock
(net of
issuance cost
of $20)........ 3,178,000 15,870 15,870
Conversion of
note payable to
Series B
preferred
stock.......... 300,000 1,500 1,500
Exercise of
stock options.. 1,156,269 62 62
Issuance of
common stock
for services... 251,794 13 13
Exercise of
stock options
for notes
receivable..... 4,220,951 225 (225) --
Issuance of
stock options
to
consultants.... -- 7 7
Net loss........ (7,785) (7,785)
--------- ------ --------- ------- --------- ------- ---------- ------ ------- -------- -------
Balances, June
30, 1997....... 5,592,804 4,351 3,478,000 17,370 -- -- 11,329,059 345 (225) (8,059) 13,782
Sale of Series B
preferred stock
(net of
issuance cost
of $2)......... 84,000 503 503
Sales of Series
C preferred
stock (net of
issuance cost
of $20)........ 1,093,960 7,638 7,638
Exercise of
stock options.. 336,092 59 59
Issuance of
common stock
for services... 185,064 83 83
Exercise of
stock options
for notes
receivable..... 1,649,500 701 (701) --
Issuance of
stock options
to
consultants.... -- 17 17
Repurchase of
common stock in
exchange for
notes
receivable..... (776,223) (84) 67 (17)
Repurchase of
founder's
stock.......... (1,132,689) (42) (42)
Repayment of
notes
receivable..... 11 11
Net loss........ (10,806) (10,806)
--------- ------ --------- ------- --------- ------- ---------- ------ ------- -------- -------
Balances, June
30, 1998....... 5,592,804 4,351 3,562,000 17,873 1,093,960 7,638 11,590,803 1,079 (848) (18,865) 11,228
Sales of Series
C preferred
stock (net of
issuance cost
of $20)*....... 1,041,730 7,272 7,272
Exercise of
stock
options*....... 127,832 37 37
Issuance of
common stock
for services*.. 16,990 30 30
Exercise of
stock options
for notes
receivable*.... 476,625 775 (775) --
Issuance of
stock options
to
consultants*... 13 13
Repurchase of
common stock in
exchange for
notes
receivable*.... (84,687) (21) 5 (16)
Repayment of
notes
receivable*.... 39 39
Net loss*....... (8,637) (8,637)
--------- ------ --------- ------- --------- ------- ---------- ------ ------- -------- -------
Balances, March
31, 1999*...... 5,592,804 $4,351 3,562,000 $17,873 2,135,690 $14,910 12,127,563 $1,913 $(1,579) $(27,502) $ 9,966
========= ====== ========= ======= ========= ======= ========== ====== ======= ======== =======
</TABLE>
* Unaudited
See notes to consolidated financial statements.
F-5
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Period from
March 18, 1996 Years Ended Nine Months Ended
(Inception) to June 30, March 31,
June 30, ------------------- ------------------
1996 1997 1998 1998 1999
-------------- -------- --------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $ (274) $ (7,785) $ (10,806) $ (7,392) $ (8,637)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... -- 264 907 622 1,232
Deferred rent......... -- 65 93 (2) 227
Issuance of common
stock for services... 5 13 83 60 30
Issuance of stock
options to
consultants.......... -- 7 17 17 13
Changes in assets and
liabilities:
Accounts receivable.. -- (90) (2,477) (2,100) (1,277)
Inventory............ -- (431) (4,474) (3,650) 2,320
Prepaid expenses and
other current
assets.............. (1) (88) (177) (211) (106)
Accounts payable..... 90 745 1,606 3,528 (222)
Accrued compensation
and related
liabilities......... 88 475 665 789 218
Other accrued
expenses............ 61 239 1,239 934 1,614
------ -------- --------- -------- --------
Net cash used in
operating
activities......... (31) (6,586) (13,324) (7,405) (4,588)
------ -------- --------- -------- --------
Cash flows from
investing activities:
Purchases of property
and equipment........ (139) (644) (2,049) (1,561) (2,140)
Other assets.......... (25) (19) (24) (7) 21
------ -------- --------- -------- --------
Net cash used for
investing
activities......... (164) (663) (2,073) (1,568) (2,119)
------ -------- --------- -------- --------
Cash flows from
financing activities:
Net proceeds from sale
of preferred stock... 3,993 16,228 8,141 504 7,273
Borrowings under note
payable.............. -- 1,500 1,535 -- 1,240
Repayments of note
payable.............. -- -- (90) -- (510)
Proceeds from exercise
of stock options, net
of repurchases....... 33 62 42 (91) 20
Repurchase of
founder's stock...... -- -- (42) -- --
Repayment of note
receivable for common
stock................ -- -- 11 53 39
Repayment of capital
lease obligations.... -- (130) (197) (145) (170)
Repayment of
borrowings under line
of credit............ -- -- -- -- (802)
Borrowings under line
of credit............ -- 802 --
------ -------- --------- -------- --------
Net cash provided by
financing
activities......... 4,026 17,660 10,202 321 7,090
------ -------- --------- -------- --------
Net increase (decrease)
in cash and
equivalents........... 3,831 10,411 (5,195) (8,652) 383
Cash and equivalents,
beginning of period... -- 3,831 14,242 14,242 9,047
------ -------- --------- -------- --------
Cash and equivalents,
end of period......... $3,831 $ 14,242 $ 9,047 $ 5,590 $ 9,430
====== ======== ========= ======== ========
Noncash investing and
financing activities:
Conversion of note
payable to preferred
stock................ $ -- $ 1,500 $ -- $ -- $ --
Property acquired
under capital
leases............... $ -- $ 1,026 $ -- $ -- $ --
Exercise of stock
options for notes
receivable, net of
repurchases.......... $ -- $ 225 $ 634 $ 269 $ 754
Additional cash flow
information:
Interest paid......... $ -- $ 75 $ 167 $ 102 $ 204
Taxes paid............ $ -- $ 1 $ 1 $ -- $ 2
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Period from March 18, 1996 (Inception) to June 30, 1996, Years Ended
June 30, 1997 and 1998 and (Unaudited) Nine Months Ended March 31, 1998 and
1999
1.Organization and Significant Accounting Policies
Organization--Alteon WebSystems, Inc., formerly Alteon Networks, Inc., and
Acteon Networks, Inc. (the "Company"), develops, markets and supports Web data
center products which are designed to meet the challenges of managing Web
traffic as well as providing the high performance and availability of
networking infrastructure solutions. The Company was incorporated in Delaware
on March 18, 1996. The Company was considered a development stage company until
April 1997 when it began shipping product.
Basis of Consolidation--The consolidated financial statements include the
Company and its wholly-owned subsidiary, Alteon WebSystems International, Inc.
(a Delaware corporation). All significant intercompany accounts and
transactions are eliminated in consolidation.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk--Financial instruments which potentially expose
the Company to concentrations of credit risk consist primarily of cash and
equivalents and accounts receivable. Risks associated with cash equivalents are
mitigated by banking with creditworthy institutions. To reduce credit risk, the
Company performs ongoing credit evaluations of its customers' financial
condition and limits the amount of credit extended when considered necessary,
but generally requires no collateral. The Company maintains allowances for
potential bad debt losses.
Financial Instruments--The Company's financial instruments include cash and
equivalents, notes receivable from stockholders and long-term obligations. At
June 30, 1997 and 1998, the fair values of these financial instruments
approximated their financial statement carrying amounts.
Cash and Equivalents--The Company considers all highly liquid investments
purchased with a maturity of three months or less at the date of acquisition to
be cash equivalents. Included in cash and equivalents are interest bearing
certificates of deposit, rates from 4.45% to 4.7%, totaling $6.3 million at
March 31, 1999.
Inventory--Inventory is stated at lower of standard cost (first-in, first-
out) or market.
Property and Equipment--Property and equipment are stated at cost.
Depreciation and amortization are computed using the straight-line method over
estimated useful lives ranging from two to five years or the lease term, if
shorter.
Revenue Recognition--Revenue is generally recognized upon shipment unless
significant vendor obligations remain. Service contract revenue is recognized
over the life of the service contract agreement. Revenues are recorded net of
sales returns and allowances. Product warranty costs are accrued when revenue
is recognized.
Research and Development--The costs of the development of hardware products
and enhancements to existing hardware products are expensed as incurred. The
costs for the development of new software products which are included in the
hardware products and substantial enhancements to such existing software
products are expensed as incurred until technological feasibility has been
established, at which time any additional costs
F-7
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Notes to Consolidated Financial Statements--(Continued)
Period from March 18, 1996 (Inception) to June 30, 1996, Years Ended
June 30, 1997 and 1998 and (Unaudited) Nine Months Ended March 31, 1998 and
1999
would be capitalized. Because the Company believes its current process for
developing software is essentially completed concurrently with the
establishment of technological feasibility, no costs have been capitalized to
date.
Stock-Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board (APB) No. 25, Accounting for Stock Issued to Employees.
Loss Per Common Share--Basic loss per common share is computed by dividing
loss attributable to common stockholders by the weighted-average number of
common shares outstanding for the period (excluding shares subject to
repurchase). Diluted loss per common share is computed by dividing loss
attributable to common stockholders by the weighted average number of common
shares and potentially dilutive common securities outstanding for the period.
Potentially dilutive common shares are excluded from the computation in loss
periods as their effect would be antidilutive.
Unaudited Pro Forma Information--The unaudited pro forma balance sheet
presents the Company's balance sheet as if the following had occurred at March
31, 1999: the conversion upon the closing of such initial public offering of
each share of preferred stock to one and one-half shares of common stock.
Estimated proceeds from the common shares to be issued as a result of such
initial public offering are excluded.
New Accounting Pronouncements--In June 1998, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. SFAS
No. 133 will be effective for the Company's fiscal year ending June 30, 2001.
The Company believes that this statement will not have a significant impact on
its financial results.
In March 1998, the American Institute of Certified Public Accountant, or
AICPA, issued Statement of Position, or SOP, No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." SOP No. 98-
1 requires that entities capitalize certain costs related to internal-use
software once certain criteria have been met. SOP No. 98-1 will be effective
for Alteon's fiscal year ending June 30, 2000. The Company believes that this
statement will not have a significant impact on its financial results.
Foreign Currency Transactions--The majority of the Company's sales and
expenses are denominated in US dollars. Gains or losses from foreign currency
translation are included in other income and were insignificant for all periods
presented.
2.Inventory
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
----------- March 31,
1997 1998 1999
---- ------ -----------
(Unaudited)
<S> <C> <C> <C>
Raw materials........................................ $200 $2,046 $1,773
Work in process...................................... 126 755 447
Finished goods....................................... -- 184 149
Inventory at manufacturer in Thailand................ 105 1,921 217
---- ------ ------
$431 $4,906 $2,586
==== ====== ======
</TABLE>
F-8
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Notes to Consolidated Financial Statements--(Continued)
Period from March 18, 1996 (Inception) to June 30, 1996, Years Ended
June 30, 1997 and 1998 and (Unaudited) Nine Months Ended March 31, 1998 and
1999
3.Property and Equipment, Net
Property and equipment, net consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
-------------- March 31,
1997 1998 1999
------ ------ -----------
(Unaudited)
<S> <C> <C> <C>
Computers, equipment and software................ $1,469 $3,294 $4,192
Furniture and fixtures........................... 300 327 642
Leasehold improvements........................... 40 237 1,158
------ ------ ------
1,809 3,858 5,992
Accumulated depreciation and amortization........ (261) (1,168) (2,392)
------ ------ ------
$1,548 $2,690 $3,600
====== ====== ======
</TABLE>
4.Line of Credit
During fiscal 1998, the Company obtained a revolving bank line of credit,
under which the Company could borrow up to $1,500,000 subject to a $750,000
sublimit on letter of credit issuances. In December 1998, the line was
increased to $3 million. The line of credit will mature in December 1999. At
June 30, 1998, there was $802,098 outstanding under the revolving bank line of
credit and the Company had no outstanding irrevocable letters of credit. In
fiscal 1999, all outstanding amounts were repaid. At June 30, 1998 and March
31, 1999 borrowings under the line of credit agreement bear interest at a rate
equal to three quarters of one percentage point (.75%) and one half of one
percentage point (0.5%) above the bank's prime rate (8.50% and 7.75% at June
30, 1998 and March 31, 1999) and are collateralized by substantially all of the
Company's assets. The line of credit also contains restrictive covenants,
including a minimum quick ratio of 1.5:1 and tangible net worth as defined by
the agreement of at least $7.5 million. At June 30, 1998 the Company had
received a waiver for noncompliance with the covenants. At March 31, 1999, the
Company was in compliance with all covenants.
5.Other Accrued Expenses
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30,
------------ March 31,
1997 1998 1999
----- ------ -----------
(Unaudited)
<S> <C> <C> <C>
Deferred revenue.................................... $ -- $ 667 $ 574
Accrued warranty.................................... 50 350 1,030
Marketing and related accruals...................... -- 160 307
Deferred rent....................................... 65 159 386
Sales tax payable................................... 52 56 42
Other............................................... 123 231 1,002
----- ------ ------
$ 290 $1,623 $3,341
===== ====== ======
</TABLE>
6.Note Payable to Bank
The Company entered into a borrowing arrangement in March 1998 which was
modified in December 1998 to borrow up to $4,000,000 for the purchase of
equipment. At June 30, 1998 the borrowings bore interest at a rate equal to one
percentage point (1%) above the bank's prime rate (8.50% at June 30, 1998). In
fiscal 1999, the borrowings bear interest at a rate equal to three quarters of
one percentage point (0.75%) above the bank's prime rate (7.75% at March 31,
1999) and are collateralized by a continuing security interest in all equipment
collateral, as defined in the agreement. Each draw on the loan is payable in 34
equal monthly installments of principal and interest. At June 30, 1998 and
March 31, 1999, the Company had approximately $1,440,000 and $2,175,000
outstanding respectively, payable through December 2000.
F-9
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Notes to Consolidated Financial Statements--(Continued)
Period from March 18, 1996 (Inception) to June 30, 1996, Years Ended
June 30, 1997 and 1998 and (Unaudited) Nine Months Ended March 31, 1998 and
1999
7.Lease Commitments
Equipment with a net book value of approximately $820,000, $478,000 and
$221,302 at June 30, 1997, 1998 and the nine months ended March 31, 1999,
respectively (net of accumulated amortization of approximately $206,000,
$548,000 and $805,000, respectively), was leased under capital leases. Under
the lease agreement, the Company has the option to make a balloon lease payment
equal to 20% of the equipment's original purchase price or to extend the lease
for an additional 12 months at the end of the lease period at a rate of 1.85%
per month of the equipment's original purchase price.
The Company leases its primary facilities under noncancelable operating
leases expiring through April 2003. Rent expense was approximately $19,000,
$270,000, $414,000, $200,000 and $1,010,000 in the period from March 18, 1996
(inception) to June 30, 1996, fiscal 1997 and 1998 and the nine months ended
March 31, 1998 and 1999, respectively. In connection with a lease entered into
in May 1998, the Company committed approximately $974,000 related to leasehold
improvements and the lease is secured by a $697,000 letter of credit.
Effective September 1998, the Company subleased one of its facilities. The
cash received from this lease was $118,000 for the nine months ended March 31,
1999. The cash to be received over the 33-month lease term is $573,000.
Effective July 1999, the Company subleased a portion of another facility for 34
months. The cash to be received are $1,221,000.
At June 30, 1998, minimum future lease payments are as follows, excluding
sublease income discussed above (in thousands):
<TABLE>
<CAPTION>
Year Ending Capital Operating
June 30, Leases Leases
----------- ------- ---------
<S> <C> <C>
1999....................................................... $ 329 $1,073
2000....................................................... 390 1,314
2001....................................................... 141 1,450
2002....................................................... -- 1,233
2003....................................................... -- 977
----- ------
Total minimum lease payments............................... 860 $6,047
======
Amount representing interest............................... (160)
-----
Present value of minimum lease payments.................... 700
Current portion............................................ 232
-----
Long-term capital lease obligations........................ $ 468
=====
</TABLE>
8.Stockholders' Equity
Convertible Preferred Stock
Significant terms of the convertible preferred stocks are as follows:
. Every share of Series A, Series B, Series C and Series D preferred stock
is convertible into one share of common stock at the option of the
holder, subject to certain antidilution adjustments. Each share of
preferred stock will automatically convert upon the earlier of the
closing date of an underwritten public offering of the Company's common
stock at an offering price of at least $9.60 and aggregate proceeds which
are at least $10,000,000 or upon the affirmative election of the holders
of at least a majority of the shares of the Series preferred.
F-10
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Notes to Consolidated Financial Statements--(Continued)
Period from March 18, 1996 (Inception) to June 30, 1996, Years Ended
June 30, 1997 and 1998 and (Unaudited) Nine Months Ended March 31, 1998 and
1999
. Holders of the preferred stock are entitled to one vote for each share of
common stock into which such shares may be converted.
. Stockholders are entitled to receive annual noncumulative dividends in
preference to holders of common shares, if and when, declared by the
Board of Directors. The dividend rate for Series A, Series B, Series C
and Series D preferred stock per share per annum is $0.06, $0.40, $0.56,
and $0.68, respectively. No dividends have been declared as of March 31,
1999.
. In the event of a merger, consolidation, sale, transfer or lease of all
or substantially all of the Company's assets, stockholders of Series A,
Series B, Series C and Series D preferred stock are entitled to receive
$0.77, $5.00, $7.00 and $8.50, respectively, plus any declared and unpaid
dividends with respect to such shares. After the payment of the full
liquidation preference to the preferred stockholders, any remaining
assets of the Company will be distributed to the common stockholders.
Restricted Stock
The Company has the right to repurchase the unvested portion of restricted
common stock at the original purchase price. The Company's right to purchase
these shares expires over 48 months from the grant date. At March 31, 1999,
550,535 shares outstanding are subject to repurchase.
Additionally, certain officers and employees exercised unvested stock options
with full recourse notes. The related shares of common stock are subject to
repurchase by the Company at the original purchase price per share upon the
purchaser's cessation of service prior to the vesting of such shares. The
restricted stock continues to vest in accordance with the terms of the original
stock option. The related notes bear interest at 6.5% and mature three years
from the loan date. At March 31, 1999, 3,667,270 outstanding shares of such
stock were subject to repurchase.
Stock Options
Under the 1996 Stock Option Plan (the "1996 Plan"), incentive stock options
may be granted to employees and nonstatutory stock options may be granted to
employees, consultants and directors to purchase up to 8,540,000 shares of
common stock. Incentive stock options are granted at fair market value (as
determined by the Board of Directors) at the date of grant; nonstatutory
options may be granted at 85% of fair market value. Options are exercisable at
any time with any unvested shares subject to repurchase at the original
exercise price. Options generally vest over four years and expire ten years
from the date of grant. Upon a change in ownership of the Company (as defined
in the 1996 Plan), 25% of the unvested shares become vested.
Stock-Based Compensation
During 1998 and the nine months ended March 31, 1998 and 1999, the Company
issued common stock to certain nonemployees in exchange for services. The fair
value of such stock issuances totaled $83,000, $60,000 and $30,000 in 1998, and
the nine months ended March 31, 1998 and March 31, 1999, respectively, and were
expensed in the period the services were performed.
The Company has granted stock options to nonemployees with a fair value of
$17,000, $14,000 and $13,000 for fiscal 1998 and the nine months ended March
31, 1998 and March 31, 1999, respectively, which are being expensed over the
vesting period of the options.
F-11
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Notes to Consolidated Financial Statements--(Continued)
Period from March 18, 1996 (Inception) to June 30, 1996, Years Ended
June 30, 1997 and 1998 and (Unaudited) Nine Months Ended March 31, 1998 and
1999
Option activity under the Plan is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number Exercise
of Shares Price
---------- --------
<S> <C> <C>
Outstanding, July 1, 1996............................. 52,500 $0.05
Granted (weighted average fair value of $0.02 per
share)............................................. 6,579,327 0.09
Exercised........................................... (4,892,014) 0.05
Canceled............................................ (184,125) 0.05
----------
Outstanding, June 30, 1997 (107,377 options
exercisable)......................................... 1,555,688 0.21
Granted (weighted average fair value of $0.13 per
share)............................................. 3,237,375 0.49
Exercised........................................... (1,985,592) 0.38
Canceled............................................ (440,096) 0.17
----------
Outstanding, June 30, 1998 (356,607 options
exercisable)......................................... 2,367,375 0.45
Granted (weighted average fair value of $0.35 per
share)............................................. 2,268,000 0.79
Exercised........................................... (604,457) 0.20
Canceled............................................ (444,031) 0.51
----------
Outstanding, March 31, 1999 (698,198 options
exercisable) (unaudited)........................... 3,586,887 $0.71
==========
</TABLE>
Additional information regarding options outstanding as of June 30, 1998 is
as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Life Exercise Number Exercise
Exercise Prices Outstanding (Years) Price Exercisable Price
--------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.05 180,000 8.43 $0.05 67,880 $0.05
0.33 1,174,050 9.07 0.33 260,126 0.33
0.67 1,013,325 9.70 0.67 28,601 0.67
--------- ---- ----- ------- -----
$0.05--$0.67 2,367,375 9.29 $0.45 356,607 $0.33
========= =======
</TABLE>
Additional Stock Plan Information
As discussed in Note 1, the Company continues to account for its employee
stock-based awards using the intrinsic value method in accordance with APB No.
25, "Accounting for Stock Issued to Employees," and its related
interpretations. Accordingly, no compensation expense has been recognized in
the financial statements for employee stock arrangements, because the fair
value of common stock at the grant date is not greater than the option exercise
price.
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the
disclosure of pro forma net loss had the Company adopted the fair value method
as of the beginning of fiscal 1996. Under SFAS 123, the fair value of stock-
based awards to employees is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
differ significantly from the Company's stock option awards. These models also
require subjective assumptions, including estimated stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the minimum value method
F-12
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Notes to Consolidated Financial Statements--(Continued)
Period from March 18, 1996 (Inception) to June 30, 1996, Years Ended
June 30, 1997 and 1998 and (Unaudited) Nine Months Ended March 31, 1998 and
1999
with the following weighted average assumptions: expected life, 60 months;
average risk-free interest rates, approximately 6.3% in 1997 and 5.6% in 1998;
and no dividends during the expected term. The Company's calculations are based
on a single option valuation approach, and forfeitures are recognized as they
occur. If the computed fair values of the 1996 awards had been amortized to
expense over the vesting period of the awards, pro forma net loss for 1996
would not have been materially different from the net losses reported in the
accompanying consolidated statements of operations. If the computed fair values
of the 1997 and 1998 awards had been amortized to expense over the vesting
period of the awards, pro forma net loss for 1997 and 1998 would have been
approximately $7,825,000 and $10,933,000, respectively.
9.Income Taxes
No federal income taxes were provided in 1996, 1997, and 1998 due to the
Company's net operating losses. The provision for income taxes for these
periods represents state minimum franchise taxes. Deferred tax assets have been
fully reserved as the Company believes that due to its history of operating
losses and the expiration dates of the carryforwards, it is more likely than
not that such benefits will not be realized.
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate to the loss before income taxes as
follows:
<TABLE>
<CAPTION>
Period from
March 18, 1996 Years Ended Nine Months
(Inception) to June 30, Ended
June 30, ------------- March 31,
1996 1997 1998 1999
-------------- ----- ----- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Taxes computed at federal
statutory rate................. (35.0)% (35.0)% (35.0)% (35.0)%
State income taxes, net of
federal benefit................ (5.8) (6.7) (8.4) (7.9)
Federal research and development
credit......................... -- (1.7) (4.1) (4.3)
Other........................... 0.2 -- (4.1) 9.8
Change in valuation allowance... 40.6 43.4 51.6 37.4
----- ----- ----- -----
Total provision............... -- % -- % -- % -- %
===== ===== ===== =====
</TABLE>
Deferred tax assets (liabilities) are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
June 30,
---------------- March 31,
1997 1998 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Accruals and reserves........................ $ 240 $ 1,054 $ 1,873
Net operating loss and tax credits carried
forward..................................... 1,774 5,758 8,026
Depreciation................................. -- 141 356
Capitalized expenses......................... 1,475 2,116 2,047
------- ------- --------
Total gross deferred tax asset before
valuation allowance......................... 3,489 9,069 12,302
Valuation allowance.......................... (3,489) (9,069) (12,302)
------- ------- --------
Net deferred tax asset....................... $ -- $ -- $ --
======= ======= ========
</TABLE>
At June 30, 1998, the Company had federal and state net operating loss
carryforwards of approximately $12,750,000 and $1,350,000 available to reduce
future federal and state taxable income, respectively. The federal and state
carryforwards begin to expire in 2012 and 2005, respectively. The Company also
has research
F-13
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Notes to Consolidated Financial Statements--(Continued)
Period from March 18, 1996 (Inception) to June 30, 1996, Years Ended
June 30, 1997 and 1998 and (Unaudited) Nine Months Ended March 31, 1998 and
1999
and development credit carryforwards of approximately $955,000 and $453,000
available to offset future federal and state income taxes, respectively, as of
June 30, 1998. These federal carryforwards begin to expire in 2012. The Company
also has a state investment tax credit of approximately $136,000 as of June 30,
1998 which begins to expire in 2007. The extent to which the loss and credit
carryforwards can be used to offset future taxable income or taxes may be
limited, depending on the extent of ownership changes within any three-year
period as provided by Section 382 of the Internal Revenue Code and applicable
California state tax law.
10.Contingencies
The Company is involved in litigation in the normal course of business.
Management does not believe the ultimate outcome of any such matters will have
a material adverse effect on the Company's consolidated financial statements.
11.Business Segment and Geographic Information
The Company operates in only one reportable segment.
The Company had sales, net of sales returns, to individual customers in
excess of 10% of sales as follows:
<TABLE>
<CAPTION>
June 30, March 31,
---------- -------------
Customer 1997 1998 1998 1999
-------- ---- ---- ----- -----
(Unaudited)
<S> <C> <C> <C> <C>
A................................................... 35% 10% 10% 11%
B................................................... 49% 42% 49% -- %
C................................................... -- % 14% 17% -- %
D................................................... -- % -- % -- % 13%
E................................................... -- % -- % -- % 12%
The Company had accounts receivable from individual customers in excess of
10% of gross accounts receivable as follows:
<CAPTION>
June 30, March 31,
---------- -------------
Customer 1997 1998 1998 1999
-------- ---- ---- ----- -----
(Unaudited)
<S> <C> <C> <C> <C>
A................................................... 55% -- % 18% 12%
B................................................... -- % 12% 30% -- %
C................................................... 15% -- % -- % -- %
D................................................... -- % -- % 10% -- %
E................................................... -- % 10% -- % 22%
</TABLE>
Sales to unaffiliated customers by geographic area are as follows (in
thousands):
<TABLE>
<CAPTION>
Period from
March 18, 1996 Years Ended Nine Months
(Inception) to June 30, Ended
June 30, ------------ March 31,
1996 1997 1998 1999
-------------- ---- ------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
North America........................ $ -- $152 $ 9,709 $14,620
Europe............................... -- 9 426 1,577
Japan................................ -- 17 2,981 1,114
Other Asia........................... -- -- 456 1,077
----- ---- ------- -------
Total.............................. $ -- $178 $13,572 $18,388
===== ==== ======= =======
</TABLE>
F-14
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Notes to Consolidated Financial Statements--(Continued)
Period from March 18, 1996 (Inception) to June 30, 1996, Years Ended
June 30, 1997 and 1998 and (Unaudited) Nine Months Ended March 31, 1998 and
1999
Operating income (loss) by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
Period from
March 18, 1996 Nine Months
(Inception) to Years Ended June 30, Ended
June 30, --------------------- March 31,
1996 1997 1998 1999
-------------- ---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
North America.............. $(293) $ (7,768) $ (11,864) $(10,031)
Europe..................... -- (25) (75) 471
Asia....................... -- (113) 812 734
----- --------- ---------- --------
Total.................... $(293) $ (7,906) $ (11,127) $ (8,826)
===== ========= ========== ========
</TABLE>
Substantially all of the Company's long-lived assets are in the United
States.
12.Net Loss Per Share
The following is a reconciliation of the denominators used in computing basic
and diluted net loss per share (in thousands):
<TABLE>
<CAPTION>
Period from
March 18, 1996 Years Ended Nine Months Ended
(Inception) to June 30, March 31,
June 30, ------------ -----------------
1996 1997 1998 1998 1999
-------------- ----- ------ -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Shares (denominator):
Weighted average common shares
outstanding................... 4,227 6,939 10,775 10,708 11,845
Less weighted average common
shares outstanding subject to
repurchase.................... 3,658 5,428 5,824 6,038 4,600
----- ----- ------ -------- --------
Shares used in computation,
basic and diluted............. 569 1,511 4,951 4,670 7,245
===== ===== ====== ======== ========
</TABLE>
For the period from March 18, 1996 (inception) to June 30, 1996 and for
fiscal 1997 and 1998, the Company had securities outstanding which could
potentially dilute basic earnings per share in the future, but were excluded in
the computation of diluted net loss per share in the periods presented as their
effect would have been antidilutive. Such outstanding securities consist of the
following at June 30, 1998: 10,248,764 shares of preferred stock and options to
purchase 2,367,375 shares of common stock. There were 8,408,315 and 5,672,312
shares subject to repurchase by the Company at June 30, 1997 and 1998,
respectively.
13.Related Party Transactions
During 1998 and the nine months ended March 31, 1998 and March 31, 1999, the
Company had net sales to a related party stockholder of $1,357,000, $938,000
and $2,105,000, respectively. The related amounts receivable were $224,000,
$421,000 and $579,000, respectively. During the same periods, the Company had
net sales to another related party stockholder of $1,928,000, $1,724,000 and
$530,000, respectively. Net prepaid amounts from this customer were $613,000,
$818,000 and $528,000, respectively.
Manufacturing services have been provided by a related party in 1998 and the
nine months ended March 31, 1999. The total value of inventory purchased from
the related party is $1,023,000 and $6,107,000, respectively.
F-15
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Notes to Consolidated Financial Statements--(Continued)
Period from March 18, 1996 (Inception) to June 30, 1996, Years Ended
June 30, 1997 and 1998 and (Unaudited) Nine Months Ended March 31, 1998 and
1999
14.Subsequent Events
In June 1999, the Company issued 2,494,832 shares of Series D preferred stock
at a price of $8.50 per share for gross proceeds of $21,206,072. In addition,
the Company amended the conversion ratio such that every share of Series A,
Series B, Series C and Series D of preferred stock is convertible into one and
one-half shares of common stock.
During June 1999, the Company effected a stock split of three shares of
common stock for every two shares of outstanding common stock. In addition the
Board approved an increase in the number of authorized shares of common and
preferred shares. All share and per share amounts in these financial statements
have been adjusted to give effect to this stock split and increase in
authorized shares.
Also, the Company amended the 1996 Plan which became the 1999 Equity
Incentive Plan and approved an increase in the number of shares authorized to
18,810,000.
* * * * *
F-16
<PAGE>
[ Description of Inside Back Cover Graphic]
[Graphic depicts profile of screaming man. Caption states "Because people
hate (really hate) web wait". Graphic also contains reproductions of our
products including WebICs, Web Switches, Web OS and Server Adapters. The graphic
contains our name and logo in the lower right hand corner with the phrase, "Web
Speed for e-Business". The graphic also has the following captions:
"WebICs
Custom network processing semiconductors with embedded RISC processors form
the heart of Alteon Web switches and server adapters enabling high
performance and scalability.
Web Switches
Alteon Web switches deliver high availability and performance. Our WebICs
and distributed architecture support high-speed switching at Ethernet, IP
and Web session layers.
Web OS
Web OS Internet traffic management software integrated within Alteon Web
switches. Services include: local and global server load balancing, cache,
firewall and router load balancing, high availability, server security and
bandwidth management.
Server Adapters
Gigabit Ethernet adapters with server offloading capabilities increase Web
server performance."
<PAGE>
Shares
Common Stock
-------------
PROSPECTUS
, 1999
-------------
Lehman Brothers
BancBoston Robertson Stephens
Thomas Weisel Partners LLC
<PAGE>
Part II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates except the
SEC registration fee, the Nasdaq National Market listing fee and the NASD
filing fee.
<TABLE>
<S> <C>
SEC registration fee................................................ $14,178
NASD filing fee..................................................... 5,600
Nasdaq National Market listing fee.................................. 48,750
Printing and engraving costs........................................ 175,000
Legal fees and expenses............................................. 400,000
Accounting fees and expenses........................................ 200,000
Blue Sky fees and expenses.......................................... 15,000
Transfer Agent and Registrar fees................................... 10,000
Directors and Officers Insurance....................................
Miscellaneous expenses..............................................
-------
Total............................................................. $
=======
</TABLE>
- --------
*To be filed by amendment
Item 14. Indemnification of Directors and Officers
As permitted by Delaware law, our amended and restated certificate of
incorporation provides that no director of ours will be personally liable to
us or our stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability:
. for any breach of duty of loyalty to us or to our stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. under Section 174 of the Delaware General Corporation Law; or
. for any transaction from which the director derived an improper personal
benefit.
Our amended and restated certificate of incorporation further provides that
we must indemnify our directors and executive officers and may indemnify its
other officers and employees and agents to the fullest extent permitted by
Delaware law.
In addition, our amended and rested bylaws provide that:
. we are required to indemnify its directors and officers to the fullest
extent permitted by Delaware law, subject to limited exceptions;
. we may indemnify our other employees and agents to the extent that we
indemnify our officers and directors, unless otherwise required by law,
our certificate of incorporation, our bylaws or agreements;
. we are required to advance expenses to our directors and executive
officers as incurred in connection with a legal proceedings against them
for which they may be indemnified; and
. the rights conferred in the bylaws are not exclusive.
We have entered into indemnification agreements with each of our directors
and some of our officers. These agreements, among other things, require us to
indemnify each director and officer for expenses such as attorneys' fees,
judgments, fines and settlement amounts incurred by any such person in any
action or proceeding, including
II-1
<PAGE>
any action by or in the right of Alteon, arising out of the person's services
as our director or officer, any subsidiary of ours or any other company or
enterprise to which the person provides services at our request.
The underwriting agreement (Exhibit 1.1) will provide for indemnification by
the underwriters of Alteon, our directors, our officers who sign the
registration statement, and our controlling persons for some liabilities,
including liabilities arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
All the share amounts and prices per share set forth below have been
adjusted to reflect the 3 for 2 split of our common stock in June 1999 and are
presented on an as converted to common stock basis.
Since inception, we have sold and issued the following unregistered
securities:
(1) From March 1996 to June 1999, we granted stock options to purchase an
aggregate of 14,821,002 shares of common stock at exercise prices ranging from
$0.05 to $5.67 per share to employees, consultants, directors and other
service providers pursuant to our 1999 Equity Incentive Plan.
(2) From April 1996 to June 1999 we issued an aggregate of 1,235,315 shares
of common stock to consultants at prices ranging from $0.0067 to $5.10 per
share.
(3) In April 1996, we issued an aggregate of 4,404,255 shares of common
stock to 4 purchasers at $0.0067 per share for an aggregate purchase price of
$29,362.
(4) In May 1996 we sold an aggregate of 7,792,206 shares of Series A
preferred stock to 13 purchasers at $0.51 per share for an aggregate purchase
price of $3,999,999.
(5) In September 1996 we sold an aggregate of 462,750 shares of Series A
preferred stock to 15 purchasers at $0.51 per share for an aggregate purchase
price of $237,545.
(6) In December 1996 we sold 75,000 shares of Series A preferred stock to 1
purchaser at $0.67 per share for an aggregate purchase price of $50,000.
(7) In February 1997 we sold 12,000 shares of Series A preferred stock to 2
purchasers at $0.67 per share for an aggregate purchase price of $8,000.
(8) In March 1997 we sold 3,750 shares of Series A preferred stock to 1
purchaser at $1.67 per share for an aggregate purchase price of $6,250.
(9) In April 1997 we sold 22,500 shares of Series A preferred stock to 1
purchaser at $1.17 per share for an aggregate purchase price of $26,250.
(10) In April 1997 we sold 21,000 shares of Series A preferred stock to 1
purchaser at $1.67 per share for an aggregate purchase price of $35,000.
(11) In May 1997 we sold an aggregate of 5,217,000 shares of Series B
preferred stock to 37 purchasers at $3.33 per share for an aggregate purchase
price of $17,390,000.
(12) In August 1997 we sold an aggregate of 45,000 shares of Series B
preferred stock to 3 purchasers at $3.33 per share for an aggregate purchase
price of $150,000.
(13) In September 1997 we sold an aggregate of 30,000 shares of Series B
preferred stock to 1 purchaser at $3.33 per share for an aggregate purchase
price of $100,000.
II-2
<PAGE>
(14) In February 1998 we sold an aggregate of 51,000 shares of Series B
preferred stock to 1 purchaser at $5.00 per share for an aggregate purchase
price of $255,000.
(15) In June 1998 we issued an aggregate of 1,640,940 shares of Series C
preferred stock to 24 purchasers at $4.67 per share for an aggregate purchase
price of $7,663,189.
(16) In July 1998 we issued an aggregate of 1,562,595 shares of Series C
preferred stock to 9 purchasers at $4.67 per share for an aggregate purchase
price of $7,292,110.
(17) In June 1999 we issued an aggregate of 3,742,248 shares of Series D
preferred stock to 44 purchasers at $5.67 per share for an aggregate purchase
price of $21,206,072.
(18) In July 1999 we issued an aggregate of 7,752 shares of Series D
preferred stock to 1 purchaser at $5.67 per share for an aggregate purchase
price of $43,928.
The sales and issuance of securities described in paragraphs (1) and (2)
above were deemed to be exempt from registration under the Securities Act by
virtue of Rule 701 of the Securities Act in that they were offered and sold
either pursuant to a written compensatory benefit plan or pursuant to a
written contract relating to compensation, as provided by Rule 701.
The sales and issuances of securities described in paragraphs (3) through
(18) above were deemed to be exempt from registration under the Securities Act
by virtue of Rule 4(2) or Regulation D promulgated thereunder. With respect to
the grant of stock options and restricted stock awards described in paragraph
(1), an exemption from registration was unnecessary in that none of the
transactions involved a "sale" of securities as such term is used in Section
2(3) of the Securities Act.
Appropriate legends are affixed to the stock certificates issued in the
aforementioned transactions. Similar legends were imposed in connection with
any subsequent sales of any such securities. All recipients either received
adequate information about us or had access, through employment or other
relationships, to such information.
Item 16. Exhibits and Financial Statement Schedules
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of Registrant, as
currently in effect.
3.2 Amended and Restated Certificate of Incorporation of Registrant to be
filed upon the closing of the offering made pursuant to this
Registration Statement.
3.3 Bylaws of the Registrant, as currently in effect.
3.4 Amended and Restated Bylaws of Registrant to be filed upon the closing
of the offering made pursuant to this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2 Investor Rights Agreement dated June 30, 1999 between Registrant and
holders of the Registrant's Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement.
10.2 1999 Equity Incentive Plan and related documents.
10.3 1999 Employee Stock Purchase Plan.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.4 License and Stock Purchase Agreement dated April 19, 1996 between
Registrant and Essential Communications Corporation.
10.5 Loan and Security Agreement dated March 20, 1998 between Registrant and
Silicon Valley Bank, as modified on May 29, 1998, July 15, 1998,
September 4, 1998 and December 8, 1998.
10.6 Master Equipment Lease Agreement dated September 9, 1996 between
Registrant and Phoenix Leasing Incorporated and related schedules and
attachments.
10.7 Lease Agreement dated December 24, 1997 between Registrant and South San
Jose Interests, as amended on April 20, 1998.
10.8 Sublease dated April 7, 1999 between Registrant and Silicon Valley
College.
10.9 Memorandum of Understanding between Registrant and International
Manufacturing Services, Inc. (Celestica Thailand Ltd.)
10.10 Offer letter from Registrant to Mr. Joe T. Booker dated January 17, 1997
and related side letter dated May 9, 1997.
10.11 Offer letter from Registrant to Mr. Barton M. Burstein dated December 2,
1996.
10.12 Offer letter from Registrant to Ms. Selina Y. Lo dated January 17, 1997.
10.13 Offer letter from Registrant to Mr. Dominic P. Orr dated October 11,
1996.
10.14 Offer letter from Registrant to Mr. Shirish S. Sathaye dated May 5,
1997.
21.1 List of Subsidiaries
23.1 Consent of Deloitte & Touche LLP, Independent Auditors, and Report on
Schedule.
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment
(b)Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts and Reserves
Item 17. Undertakings
The registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act, and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered hereunder, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-5
<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, thereinto duly authorized, in the City of San Jose,
State of California, on the 9th day of July, 1999.
ALTEON WEBSYSTEMS, INC.
/s/ Dominic P. Orr
By:__________________________________
Dominic P. Orr
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Dominic P. Orr and James G. Burke, and
each of them, his or her true and lawful agent, proxy and attorney-in-fact,
with full power of substitution and resubstitution, for him or her and in his
or her name, place and stead, in any and all capacities, to (i) act on, sign
and file with the Securities and Exchange Commission any and all amendments
(including post-effective amendments) to this registration statement together
with all schedules and exhibits thereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, together with all schedules and exhibits thereto, (ii) act on, sign
and file such certificates, instruments, agreements and other documents as may
be necessary or appropriate in connection therewith, (iii) act on and file any
supplement to any prospectus included in this registration statement or any
such amendment or any subsequent registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and (iv) take any and all
actions which may be necessary or appropriate to be done, as fully for all
intents and purposes as he or she might or could do in person, hereby
approving, ratifying and confirming all that such agent, proxy and attorney-
in-fact or any of his substitutes may lawfully do or cause to be done by
virtue thereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Dominic P. Orr Chief Executive Officer July 9, 1999
______________________________________ President and Director
Dominic P. Orr (Principal Executive
Officer)
/s/ James G. Burke Chief Financial Officer July 9, 1999
______________________________________ (Principal Finance and
James G. Burke Accounting Officer)
/s/ Joe T. Booker Vice President of July 9, 1999
______________________________________ Operations and Director
Joe T. Booker
/s/ Tench Coxe Director July 9, 1999
______________________________________
Tench Coxe
/s/ Andrew W. Verhalen Director July 9, 1999
______________________________________
Andrew W. Verhalen
/s/ Adam Grosser Director July 9, 1999
______________________________________
Adam Grosser
</TABLE>
II-6
<PAGE>
Alteon WebSystems, Inc. and Subsidiary
Valuation and Qualifying Accounts and Reserves
Period from March 18, 1996 (Inception) to June 30, 1996
and the Years Ended June 30, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
Additions Reclassifications
Balance at Charged to and Charges Balance at
Beginning Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
- ----------- ---------- ---------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Period from March 18,
1996 (inception) to
June 30, 1996:
Allowance for doubtful
accounts............... $-- $-- $-- $-- $--
Product return reserve.. -- -- -- -- --
Accrued product
warranty............... -- -- -- -- --
Year ended June 30,
1997:
Allowance for doubtful
accounts............... -- -- -- -- --
Product return reserve.. -- 70 -- -- 70
Accrued product
warranty............... -- 50 -- -- 50
Year ended June 30,
1998:
Allowance for doubtful
accounts............... -- 150 -- -- 150
Product return reserve.. 70 245 -- -- 315
Accrued product
warranty............... 50 300 -- -- 350
</TABLE>
S-1
<PAGE>
Exhibit Index
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of Registrant, as
currently in effect.
3.2 Amended and Restated Certificate of Incorporation of Registrant to be
filed upon the closing of the offering made pursuant to this
Registration Statement.
3.3 Bylaws of the Registrant, as currently in effect.
3.4 Amended and Restated Bylaws of Registrant to be filed upon the closing
of the offering made pursuant to this Registration Statement.
4.1* Specimen Common Stock Certificate.
4.2 Investor Rights Agreement dated June 30, 1999 between Registrant and
holders of the Registrant's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement.
10.2 1999 Equity Incentive Plan and related documents.
10.3 1999 Employee Stock Purchase Plan.
10.4 License and Stock Purchase Agreement dated April 19, 1996 between
Registrant and Essential Communications Corporation.
10.5 Loan and Security Agreement dated March 20, 1998 between Registrant and
Silicon Valley Bank, as modified on May 29, 1998, July 15, 1998,
September 4, 1998 and December 8, 1998.
10.6 Master Equipment Lease Agreement dated September 9, 1996 between
Registrant and Phoenix Leasing Incorporated and related schedules and
attachments.
10.7 Lease Agreement dated December 24, 1997 between Registrant and South
San Jose Interests, as amended on April 20, 1998.
10.8 Sublease dated April 7, 1999 between Registrant and Silicon Valley
College.
10.9 Memorandum of Understanding between Registrant and International
Manufacturing Services, Inc. (Celestica Thailand Ltd.)
10.10 Offer letter from Registrant to Mr. Joe T. Booker dated January 17,
1997 and related side letter dated May 9, 1997.
10.11 Offer letter from Registrant to Mr. Barton M. Burstein dated December
2, 1996.
10.12 Offer letter from Registrant to Ms. Selina Y. Lo dated January 17,
1997.
10.13 Offer letter from Registrant to Mr. Dominic P. Orr dated October 11,
1996.
10.14 Offer letter from Registrant to Mr. Shirish S. Sathaye dated May 5,
1997.
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP, Independent Auditors, and Report on
Schedule.
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1).
24.1 Power of Attorney (contained on signature page).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
ALTEON WEBSYSTEMS, INC.
Dominic P. Orr and Eric C. Jensen hereby certify that:
1. The original name of this corporation is Alteon Networks, Inc. and the
date of filing the original Certificate of Incorporation of this corporation
with the Secretary of State of the State of Delaware is March 18, 1996.
2. They are the duly elected and acting President and Secretary,
respectively, of Alteon Networks, Inc., a Delaware corporation.
3. The Certificate of Incorporation of this corporation is hereby amended
and restated to read as follows:
"I.
The name of the corporation is Alteon WebSystems, Inc. (the "Corporation"
or the "Company").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
County of New Castle
The name of the Corporation's registered agent at said address is
Corporation Service Company.
III.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This 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 Three Hundred
Fifteen Million (315,000,000) shares, Three
1.
<PAGE>
Hundred Million (300,000,000) shares of which shall be Common Stock (the "Common
Stock") and Fifteen Million (15,000,000) shares of which shall be Preferred
Stock (the "Preferred Stock"). The Preferred Stock shall have a par value of
one-tenth of one cent ($.001) per share and the Common Stock shall have a par
value of one-tenth of one cent ($.001) per share.
B. Upon filing of this Amended and Restated Certificate of Incorporation,
each authorized and outstanding share of Common Stock shall be split and divided
into three (3) shares of Common Stock for every two (2) shares of Common Stock
(the "Stock Split"); provided, however, that the Corporation shall issue no
fractional shares, but shall instead pay in cash to any shareholder who would be
entitled to receive fractional shares as a result of the Stock Split. The fair
market value of such fractional shares shall be determined by the Board of
Directors as of the filing date of this Amended and Restated Certificate of
Incorporation.
C. The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares of Common Stock then outstanding)
by the affirmative vote of the holders of a majority of the stock of the
Corporation (voting together on an as-if-converted basis).
D. The Preferred Stock may be issued from time to time in one or more
series. Subject to Section 2(b) below, the Board of Directors is hereby
authorized, within the limitations and restrictions stated in this Amended and
Restated Certificate of Incorporation (the "Restated Certificate"), to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, the liquidation preferences of any wholly unissued
series of Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or any of them; and to increase or decrease the
number of shares of any series subsequent to the issue of shares of that series,
but not below the number of shares of such series then outstanding. In case the
number of shares of any series shall be so decreased, the shares constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
E. Six Million (6,000,000) of the authorized shares of Preferred Stock are
hereby designated "Series A Preferred Stock" (the "Series A Preferred"). Four
Million (4,000,000) of the authorized shares of Preferred Stock are hereby
designated "Series B Preferred Stock" (the "Series B Preferred"). Two Million
Five Hundred Thousand (2,500,000) of the authorized shares of Preferred Stock
are hereby designated "Series C Preferred Stock" (the "Series C Preferred").
Two Million Five Hundred Thousand (2,500,000) of the authorized shares of
Preferred Stock are hereby designated "Series D Preferred Stock" (the "Series D
Preferred"). The Series A Preferred, Series B Preferred, Series C Preferred and
Series D Preferred are hereinafter collectively referred to as the "Series
Preferred."
F. The rights, preferences, privileges, restrictions and other matters
relating to the Series Preferred are as follows:
1. Dividend Rights.
2.
<PAGE>
a. Holders of Series Preferred, in preference to the holders of any
other stock of the Company ("Junior Stock"), shall be entitled to receive, when
and as declared by the Board of Directors, but only out of funds that are
legally available therefor, cash dividends at the rate of eight percent (8%) of
the "Original Issue Price" per annum on each outstanding share of Series
Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). The Original Issue
Price of the Series A Preferred shall be seventy-seven cents ($0.77). The
Original Issue Price of the Series B Preferred shall be five dollars ($5.00).
The Original Issue Price of the Series C Preferred shall be seven dollars
($7.00). The Original Issue Price of the Series D Preferred shall be eight
dollars and fifty cents ($8.50). Such dividends shall be payable only when, as
and if declared by the Board of Directors and shall be non-cumulative.
b. So long as any shares of Series Preferred shall be outstanding,
no dividend, whether in cash or property, shall be paid or declared, nor shall
any other distribution be made, on any Junior Stock, nor shall any shares of any
Junior Stock of the Company be purchased, redeemed, or otherwise acquired for
value by the Company (except for acquisitions of Common Stock by the Company
pursuant to agreements which permit the Company to repurchase such shares upon
termination of services to the Company or in exercise of the Company's right of
first refusal upon a proposed transfer) until all dividends (set forth in
Section 1(a) above) on the Series Preferred shall have been paid or declared and
set apart. In the event dividends are paid on any share of Common Stock, an
additional dividend shall be paid with respect to all outstanding shares of
Series Preferred in an amount equal per share (on an as-if-converted to Common
Stock basis) to the amount paid or set aside for each share of Common Stock.
The provisions of this Section 1(b) shall not, however, apply to (i) a dividend
payable in Common Stock, (ii) the acquisition of shares of any Junior Stock in
exchange for shares of any other Junior Stock, (iii) any repurchase of any
outstanding securities of the Company that is unanimously approved by the
Company's Board of Directors, or (iv) the Stock Split.
2. Voting Rights.
a. General Rights. Except as otherwise provided herein or as required
by law, the Series Preferred shall be voted equally with the shares of the
Common Stock of the Company and not as a separate class, at any annual or
special meeting of shareholders of the Company, and may act by written consent
in the same manner as the Common Stock, in either case upon the following basis:
each holder of shares of Series Preferred shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such holder's aggregate number of shares of Series Preferred are convertible
(pursuant to Section 4 hereof) immediately after the close of business on the
record date fixed for such meeting or the effective date of such written
consent.
b. Separate Vote of Series Preferred. For so long as any shares of
Series Preferred remain outstanding, in addition to any other vote or consent
required herein or by law, the vote or written consent of the holders of at
least a majority of the outstanding Series Preferred shall be necessary for
effecting or validating the following actions:
3.
<PAGE>
(i) Any amendment, alteration, or repeal of any provision of the
Restated Certificate or the Bylaws of the Company (including any filing of a
Certificate of Designation), that affects adversely the voting powers,
preferences, or other special rights or privileges, qualifications, limitations,
or restrictions of the Series Preferred;
(ii) Any increase (other than by redemption or conversion) in the
authorized number of shares of Preferred Stock or any increase in the authorized
number of shares of Series Preferred;
(iii) Any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of stock or any other
securities, bonds, debentures, notes or other obligations convertible into
equity securities of the Company, in any such case ranking on a parity with or
senior to the Series Preferred in right of redemption, liquidation preference,
voting or dividends or any increase in the authorized or designated number of
any such new class or series;
(iv) Any redemption, repurchase, payment of dividends or other
distributions with respect to Junior Stock (except for the Stock Split or
acquisitions of Common Stock by the Company pursuant to agreements which permit
the Company to repurchase such shares upon termination of services to the
Company or in exercise of the Company's right of first refusal upon a proposed
transfer); or
(v) Any agreement by the Company or its stockholders regarding an
Asset Transfer or Acquisition (each as defined in Section 3(c)).
c. Separate Vote of Series of Series Preferred. In addition to
any other vote or consent required herein or by law, (i) the vote or written
consent of the holders of at least a majority of a series of Series Preferred,
voting as a separate class, shall be necessary for effecting any proposed
amendment that would alter or change the powers, preferences, or special rights
of such series of Series Preferred so as to affect them adversely while not so
affecting all of the Series Preferred and (ii) the vote or written consent of
the holders of at least a majority of two or more series of Series Preferred,
voting together as a single class, shall be necessary for effecting any proposed
amendment that would alter or change the powers, preferences, or special rights
of such group of series of Series Preferred so as to affect them adversely while
not so affecting all of the Series Preferred.
3. Liquidation Rights.
a. Upon any liquidation, dissolution, or winding up of the Company,
whether voluntary or involuntary, before any distribution or payment shall be
made to the holders of any Junior Stock, the holders of Series Preferred shall
be entitled to be paid out of the assets of the Company an amount per share of
Series Preferred equal to the Original Issue Price for such series plus all
declared and unpaid dividends on the Series Preferred (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares) for each share of Series Preferred held by them.
4.
<PAGE>
b. After the payment of the full liquidation preference of the
Series Preferred as set forth in Section 3(a) above, the remaining assets of the
Company legally available for distribution, if any, shall be distributed ratably
to the holders of the Common Stock.
c. The following events shall be considered a liquidation under this
Section:
(i) any consolidation or merger of the Company with or into any
other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own, directly or indirectly, less
than 50% of the surviving corporation or entity's voting power immediately after
such consolidation, merger or reorganization, or any transaction or series of
related transactions in which in excess of fifty percent (50%) of the Company's
voting power is transferred to stockholders other than the Company's
stockholders immediately prior to such transaction or transactions (an
"Acquisition"); or
(ii) a sale, transfer, lease or other disposition of all or
substantially all of the assets of the Company in which stockholders of the
Company immediately prior to such disposition, own less than 50% of the
acquiring corporation or entities' voting power immediately after such
disposition (an "Asset Transfer").
d. If the consideration received by the Company is securities, such
securities shall be valued as follows: (i) if traded on a securities exchange
or through the Nasdaq National Market, the value shall be deemed to be the
average of the closing prices of the securities on such quotation system over
such period as determined by the Board of Directors of the Company; and (ii) if
there is no active public market, the value shall be the fair market value
thereof, as determined in good faith by the Board of Directors of the Company.
The method of valuation of securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely by
virtue of a stockholder's status as an affiliate or former affiliate) shall be
to make an appropriate discount from the market value determined as provided in
(i) and (ii) above to reflect the approximate fair market value thereof, as
determined in good faith by the Board of Directors of the Company.
e. If, upon any liquidation, distribution, or winding up, the assets
of the Company shall be insufficient to make payment in full to all holders of
Series Preferred of the liquidation preference set forth in Section 3(a), then
such assets shall be distributed among the holders of Series Preferred at the
time outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.
4. Conversion Rights.
The holders of the Series Preferred shall have the following rights
with respect to the conversion of the Series Preferred into shares of Common
Stock (the "Conversion Rights"):
a. Optional Conversion. Subject to and in compliance with the
provisions of this Section 4, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable shares
of Common Stock. The number of shares of
5.
<PAGE>
Common Stock to which a holder of Series Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the "Series Conversion
Rate" then in effect (determined as provided in Section 4(b)) for such series by
the number of shares of Series Preferred being converted.
b. Series Preferred. The conversion rate in effect at any time for
conversion of each series of Series Preferred (the "Series Conversion Rate")
shall be the quotient obtained by dividing the Original Issue Price of such
series of Series Preferred by the applicable "Series Preferred Price,"
calculated as provided in Section 4(c).
c. Conversion Price. The conversion price for each series of Series
Preferred (the "Series Preferred Price") shall be as follows: (i) the Series
Preferred Price for Series A Preferred shall be $0.5133; (ii) the Series
Preferred Price for Series B Preferred shall be $3.3333; (iii) the Series
Preferred Price for Series C Preferred shall be $4.6667; and (iv) the Series
Preferred Price for Series D Preferred shall be $5.6667. Such initial Series
Preferred Price shall be adjusted from time to time in accordance with this
Section 4. All references to the Series Preferred Price herein shall mean the
Series Preferred Price as so adjusted. The adjustment provisions of this
Section 4 shall not apply to the Stock Split.
d. Mechanics of Conversion. Each holder of Series Preferred who
desires to convert the same into shares of Common Stock pursuant to this Section
4 shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Company or any transfer agent for the Series Preferred, and
shall give written notice to the Company at such office that such holder elects
to convert the same. Such notice shall state the number of shares of Series
Preferred being converted. Thereupon, the Company shall promptly issue and
deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and shall
promptly pay in cash or, to the extent sufficient funds are not then legally
available therefor, in Common Stock (at the Common Stock's fair market value
determined by the Board of Directors as of the date of such conversion), any
declared and unpaid dividends on the shares of Series Preferred being converted.
Such conversion shall be deemed to have been made at the close of business on
the date of such surrender of the certificates representing the shares of Series
Preferred to be converted, and the person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date.
e. Adjustment for Stock Splits and Combinations. If the Company
shall at any time or from time to time after the date that the first share of
Series D Preferred is issued (the "Original Issue Date") effect a subdivision of
the outstanding Common Stock without a corresponding subdivision of the
Preferred Stock, the Series Preferred Price in effect immediately before that
subdivision shall be proportionately decreased. Conversely, if the Company
shall at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock into a smaller number of shares without a
corresponding combination of the Preferred Stock, the Series Preferred Price in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this Section 4(e) shall become effective upon the
effectiveness of the subdivision or combination.
6.
<PAGE>
f. Adjustment for Common Stock Dividends and Distributions. If the
Company at any time or from time to time after the Original Issue Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, in each such event the Series Preferred Price that is then in effect
shall be decreased as of the time of such issuance or, in the event such record
date is fixed, as of the close of business on such record date, by multiplying
the Series Preferred Price then in effect by a fraction (i) the numerator of
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, and (ii) the denominator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution; provided,
however, that if such record date is fixed and such dividend is not fully paid
or if such distribution is not fully made on the date fixed therefor, the Series
Preferred Price shall be recomputed accordingly as of the close of business on
such record date and thereafter the Series Preferred Price shall be adjusted
pursuant to this Section 4(f) to reflect the actual payment of such dividend or
distribution.
g. Adjustments for Other Dividends and Distributions. If the
Company at any time or from time to time after the Original Issue Date makes, or
fixes a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, in each such event provision shall be made so
that the holders of the Series Preferred shall receive upon conversion thereof,
in addition to the number of shares of Common Stock receivable thereupon, the
amount of other securities of the Company which they would have received had
their Series Preferred been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, 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 Preferred or with respect to such other securities by
their terms.
h. Adjustment for Reclassification, Exchange and Substitution. If
at any time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Series Preferred is changed into the same or
a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section 3(c) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 4), in any such event each holder
of Series Preferred shall have the right thereafter to convert such stock into
the kind and amount of stock and other securities and property receivable upon
such recapitalization, reclassification or other change by holders of the
maximum number of shares of Common Stock into which such shares of Series
Preferred could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
i. Reorganizations, Mergers, Consolidations or Sales of Assets. If
at any
7.
<PAGE>
time or from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock (other than an Acquisition or Asset Transfer
as defined in Section 3(c) or a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere in
this Section 4) as a part of such capital reorganization, provision shall be
made so that the holders of the Series Preferred shall thereafter be entitled to
receive upon conversion of the Series Preferred the number of shares of stock or
other securities or property of the Company to which a holder of the number of
shares of Common Stock deliverable upon conversion would have been entitled on
such capital reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 4 with respect to
the rights of the holders of Series Preferred after the capital reorganization
to the end that the provisions of this Section 4 (including adjustment of the
Series Preferred Price then in effect and the number of shares issuable upon
conversion of the Series Preferred) shall be applicable after that event and be
as nearly equivalent as practicable.
j. Sale of Shares Below Series Preferred Price
(i) If at any time or from time to time after the Original Issue
Date, the Company issues or sells, or is deemed by the express provisions of
this subsection j to have issued or sold, Additional Shares of Common Stock (as
defined in subsection j(iv) below), other than as a dividend or other
distribution on any class of stock as provided in Section 4(f) above, and other
than a subdivision or combination of shares of Common Stock as provided in
Section 4e above, for an Effective Price (as defined in subsection j(iv) below)
less than the then effective Series Preferred Price for a series of Series
Preferred, then and in each such case the then existing Series Preferred Price
for such series shall be reduced, as of the opening of business on the date of
such issue or sale, to a price determined by multiplying such Series Preferred
Price by a fraction (i) the numerator of which shall be (A) the number of shares
of Common Stock deemed outstanding (as defined below) immediately prior to such
issue or sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received (as defined in subsection j(ii)) by the Company for the
total number of Additional Shares of Common Stock so issued would purchase at
such Series Preferred Price, and (ii) the denominator of which shall be the
number of shares of Common Stock deemed outstanding (as defined below)
immediately prior to such issue or sale plus the total number of Additional
Shares of Common Stock so issued. For the purposes of the preceding sentence,
the number of shares of Common Stock deemed to be outstanding as of a given date
shall be the sum of (A) the number of shares of Common Stock actually
outstanding, (B) the number of shares of Common Stock into which the then
outstanding shares of Series Preferred could be converted if fully converted on
the day immediately preceding the given date, and (C) the number of shares of
Common Stock which could be obtained through the exercise or conversion of all
other rights, options and convertible securities on the day immediately
preceding the given date.
(ii) For the purpose of making any adjustment required under this
Section 4j, the consideration received by the Company for any issue or sale of
securities shall (A) to the extent it consists of cash, be computed at the net
amount of cash received by the Company after deduction of any underwriting or
similar commissions, compensation or concessions paid or
8.
<PAGE>
allowed by the Company in connection with such issue or sale but without
deduction of any expenses payable by the Company, (B) to the extent it consists
of property other than cash, be computed at the fair value of that property as
determined in good faith by the Board of Directors, and (C) if Additional Shares
of Common Stock, Convertible Securities (as defined in subsection j(iii)) or
rights or options to purchase either Additional Shares of Common Stock or
Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration which covers both,
be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable to
such Additional Shares of Common Stock, Convertible Securities or rights or
options.
(iii) For the purpose of the adjustment required under this
Section 4j, if the Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being herein referred to as
"Convertible Securities") and if the Effective Price of such Additional Shares
of Common Stock is less than the Series Preferred Price, in each case the
Company shall be deemed to have issued at the time of the issuance of such
rights or options or Convertible Securities the maximum number of Additional
Shares of Common Stock issuable upon exercise or conversion thereof and to have
received as consideration for the issuance of such shares an amount equal to the
total amount of the consideration, if any, received by the Company for the
issuance of such rights or options or Convertible Securities, plus, in the case
of such rights or options, the minimum amounts of consideration, if any, payable
to the Company upon the exercise of such rights or options, plus, in the case of
Convertible Securities, the minimum amounts of consideration, if any, payable to
the Company (other than by cancellation of liabilities or obligations evidenced
by such Convertible Securities) upon the conversion thereof; provided that if in
the case of Convertible Securities the minimum amounts of such consideration
cannot be ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that if the
minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; provided
further that if the minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the increased minimum amount of consideration payable to the Company upon the
exercise or conversion of such rights, options or Convertible Securities. No
further adjustment of the Series Preferred Price, as adjusted upon the issuance
of such rights, options or Convertible Securities, shall be made as a result of
the actual issuance of Additional Shares of Common Stock on the exercise of any
such rights or options or the conversion of any such Convertible Securities. If
any such rights or options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, the Series
Preferred Price as adjusted upon the issuance of such rights, options or
Convertible Securities shall be readjusted to the Series Preferred Price which
would have been in effect had an adjustment been made on the basis that the only
Additional Shares of Common Stock so issued were the
9.
<PAGE>
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sold for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of Series
Preferred.
(iv) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company or deemed to be issued pursuant to this
Section 4j, whether or not subsequently reacquired or retired by the Company
other than (A) shares of Common Stock issued upon conversion of the Series
Preferred; (B) shares of Common Stock and/or options, warrants or other Common
Stock purchase rights, and the Common Stock issued pursuant to such options,
warrants or other rights (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like) after the Original Issue Date to
employees, officers or directors of, or consultants or advisors to the Company
or any subsidiary pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board; (C) shares of Common Stock issued
pursuant to the exercise of options, warrants or convertible securities
outstanding as of the Original Issue Date; and (D) up to Ten Thousand (10,000)
shares of Common Stock approved by the Company's Board of Directors for issuance
as gifts to certain of the Company's current and potential customers or
strategic partners. The "Effective Price" of Additional Shares of Common Stock
shall mean the quotient determined by dividing the total number of Additional
Shares of Common Stock issued or sold, or deemed to have been issued or sold by
the Company under this Section 4j, into the aggregate consideration received, or
deemed to have been received by the Company for such issue under this Section
4j, for such Additional Shares of Common Stock."
k. Accountants' Certificate of Adjustment. In each case of an
adjustment or readjustment of the Series Preferred Price for the number of
shares of Common Stock or other securities issuable upon conversion of the
Series Preferred, if the Series Preferred is then convertible pursuant to this
Section 4, the Company, at its expense, shall compute such adjustment or
readjustment in accordance with the provisions hereof and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to each registered holder of Series Preferred
at the holder's address as shown in the Company's books. The certificate shall
set forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based, including a statement of (1) the
consideration received or deemed to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (2) the Series Preferred Price at the time in effect, (3) the number of
Additional Shares of Common Stock and (4) the type and amount, if any, of other
property which at the time would be received upon conversion of the Series
Preferred.
10.
<PAGE>
l. Notices of Record Date. Upon (i) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (ii) any Acquisition (as defined in Section 3(c)) or other
capital reorganization of the Company, any reclassification or recapitalization
of the capital stock of the Company, any merger or consolidation of the Company
with or into any other corporation, or any Asset Transfer (as defined in Section
3(c)), or any voluntary or involuntary dissolution, liquidation or winding up of
the Company, the Company shall mail to each holder of Series Preferred at least
twenty (20) days prior to the record date specified therein a notice specifying
(1) the date on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution, (2)
the date on which any such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up is expected to become effective, and (3) the date, if any, that is to
be fixed as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such Acquisition,
reorganization, reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up.
m. Automatic Conversion.
(i) Each share of Series Preferred shall automatically be
converted into shares of Common Stock, based on the then-effective Series
Preferred Price, at any time immediately upon the closing of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Company in which (i) the per share price is
at least $6.40 (as adjusted for stock splits and combinations), and (ii) the
gross cash proceeds to the Company (before underwriting discounts, commissions
and fees) are at least $10,000,000. In addition, each share of a series of
Series Preferred shall automatically be converted into shares of Common Stock,
based on the then-effective Series Preferred Price for such series, at any time
upon the affirmative election of the holders of at least a majority of the
outstanding shares of such series of Series Preferred, with each of the Series
A, Series B, Series C and Series D Preferred Stock voting as a separate class
for such purposes. Upon any such automatic conversion, any declared and unpaid
dividends shall be paid in accordance with the provisions of Section 4(d).
(ii) Upon the occurrence of the event specified in paragraph (i)
above, the outstanding shares of Series Preferred 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
Company or its transfer agent; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless the certificates evidencing such shares of Series
Preferred are either delivered to the Company or its transfer agent as provided
below, or the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the
11.
<PAGE>
Series Preferred, the holders of Series Preferred shall surrender the
certificates representing such shares at the office of the Company or any
transfer agent for the Series Preferred. Thereupon, there shall be issued and
delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series Preferred
surrendered were convertible on the date on which such automatic conversion
occurred, and any declared and unpaid dividends shall be paid in accordance with
the provisions of Section 4(d).
n. Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series Preferred by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Corporation shall, in
lieu of issuing any fractional share, pay cash equal to the product of such
fraction multiplied by the Common Stock's fair market value (as determined by
the Board) on the date of conversion.
o. Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series Preferred, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
p. Notices. Any notice required by the provisions of this Section 4
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified, (ii) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then on
the next business day, (iii) five (5) days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All notices shall be
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
q. Payment of Taxes. The Company will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series Preferred
so converted were registered.
r. No Dilution or Impairment. Without the consent of the holders of
then outstanding Series Preferred as required under Section 2(b), the Company
shall not amend its
12.
<PAGE>
Restated Certificate of Incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or take any other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but shall at all times in good
faith assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series Preferred against dilution or other impairment.
5. Redemption. The Series Preferred shall not be redeemable by the
Company.
6. No Reissuance of Series Preferred. No share or shares of Series
Preferred acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued.
7. No Preemptive Rights. Stockholders shall have no preemptive rights
except as granted by the Company pursuant to written agreements.
V.
A. A director of the corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (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 Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article V shall only be prospective
and shall not effect the rights under this Article V in effect at the time of
the alleged occurrence of any action or omission to act giving rise to
liability.
VI.
For the management of the business and for the conduct of the affairs of
the Corporation, and in further definition, limitation and regulation of the
powers of the Corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
1. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by the Board
of Directors in the manner provided in the
13.
<PAGE>
Bylaws.
2. The Board of Directors may from time to time make, amend, supplement
or repeal the Bylaws; provided, however, that the stockholders may change or
repeal any Bylaw adopted by the Board of Directors by the affirmative vote of
the holders of a majority of the voting power of all of the then outstanding
shares of the capital stock of the Corporation; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
3. The directors of the Corporation need not be elected by written ballot
unless the Bylaws so provide.
VII.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon the stockholders
herein are granted subject to this right."
1. This Amended and Restated Certificate of Incorporation has been duly
approved by the Board of Directors of this Corporation.
2. This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Sections 228 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and the
stockholders of the Corporation. The total number of outstanding shares
entitled to vote or act by written consent was 8,307,308 shares of Common Stock,
5,592,804 shares of Series A Preferred Stock, 3,562,000 shares of Series B
Preferred Stock and 2,135,690 shares of Series C Preferred Stock. A majority of
the outstanding shares of Common Stock and a majority of the outstanding shares
of Preferred Stock approved this Amended and Restated Certificate of
Incorporation by written consent in accordance with Section 228 of the General
Corporation Law of the State of Delaware and written notice of such was given by
the Corporation in accordance with said Section 228.
14.
<PAGE>
In Witness Whereof, Alteon WebSystems, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by the President and the
Assistant Secretary in San Jose, California this 28th day of June 1999.
Alteon WebSystems, Inc.
By: /s/ Dominic P. Orr
-----------------------------------
Dominic P. Orr,
President
ATTEST:
By: /s/ Eric C. Jensen
----------------------------
Eric C. Jensen,
Assistant Secretary
15.
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF
ALTEON WEBSYSTEMS, INC.
Dominic P. Orr and James G. Burke hereby certify that:
1. The original name of this corporation is Alteon Networks, Inc. and the
date of filing the original Certificate of Incorporation of this corporation
with the Secretary of State of the State of Delaware is March 18, 1996.
2. They are the duly elected and acting President and Secretary,
respectively, of Alteon Networks, Inc., a Delaware corporation.
3. The Certificate of Incorporation of this corporation is hereby amended
and restated to read as follows:
"I.
The name of the corporation is Alteon WebSystems, Inc. (the "Corporation"
or the "Company").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
County of New Castle
The name of the Corporation's registered agent at said address is
Corporation Service Company.
III.
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. This 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 Three Hundred
Five Million (305,000,000) shares, Three
1.
<PAGE>
Hundred Million (300,000,000) shares of which shall be Common Stock (the "Common
Stock") and Five Million (5,000,000) shares of which shall be Preferred Stock
(the "Preferred Stock"). The Preferred Stock shall have a par value of one-tenth
of one cent ($.001) per share and the Common Stock shall have a par value of
one-tenth of one cent ($.001) per share.
B. The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications,
limitations, or restrictions of any wholly unissued series of Preferred Stock,
and to establish from time to time the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. In case the number of shares of any series shall
be decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. Management
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. Board of Directors
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1993
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full
2.
<PAGE>
term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting. During such
time or times that the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"), this Section A.2.a of this Article
V shall not be effective and Section A.2.b of this Article shall apply.
b. In the event that the corporation is subject to Section
2115(b) of the CGCL, Section A.2.a of this Article V shall not apply and all
directors shall be shall be elected at each annual meeting of stockholders to
hold office until the next annual meeting.
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the CGCL and (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3. Vacancies
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board
3.
<PAGE>
(as constituted immediately prior to any such increase), the Delaware Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent (10%) of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in offices as
aforesaid, which election shall be governed by Section 211 of the DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B.
1. Bylaw Amendments
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of the corporation entitled to
vote. The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except (i) at an annual or special meeting of stockholders called in accordance
with the Bylaws or (ii) by written consent of stockholders in accordance with
the Bylaws prior to the closing of the Initial Public Offering, and following
the closing of the Initial Public Offering no action shall be taken by the
stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
4.
<PAGE>
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the CGCL) for breach of duty to the corporation and
its shareholders through bylaw provisions or through agreements with the agents,
or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, following the closing of
the Initial Public Offering the affirmative vote of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock, voting together as a single class,
shall be required to alter, amend or repeal Article V, VI or VII of this
Certificate of Incorporation.
* * * *
THREE: This Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of this Corporation.
FOUR: This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware by the Board of Directors and
the stockholders of the Corporation.
5.
<PAGE>
In Witness Whereof, Alteon WebSystems, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by the President and the
Secretary in __________, California this _______ day of ____ 1999.
ALTEON WEBSYSTEMS, INC.
By:_________________________
Dominic P. Orr
President
Attest:
By:_______________________
James G. Burke
Secretary
6.
<PAGE>
Exhibit 3.3
BYLAWS
OF
ALTEON NETWORKS,INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I. OFFICES................................................................................... 1
Section 1. Registered Office.................................................................... 1
Section 2. Other Offices........................................................................ 1
ARTICLE II. CORPORATE SEAL............................................................................ 1
Section 3. Corporate Seal....................................................................... 1
ARTICLE III. STOCKHOLDERS' MEETINGS.................................................................... 1
Section 4. Place of Meetings.................................................................... 1
Section 5. Annual Meeting....................................................................... 1
Section 6. Special Meetings..................................................................... 3
Section 7. Notice of Meetings................................................................... 4
Section 8. Quorum............................................................................... 4
Section 9. Adjournment and Notice of Adjourned Meetings......................................... 5
Section 10. Voting Rights........................................................................ 5
Section 11. Beneficial Owners of Stock........................................................... 6
Section 12. List of Stockholders................................................................. 6
Section 13. Action without Meeting............................................................... 7
Section 14. Organization......................................................................... 7
ARTICLE IV. DIRECTORS................................................................................. 8
Section 15. Number and Term of Office............................................................ 8
Section 16. Powers............................................................................... 9
Section 17. Vacancies............................................................................ 9
Section 18. Resignation.......................................................................... 9
Section 19. Removal.............................................................................. 9
Section 20. Meetings............................................................................. 9
Section 21. Quorum and Voting.................................................................... 11
Section 22. Action without Meeting............................................................... 11
Section 23. Fees and Compensation................................................................ 11
Section 24. Committees........................................................................... 11
Section 25. Organization......................................................................... 13
ARTICLE V. OFFICERS.................................................................................. 13
Section 26. Officers Designated.................................................................. 13
Section 27. Tenure and Duties of Officers........................................................ 13
Section 28. Delegation of Authority.............................................................. 15
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION> Page
----
<S> <C>
Section 29. Resignations......................................................................... 15
Section 30. Removal.............................................................................. 15
ARTICLE VI. EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION...... 15
Section 31. Execution of Corporate Instruments................................................... 15
Section 32. Voting of Securities Owned by the Corporation........................................ 16
ARTICLE VII. SHARES OF STOCK........................................................................... 16
Section 33. Form and Execution of Certificates................................................... 16
Section 34. Lost Certificates.................................................................... 17
Section 35. Transfers............................................................................ 17
Section 36. Fixing Record Dates.................................................................. 17
Section 37. Registered Stockholders.............................................................. 18
ARTICLE VIII. OTHER SECURITIES OF THE CORPORATION....................................................... 18
Section 38. Execution of Other Securities........................................................ 18
ARTICLE IX. DIVIDENDS................................................................................. 19
Section 39. Declaration of Dividends............................................................. 19
Section 40. Dividend Reserve..................................................................... 19
ARTICLE X. FISCAL YEAR............................................................................... 20
Section 41. Fiscal Year.......................................................................... 20
ARTICLE XI. INDEMNIFICATION........................................................................... 20
Section 42. Indemnification of Directors, Officers, Employees and Other Agents................... 20
ARTICLE XII. NOTICES................................................................................... 23
Section 43. Notices.............................................................................. 24
ARTICLE XIII. AMENDMENTS................................................................................ 25
Section 44. Amendments........................................................................... 25
</TABLE>
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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ARTICLE XIV. RIGHT OF FIRST REFUSAL.................................................................... 26
Section 45. Right of First Refusal............................................................... 26
ARTICLE XV. LOANS TO OFFICERS......................................................................... 29
Section 46. Loans to Officers.................................................................... 29
ARTICLE XVI. MISCELLANEOUS............................................................................. 29
Section 47. Annual Report........................................................................ 29
</TABLE>
<PAGE>
BYLAWS
OF
ALTEON NETWORKS, INC.
(A DELAWARE CORPORATION)
Article I
OFFICES
Section 1. Registered Office. The registered office of the
corporation in the State of Delaware shall be in the City of Dover, County of
Kent.
Section 2. Other Offices. The corporation shall also have and
maintain an office or principal place of business, at such place as may be fixed
by the Board of Directors, and may also have offices at such other places, both
within and without the State of Delaware as the Board of Directors may from time
to time determine or the business of the corporation may require.
Article II
CORPORATE SEAL
Section 3. Corporate Seal. The corporate seal, if adopted by the
Board of Directors, shall consist of a die bearing the name of the corporation
and the inscription, "Corporate Seal Delaware." Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
Article III
STOCKHOLDERS' MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of Directors and for such other business as may
lawfully come before
1.
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it, shall be held on such date and at such time as may be designated from time
to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not less than one hundred twenty
(120) calendar days in advance of the date of the corporation's proxy statement
released to stockholders in connection with the previous year's annual meeting
of stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received a reasonable time before the solicitation is made. A stockholder's
notice to the Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address, as
they appear on the corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, in his capacity as a proponent to a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the Securities and Exchange Act of
1934, as amended. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual meeting
shall, if the facts warrant, determine and declare at the meeting that business
was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
Directors. Nominations of
2.
<PAGE>
persons for election to the Board of Directors of the corporation may be made at
a meeting of stockholders by or at the direction of the Board of Directors or by
any stockholder of the corporation entitled to vote in the election of Directors
at the meeting who complies with the notice procedures set forth in this
paragraph (c). Such nominations, other than those made by or at the direction of
the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation in accordance with the provisions of paragraph
(b) of this Section 5. Such stockholder's notice shall set forth (i) as to each
person, if any, whom the stockholder proposes to nominate for election or re
election as a Director: (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other 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 (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a Director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided pursuant
to paragraph (b) of this Section 5. At the request of the Board of Directors,
any person nominated by a stockholder for election as a Director shall furnish
to the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting
and the defective nomination shall be disregarded.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board,
(ii) the President, (iii) the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at the time
any such resolution is presented to the Board for adoption) or (iv) by the
holders of shares entitled to cast not less than ten percent (10%) of the votes
at the meeting, and shall be held at such place, on such date, and at such time
as they or he shall fix; provided, however, that following registration of any
of the classes of equity securities of the corporation pursuant to the
provisions of the Securities Exchange Act of 1934, as amended, special meetings
of the stockholders may only be
3.
<PAGE>
called by the Board of Directors pursuant to a resolution adopted by a majority
of the total number of authorized Directors.
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the time of such meeting and the general nature of the business proposed to be
transacted, and shall be delivered personally or sent by registered mail or by
telegraphic or other facsimile transmission to the Chairman of the Board, the
President, any Vice President, or the Secretary of the corporation. No business
may be transacted at such special meeting otherwise than specified in such
notice. The officer receiving the request shall cause notice to be promptly
given to the stockholders entitled to vote, in accordance with the provisions of
Section 7 of these Bylaws, that a meeting will be held not less than thirty five
(35) nor more than sixty (60) days after the receipt of the request. If the
notice is not given within twenty (20) days after the receipt of the request,
the person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
Section 7. Notice of Meetings. Except as otherwise provided by law
or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote at such
meeting, such notice to specify the place, date and hour and purpose or purposes
of the meeting. Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, signed by the person entitled to notice
thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, either by the chairman of the meeting or by vote
of the holders of a majority of the shares represented thereat, but no other
business shall be transacted at such meeting. The stockholders present at a
duly called or convened meeting, at which a quorum is present, may continue to
transact business until
4.
<PAGE>
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all action taken by the holders of a majority of
the voting power represented at any meeting at which a quorum is present shall
be valid and binding upon the corporation; provided, however, that Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
Directors. Where a separate vote by a class or classes is required, a majority
of the outstanding shares of such class or classes, present in person or
represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority
(plurality, in the case of the election of Directors) of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
represented thereat. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place thereof
are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights.
(a) For the purpose of determining those stockholders entitled
to vote at any meeting of the stockholders, except as otherwise provided by law,
only persons in whose names shares stand on the stock records of the corporation
on the record date, as provided in Section 12 of these Bylaws, shall be entitled
to vote at any meeting of stockholders. Except as may be otherwise provided in
the Certificate of Incorporation or these Bylaws, each stockholder shall be
entitled to one vote for each share of capital stock held by such stockholder.
Every person entitled to vote or execute consents shall have the right to do so
either in person or by an agent or agents authorized by a written proxy executed
by such person or his duly authorized agent, which proxy shall be filed with the
Secretary at or before the meeting at which it is to be used. An agent so
appointed need not be a stockholder. No proxy shall be voted after three (3)
years from its date of creation unless the proxy provides for a longer period.
All elections of Directors shall be by written ballot, unless otherwise provided
in the Certificate of Incorporation.
(b) Every stockholder entitled to vote in any election of
Directors of this corporation may cumulate such stockholder's votes and give one
candidate a number of
5.
<PAGE>
votes equal to the number of Directors to be elected multiplied by the number of
votes to which the stockholder's shares are otherwise entitled, or distribute
the stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, may cumulate such stockholder's
votes for one or more candidates unless (i) the names of such candidates have
been properly placed in nomination, in accordance with these Bylaws, prior to
the voting, (ii) the stockholder has given advance notice to the corporation of
the intention to cumulate votes pursuant to paragraph (c) of Section 5 of these
Bylaws, and (iii) the stockholder has given proper notice to the other
stockholders at the meeting, prior to voting, of such stockholder's intention to
cumulate such stockholder's votes. If any stockholder has given proper notice,
all stockholders may cumulate their votes for any candidates who have been
properly placed in nomination. The candidates receiving the highest number of
votes of the shares entitled to be voted for them up to the number of Directors
to be elected by such shares shall be declared elected.
Section 11. Beneficial Owners of Stock
(a) If shares or other securities having voting power stand of
record in the names of two (2) or more persons, whether fiduciaries, members of
a partnership, joint tenants, tenants in common, tenants by the entirety, or
otherwise, or if two (2) or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary is given written notice to the
contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect: (a) if only one (1) votes, his act
binds all; (b) if more than one (1) votes, the act of the majority so voting
binds all; (c) if more than one (1) votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the General Corporation Law of Delaware, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even split for the purpose of this subsection
(c) shall be a majority or even split in interest.
(b) Persons holding stock in a fiduciary capacity shall be
entitled to vote the shares so held. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
corporation he has expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.
Section 12. List of Stockholders. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, 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
6.
<PAGE>
the meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the meeting
is to be held, which place shall be specified in the notice of the meeting, or,
if not specified, at the place where the meeting is to be held. The list shall
be produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 13. Action without Meeting.
(a) Any action required by statute to be taken at any annual
or special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action so taken, are 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.
(b) 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 to the Corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of 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 a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) 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. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the General corporation Law of Delaware if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the effectiveness of the registration of any
class of securities of the corporation under the Securities Exchange Act of
1934, as amended.
7.
<PAGE>
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, the most senior Vice President
present, or in the absence of any such officer, a chairman of the meeting chosen
by a majority in interest of the stockholders entitled to vote, present in
person or by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, establishing an agenda or order of
business for the meeting, rules and procedures for maintaining order at the
meeting and the safety of those present, limitations on participation in such
meeting to stockholders of record of the corporation and their duly authorized
and constituted proxies, and such other persons as the chairman shall permit,
restrictions on entry to the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
balloting on matters which are to be voted on by ballot. Unless, and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
Article IV
DIRECTORS
Section 15. Number and Term of Office. The Board of Directors shall
consist of not less than three (3) and not more than five (5) members, the
number thereof to be determined from time to time by resolution of the Board of
Directors. The number of directors is currently set at four (4). The number of
authorized Directors may be modified from time to time by amendment of this
Section 15 in accordance with the provisions of Section 44 hereof. Except as
provided in Section 17, the Directors shall be elected by the stockholders at
their annual meeting in each year and shall hold office until the next annual
meeting and until their successors shall be duly elected and qualified.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the Directors shall not have been elected at
an annual meeting, they may be elected
8.
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as soon thereafter as convenient at a special meeting of the stockholders called
for that purpose in the manner provided in these Bylaws. No reduction of the
authorized number of Directors shall have the effect of removing any Director
before the Director's term of office expires, unless such removal is made
pursuant to the provisions of Section 19 hereof.
Section 16. Powers. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the Certificate
of Incorporation.
Section 17. Vacancies. Unless otherwise provided in the Certificate
of Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of Directors may be filled by a majority of
the Directors then in office, although less than a quorum, or by a sole
remaining Director, and each Director so elected shall hold office for the
unexpired portion of the term of the Director whose place shall be vacant and
until his successor shall have been duly elected and qualified. A vacancy in
the Board of Directors shall be deemed to exist under this Section 17 in the
case of the death, removal or resignation of any Director, or if the
stockholders fail at any meeting of stockholders at which Directors are to be
elected (including any meeting referred to in Section 19 below) to elect the
number of Directors then constituting the whole Board of Directors.
Section 18. Resignation. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more Directors shall resign from the Board of Directors, effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
Section 19. Removal. At a special meeting of stockholders called for
the purpose in the manner hereinabove provided, subject to any limitations
imposed by law or the Certificate of Incorporation, the Board of Directors, or
any individual Director, may be removed from office, with or without cause, and
a new Director or Directors elected by a vote of stockholders holding a majority
of the outstanding shares entitled to vote at an election of Directors.
9.
<PAGE>
Section 20. Meetings.
(a) Annual Meetings. The annual meeting of the Board of
Directors shall be held immediately after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) Regular Meetings. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the office
of the corporation required to be maintained pursuant to Section 2 hereof.
Unless otherwise restricted by the Certificate of Incorporation, regular
meetings of the Board of Directors may also be held at any place within or
without the State of Delaware which has been determined by the Board of
Directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the President or a majority of the Directors.
(d) Telephone Meetings. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting 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
by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Written notice of the time and place
of all special meetings of the Board of Directors shall be given at least one
(1) day before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
Director by attendance thereat, except when the Director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) Waiver of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the Directors not present shall sign a written
waiver of notice, or a consent to holding such meeting, or an approval of the
minutes thereof. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
any written waiver of notice or consent unless so required by the Certificate of
Incorporation
10.
<PAGE>
or these Bylaws. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Section 21. Quorum and Voting.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 42 hereof, for which a quorum shall be one third of the exact number of
Directors fixed from time to time in accordance with Section 15 hereof, but not
less than one (1), a quorum of the Board of Directors shall consist of a
majority of the exact number of Directors fixed from time to time in accordance
with Section 15 of these Bylaws, but not less than one (1); provided, however,
at any meeting whether a quorum be present or otherwise, a majority of the
Directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
(b) At each meeting of the Board of Directors at which a
quorum is present all questions and business shall be determined by a vote of a
majority of the Directors present, unless a different vote be required by law,
the Certificate of Incorporation or these Bylaws.
Section 22. Action without Meeting. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, 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 of
Directors or committee, as the case may be, consent thereto in writing, and such
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 23. Fees and Compensation. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, for attendance at each regular or
special meeting of the Board of Directors and at any meeting of a committee of
the Board of Directors. Nothing herein contained shall be construed to preclude
any Director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
Section 24. Committees.
(a) Executive Committee. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors, appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
specifically granted by the Board of Directors, shall
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have and may exercise when the Board of Directors is not in session all powers
of the Board of Directors in the management of the business and affairs of the
corporation, including, without limitation, the power and authority to declare a
dividend or to authorize the issuance of stock, except such committee shall not
have the power or authority to amend the Certificate of Incorporation, to adopt
an agreement of merger or consolidation, to recommend to the stockholders the
sale, lease or exchange of all or substantially all of the corporation's
property and assets, to recommend to the stockholders of the corporation a
dissolution of the corporation or a revocation of a dissolution or to amend
these Bylaws.
(b) Other Committees. The Board of Directors may, by resolution
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) Term. The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board of Directors, subject to the provisions
of subsections (a) or (b) of this Section 24, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date of
his death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. 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 the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 24 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any Director
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who is a member of such committee, upon written notice to the members of such
committee of the time and place of such special meeting given in the manner
provided for the giving of written notice to members of the Board of Directors
of the time and place of special meetings of the Board of Directors. Notice of
any special meeting of any committee may be waived in writing at any time before
or after the meeting and will be waived by any Director by attendance thereat,
except when the Director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
Section 25. Organization. At every meeting of the Directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
Article V
OFFICERS
Section 26. Officers Designated. The officers of the corporation
shall be the Chairman of the Board of Directors, the President, one or more Vice
Presidents, the Secretary and the Chief Financial Officer or Treasurer, all of
whom shall be elected at the annual organizational meeting of the Board of
Directors. The order of the seniority of the Vice Presidents shall be in the
order of their nomination, unless otherwise determined by the Board of
Directors. The Board of Directors may also appoint one or more Assistant
Secretaries, Assistant Treasurers, and such other officers and agents with such
powers and duties as it shall deem necessary. The Board of Directors may assign
such additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the corporation
at any one time unless specifically prohibited therefrom by law. The salaries
and other compensation of the officers of the corporation shall be fixed by or
in the manner designated by the Board of Directors.
Section 27. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be
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removed at any time by the Board of Directors. If the office of any officer
becomes vacant for any reason, the vacancy may be filled by the Board of
Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time.
(c) Duties of President. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
The President shall be the Chief Executive Officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d) Duties of Vice Presidents. The Vice Presidents, in the order
of their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders,
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) Duties of Chief Financial Officer or Treasurer. The Chief
Financial Officer or Treasurer shall keep or cause to be kept the books of
account of the corporation in a thorough and proper manner, and shall render
statements of the financial affairs of the corporation in such form and as often
as required by the Board of Directors or the
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President. The Chief Financial Officer or Treasurer, subject to the order of the
Board of Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer or Treasurer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct any Assistant Treasurer to
assume and perform the duties of the Chief Financial Officer or Treasurer in the
absence or disability of the Chief Financial Officer or Treasurer, and each
Assistant Treasurer shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time.
Section 28. Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
Section 29. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
Section 30. Removal. Any officer may be removed from office at any
time, either with or without cause, by the vote or written consent of a majority
of the Directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
Article VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
Section 31. Execution of Corporate Instruments. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on behalf
of the corporation any corporate instrument or document, or to sign on behalf of
the corporation the corporate name without limitation, or to enter into
contracts on behalf of the corporation, except where otherwise provided by law
or these Bylaws, and such execution or signature shall be binding upon the
corporation.
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Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
Section 32. Voting of Securities Owned by the Corporation. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the President, or any Vice President.
Article VII
SHARES OF STOCK
Section 33. Form and Execution of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Where such certificate is countersigned by a transfer agent
other than the corporation or its employee, or by a registrar other than the
corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he
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were such officer, transfer agent, or registrar at the date of issue. Each
certificate shall state upon the face or back thereof, in full or in summary,
all of the designations, preferences, limitations, restrictions on transfer and
relative rights of the shares authorized to be issued.
Section 34. Lost Certificates. A new certificate or certificates
shall be issued in place of any certificate or certificates theretofore issued
by the corporation alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, or destroyed. The corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or to give the corporation a surety bond in such form and amount as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 35. Transfers.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the General Corporation Law of Delaware.
Section 36. Fixing Record Dates.
(a) 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, the Board of Directors may fix, in advance, 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 shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting. If no record date is fixed by the Board of Directors, 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. 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
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meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix, in advance, 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 date shall not be more than ten
(10) days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors. If no record date has been fixed by the Board
of Directors, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting, when no prior action by 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 by delivery to its registered office in the State
of 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 a Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more than
sixty (60) days prior to such action. If no record date is fixed, the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
Section 37. Registered Stockholders. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and 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, except as otherwise provided by the laws of
Delaware.
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Article VIII
OTHER SECURITIES OF THE CORPORATION
Section 38. Execution of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 33), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature of a trustee under an indenture pursuant to which such bond, debenture
or other corporate security shall be issued, the signatures of the persons
signing and attesting the corporate seal on such bond, debenture or other
corporate security may be the imprinted facsimile of the signatures of such
persons. Interest coupons appertaining to any such bond, debenture or other
corporate security, authenticated by a trustee as aforesaid, shall be signed by
the Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed
or attested any bond, debenture or other corporate security, or whose facsimile
signature shall appear thereon or on any such interest coupon, shall have ceased
to be such officer before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued and
delivered as though the person who signed the same or whose facsimile signature
shall have been used thereon had not ceased to be such officer of the
corporation.
Article IX
DIVIDENDS
Section 39. Declaration of Dividends. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
Section 40. Dividend Reserve. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or
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maintaining any property of the corporation, or for such other purpose as the
Board of Directors shall think conducive to the interests of the corporation,
and the Board of Directors may modify or abolish any such reserve in the manner
in which it was created.
Article X
FISCAL YEAR
Section 41. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Article XI
INDEMNIFICATION
Section 42. Indemnification of Directors, Officers, Employees and
Other Agents.
(a) Directors. The corporation shall indemnify its Directors
to the fullest extent not prohibited by the Delaware General Corporation Law;
provided, however, that the corporation shall not be required to indemnify any
Director in connection with any proceeding (or part thereof) initiated by such
person or any proceeding by such person against the corporation or its
Directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation or (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law.
(b) Officers, Employees and Other Agents. The corporation
shall have power to indemnify its officers, employees and other agents as set
forth in the Delaware General Corporation Law.
(c) Good Faith.
(1) For purposes of any determination under this Bylaw, a
Director or executive officer shall be deemed to have 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, to have
had no reasonable cause to believe that his conduct was unlawful, if his action
is based on information, opinions, reports and statements, including financial
statements and other financial data, in each case prepared or presented by:
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(i) one or more officers or employees of the
corporation whom the Director or executive officer believed to be reliable and
competent in the matters presented;
(ii) counsel, independent accountants or other
persons as to matters which the Director or executive officer believed to be
within such person's professional competence; and
(iii) with respect to a Director, a committee of the
Board upon which such Director does not serve, as to matters within such
Committee's designated authority, which committee the Director believes to merit
confidence; so long as, in each case, the Director or executive officer acts
without knowledge that would cause such reliance to be unwarranted.
(2) The termination of any 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 proceeding, that
he had reasonable cause to believe that his conduct was unlawful.
(3) The provisions of this paragraph (c) shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth by
the Delaware General Corporation Law.
(d) Expenses. The corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director or executive officer in connection with such
proceeding upon receipt of an undertaking by or on behalf of such person to
repay said amounts if it should be determined ultimately that such person is not
entitled to be indemnified under this Bylaw or otherwise.
(e) Enforcement. Without the necessity of entering into an
express contract, all rights to indemnification and advances to Directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the Director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a Director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if
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successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. The corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(f) Non Exclusivity of Rights. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, 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 office. The corporation is specifically
authorized to enter into individual contracts with any or all of its Directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
(g) Survival of Rights. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a Director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(h) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(i) Amendments. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(j) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each Director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
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(k) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, 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 Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "officer," "employee," or
"agent" of the corporation shall include, without limitation, situations where
such person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(5) 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, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, 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 Bylaw.
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Article XII
NOTICES
Section 43. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) Notice to Directors. Any notice required to be given to
any Director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such Director shall have
filed in writing with the Secretary, or, in the absence of such filing, to the
last known post office address of such Director.
(c) Address Unknown. If no address of a stockholder or
Director be known, notice may be sent to the office of the corporation required
to be maintained pursuant to Section 2 hereof.
(d) Affidavit of Mailing. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained.
(e) Time Notices Deemed Given. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by facsimile, telex or telegram shall be deemed to have been
given as of the sending time recorded at time of transmission.
(f) Methods of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all Directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) Failure to Receive Notice. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall
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not be affected or extended in any manner by the failure of such stockholder or
such Director to receive such notice.
(h) Notice to Person with Whom Communication Is Unlawful.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(i) Notice to Person with Undeliverable Address. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve month period, have been mailed addressed to such
person at his address as shown on the records of the Corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
Article XIII
AMENDMENTS
Section 44. Amendments. Except as otherwise set forth in paragraph
(i) of Section 42 of these Bylaws, these Bylaws may be amended or repealed and
new Bylaws adopted by the stockholders entitled to vote. The Board of Directors
shall also have the power, if such power is conferred upon the Board of
Directors by the Certificate of Incorporation, to adopt, amend or repeal Bylaws
(including, without limitation, the
25.
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amendment of any Bylaw setting forth the number of Directors who shall
constitute the whole Board of Directors).
Article XIV
RIGHT OF FIRST REFUSAL
Section 45. Right of First Refusal. No stockholder shall sell,
assign, pledge, or in any manner transfer any of the shares of common or
preferred stock of the corporation or any right or interest therein, whether
voluntarily or by operation of law, or by gift or otherwise, except by a
transfer which meets the requirements hereinafter set forth in this Bylaw:
(a) If the stockholder receives from anyone a bona fide offer
acceptable to the stockholder to purchase any of his shares of common or
preferred stock, then the stockholder shall first give written notice thereof to
the corporation. The notice shall name the proposed transferee and state the
number of shares to be transferred, the price per share and all other terms and
conditions of the offer.
(b) For fifteen (15) days following receipt of such notice,
the corporation shall have the option to purchase all or any lesser part of the
shares specified in the notice at the price and upon the terms set forth in such
bona fide offer. In the event the corporation elects to purchase all the shares,
it shall give written notice to the selling stockholder of its election and
settlement for said shares shall be made as provided below in paragraph (d).
(c) In the event the corporation does not elect to acquire all
of the shares specified in the selling stockholder's notice, the Secretary of
the corporation shall, within fifteen (15) days of receipt of said selling
stockholder's notice, give written notice thereof to the stockholders of the
corporation other than the selling stockholder. Said written notice shall state
the number of shares that the corporation has elected to purchase and the number
of shares remaining available for purchase (which shall be the same as the
number contained in said selling stockholder's notice, less any such shares that
the corporation has elected to purchase). Each of the other holders of common or
preferred stock shall have the option to purchase that proportion of the shares
available for purchase as the number of shares owned by each of said other
holders of common or preferred stock bears to the total issued and outstanding
shares of common or preferred stock of the corporation, excepting those shares
owned by the selling stockholder. A stockholder electing to exercise such option
shall, within ten (10) days after mailing of the corporation's notice, give
notice to the corporation specifying the number of shares such stockholder will
purchase. Within such ten day period, each of said other stockholders shall give
written notice stating how many additional shares such stockholder will
26.
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purchase if additional shares are made available. Failure to respond in writing
within said ten day period to the notice given by the Secretary of the
corporation shall be deemed a rejection of such stockholder's right to acquire a
proportionate part of the shares of the selling stockholder. In the event one or
more stockholders do not elect to acquire the shares available to them, said
shares shall be allocated on a pro rata basis to the stockholders who requested
shares in addition to their pro rata allotment.
(d) In the event the corporation and/or stockholders, other than
the selling stockholder, elect to acquire any of the shares of the selling
stockholder as specified in said selling stockholder's notice, the Secretary of
the corporation shall so notify the selling stockholder and settlement thereof
shall be made in cash within thirty (30) days after the Secretary of the
corporation receives said selling stockholder's notice; provided that if the
terms of payment set forth in said selling stockholder's notice were other than
cash against delivery, the corporation and/or its other stockholders shall pay
for said shares on the same terms and conditions set forth in said selling
stockholder's notice.
(e) In the event the corporation and/or its other stockholders
do not elect to acquire all of the shares specified in the selling stockholder's
notice, said selling stockholder may, within the sixty day period following the
expiration of the option rights granted to the corporation and other
stockholders herein, sell elsewhere the shares specified in said selling
stockholder's notice which were not acquired by the corporation and/or its other
stockholders, in accordance with the provisions of paragraph (d) of this bylaw,
provided that said sale shall not be on terms and conditions more favorable to
the purchaser than those contained in the bona fide offer set forth in said
selling stockholder's notice. All shares so sold by said selling stockholder
shall continue to be subject to the provisions of this Bylaw in the same manner
as before said transfer.
(f) Anything to the contrary contained herein notwithstanding,
the following transactions shall be exempt from the provisions of this Bylaw:
(1) A stockholder's transfer of any or all shares held
either during such stockholder's lifetime or on death by will or intestacy to
such stockholder's immediate family. "Immediate family" as used herein shall
mean spouse, lineal descendant, father, mother, brother, or sister of the
stockholder making such transfer and shall include any trust established
primarily for the benefit of the stockholder or his immediate family.
(2) A stockholder's bona fide pledge or mortgage of any
shares with a commercial lending institution, provided that any subsequent
transfer of said shares by said institution shall be conducted in the manner set
forth in this Section 45.
27.
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(3) A stockholder's transfer of any or all of such
stockholder's shares to the corporation or to any other stockholder of the
corporation.
(4) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate stockholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate stockholder.
(6) A corporate stockholder's transfer of any or all of its
shares to any or all of its stockholders or to an affiliated corporation.
(7) A transfer by a stockholder which is a limited or
general partnership to any or all of its partners or to an affiliated
partnership.
In any such case, the transferee, assignee, or other
recipient shall receive and hold such stock subject to the provisions of this
Bylaw, and there shall be no further transfer of such stock except in accordance
with this Bylaw.
(g) The provisions of this Section 45 may be waived with respect
to any transfer either by the corporation, upon duly authorized action of its
Board of Directors, or by the stockholders, upon the express written consent of
the owners of a majority of the voting power of the corporation (excluding the
votes represented by those shares to be sold by the selling stockholder). This
Section 45 may be amended or repealed either by a duly authorized action of the
Board of Directors or by the stockholders, upon the express vote or written
consent of the owners of a majority of the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of
common or preferred stock of the corporation shall be null and void unless the
terms, conditions, and provisions of this Bylaw are strictly observed and
followed.
(i) The foregoing right of first refusal shall terminate on
either of the following dates, whichever shall first occur:
(1) On April 12, 2006; or
28.
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(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(j) The certificates representing shares of common or preferred
stock of the corporation shall bear on their face the following legend so long
as the foregoing right of first refusal remains in effect:
"The shares represented by this certificate are subject to a
right of first refusal option in favor of the corporation
and its other stockholders, as provided in the bylaws of the
corporation."
Article XV
LOANS TO OFFICERS
Section 46. Loans to Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in this Section 46 shall be
deemed to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
Article XVI
MISCELLANEOUS
Section 47. Annual Report.
(a) Subject to the provisions of Section 47(b) below, the Board
of Directors shall cause an annual report to be sent to each stockholder of the
corporation not later than one hundred twenty (120) days after the close of the
corporation's fiscal year. Such report shall include a balance sheet as of the
end of such fiscal year and an income statement and statement of changes in
financial position for such fiscal year, accompanied by any report thereon of
independent accounts or, if there is no such report, the certificate of an
authorized officer of the corporation that such statements were
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prepared without audit from the books and records of the corporation. When there
are more than 100 stockholders of record of the corporation's shares, as
determined by Section 605 of the California Corporations Code, additional
information as required by Section 1501(b) of the California Corporations Code
shall also be contained in such report, provided that if the corporation has a
class of securities registered under Section 12 of the United States Securities
Exchange Act of 1934, that Act shall take precedence. Such report shall be sent
to stockholders at least fifteen (15) days prior to the next annual meeting of
stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of record
of the corporation's shares, the requirement of sending of an annual report to
the stockholders of the corporation is hereby expressly waived.
[THIS SPACE INTENTIONALLY LEFT BLANK]
30.
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ALTEON NETWORKS, INC.
CERTIFICATE OF SECRETARY
I hereby certify that:
I am the duly elected and acting Assistant Secretary of ALTEON
NETWORKS, INC., a Delaware corporation (the "Company"); and
Attached hereto is a complete and accurate copy of the Bylaws of the
Company as duly adopted by the Board of Directors by Unanimous Written Consent
dated as of March 18, 1996 and said Bylaws are presently in effect.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the Company as of April 12, 1996.
/s/ Mark A. Bryers
-----------------------------------
Mark A. Bryers, Secretary
31.
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EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
ALTEON WEBSYSTEMS, INC.
(A DELAWARE CORPORATION)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Article I Offices......................................................... 1
Section 1. Registered Office........................................ 1
Section 2. Other Offices............................................ 1
Article II Corporate Seal................................................. 1
Section 3. Corporate Seal........................................... 1
Article III Stockholders' Meetings........................................ 1
Section 4. Place Of Meetings........................................ 1
Section 5. Annual Meetings.......................................... 1
Section 6. Special Meetings......................................... 3
Section 7. Notice Of Meetings....................................... 4
Section 8. Quorum................................................... 4
Section 9. Adjournment And Notice Of Adjourned Meetings............. 5
Section 10. Voting Rights............................................ 5
Section 11. Joint Owners Of Stock.................................... 5
Section 12. List Of Stockholders..................................... 5
Section 13. Action Without Meeting................................... 6
Section 14. Organization............................................. 6
Article IV Directors...................................................... 7
Section 15. Number And Term Of Office................................ 7
Section 16. Powers................................................... 7
Section 17. Classes Of Directors..................................... 7
Section 18. Vacancies................................................ 8
Section 19. Resignation.............................................. 8
Section 20. Removal.................................................. 8
Section 21. Meetings................................................. 8
(a) Annual Meetings.......................................... 8
(b) Regular Meetings......................................... 8
(c) Special Meetings......................................... 9
(d) Telephone Meetings....................................... 9
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
(e) Notice Of Meetings.................................................................. 9
(f) Waiver Of Notice.................................................................... 9
Section 22. Quorum And Voting................................................................... 10
Section 23. Action Without Meeting.............................................................. 10
Section 24. Fees And Compensation............................................................... 10
Section 25. Committees.......................................................................... 10
(a) Executive Committee................................................................. 10
(b) Other Committees.................................................................... 11
(c) Term................................................................................ 11
(d) Meetings............................................................................ 11
Section 26. Organization........................................................................ 11
Article V Officers................................................................................... 12
Section 27. Officers Designated................................................................. 12
Section 28. Tenure And Duties Of Officers....................................................... 12
(a) General............................................................................. 12
(b) Duties Of Chairman Of The Board Of Directors........................................ 12
(c) Duties Of President................................................................. 12
(d) Duties Of Vice Presidents........................................................... 13
(e) Duties Of Secretary................................................................. 13
(f) Duties Of Chief Financial Officer................................................... 13
Section 29. Delegation Of Authority............................................................. 13
Section 30. Resignations........................................................................ 13
Section 31. Removal............................................................................. 14
Article VI Execution Of Corporate Instruments And Voting Of Securities Owned By The
Corporation................................................................................... 14
Section 32. Execution Of Corporate Instruments.................................................. 14
Section 33. Voting Of Securities Owned By The Corporation....................................... 14
Article VII Shares Of Stock.......................................................................... 15
Section 34. Form And Execution Of Certificates.................................................. 15
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
Section 35. Lost Certificates..................................................................... 15
Section 36. Transfers............................................................................. 15
Section 37. Fixing Record Dates................................................................... 16
Section 38. Registered Stockholders............................................................... 16
Article VIII Other Securities Of The Corporation....................................................... 16
Section 39. Execution Of Other Securities......................................................... 16
Article IX Dividends................................................................................... 17
Section 40. Declaration Of Dividends.............................................................. 17
Section 41. Dividend Reserve...................................................................... 17
Article X Fiscal Year.................................................................................. 17
Section 42. Fiscal Year........................................................................... 17
Article XI Indemnification............................................................................. 17
Section 43. Indemnification Of Directors, Executive Officers, Other Officers, Employees And Other
Agents................................................................................ 17
(a) Directors And Executive Officers...................................................... 17
(b) Other Officers, Employees and Other Agents............................................ 18
(c) Expenses.............................................................................. 18
(d) Enforcement........................................................................... 18
(e) Non-Exclusivity Of Rights............................................................. 19
(f) Survival Of Rights.................................................................... 19
(g) Insurance............................................................................. 19
(h) Amendments............................................................................ 19
(i) Saving Clause......................................................................... 19
(j) Certain Definitions................................................................... 20
Article XII Notices.................................................................................... 20
Section 44. Notices............................................................................... 20
(a) Notice To Stockholders................................................................ 21
(b) Notice To Directors................................................................... 21
(c) Affidavit Of Mailing.................................................................. 21
</TABLE>
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
<S> <C>
(d) Time Notices Deemed Given................................... 21
(e) Methods Of Notice........................................... 21
(f) Failure To Receive Notice................................... 21
(g) Notice To Person With Whom Communication Is Unlawful........ 21
(h) Notice To Person With Undeliverable Address................. 22
Article XIII Amendments...................................................... 22
Section 45. Amendments.................................................. 22
Right Of First Refusal........................................................ 22
Section 46. Right Of First Refusal...................................... 22
Article XIV Loans To Officers................................................ 25
Section 47. Loans To Officers........................................... 25
</TABLE>
iv.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
ALTEON WEBSYSTEMS, INC.
(A DELAWARE CORPORATION)
Article I
Offices
Section 1. Registered Office. The registered office of the corporation in
the State of Delaware shall be in the City of Wilmington, County of New Castle.
Section 2. Other Offices. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
Article II
Corporate Seal
Section 3. Corporate Seal. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Article III
Stockholders' Meetings
Section 4. Place Of Meetings. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
1.
<PAGE>
Section 5. Annual Meetings.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received 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 the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
2.
<PAGE>
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors or by any stockholder of the corporation entitled to vote
in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the corporation in accordance with
the provisions of paragraph (b) of this Section 5. Such stockholder's notice
shall set forth (i) as to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director: (A) the name, age, business
address and residence address of such person, (B) the principal occupation or
employment of such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other 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 1934 Act (including without limitation such
person's written consent to being named in the proxy statement, if any, as a
nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant to
paragraph (b) of this Section 5. At the request of the Board of Directors, any
person nominated by a stockholder for election as a director shall furnish to
the Secretary of the corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless nominated
in accordance with the procedures set forth in this paragraph (c). The chairman
of the meeting shall, if the facts warrant, determine and declare at the meeting
that a nomination was not made in accordance with the procedures prescribed by
these Bylaws, and if he should so determine, he shall so declare at the meeting,
and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "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 1934 Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) holders of fifty percent of
the Company's voting stock, or (iv) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption), and shall be held at such place, on such date, and at such time as
the Board of Directors, shall fix.
3.
<PAGE>
(b) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within sixty
(60) days after the receipt of the request, the person or persons requesting the
meeting may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
Section 7. Notice Of Meetings. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the vote cast,
excluding abstentions, at any meeting at which a quorum is present shall be
valid and binding upon the corporation; provided, however, that directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding
4.
<PAGE>
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 and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes
cast, including abstentions, by the holders of shares of such class or classes
or series shall be the act of such class or classes or series.
Section 9. Adjournment And Notice Of Adjourned Meetings. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
Section 11. Joint Owners Of Stock. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
Section 12. List Of Stockholders. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, 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
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examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
Section 13. Action Without Meeting.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent 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.
(b) 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 to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of 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 a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) 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. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the General Corporation Law of the State of Delaware if such
action had been voted on by stockholders at a meeting thereof, then the
certificate filed under such 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 General Corporation
Law of Delaware.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote,
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present in person or by proxy, shall act as chairman. The Secretary, or, in his
absence, an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
Article IV
Directors
Section 15. Number And Term Of Office. The authorized number of directors
of the corporation shall be fixed in accordance with the Certificate of
Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
Section 16. Powers. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
Section 17. Classes Of Directors. Unless otherwise provided in the
Certificate of Incorporation and subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class II,
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class I directors shall expire and
Class I directors shall be elected for a full term of three years. At the
second annual meeting of stockholders following the Closing of the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the third
annual meeting of stockholders following the closing of the Initial Public
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Offering, the term of office of the Class III directors shall expire and Class
III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
Notwithstanding the foregoing provisions of this Article, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Section 18. Vacancies. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A
vacancy in the Board of Directors shall be deemed to exist under this Bylaw in
the case of the death, removal or resignation of any director.
Section 19. Resignation. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
Section 20. Removal. Subject to the rights of the holders of any series
of Preferred Stock, the Board of Directors or any individual director may be
removed from office at any time (i) with cause by the affirmative vote of the
holders of a majority of the voting power of all the then-outstanding shares of
voting stock of the corporation entitled to vote at an election of directors
(the "Voting Stock") or (ii) without cause by the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all the then-outstanding shares of the Voting Stock.
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and
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such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) Regular Meetings. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the State
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
(d) Telephone Meetings. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting 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
by such means shall constitute presence in person at such meeting.
(e) Notice Of Meetings. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least twenty-
four (24) hours before the date and time of the meeting, or sent in writing to
each director by first class mail, charges prepaid, at least three (3) days
before the date of the meeting. Notice of any meeting may be waived in writing
at any time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
(f) Waiver Of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
Section 22. Quorum And Voting.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in
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accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, 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 of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 24. Fees And Compensation. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee.The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors 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; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by
Delaware the General Corporation Law to be submitted to stockholders for
approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) Other Committees. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
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(c) Term. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
subsections (a) or (b) of this Bylaw may at any time increase or decrease the
number of members of a committee or terminate the existence of a committee. The
membership of a committee member shall terminate on the date of his death or
voluntary resignation from the committee or from the Board of Directors. The
Board of Directors may at any time for any reason remove any individual
committee member and the Board of Directors may fill any committee vacancy
created by death, resignation, removal or increase in the number of members of
the committee. 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 the committee, and, in addition, in the absence or
disqualification of any member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
(d) Meetings. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
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Article V
Officers
Section 27. Officers Designated. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by the
Board of Directors.
Section 28. Tenure And Duties Of Officers.
(a) General. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) Duties Of Chairman Of The Board Of Directors. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) Duties Of President. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) Duties Of Vice Presidents. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
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(e) Duties Of Secretary. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) Duties Of Chief Financial Officer. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order
of the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
Section 29. Delegation Of Authority. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
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Article VI
Execution Of Corporate Instruments And Voting Of Securities Owned By The
Corporation
Section 32. Execution Of Corporate Instruments. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
Section 33. Voting Of Securities Owned By The Corporation. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
Article VII
Shares Of Stock
Section 34. Form And Execution Of Certificates. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or
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Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
Section 35. Lost Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
Section 37. Fixing Record Dates.
(a) 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, the Board of
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Directors may fix, in advance, 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 shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting. If no record date
is fixed by the Board of Directors, 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. 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 38. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and 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, except as otherwise provided by the laws of Delaware.
Article VIII
Other Securities Of The Corporation
Section 39. Execution Of Other Securities. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
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Article IX
Dividends
Section 40. Declaration Of Dividends. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 41. Dividend Reserve. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
Article X
Fiscal Year
Section 42. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Article XI
Indemnification
Section 43. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents.
(a) Directors And Executive Officers. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and executive
officers; and, provided, further, that the corporation shall not be required to
indemnify any director or executive officer in connection with any proceeding
(or part thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the Delaware General Corporation Law or (iv) such
indemnification is required to be made under subsection (d).
17.
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(b) Other Officers, Employees and Other Agents. The corporation shall
have power to indemnify its other officers, employees and other agents as set
forth in the Delaware General Corporation Law.
(c) Expenses. The corporation shall advance to 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, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law for the corporation to indemnify the claimant
for the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests
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of the corporation, or with respect to any criminal action or proceeding that
such person acted without reasonable cause to believe that his conduct was
lawful. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
(e) Non-Exclusivity Of Rights. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, 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 office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
(f) Survival Of Rights. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
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(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, 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 Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(5) 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,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, 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 Bylaw.
Article XII
Notices
Section 44. Notices.
(a) Notice To Stockholders. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) Notice To Directors. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such
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director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) Affidavit Of Mailing. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) Time Notices Deemed Given. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) Methods Of Notice. It shall not be necessary that the same method
of giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) Failure To Receive Notice. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) Notice To Person With Whom Communication Is Unlawful. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) Notice To Person With Undeliverable Address. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person
21.
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shall not be required. Any action or meeting which shall be taken or held
without notice to such person shall have the same force and effect as if such
notice had been duly given. If any such person shall deliver to the corporation
a written notice setting forth his then current address, the requirement that
notice be given to such person shall be reinstated. In the event that the action
taken by the corporation is such as to require the filing of a certificate under
any provision of the Delaware General Corporation Law, the certificate need not
state that notice was not given to persons to whom notice was not required to be
given pursuant to this paragraph.
Article XIII
Amendments
Section 45. Amendments. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the Voting Stock. The
Board of Directors shall also have the power to adopt, amend, or repeal Bylaws.
Article XIII
Right Of First Refusal
Section 46. Right Of First Refusal. No holder of common stock shall sell,
assign, pledge, or in any manner transfer any of the shares of common stock of
the corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
requirements hereinafter set forth in this bylaw:
(a) If the holder of common stock desires to sell or otherwise
transfer any of his shares of stock, then the holder of common stock shall first
give written notice thereof to the corporation. The notice shall name the
proposed transferee and state the number of shares to be transferred, the
proposed consideration, and all other terms and conditions of the proposed
transfer.
(b) For thirty (30) days following receipt of such notice, the
corporation shall have the option to purchase all (but not less than all) of the
shares specified in the notice at the price and upon the terms set forth in such
notice; provided, however, that, with the consent of the holder of common stock,
the corporation shall have the option to purchase a lesser portion of the shares
specified in said notice at the price and upon the terms set forth therein. In
the event of a gift, property settlement or other transfer in which the proposed
transferee is not paying the full price for the shares, and that is not
otherwise exempted from the provisions of this Section 46, the price shall be
deemed to be the fair market value of the stock at such time as determined in
good faith by the Board of Directors. In the event the corporation elects to
purchase all of the shares or, with consent of the holder of common stock, a
lesser portion of the shares, it shall give written notice to the transferring
holder of common stock of its election and settlement for said shares shall be
made as provided below in paragraph (d).
22.
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(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s) elect to
acquire any of the shares of the transferring holder of common stock as
specified in said transferring holder of common stock's notice, the Secretary of
the corporation shall so notify the transferring holder of common stock and
settlement thereof shall be made in cash within thirty (30) days after the
Secretary of the corporation receives said transferring holder of common stock's
notice; provided that if the terms of payment set forth in said transferring
holder of common stock's notice were other than cash against delivery, the
corporation and/or its assignee(s) shall pay for said shares on the same terms
and conditions set forth in said transferring holder of common stock's notice.
(e) In the event the corporation and/or its assignees(s) do not elect
to acquire all of the shares specified in the transferring holder of common
stock's notice, said transferring holder of common stock may, within the sixty-
day period following the expiration of the option rights granted to the
corporation and/or its assignees(s) herein, transfer the shares specified in
said transferring holder of common stock's notice which were not acquired by the
corporation and/or its assignees(s) as specified in said transferring holder of
common stock's notice. All shares so sold by said transferring holder of common
stock shall continue to be subject to the provisions of this bylaw in the same
manner as before said transfer.
(f) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this bylaw:
(1) A holder of common stock's transfer of any or all shares
held either during such holder of common stock's lifetime or on death by will or
intestacy to such holder of common stock's immediate family or to any custodian
or trustee for the account of such holder of common stock or such holder of
common stock's immediate family or to any limited partnership of which the
holder of common stock, members of such holder of common stock's immediate
family or any trust for the account of such holder of common stock or such
holder of common stock's immediate family will be the general of limited
partner(s) of such partnership. "Immediate family" as used herein shall mean
spouse, lineal descendant, father, mother, brother, or sister of the holder of
common stock making such transfer.
(2) A holder of common stock's bona fide pledge or mortgage of
any shares with a commercial lending institution, provided that any subsequent
transfer of said shares by said institution shall be conducted in the manner set
forth in this bylaw.
(3) A holder of common stock's transfer of any or all of such
holder of common stock's shares to the corporation or to any other holder of
common stock of the corporation.
(4) A holder of common stock's transfer of any or all of such
holder of common stock's shares to a person who, at the time of such transfer,
is an officer or director of the corporation.
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(5) A corporate holder of common stock's transfer of any or all
of its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate holder of common stock, or pursuant to a sale of all or substantially
all of the stock or assets of a corporate holder of common stock.
(6) A corporate holder of common stock's transfer of any or all
of its shares to any or all of its stockholders.
(7) A transfer by a holder of common stock which is a limited or
general partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall receive and
hold such stock subject to the provisions of this bylaw, and there shall be no
further transfer of such stock except in accord with this bylaw.
(g) The provisions of this bylaw may be waived with respect to any
transfer either by the corporation, upon duly authorized action of its Board of
Directors, or by the holder of common stocks, upon the express written consent
of the owners of a majority of the voting power of the corporation (excluding
the votes represented by those shares to be transferred by the transferring
holder of common stock). This bylaw may be amended or repealed either by a duly
authorized action of the Board of Directors or by the holder of common stocks,
upon the express written consent of the owners of a majority of the voting power
of the corporation.
(h) Any sale or transfer, or purported sale or transfer, of
securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate on either of
the following dates, whichever shall first occur:
(1) On June 24, 2009; or
(2) Upon the date securities of the corporation are first
offered to the public pursuant to a registration statement filed with, and
declared effective by, the United States Securities and Exchange Commission
under the Securities Act of 1933, as amended.
(j) The certificates representing shares of common stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS
ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION."
24.
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Article XIV
Loans To Officers
Section 47. Loans To Officers. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
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EXHIBIT 4.2
ALTEON WEBSYSTEMS, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. General........................................................................................... 1
1.1 Definitions.............................................................................. 1
2. Registration; Restrictions on Transfer............................................................ 2
2.1 Restrictions on Transfer................................................................. 2
2.2 Demand Registration...................................................................... 3
2.3 Piggyback Registrations.................................................................. 5
2.4 Form S-3 Registration.................................................................... 5
2.5 Expenses of Registration................................................................. 6
2.6 Obligations of the Company............................................................... 7
2.7 Termination of Registration Rights....................................................... 8
2.8 Delay of Registration; Furnishing Information............................................ 8
2.9 Indemnification.......................................................................... 8
2.10 Assignment of Registration Rights........................................................ 10
2.11 Amendment of Registration Rights......................................................... 11
2.12 Limitation on Subsequent Registration Rights............................................. 11
2.13 "Market Stand-Off" Agreement............................................................. 11
2.14 Rule 144 Reporting....................................................................... 11
3. Covenants of the Company.......................................................................... 12
3.1 Basic Financial Information and Reporting................................................ 12
3.2 Confidentiality of Records............................................................... 12
3.3 Reservation of Common Stock.............................................................. 12
3.4 Proprietary Information and Inventions Agreement......................................... 12
3.5 Real Property Holding Corporation........................................................ 12
3.7 Termination of Covenants................................................................. 13
3.8 Transfer of Rights....................................................................... 13
4. Rights of First Refusal........................................................................... 14
4.1 Subsequent Offerings..................................................................... 14
4.2 Exercise of Rights....................................................................... 14
4.3 Issuance of Equity Securities to Other Persons........................................... 14
4.4 Termination of Rights of First Refusal................................................... 15
4.5 Transfer of Rights of First Refusal...................................................... 15
4.6 Excluded Securities...................................................................... 15
5. Miscellaneous..................................................................................... 15
5.1 Governing Law............................................................................ 15
5.2 Survival................................................................................. 16
5.3 Successors and Assigns................................................................... 16
5.4 Severability............................................................................. 16
5.5 Amendment and Waiver..................................................................... 16
5.6 Delays or Omissions...................................................................... 16
5.7 Notices.................................................................................. 17
5.8 Attorneys' Fees.......................................................................... 17
5.9 Titles and Subtitles..................................................................... 17
5.10 Counterparts............................................................................. 17
5.11 Amendment of Prior Agreement............................................................. 17
</TABLE>
i.
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ALTEON WEBSYSTEMS, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (the "Agreement") is
entered into as of the [__]th day of June, 1999, by and among Alteon WebSystems,
Inc., a Delaware corporation (the "Company"), and the persons and entities set
forth on Exhibit A attached hereto. Such persons and entities shall be referred
to hereinafter as the "Investors" and each individually as an "Investor."
Recitals
Whereas, the Company granted certain purchasers (the "Prior Investors") of
its Common Stock, Series A Preferred Stock (the "Series A Stock"), Series B
Preferred Stock (the "Series B Stock") and Series C Preferred Stock (the "Series
C Stock") certain registration and other rights pursuant to the Amended and
Restated Investor Rights Agreement, dated June 30, 1998, between the Company and
the Prior Investors (the "Prior Agreement"); and
Whereas, the Company proposes to sell and issue up to two million five
hundred thousand (2,500,000) shares of its Series D Preferred Stock (the "Series
D Stock") pursuant to that certain Series D Preferred Stock Purchase Agreement
of even date herewith (the "Purchase Agreement"); and
Whereas, as a condition of entering into the Purchase Agreement, the
purchasers of the Series D Stock (the "Series D Purchasers") have requested that
the Company extend to them registration rights, information rights and other
rights as set forth below; and
Whereas, the Company and the Prior Investors desire to amend the Prior
Agreement to grant such rights to the Series D Purchasers;
Now, Therefore, in consideration of the mutual promises, representations,
warranties, covenants, and conditions set forth in this Agreement and in the
Purchase Agreement, the parties mutually agree as follows:
1. General.
1.1 Definitions. As used in this Agreement the following terms shall have
the following respective meanings:
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" means any person owning of record Shares or Registrable Securities
that have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 2.10 hereof.
"Initial Offering" means the Company's first firm commitment underwritten
public offering of its Common Stock registered under the Securities Act.
1.
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"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Securities" means (i) Common Stock of the Company issued or
issuable upon conversion of the Shares; (ii) Common Stock of the Company issued
to Essential pursuant to the License and Stock Purchase Agreement between the
Company and Essential, dated as of April 19, 1996 (the "Essential Agreement");
and (iii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, such above-described securities. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to the
public either pursuant to a registration statement or Rule 144 or sold in a
private transaction in which the transferor's rights under Section 2 of this
Agreement are not assigned.
"Registrable Securities then outstanding" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (i) are then issued and
outstanding or (ii) are issuable pursuant to then exercisable or convertible
securities.
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with Sections 2.2, 2.3, and 2.4 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements not to exceed Twenty
Thousand Dollars ($20,000) of a single special counsel for the Holders, blue sky
fees and expenses and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"Shares" shall mean the Company's Series A Stock, Series B Stock, Series C
Stock and Series D Stock.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
2. Registration; Restrictions on Transfer.
2.1 Restrictions on Transfer.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:
2.
<PAGE>
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by the
terms of this Agreement, (B) such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by a Holder which is (A) a partnership to its affiliated
partnerships or its partners or former partners in accordance with partnership
interests, (B) a corporation to its affiliates or shareholders in accordance
with their interest in the corporation, (C) a limited liability company to its
members or former members in accordance with their interest in the limited
liability company, or (D) to the Holder's family member or trust for the benefit
of an individual Holder, provided the transferee will be subject to the terms of
this Agreement to the same extent as if he were an original Holder hereunder.
(b) Each certificate representing Shares or Registrable Securities
shall (unless otherwise permitted by the provisions of the Agreement) be stamped
or otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification, or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 Demand Registration.
(a) Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from the Holders of a majority of the
Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Securities Act covering the
3.
<PAGE>
registration of Registrable Securities having an aggregate offering price to the
public in excess of $10,000,000 (a "Qualified Public Offering"), then the
Company shall, within thirty (30) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the limitations of this
Section 2.2, use its best efforts to effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities that the
Holders request to be registered.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
and the Company shall include such information in the written notice referred to
in Section 2.2(a). In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding
any other provision of this Section 2.2, if the underwriter advises the Company
that marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so advise
all Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated to the Holders of such Registrable Securities on
a pro rata basis based on the number of Registrable Securities held by all such
Holders (including the Initiating Holders). Any Registrable Securities excluded
or withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to the earlier of (A) May 10, 2000; or (B) or one
hundred eighty (180) days following the effective date of the registration
statement pertaining to the Initial Offering; provided that the Company makes
reasonable good faith efforts to cause such registration statement to become
effective;
(ii) after the Company has effected two (2) registrations
pursuant to this Section 2.2, and such registrations have been declared or
ordered effective;
(iii) if within thirty (30) days of receipt of a written request
from Initiating Holders pursuant to Section 2.2(a), the Company gives notice to
the Holders of the Company's intention to make its Initial Offering within
ninety (90) days; or
(iv) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Initiating
Holders; provided that such right to delay a request shall be exercised by the
Company not more than once in any twelve (12) month period.
4.
<PAGE>
2.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(a) Underwriting. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 2.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders on a pro rata
basis based on the total number of Registrable Securities held by the Holders;
and third, to any shareholder of the Company (other than a Holder) on a pro rata
basis; provided that, no such reduction shall reduce the securities being
offered by the Company for its own account to be included in the registration
and underwriting, and provided further that, in no event shall the amount of
securities of the selling Holders included in the registration be reduced below
twenty-five percent (25%) of the total amount of securities included in such
registration, unless such offering is the Initial Offering and such registration
does not include shares of any other selling shareholders, in which event any or
all of the Registrable Securities of the Holders may be excluded in accordance
with the immediately preceding sentence. In no event will shares of any other
selling shareholder be included in such registration which would reduce the
number of shares which may be included by Holders without the written consent of
Holders of not less than at least two-thirds of the Registrable Securities
proposed to be sold in the offering.
(b) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 2.3
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration. The Registration Expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 2.5 hereof.
2.4 Form S-3 Registration. The Company shall use its best efforts to
qualify for registration on Form S-3 or any comparable or successor form or
forms. In case the Company shall receive from any Holder or Holders of
Registrable Securities a written request or requests that the Company effect a
registration on Form S-3 (or any successor to Form S-3) or any similar short-
form registration statement
5.
<PAGE>
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4:
(i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders, or
(ii) if the 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
price to the public of less than $500,000, or
(iii) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 2.4: provided, that such right to delay a
request shall be exercised by the Company not more than once in any twelve (12)
month period, or
(iv) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 2.4, or
(v) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance.
(C) subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All such Registration Expenses incurred in
connection with registrations requested pursuant to this Section 2.4 after the
first two (2) registrations shall be paid by the selling Holders pro rata in
proportion to the number of shares sold by each.
2.5 Expenses of Registration. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders
6.
<PAGE>
of the securities so registered pro rata on the basis of the number of shares so
registered. The Company shall not, however, be required to pay for expenses of
any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of
which has been subsequently withdrawn by the Initiating Holders unless (a) the
withdrawal is based upon material adverse information concerning the Company of
which the Initiating Holders were not aware at the time of such request or (b)
the Holders of a majority of Registrable Securities agree to forfeit their right
to one requested registration pursuant to Section 2.2 or Section 2.4, as
applicable, in which event such right shall be forfeited by all Holders. If the
Holders are required to pay the Registration Expenses, such expenses shall be
borne by the holders of securities (including Registrable Securities) requesting
such registration in proportion to the number of shares for which registration
was requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand
registration.
2.6 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days or, if earlier,
until the Holder or Holders have completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use all reasonable efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
7.
<PAGE>
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
2.7 Termination of Registration Rights. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect five
(5) years after the date of the Company's Initial Offering. In addition, a
Holder's registration rights shall expire if (i) the Company has completed its
Initial Offering and is subject to the provisions of the Exchange Act, (ii) such
Holder (together with its affiliates, partners and former partners) holds less
than 1% of the Company's outstanding Common Stock (treating all shares of
convertible Preferred Stock on an as converted basis), and (iii) all Registrable
Securities held by and issuable to such Holder may be sold under Rule 144 during
any ninety (90) day period.
2.8 Delay of Registration; Furnishing Information.
(a) No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.2, 2.3, or 2.4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2(b), the number of shares or the anticipated aggregate
offering price of the Registrable Securities to be included in the registration
does not equal or exceed the number of shares or the anticipated aggregate
offering price required to originally trigger the Company's obligation to
initiate such registration as specified in Section 2.2 or Section 2.4, whichever
is applicable.
2.9 Indemnification. In the event any Registrable Securities are included
in a registration statement under Sections 2.2, 2.3, or 2.4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers, directors and legal counsel
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages, or liabilities (joint or several) to which they may become
subject under the Securities Act, the
8.
<PAGE>
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, officer or director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this Section 2.9(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, severally and
not jointly, if Registrable Securities held by such Holder are included in the
securities as to which such registration qualifications or compliance is being
effected, indemnify and hold harmless the Company, each of its directors, its
officers, and legal counsel and each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter and any other Holder
selling securities under such registration statement or any of such other
Holder's partners, directors or officers or any person who controls such Holder,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter or
other such Holder, or partner, director, officer or controlling person of such
other Holder may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder under an instrument duly executed by such Holder and
stated to be specifically for use in connection with such registration; and each
such Holder, severally and not jointly, will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, or partner, officer, director
or controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action if it is judicially
determined that there was such a Violation; provided, however, that the
indemnity agreement contained in this Section 2.9(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity or contribution under this Section 2.9 exceed the net proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
2.9 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 2.9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other
9.
<PAGE>
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section 2.9 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any indemnity or any
contribution by a Holder hereunder exceed the net proceeds from the offering
received by such Holder.
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution hereunder from any person who was not guilty of such fraudulent
misrepresentation.
(e) The obligations of the Company and Holders under this Section 2.9
shall survive completion of any offering of Registrable Securities in a
registration statement. 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.
2.10 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 2 and the rights herein
related thereto may be assigned by a Holder to a transferee or assignee of
Registrable Securities which (i) is a subsidiary, affiliate, parent, general
partner, limited partner or retired partner of a Holder, (ii) is a Holder's
family member or trust for the benefit of an individual Holder, or (iii)
acquires at least two hundred thousand (200,000) shares of Registrable
Securities (as adjusted for stock splits and combinations); provided, however,
(A) the transferor shall, within ten (10) days after such transfer, furnish to
the Company written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned and (B) such transferee shall agree to be subject to all
restrictions set forth in this Agreement.
10.
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2.11 Amendment of Registration Rights. Any provision of this Section 2 may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of at least a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 2.11 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 2, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
2.12 Limitation on Subsequent Registration Rights. After the date of this
Agreement, the Company shall not, without the prior written consent of the
Holders of at least a majority the Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would grant such holder registration rights senior to or on a parity with
those granted to the Holders hereunder.
2.13 "Market Stand-Off" Agreement. If requested by the Company or the
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such Holder (other
than those included in the registration) for a period specified by the
representative of the underwriters not to exceed one hundred eighty (180) days
following the effective date of the initial registration statement of the
Company filed under the Securities Act, provided that all officers, directors
and holders of at least one percent (1%) of the Company's capital stock of the
Company enter into similar agreements. Any securities of the Company purchased
by a Holder in or following the Company's Initial Offering are specifically
excluded from the requirements of this Section 2.13.
The obligations described in this Section 2.13 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day period.
2.14 Rule 144 Reporting. With a view to making available to the Holders the
benefits of certain rules and regulations of the SEC which may 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 SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(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 of the Securities
Act, and of 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 as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
11.
<PAGE>
3. Covenants of the Company.
3.1 Basic Financial Information and Reporting.
(a) The Company will maintain true books and records of account in
which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will set
aside on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, the Company will
furnish each Investor upon request a consolidated balance sheet of the Company,
as at the end of such fiscal year, and a consolidated statement of income and a
consolidated statement of cash flows of the Company, for such year, all prepared
in accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail. Such financial statements shall be
audited by, and accompanied by a report and opinion thereon by independent
public accountants of national standing selected by the Company's Board of
Directors.
(c) The Company will furnish each Investor upon request, as soon as
practicable after the end of the first, second and third quarterly accounting
periods in each fiscal year of the Company, and in any event within forty-five
(45) days thereafter, a consolidated balance sheet of the Company as of the end
of each such quarterly period, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such period and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been made.
3.2 Confidentiality of Records. Each Investor agrees to use, and to use
its best efforts to insure that its authorized representatives use, the same
degree of care as such Investor uses to protect its own confidential information
to keep confidential any information furnished to it which the Company
identifies as being confidential or proprietary which shall be deemed to include
all information regarding the Company disclosed to the Investors in connection
with the purchase of the Shares (so long as such information is not in the
public domain), except that such Investor may disclose such proprietary or
confidential information to any affiliate, partner, subsidiary, parent,
attorney, accountant or financial advisor of such Investor for the purpose of
evaluating its investment in the Company as long as such affiliate, partner,
subsidiary, parent, attorney, accountant, or financial advisor is advised of the
confidentiality provisions of this Section 3.2.
3.3 Reservation of Common Stock. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the conversion of the
Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
3.4 Proprietary Information and Inventions Agreement. The Company shall
require all employees and consultants to execute and deliver a Proprietary
Information and Inventions Agreement in the form attached to the Purchase
Agreement.
3.5 Real Property Holding Corporation. The Company covenants that it will
operate in a manner such that it will not become a "United States real property
holding corporation" as that term is defined in Section 897(c)(2) of the
Internal Revenue Code of 1986, as amended, and the regulations
12.
<PAGE>
thereunder ("FIRPTA"). The Company agrees to make determinations as to its
status as a USRPHC, and will file statements concerning those determinations
with the Internal Revenue Service, in the manner and at the times required under
Reg. (S) 1.897-2(h), or any supplementary or successor provision thereto. Within
30 days of a request from an Investor or any of its partners or affiliates, the
Company will inform the requesting party, in the manner set forth in Reg. (S)
1.897-2(h)(1)(iv) or any supplementary or successor provision thereto, whether
that party's interest in the Company constitutes a United States real property
interest (within the meaning of Internal Revenue Code Section 897(c)(1) and the
regulations thereunder) and whether the Company has provided to the Internal
Revenue Service all required notices as to its USRPHC status.
3.6 Company Right of First Refusal. The Company's right of first refusal
set forth in Section 45 of the Bylaws of the Company, shall be terminated with
respect to the Shares upon the occurrence of any of the following events and the
Company covenants it shall amend its Bylaws as necessary to reflect such
termination:
(a) any consolidation or merger of the Company with or into any other
corporation or other entity or person, or any other corporate reorganization, in
which the stockholders of the Company immediately prior to such consolidation,
merger or reorganization, own, directly or indirectly, less than 50% of the
surviving corporation or entity's voting power immediately after such
consolidation, merger or reorganization, or any transaction or series of related
transactions in which in excess of fifty percent (50%) of the Company's voting
power is transferred to stockholders other than the Company's stockholders
immediately prior to such transaction or transactions (an "Acquisition");
(b) a sale, transfer, lease or other disposition of all or
substantially all of the assets of the Company in which stockholders of the
Company immediately prior to such disposition, own less than 50% of the
acquiring corporation or entities' voting power immediately after such
disposition (an "Asset Transfer");
(c) the Company's Initial Offering.
3.7 Termination of Covenants. All covenants of the Company contained in
Section 3 of this Agreement shall expire and terminate as to each Investor on
the closing of the Company's Initial Offering.
3.8 Transfer of Rights. The rights of each Investor under this Section 3
may be transferred to the same parties, subject to the same restrictions as any
transfer of registration rights pursuant to Section 2.10.
3.9 Qualified Small Business Stock. The Company covenants that so long as
any of the shares of Series D Preferred Stock, or the Common Stock into which
such shares are converted, are held by an Investor (or a transferee in whose
hands such shares or Common Stock are eligible to qualify as Qualified Small
Business Stock as defined in Section 1201(c) of the Code), it will use its
reasonable efforts (including complying with any applicable filing or reporting
requirements imposed by the Code on issuers of Qualified Small Business Stock)
to cause such shares, or the Common Stock into which they are converted, to
qualify as Qualified Small Business Stock; provided, however, that "reasonable
efforts" as used in this Section 3.9 shall not be construed to require the
Company to operate its business in a manner which would adversely affect its
business, limit its future prospects or alter the timing or resource allocation
related to its planned operations or financing activities. The Company shall
submit to the Investors and to the Internal Revenue Service any reports that may
be required under Section
13.
<PAGE>
1202(d)(1)(c) of the Code and any related Treasury Regulations. In addition,
within ten (10) days after any Investor has delivered to the Company a written
request therefor, the Company shall deliver to such Investor a certificate
informing the Investor whether such Investor's interest in the Company
constitutes a "qualified small business stock" as defined in Section 1202(c) of
the Code. The Company's obligation to furnish this QSBS Certificate pursuant to
this Section 3.9 shall continue notwithstanding the fact that a class of the
Company's stock may be traded on an established securities market.
4. Rights of First Refusal.
4.1 Subsequent Offerings. Each Investor (together with its affiliates)
holding not less than one hundred thousand (100,000) shares of Registrable
Securities (as adjusted for stock splits and combinations) (a "Major Investor")
shall have a right of first refusal to purchase its pro rata share of all Equity
Securities, as defined below, that the Company may, from time to time, propose
to sell and issue after the date of this Agreement, other than the Equity
Securities excluded by Section 4.6 hereof. Each Major Investor's pro rata share
is equal to the ratio of (A) the number of shares of the Company's Common Stock
(including all shares of Common Stock issued or issuable upon conversion of the
Shares) of which such Major Investor is deemed to be a holder immediately prior
to the issuance of such Equity Securities to (B) the total number of shares of
the Company's outstanding Common Stock (including all shares of Common Stock
issued or issuable upon conversion of the Shares or upon the exercise of any
outstanding warrants or options) immediately prior to the issuance of the Equity
Securities. The term "Equity Securities" shall mean (i) any Common Stock,
Preferred Stock or other security of the Company, (ii) any security convertible,
with or without consideration, into any Common Stock, Preferred Stock or other
security (including any option to purchase such a convertible security), (iii)
any security carrying any warrant or right to subscribe to or purchase any
Common Stock, Preferred Stock or other security, or (iv) any such warrant or
right.
4.2 Exercise of Rights. If the Company proposes to issue any Equity
Securities, it shall give each Major Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Major Investor shall have
fifteen (15) days from the giving of such notice to agree to purchase its pro
rata share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell such Equity Securities to any Major Investor who would cause the Company to
be in violation of applicable federal securities laws by virtue of such offer or
sale.
4.3 Issuance of Equity Securities to Other Persons. If not all of the
Major Investors elect to purchase their pro rata share of the Equity Securities,
then the Company shall promptly notify in writing the Major Investors who do so
elect and shall offer such Major Investors the right to acquire such
unsubscribed shares. The Major Investors shall have ten (10) days after receipt
of such notice to notify the Company of its election to purchase all or a
portion thereof of the unsubscribed shares. If the Major Investors fail to
exercise in full the rights of first refusal, the Company shall have ninety (90)
days thereafter to sell the Equity Securities in respect of which the Major
Investor's rights were not exercised, at a price and upon general terms and
conditions materially no more favorable to the purchasers thereof than specified
in the Company's notice to the Major Investors pursuant to Section 4.2 hereof.
If the Company has not sold such Equity Securities within ninety (90) days of
the notice provided pursuant to Section 4.2, the Company shall not thereafter
issue or sell any Equity Securities, without first offering such securities to
the Major Investors in the manner provided above.
14.
<PAGE>
4.4 Termination of Rights of First Refusal. The rights of first refusal
established by this Section 4 shall not apply to, and shall terminate upon the
closing of the Company's Initial Public Offering.
4.5 Transfer of Rights of First Refusal. The rights of first refusal of
each Major Investor under this Section 4 may be transferred to the same parties,
subject to the same restrictions as any transfer of registration rights pursuant
to Section 2.10.
4.6 Excluded Securities. The rights of first refusal established by this
Section 4 shall have no application to any of the following Equity Securities:
(a) shares of Common Stock (and/or options, warrants or other Common
Stock purchase rights issued pursuant to such options, warrants or other rights)
issued or to be issued to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors;
(b) stock issued pursuant to any rights or agreements outstanding as
of the date of this Agreement (as disclosed in the Purchase Agreement), options
and warrants outstanding as of the date of this Agreement; and stock issued
pursuant to any such rights or agreements granted after the date of this
Agreement, provided that the rights of first refusal established by this Section
4 applied with respect to the initial sale or grant by the Company of such
rights or agreements;
(c) any Equity Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination;
(d) shares of Common Stock issued in connection with any stock split,
stock dividend or recapitalization by the Company;
(e) shares of Common Stock issued upon conversion of the any
Preferred Stock of the Company;
(f) any Equity Securities issued pursuant to any equipment leasing or
loan arrangement, or debt financing from a bank or similar financial institution
approved by the Board; and
(g) any Equity Securities that are issued by the Company pursuant to
a registration statement filed under the Securities Act.
(h) up to ten thousand (10,000) shares of Common Stock approved by
the Company's Board of Directors for issuance of gifts to certain of the
Company's current or potential customers or strategic partners.
5. Miscellaneous.
5.1 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
15.
<PAGE>
5.2 Survival. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
5.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of Registrable Securities from time to time; provided, however, that
prior to the receipt by the Company of adequate written notice of the transfer
of any Registrable Securities specifying the full name and address of the
transferee, the Company may deem and treat the person listed as the holder of
such shares in its records as the absolute owner and holder of such shares for
all purposes, including the payment of dividends or any redemption price.
5.4 Severability. In case any provision of the Agreement shall be invalid,
illegal, or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
5.5 Amendment and Waiver.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of a majority of the Registrable Securities then outstanding, provided that the
rights of any Holder of at least 600,000 Registrable Securities shall not be
adversely affected without such Holder's consent, provided, however, that the
addition of persons or entities as Holders or of capital stock of the Company as
Registrable Securities shall not be deemed to adversely affect the rights of any
such Holder.
(b) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the holders of a majority of the Registrable
Securities then outstanding, provided that the rights of any Holder of at least
600,000 Registrable Securities shall not be adversely affected without such
Holder's consent, provided, however, that the addition of persons or entities as
Holders or of capital stock of the Company as Registrable Securities shall not
be deemed to adversely affect the rights of any such Holder.
(c) Notwithstanding the foregoing, this Agreement may be amended with
only the written consent of the Company solely to include additional purchasers
of Series D Stock as "Investors," "Holders" and parties hereto.
5.6 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in
16.
<PAGE>
such writing. All remedies, either under this Agreement, by law, or otherwise
afforded to Holders, shall be cumulative and not alternative.
5.7 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature pages hereof
or Exhibit A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.
5.8 Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
5.9 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.11 Amendment of Prior Agreement. Effective upon the execution of this
Agreement by the Company and the Holders of a majority of the Registrable
Securities covered by the Prior Agreement, the Prior Agreement shall be null and
void and shall be superseded by the provisions of this Agreement. Each Investor
that was a party to the Prior Agreement hereby waives all rights of first
refusal contained in Section 4 of the Prior Agreement with respect to the sale
and issuance of the Series D Stock and the Common Stock issuable upon conversion
thereof, including any notice requirements related to such rights of first
refusal.
5.12 Aggregation of Shares. Shares of affiliates may be aggregated for the
purpose of satisfying the minimum 200,000 share requirement in Section 2.10 and
any other minimum share requirements contained herein.
17.
<PAGE>
In Witness Whereof, the parties hereto have executed this Amended and
Restated Investor Rights Agreement as of the date set forth in the first
paragraph hereof.
COMPANY: INVESTORS:
Alteon WebSystems, Inc.
Signed by investors listed on Exhibit A
----------------------------------------
[Print Name of Investor]
BY: /s/ Dominic P. Orr By:_____________________________________
-------------------------
President
Name:___________________________________
TITLE:__________________________________
Address: 50 Great Oaks Blvd.
San Jose, CA 95119
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
18.
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
Richard C. Bush
1530 Waverley St.
Palo Alto, CA 94301
Adam Grosser
1508 Black Mountain
Hillborough, CA 94010
TCV III (GP)
Robert Bensky
56 Main Street, Suite 210
Millburn, NJ 07041
TCV III, L.P.
Robert Bensky
56 Main Street, Suite 210
Millburn, NJ 07041
TCV III (Q), L.P.
Robert Bensky
56 Main Street, Suite 210
Millburn, NJ 07041
TCV III Strategic Partners, L.P.
Robert Bensky
56 Main Street, Suite 210
Millburn, NJ 07041
Velocity Technology and Communications Trust B
261 Hamilton Avenue, Suite 212
Palo Alto, CA 94301
Fred W. Kittler
261 Hamilton Avenue, Suite 212
Palo Alto, CA 94301
Andrew J. Kessler IRA
261 Hamilton Avenue, Suite 212
Palo Alto, CA 94301
Omar Barzanji
3I Technology Partners Ltd.
City Tower 1, Suite 304
P.O. Box 1178
Dubai, United Arab Emirates
1.
<PAGE>
Robert Chung Yu Liu
11F-3, #225, Section 3, Pa-Teh Road
Taipei, Taiwan
Dapknow LLC
Attn: J.M.D. Cha
525 University Avenue, Suite 1500
Palo Alto, CA 94301
Matrix Partners IV, L.P.
2500 Sand Hill Road, Suite 113
Menlo Park, CA 94025
Matrix IV Entrepreneurs Fund, L.P.
2500 Sand Hill Road, Suite 113
Menlo Park, CA 94025
Sutter Hill Ventures, a California Limited Partnership
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Tow Partners,
a California Limited Partnership
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Anvest, L.P.
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
David L. Anderson
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Saunders Holdings, L.P.
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
G. Leonard Baker, Jr.
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
William H. Younger, Jr.,
Trustee of the Younger Living Trust
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Tench Coxe
2.
<PAGE>
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Ronald L. Perkins
755 Page Mill Road, Suite A-200
Palo Alto, CA 94304
Wells Fargo Bank, Trustee
SHV M/P/T FBO William H. Younger, Jr.
Attn: Vicki Bandel
P. O. Box 63050 MAC 0101-021
San Francisco, CA 94163
Wells Fargo Bank, Trustee
SHV M/P/T FBO Sherryl Hossack
Attn: Vicki Bandel
P. O. Box 63050 MAC 0101-021
San Francisco, CA 94163
Wells Fargo Bank, Trustee
SHV M/P/T FBO Tench Coxe
Attn: Vicki Bandel
P. O. Box 63050 MAC 0101-021
San Francisco, CA 94163
Essential Communications Corporation
4374 Alexander Blvd., Suite T
Albuquerque, NM 87107
Richard C. Bush Family Trust
1530 Waverly Street
Palo Alto, CA 94301
The Louis & Jolene Cole 1988
Revocable Trust dated November 7, 1988
c/o Legato Systems
3145 Porter Drive
Palo Alto, CA 94304
Dean E. Schmaltz, Trustee of
Controller Solutions Pension Plan
541 Tranway Drive
Milpitas, CA 95035
GC&H Investments
Attn: John Cardoza
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
Michael Szymanski and Beth M. Spatz
3.
<PAGE>
JT TEN
640 Derby Court
Sunnyvale, CA 94087
Shelley J. Hurst
744 Guinda Street
Palo Alto, CA 94301
Vaughan A. Johnson
309 Love Lane
Danville, CA 94526
Richard R. Keenly
1673 Galway Drive
Cupertino, CA 95014
James H. Lawson and Andrea J. Lawson
TTEES F/T Lawson Family Trust
102 Lake Cliff Court
Cary, NC 27513
Esther W. Lee
15221 Piedmont
Saratoga, CA 95070
Don & Jane Schmaltz
HC2 Box 418
Winchester, WI 54557
John Schroeder
1705 N. Evergreen Street
Burbank, CA 91505
James Hung Nguyen & Victoria Van Tran
2474 Glen Duff Way
San Jose, CA 95148
Hedy & John Tharp
P. O. Box 970
Airway Heights, WA 99001
Daniel J. and Charmaine A. Warmenhoven,
Trustees of the Warmenhoven 1987 Revocable
Trust UTA 12/16/87, as Amended
15223 Hume Drive
Saratoga, CA 95070
New Enterprise Associates VII,
Limited Partnership
Peter Morris
4.
<PAGE>
2490 Sand Hill Road
Menlo Park, CA 94025
NEA Ventures 1997,
Limited Partnership
Peter Morris
2490 Sand Hill Road
Menlo Park, CA 94025
NEA Presidents Fund, L.P.
Peter Morris
2490 Sand Hill Road
Menlo Park, CA 94025
Onset Enterprise Associates II, L.P.
Mr. Rob Kuhling
2490 Sand Hill Road
Menlo Park, CA 94025
Dave Golob
755 Page Mill Road, Suite A200
Palo Alto, CA 94304
MV Venture Partners II
James E. Hulburd
c/o Alex Brown & Sons, Inc.
101 California Street, Suite 4600
San Francisco, CA 94111
Meritech AG - Guido Fischler
c/o Mericom AG
Gartenstrasse 22
CH 4052 Basel
Switzerland
Gideon Marks
17A Basel Street
Herzlia, 46660 Israel
Mohammed Mushtaque
22 Lexington Road
Shrewsbury, MA 01545
Shelley J. Hurst & Bernard G. Sheldon
744 Guinda Street
Palo Alto, CA 94301
Glynn Ventures III
John W. Glynn, Jr.
3000 Sand Hill Road
5.
<PAGE>
Building 4, Suite 235
Menlo Park, CA 94025
Robert D. Bressler
12180 Padre Court
Los Altos, CA 94022
Korea Technology Banking Corp.
Mr. Jung-Kyoo Yang
KTB Building
45-21 Yoido-dong, Youngdeungpo-ku
Seoul 150-010, Korea
Fuji-Xerox Company Ltd.
Mr. Hiro Satoh
Kokusai Shin-Akasaka Building
West 13F
20 Akasaka 6-Chome Minato-Ku
Tokyo, 107 Japan
Lim Guat Swee
c/o N.K. Quek
International Manufacturing Services Ltd.
19 Sze Shan Street
Yau Tong, Hong Kong
Richard H. Justice
19614 Montauk Drive
Saratoga, CA 95070
Fumitaka Tezuka
Red Brick Japan Co., Ltd.
Shiroyama Jt Mori , Building 16F
4-3-1 Toranomon Minato-Ku
Tokyo 105, Japan
Kiyoshi Yamada
ID Networks, Inc.
Keisoku Building 5F
7-18-2 Nishi Gotanda
Shinagawa-Ku
Tokyo 141 Japan
Shuji Hayashibe
StarNet Co., Ltd.
Ochanomizu-Motomachi, Building 5F
2-3-7 Hongo, Bunkyo-Ku
Tokyo 113 Japan
6.
<PAGE>
Charles H. Ferguson
65 Arden Road
Berkeley, CA 94704
Seven Seas Group Limited
Attn: Ms. Wan Yuen Ho
Room 908 Dominion Center
43-59 Queen's Road East
Wanchai Hong Kong
Trailhead Ventures
Attn: Mr. Mark Masur
5949 Sherry Lane, Suite 1450
Dallas, TX 75225
Kevin and Deirdre McQuillan
TTEES Kevin and Deirdre
McQuillan 1995 Trust
DTD 12-9-95 345 Cervantes Road
Portola Valley, CA 94028
WK Technology Fund
10th Floor, No. 115, Sec. 3, Ming Sheng E. Road
Taipei, Taiwan, R.O.C.
WK Technology Fund II
10th Floor, No. 115, Sec. 3, Ming Sheng E. Road
Taipei, Taiwan, R.O.C.
WK Technology Fund III
10th Floor, No. 115, Sec. 3, Ming Sheng E. Road
Taipei, Taiwan, R.O.C.
WK Technology Fund IV
10th Floor, No. 115, Sec. 3, Ming Sheng E. Road
Taipei, Taiwan, R.O.C.
WK Technology Fund V
10th Floor, No. 115, Sec. 3, Ming Sheng E. Road
Taipei, Taiwan, R.O.C.
WK Technology Fund VI
10th Floor, No. 115, Sec. 3, Ming Sheng E. Road
Taipei, Taiwan, R.O.C.
WK Global Investment Limited
10th Floor, No. 115, Sec. 3, Ming Sheng E. Road
Taipei, Taiwan, R.O.C.
7.
<PAGE>
Steven P. Bird
c/o Charter Growth Capital
525 University Avenue, Suite 1500
Palo Alto, CA 94301
Jim Boettcher
346 Felton Drive
Menlo Park, CA 94025
General Electric Capital Corporation
260 Long Ridge Road
Stamford, CT 06927
Attn: Mr. Scott Case
8.
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EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
This Agreement is made and entered into this _____ day of
________________, 1999 by and between Alteon Websystems, Inc., a Delaware
corporation (the "Corporation"), and ______________________ ("Agent"). This
Agreement terminates any and all previous indemnification agreements entered
into by and between the Corporation and Agent.
Recitals
Whereas, Agent performs a valuable service to the Corporation in
__________ capacity as _________ of the Corporation;
Whereas, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
Whereas, the Bylaws and the Code, by their non-exclusive nature,
permit contracts between the Corporation and its agents, officers, employees and
other agents with respect to indemnification of such persons; and
Whereas, in order to induce Agent to continue to serve as director of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
Now, Therefore, in consideration of Agent's continued service as
director after the date hereof, the parties hereto agree as follows:
Agreement
1. Services to the Corporation. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as director
of the Corporation or as a director, officer or other fiduciary of an affiliate
of the Corporation (including any employee benefit plan of the Corporation)
faithfully and to the best of his ability so long as he is duly elected and
qualified in accordance with the provisions of the Bylaws or other applicable
charter documents of the Corporation or such affiliate; provided, however, that
Agent may at any time and for any reason resign from such position (subject to
any contractual obligation that Agent may have assumed apart from this
Agreement) and that the Corporation or any affiliate shall have no obligation
under this Agreement to continue Agent in any such position.
2. Indemnity of Agent. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
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3. Additional Indemnity. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent
by the Corporation under the non-exclusivity provisions of the Code and Section
41 of the Bylaws.
4. Limitations on Additional Indemnity. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent solely for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct;
(c) on account of Agent's conduct that is established by a final
judgment as constituting a breach of Agent's duty of loyalty to the Corporation
or resulting in any personal profit or advantage to which Agent was not legally
entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both
the Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated
by Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the
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proceeding was authorized by the Board of Directors of the Corporation, (iii)
such indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 9 hereof.
5. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. Partial Indemnification. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. Notification and Defense of Claim. Not later than thirty (30)
days after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding 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 Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent 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
3.
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action, in each of which cases the fees and expenses of Agent's separate counsel
shall be at the expense of the Corporation. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which Agent shall have made the conclusion
provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. Expenses. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. Enforcement. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. Non-Exclusivity of Rights. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
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12. Survival of Rights.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. Separability. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. Governing Law. This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Delaware.
15. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
16. Identical Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
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(b) If to the Corporation, to:
Alteon Websystems, Inc.
50 Great Oaks Boulevard
San Jose, CA 95119
or to such other address as may have been furnished to Agent by the Corporation.
In Witness Whereof, the parties hereto have executed this Agreement on and
as of the day and year first above written.
ALTEON WEBSYSTEMS, INC.
By:_______________________________________
Dominic P. Orr
President and Chief Executive Officer
Agent
By:_______________________________________
Name:__________________________________
Address:_______________________________
_______________________________
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EXHIBIT 10.2
ALTEON WEBSYSTEMS, INC.
1999 EQUITY INCENTIVE PLAN
Adopted June 15, 1999
Adjusted for the 3-for-2 Stock Split on June 28, 1999
Approved By Stockholders _______________, 1999
Termination Date: _______________, 2009
1. PURPOSES.
(a) Amendment and Restatement. The Plan initially was established
effective as of April 22, 1996 and named the 1996 Stock Option Plan (the
"Initial Plan"). The Initial Plan hereby is amended and restated in its entirety
as the 1999 Equity Incentive Plan effective as of the date of its adoption. The
terms of the Initial Plan (other than the aggregate number of shares issuable
thereunder) shall remain in effect and apply to all Options granted pursuant to
the Initial Plan.
(b) Eligible Stock Award Recipients. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(c) Available Stock Awards. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock appreciation rights, (iv) stock bonuses and (v) rights to
acquire restricted stock.
(d) General Purpose. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
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(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Alteon WebSystems, Inc., a Delaware corporation.
(g) "Consultant" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
(h) "Continuous Service" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Disability" means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
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(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common Stock shall
be determined in a manner consistent with Section 260.140.50 of Title 10 of the
California Code of Regulations.
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Listing Date" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "Officer" means (i) before the Listing Date, any person designated by
the Company as an officer and (ii) on and after the Listing Date, a person who
is an officer of the Company within the meaning of Section 16 of the Exchange
Act and the rules and regulations promulgated thereunder.
(t) "Option" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
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(u) "Option Agreement" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "Participant" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
(y) "Plan" means this Alteon WebSystems, Inc. 1999 Equity Incentive Plan.
(z) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "Securities Act" means the Securities Act of 1933, as amended.
(bb) "Stock Award" means any right granted under the Plan, including an
Option, a stock appreciation right, a stock bonus and a right to acquire
restricted stock.
(cc) "Stock Award Agreement" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "Ten Percent Stockholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. ADMINISTRATION.
(a) Administration by Board. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision by
the Board under the Plan shall be final and binding on all persons.
(b) Powers of Board. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
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(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) Delegation to Committee.
(i) General. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) Committee Composition when Common Stock is Publicly Traded. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more Non-
Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate
to a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.
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4. SHARES SUBJECT TO THE PLAN.
(a) Share Reserve.
(i) Subject to the provisions of Section 11 relating to adjustments
upon changes in Common Stock, the Common Stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate Eighteen Million Eight Hundred
Ten Thousand (18,810,000) shares of Common Stock.
(ii) Notwithstanding subsection 4(a)(i) hereof, on June 30 of each
year (the "Calculation Date") for a period of ten (10) years, commencing with
June 30, 2000 and ending with June 30, 2009, the aggregate number of shares of
Common Stock that is available for issuance under the Plan shall automatically
be increased by a number of shares of Common Stock equal to five percent (5%) of
the Diluted Shares Outstanding; provided, however, that the maximum aggregate
number of shares of Common Stock that are available for issuance as Incentive
Stock Options under the Plan shall not exceed Eighteen Million Eight Hundred Ten
Thousand (18,810,000) shares of Common Stock.
(iii) For purposes of subsection 4(a)(ii) hereof, "Diluted Shares
Outstanding" shall mean, as of any date, (1) the number of outstanding shares of
Common Stock of the Company on such Calculation Date, plus (2) the number of
shares of Common Stock issuable upon such Calculation Date assuming the
conversion of all outstanding Preferred Stock and convertible notes, plus (3)
the additional number of dilutive Common Stock equivalent shares outstanding as
the result of any options or warrants outstanding during the fiscal year,
calculated using the treasury stock method.
(b) Reversion of Shares to the Share Reserve. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Stock Award shall
revert to and again become available for issuance under the Plan. If the Company
repurchases unvested shares of Common Stock, such repurchased shares also shall
revert to and again become available for issuance under the Plan, subject to the
limitation on the aggregate number of shares of Common Stock available for
issuance as Incentive Stock Options pursuant to subsection 4(a)(ii) hereof.
Shares subject to stock appreciation rights exercised in accordance with the
Plan shall not be available for subsequent issuance under the Plan.
(c) Source of Shares. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
(d) Share Reserve Limitation. Prior to the Listing Date and to the extent
then required by Section 260.140.45 of Title 10 of the California Code of
Regulations, the total number of shares of Common Stock issuable upon exercise
of all outstanding Options and the total number of shares of Common Stock
provided for under any stock bonus or similar plan of the Company shall not
exceed the applicable percentage as calculated in accordance with the conditions
and exclusions of Section 260.140.45 of Title 10 of the California Code of
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Regulations, based on the shares of Common Stock of the Company that are
outstanding at the time the calculation is made./1/
5. ELIGIBILITY.
(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(b) Ten Percent Stockholders.
(i) A Ten Percent Stockholder shall not be granted an Incentive
Stock Option unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of the Common Stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.
(ii) Prior to the Listing Date, a Ten Percent Stockholder shall not
be granted a Nonstatutory Stock Option unless the exercise price of such Option
is at least (i) one hundred ten percent (110%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
(iii) Prior to the Listing Date, a Ten Percent Stockholder shall not
be granted a restricted stock award unless the purchase price of the restricted
stock is at least (i) one hundred percent (100%) of the Fair Market Value of the
Common Stock at the date of grant or (ii) such lower percentage of the Fair
Market Value of the Common Stock at the date of grant as is permitted by Section
260.140.41 of Title 10 of the California Code of Regulations at the time of the
grant of the Option.
(c) Section 162(m) Limitation. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options and/or stock appreciation rights
covering more than Two Million Two Hundred Fifty Thousand (2,250,000) shares of
Common Stock during any calendar year. This subsection 5(c) shall not apply
prior to the Listing Date and, following the Listing Date, this subsection 5(c)
shall not apply until (i) the earliest of: (1) the first material modification
of the Plan (including any increase in the number of shares of Common Stock
reserved for issuance under the Plan in accordance with Section 4); (2) the
issuance of all of the shares of Common Stock reserved for issuance under the
Plan; (3) the expiration of the Plan; or (4) the first meeting of stockholders
at
_____________
/1/ Section 260.140.45 generally provides that the total number of shares
issuable upon exercise of all outstanding options (exclusive of certain rights)
and the total number of shares called for under any stock bonus or similar plan
shall not exceed a number of shares which is equal to 30% of the then
outstanding shares of the issuer (convertible preferred or convertible senior
common shares counted on an as if converted basis), exclusive of shares subject
to promotional waivers under Section 260.141, unless a percentage higher than
30% is approved by at least two-thirds of the outstanding shares entitled to
vote.
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which Directors are to be elected that occurs after the close of the third
calendar year following the calendar year in which occurred the first
registration of an equity security under Section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
(d) CONSULTANTS.
(i) Prior to the Listing Date, a Consultant shall not be eligible
for the grant of a Stock Award if, at the time of grant, either the offer or the
sale of the Company's securities to such Consultant is not exempt under Rule 701
of the Securities Act ("Rule 701") because of the nature of the services that
the Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by Rule 701, unless the Company
determines that such grant need not comply with the requirements of Rule 701 and
will satisfy another exemption under the Securities Act as well as comply with
the securities laws of all other relevant jurisdictions.
(ii) From and after the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, a Form S-8
Registration Statement under the Securities Act ("Form S-8") is not available to
register either the offer or the sale of the Company's securities to such
Consultant because of the nature of the services that the Consultant is
providing to the Company, or because the Consultant is not a natural person, or
as otherwise provided by the rules governing the use of Form S-8, unless the
Company determines both (i) that such grant (A) shall be registered in another
manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or
(B) does not require registration under the Securities Act in order to comply
with the requirements of the Securities Act, if applicable, and (ii) that such
grant complies with the securities laws of all other relevant jurisdictions.
(iii) Rule 701 and Form S-8 generally are available to consultants and
advisors only if (1) they are natural persons; (2) they provide bona fide
services to the issuer, its parents, its majority-owned subsidiaries or (for
Rule 701 purposes only) majority-owned subsidiaries of the issuer's parent; and
(3) the services are not in connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or indirectly promote or
maintain a market for the issuer's securities.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
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(a) Term. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) Exercise Price of a Nonstatutory Stock Option. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the
Common Stock subject to the Option on the date the Option is granted. The
exercise price of each Nonstatutory Stock Option granted on or after the Listing
Date shall be not less than eighty-five percent (85%) of the Fair Market Value
of the Common Stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with
an exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(d) Consideration. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) Transferability of an Incentive Stock Option. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
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<PAGE>
(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock
Option granted prior to the Listing Date shall not be transferable except by
will or by the laws of descent and distribution and, to the extent provided in
the Option Agreement, to such further extent as permitted by Section
260.140.41(d) of Title 10 of the California Code of Regulations at the time of
the grant of the Option, and shall be exercisable during the lifetime of the
Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on
or after the Listing Date shall be transferable to the extent provided in the
Option Agreement. If the Nonstatutory Stock Option does not provide for
transferability, then the Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) Vesting Generally. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) Minimum Vesting Prior to the Listing Date. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California Code
of Regulations at the time of the grant of the Option, then:
(i) Options granted prior to the Listing Date to an Employee who is
not an Officer, Director or Consultant shall provide for vesting of the total
number of shares of Common Stock at a rate of at least twenty percent (20%) per
year over five (5) years from the date the Option was granted, subject to
reasonable conditions such as continued employment; and
(ii) Options granted prior to the Listing Date to Officers, Directors
or Consultants may be made fully exercisable, subject to reasonable conditions
such as continued employment, at any time or during any period established by
the Company.
(i) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which period shall not be less than thirty (30) days for Options
granted prior to the Listing Date unless such termination is for cause), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
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<PAGE>
If, after termination, the Optionholder does not exercise his or her Option
within the time specified in the Option Agreement, the Option shall terminate.
(j) Extension of Termination Date. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(k) Disability of Optionholder. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(l) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement, which period shall not be less than six (6) months for
Options granted prior to the Listing Date) or (2) the expiration of the term of
such Option as set forth in the Option Agreement. If, after death, the Option
is not exercised within the time specified herein, the Option shall terminate.
(m) Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Subject to the "Repurchase Limitation" in subsection 10(h), any
unvested shares of Common Stock so purchased may be subject to a repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
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(n) Right of Repurchase. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares of Common Stock acquired by the Optionholder pursuant to the
exercise of the Option.
(o) Right of First Refusal. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares of Common Stock received
upon the exercise of the Option. Except as expressly provided in this subsection
6(o), such right of first refusal shall otherwise comply with any applicable
provisions of the Bylaws of the Company.
(p) Re-Load Options. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares of Common Stock
equal to the number of shares of Common Stock surrendered as part or all of the
exercise price of such Option; (ii) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such Re-
Load Option; and (iii) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the Re-
Load Option on the date of exercise of the original Option. Notwithstanding the
foregoing, a Re-Load Option shall be subject to the same exercise price and term
provisions heretofore described for Options under the Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) Stock Bonus Awards. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
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(i) Consideration. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.
(ii) Vesting. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock awarded under the stock bonus agreement may, but
need not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.
(iii) Termination of Participant's Continuous Service. Subject to the
"Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(iv) Transferability. For a stock bonus award made before the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. For a stock bonus award made on or after the Listing
Date, rights to acquire shares of Common Stock under the stock bonus agreement
shall be transferable by the Participant only upon such terms and conditions as
are set forth in the stock bonus agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the stock bonus agreement
remains subject to the terms of the stock bonus agreement.
(b) Restricted Stock Awards. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) Purchase Price. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the Common Stock's Fair Market Value on the date
such award is made or at the time the purchase is consummated. For restricted
stock awards made on or after the Listing Date, the purchase price shall not be
less than eighty-five percent (85%) of the Common Stock's Fair Market Value on
the date such award is made or at the time the purchase is consummated.
(ii) Consideration. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be
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acceptable to the Board in its discretion; provided, however, that at any time
that the Company is incorporated in Delaware, then payment of the Common Stock's
"par value," as defined in the Delaware General Corporation Law, shall not be
made by deferred payment.
(iii) Vesting. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iv) Termination of Participant's Continuous Service. Subject to the
"Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(v) Transferability. For a restricted stock award made before the
Listing Date, rights to acquire shares of Common Stock under the restricted
stock purchase agreement shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a restricted stock award made on or
after the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.
(c) STOCK APPRECIATION RIGHTS.
(i) Authorized Rights. The following three types of stock
appreciation rights shall be authorized for issuance under the Plan:
(1) Tandem Rights. A "Tandem Right" means a stock appreciation
right granted appurtenant to an Option which is subject to the same terms and
conditions applicable to the particular Option grant to which it pertains with
the following exceptions: The Tandem Right shall require the holder to elect
between the exercise of the underlying Option for shares of Common Stock and the
surrender, in whole or in part, of such Option for an appreciation distribution.
The appreciation distribution payable on the exercised the Tandem Right shall be
in cash (or, if so provided, in an equivalent number of shares of Common Stock
based on Fair Market Value on the date of the Option surrender) in an amount up
to the excess of (A) the Fair Market Value (on the date of the Option surrender)
of the number of shares of Common Stock covered by that portion of the
surrendered Option in which the Optionholder is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) Concurrent Rights. A "Concurrent Right" means a stock
appreciation right granted appurtenant to an Option which applies to all or a
portion of the shares of Common Stock subject to the underlying Option and which
is subject to the same terms and conditions applicable to the particular Option
grant to which it pertains with the following
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exceptions: A Concurrent Right shall be exercised automatically at the same time
the underlying Option is exercised with respect to the particular shares of
Common Stock to which the Concurrent Right pertains. The appreciation
distribution payable on an exercised Concurrent Right shall be in cash (or, if
so provided, in an equivalent number of shares of Common Stock based on Fair
Market Value on the date of the exercise of the Concurrent Right) in an amount
equal to such portion as determined by the Board at the time of the grant of the
excess of (A) the aggregate Fair Market Value (on the date of the exercise of
the Concurrent Right) of the vested shares of Common Stock purchased under the
underlying Option which have Concurrent Rights appurtenant to them over (B) the
aggregate exercise price paid for such shares.
(3) Independent Rights. An "Independent Right" means a stock
appreciation right granted independently of any Option but which is subject to
the same terms and conditions applicable to a Nonstatutory Stock Option with the
following exceptions: An Independent Right shall be denominated in share
equivalents. The appreciation distribution payable on the exercised Independent
Right shall be not greater than an amount equal to the excess of (a) the
aggregate Fair Market Value (on the date of the exercise of the Independent
Right) of a number of shares of Company stock equal to the number of share
equivalents in which the holder is vested under such Independent Right, and with
respect to which the holder is exercising the Independent Right on such date,
over (b) the aggregate Fair Market Value (on the date of the grant of the
Independent Right) of such number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right shall be in cash or, if
so provided, in an equivalent number of shares of Common Stock based on Fair
Market Value on the date of the exercise of the Independent Right.
(ii) Relationship to Options. Stock appreciation rights appurtenant
to Incentive Stock Options may be granted only to Employees. The "Section 162(m)
Limitation" provided in subsection 5(c) and any authority to reprice Options
shall apply as well to the grant of stock appreciation rights.
(iii) Exercise. To exercise any outstanding stock appreciation right,
the holder shall provide written notice of exercise to the Company in compliance
with the provisions of the Stock Award Agreement evidencing such right. Except
as provided in subsection 5(c) regarding the "Section 162(m) Limitation," no
limitation shall exist on the aggregate amount of cash payments that the Company
may make under the Plan in connection with the exercise of a stock appreciation
right.
8. COVENANTS OF THE COMPANY.
(a) Availability of Shares. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to
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register under the Securities Act the Plan, any Stock Award or any Common Stock
issued or issuable pursuant to any such Stock Award. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of Common Stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell Common Stock upon
exercise of such Stock Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) Acceleration of Exercisability and Vesting. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) Stockholder Rights. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) Investment Assurances. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the
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Company who is knowledgeable and experienced in financial and business matters
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (ii) to give written assurances satisfactory to the Company stating that the
Participant is acquiring Common Stock subject to the Stock Award for the
Participant's own account and not with any present intention of selling or
otherwise distributing the Common Stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (iii)
the issuance of the shares of Common Stock upon the exercise or acquisition of
Common Stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (iv) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the Common
Stock.
(f) Withholding Obligations. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the participant as a result of the exercise
or acquisition of Common Stock under the Stock Award in an amount not to exceed
the minimum amount of tax required to be withheld by law; or (iii) delivering to
the Company owned and unencumbered shares of Common Stock.
(g) Information Obligation. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.
(h) Repurchase Limitation. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations at the time a Stock Award is made, any repurchase
option contained in a Stock Award granted prior to the Listing Date to a person
who is not an Officer, Director or Consultant shall be upon the terms described
below:
(i) Fair Market Value. If the repurchase option gives the Company the
right to repurchase the shares of Common Stock upon termination of employment at
not less than the Fair Market Value of the shares of Common Stock to be
purchased on the date of termination of Continuous Service, then (i) the right
to repurchase shall be exercised for cash or cancellation of purchase money
indebtedness for the shares of Common Stock within ninety (90) days of
17
<PAGE>
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Stock Awards after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (ii) the right terminates when the shares
of Common Stock become publicly traded.
(ii) Original Purchase Price. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination of
Continuous Service at the original purchase price, then (i) the right to
repurchase at the original purchase price shall lapse at the rate of at least
twenty percent (20%) of the shares of Common Stock per year over five (5) years
from the date the Stock Award is granted (without respect to the date the Stock
Award was exercised or became exercisable) and (ii) the right to repurchase
shall be exercised for cash or cancellation of purchase money indebtedness for
the shares of Common Stock within ninety (90) days of termination of Continuous
Service (or in the case of shares of Common Stock issued upon exercise of
Options after such date of termination, within ninety (90) days after the date
of the exercise) or such longer period as may be agreed to by the Company and
the Participant (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code regarding "qualified small business stock").
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) Capitalization Adjustments. If any change is made in the Common Stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), then (i) the Plan will be
appropriately adjusted in the class(es) and maximum number of securities subject
to the Plan pursuant to subsection 4(a)(i), the maximum number of securities
that are available for issuance as Incentive Stock Options pursuant to
subsection 4(a)(ii), and the maximum number of securities subject to award to
any employee pursuant to subsection 5(c), and (ii) the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of securities and
price per share of Common Stock subject to such outstanding Stock Awards. The
Board shall make such adjustments, and its determination shall be final, binding
and conclusive. (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration" by the
Company.)
(b) Change in Control. In the event of: (1) a merger or consolidation in
which the Company is not the surviving corporation or (2) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; (3) the transfer by any person, entity or group within the
meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate of
18
<PAGE>
the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, or (4) a transaction or
series of related transactions involving the sale of all or substantially all of
the Company's assets then to the extent not prohibited by applicable law: then
(i) any surviving or acquiring corporation shall assume any Awards outstanding
under the Plan or shall substitute similar Awards (including an option to
acquire the same consideration paid to the stockholders in the transaction
described in this subsection 11(b)) for those outstanding under the Plan), or
(ii) such Awards shall continue in full force and effect. In the event any
surviving or acquiring corporation refuses to assume such Awards, or to
substitute similar awards for those outstanding under the Plan, then such Awards
shall be terminated if not exercised prior to such event. In the event of a
dissolution or liquidation of the Company, any Awards outstanding under the Plan
shall terminate if not exercised prior to such event.
(c) Acceleration of Vesting and Exercisability. In the event of any
transaction described in subsection 11(b)(other than a merger or consolidation
for the purpose of a change in domicile) and subject to any limitation set forth
in an Award, with respect to Awards held by persons whose Continuous Service has
not terminated, with respect to twenty-five percent (25%) of the shares for
which such Awards are not vested and/or exercisable as of the date immediately
prior to such transaction, the time at which such portion of the shares issuable
or issued under such Awards are vested and/or first exercisable shall be
automatically be accelerated prior to such transaction.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) Contemplated Amendments. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) No Impairment of Rights. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
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<PAGE>
(e) Amendment of Stock Awards. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) No Impairment of Rights. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
unless and until the Plan has been approved by the stockholders of the Company,
which approval shall be within twelve (12) months before or after the date the
Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state's conflict of laws rules.
20
<PAGE>
Exhibit 10.2 Related Document
NONSTATUTORY STOCK OPTION
___________, Optionee:
Alteon WebSystems. Inc. (the "Company"), pursuant to its 1999 Equity
Incentive Plan (the "Plan"), has granted to you, the Optionholder named above,
an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is not intended to qualify as and will not be treated as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"). Defined terms not
explicitly defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. Total Number Of Shares Subject To This Option. The total number of
shares of Common Stock subject to this option is _________
2. Vesting. Vesting Commencement Date is ___________. Subject to the
limitations contained herein, one-forty-eighth (1/48) of such option shares
shall vest in equal installments over the forty-eight months following the
Vesting Commencement Date indicated above until either (i) you cease to provide
services to the Company for any reason, or (ii) this option becomes fully
vested.
3. Exercise Price And Method Of Payment.
(a) Exercise Price. The exercise price of this option is ________ per
share, being not less than the fair market value of the Common Stock on the date
of grant of this option.
(b) Method of Payment. Payment of the exercise price per share is due
in full upon exercise of all or any part of each installment which has accrued
to you. You may
1.
<PAGE>
elect, to the extent permitted by applicable statutes and regulations, to make
payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds; or
(iii) Payment by a combination of the methods of payment
permitted by subparagraph 3(b)(i) through 3(b)(ii) above.
4. Exercise Prior To Vesting Permitted.
(a) Conditions of Early Exercise. Subject to the provisions of this
option you may elect at any time during your Continuous Service, to exercise the
option as to any part or all of the shares subject to this option at any time
during the term hereof, including without limitation, a time prior to the date
of earliest exercise ("vesting") stated in paragraph 2 hereof; provided,
however, that:
(i) a partial exercise of this option shall be deemed to cover
first vested shares and then the earliest vesting installment of unvested
shares;
(ii) any shares so purchased from installments which have not
vested as of the date of exercise shall be subject to the purchase option in
favor of the Company as described in the Early Exercise Stock Purchase Agreement
attached hereto; and
(iii) you shall enter into an Early Exercise Stock Purchase
Agreement in the form attached hereto with a vesting schedule that will result
in the same vesting as if no early exercise had occurred.
(b) Expiration of Early Exercise Election. The election provided in
this paragraph 4 to purchase shares upon the exercise of this option prior to
the vesting dates shall cease upon termination of your Continuous Service and
may not be exercised after the date thereof.
2.
<PAGE>
5. Whole Shares. This option may not be exercised for any number of
shares that would require the issuance of anything other than whole shares.
6. Securities Law Compliance. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act.
7. Term. The term of this option commences on _________________ , the
date of grant, and expires on ________________ (the "Expiration Date," which
date shall be no more than ten (10) years from date this option is granted),
unless this option expires sooner as set forth below or in the Plan. In no
event may this option be exercised on or after the Expiration Date. This option
shall terminate prior to the Expiration Date thirty (30) days after the
termination of your Continuous Service unless one of the following circumstances
exists:
(a) Your termination of Continuous Service is due to your disability.
This option will then expire on the earlier of the Expiration Date set forth
above or twelve (12) months following such termination of Continuous Service.
(b) Your termination of Continuous Service is due to your death or
your death occurs within thirty (30) days following your termination of
Continuous Service for any other reason. This option will then expire on the
earlier of the Expiration Date set forth above or eighteen (18) months after
your death.
(c) During any part of such thirty (30) day period the option is not
exercisable solely because of the condition set forth in paragraph 6 above, in
which event the option shall not expire until the earlier of the Expiration Date
set forth above or until it shall have been exercisable for an aggregate period
of thirty (30) days after the termination of Continuous Service.
3.
<PAGE>
However, this option may be exercised following termination of Continuous
Service only as to that number of shares as to which it was exercisable on the
date of termination of Continuous Service under the provisions of paragraph 2 of
this option.
8. Exercise.
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subsection
10(e) of the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise of this
option, the Company may require you to enter an arrangement providing for the
payment by you to the Company of any tax withholding obligation of the Company
arising by reason of (1) the exercise of this option; (2) the lapse of any
substantial risk of forfeiture to which the shares are subject at the time of
exercise; or (3) the disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of this option that occurs within two (2) years after the
date of this option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. You further agree that the Company
may impose stop-
4.
<PAGE>
transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
9. Transferability. This option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise this
option.
10. Right Of First Refusal. Vested shares that are received by exercise
of this option are subject to a right of first refusal, as described in the
Company's bylaws in effect at each time the Company may elect to exercise its
right, except to the extent this right is limited by applicable securities laws.
The Company's right of first refusal shall expire on the date of the first
securities registration of an equity security of the Company under Section 12 of
the Securities Exchange Act of 1934, as amended, to repurchase all or any part
of the vested shares received pursuant to the exercise of this option.
11. Option Not A Service Contract. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
12. Notices. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
13. Governing Plan Document. This option is subject to all the provisions
of the Plan, a copy of which is attached hereto and its provisions are hereby
made a part of this option, including without limitation the provisions of
Section 6 of the Plan relating to option provisions, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the
provisions of the Plan shall control. The Optionholder and the Company hereby
agree that the provisions of Section 10(c) of the Plan shall not apply to this
option.
5.
<PAGE>
Dated the _____ day of ___________, ____
Very truly yours,
Alteon WebSystems, Inc.
By_______________________________
Duly authorized on behalf
of the Board of Directors
Attachments:
Alteon WebSystems, Inc. 1999 Equity Incentive Plan
Early Exercise Stock Purchase Agreement
Notice of Exercise
6.
<PAGE>
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets forth
the entire understanding between the undersigned Optionholder and the Company
and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
None ______________
(Initial)
Other ____________________________
____________________________
____________________________
____________________________________
Optionholder
Address:____________________________
____________________________
7.
<PAGE>
10.2 Related Document
INCENTIVE STOCK OPTION
((name)), Optionee:
Alteon WebSystems, Inc. (the "Company"), pursuant to its 1999 Equity
Incentive Plan (the "Plan"), has granted to you, the Optionholder named above,
an option to purchase shares of the common stock of the Company ("Common
Stock"). This option is intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
The grant hereunder is in connection with and in furtherance of the
Company's compensatory benefit plan for participation of the Company's employees
(including officers), directors or consultants and is intended to comply with
the provisions of Rule 701 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"). Defined terms not
explicitly defined in this agreement but defined in the Plan shall have the same
definitions as in the Plan.
The details of your option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number
of shares of Common Stock subject to this option is ((shares)).
2. VESTING. This option shall be fully vested and exercisable as of
the date of grant.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this option is
((price)) per share, being not less than the fair market value of the Common
Stock on the date of grant of this option.
(b) METHOD OF PAYMENT. Payment of the exercise price per share is
due in full upon exercise of all or any part of each installment which has
accrued to you. You may elect, to the extent permitted by applicable statutes
and regulations, to make payment of the exercise price under one of the
following alternatives:
1.
<PAGE>
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T
as promulgated by the Federal Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of cash (or check) by the Company or
the receipt of irrevocable instructions to pay the aggregate exercise price to
the Company from the sales proceeds; or
(iii) Provided that the option exercise price for the
installment, or portion thereof, being purchased exceeds one thousand dollars
($1,000), payment pursuant to the deferred payment alternative as described in
paragraph 3(c) hereof; or
(iv) Payment by a combination of the methods of payment
permitted by subparagraph 3(b)(i) through 3(b)(iii) above.
(c) Conditions of Deferred Payment. In the event that you elect to
make payment of the exercise price pursuant to the deferred payment alternative:
(i) 100% of the aggregate exercise price shall be due three (3)
years from the date of exercise or, at the Company's election, upon termination
of your Continuous Service;
(ii) Interest shall be payable at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any portion of any
amounts other than amounts stated to be interest under the deferred payment
arrangement; and
(iii) In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the Company so requests, you must
tender to the Company a promissory note and a security agreement covering the
purchased shares, both in form and substance satisfactory to the Company, or
such other or additional documentation as the Company may request.
4. EXERCISE PRIOR TO VESTING PERMITTED.
(a) Conditions of Early Exercise. Subject to the provisions of this
option you may elect at any time during your Continuous Service, to exercise the
option as to any part or all of the shares subject to this option at any time
during the term hereof, including without limitation, a time prior to the date
of earliest exercise ("vesting") stated in paragraph 2 hereof; provided,
however, that:
(i) a partial exercise of this option shall be deemed to cover
first vested shares and then the earliest vesting installment of unvested
shares;
2.
<PAGE>
(ii) any shares so purchased from installments which have not
vested as of the date of exercise shall be subject to the purchase option in
favor of the Company as described in the Early Exercise Stock Purchase Agreement
attached hereto; and
(iii) you shall enter into an Early Exercise Stock Purchase
Agreement in the form attached hereto with a vesting schedule that will result
in the same vesting as if no early exercise had occurred; and
(b) Expiration of Early Exercise Election. The election provided in
this paragraph 4 to purchase shares upon the exercise of this option prior to
the vesting dates shall cease upon termination of your Continuous Service and
may not be exercised after the date thereof.
5. WHOLE SHARES. This option may not be exercised for any number of
shares which would require the issuance of anything other than whole shares.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, this option may not be exercised unless the shares issuable
upon exercise of this option are then registered under the Act or, if such
shares are not then so registered, the Company has determined that such exercise
and issuance would be exempt from the registration requirements of the Act.
7. TERM. The term of this option commences on ((grantdate)) , the date of
grant, and expires on ((termdate)) (the "Expiration Date," which date shall be
no more than ten (10) years from date this option is granted), unless this
option expires sooner as set forth below or in the Plan. In no event may this
option be exercised on or after the Expiration Date. This option shall terminate
prior to the Expiration Date thirty (30) days after the termination of your
Continuous Status as an Employee, Director or Consultant unless one of the
following circumstances exists:
(a) Your termination of Continuous Service is due to your disability.
This option will then expire on the earlier of the Expiration Date set forth
above or twelve (12) months following such termination of Continuous Service.
You should be aware that if your disability is not considered a permanent and
total disability within the meaning of Section 422(c)(6) of the Code, and you
exercise this option more than three (3) months following the date of your
termination of employment, your exercise will be treated for tax purposes as the
exercise of a "nonstatutory stock option" instead of an "incentive stock
option."
(b) Your termination of Continuous Service is due to your death or
your death occurs within thirty (30) days following your termination of
Continuous Service for any other reason. This option will then expire on the
earlier of the Expiration Date set forth above or eighteen (18) months after
your death; or
(c) During any part of such thirty (30) day period the option is not
exercisable solely because of the condition set forth in paragraph 6 above, in
which event the option shall not expire until
3.
<PAGE>
the earlier of the Expiration Date set forth above or until it shall have been
exercisable for an aggregate period of thirty (30) days after the termination of
Continuous Service.
However, this option may be exercised following termination of Continuous
Service only as to that number of shares as to which it was exercisable on the
date of termination of Continuous Status as an Employee, Director or Consultant
under the provisions of paragraph 2 of this option.
In order to obtain the federal income tax advantages associated with an
"incentive stock option," the Code requires that at all times beginning on the
date of grant of the option and ending on the day three (3) months before the
date of the option's exercise, you must be an employee of the Company or an
Affiliate of the Company, except in the event of your death or permanent and
total disability. The Company has provided for continued vesting or extended
exercisability of your option under certain circumstances for your benefit, but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you provide services to the Company or an Affiliate of the
Company as a consultant or exercise your option more than three (3) months after
the date your employment with the Company and all Affiliates of the Company
terminates.
8. EXERCISE.
(a) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subsection
10(e) of the Plan.
(b) By exercising this option you agree that:
(i) as a precondition to the completion of any exercise of this
option, the Company may require you to enter an arrangement providing for the
payment by you to the Company of any tax withholding obligation of the Company
arising by reason of (1) the exercise of this option; (2) the lapse of any
substantial risk of forfeiture to which the shares are subject at the time of
exercise; or (3) the disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of this option that occurs within two (2) years after the
date of this option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of this option; and
4.
<PAGE>
(iii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters. You further agree that the Company
may impose stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such period.
9. TRANSFERABILITY. This option is not transferable, except by will or by
the laws of descent and distribution, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise this
option.
10. RIGHT OF FIRST REFUSAL. Vested shares that are received by exercise of
this option are subject to a right of first refusal, as described in the
Company's bylaws in effect at each time the Company may elect to exercise its
right, except to the extent this right is limited by applicable securities laws.
The Company's right of first refusal shall expire on the date of the first
registration of an equity security of the Company under Section 12 of the
Securities Exchange Act, of 1934, as amended, to repurchase all or any part of
the vested shares received pursuant to the exercise of this option.
11. OPTION NOT A SERVICE CONTRACT. This option is not an employment
contract and nothing in this option shall be deemed to create in any way
whatsoever any obligation on your part to continue in the employ of the Company,
or of the Company to continue your employment with the Company. In addition,
nothing in this option shall obligate the Company or any Affiliate of the
Company, or their respective shareholders, Board of Directors, officers or
employees to continue any relationship which you might have as a Director or
Consultant for the Company or Affiliate of the Company.
12. NOTICES. Any notices provided for in this option or the Plan shall be
given in writing and shall be deemed effectively given upon receipt or, in the
case of notices delivered by the Company to you, five (5) days after deposit in
the United States mail, postage prepaid, addressed to you at the address
specified below or at such other address as you hereafter designate by written
notice to the Company.
5.
<PAGE>
13. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions
of the Plan, a copy of which is attached hereto and its provisions are hereby
made a part of this option, including without limitation the provisions of
Section 6 of the Plan relating to option provisions, and is further subject to
all interpretations, amendments, rules and regulations which may from time to
time be promulgated and adopted pursuant to the Plan. In the event of any
conflict between the provisions of this option and those of the Plan, the
provisions of the Plan shall control.
Dated the _____ day of ________, 1999_.
Very truly yours,
ALTEON WEBSYSTEMS, INC.
By__________________________
Duly authorized on behalf
of the Board of Directors
ATTACHMENTS:
Alteon WebSystems, Inc. 1999 Equity Incentive Plan
Early Exercise Stock Purchase Agreement
Notice of Exercise
6.
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The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments
referenced therein and understands that all rights and liabilities with respect
to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned Optionholder and the
Company and its Affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of (i) the options previously granted and delivered to the undersigned
under stock option plans of the Company, and (ii) the following agreements only:
NONE __________________
(Initial)
OTHER ___________________________
___________________________
___________________________
______________________________________
((Name))
Address: _____________________________
_____________________________
7.
<PAGE>
EXHIBIT 10.3
ALTEON WEBSYSTEMS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY BOARD OF DIRECTORS JUNE 15, 1999
ADJUSTED FOR 3-FOR-2 STOCK SPLIT ON JUNE 28, 1999
APPROVED BY STOCKHOLDERS _______________ , 1999
TERMINATION DATE: NONE
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.
(c) The Company intends that the Rights to purchase Shares granted under
the Plan be considered options issued under an "employee stock purchase plan,"
as that term is defined in Section 423(b) of the Code.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the United States Internal Revenue Code of 1986, as
amended.
(d) "Committee" means a Committee appointed by the Board in accordance
with subparagraph 3(c) of the Plan.
(e) "Company" means Alteon WebSystems, Inc., a Delaware corporation.
(f) "Director" means a member of the Board.
(g) "Eligible Employee" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.
(h) "Employee" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.
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(i) "Employee Stock Purchase Plan" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.
(j) "Exchange Act" means the United States Securities Exchange Act of
1934, as amended.
(k) "Fair Market Value" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
trading day prior to the relevant determination date, as reported in The Wall
Street Journal or such other source as the Board deems reliable.
(l) "Non-Employee Director" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-
employee director" for purposes of Rule 16b-3.
(m) "Offering" means the grant of Rights to purchase Shares under the Plan
to Eligible Employees.
(n) "Offering Date" means a date selected by the Board for an Offering to
commence.
(o) "Outside Director" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(p) "Participant" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.
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(q) "Plan" means this 1999 Employee Stock Purchase Plan.
(r) "Purchase Date" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.
(s) "Right" means an option to purchase Shares granted pursuant to the
Plan.
(t) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(u) "Securities Act" means the United States Securities Act of 1933, as
amended.
(v) "Share" means a share of the common stock of the Company.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how Rights to purchase Shares shall be
granted and the provisions of each Offering of such Rights (which need not be
identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Rights granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 14.
(v) Generally, to exercise such powers and to perform such acts as
it deems necessary or expedient to promote the best interests of the Company and
its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.
(C) The Board may delegate administration of the Plan to a Committee of
the Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors and/or
Outside Directors. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the
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Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 13 relating to adjustments upon
changes in securities, the Shares that may be sold pursuant to Rights granted
under the Plan shall not exceed in the aggregate One Million Five Hundred
Thousand (1,500,000) Shares. If any Right granted under the Plan shall for any
reason terminates without having been exercised, the Shares not purchased under
such Right shall again become available for the Plan.
(b) The aggregate number of Shares that may be sold pursuant to Rights
granted under the Plan as specified in paragraph 4(a) hereof automatically shall
be increased as follows:
(i) For a period of ten (10) years, on the last day of each fiscal
year of the Company (the "Calculation Date"), commencing on June 30, 2000 and
ending on June 30, 2009, the aggregate number of Shares specified in paragraph
4(a) hereof shall be increased by the greater of (1) that number of Shares equal
to one percent (1%) of the Diluted Shares Outstanding or (2) that number of
Shares that have been sold pursuant to Rights granted under the Plan in the
prior 12-month period; provided, however, that the maximum aggregate number of
Shares that may be sold pursuant to Rights granted under the Plan shall not
increase by more than Twenty-four Million (24,000,000) Shares during said 10-
year period.
(ii) For purposes of paragraph 4(b)(i) hereof, "Diluted Shares
Outstanding" shall mean, as of any date, (1) the number of outstanding Shares on
such Calculation Date, plus (2) the number of Shares issuable upon such
Calculation Date assuming the conversion of all outstanding Preferred Stock and
convertible notes, plus (3) the additional number of dilutive Common Stock
equivalent shares outstanding as the result of any options or warrants
outstanding during the fiscal year, calculated using the treasury stock method.
(c) The Shares subject to the Plan may be unissued Shares or Shares that
have been bought on the open market at prevailing market prices or otherwise.
5. GRANT OF RIGHTS; OFFERING.
(a) The Board may from time to time grant or provide for the grant of
Rights to purchase Shares of the Company under the Plan to Eligible Employees in
an Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all Employees granted Rights to purchase Shares under
the Plan shall have the same rights and privileges. The terms and conditions of
an
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Offering shall be incorporated by reference into the Plan and treated as part of
the Plan. The provisions of separate Offerings need not be identical, but each
Offering shall include (through incorporation of the provisions of this Plan by
reference in the document comprising the Offering or otherwise) the period
during which the Offering shall be effective, which period shall not exceed
twenty-seven (27) months beginning with the Offering Date, and the substance of
the provisions contained in paragraphs 6 through 9, inclusive.
(b) If a Participant has more than one Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an earlier-
granted Right (or a Right with a lower exercise price, if two Rights have
identical grant dates) will be exercised to the fullest possible extent before a
later-granted Right (or a Right with a higher exercise price if two Rights have
identical grant dates) will be exercised.
6. ELIGIBILITY.
(a) Rights may be granted only to Employees of the Company or, as the
Board may designated as provided in subparagraph 3(b), to Employees of an
Affiliate. Except as provided in subparagraph 6(b), an Employee shall not be
eligible to be granted Rights under the Plan unless, on the Offering Date, such
Employee has been in the employ of the Company or the Affiliate, as the case may
be, for such continuous period preceding such grant as the Board may require,
but in no event shall the required period of continuous employment be equal to
or greater than two (2) years.
(b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Right under that
Offering, which Right shall thereafter be deemed to be a part of that Offering.
Such Right shall have the same characteristics as any Rights originally granted
under that Offering, as described herein, except that:
(i) the date on which such Right is granted shall be the "Offering
Date" of such Right for all purposes, including determination of the exercise
price of such Right;
(ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.
(C) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 6(c), the rules of Section 424(d)
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<PAGE>
of the Code shall apply in determining the stock ownership of any Employee, and
stock which such Employee may purchase under all outstanding rights and options
shall be treated as stock owned by such Employee.
(d) An Eligible Employee may be granted Rights under the Plan only if such
Rights, together with any other Rights granted under all Employee Stock Purchase
Plans of the Company and any Affiliates, as specified by Section 423(b)(8) of
the Code, do not permit such Eligible Employee's rights to purchase Shares of
the Company or any Affiliate to accrue at a rate which exceeds twenty five
thousand dollars ($25,000) of the fair market value of such Shares (determined
at the time such Rights are granted) for each calendar year in which such Rights
are outstanding at any time.
(e) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
7. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each Eligible Employee, pursuant to an Offering
made under the Plan, shall be granted the Right to purchase up to the number of
Shares purchasable either:
(i) with a percentage designated by the Board not exceeding fifteen
percent (15%) of such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering; or
(ii) with a maximum dollar amount designated by the Board that, as the
Board determines for a particular Offering, (1) shall be withheld, in whole or
in part, from such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.
(b) The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and purchases
of Shares carried out in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Board may
specify a maximum amount of Shares that may be purchased by any Participant as
well as a maximum aggregate amount of Shares that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate amount of Shares which may be purchased by all Participants on
any given Purchase Date under the Offering. If the aggregate purchase of Shares
upon exercise of Rights granted under the Offering would exceed any such maximum
aggregate
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amount, the Board shall make a pro rata allocation of the Shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(d) The purchase price of Shares acquired pursuant to Rights granted under
the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the Shares on the Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An Eligible Employee may become a Participant in the Plan pursuant to
an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's Earnings during the Offering (as
defined in each Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant under the Plan
and either may be deposited with the general funds of the Company or may be
deposited in a separate account in the name of, and for the benefit of, such
Participant with a financial institution designated by the Company. To the
extent provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A Participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the Participant
has not already had the maximum permitted amount withheld during the Offering.
(b) At any time during an Offering, a Participant may terminate his or her
payroll deductions under the Plan and withdraw from the Offering by delivering
to the Company a notice of withdrawal in such form as the Company provides.
Such withdrawal may be elected at any time prior to the end of the Offering
except as provided by the Board in the Offering. Upon such withdrawal from the
Offering by a Participant, the Company shall distribute to such Participant all
of his or her accumulated payroll deductions (reduced to the extent, if any,
such deductions have been used to acquire Shares for the Participant) under the
Offering, without interest unless otherwise specified in the Offering, and such
Participant's interest in that Offering shall be automatically terminated. A
Participant's withdrawal from an Offering will have no effect upon such
Participant's eligibility to participate in any other Offerings under the Plan
but such Participant will be required to deliver a new participation agreement
in order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall terminate
immediately upon cessation of any participating Employee's employment with the
Company or a designated Affiliate for any reason (subject to any post-employment
participation period required by law) or other lack of eligibility. The Company
shall distribute to such terminated Employee
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all of his or her accumulated payroll deductions (reduced to the extent, if any,
such deductions have been used to acquire Shares for the terminated Employee)
under the Offering, without interest unless otherwise specified in the Offering.
If the accumulated payroll deductions have been deposited with the Company's
general funds, then the distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions have been
deposited in a separate account with a financial institution as provided in
subparagraph 8(a), then the distribution shall be made from the separate
account, without interest unless otherwise specified in the Offering.
(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided in paragraph 15 and, otherwise during
his or her lifetime, shall be exercisable only by the person to whom such Rights
are granted.
9. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of Shares up to the maximum amount of Shares
permitted pursuant to the terms of the Plan and the applicable Offering, at the
purchase price specified in the Offering. No fractional Shares shall be issued
upon the exercise of Rights granted under the Plan unless specifically provided
for in the Offering.
(b) Unless otherwise specifically provided in the Offering, the amount, if
any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of Shares that is equal to the amount required to purchase
one or more whole Shares on the final Purchase Date of the Offering shall be
distributed in full to the Participant at the end of the Offering, without
interest. If the accumulated payroll deductions have been deposited with the
Company's general funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated payroll deductions
have been deposited in a separate account with a financial institution as
provided in subparagraph 8(a), then the distribution shall be made from the
separate account, without interest unless otherwise specified in the Offering.
(c) No Rights granted under the Plan may be exercised to any extent unless
the Shares to be issued upon such exercise under the Plan (including Rights
granted thereunder) are covered by an effective registration statement pursuant
to the Securities Act and the Plan is in material compliance with all applicable
state, foreign and other securities and other laws applicable to the Plan. If on
a Purchase Date in any Offering hereunder the Plan is not so registered or in
such compliance, no Rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until
the Plan is subject to such an effective registration statement and such
compliance, except that the Purchase Date shall not be delayed more than twelve
(12) months and the Purchase Date shall in no event be more than twenty-seven
(27) months from the Offering Date. If, on the Purchase Date of any Offering
hereunder, as delayed to the maximum extent permissible, the Plan is not
registered and
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in such compliance, no Rights granted under the Plan or any Offering shall be
exercised and all payroll deductions accumulated during the Offering (reduced to
the extent, if any, such deductions have been used to acquire Shares) shall be
distributed to the Participants, without interest unless otherwise specified in
the Offering. If the accumulated payroll deductions have been deposited with the
Company's general funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated payroll deductions
have been deposited in a separate account with a financial institution as
provided in subparagraph 8(a), then the distribution shall be made from the
separate account, without interest unless otherwise specified in the Offering.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the amount of Shares required to satisfy such Rights are
available.
(b) The Company shall seek to obtain from each federal, state, foreign or
other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Shares under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Rights unless and until
such authority is obtained.
11. USE OF PROCEEDS FROM SHARES.
Proceeds from the sale of Shares pursuant to Rights granted under the Plan
shall constitute general funds of the Company.
12. RIGHTS AS A STOCKHOLDER.
A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, Shares subject to Rights granted under
the Plan unless and until the Participant's Shares acquired upon exercise of
Rights under the Plan are recorded in the books of the Company.
13. ADJUSTMENTS UPON CHANGES IN SECURITIES.
(a) If any change is made in the Shares subject to the Plan, or subject to
any Right, without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), then (i) the Plan will be appropriately adjusted in the class(es) and
maximum number of Shares subject to the Plan pursuant to subparagraph 4(a) and
subject to the limitation on the aggregate increase in the number of Shares
subject to the Plan pursuant to subparagraph 4(b)(i), and (ii) the outstanding
Rights will be appropriately adjusted in the class(es), number of Shares
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and purchase limits of such outstanding Rights. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a transaction that does not involve the receipt of consideration by the
Company.)
(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the Shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then: (1)
any surviving or acquiring corporation shall assume Rights outstanding under the
Plan or shall substitute similar rights (including a right to acquire the same
consideration paid to Stockholders in the transaction described in this
subparagraph 13(b)) for those outstanding under the Plan, or (2) in the event
any surviving or acquiring corporation refuses to assume such Rights or to
substitute similar rights for those outstanding under the Plan, then, as
determined by the Board in its sole discretion such Rights may continue in full
force and effect or the Participants' accumulated payroll deductions (exclusive
of any accumulated interest which cannot be applied toward the purchase of
Shares under the terms of the Offering) may be used to purchase Shares
immediately prior to the transaction described above under the ongoing Offering
and the Participants' Rights under the ongoing Offering thereafter terminated.
14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:
(i) Increase the amount of Shares reserved for Rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in the
Plan to the extent such modification requires stockholder approval in order for
the Plan to obtain employee stock purchase plan treatment under Section 423 of
the Code or to comply with the requirements of Rule 16b-3; or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
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(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.
(c) Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.
15. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who is
to receive any Shares and/or cash, if any, from the Participant's account under
the Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.
(b) The Participant may change such designation of beneficiary at any time
by written notice. In the event of the death of a Participant and in the absence
of a beneficiary validly designated under the Plan who is living at the time of
such Participant's death, the Company shall deliver such Shares and/or cash to
the executor or administrator of the estate of the Participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its sole discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the Participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the Shares subject to the Plan's reserve, as increased and/or adjusted from time
to time, have been issued under the terms of the Plan. No Rights may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.
-11-
<PAGE>
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Rights
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted by the Board, which date may be prior to the
effective date set by the Board.
-12-
<PAGE>
Exhibit 10.4
License and Stock Purchase Agreement
This Agreement is between Essential Communications Corporation, a
corporation ("Essential"), and Acteon Networks, Inc. a Delaware corporation
("Acteon"). This Agreement is effective as of April 19, 1996 (the "Effective
Date").
Recitals
A. Essential owns or has the right to license certain Technology (as
defined below) relating to network interface adapters.
B. Acteon is in the business of designing, developing and distributing
network communication products and desires to license the Technology from
Essential pursuant to the terms of this Agreement.
C. Essential desires to provide such license to the Technology to Acteon
in exchange for shares of Acteon's capital stock pursuant to the terms and
conditions of this Agreement.
Agreement
1. Definitions.
1.1 "ASIC" means Application Specific Integrated Circuit, a customized
operative combination of electronic circuit elements interconnected on or within
a continuous substrate to perform a desired electronic function.
1.2 "Acteon Products" means any products that incorporate, are based upon
or otherwise use the Technology; provided (i) that such products incorporate,
are based upon or otherwise use the Technology only in combination with a
material amount of additional software code, hardware or technology developed by
or on behalf of Acteon, such that the Acteon products licensed hereunder are not
comprised solely of or substantially completely of the Technology provided or
licensed to Acteon hereunder, and (ii) that such products do not comply with
HIPPI Serial Standard.
1.3 "HIPPI-Serial Standard" means High-Performance Parallel Interface-
Serial Specification, a standard currently defined within the American National
Standards Institute (ANSI) X3 Committee by a working document referred to as
X3T11/Project 1117-D/Rev 2.2, including any future revisions of such working
document.
1.4 "Roadrunner ASIC" means the ASIC currently sold by Essential (Part No.
93-0032) and used to implement a network interface card with a HIPPI-Serial
interface and a PCI bus host interface.
1.5 "Technology" means all technical and non-technical information, data,
specifications, hardware, schematics, firmware, software or other materials
listed on Exhibit A attached hereto, and all trade secrets, copyrights, mask
works, patents, know-how and other intellectual property rights therein, related
thereto or based upon or incorporating such materials.
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2. License.
2.1 License Grant. Subject to and in consideration of the terms and
conditions hereof, Essential hereby grants to Acteon a non-exclusive, worldwide,
perpetual and royalty-free license to use, have used, make, have made, offer to
sell and sell (including, without limitation, sales for resale or licenses of
Acteon Products for sublicense to value-added resellers, original equipment
manufacturers or other third parties), Acteon Products (defined at Section 1.2,
above), which incorporate, are based upon, or which otherwise use all or any
portion of the Technology, and to reproduce, make derivative works of and
distribute (including, without limitation, distribution for redistribution or
licenses of Acteon Products for sublicense to value-added resellers original
equipment manufacturers or other third parties), any software or other materials
or information incorporated therein. All rights not expressly granted to Acteon
hereunder are reserved by Essential. Acteon acknowledges and agrees that the
foregoing license grant conveys no ownership interest in or in the Technology to
Acteon and that, except for the license grant, Essential retains all right,
title and interest in and to the Technology. The license granted hereunder may
not be assigned, by operation of law or otherwise, without the prior written
consent of Essential except in a sale of all or substantially all the assets of
Acteon or a merger or other reorganization in which Essential has had an
opportunity to receive stock or other consideration for stock it holds in
Acteon. Acteon agrees that it will not assert any patent infringement claim
against Essential, or (with respect to Essential products) against Essential's
customers or licensees, that Essential products based on the Technology infringe
any patent rights of Acteon, unless such Essential products contain patented
material of Acteon which material is separate from the Technology. Essential
agrees that it will not assert any patent infringement claim against Acteon, or
(with respect to Acteon Products) against Acteon's customers or licensees, that
Acteon Products based on the Technology infringe any patent rights of Essential,
unless such Acteon Products contain patented material of Essential which
material is separate from the Technology.
2.2 Delivery of Materials. Contemporaneously with the execution of this
Agreement, Essential shall deliver to Acteon all the information or materials
set forth on Exhibit A.
2.3 Termination of License. Notwithstanding Section 2.1, in the event that
on or before April 1, 1997 (i) the Company has not received capital in the
aggregate amount of at least $1,000,000 through equity investments (a
"Substantial Investment"), or (ii) this license is assigned in connection with a
sale of assets or a merger or other reorganization in which aggregate
consideration to Acteon or its stockholders is not less than $2,000,000, Acteon
shall notify Essential of such event, and Essential shall have the option,
exercisable within thirty (30) days of such notice, to terminate this Agreement
and the license granted pursuant to Section 2.1, in exchange for the return of
the Shares purchased pursuant to Section 3.
3. Purchase And Sale Of Stock; Related Agreements.
3.1 Purchase and Sale. In consideration of the license granted in Section
2, Acteon agrees to sell to Essential and Essential agrees to purchase from
Acteon contemporaneously with the execution of this Agreement, five hundred
thirteen thousand eight hundred thirty shares (513,830) shares of Common Stock
of Acteon (the "Shares") at a purchase price which the
2
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parties agree is $.01 per share, and Acteon will deliver to Essential a
certificate representing the Shares against delivery of all the Technology by
Essential.
3.2 Right of First Refusal. Essential shall have a right of first refusal
to purchase its pro rata share of all Equity Securities, as defined below, that
Acteon may, from time to time, propose to sell and issue after the date of this
Agreement, other than the Equity Securities excluded by Section 3.2.3 hereof.
Essential's pro rata share is equal to the ratio of (A) the number of shares of
Acteon's Common Stock (including all shares of Common Stock issued or issuable
upon conversion of any shares of Preferred Stock held by Essential) which
Essential is deemed to be a holder immediately prior to the issuance of such
Equity Securities to (B) the total number of shares of Acteon's outstanding
Common Stock (including all shares of Common Stock issued or issuable upon
conversion of Preferred Stock or upon the exercise of any outstanding warrants
or options) immediately prior to the issuance of the Equity Securities. The term
"Equity Securities" shall mean (i) any Common Stock, Preferred Stock or other
equity security of Acteon, (ii) any security convertible, with or without
consideration, into any Common Stock, Preferred Stock or other equity security
(including any option to purchase such a convertible security), (iii) any
security carrying any warrant or right to subscribe to or purchase any Common
Stock, Preferred Stock or other security or (iv) any such warrant or right.
3.2.1 Exercise of Rights. Prior to, or not later than thirty (30)
days after, the issuance by Acteon of any Equity Securities, it shall give
Essential written notice of such act or intention, describing the Equity
Securities, the price and the terms and conditions upon which Acteon proposes to
issue or has issued the same. Essential shall have thirty (30) days from the
giving of such notice to agree to purchase its pro rata share of the Equity
Securities for the price and upon the terms and conditions specified in the
notice by giving written notice to Acteon and stating therein the quantity of
Equity Securities to be purchased.
3.2.2 Termination of Rights of First Refusal. The rights of first
refusal established by this Section 3.2 shall not apply to, and shall terminate
upon the effective date of the registration statement pertaining to Acteon's
initial public offering of its capital stock.
3.2.3 Excluded Securities. The right of first refusal established by
this Section 3.2 shall have no application to any of the following Equity
Securities:
(a) shares of Common Stock (and/or options, warrants or other
Common Stock purchase rights issued pursuant to such options, warrants or other
rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to Acteon or any subsidiary, pursuant to stock purchase
or stock option plans or other arrangements that are approved by the Board of
Directors (with such approval by the Board of Directors shall include the
approval of a representative of an entity (or group of affiliated entities)
which has invested not less than $1,000,000 in Acteon; provided, that approval
by such representation shall not be required for the issuance of up to 350,000
shares of Common Stock (or options to purchase such shares) issued to persons
who are not currently shareholders or officers of the Company);
(b) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination;
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<PAGE>
(c) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by Acteon in which shares are issued
pro rata to all holders of Common Stock;
(d) shares of Common Stock issued upon conversion of any
Preferred Stock of Acteon;
(e) any Equity Securities issued pursuant to any equipment
leasing arrangement, or debt financing from a bank or similar financial
institution;
(f) any Equity Securities that are issued by Acteon pursuant
to a registration statement filed under the Securities Act; and
(g) shares of Acteon's Common Stock or Preferred Stock issued
in connection with strategic transactions involving Acteon and other entities,
including (A) joint ventures, manufacturing, marketing, licensing or
distribution arrangements or (B) technology transfer or development
arrangements; provided that such strategic transactions and the issuance of
shares therein, has been approved by Acteon's Board of Directors.
3.3 Registration and Information Rights; First Refusal Bylaw. Acteon
agrees to provide Essential with information rights and registration rights no
less favorable than those provided to the holders of Acteon's preferred stock.
Essential agrees that it shall become a party to the agreement initially
establishing such information and registration rights, and the covenant set
forth in the prior sentence of this Section 3.3 shall terminate upon the
effective date of such agreement. Essential agrees to abide by the right of
first refusal contained in the Bylaws of the Company; provided that any such
right shall be waived as to Essential in the event that such rights does not
apply to the holders of Acteon's series of preferred stock issued in connection
with a Substantial Investment.
3.4 Voting Agreement. Essential agrees to hold the Shares and all other
shares of capital stock of Acteon now owned or hereinafter acquired by Essential
registered in its respective names or beneficially owned by it as of the date
hereof (hereinafter collectively referred to as the "Stock") subject to, and to
vote the Stock in accordance with, the provisions of this Section 3.4. In any
Acteon matter in which the Stock has the right to vote, pursuant to Acteon's
Articles of Incorporation, Bylaws or the law, for a merger, consolidation,
transfer or sale of capital stock, or sale, lease or disposition of capital
stock of Acteon which Acteon intends to have qualify for "pooling" accounting
treatment, Acteon shall record the total vote of all capital stock of Acteon
eligible to vote. In any such matter, Essential agrees to vote its Stock in the
same manner as the vote of holders of not less than two-thirds (excluding for
the purposes of such calculation the Stock) of all eligible capital stock of
Acteon.
4. Representations And Warranties.
4.1 General. Each party hereby represents and warrants that: (a) such
party is duly organized and validly existing under the laws of the state of its
incorporation and has full corporate power and authority to enter into this
Agreement, to provide the consideration provided hereunder and to carry out the
provisions hereof; (b) such party is duly authorized to execute and deliver this
Agreement and to perform its obligations hereunder; and (c) this
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<PAGE>
Agreement is a legal and valid obligation binding upon it and enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally or by equitable principles. Each party hereby
further represents and warrants that the execution, delivery and performance of
this Agreement by such party does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by which it may be
bound, nor violate any law or regulation of any court, governmental body or
administrative or other agency having jurisdiction over it.
4.2 Additional Representations and Warranties of Acteon. The authorized
capital stock of Acteon, immediately prior to execution of this Agreement,
consisted of twenty million (20,000,000) shares of Common Stock, two million
nine hundred thirty-six thousand one hundred seventy (2,936,170) shares of which
are issued and outstanding. All issued and outstanding shares of Acteon's Common
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. When issued in compliance with the provisions of this Agreement,
the Shares will be validly issued, fully paid and nonassessable and will be free
of any liens or encumbrances; provided, however, that the Shares may be subject
to restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time a transfer is
proposed.
4.3 Additional Representations and Warranties of Essential. Essential
represents and warrants that the Technology is and will be original and free
from any claims of ownership by any third party including, but not limited to,
copyright, patent, trademark, trade secret and any and all other intellectual
property rights; provided, that Essential makes no representation regarding any
portion of the Technology licensed or assigned or developed for Essential by
Bryers Consulting Services, Inc., Schroeder & Associates or Network Plumbing
(the "Third Party Technology").
4.4 Investment Representations of Essential. In connection with the sale
of the Shares, Essential makes the following representations:
4.4.1 Essential is acquiring the Shares for its own account, not as
nominee or agent, for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act of 1933, as amended (the "Act").
4.4.2 Essential understands that (a) the Shares have not been
registered under the Act by reason of a specific exemption therefrom, that such
securities must be held by it indefinitely, and that Essential must, therefore,
bear the economic risk of such investment indefinitely, unless a subsequent
disposition thereof is registered under the Act or is exempt from such
registration; (b) each certificate representing such shares will be endorsed
with the following legends (in addition to any legends required by the
California Commissioner of Corporations or other state securities laws):
(i) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD
EXCEPT AS PERMITTED UNDER
5
<PAGE>
THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
(ii) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING RESTRICTIONS ON TRANSFERABILITY,
OF THAT CERTAIN LICENSE AND STOCK PURCHASE AGREEMENT, BETWEEN THE COMPANY AND
ESSENTIAL COMMUNICATIONS. A COPY OF SUCH AGREEMENT WILL BE FURNISHED TO THE
RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE
COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS.
(iii) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY AS SET FORTH IN THE
COMPANY'S BYLAWS.
and (c) Acteon will instruct any transfer agent not to register the transfer of
the Shares (or any portion thereof) unless the conditions specified in the
foregoing legends are satisfied, until such time as a transfer is made pursuant
to the terms of this Agreement, and in compliance with Rule 144 under the Act or
pursuant to a registration statement or, if the opinion of counsel referred to
above is to the further effect that such legend is not required in order to
establish compliance with any provisions of the Act or this Agreement.
4.4.3 Essential has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
investment in the Shares acquired hereunder.
4.4.4 Essential is an "accredited investor" as such term is defined
in Rule 501(a) of the rules and regulations promulgated under the Act.
4.4.5 Essential agrees that during the one hundred eighty (180) day
period following the effective date of a registration statement of Acteon filed
under the Act, Essential shall not sell or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound), or enter into any
hedging or similar transaction with the same economic effect as a sale, any
Common Stock or other securities of Acteon held by Essential at any time during
such period, except Common Stock held by Essential that is included in such
registration. In order to enforce the foregoing covenant, Acteon may impose
stop-transfer instructions with respect to such Common Stock or other securities
until the end of such period; provided, however, Essential shall not remain
bound by such obligation if all officers, directors and greater than 1%
shareholders of Acteon are not similarly bound.
5. Indemnification.
5.1 Indemnification by Essential. Essential shall defend and indemnify
Acteon and hold it harmless from any and all damages, liabilities, costs, and
expenses (including but not
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limited to reasonable attorneys' fees) incurred by Acteon as a result of any
judgement, adjudication or settlement of any claim that the Technology as
provided by Essential (other than the Third Party Technology) hereunder
infringed any copyright, patent, trademark, trade secret or other proprietary
right of any third party, provided that Acteon (a) promptly notifies Essential
in writing of any such claim and (b) Essential has the right to defend or settle
any such claim at Essential's expense and with Essential's choice of counsel.
Acteon shall cooperate with Essential, at Essential's expense, in defending or
settling such claim and Acteon may join in defense with counsel of its choice at
Acteon's expense. Neither party may settle any claim without the other's
consent. Essential shall have no liability hereunder to the extent that the
infringement arises from the use of the Technology in combination with any other
computer program or computer hardware equipment or device (if such infringement
would not otherwise result) or from any modification of the Technology made by
Acteon or any third party not at the request of Essential.
5.2 Indemnification by Acteon. Acteon shall defend and indemnify Essential
and hold it harmless from any and all damages, liabilities, costs, and expenses
(including but not limited to reasonable attorneys' fees) incurred by Essential
as a result of any judgment, adjudication or settlement of any claim against
Essential arising from any modification(s) to the Technology made by Acteon or
from any representation or warranty (other than a warranty given by Essential to
Acteon pursuant to this Agreement) or other act or omission made by Acteon in
connection with its marketing or distribution of products incorporating the
Technology, provided that (a) Essential promptly notifies Acteon in writing of
any such claim and (b) Acteon has the right to defend or settle any such claim
at Acteon's expense with Acteon's choice of counsel. Essential shall cooperate
with Acteon, at Acteon's expense, in defending or settling such claim. Neither
party may settle any claim without the other party's consent.
6. Limitation Of Liability.
6.1 Waiver of Consequential Damages. EXCEPT AS PROVIDED IN SECTION 5, IN
NO EVENT WILL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, LOST
SAVINGS, OR OTHER INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES OR FOR ANY CLAIM
BY ANY OTHER PARTY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE GRANTING OR USE OF THE
TECHNOLOGY HEREUNDER.
6.2 Disclaimer of Warranties. EXCEPT AS EXPRESSLY PROVIDED IN SECTION 4.3,
ESSENTIAL HEREBY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND OR
NATURE, WHETHER EXPRESS OR IMPLIED, RELATING TO THE TECHNOLOGY. ESSENTIAL
FURTHER HEREBY EXPRESSLY DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7. Proprietary Information. Acteon agrees during the term of this Agreement to
not use or disclose the Proprietary Information in any manner or for any purpose
not contemplated by this Agreement, and will not disclose any such Proprietary
Information to any employee, manufacturer, sublicensee or other third party,
unless such third party has agreed to be similarly bound. "Proprietary
Information" shall mean any deliverables listed on Exhibit A; provided, that
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information shall not be considered to be Essential Proprietary Information if
(1) it has been published or is otherwise readily available to the public other
than by a breach of this Agreement; (2) it has been rightfully received by
Acteon from a third party without confidentiality obligations; or (3) it has
been independently developed for Acteon by personnel or agents having no access
to the Essential Proprietary Information.
8. General.
8.1 Governing Law, Jurisdiction, Venue. This Agreement is made in
accordance with and shall be governed and construed under the laws of the State
of California, as applied to agreements executed and performed entirely in
California by California residents. In any legal action relating to this
Agreement, the parties agree and consent to the exercise of jurisdiction over
them by a state or federal court in Santa Clara County, California.
8.2 Assignment. This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the parties hereto. Neither
party may assign any of its rights or delegate any of its obligations under this
Agreement to any third party without the express written consent of the other,
except in the instance of a merger or reorganization of a party or sale of all
or substantially all of its assets and except that each party may assign its
rights to a subsidiary or affiliate.
8.3 Notices. All notices or reports permitted or required under this
Agreement shall be in writing and shall be delivered by personal delivery,
telegram, telex, telecopier, facsimile transmission or by certified or
registered mail, return receipt requested, and shall be deemed given upon
personal delivery, five (5) days after deposit in the mail, or upon
acknowledgment of receipt of electronic transmission.
8.4 Export Law Compliance. Acteon understands and recognizes that the
Technology made available to it hereunder may be subject to the export
administration regulations of the United States Department of Commerce and other
United States government regulations related to the export of technical data and
equipment and products produced therefrom. Acteon represents that it is familiar
with and agrees to comply with all such regulations, including any future
modifications thereof, in connection with the distribution of products
incorporating the Technology. Acteon agrees that it will not export or re-export
outside the United States, directly or indirectly, products incorporating the
Technology or technical data related thereto without complying with all
applicable regulations.
8.5 No Agency. Nothing contained herein shall be construed as creating any
agency, partnership, or other form of joint enterprise between the parties.
8.6 Waiver. The failure of either party to require performance by the
other party of any provision hereof shall not affect the full right to require
such performance at any time thereafter; nor shall the waiver by either party of
a breach of any provision hereof be taken or held to be a waiver of the
provision itself.
8.7 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 not render this
Agreement unenforceable or invalid as a
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whole, and, in such event, such provision shall be changed and interpreted so as
to best accomplish the objectives of such unenforceable or invalid provision
within the limits of applicable law or applicable court decisions.
8.8 Headings. The section headings appearing in this Agreement are
inserted only as a matter of convenience and in no way define, limit, construe
or describe the scope or extent of such section, or in any way affect this
Agreement.
8.9 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. This Agreement
supersedes, and the terms of this Agreement govern, any prior or collateral
agreements with respect to the subject matters hereof. This Agreement may only
be changed by mutual agreement of authorized representatives of the parties in
writing.
8.10 Counterparts. This Agreement may be executed in counterparts with the
same force and effect as if each of the signatories had executed the same
instrument.
8.11 Survival. Sections 5, 6, 7, and 8 of this Agreement shall survive any
termination of this Agreement.
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In Witness Whereof, the parties have caused this Agreement to be executed
by their duly authorized representatives.
Acteon Networks, Inc. Essential Communications
Corporation
By: /s/ Mark A. Bryers By: /s/ W. M. Boas
----------------------------- ------------------------------
Mark A. Bryers William M. Boas
- -------------------------------- ---------------------------------
(Typed or Printed Name) (Typed or Printed Name)
Title: President Title: President & CEO
-------------------------- ---------------------------
Date: April 19, 1996 Date: April 19, 1996
--------------------------- ----------------------------
Address: c/o Bryers Consulting Services, Address: 4374 Alexander Blvd.,
Inc. Suite T
338 Mustang Street Albuquerque, NM 87107
San Jose, CA 95123
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Exhibit A
. Unencrypted, commented, and readible Verilog source for the Roadrunner
ASIC and the simulation environment.
. Scripts associated with simulation and synthesis of the Roadrunner ASIC.
. Source files for Roadrunner ASIC related manuals (including, without
limitations, ASIC Internal Reference Spec. and PCI/Roadrunner Host
Interface Spec., version 0.12).
. PCI printed circuit board source schematics, bill of materials, layout
and assembly instructions.
. Source code for host-based diagnostics for the Roadrunner ASIC.
. Roadrunner firmware source codes and related driver source codes (for
UNIX environment).
. All software now available to implement the firmware development
environment, not including the Meta STEP tools which can be purchased
directly from STEP Engineering.
. Software release 2.0 "if-layer" source code.
. Two (2) fully operational rev. A Roadrunner prototypes, and eight (8) fully
operational rev. B Roadrunner prototypes, when such rev. B prototypes
exist.
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EXHIBIT 10.5
________________________________________________________________________________
ALTEON NETWORKS, INC.
LOAN AND SECURITY AGREEMENT
________________________________________________________________________________
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. Definitions and Construction......................................................................... 1
1.1 Definitions................................................................................. 1
2. Loan and Terms of Payment............................................................................ 10
2.1 Revolving Facility.......................................................................... 10
2.2 Equipment Facility.......................................................................... 12
2.3 Overadvances................................................................................ 13
2.4 Interest Rates, Payments, and Calculations.................................................. 13
2.5 Crediting Payments.......................................................................... 14
2.6 Fees........................................................................................ 14
2.7 Additional Costs............................................................................ 14
2.8 Term........................................................................................ 15
3. Conditions of Loans.................................................................................. 15
3.1 Conditions Precedent to Initial Advance..................................................... 15
3.2 Conditions Precedent to all Advances........................................................ 16
4. Creation of Security Interest........................................................................ 16
4.1 Grant of Security Interest.................................................................. 16
4.2 Delivery of Additional Documentation Required............................................... 17
4.3 Right to Inspect............................................................................ 17
5. Representations and Warranties....................................................................... 18
5.1 Due Organization and Qualification.......................................................... 18
5.2 Due Authorization; No Conflict.............................................................. 18
5.3 No Prior Encumbrances....................................................................... 18
5.4 Bona Fide Eligible Accounts................................................................. 18
5.5 Merchantable Inventory...................................................................... 18
5.6 Name; Location of Chief Executive Office.................................................... 18
5.7 Litigation.................................................................................. 18
5.8 No Material Adverse Change in Financial Statements.......................................... 19
5.9 Solvency.................................................................................... 19
5.10 Regulatory Compliance....................................................................... 19
</TABLE>
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Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
5.11 Environmental Condition..................................................................... 19
5.12 Taxes....................................................................................... 19
5.13 Subsidiaries................................................................................ 20
5.14 Government Consents......................................................................... 20
5.15 Full Disclosure............................................................................. 20
6. Affirmative Covenants................................................................................ 20
6.1 Good Standing............................................................................... 20
6.2 Government Compliance....................................................................... 20
6.3 Financial Statements, Reports, Certificates................................................. 20
6.4 Inventory; Returns.......................................................................... 21
6.5 Taxes....................................................................................... 21
6.6 Insurance................................................................................... 22
6.7 Principal Depository........................................................................ 22
6.8 Quick Ratio................................................................................. 22
6.9 Minimum Cash................................................................................ 22
6.10 Profitability............................................................................... 22
6.11 Further Assurances.......................................................................... 22
7. Negative Covenants................................................................................... 23
7.1 Dispositions................................................................................ 23
7.2 Change in Business.......................................................................... 23
7.3 Mergers or Acquisitions..................................................................... 23
7.4 Indebtedness................................................................................ 23
7.5 Encumbrances................................................................................ 23
7.6 Distributions............................................................................... 23
7.7 Investments................................................................................. 24
7.8 Transactions with Affiliates................................................................ 24
7.9 Subordinated Debt........................................................................... 24
7.10 Inventory................................................................................... 24
7.11 Compliance.................................................................................. 24
</TABLE>
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Table Of Contents
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
8. Events of Default.................................................................................... 24
8.1 Payment Default............................................................................. 24
8.2 Covenant Default............................................................................ 24
8.3 Material Adverse Change..................................................................... 25
8.4 Attachment.................................................................................. 25
8.5 Insolvency.................................................................................. 25
8.6 Other Agreements............................................................................ 25
8.7 Subordinated Debt........................................................................... 26
8.8 Judgments................................................................................... 26
8.9 Misrepresentations.......................................................................... 26
9. Bank's Rights and Remedies........................................................................... 26
9.1 Rights and Remedies......................................................................... 26
9.2 Power of Attorney........................................................................... 27
9.3 Accounts Collection......................................................................... 28
9.4 Bank Expenses............................................................................... 28
9.5 Bank's Liability for Collateral............................................................. 28
9.6 Remedies Cumulative......................................................................... 28
9.7 Demand; Protest............................................................................. 28
10. Notices.............................................................................................. 29
11. Choice of Law and Venue; Jury Trial Waiver........................................................... 29
12. General Provisions................................................................................... 29
12.1 Successors and Assigns...................................................................... 29
12.2 Indemnification............................................................................. 30
12.3 Time of Essence............................................................................. 30
12.4 Severability of Provisions.................................................................. 30
12.5 Amendments in Writing, Integration.......................................................... 30
12.6 Counterparts................................................................................ 30
12.7 Survival.................................................................................... 30
12.8 Confidentiality............................................................................. 30
</TABLE>
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This Loan and Security Agreement is entered into as of March 20, 1998, by
and between Silicon Valley Bank ("Bank") and Alteon Networks, Inc ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Account Audit" means an audit of the Revolving Collateral, Borrower's
Accounts and/or Borrower's Books prepared by Bank in accordance with generally
accepted business and accounting practices in form and substance acceptable to
Bank.
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other 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 Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means a cash advance or cash advances under
the Revolving Facility or the Equipment Facility.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Backlog" means the backlog reported from time to time in backlog
reports provided by Borrower to Bank under Section 6.3
"Bank Expenses" means all: reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents (including fees and expenses of
appeal), whether or not suit is brought.
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"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1 hereof.
"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the Revolving Collateral and the Equipment
Collateral, provided, however, that upon termination of the Revolving Facility,
"Collateral" shall only mean the Equipment Collateral.
"Committed Line" means One Million Five Hundred Thousand Dollars
($1,500,000).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to (i)
any indebtedness, lease, dividend, letter of credit or other obligation of
another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with recourse by
that Person, or in respect of which that Person is otherwise directly or
indirectly liable; (ii) any obligations with respect to undrawn letters of
credit issued for the account of that Person; and (iii) all obligations arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement, interest rate collar agreement, or other agreement or arrangement
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Revolving
Advances made under this Agreement and the current portion of Equipment
Advances, including all Indebtedness that is payable upon demand or within one
year from the date of determination thereof unless such Indebtedness is
renewable or extendable at the
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option of - Borrower or any Subsidiary to a date more than one year from the
date of determination, but excluding deferred revenue and Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at the end of
a given day.
"Debt Service Coverage" means, measured on a monthly basis, on a
rolling three (3) months consolidated basis determined in accordance with GAAP,
Borrower's earnings before interest, taxes, depreciation and amortization
(EBITDA) divided by the current portion of Borrower's long-term Indebtedness
plus interest expense.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's representations
and warranties to Bank set forth in Section 5.4; provided, that standards of
eligibility may be fixed and revised from time to time by Bank in Bank's
reasonable judgment and upon thirty (30) days prior written notification giving
the reasons thereof to Borrower in accordance with the provisions hereof.
Unless otherwise agreed to by Bank, Eligible Accounts shall not include the
following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts, and Accounts arising from products shipped to or services
provided to branches or offices located in the United States of any account
debtor that does not have its principal place of business in the United States;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States;
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
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<PAGE>
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed twenty-
five percent (25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except (i) for the Accounts of Sun Microsystems,
Inc., Fuji Xerox, NEC and IBM for which the applicable percentage shall be fifty
percent (50%), and (ii) other Accounts approved in writing by Bank;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank reasonably
believes that there may be a basis for dispute (but only to the extent of the
amount subject to such dispute or claim), or is subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Eligible Foreign Accounts" means: (i) Accounts with respect to which
the account debtor is NEC or Fuji Xerox and (ii) Accounts with respect to which
the account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit in
favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on a case-
by-case basis.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Advance" or "Equipment Advances" means a cash advance or
cash advances under the Equipment Facility.
"Equipment Collateral" means all the property described on Exhibit A-
2.
"Equipment Committed Line" means Two Million Dollars ($2,000,000).
"Equipment Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.2 hereof.
"Equipment Availability Date" means the date that is twelve (12)
months from the date of this Agreement.
"Equipment Maturity Date" means the date that is thirty-six (36)
months from the Equipment Availability Date.
"Equipment Obligations" means, to the extent such amount relates
solely to the Equipment Facility: all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement (other
than the Revolving Obligations) or any other Loan Document, whether absolute or
contingent, due or to become due, now existing or hereafter
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<PAGE>
arising, including any interest that accrues after the commencement of an
Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Bank may have obtained by assignment or otherwise.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect
from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters of
credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Intellectual Property" means any 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; any patents, trademarks, servicemarks, and
applications therefor; any trade secret rights, including any rights to
unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; any
license of any of the foregoing, now owned or hereafter acquired, or any claims
for damages by way of any past, present and future infringement of any of the
foregoing.
"Inventory" means all 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 every kind and
description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its 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, and Borrower's Books relating to any of
the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
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<PAGE>
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower in connection with this Agreement, and any other
agreement entered into between Borrower and Bank in connection with this
Agreement, all as amended or extended from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper, and Borrower's Books relating
to any of the foregoing.
"Obligations" means both the Revolving Obligations and the Equipment
Obligations.
"Payment Date" means the nineteenth (19th) calendar day of each month
commencing on the first such date after the Closing Date.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any Loan Document.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Indebtedness to trade creditors and with respect to surety
bonds and similar obligations incurred in the ordinary course of business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited hereby), and Indebtedness of any
Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary
with respect to obligations of any other Subsidiary (provided that the primary
obligations are not prohibited hereby);
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<PAGE>
(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to purchase
equipment which is secured in accordance with clause (c) of "Permitted Liens"
below and is not in excess of the lesser of the purchase price of such equipment
or the fair market value of such equipment on the date of acquisition;
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means:
(a) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within two (2) years from the date of acquisition thereof;
(b) certificates of deposit maturing no more than one (1) year
from the date of creation thereof and commercial paper maturing no more than one
(1) year from the date of creation thereof having the highest rating obtainable
from either Standard & Poor's Corporation or Moody's Investor Services, Inc.;
(c) Extensions of credit in the nature of accounts receivable or
note receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(d) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(e) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(f) Investments consisting of (i) compensation of employees,
officers and directors of Borrower so long as the Board of Directors of Borrower
determines that such compensation is in the best interests of Borrower, (ii)
travel advances, employee relocation loans and other employee loans and advances
in the ordinary course of business, (iii) loans to employees, officers or
directors relating to the purchase of equity securities of Borrower, and (iv)
other loans to officers and employees approved by the Board of Directors; and
(g) Other Investments not in excess of $200,000 at any time.
"Permitted Liens" means:
(a) any Liens existing on the Closing Date and disclosed in the
Schedule or arising under the terms of this Agreement;
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<PAGE>
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided that at any time the same have priority over
any of Bank's security interests, Borrower may not request any Credit
Extensions;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary
pursuant to an operating or capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such Equipment (including Liens pursuant to
leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement);
(e) Leases or subleases and licenses and sublicenses granted to
others in the ordinary course of Borrower's business not interfering in any
material respect with the business of Borrower and its Subsidiaries taken as a
whole, and any interest or title of a lessor, licensor or under any lease or
license;
(f) Liens on assets (including the proceeds thereof and
accessions thereto) that existed at the time such assets were acquired by
Borrower or any Subsidiary (including Liens on assets of any corporation that
existed at the time it became or becomes a Subsidiary); provided such Liens are
not granted in contemplation of or in connection with the acquisition of such
asset by Borrower or a Subsidiary;
(g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 8.8;
(h) easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not constituting a Material Adverse Effect;
(i) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payments of customs duties in connection with the
importation of goods;
(j) Liens that constitute rights of set-off of a customary
nature or banker's Liens with respect to amounts on deposit, whether arising by
operation of law or by contract, in connection with arrangement entered in to
with banks in the ordinary course of business;
(k) earn-out and royalty obligations existing on the date hereof
or entered into in connection with an acquisition permitted by Section 7.3 that
are not prior to the Lien of the Bank;
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(l) Licenses of Borrower's Intellectual Property in the ordinary
course of business and licenses or similar arrangements of Intellectual Property
granted or existing in connection with any joint venture, collaboration,
strategic alliance, research and development partnerships or arrangements, and
any similar arrangements or agreements; and
(m) Liens, not otherwise permitted, which Liens do not in the
aggregate exceed $150,000 at any time.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the unrestricted
cash; unrestricted cash-equivalents; net, billed accounts receivable; and
investments with maturities of fewer than one year of Borrower determined in
accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
Chief Financial Officer and the Controller of Borrower.
"Revolving Advance" or "Revolving Advances" means a cash advance or
cash advances under the Revolving Facility.
"Revolving Collateral" means all the property described on
Exhibit A-1.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"Revolving Maturity Date" means the date immediately preceding the
first anniversary of the date of this Agreement.
"Revolving Obligations" means, to the extent such amounts relate
solely to the Revolving Facility: all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement (other
than the Equipment Facility) or any other Loan Document, whether absolute or
contingent, due or to become due, now existing or hereafter arising, including
any interest that accrues after the commencement of an Insolvency Proceeding and
including any debt, liability, or obligation owing from Borrower to others that
Bank may have obtained by assignment or otherwise.
"Schedule" means the schedule of exceptions, attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
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"Subsidiary" means any corporation or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock of which by the
terms thereof ordinary voting power to elect the Board of Directors, managers or
trustees of the entity shall, at the time as of which any determination is being
made, be owned by Borrower, either directly or through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount thereof
shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
"Total Liabilities" means, at any date as of which the amount thereof
shall be determined, all obligations that should, in accordance with GAAP be
classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but excluding deferred revenue.
1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT.
2.1 Revolving Facility.
(a) Advances. Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make Revolving Advances to Borrower in an
aggregate amount not to exceed the lesser of the Committed Line or the Borrowing
Base, minus in each case the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit). For purposes of this
Agreement, "Borrowing Base" shall mean an amount equal to (i) eighty percent
(80%) of Eligible Accounts plus (ii) twenty-five percent (25%) of eligible raw
materials and finished goods inventory; provided that Revolving Advances under
clause (ii) shall not exceed the lesser of Five Hundred Thousand Dollars
($500,000) or twenty-five percent (25%) of Backlog. Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this Section 2.1 may
be repaid and reborrowed at any time prior to the Revolving Maturity Date.
(b) Procedures. Whenever Borrower desires a Revolving Advance,
Borrower will notify Bank by facsimile transmission or telephone no later than
3:00 p.m. California time, on the Business Day that the Revolving Advance is to
be made. Each such notification shall be promptly confirmed by a Payment/Advance
Form in substantially the form of Exhibit B hereto. Bank is authorized to make
Revolving Advances under this Agreement, based upon instructions received from a
Responsible Officer, or without instructions if in Bank's discretion such
Revolving Advances are necessary to meet Revolving Obligations which have become
due and remain unpaid. Bank shall be entitled to rely on any telephonic notice
given by
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a person who Bank reasonably believes to be a Responsible Officer, and Borrower
shall indemnify and hold Bank harmless for any damages or loss suffered by Bank
as a result of such reliance. Bank will credit the amount of Revolving Advances
made under this Section 2.1 to Borrower's deposit account.
(c) Maturity. The Revolving Facility shall terminate on the
Revolving Maturity Date, at which time all Revolving Advances under this Section
2.1 shall be immediately due and payable. Notwithstanding anything to the
contrary contained herein or in any Loan Document, upon termination of the
Revolving Facility and payment in full of the Revolving Obligations, the
Negative Pledge Agreement set forth at Exhibit E and the following Sections of
this Agreement shall terminate: 6.3(b) and (d); 6.4; 9.2(a), (b), (c), (e), and
9.3. Bank agrees to promptly execute such other documents and instruments as may
be reasonably requested by Borrower, including, without limitation, a UCC
termination or partial release, to evidence such termination and the release of
the Revolving Collateral.
2.1.1 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued letters of credit (each a "Letter of
Credit," collectively, the "Letters of Credit") for the account of Borrower in
an aggregate face amount not to exceed the lesser of (i) the Committed Line or
(ii) the Borrowing Base, and minus in each case the sum of the then outstanding
principal balance of the Advances and the face amount of outstanding Letters of
Credit; provided that the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit) shall not in any case
exceed Seven Hundred Fifty Thousand Dollars ($750,000). Each such Letter of
Credit shall have an expiry date no later than the Revolving Maturity Date;
provided that the expiry date may be up to 90 days after the Revolving Maturity
Date as long as Borrower secures its reimbursement and other obligations in
connection with any Letter of Credit outstanding after such date with cash on
terms reasonably acceptable to Bank. All such Letters of Credit shall be, in
form and substance reasonably acceptable to Bank and shall be subject to the
terms and conditions of Bank's form of application and letter of credit
agreement. Borrower shall pay Bank a fee equal to one percent (1.0%) of the face
amount of each Letter of Credit on the date such Letter of Credit is issued. All
amounts actually paid by Bank in respect of a Letter of Credit shall, when paid,
constitute an Advance under this Agreement.
(b) The obligation of Borrower to immediately reimburse Bank
for drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend and hold Bank harmless from any loss, cost,
expense or liability, including, without limitation, reasonable attorneys' fees,
arising out of or in connection with any Letters of Credit, excluding Bank's
gross negligence or willful misconduct.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a demand for payment
is made under any such
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Letter of Credit, Bank shall treat such demand as an advance to Borrower of the
equivalent of the amount thereof (plus cable charges) in United States currency
at the then prevailing rate of exchange in San Francisco, California, for sales
of that other currency for cable transfer to the country of which it is the
currency.
(d) Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Bank shall create a reserve under the
Committed Line for Letters of Credit against fluctuations in currency exchange
rates, in an amount equal to ten percent (10%) of the face amount of such Letter
of Credit. The amount of such reserve may be amended by Bank from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Committed Line shall be reduced by the amount of such reserve for so
long as such Letter of Credit remains outstanding.
2.2 Equipment Facility.
(a) Equipment Advances. Subject to and upon the terms and
conditions of this Agreement, Bank agrees, at any time from the date of this
Agreement through the Equipment Availability Date to make Equipment Advances to
Borrower in an aggregate principal amount of up to Two Million Dollars
($2,000,000); provided that Equipment Advances may not exceed One Million
Dollars ($1,000,000) until Bank receives a forecast approved by Borrower's board
of directors concerning Borrower's business for not less than four quarters
after the Closing Date, which forecast is reasonably acceptable to Bank in form
and substance. On the date of each Equipment Advance, Borrower shall provide
invoices and other documents as reasonably requested by Bank, in form and
content satisfactory to Bank, demonstrating that the Equipment Advances then
outstanding (A) shall be used to finance or refinance, as the case may be,
Equipment reasonably acceptable to Bank (which in any case for the initial
Equipment Advance shall have been purchased after July 2, 1997 and for
subsequent Equipment Advances shall have been purchased contemporaneously with
the date of the request for the Equipment Advance), and (B) shall not exceed one
hundred percent (100%) of the cost of such Equipment, excluding any and all
installation, freight or warranty expenses or sales taxes, and (C) that no more
than thirty-three percent (33%) of the aggregate outstanding Equipment Advances
shall finance software licenses, leasehold improvements, taxes, freight or
installation costs, used equipment, or other soft costs. Each Equipment Advance
must be in an amount exceeding Fifty Thousand Dollars ($50,000). There may be no
more than six (6) Equipment Advances. Amounts borrowed pursuant to this Section
2.2 may be repaid at any time prior to the Equipment Maturity Date without
premium or penalty. Amounts borrowed pursuant to this Section 2.2 may not be
reborrowed once repaid.
(b) Procedures. Whenever Borrower desires an Equipment
Advance, Borrower shall notify Bank by facsimile transmission or telephone no
later than 3:00 p.m. California time, one (1) Business Day before the day on
which the Equipment Advance is requested to be made. Each such notification
shall be promptly confirmed by a Payment/Advance Form in substantially the form
of Exhibit B hereto. The notice shall be signed by a Responsible Officer and
include a copy of the invoice for the Eligible Equipment to be financed.
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(c) Interest and Principal. Interest shall accrue from the
date of each Equipment Advance at the rate specified in Section 2.4(a), and
shall be payable monthly on the Payment Date for each month through the month in
which the Equipment Availability Date falls. Bank shall, at its option, charge
such interest, all Bank Expenses, and all Periodic Payments against any of
Borrower's deposit accounts or against the Equipment Committed Line, in which
case those amounts shall thereafter accrue interest at the rate then applicable
hereunder. Each Equipment Advance will be payable in thirty-four (34) equal
monthly installments of principal, plus accrued interest, on the Payment Date
for each month after the date of such Equipment Advance.
(d) Maturity. The Equipment Facility shall terminate on the
Equipment Maturity Date, at which time all Equipment Obligations owing under
this Section 2.2 and all other amounts under this Agreement shall be immediately
due and payable.
2.3 Overadvances. If, at any time or for any reason, the amount of
Revolving Obligations owed by Borrower to Bank pursuant to Section 2.1 of this
Agreement is greater than the lesser of the Committed Line or the Borrowing
Base, Borrower shall immediately pay to Bank, in cash, the amount of such
excess. If, at any time or for any reason, the amount of Equipment Obligations
owed by Borrower to Bank pursuant to Section 2.2 of this Agreement is greater
than the Equipment Committed Line, Borrower shall immediately pay to Bank, in
cash, the amount of such excess.
2.4 Interest Rates, Payments, and Calculations.
(a) Interest Rate.
i) Revolving Advances. Except as set forth in Section
2.4(b), all Revolving Advances shall bear interest, on the average Daily Balance
thereof, at a rate equal to three-quarters of one percentage point (0.75%) above
the Prime Rate.
ii) Equipment Advances. Except as set forth in Section
2.4(b), all Equipment Advances shall bear interest, on the average Daily Balance
thereof, at a rate equal to one percentage point (1%) above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from
and after the occurrence and during the continuance of an Event of Default, at a
rate equal to five (5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
the Payment Date of each month during the term hereof. Bank shall, at its
option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder.
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(d) Computation. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.5 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment shall be immediately applied to conditionally
reduce Obligations, but shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such check
or other item of payment is honored when presented for payment. Notwithstanding
anything to the contrary contained herein, any domestic wire transfer or payment
received by Bank after 2:00 p.m. California time shall be deemed to have been
received by Bank as of the opening of business on the immediately following
Business Day. Whenever any payment to Bank under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.6 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A facility fee equal to Seven Thousand
Dollars ($7,000) which fee shall be due on the Closing Date and shall be fully
earned and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts (not to
exceed $1,500 per audit, as long as an Event of Default has not occurred, at
which time reasonable fees will be assessed), and for the customary and
reasonable out-of-pocket costs for each appraisal of Collateral and financial
analysis and examination of Borrower performed from time to time by Bank or its
agents;
(c) Bank Expenses. Upon the date hereof, all Bank Expenses
incurred through the Closing Date, including reasonable attorneys' fees and
expenses (which fees and expenses shall not exceed $6,000 in the aggregate),
and, after the date hereof, all Bank Expenses, including reasonable attorneys'
fees and expenses, as and when they become due.
2.7 Additional Costs. In case any change in any law, regulation, treaty
or official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the
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transactions contemplated hereby (except for taxes on the overall net income of
Bank imposed by the United States of America or any political subdivision
thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
(d) and the result of any of the foregoing is to increase the
cost to Bank, reduce the income receivable by Bank or impose any expense upon
Bank with respect to any loans, Bank shall notify Borrower thereof.
Borrower agrees to pay to Bank the amount of such increase in cost, reduction in
income or additional expense as and when such cost, reduction or expense is
incurred or determined, upon presentation by Bank of a statement of the amount
and setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error; provided,
however, that Borrower shall not be liable for any such amount attributable to
any period prior to the date of hundred eighty (180) days prior to the date of
such statement.
2.8 Term. This Agreement shall become effective on the Closing Date and,
subject to Section 12.7 and 2.1(c), shall continue in full force and effect for
a term ending on the Equipment Maturity Date. Notwithstanding the foregoing,
Bank shall have the right to terminate its obligation to make Advances under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default. Notwithstanding termination, Bank's Lien on
the (1) Revolving Collateral shall remain in effect for so long as any
Obligations (excluding Obligations under Section 2.7 and 12.2 to the extent they
remain inchoate at the time outstanding payment obligations are paid in full)
are outstanding; and (2) Equipment Collateral shall remain in effect for so long
as any Equipment Obligations (excluding the Obligations under Sections 2.7 and
12.2 to the extent they remain inchoate at the time outstanding payment
obligations are paid in full) are outstanding.
3. CONDITIONS OF LOANS.
3.1 Conditions Precedent to Initial Advance. The obligation of Bank to
make the initial Advance or Equipment Advance is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
(c) a negative pledge agreement in substantially the same form
as Exhibit E hereto;
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(d) financing statements (Forms UCC-I);
(e) an Account Audit to be performed by Bank (condition to
Revolving Advances only);
(f) insurance certificate;
(g) A/R and A/P agings;
(h) backlog report and Inventory schedule;
(i) payment of the fees and Bank Expenses then due specified in
Section 2.6 hereof; and
(j) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of Bank to make
each Advance, including the initial Advance, is further subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1;
(b) timely receipt by Bank of the invoices or other documents as
provided in Section 2.2; and
(c) except as otherwise disclosed to and receipt is acknowledged
by Bank, the representations and warranties contained in Section 5 shall be true
and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance (except to the extent they relate
specifically to any earlier date, in which case such representations and
warranties shall continue to have been true and accurate as of such date).
Except as otherwise disclosed to and receipt is acknowledged by Bank, the making
of each Advance shall be deemed to be a representation and warranty by Borrower
on the date of such Advance as to the accuracy of the facts referred to in this
Section 3.2(c).
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Revolving Collateral in order to secure prompt repayment of the
Revolving Obligations and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents solely as they relate
to the Revolving Facility (except that upon termination of the Revolving
Facility with payment in full of the Revolving Obligations, the Revolving
Collateral shall be released by Bank and shall not secure any of Borrower's
obligations under this Agreement, any other Loan
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Document, or any other agreement with Bank. With respect to the Equipment
Facility, Borrower grants and pledges to Bank a continuing security interest in
all Equipment Collateral in order to secure prompt repayment of the Equipment
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interests constitute valid, first priority security
interests in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof,
in each case, to the extent that a security interest in such Collateral can be
perfected by the filing of a financing statement or, in the case of Collateral
consisting of instruments, documents, chattel paper or certificated securities,
to the extent that Bank takes possession of such Collateral. Bank agrees to
execute and deliver to Borrower from time to time such Lien releases as Borrower
may reasonably request and as are necessary to give to other lenders which
finance equipment (other than the Equipment Collateral) for Borrower a first
priority security interest in the equipment financed so long as the Liens and
the Indebtedness incurred with respect to such equipment financing are permitted
under this Agreement. NOTWITHSTANDING ANYTHING ELSE CONTAINED HEREIN, INCLUDING,
WITHOUT LIMITATION, ANY CROSS-DEFAULT OR CROSS-COLLATERAL PROVISIONS, BANK SHALL
ONLY BE ALLOWED TO PROCEED AGAINST THE REVOLVING COLLATERAL IF AN EVENT OF
DEFAULT HAS OCCURRED AND IS CONTINUING AND, AT THE TIME OF DEFAULT, BORROWER
OWES BANK PRINCIPAL OR INTEREST UNDER THE REVOLVING FACILITY.
4.2 Delivery of Additional Documentation Required. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form reasonably satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents
(provided Bank will not apply customer checks deposited with Bank in the
ordinary course of business against the Obligations that are not then due and
payable unless an Event of Default has occurred and is continuing).
Notwithstanding anything to the contrary, concurrent with Borrower's purchase of
Equipment pursuant to the Equipment Facility: (1) Borrower shall list the
specific equipment purchased on Exhibit A-2 and provide Bank with an updated
Exhibit A-2 and (2) Bank shall prepare a financing statement listing the
purchased Equipment, which shall be executed by Borrower and filed by Bank.
Notwithstanding anything to the contrary, with respect to the Equipment
Facility, Borrower shall not be required to, and Bank shall not, sign and/or
file a financing statement which contains a general reference to all equipment
purchased pursuant to this Agreement (or similar wording).
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
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5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified, except for states as to which any
failure to so qualify would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound except to the extent that
certain intellectual property agreements prohibit the assignment of the rights
thereunder to a third party without the Borrower's or other party's consent and
the Loan Documents constitute an assignment. Borrower is not in default under
any agreement to which it is a party or by which it is bound, which default
could reasonably be expected to have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The property giving rise to such Eligible Accounts has
been delivered to the account debtor or to the account debtor's agent for
immediate shipment to and unconditional acceptance by the account debtor or such
other Person as may be instructed by account debtor. Borrower has not received
notice of actual or imminent Insolvency Proceeding of any account debtor that is
included in any Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 Name; Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending by or against Borrower or any Subsidiary before any court
or administrative agency in which an adverse decision could reasonably be
expected to have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral. Borrower does
not have knowledge of any such pending or threatened actions or proceedings.
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5.8 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to
Bank.
5.9 Solvency. The fair saleable value of Borrower's assets (including
goodwill) exceeds the fair value of its liabilities; Borrower is not left with
unreasonably small capital after the transactions contemplated by this
Agreement; and Borrower is able to pay its respective debts (including trade
debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could reasonably be expected to have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). To the best of Borrower's knowledge,
Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets has
ever been designated or identified in any manner pursuant to any environmental
protection statute as a hazardous waste or hazardous substance disposal site, or
a candidate for closure pursuant to any environmental protection statute; no
lien arising under any environmental protection statute has attached to any
revenues or to any real or personal property owned by Borrower or any
Subsidiary; and neither Borrower nor any Subsidiary has received a summons,
citation, notice, or directive from the Environmental Protection Agency or any
other federal, state or other governmental agency concerning any action or
omission by Borrower or any Subsidiary resulting in the releasing, or otherwise
disposing of hazardous waste or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
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5.13 Subsidiaries. Borrower does not own any stock, partnership interest
or other, equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted except
where the failure to obtain any such consent, approval or authorization, to make
any such declaration or filing, or to be given any such notice could not
reasonably be expected to have a Material Adverse Effect.
5.15 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS.
Subject to Section 2.1(c), Borrower covenants and agrees that, until
payment in full of all outstanding Obligations, and for so long as Bank may have
any commitment to make an Advance hereunder, Borrower shall do all of the
following:
6.1 Good Standing. Borrower shall maintain or cause to be maintained its
and each of its Subsidiaries' corporate existence and good standing in its
jurisdiction of incorporation and maintain qualification in each jurisdiction in
which the failure to so qualify could reasonably be expected to have a Material
Adverse Effect. Borrower shall maintain, and shall cause each of its
Subsidiaries to maintain, to the extent consistent with prudent management of
Borrower's business, in force all licenses, approvals and agreements, the loss
of which is reasonably likely to have a Material Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could reasonably be expected to have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 Financial Statements, Reports, Certificates.
(a) Borrower shall deliver to Bank: (i) as soon as available,
but in any event within thirty (30) days after the end of each month, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during such period, certified by a Responsible Officer;
(ii) as soon as available, but in any event within ninety (90) days after the
end of Borrower's fiscal year, audited consolidated financial statements of
Borrower prepared in accordance with GAAP, consistently applied, together with
an unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; provided that any "Big
Six" accounting firm shall be deemed
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acceptable to Bank; (iii) within five (5) days upon becoming available, copies
of all statements, reports and notices sent or made available generally by
Borrower to its security holders or to any holders of Subordinated Debt and all
reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission;
(iv) promptly upon receipt of notice thereof, a 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 One Hundred Thousand Dollars
($100,000) or more; (v) prompt notice of any material change in the composition
of the Intellectual Property; and (vi) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
(b) Within twenty (20) days after Borrower's month-end, Borrower
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of Exhibit C hereto, together with a backlog
report and aged listings of accounts receivable and accounts payable.
(c) Borrower shall deliver to Bank within thirty (30) days of
the end of each month Borrower's monthly financial statements and a Compliance
Certificate signed by a Responsible Officer in substantially the form of Exhibit
D hereto.
(d) Bank shall have a right from time to time hereafter to audit
Borrower's Accounts at Borrower's expense (not to exceed $1,500), provided that
such audits will be conducted no more often than every six (6) months unless an
Event of Default has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances,
if any, as between Borrower and its account debtors shall be on the same basis
and in accordance with the usual customary practices of Borrower, as they exist
at the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and Borrower will make, and will cause each Subsidiary to make,
timely payment or deposit of all material tax payments and withholding taxes
required of it by applicable laws, including, but not limited to, those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Bank with proof satisfactory to
Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by appropriate
proceedings and is reserved against (to the extent required by GAAP) by
Borrower.
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6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. Upon Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. So long as no
Event of Default has occurred and is continuing, Borrower shall have the option
of applying the proceeds of any casualty policy to the replacement or repair of
destroyed or damaged property; provided, that after the occurrence and during
the continuance of an Event of Default, all proceeds payable under any such
policy shall, at the option of Bank, be payable to Bank for application to the
Obligations.
6.7 Principal Depository. To the extent permitted by the investment
policy adopted by Borrower's board of directors, Borrower shall maintain its
principal depository and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
month, a ratio of Quick Assets to Current Liabilities of at least 1.00 to 1.00.
6.9 Minimum Cash. Borrower shall maintain, as of the last day of each
month, unrestricted cash and cash equivalents of at least Three Million Dollars
($3,000,000).
6.10 Profitability. Borrower may incur net losses in the quarters ending
on the following dates in amounts not to exceed the following for such
respective quarters: March 31, 1998 in the amount of Four Million Five Hundred
Thousand Dollars ($4,500,000); June 30, 1998 in the amount of Two Million Two
Hundred Thousand Dollars ($2,200,000); September 30, 1998 in the amount of One
Million Five Hundred Thousand Dollars ($1,500,000); and December 31, 1998 in the
amount of One Million Dollars ($1,000,000).
6.11 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
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7. NEGATIVE COVENANTS.
Subject to Section 2.1(c), Borrower covenants and agrees that, so long as
any credit hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers of Inventory
in the ordinary course of business; (ii)Transfers in the ordinary course of
Borrower's business of licenses and similar arrangements for the use of the
Intellectual Property of Borrower or its Subsidiaries, including transfers
granted or existing in connection with any joint venture, collaboration,
strategic alliance, research and development partnerships, and any similar
arrangements or agreements; or (iii) Transfers of worn-out or obsolete Equipment
or Equipment financed by other vendors; (iv) Transfers which constitute
liquidation of Investments permitted under Section 7.7; (v) transfers in
connection with Permitted Investments; and (vi) other Transfers not otherwise
permitted by this Section 7.1 not exceeding One Hundred Thousand Dollars
($100,000) in the aggregate in any fiscal year.
7.2 Change in Business. Without Bank's prior written consent, which will
not be unreasonably withheld, engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership of
greater than twenty-five percent (25%) of the common stock of Borrower.
Borrower will not, without reasonable prior written notification to Bank,
relocate its chief executive office.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person; provided
that such merger, consolidation and acquisition may be made as long as Borrower
is the surviving entity and an Event of Default does not exist before or after
giving effect to such transaction.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, other than payments made in an aggregate amount not to exceed $250,000
for the repurchase of stock effected in connection with the termination of ah
employee, officer or director, provided an Event of Default does not exist on
the date of such payment or would not exist after giving effect to such payment.
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<PAGE>
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person and except
for transactions that, in the aggregate, do not involve consideration of more
than $250,000 and loans to officers or employees approved by Borrower's board of
directors.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent, which shall not be unreasonably withheld.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of the warehouse receipt
covering such Inventory. Except for (i) Inventory sold in the ordinary course
of business, (ii) the locations set forth in the Schedule hereto, and (iii) such
other locations as Bank may approve in writing, Borrower shall keep the
Inventory only at the location set forth in Section 10 hereof and such other
locations of which Borrower gives Bank prior written notice and as to which
Borrower signs and files a financing statement where needed to perfect Bank's
security interest.
7.11 Compliance. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such 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 law or regulation,
which violation could have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Bank's Lien on the Collateral, or
permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay the principal of, or any
interest on, any Advances when due and payable; or fails to pay any portion of
any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by Borrower
of an invoice for such other Obligations;
8.2 Covenant Default. If Borrower fails to perform any obligation under
Sections 6.7, 6.8, 6.9 or 6.10, or violates any of the covenants contained in
Article 7 of this Agreement, or
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<PAGE>
fails or neglects to perform, keep, or observe any other material term,
provision, condition, covenant, or agreement contained in this Agreement, in any
of the Loan Documents, or in any other present or future agreement between
Borrower and Bank and as to any default under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure such
default within ten (10) days after Borrower receives notice thereof or any
Responsible Officer of Borrower becomes aware thereof; provided, however, that
if the default cannot by its nature be cured within the ten (10) day period or
cannot after diligent attempts by Borrower be cured within such ten (10) day
period, and such default is likely to be cured within a reasonable time, then
Borrower shall have an additional reasonable period (which shall not in any case
exceed thirty (30) days) to attempt to cure such default, and within such
reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Advances will be required to be
made during such cure period);
8.3 Material Adverse Change. If there occurs a material adverse change in
Borrower's business or financial condition, or if there is a material impairment
of the prospect of repayment of any portion of the Obligations or a material
impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 Attachment. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within twenty (20) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within twenty (20)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within thirty (30) days
(provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could reasonably be expected to have a Material Adverse
Effect;
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<PAGE>
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least One Hundred Thousand
Dollars ($100,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of thirty (30) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement existed in any warranty or representation set forth herein or in
any certificate delivered to Bank by any Responsible Officer pursuant to this
Agreement or to induce Bank to enter into this Agreement or any other Loan
Document at the time such representation or warranty was made or such
certificate was delivered.
9. BANK'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Revolving and/or Equipment Collateral, as
appropriate. Borrower agrees to assemble the Revolving and/or Equipment
Collateral, as appropriate, if Bank so requires, and to make the Revolving
and/or Equipment Collateral, as appropriate, available to Bank as Bank may
designate. Borrower authorizes Bank to enter the premises where the Revolving
and/or Equipment Collateral, as appropriate, is located, to take and maintain
possession of the Revolving and/or Equipment Collateral, as appropriate, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, in
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<PAGE>
order to exercise any of Bank's rights or remedies provided herein, at law, in
equity, or otherwise;
(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(f) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Revolving and/or Equipment Collateral, as appropriate. Bank is
hereby granted a license or other right, solely pursuant to the provisions of
this Section 9.1, to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Revolving and/or Equipment Collateral, as appropriate, in
completing production of, advertising for sale, and selling any Revolving and/or
Equipment Collateral, as appropriate, and, in connection with Bank's exercise of
its rights under this Section 9.1, Borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(g) Sell the Revolving and/or Equipment Collateral, as
appropriate, at either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner and at such
places (including Borrower's premises) as Bank determines is commercially
reasonable, and apply any proceeds to the Obligations in whatever manner or
order Bank deems appropriate;
(h) Bank may credit bid and purchase at any public sale; and
(i) Any deficiency that exists after disposition of the
Revolving and/or Equipment Collateral, as appropriate, as provided above will be
paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; (f) to file, in its sole
discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law; and (g) to dispose of the Collateral pursuant to the
Code; provided Bank may exercise such power of attorney to sign the name of
Borrower on any of the documents described in Section 4.2 regardless of whether
an Event of Default has occurred. The appointment of Bank as Borrower's
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of
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<PAGE>
the Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 Accounts Collection. After the occurrence and during the continuance
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Upon the occurrence and during the continuation of an Event of Default, Borrower
shall collect all amounts owing to Borrower for Bank, receive in trust all
payments as Bank's trustee, and immediately deliver such payments to Bank in
their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Revolving Facility as Bank deems necessary to protect Bank from the exposure
created by such failure; or (c) obtain and maintain insurance policies of the
type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or
deposited by Bank shall constitute Bank Expenses, shall be immediately due and
payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Revolving Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with its
obligations under the Code, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. Subject to
the foregoing, all risk of loss, damage or destruction of the Collateral shall
be borne by Borrower, except in the case of Bank's gross negligence or
intentional misconduct.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not inconsistent herewith as provided under
the Code, by law, or in equity. No exercise by Bank of one right or remedy
shall be deemed an election, and no waiver by Bank of any Event of Default on
Borrower's part shall be deemed a continuing waiver. No delay by Bank shall
constitute a waiver, election, or acquiescence by it. No waiver by Bank shall
be effective unless made in a written document signed on behalf of Bank and then
shall be effective only in the specific instance and for the specific purpose
for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
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 at
any time held by Bank on which Borrower may in any way be liable.
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<PAGE>
10. NOTICES.
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower: Alteon Networks, Inc.
6351 San Ignacio Avenue
San Jose, CA 95119
Attn: Ms. Chloe Chan
FAX: (408) 360-5501
If to Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Attn: Ms. Sheila Colson
FAX: (408) 748-9478
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive
jurisdiction of 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 shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's
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<PAGE>
prior written consent, which consent may be granted or withheld in Bank's sole
discretion. Bank shall have the right without the consent of, but upon 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 hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and hold harmless
Bank and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by the Loan Documents and (b) all
losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a
result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents or
otherwise (including without limitation 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 set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be amended
or terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement, if any, are merged 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, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
(excluding Obligations under Section 2.7 and 12.2 to the extent they remain
inchoate at the time the outstanding payment Obligations are paid in full)
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run, provided that so
long as the obligations set forth in the first sentence of this Section 12.7
have been satisfied, and Bank has no commitment to make any Advances or to make
any other loans to Borrower, Bank shall release all security interests granted
hereunder and redeliver all Collateral held by it in accordance with applicable
law.
12.8 Confidentiality. In handling any confidential information Bank shall
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received-pursuant to this Agreement
except that disclosure of such information may be made (i) to the
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subsidiaries or affiliates of Bank in connection with their present or
prospective business relations with Borrower, (ii) to prospective transferees or
purchasers of any interest in the Loans, provided that they have entered into a
comparable confidentiality agreement in favor of Borrower and have delivered a
copy to Borrower, (iii) as required by law, regulations, rule or order,
subpoena, judicial order or similar order, (iv) as may be required in connection
with the examination, audit or similar investigation of Bank and (v) as Bank may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ALTEON NETWORKS, INC.
By: /s/ Chloe Chan
------------------------
Title: Corporate Controller
----------------------
SILICON VALLEY BANK
By: /s/ Sheila Colson
------------------------
Title: Assistant Vice President
------------------------
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SCHEDULE
1. Other Names under which Borrower has done business: Acteon Networks
2. Litigation:
A Complaint was served on Borrower alleging, among other things,
allegations of trademark infringement, misappropriation, and unlawful business
practices under the Federal Trademark Act and other relevant statutes.
3. Existing pertained Indebtedness:
(a) All indebtedness to Phoenix Leasing, the principal amount outstanding
being $996,346.56.
(b) All indebtedness to OCE-USA, Inc., the principal amount outstanding
being $12,935.00.
(c) All indebtedness to AT&T Capital Corporation, the principal amount
outstanding being $5,450.00.
(d) All indebtedness to Pitney Bowes Credit Corporation, the principal
amount outstanding being $6,879.10.
4. Inventory locations:
(a) Tanon Manufacturing, 46360 Fremont Blvd., Fremont, CA 94538-6406.
(b) International Manufacturing Services, 2222 Qume Drive, San Jose, CA
95131.
(c) International Manufacturing Services Thailand Ltd. 49/12 Laim Chabang
Industrial Estate, M005, Tungsukhla, Sriracha Chonsuri, Thailand
#20230.
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EXHIBIT A-1
-----------
The Revolving Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) 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, and
Borrower's Books relating to any of the foregoing;
(b) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;
(c) 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 Borrower's Books
relating to any of the foregoing;
(d) All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, letters of credit, certificates of deposit,
instruments and chattel paper now owned or hereafter acquired and Borrower's
Books relating to the foregoing; and
(e) Any and all claims, rights and interests in any of the above and all
substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not include any
Intellectual Property, provided the Collateral shall include all the Accounts,
rights to payment, and proceeds arising out of the sale, licensing or other
disposition of any interest in the Intellectual Property. The Collateral shall
not include the Equipment and related property financed by Phoenix Leasing or
its affiliates to the extent such inclusion would violate the provisions of the
equipment leases or other agreements pursuant to which such property has been
financed, provided that such property (other than Equipment) will automatically
become collateral upon the nonapplicability of such provisions.
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<PAGE>
EXHIBIT A-2
-----------
The Equipment Collateral shall consist of all rights, title and interest of
Borrower in and to the personal property described on Attachment 1 hereto, and
such other Attachments as Bank and Borrower may from time to time approve,
together with all attachments, accessories, accessories, replacements,
substitutions, additions, and improvements to any of the foregoing, and all
proceeds thereof.
The following Equipment purchased by Buyer pursuant to the Equipment
Facility:
_____________________
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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:_____________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY:_____________________________________________________________
AUTHORIZED SIGNER'S NAME
PHONE NUMBER:_____________________________________________________________
FROM ACCOUNT #______________ TO ACCOUNT #___________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (REVOLVING ADVANCE) $______________________________
PRINCIPAL INCREASE (EQUIPMENT ADVANCE) $______________________________
PRINCIPAL PAYMENT (ONLY) $______________________________
INTEREST PAYMENT (ONLY) $______________________________
PRINCIPAL AND INTEREST (PAYMENT) $______________________________
OTHER INSTRUCTIONS:_______________________________________________________
- ---------------------------------------------------------------------------
Except as previously disclosed in writing to Bank, all representations and
warranties of Borrower stated in the Loan and Security Agreement are true,
correct and complete in all material respects as of the date of the telephone
request for and Advance confirmed by this Borrowing Certificate; provided,
however, that those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
such date.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BANK USE ONLY
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)
- --------------------------------------------------------------------------------
35
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Alteon Networks, Inc. Lender: Silicon Valley Bank
Commitment Amount: $1,500,000
- -------------------------------------------------------------------------------
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. Concentration Limits* $___________
7. Foreign Accounts (unless approved) $___________
8. Governmental Accounts $___________
9. Contra Accounts $___________
10. Promotion or Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS
14. Eligible Accounts (#3 minus #13) $_______
15. LOAN VALUE OF ACCOUNTS (80% of #14) $_______
INVENTORY
16. Eligible raw materials and finished goods $_______
Inventory Value as of _____
17. LOAN VALUE OF INVENTORY (25% of #16) $________
BALANCES
18. Maximum Loan Amount $________
19. Total Funds Available [Lesser of #18 or $
(#15 plus #17)]
20. Present balance under Revolving Facility $________
21. RESERVE POSITION (#19 minus #20) $________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
* 50% concentration permitted for Sun Microsystems, Inc., Fuji Xerox, NEC, IBM
** Not to exceed lesser of $500,000 or 25% of Backlog
COMMENTS: -----------------------------
BANK USE ONLY
--------------------
Rec'd By:____________________
ALTEON NETWORKS, INC. Authorized Signer
Date:________________________
By:_______________________ Verified::__________________
Authorized Signer Authorized Signer
Date:________________________
_____________________________
36
<PAGE>
EXHIBIT D
COMPLIANCE CERTFICATE
TO: SILICON VALLEY BANK
FROM: ALTEON NETWORKS, INC
The undersigned authorized officer of Alteon Networks, Inc. hereby
certifies that in accordance with the terms and conditions of the 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 of
Borrower stated in the Agreement are true and correct in all material respects
as of the date hereof unless otherwise previously disclosed in writing to, and
receipt of which is acknowledged by, Bank. Attached herewith are the required
documents supporting the above certification. The Officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
- ------------------ -------- --------
<S> <C> <C>
Monthly financial statements, Within 30 days of month end Yes No
Compliance Certificate
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings, Within 20 days of month end
Borrowing Base Certificate Yes No
A/R Audit Initial and Semi-Annual Yes No
Backlog Report & Inventory Schedule Within 20 days of month end Yes No
</TABLE>
<TABLE>
<CAPTION>
Reporting Covenant Required Actual Complies
- ------------------
Maintain on a Monthly Basis:
<S> <C> <C> <C> <C>
Minimum Quick Ratio 1.00:1.00 ________:1.00 Yes No
Minimum Cash $3,000,000 $_______ Yes No
Profitability: Quarterly $1.00** $_______
Yes No
</TABLE>
**3/31/98 net loss *$4,500,000; 6/30/98 net loss *$2,200,000; 9/30/98 net loss
*$1,500,000; 12/31/98 net loss *$1,000,000
Comments Regarding Exceptions: See Attached BANK USE ONLY
--------------
Rec'd By:__________________
Sincerely, Authorized Signer
Date:______________________
Verified:__________________
Authorized Signer
Signature____________________ Date:______________________
Title________________________ Compliance Status: Yes No
Date_________________________
* lesser than
37
<PAGE>
EXHIBIT E
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of March 20, 1998, by and between
Alteon Networks, Inc. ("Borrower") and SILICON VALLEY BANK ("Bank").
In connection with the Loan and Security Agreement being concurrently
executed between Borrower and Bank, Borrower agrees as follows:
1. Except as permitted in the Loan and Security Agreement, Borrower shall not
sell, transfer, assign, mortgage, pledge, lease, grant a security interest in,
or encumber any of Borrower's intellectual property, including, without
limitation, the following:
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protection in each work or authorship and derivative work
thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or held
(collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual property rights
in computer software and computer software products now or hereafter existing,
created, acquired or held;
(c) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections, including,
without limitation, improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including, without limitation,
the patents and patent applications (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Borrower connected with and symbolized by
such trademarks (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and future
infringements of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;
(g) All licenses or other rights to use any of the Copyrights, Patents or
Trademarks and all license fees and royalties arising from such use to the
extent permitted by such license or rights;
(h) All amendments, extensions, renewals and extensions of any of the
Copyrights, Patents or Trademarks; and
38
<PAGE>
(i) All proceeds and products of the foregoing, including, without
limitation, all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
The foregoing not withstanding, Borrower shall be able to grant security
interests or licenses of its intellectual property in connection with any joint
venture, collaboration, strategic alliance, research and development partnership
and any similar arrangement or agreement.
2. It shall be an Event of Default under the Loan Documents between Borrower
and Bank if there is a breach of any term of this Negative Pledge Agreement.
3. Capitalized items used herein without definition shall have the same
meanings as set forth in the Loan and Security Agreement of even date herewith.
4. This Agreement shall terminate upon the termination of the Revolving
Facility.
Alteon Networks, Inc. Silicon Valley Bank
By: /s/ Chloe Chan By: /s/ Sheila Colson
-------------------------- ----------------------------
Title: Corporate Controller Title: Asst. Vice President
----------------------- -------------------------
39
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of May 29, 1998, by and
between Alteon Networks, Inc. ("Borrower") whose address is 6351 San Ignacio
Avenue, San Jose, CA 95119 and Silicon Valley Bank ("Bank") whose address is
3003 Tasman Drive, Santa Clare, CA 95054.
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, a Loan and Security Agreement, dated March 20, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Line in the original principal amount of
One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) and a
Equipment Committed Line in the original principal amount of Two Million and
00/100 Dollars ($2,000,000.00), however capped at One Million and 00/100 Dollars
($1,000,000.00) until Borrower meets certain criteria as set forth in Section
2.2 (a) of the Loan Agreement. 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. Additionally,
Borrower has agreed with Bank not to mortgage, pledge, hypothecate, or otherwise
encumber any of its Intellectual Property, pursuant to a Negative Pledge
Agreement dated March 20, 1998.
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 defined term "Current Liabilities" is hereby amended in part
to include deferred revenue.
2. The first sentence of sub-section (a) of Section 2.2 entitled
"Equipment Facility" is hereby amended in its entirety to read as
follows:
Subject to and upon the terms and conditions of this Agreement,
Bank agrees, at any time from the date of this Agreement through
the Equipment Availability Date to make Equipment Advances to
Borrower in an aggregate principal amount of up to Two Million
and 00/100 Dollars ($2,000,000.00).
1.
<PAGE>
3. Section 6.8 entitled "Quick Ratio" is hereby amended in its
entirety to read as follows:
Borrower shall maintain, as of the last day of each month, a
ratio of Quick Assets to Current Liabilities minus deferred
revenue of at least 1.00 to 1.00.
4. Section 6.10 entitled "Profitability" is hereby amended in its
entirety to read as follows:
Borrower may incur net losses in the quarters ending on the
following dates in amounts not to exceed the following for such
respective quarters: Two Million Six Hundred Thousand and 00/100
Dollars ($2,600,000.00) for the quarter ending June 30, 1998; Two
Million and 00/100 Dollars ($2,000,000.00) for the quarter ending
September 30, 1998; and One Million Five Hundred Thousand and
00/100 Dollars ($1,500,000.00) for the quarter ending December
31, 1998.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. 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.
6. 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.
2.
<PAGE>
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ALTEON NETWORKS, INC. SILICON VALLEY BANK
By: /s/ Chloe Chan By: /s/ Sheila Colson
------------------------------ ----------------------------
Name: Chloe Chan Name: Sheila Colson
---------------------------- --------------------------
Title: Corporate Controller Title: Asst. Vice President
--------------------------- -------------------------
3.
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of July 15, 1998, by
and between Alteon Networks, Inc. ("Borrower") and Silicon Valley Bank ("Bank").
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, a Loan and Security Agreement, dated March 20, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Line in the original principal amount of
One Million Five Hundred Thousand and 001100 Dollars ($1,500;000.00) (the
"Revolving Facility"). 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 Additionally,
Borrower has agreed with Bank not to mortgage, pledge, hypothecate, or otherwise
encumber any of its Intellectual Property, pursuant to a Negative Pledge
Agreement dated March 20, 1998.
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. Waiver of Financial Covenant Defaults.
1. Bank hereby waives Borrower's existing defaults under the Loan
Agreement by virtue of Borrower's failure to comply with the
Quick Ratio and Minimum Cash covenants as of the month ended May
31, 1998. Bank's waiver of Borrower's compliance of these
covenants shall apply only to the foregoing period. Accordingly,
for the month ended June 30, 1998, Borrower shall be in
compliance with these covenants.
Bank's agreement to waive the above-described defaults (1) in no
way shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenants as of all other
dates and (2) shall not limit or impair the Bank's right to
demand strict performance of these covenants as of all other
dates and (3) shall not limit or impair the Bank's right to
demand strict performance of all other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
1.
<PAGE>
5. 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.
6. 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.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ALTEON NETWORKS, INC. SILICON VALLEY BANK
By: /s/ Chloe Chan By: /s/ Sheila Colson
------------------------------ ------------------------------
Name: Chloe Chan Name: Sheila Colson
---------------------------- ---------------------------
Title: Corporate Controller Title: Asst. Vice President
--------------------------- ---------------------------
2.
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of September 4, 1998,
by and between Alteon Networks, Inc. ("Borrower") and Silicon Valley Bank
("Bank").
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, a Loan and Security Agreement, dated March 20, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Line in the original principal amount of
One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) (the
"Revolving Facility") and an Equipment Committed Line in the original principal
amount of Two Million and 00/100 Dollars ($2,000,000.00). 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. Additionally,
Borrower has agreed with Bank not to mortgage, pledge, hypothecate, or otherwise
encumber any of its Intellectual Property, pursuant to a Negative Pledge
Agreement dated March 20, 1998.
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. Waiver of Financial Covenant Defaults.
1. Bank hereby waives Borrower's existing defaults under the Loan
Agreement by virtue of Borrower's failure to comply with the
Profitability covenant as of the quarter ended June 30, 1998.
Bank's waiver of Borrower's compliance of this covenant shall
apply only to the foregoing period. Accordingly, for the quarter
ended September 30, 1998, Borrower shall be in compliance with
this covenant.
Bank's agreement to waive the above-described defaults (1) in no
way shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenant as of all other
dates and (2) shall not limit or impair the Bank's right to
demand strict performance of this covenant as of all other dates
and (3) shall not limit or impair the Bank's right to demand
strict performance of all other covenants as of any date.
1.
<PAGE>
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the changes described above.
5. 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.
6. 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.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ALTEON NETWORKS, INC. SILICON VALLEY BANK
By: /s/ Chloe Chan By: /s/ Sheila Colson
-------------------------- --------------------------
Name: Chloe Chan Name: Sheila Colson
------------------------ ------------------------
Title: Corporate Controller Title: Asst. Vice President
----------------------- -----------------------
2.
<PAGE>
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of December 8, 1998, by
and between Alteon Networks, Inc. ("Borrower") and Silicon Valley Bank ("Bank").
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, a Loan and Security Agreement, dated March 20, 1998, as may be
amended from time to time, (the "Loan Agreement"). The Loan Agreement provided
for, among other things, a Committed Line in the original principal amount of
One Million Five Hundred Thousand Dollars ($1,500,000) (the "Revolving
Facility") and an Equipment Committed Line in the original principal amount of
Two Million Dollars ($2,000,000). 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. Additionally,
Borrower has agreed with Bank not to mortgage, pledge, hypothecate, or otherwise
encumber any of its Intellectual Property, pursuant to a Negative Pledge
Agreement dated March 20, 1998.
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 following terms are hereby amended or incorporated into
Section 1.1 entitled "Definitions":
"Committed Line" means Three Million Dollars ($3,000,000).
"Equipment Availability Date" means December 8, 1999.
"Equipment Maturity Date" means the date that is 36 months from
the Equipment Availability Date.
"Equipment Committed Line" means Four Million Dollars
($4,000,000).
"Revolving Maturity Date" means December 8, 1999.
"Payment Date" means the 8th calendar day of each month.
2. Section 2.1 (a) entitled "Advances" is hereby amended to read as
follows:
1.
<PAGE>
Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make Revolving Advances to Borrower in an
aggregate amount not to exceed the lesser of the Committed Line
or the Borrowing Base, minus, in each case the face amount of
outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit). For purposes of this Agreement, "Borrowing
Base" shall mean an amount equal to (i) $500,000 (or $700,000 if
only outstanding Letters of Credit including drawn but
unreimbursed Letters of Credit comprise the Obligations under the
Committed Line) plus (ii) eighty percent (80%) of Eligible
Accounts plus (iii) twenty-five percent (25%) of eligible raw
materials and finished goods inventory "); provided that
Revolving Advances under clause (iii) shall not exceed the lesser
of Five Hundred Thousand Dollars ($500,000) or twenty-five
percent (25%) of Backlog. (Clause (ii) and Clause (iii) shall be
referred to as the "Advance Rate." Notwithstanding the
foregoing, in the event Borrower requests Advances in excess of
$500,000 (or $700,000 if only outstanding Letters of Credit
comprise the Obligations), the entire amount of all Advances
(including Letters of Credit) shall be subject to the Advance
Rate limitation set forth above. Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1 may be repaid and reborrowed at any time prior to the
Revolving Maturity Date.
3. Section 2.2 entitled "Equipment Advances" is hereby amended
to read as follows:
(a) Through the Equipment Availability Date Bank will make
Equipment Advances not exceeding the Committed Equipment Line.
The Equipment Advances may only be used to purchase and may not
exceed 100% of the equipment invoice excluding taxes, shipping,
warranty charges, freight discounts and installation expense.
Software licenses, leasehold improvements, taxes, freight or
installation costs, used equipment, or other soft costs may
constitute up to 33% of aggregate Equipment Advances. Each
Equipment Advance must be for minimum of $50,000. There may be
not more than 6 Equipment Advances from December 1, 1998 through
the Equipment Availability Date.
(b) Interest accrues from the date of each Equipment Advance at
the rate in Section 2.4(a) and is payable monthly until the
Equipment Availability Date occurs. Each Equipment Advance made
prior to December 1, 1998 shall continue to amortize over 34
equal monthly principal payments plus interest and each Equipment
Advance made after December 1, 1998 shall be payable in 36 equal
monthly installments of principal plus accrued interest, on the
Payment Date for each month after the date of such Equipment
Advance. Equipment Advances when repaid may not be reborrowed.
2.
<PAGE>
(c) The Equipment Facility shall terminate on the Equipment
Maturity Date, at which time all Equipment Obligations owing
under this Section 2.2 and all other amounts under this Agreement
shall be immediately due and payable.
(d) To obtain an Equipment Advance, Borrower must notify Bank
(the notice is irrevocable) by facsimile no later than 3:00 p.m.
Pacific time 1 Business Day before the day on which the Equipment
Advance is to be made. The notice must be signed by a Responsible
Officer or designee and include a copy of the invoice for the
Equipment being financed.
4. Effective as of the date of this Loan Modification Agreement,
Section 2.4(a) entitled "Interest Rate" is hereby amended to read
as follows:
i. Revolving Advances. Except as set forth in Section 2.4(b),
all Revolving Advances shall bear interest, on the average Daily
Balance thereof, at a rate equal to one half of one (0.500)
percentage point above the Prime Rate.
ii. Equipment Advances. Except as set forth in Section 2.4(b),
all Equipment Advances shall bear interest, on the average Daily
Balance thereof, at a rate equal to three quarters of one (0.750)
percentage point above the Prime Rate.
5. Section 6.8 entitled "Quick Ratio" is hereby amended to read as
follows:
Borrower shall maintain, as of the last day of each month, a
ratio of Quick Assets to Current Liabilities minus deferred
revenue of at least 1.50 to 1.00.
6. Section 6.9 entitled "Minimum Cash" is hereby deleted and
replaced with the following:
6.9 Tangible Net Worth. Borrower shall maintain, as of the
last day of each month, a Tangible Net Worth of at least
$7,500,000.
7. Section 6.10 entitled "Profitability" is hereby deleted and
replaced with the following:
6.10 Liquidity. Borrower shall maintain, as of the last day of
each month, unrestricted cash and equivalents plus net available
under the Committed Line (or if the Committed Line has terminated
or Borrower does not provide to Bank a Borrowing Base Certificate
or accounts receivable and accounts payable agings, then
unrestricted cash and equivalents plus 50% of Borrower's net
Accounts) equal to 2 times the aggregate outstanding Equipment
Advances. Notwithstanding the foregoing, at such times as
Borrower maintains 2 consecutive fiscal
3.
<PAGE>
quarters of a Debt Service Coverage (as defined below) of 1.50 to
1.00, then the Liquidity covenant shall be replaced with the
following:
i. Debt Service Coverage. Borrower shall maintain, as of the
last day of each month, a ratio of net income plus depreciation,
amortization and interest expense, less unfunded capital
expenditures, divided by interest expense and scheduled principal
payments, all calculated on a rolling 3 month basis of not less
than 1.50 to 1.00; and
ii. Debt/Net Worth Ratio. A ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of
not more than 1.00 to 1.00.
8. Item "(b)" under Section 6.3 entitled "Financial Statements,
Reports, Certificates" is hereby amended to read as follows:
At such times as Borrower's Obligations under the Committed Line
exceed $500,000 (or $700,000 if only outstanding Letters of
Credit including drawn but unreimbursed Letters of Credit
comprise the Obligations under the Committed Line), within 20
days after Borrower's month-end, Borrower shall deliver to Bank a
Borrowing Base Certificate signed by a Responsible Officer,
together with aged listings of accounts receivable and accounts
payable. In addition, if the current Eligible Accounts do not
adequately support the outstanding Obligations under the
Committed Line, Borrower shall deliver to Bank, with the
Borrowing Base Certificate, a backlog report and an inventory
schedule.
B. Waiver of Borrower's Financial Covenant Default.
Bank hereby waives Borrower's existing default under the Loan
Agreement by virtue of Borrower's failure to comply with the
Profitability covenant as of fiscal quarter ending September 30, 1998.
Bank's waiver of Borrower's compliance of this covenant shall apply
only to the foregoing period.
Bank's agreement to waive the above-described default (1) in no way
shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenant as of all other dates and
(2) shall not limit or impair the Bank's right to demand strict
performance of this covenant as of all other dates and (3) shall not
limit or impair the Bank's right to demand strict performance of all
other covenants as of any date.
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
Four Thousand Dollars ($4,000) (the "Loan Fee") plus all out-of-pocket expenses.
4.
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10.5 Loan Modification
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. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon Borrower's payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ALTEON NETWORKS, INC. SILICON VALLEY BANK
By: /s/ Chloe Chan By: /s/ Sheila Colson
------------------------- ----------------------------
Name: Chloe Chan Name: Sheila Colson
----------------------- --------------------------
Title: Corporate Controller Title: Asst. Vice President
---------------------- -------------------------
5.
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EXHIBIT 10.6
MASTER EQUIPMENT LEASE NO. 0034
Under this Master Equipment Lease No. 0034 (the "Lease"), dated as of September
9, 1996, PHOENIX LEASING INCORPORATED, a California corporation ('Lessor'),
hereby leases to ALTEON NETWORKS, INC., a Delaware corporation ('Lessee'), and
Lessee hereby leases from Lessor, the equipment, including certain items
generally considered fungible or expendable ("Soft Costs") (the equipment and
Soft Costs being herein together called "Equipment') which is described on the
schedule attached hereto or any subsequently-executed schedule entered into by
Lessor and Lessee and which incorporates this Lease by reference. Any such
schedules shall hereinafter individually be referred to as a 'Schedule" and
collectively be referred to as the "Schedules." Lessor hereby leases the
Equipment to Lessee upon the following terms and conditions:
1. TERM OF AGREEMENT. The term of this Lease begins on the date set forth
above and shall continue thereafter and be in effect so long as and at any time
any Schedule entered into pursuant to this Lease is in effect. The Initial Term
and rent payable with respect to each leased item of Equipment shall be as set
forth in and as stated in the respective Schedule(s). The terms of each Schedule
hereto are subject to all conditions and provisions of this Lease as it may at
any time be amended. Each Schedule shall constitute a separate and independent
lease and contractual obligation of Lessee and shall incorporate the terms and
conditions of this Master Equipment Lease and any additional provisions
contained in such Schedule. In the event of a conflict between the terms and
conditions of this Lease and any additional provisions of such Schedule, the
additional provisions of such Schedule shall prevail with respect to such
Schedule only.
2. NON-CANCELLABLE LEASE. This Lease and any Schedule cannot be cancelled
or terminated except as expressly provided herein. This Lease (including all
Schedules to this Lease) constitutes a net lease and Lessee agrees that its
obligations to pay all rent and other sums payable hereunder (and under any
Schedule) and the rights of Lessor and assignee in and to such rent and other
sums, are absolute and unconditional and are not subject to any abatement,
reduction, setoff, defense, counterclaim or recoupment due or alleged to be due
to, or by reason of, any past, present or future claims which Lessee may have
against Lessor, any assignee, the manufacturer or seller of the Equipment, or
against any person for any reason whatsoever.
3. LESSOR COMMITMENT. So long as no Event of Default or event which with
the giving of notice or passage of time, or both, could become an Event of
Default has occurred or is continuing, Lessor agrees to lease to Lessee the
groups of Equipment described on each Schedule, subject to the following
conditions: (i) that in no event shall Lessor be obligated to lease Equipment to
Lessee hereunder where the aggregate purchase price of all Equipment leased to
Lessee hereunder would exceed $1,000,000 ('Commitment") of which amount Lessor
may finance Soft Costs for lease to Lessee having an aggregate purchase price
not exceeding an amount equal to 20% of the utilized Commitment; (ii) the amount
of Equipment purchased by Lessor at any one time shall be at least equal to
$25,000 except for a final advance which may be less than $25,000; (iii) Lessor
shall not be obligated to purchase Equipment hereunder after March 31, 1997,
provided that the funding period may be extended to October 31, 1997 (the
"Commitment Termination Date") if Lessor has received and approved in its sole
discretion (yy)
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Lessee's monthly calendar 1997 business plan ("1997 Monthly Business Plan") and
(zz) hard copy evidence of Lessee's receipt of a $5,850,000 equity financing or
alternative financial measure agreeable to Lessor in its sole discretion; (iv)
all Lease documentation required by Lessor has been executed by Lessee or
provided by Lessee no later than October 15, 1996; (v) the equipment described
on the Schedule is acceptable to Lessor; (vi) with respect to each funding
Lessee has provided to Lessor each of the closing documents and other items
described in Exhibit A hereto (which documents shall be in form and substance
reasonably acceptable to Lessor) and which list may be modified for each
subsequent funding as reasonably requested by Lessor to perfect its lien in the
Equipment; (vii) there is no material adverse change in Lessee's condition,
financial or otherwise, as determined by Lessor, and Lessee so certifies, from
(yy) the date of the most recent financial statements delivered by Lessee to
Lessor prior to execution of this Lease, to (zz) the date of the proposed lease
of the Equipment; (viii) at all fundings Lessee is performing substantially
according to its quarterly business plan referred to as 'Projected Income
Statement for Fiscal 1997 (7/1/96 to 6/30/97), Projected Balance Sheet for
Fiscal 1997 (7/1/96 to 6/30/97) and Projected Cash Flow Statement for Fiscal
1997 (7/1/96 to 6/30/97)' dated August 1, 1996, as may be amended by Lessee's
1997 Monthly Business Plan and otherwise from time to time in form and substance
acceptable to Lessor (collectively, "Business Plan") which Business Plan Lessee
agrees to provide through December 31, 1997; (ix) Lessor or its agent has
inspected and placed identification labels on the Equipment; (x) Lessee shall
offer to Lessor, on an exclusive basis, all lease transactions for equipment
contemplated by Lessee until the Commitment Termination Date; however if Lessor
declines to finance any such transaction or Lessee and Lessor cannot agree upon
terms within five (5) business days, then Lessee shall be free to seek such
financing from any other third party; and (xi) Lessor has received in form and
substance acceptable to Lessor: (a) Lessee's interim financial statements signed
by a financial officer of Lessee; (b) for fundings after March 31, 1997, hard
copy evidence of Lessee's receipt of $5,850,000 equity or alternative financial
measure agreeable to Lessor in its sole discretion prior to March 31, 1997; (c)
hard copy evidence of Lessee's $3,860,000 cash position as of June 30, 1996; and
(d) Lessee's corporate resolution authorizing the transaction set forth herein.
4. NO WARRANTIES BY LESSOR. (a) Lessee has selected both (i) the
Equipment and (ii) the suppliers (herein called "Vendor") from whom Lessor is to
purchase the Equipment. LESSOR MAKES NO WARRANTY EXPRESS OR IMPLIED AS TO ANY
MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY
OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND AS TO LESSOR, LESSEE LEASES THE
EQUIPMENT "AS IS" AND WITH ALL FAULTS. (b) If the Equipment is not properly
installed, does not operate as represented or warranted by Vendor or is
unsatisfactory for any reason, Lessee shall make any claim on account thereof
solely against Vendor and shall, nevertheless, pay Lessor all rent payable under
this Lease, Lessee hereby waiving any such claims as against Lessor. Lessor
hereby agrees to assign to Lessee solely for the purpose of making and
prosecuting any said claim, to the extent assignable, all of the rights which
Lessor has against Vendor for breach of warranty or other representation
respecting the Equipment. Lessor shall have no responsibility for delay or
failure to fill the order. (c) Lessee understands and agrees that neither the
Vendor nor any salesman or other agent of the Vendor is an agent of Lessor. No
salesman or agent of Vendor is authorized to waive or alter any term or
condition of this Lease, and no representations as to the Equipment or any other
matter by the Vendor shall in any way affect Lessee's duty to pay the rent and
perform its other obligations as set forth in this Lease. (d) Lessee hereby
requests Lessor to purchase Equipment from Vendor
2.
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and to lease Equipment to Lessee on the terms and conditions of the Lease set
forth herein. (e) Lessee hereby authorizes Lessor to insert in this Lease and
each Schedule hereto the serial numbers and other identification data of the
Equipment when determined by Lessor.
5. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee represents and
warrants that (a) it is a corporation in good standing under the laws of the
state of its incorporation, and duly qualified to do business, and will remain
duly qualified during the term of this Lease, in each state where the Equipment
will be located, as specified on each Schedule hereto; (b) it has full authority
to execute and deliver this Lease and perform the terms hereof, and this Lease
has been duly authorized and constitutes valid and binding obligations of Lessee
enforceable in accordance with its terms; (c) this Lease will not contravene any
law, regulation or judgment affecting Lessee or result in any breach of any
material agreement or other material instrument binding on Lessee; (d) no
consent of Lessee's shareholders or holder of any indebtedness, or filing with,
or approval of, any governmental agency or commission, is a condition to the
performance of the terms hereof; (e) there is no action or proceeding pending or
threatened against Lessee before any court or administrative agency which might
have a materially adverse effect on the business, financial condition or
operations of Lessee; (f) no deed of trust, mortgage or third party interest
arising through Lessee will attach to the Equipment or the Lease; (g) the
Equipment will remain at all times under applicable law, removable personal
property, free and clear of any lien or encumbrance in favor of Lessee or any
other person, notwithstanding the manner in which the Equipment may be attached
to any real property; (h) all credit, financial and any other information
submitted to Lessor herewith or any other time is true and correct; and (i)
Lessee has provided, or will provide if requested, Lessee's tax identification
number.
6. EQUIPMENT ORDERING. Lessee shall be responsible for all packing,
rigging, transportation and installation charges for the Equipment and Lessor
may separately invoice Lessee for such charges. Lessee has selected the
Equipment itself and shall arrange for delivery of Equipment so that it can be
accepted in accordance with Section 7 hereof. Lessee hereby agrees to indemnify
and hold Lessor harmless from any claims, liabilities, costs and expenses (other
than claims, liabilities, costs and expenses arising out of Lessor's gross
negligence or willful misconduct), including reasonable attorneys' fees,
incurred by Lessor arising out of any purchase orders or assignments executed by
Lessor with respect to any Equipment or services relating thereto.
7. LESSEE ACCEPTANCE. Lessee shall return to Lessor the signed and dated
Acceptance Notice attached to each Schedule hereto (a) acknowledging the
Equipment has been received, installed and is ready for use and (b) accepting it
as satisfactory in all respects for the purposes of this Lease. Lessor is
authorized to fill in the Rent Start Date on each Schedule in accordance with
the foregoing.
8. LOCATION; INSPECTION; LABELS. Equipment shall be delivered to and
shall not be removed from the Equipment "Location" shown on each Schedule
without prior written notice to Lessor, which "Location" shall in all events be
at Lessee's business offices within the United States provided, however, any
laptop computers with a cumulative original purchase price not exceeding
approximately $50,000, may be temporarily removed from the Location. Lessee
agrees to promptly execute any necessary or appropriate UCC financing
3.
<PAGE>
statements or amendments and agrees to use its best efforts to obtain a landlord
waiver and consent from the landlord of any new Location if the "Location" of
the Equipment is changed. Lessor shall have the right to inspect Equipment at
any reasonable time. Lessee shall be responsible for all labor, material and
freight charges incurred in connection with any removal or relocation of such
Equipment which is requested by the Lessee and consented to by Lessor, as well
as for any charges due to the installation or moving of the Equipment. The
rental payments shall continue during any period in which the Equipment is in
transit during a relocation. Lessor or its agent shall mark and label Equipment,
which labels shall state Equipment is owned by Lessor, and Lessee shall keep
such labels on the Equipment as labeled by Lessor or its agent.
9. EQUIPMENT MAINTENANCE. (a) General. Lessee will locate or base each
item of Equipment where designated in an Acceptance Notice and will reasonably
permit Lessor to inspect such item of Equipment and its maintenance records.
Lessee will at its sole expense comply with all applicable laws, rules,
regulations, requirements and orders with respect to the use, maintenance,
repair, condition, storage and operation of each item of Equipment. Except as
required herein, Lessee will not make any addition or improvement to any item of
Equipment that is not readily removable without causing material damage to any
item or impairing its original value or utility. Any addition or improvement
that cannot be so removed will immediately become the property of Lessor if
financed by Lessor or if financed by Lessee, shall become the property of Lessor
if the Equipment is returned to Lessor pursuant to Section 17 hereof. (b)
Service and Repair. With respect to computer equipment, other than personal
computers, Lessee has entered into, and will maintain in effect, Vendor's
standard maintenance contract or another contract satisfactory to Lessor for a
period equal to the term of each Schedule and extensions thereto which provides
for the maintenance of the Equipment and repairs and replacement parts thereof
in good condition and working order, all in accordance with the terms of such
maintenance contract. Lessee shall have the Equipment certified for the Vendor's
standard maintenance agreement prior to delivery to Lessor upon expiration of
this Lease. With respect to any other Equipment, Lessee will, at its sole
expense, maintain and service, and repair any damage to, each item of Equipment
in a manner consistent with prudent industry practice and Lessee's own practice
so that such item of Equipment is at all times (i) in the same condition as when
delivered to Lessee, except for ordinary wear and tear, (ii) in good operating
order for the function intended by its manufacturer's warranties and
recommendations.
10. LOSS OR DAMAGE. Lessee assumes the entire risk of loss to the
Equipment through use, operation or otherwise. Lessee hereby indemnifies and
holds harmless Lessor from and against all claims, loss of rental payments,
costs, damages, and expenses relating to or resulting from any loss, damage or
destruction of the Equipment, any such occurrence being hereinafter called a
"Casualty Occurrence.' On the first rental payment date following such Casualty
Occurrence, or, if there is no such rental payment date, thirty (30) days after
such Casualty Occurrence, Lessee shall (i) repair the Equipment, returning it to
good operating condition or (ii) replace the Equipment with identical or
substantially similar equipment of equal value in good condition and repair, the
title to which shall vest in Lessor and which thereafter shall be subject to the
terms of this 'Lease; or (iii) pay to Lessor (a) any unpaid accrued amounts
relating to such Equipment due Lessor under this Lease up to the date of the
Casualty Occurrence, and (b) a sum equal to the Casualty Value as set forth in
the Casualty Value table attached to each Schedule hereto for such Equipment.
Upon the making of such payment, the
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term of this Lease as to each unit of Equipment with respect to which the
Casualty Value was paid shall terminate.
11. GENERAL INDEMNITY. Lessee will protect, indemnify and save harmless
Lessor from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (collectively, "Liabilities"),
imposed upon or incurred by or asserted against Lessor or any assignee of Lessor
by Lessee or any third party by reason of the occurrence or existence (or
alleged occurrence or existence) of any act or event relating to or caused by
the Equipment, including but not limited to, consequential or special damages of
any kind, or any failure on the part of Lessee to perform or comply with any of
the terms of this Lease; provided, that notwithstanding the foregoing, Lessee
shall not be required to indemnify Lessor for any Liabilities arising out of
Lessor's gross negligence or willful misconduct. In the event that any action,
suit or proceeding is brought against Lessor by reason of any such occurrence,
Lessee, upon request of Lessor, will at Lessee's expense resist and defend such
action, suit or proceeding or cause the same to be resisted and defended by
counsel designated and approved 'by Lessor and reasonably acceptable to Lessee.
Lessee's obligations under this Section 11 shall survive the expiration of this
Lease with respect to acts or events occurring or alleged to have occurred prior
to the purchase by Lessee of the Equipment at the end of the Lease term pursuant
to Section 36 hereof, or earlier return of the Equipment to Lessor pursuant to
the terms and conditions of this Lease.
12. INSURANCE. Lessee at its expense shall keep the Equipment insured for
the entire term and any extensions of this Lease against all risks for at least
the replacement value of such Equipment and shall provide for a loss payable
endorsement to Lessor or any assignee of Lessor. Lessee shall maintain
comprehensive general public liability insurance with respect to loss or damage
for personal injury, death or property damage in an amount not less than
$2,000,000 per occurrence, naming Lessor or any assignee of Lessor as additional
insured. Such insurance shall contain insurer's agreement to give thirty (30)
days written notice to Lessor before cancellation or material change of any
policy of insurance. Lessee will provide Lessor and any assignee of Lessor with
certificate of insurance from the insurer evidencing Lessor's or such assignee's
interest in the policy of insurance. Such insurance shall cover any Casualty
Occurrence to any unit of Equipment. Notwithstanding anything in Section 10 or
this Section 12 to the contrary, this Lease and Lessee's obligations hereunder
and under each Schedule shall remain in full force and effect with respect to
any unit of Equipment which is not subject to a Casualty Occurrence. If Lessee
fails to provide or maintain insurance as require, herein, Lessor shall have the
right, but shall not be obligated to obtain such insurance In that event, Lessee
shall pay to Lessor the cost thereof.
13. TAXES. Lessee agrees to reimburse Lessor for, (or pay directly if
instructed by Lessor), and agrees to indemnify and hold Lessor harmless from,
all fees (including but not limited to, license, documentation, recording and
registration fees), and al sales, use, gross receipts, personal property,
occupational, value added or other taxes levies, imposts, duties, assessments,
charges, or withholdings of any nature whatsoever together with any penalties,
fines, additions to tax, or interest thereon (all of the foregoing being
hereafter referred to as "Impositions") except same as may be attributable to
Lessor's income, arising at any time prior to or during the term of this Lease,
or upon termination or early termination of this Lease and levied or imposed
upon Lessor directly or otherwise by any Federal, state or local government in
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the United States or by any foreign country or foreign or international taxing
authority upon or with respect to (i) the Equipment, (ii) the exportation,
importation, registration, purchase, ownership delivery, leasing, possession,
use, operation, storage, maintenance, repair, return, sale transfer of title, or
other disposition thereof, (iii) the rentals, receipts, or earning arising from
the Equipment, or any disposition of the rights to such rentals, receipts, or
earnings, (iv) any payment pursuant to this Lease, and (v) this Lease or the
transaction or any part thereof. Lessee's obligations under this Section 13
shall survive the expiration of this Lease with respect to acts or events
occurring or alleged to have occurred prior to the return of the Equipment to
Lessor at the end of the Lease term.
14. PAYMENT BY LESSOR. If Lessee shall fail to make any payment or perform
any act required hereunder, then Lessor may, but shall not be required to, after
such notice to Lessee as is reasonable under the circumstances, make such
payment or perform such act with the same effect as if made or performed by
Lessee. Lessee will upon demand reimburse Lessor for all sums paid and all costs
and expenses incurred in connection with the performance of any such act.
15. SURRENDER OF EQUIPMENT. Subject to Section 36 hereof, upon termination
or expiration of this Lease, with respect to each group of Equipment, Lessee
will forthwith surrender the Equipment to Lessor delivered in as good order and
condition as originally delivered, reasonable wear and tear excepted. Lessor
may, at its sole option, arrange for removal and transportation of the Equipment
provided that Lessee's obligations under Sections 10, 11 and 12 shall not be
released. Subject to Section 36, Lessee's obligations under Sections 10 and 12
shall be released upon Lessee's surrender of the Equipment to Lessor in the
condition required pursuant to this Section 15. Lessee shall bear all expenses
of delivering (which include, but are not limited to, the de-installation,
insurance, packaging and transportation of) the Equipment to Lessor's location
or other location within California as Lessor may request. In the event Lessee
fails to deliver the Equipment as directed above, all obligations of Lessee
under this Lease, including rental payments, shall remain in full force and
effect until Lessee delivers the Equipment to Lessor.
16. ASSIGNMENT. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, SUCH CONSENT NOT
TO BE UNREASONABLY WIT--.n, LESSEE SHALL NOT (a) ASSIGN, TRANSFER, PLEDGE,
HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE, EQUIPMENT, OR ANY INTEREST
THEREIN, OR (b) SUBLET OR LEND EQUIPMENT OR PERMIT IT TO BE USED BY ANYONE OTHER
THAN LESSEE OR LESSEE'S EMPLOYEES; PROVIDED, HOWEVER, THAT NO CONSENT SHALL BE
REQUIRED IN CONNECTION WITH A MERGER, CONSOLIDATION OR TRANSFER IN WHICH THE
SURVIVOR OR ACQUIRING PARTY HAS A FINANCIAL. CONDITION GREATER THAN OR EQUAL TO
THE FINANCIAL. CONDITION OF LESSEE AS OF THE DATE OF THIS AGREEMENT AS
DETERMINED IN GOOD FAITH BY LESSOR. LESSOR NAY ASSIGN THIS LEASE OR GRANT A
SECURITY INTEREST IN ANY OR ALL EQUIPMENT, OR BOTH. IN WHOLE OR IN PART TO ONE
OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO LESSEE; PROVIDED THAT
NOTWITHSTANDING ANY ASSIGNMENT BY LESSOR, LESSOR SHALL NOT BE RELIEVED OF ITS
DUTIES AND OBLIGATIONS HEREUNDER. If Lessee is given notice of such assignment
it agrees
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to acknowledge receipt thereof in writing and Lessee shall execute such
additional documentation as Lessor's assignee shall reasonably require in order
to reflect such assignment. Each such assignee and/or secured party shall have
all of the rights, but none of the obligations, of Lessor under this Lease,
unless such assignee or secured party expressly agrees to assume such
obligations in writing. Lessee shall not assert against any assignee and/or
secured party any defense, counterclaim or offset that Lessee may have against
Lessor. Notwithstanding any such assignment, and providing no Event of Default
has occurred and is continuing, Lessor, or its assignees, secured parties, or
their agents or assigns, shall not interfere with Lessee's right to quietly
enjoy use of Equipment subject to the terms and conditions of this Lease.
Subject to the foregoing, this Lease inures to the benefit of and is binding
upon the successors and assignees of the parties hereto. Lessee acknowledges
that any such assignment by Lessor will not materially change Lessee's duties or
obligations under the Lease or increase any burden of risk on Lessee.
17. DEFAULT.
(a) Event of Default. Any of the following events or conditions shall
constitute an "Event of Default" hereunder: (i) Lessee's failure to pay any
monies due to Lessor hereunder or under any Schedule beyond the fifth (5th) day
after the same is due; (ii) Lessee's failure to comply with its obligations
under Section 12 or Section 16; (iii) Lessee's failure to comply with or perform
any term, covenant, condition, warranty or representation of this Lease or any
Schedule hereto or under any other agreement between Lessee and Lessor or under
any lease of real property covering the location of Equipment if such failure to
comply or perform is not cured by Lessee within thirty (30) days of receipt of
notice thereof; (iv) seizure of the Equipment under legal process; (v) the
filing by or against Lessee of a petition for reorganization or liquidation
under the Bankruptcy Code or any amendment thereto or under any other insolvency
law providing for the relief of debtors, which, in the case of an involuntary
proceeding, is not dismissed within sixty (60) days after commencement; (vi) the
voluntary or involuntary making of an assignment of a substantial portion of its
assets by Lessee, or any guarantor ("Guarantor") under any guaranty executed in
connection with this Lease ('Guaranty'), for the benefit of its creditors, the
appointment of a receiver or trustee for Lessee or any Guarantor for any of
Lessee's or Guarantor's assets, the institution by or against Lessee or any
Guarantor of any formal or informal proceeding for dissolution, liquidation,
settlement of claims against or winding up of the affairs of Lessee or any
Guarantor, provided that in the case of all such involuntary proceedings, same
are not dismissed within sixty (60) days after commencement; or (vii) the making
by Lessee or any Guarantor of a transfer of all or a material portion of
Lessee's or Guarantor's assets or inventory not in the ordinary course of
business.
(b) Remedies. If any Event of Default shall have occurred and be
continuing:
(i) Lessor may proceed by appropriate court action or actions
either at law or in equity to enforce performance by Lessee, of the applicable
covenants of this Lease, or to recover damages therefor: or
(ii) Lessee will, without demand, on the next rent payment date
following the Event of Default, pay to Lessor as liquidated damages which the
parties agree are fair and reasonable under the circumstances existing at the
time this Lease is entered into, and
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not as a penalty, an amount equal to the Casualty Value of the Equipment set
forth in Exhibit C together with any rent or other amounts past due and owing by
Lessee hereunder; and
(iii) Lessor may, without notice to or demand upon Lessee;
(a) Take possession of the Equipment and lease or sell the same or
any portion thereof, for such period, amount, and to such entity as Lessor shall
elect. The proceeds of such lease or sale will be applied by Lessor (A) first,
to pay all costs and expenses, including reasonable legal fees and
disbursements, incurred by Lessor as a result of the default and the exercise of
its remedies with respect thereto, (B) second, to pay Lessor an amount equal to
any unpaid rent or other amounts past due and payable plus the Casualty Value,
to the extent not previously paid by Lessee, and (C) third, to reimburse Lessee
for the Casualty Value to the extent previously paid. Any surplus remaining
thereafter will be paid to Lessee.
(b) Take possession of the Equipment and hold and keep idle the same
or any portion thereof.
Lessee agrees to pay all out-of-pocket costs of Lessor related to
the exercise of its remedies, including out-of-pocket legal fees and expenses.
At Lessor's request, Lessee shall assemble the Equipment and make it available
to Lessor at such location in California as Lessor may designate. Lessee waives
any right it may have to redeem the Equipment.
Repossession of any or all Equipment shall not terminate this
Lease or any Schedule unless Lessor notifies Lessee in writing. Any amount
required to be paid under this Section shall be increased by a service charge at
the rate of 1.5% per month, or the highest rate of interest permitted by
applicable law, whichever is less, accruing from the date the Casualty Value or
other amounts are payable hereunder until such amounts are paid.
None of the above remedies is intended to be exclusive, but each
is cumulative and in addition to any other remedy available to Lessor, and all
may be enforced separately or concurrently.
18. LATE PAYMENTS. Lessee shall pay to Lender an amount equal to the
greater of 10% per month of all amounts owed Lessor by Lessee which are not paid
when due or $100, but in no event an amount greater than the highest rate
permitted by applicable law. If such funds have not been received by Lessor at
Lessor's place of business or by Lessor's designated agent by the date such
funds are due under this Lease, Lessor shall bill Lessee for such charges.
Lessee acknowledges that invoices for rentals due hereunder are sent by Lessor
for Lessee's convenience only. Lessee's non-receipt of an invoice will not
relieve Lessee of its obligation to make rent payments hereunder.
19. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses
including reasonable attorney's fees and the fees of the collection agencies,
incurred by Lessor in enforcing any of the terms, conditions or provisions
hereof.
20. 0WNERSHIP; PERSONAL PROPERTY. The Equipment shall be and remain
personal property of Lessor, and Lessee shall have no right, title or interest
therein or thereto
8.
<PAGE>
except as expressly set forth in this Lease, notwithstanding the manner in which
it may be attached or affixed to real property, and upon termination or
expiration of the Lease term, Lessee shall have the duty and Lessor shall have
the right to remove the Equipment from the premises where the same be located
whether or not affixed or attached to the real property or any building, at the
cost and expense of Lessee.
21. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be made
to the Equipment without Lessor's prior written consent, which shall not be
given for changes that will affect the reliability and utility of the Equipment
or which cannot be removed without damage to the Equipment, or which in any way
affect the value of the Equipment for purposes of resale or re-lease.
22. FINANCING STATEMENT. Lessee will execute financing statements pursuant
to the Uniform Commercial Code. Lessee authorizes Lessor to file financing
statements signed only by Lessor (where such authorization is permitted by law)
at all places where Lessor deems necessary.
23. MISCELLANEOUS. (a) Lessee shall provide Lessor with such corporate
resolutions, financial statements and other documents as Lessor shall reasonably
request from time to time. (b) Lessee represents that the Equipment is being
leased hereunder for business purposes. (c) Time is of the essence with respect
to this Lease. (d) Lessee shall keep its books and records in accordance with
generally accepted accounting principles and practices consistently applied and
shall deliver to Lessor its annual audited financial statements, unaudited
monthly financial statements, and signed by an officer of Lessee and such other
unaudited financial statements as may be reasonably requested by Lessor. (e) Any
action by Lessee against Lessor for any default by Lessor under this Lease,
including breach of warranty or indemnity, shall be commenced within one (1)
year after any such cause of action accrues.
24. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service and shall be directed, as the
case may be, to Lessor at 2401 Kerner Boulevard, San Rafael, California 94901,
Attention: Account Management and to Lessee at 5831 San Ignacio Avenue, San
Jose, CA 95119, Attention: Chloe Chan.
25. ENTIRE AGREEMENT. Lessee acknowledges that Lessee has read this Lease,
understands it and agrees to be bound by its terms, and further agrees that it
and each Schedule constitute the entire agreement between Lessor and Lessee with
respect to the subject matter hereof and supersedes all previous agreements,
promises, or representations. The terms and conditions hereof shall prevail
notwithstanding any variance with the terms of any purchase order submitted by
the Lessee with respect to any equipment covered hereby.
26. AMENDMENT. This Lease may not be changed, altered or modified except
by an instrument in writing signed by an officer of the Lessor and the Lessee.
27. WAIVER. Any failure of Lessor to require strict performance by Lessee
or any waiver by Lessor of any provision herein shall not be construed as a
consent or waiver of any other breach of the same or any other provision.
9.
<PAGE>
28. SEVERABILITY. If any provision of this Lease is held invalid, such
invalidity shall not affect any other provisions hereof.
29. JURISDICTION AND WAIVER OF JURY TRIAL. This Lease shall be governed by
and construed under the laws of the State of California. It is agreed that
exclusive jurisdiction and venue for any legal action between the parties
arising out of this Lease shall be in the Superior Court for Marin County,
California, or, in cases where Federal diversity jurisdiction is available, in
the United States District Court for the Northern District of California.
LESSEE, TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY
JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS LEASE, ANY SCHEDULE, OR
ANY AGREEMENT EXECUTED IN CONNECTION HEREWITH.
30. NATURE OF TRANSACTION. Lessor makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
31. SECURITY INTEREST. (a) One executed copy of the Lease will be marked
"Original" and all other counterparts will be duplicates. To the extent, if any,
that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction) no security
interest in the lease may be created in any documents other than the 'Original."
(b) There shall be only one original of each Schedule and it shall be marked
'Original," and all other counterparts will be duplicates. To the extent, if
any, that any Schedule(s) to this Lease constitutes chattel paper (or as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in any Schedule(s) may be created in any
documents other than the "Original."
32. SUSPENSION OF OBLIGATIONS. The obligations of Lessor hereunder will be
suspended to the extent that it is hindered or prevented from complying
therewith because of labor disturbances, including but not limited to strikes
and lockouts, acts of God, fires, storms, accidents, failure of the manufacturer
to deliver any item of Equipment, governmental regulations or interference, or
any cause whatsoever not within the sole and exclusive control of Lessor.
33. SOFTWARE. For the term of this Lease, and so long as no Event of
Default has occurred and is continuing, Lessor hereby assigns to Lessee all of
Lessor's rights under any License Agreement executed by Lessor in connection
with the Equipment (except for any right of Lessor to be reimbursed for the
License Fee). Lessee agrees to be bound by the provisions of any such License
Agreement and to perform all obligations of Lessor (except Lessor's payment
obligations) thereunder. Lessee acknowledges that all of Lessee's obligations
under the Lease with respect to the Equipment will apply equally to the
software, including but not limited to Lessee's obligation to pay rent to
Lessor.
34. COMMITMENT FEE. Lessee has paid to Lessor a commitment fee ("Fee") of
$5,000. The Fee shall be applied by Lessor first to reimburse Lessor for all
out-of-pocket UCC search costs, inspections and appraisal fees incurred by
Lessor, and then proportionally to the first month's rent for each Schedule
hereunder in the proportion that the purchase price of the
10.
<PAGE>
Equipment leased pursuant to the Schedule bears to Lessor's entire commitment.
However, the portion of the Fee which is not applied to rental shall be returned
to Lessee.
35. FINANCE LEASE. The parties agree that this lease is a "Finance Lease"
as defined by section 10-103(a)(7) of the California Commercial Code
(Cal.Com.C.). Lessee acknowledges either (a) that Lessee has reviewed and
approved any written Supply Contract (as defined by Cal.Com. C. Section 10-
103(a)(25)) covering Equipment purchased from the 'Supplier' (as defined by
Cal.Com. C. Section 10-103(a)(24)) thereof for lease to Lessee or (b) that
Lessor has informed or advised Lessee, in writing, either previously or by this
Lease of the following: (i) the identity of the Supplier; (ii) that the Lessee
may have rights under the Supply Contract; and (iii) that the Lessee may contact
the Supplier for a description of any such rights Lessee may have under the
Supply Contract. Lessee hereby waives any rights and remedies Lessee may have
under Cal.Com.C. Sections 10-508 through 522.
36. PURCHASE OR RENEWAL REQUIREMENT FOR ALL SCHEDULES TO MASTER EQUIPMENT
LEASE. At the expiration of the Initial Term for Schedule No. 1, and
notwithstanding anything to the contrary in the Lease, upon at least 90 days
prior written notice to Lessor, Lessee shall either:
No. 1
Purchase AS-IS, WHERE-IS all, but not less than all, of the Equipment
covered under all Schedules to this Lease at the expiration of the Initial
Term for each such Schedule for an amount equal to twenty percent (20%) of
the Equipment's original purchase price, whereupon Lessor shall issue to
Lessee a Bill of Sale for the Equipment transferring it to Lessee without
any representation or warranty whatsoever, or
No. 2
Extend the Initial Term of all Schedules to this Lease for an additional
twelve (12) months ('Renewal Term.") commencing with the end of the Initial
Term of each Schedule at a rate of 1.85% per month of the Equipment's
original purchase price. Upon expiration of each Renewal Term, Lessor
shall issue to Lessee a Bill of Sale for the Equipment under the applicable
Schedule transferring it to Lessee without any representation or warranty
whatsoever.
In the event Lessee does not provide 90 days prior written notice as specified
above, Lessee shall be deemed to have selected No. 1 above for all Schedules to
the Lease.
Lessee shall be responsible for all applicable taxes in connection with any-
purchase of Equipment by Lessee.
11.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
PHOENIX LEASING INCORPORATED ALTEON, INC.
By: ______________________________ By: /s/ Chloe Chan
---------------------------------
Title: ___________________________ Title: Director of Finance
------------------------------
Headquarters Location:
5831 San Ignacio Avenue
San Jose, CA 95119
County of Santa Clara
Exhibit A - Closing Memorandum
12.
<PAGE>
Exhibit A
to MASTER EQUIPMENT LEASE
Dated September 9, 1996
CLOSING MEMORANDUM
1.* Duly executed Master Equipment Lease marked "Original."
2. Duly executed Schedule marked "Original."
3. Duly executed Certificate of Acceptance. [EXECUTE UPON ACCEPTANCE OF
EQUIPMENT]
4. Insurance Certificates.
5.* Resolutions of Lessee's Board of Directors, including an incumbency
certificate.
6.* Copy of Lessee's articles of incorporation including all amendments,
certified by the Secretary of Lessee as being true and complete and in full
force and effect.
7.* Certificate from the Secretary of State of Lessee's state of incorporation,
from the state in which Lessee's chief executive office is located, if
different, and from each state where Lessee is qualified to do business,
stating Lessee is in good standing or is authorized to transact business,
as the case may be, dated not more than thirty days prior to the first
purchase of Equipment.
8. Real Property Waiver.**
9. UCC Financing Statements.
10. Bill of Sale (for Sale-Leaseback Equipment).
11. UCC search.
12.* Payment of Commitment Fee.
13. Equipment List, in form and substance satisfactory to Lessor.
14. Lessee's most recent financial statements.
15. Certificate of Chief Financial Officer stating that no event of default has
occurred, there is no adverse change in the financial condition of Lessee
and that the Equipment is free of any encumbrances.
16.* California Civil Code Section 3440 Filing and Published Notice.
17. See Section 3 of Master Equipment Lease for additional preconditions to
closing.
* First Schedule Only.
13.
<PAGE>
** Required if any Equipment is a fixture, i.e., attached to real property, or
located in certain states.
14.
<PAGE>
SCHEDULE
--------
Schedule No. 1 to Lease
Dated as of September 9, 1996 Between
ALTEON NETWORKS, INC. and
PHOENIX LEASING INCORPORATED
A. Description and Purchase Price of Equipment
-------------------------------------------
Description of
Equipment
(quantity, model Purchase Mfr./ (Street Address
and serial number) Price Rent Vendor City, State and County)
- ------------------ -------- ---- ------ -----------------------
See Exhibit A attached hereto. 5831 San Ignacio Avenue
San Jose, CA 95119
County of Santa Clara
Total: $424,335.23 $ 5,304.19 Month 1
$11,669.22 Months 2-42
B. Terms
-----
Initial Term: The Initial Term shall commence on the date the Equipment
is received, installed and accepted for use, as shown on
the Acceptance Notice, and continue for 42 full months
after the "Rent Start Date."
Rent Start Date: This shall be the first day of the month following the
month during which the Initial Term commences; provided,
however, that if the Equipment is accepted on the first day
of the month, the Rent Start Date shall commence on the
same day that the Initial Term commences.
Initial Rental Amount Per Month: $5,304.19 for Month 1, plus applicable taxes,
and $11,669.22 for Months 2 through 42, plus applicable taxes, which amounts
shall be adjusted in accordance with the Rate Factors and Terms shown
hereinbelow:
Lease Rate Factor (expressed as a percentage of Equipment's original Purchase
Price):
Month 1: 1.25%
Months 2-42: 2.75%
Monthly Rental Payments in advance.
1.
<PAGE>
Initial Rent Due: Payable on the Rent Start Date shall be (1) the first and
last months' Rental Amounts including any sales or use tax
and (2) an amount equal to 1/30th of the monthly rental
amount multiplied by the number of days, if any, between
(and including) the date the Initial Term commences and
(but not including) the Rent Start Date.
C. Invoice Information: Lessee's and Lessor's for invoice purposes for the
-------------------
Equipment on the Schedule shall be as follows:
Lessee's Invoice Address: Remit Monthly Rental Amount To:
- ------------------------- ------------------------------
5831 San Ignacio Avenue Phoenix Leasing Incorporated
San Jose, CA 95119 P.O. Box 200432
Attention: Ms. Chloe Chan Dallas, TX 75320-0432
D. Casualty Values: See attachment hereto.
---------------
E. Special Provisions: 1. Lessor's payment for Equipment hereunder is
------------------
conditioned on Lessor's satisfaction that there has been no material
adverse change in Lessee's financial condition subsequent to initial credit
approval, 2. Sale Leaseback Addendum, 3. Purchase or Renewal Requirement as
set forth in Section 36 of the Master Equipment Lease Agreement and
repeated for convenience below.
36. PURCHASE OR RENEWAL REQUIREMENT FOR ALL SCHEDULES TO MASTER
EQUIPMENT LEASE. At the expiration of the Initial Term for Schedule No. 1, and
notwithstanding anything to the contrary in the Lease, upon at least 90 days
prior written notice to Lessor, Lessee shall either:
No. 1.
------
Purchase AS-IS, WHERE-IS all, but not less than all, of the Equipment
covered under all Schedules to this Lease at the expiration of the Initial
Term for each such Schedule for an amount equal to twenty percent (20%) of
the Equipment's original purchase price, whereupon Lessor shall issue to
Lessee a Bill of Sale for the Equipment transferring it to Lessee without
any representation or warranty whatsoever, or
No. 2.
------
Extend the Initial Term of all Schedules to this Lease for an additional
twelve (12) months ("Renewal Term") commencing with the end of the Initial
Term of each Schedule at a rate of 1.85% per month of the Equipment's
original purchase price. Upon expiration of each Renewal Term, Lessor shall
issue to Lessee a Bill of Sale for the Equipment under the applicable
Schedule transferring it to Lessee without any representation or warranty
whatsoever.
In the event Lessee does not provide 90 days prior written notice as specified
above, Lessee shall be deemed to have selected No. 1 above for all Schedules to
the Lease.
2.
<PAGE>
Lessee shall be responsible for all applicable taxes in connection with any
purchase of Equipment by Lessee.
LESSOR AND LESSEE AGREE THAT THIS SCHEDULE SHALL CONSTITUTE A LEASE OF THE
EQUIPMENT DESCRIBED ABOVE, SUBJECT TO THE TERMS AND CONDITIONS OF THIS SCHEDULE
AND OF THE MASTER EQUIPMENT LEASE DATED SEPTEMBER 9, 1996 BETWEEN LESSEE AND
LESSOR. THE TERMS AND CONDITIONS OF SUCH MASTER EQUIPMENT LEASE ARE HEREBY
INCORPORATED BY REFERENCE AND MADE A PART HEREOF TO THE SAME EXTENT AS IF SUCH
TERMS AND CONDITIONS WERE SET FORTH IN FULL HEREIN.
PHOENIX LEASING INCORPORATED ALTEON NETWORKS, INC.
By: /s/ Andrew Ferguson By: /s/ Chloe Chan
--------------------------- -----------------------------
Title: Contract Administrator Title: Director of Finance
------------------------ --------------------------
Date: 11/27/96 Date: 11/27/96
------------------------ ---------------------------
3.
<PAGE>
Attachment to Equipment Schedule No.1
CASUALTY VALUES
Month of % of Original Equipment Month of % of Original Equipment
Lease Term Purchase Price Lease Term Purchase Price
- ---------- ----------------------- ---------- -----------------------
1 115.00 22 66.34
2 112.68 23 64.02
3 110.37 24 61.71
4 108.05 25 59.39
5 105.73 26 57.07
6 103.41 27 54.76
7 101.10 28 52.44
8 98.78 29 50.12
9 96.46 30 47.80
10 94.15 31 45.49
11 91.83 32 43.17
12 89.51 33 40.85
13 87.20 34 38.54
14 84.88 35 36.22
15 82.56 36 33.90
16 80.24 37 31.59
17 77.93 38 29.27
18 75.61 39 26.95
19 73.29 40 24.63
20 70.98 41 22.32
21 68.66 42 20.00
Thereafter 20.00
Lessor's Lessee's
Initials _______ Initials_____
4.
<PAGE>
10.6 Attachment
ATTACHMENT 1
BILL OF SALE
For valuable consideration Alteon Networks, Inc. ("Seller") sells to Phoenix
Leasing Incorporated ("Buyer"), the property listed on Exhibit A hereof (the
"Equipment").
Seller covenants and warrants that:
(1) It is the owner of, and has absolute title to, the Equipment which is free
and clear of all claims, liens and encumbrances.
(2) It has not made any prior sale, assignment, or transfer of the Equipment.
(3) It has the present right, power, and authority to sell the Equipment to
Buyer.
(4) All action has been taken which is required to make this Bill of Sale a
legal, valid and binding obligation of Seller.
Seller shall forever warrant and defend the sale of Equipment to Buyer, its
successors and assigns, against any person claiming an interest in the
Equipment.
This Bill of Sale is binding on the successors and assigns of Seller and inures
to the benefit of the successors and assigns of Buyer.
Executed on November 26, 1996.
Alteon Networks, Inc.
By: /s/ Chloe Chan
--------------------------
Title: Chloe Chan
-----------------------
<PAGE>
10.6 Attachment
OFFICER'S CERTIFICATE
The undersigned, Mark A. Bryers, hereby certifies that:
(i) I am the Treasurer/Chief Financial Officer of Alteon Networks, Inc., a
Delaware corporation;
(ii) as such officer, I am familiar with the terms and conditions of that
certain Master Equipment Lease (the "Lease") dated as of September 9, 1996
between Alteon Networks, Inc. ("Lessee") And Phoenix Leasing Incorporated
("Lessor");
(iii) this certificate is delivered in connection with the leasing of certain
equipment under a Schedule with Lessor, the equipment is described in the
Schedule and the equipment is free and clear from any and all liens,
charges, security interests or other encumbrances which may affect
Lessor's right, title or interest in and to the equipment;
(iv) there has been no adverse change in the financial condition of Lessee
since its financial statements dated August 1, 1996, true copies of which
have been delivered to Lessor; and
(v) no event which, with the giving of notice or passage of time, or both,
could become an Event of Default under the Lease has occurred and is
continuing.
In Witness Whereof, I hereby execute this certificate on this 8th day of
November, 1996.
Alteon Networks, Inc.
By: /s/ Mark A. Bryers
---------------------------------------
Name: Mark Bryers
Title: V/P Engineering/Corporate Secretary
<PAGE>
10.6 Schedule Addendum
Sale Leaseback Addendum
to Schedule No. 1
of MASTER EQUIPMENT LEASE
Dated September 9, 1996
Between ALTEON NETWORKS, INC.
and PHOENIX LEASING INCORPORATED
This Addendum to Master Equipment Lease is made and entered into as of November
26, 1996, between Phoenix Leasing Incorporated ("Lessor") and Alteon Networks,
Inc. ("Lessee").
Notwithstanding anything to the contrary contained in the Lease referenced
above, Lessor and Lessee agree as follows:
1. Lessee shall sell the Equipment to and lease the Equipment from Lessor and
Lessor shall purchase the Equipment from and lease the Equipment to Lessee
upon the terms and conditions of the Bill of Sale attached hereto as
Attachment 1.
2. Lessee represents and warrants that:
(a) Lessee has the right to sell the Equipment as set forth herein,
(b) The Equipment and Lessee's right, title and interest in such Equipment
is, as of the date of the Bill of Sale, free from all claims, liens,
security interests and encumbrances.
(c) Lessee will defend the sale against lawful claims and demands of all
persons, and
(d) the purchase price of the Equipment is equal to the fair market value
of such Equipment at the time of sale.
Phoenix Leasing Incorporated Alteon Networks, Inc.
By: /s/ Andrew Ferguson By: /s/ Chloe Chan
--------------------------- -------------------------------
Title: Contact Administrator Title: Director of Finance
------------------------ -----------------------------
<PAGE>
10.6 Schedule
ACCEPTANCE NOTICE
SCHEDULE NO. 1
Reference is made to the Master Equipment Lease dated as of September 9, 1996
between Phoenix Leasing Incorporated as Lessor and ALTEON NETWORKS, INC. as
Lessee (the "Lease").
Lessee confirms that the following Equipment has been received, installed and is
ready for use by Lessee. The Equipment is satisfactory in all respects for the
purposes of this Lease as of the date Lessee executes this Notice below.
<TABLE>
<CAPTION>
Description of
Equipment
(quantity, model Purchase Mfg./ (Street Address
and serial number) Price Rent Vendor City, State and County)
- -------------------- --------- ----- -------- --------------------------
<S> <C> <C> <C> <C>
See Exhibit A attached hereto. 5831 San Ignacio Avenue
San Jose, CA 95119
County of Santa Clara
Total: $424,335.23 $ 5,304.19 Month 1
$11,669.22 Months 2-42
</TABLE>
THIS LEASE MAY NOT BE CHANGED, ALTERED OR MODIFIED EXCEPT BY AN INSTRUMENT IN
WRITING SIGNED BY AN OFFICER OF LESSOR AND A DULY AUTHORIZED REPRESENTATIVE OF
LESSEE.
IN WITNESS WHEREOF, Lessee has executed this Acceptance Notice as of November
27, 1996.
ALTEON NETWORKS, INC.
By: /s/ Chloe Chan
---------------------------------
Name: Chloe Chan
-------------------------------
Title: Director of Finance
------------------------------
<PAGE>
10.6 Attachment
CORPORATE RESOLUTION TO LEASE
RESOLVED: That this corporation, ALTEON NETWORKS, INC., lease from PHOENIX
LEASING INCORPORATED, a California corporation, hereinafter referred to as
Lessor, such items of personal property, and upon such terms and conditions, as
the officer or officers hereinafter authorized, in their discretion, may deem
necessary or advisable; provided, however, that the original actual cost of such
items of personal property under the lease shall not exceed the sum of
$1,000,000.
<TABLE>
<CAPTION>
RESOLVED FURTHER: That
<S> <C> <C>
Mark Bryers V/P Engineering/Corp. Secretary /s/ Mark Bryers
__________________ -----------------------------------------
(Print or type name) (specimen signature)
or Chloe Chan Director of Finance /s/ Chloe Chan
___________________ -----------------------------------------
(Print or type name) Title of Corporate Officer (specimen signature)
</TABLE>
of this corporation (this officer or officers authorized to act pursuant hereto
being hereinafter designated as "authorized officers"), be, and they hereby are,
individually authorized, directed and empowered, in the name of this
corporation, to execute and deliver to Lessor, and Lessor is requested to
accept, any lease that may be required by Lessor in connection with such leasing
of personal property.
RESOLVED FURTHER: That the authorized officers be, and they hereby are,
individually authorized, directed and empowered, in the name of this
corporation, to do or cause to be done all such further acts and things as they
shall deem necessary, advisable, convenient, or proper in connection with the
execution and delivery of any such lease and in connection with or incidental to
the carrying of the same into effect, including, without limitation the
execution, acknowledgment, and delivery of any and all instruments and documents
which may reasonably be required by Lessor under or in connection with any such
lease.
RESOLVED FURTHER: That Lessor is authorized to act upon this resolution
until written notice of its revocation is delivered to Lessor, and that the
authority hereby granted shall apply with equal force and effect to the
successors in office of the officers herein named.
I, Mark A. Bryers, Secretary of ALTEON NETWORKS, Inc., a corporation
incorporated under the laws of the State of Delaware do hereby certify that the
foregoing is a full, true and correct copy of resolutions of the Board of
Directors of the said corporation, duly and regularly passed or adopted by the
Board of Directors of said corporation as required by law and by the by-laws of
the said corporation on the 30th day of August, 1996.
I further certify that said resolutions are still in full force and effect
and have not been amended or revoked and that the specimen signatures appearing
above are the signatures of the officers authorized to sign for this corporation
by virtue of the said resolutions.
IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary, and
affixed the corporate seal of the said corporation, this 8th day of November,
1996.
/s/ Mark A. Bryers
---------------------------------------
SECRETARY
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.7
LEASE
Between
SOUTH SAN JOSE INTERESTS
And
ALTEON NETWORKS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. PARTIES.............................................................. 1
2. PREMISES............................................................. 1
3. USE.................................................................. 1
A. Permitted Uses.................................................. 1
B. Uses Prohibited................................................. 1
C. Advertisements and Signs........................................ 1
D. Covenants, Conditions and Restrictions.......................... 1
4. TERM AND RENTAL...................................................... 1
A. Base Monthly Rent............................................... 1
B. Late Charges.................................................... 2
C. Security Deposit................................................ 2
5. CONSTRUCTION......................................................... 3
A. Tenant Improvements............................................. 3
B. Change Orders................................................... 4
C. Construction.................................................... 4
D. Tenant Delays................................................... 4
E. Punch List...................................................... 4
F. Other Work by Tenant............................................ 4
6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER.................. 5
A. Delivery and Acceptance......................................... 5
B. Condition Upon Surrender........................................ 5
C. Failure to Surrender............................................ 6
7. ALTERATIONS AND ADDITIONS............................................ 6
A. Tenant's Alterations............................................ 6
B. Free From Liens................................................. 6
C. Compliance With Governmental Regulations........................ 6
8. MAINTENANCE OF PREMISES.............................................. 7
A. Landlord's Obligations.......................................... 7
B. Tenant's Obligations............................................ 7
C. Waiver of Liability............................................. 7
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
9. HAZARD INSURANCE..................................................... 8
A. Tenant's Use.................................................... 8
B. Landlord's Insurance............................................ 8
C. Tenant's Insurance.............................................. 8
D. Waiver.......................................................... 8
10. TAXES................................................................ 8
11. UTILITIES............................................................ 9
12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE................................. 9
A. Tenant's Responsibility......................................... 9
B. Tenant's Indemnity Regarding Hazardous Materials................ 10
C. Landlord's Indemnity Regarding Hazardous Materials.............. 10
D. Actual Release by Tenant........................................ 10
E. Environmental Monitoring........................................ 11
13. TENANT'S DEFAULT..................................................... 11
A. Remedies........................................................ 11
B. Right to Re-enter............................................... 12
C. Abandonment..................................................... 12
D. No Termination.................................................. 12
E. Non-Waiver...................................................... 12
F. Performance by Landlord......................................... 13
G. Habitual Default................................................ 13
14. LANDLORD'S LIABILITY................................................. 13
A. Limitation on Landlord's Liability.............................. 13
B. Limitation on Tenant's Recourse................................. 13
C. Indemnification of Landlord..................................... 13
15. DESTRUCTION OF PREMISES.............................................. 13
A. Landlord's Obligation to Restore................................ 13
B. Limitations on Landlord's Restoration Obligation................ 14
16. CONDEMNATION......................................................... 14
17. ASSIGNMENT OR SUBLEASE............................................... 14
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
A. Consent by Landlord............................................. 14
B. Assignment or Subletting Consideration.......................... 15
C. No Release...................................................... 15
D. Reorganization of Tenant........................................ 15
E. Permitted Transfers............................................. 16
F. Effect of Default............................................... 16
G. Conveyance by Landlord.......................................... 16
H. Successors and Assigns.......................................... 16
18. OPTION TO EXTEND THE LEASE TERM...................................... 16
A. Grant and Exercise of Option.................................... 16
B. Determination of Fair Market Rental............................. 17
C. Resolution of a Disagreement over the Fair Market Rental........ 17
D. Personal to Tenant.............................................. 18
19. GENERAL PROVISIONS................................................... 18
A. Attorney's Fees................................................. 18
B. Authority of Parties............................................ 18
C. Brokers......................................................... 18
D. Choice of Law................................................... 18
E. Dispute Resolution.............................................. 18
F. Entire Agreement................................................ 19
G. Entry by Landlord............................................... 19
H. Estoppel Certificates........................................... 19
I. Exhibits........................................................ 19
J. Interest........................................................ 19
K. Modifications Required by Lender................................ 20
L. No Presumption Against Drafter.................................. 20
M. Notices......................................................... 20
N. Property Management............................................. 20
O. Rent............................................................ 20
P. Representations................................................. 20
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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PAGE
<S> <C>
Q. Rights and Remedies............................................. 20
R. Severability.................................................... 20
S. Submission of Lease............................................. 20
T. Subordination................................................... 20
U. Survival of Indemnities......................................... 21
V. Time............................................................ 21
W. Transportation Demand Management Programs....................... 21
X. Waiver of Right to Jury Trial................................... 21
</TABLE>
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1. PARTIES: THIS LEASE, is entered into on this 24 day of December, 1997,
between South San Jose Interests, a California Limited Partnership, whose
address is 10600 North De Anza Boulevard, Suite 200, Cupertino, CA 95014 and
Alteon Networks, a Delaware Corporation, whose address is 6351 San Ignacio
Avenue, San Jose, California, 95119, hereinafter called respectively Landlord
and Tenant.
2. PREMISES: Landlord hereby leases to Tenant, and Tenant hires from Landlord
those certain Premises with the appurtenances, situated in the City of San Jose,
County of Santa Clara, State of California, commonly known and designated as
6201 San Ignacio Avenue, consisting of 77,550 rentable square feet ("Building")
including parking for approximately 275 cars as outlined in red on Exhibit "A".
3. USE:
A. Permitted Uses: Tenant shall use the Premises only for the
following purposes and shall not change the use of the Premises without the
prior written consent of Landlord: Office, research and development, marketing,
light manufacturing, ancillary storage and other incidental uses. Tenant shall
use only the number of parking spaces allocated to Tenant. All trucks and
delivery vehicles shall (i) be parked at the rear of the Building, (ii) loaded
and unloaded in a manner which does not interfere with the businesses of other
occupants of the Project, and (iii) permitted to remain on the Project only so
long as is reasonably necessary to complete the loading and unloading. Landlord
makes no representation or warranty that any specific use of the Premises
desired by Tenant is permitted pursuant to any Laws.
B. Uses Prohibited: Tenant shall not commit or suffer to be
committed on the Premises any waste, nuisance, or other act or thing which may
disturb the quiet enjoyment of any other tenant in or around the Premises, nor
allow any sale by auction or any other use of the Premises for an unlawful
purpose. Tenant shall not (i) damage or overload the electrical, mechanical or
plumbing systems of the Premises, (ii) attach, hang or suspend anything from the
ceiling, wails or columns of the building or set any load on the floor in excess
of the load limits for which such items are designed, or (iii) generate dust,
fumes or waste products which create a fire or health hazard or damage the
Premises or in the soils surrounding the Building. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature, or any waste materials, refuse, scrap or debris, shall
be stored upon or permitted to remain on any portion of the Premises outside of
the Building without Landlord's prior approval, which approval may be withheld
in its sole discretion.
C. Advertisements and Signs: Tenant will not place or permit to be
placed, in, upon or about the Premises any signs not approved by the city or
other governing authority. Tenant will not place or permit to be placed upon the
Premises any signs, advertisements or notices without the written consent of
Landlord as to type, size, design, lettering, coloring and location, which
consent will not be unreasonably withheld. Any sign placed on the Premises shall
be removed by Tenant, at its sole cost, prior to the Expiration Date or promptly
following the earlier termination of the lease, and Tenant shall repair, at its
sole cost, any damage or injury to the Premises caused thereby, and if not so
removed, then Landlord may have same so removed at Tenant's expense.
D. Covenants, Conditions and Restrictions: This Lease is subject to
the effect of (i) any covenants, conditions, restrictions, easements, mortgages
or deeds of trust, ground leases, rights of way of record and any other matters
or documents of record; and (ii) any zoning laws of the city, county and state
where the Building is situated (collectively referred to herein as
"Restrictions") and Tenant will conform to and will not violate the terms of any
such Restrictions.
4. TERM AND RENTAL:
A. Base Monthly Rent: The term ("Lease Term") shall be for sixty
(60) months, commencing on substantial completion of construction as finally
determined pursuant to Section 5.C (the "Commencement Date") estimated to occur
on March 1, 1998 and ending sixty (60) months thereafter. ("Expiration Date")
unless sooner terminated in accordance with the provisions of this Lease. In
addition to all other sums payable by Tenant under this Lease, Tenant shall pay
base monthly rent ("Base Monthly Rent") for the Premises according to the
following schedule:
1.
<PAGE>
Months 01 - 12:$77,550.00 per month
Months 13 - 24:$81,427.50 per month
Months 25 - 36:$85,305.00 per month
Months 37 - 48:$89,182.50 per month
Months 49 - 60:$93,060.00 per month
Base Monthly Rent shall be due in advance on or before the first day of each
calendar month during the Lease Term. All sums payable by Tenant under this
Lease shall be paid to Landlord in lawful money of the United States of America,
without offset or deduction except as specifically provided herein and without
prior notice or demand, at the address specified in Section 1 of this Lease or
at such place or places as may be designated in writing by Landlord during the
Lease Term. Base Monthly Rent for any period less than a calendar month shall
be a pro rata portion of the monthly installment. Concurrently with Tenant's
execution of this Lease, Tenant shall pay to Landlord the sum of Seventy Seven
Thousand Five Hundred Fifty and No/100 Dollars ($77,550.00) as prepaid rent for
the first month of the Lease.
B. Late Charges: Tenant hereby acknowledges that late payment by
Tenant to Landlord of Base Monthly Rent and other sums due hereunder will cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which is extremely difficult to ascertain. Such costs include but are not
limited to: administrative, processing, accounting, and late charges which may
be imposed on Landlord by the terms of any contract, revolving credit, mortgage,
or trust deed covering the Premises. Accordingly, if any-installment of Base
Monthly Rent or other sum due from Tenant shall not be received by Landlord or
its designee within five (5) days after the rent is due, Tenant shall pay to
Landlord a late charge equal to five (5%) percent of such overdue amount, which
late charge shall be due and payable on the same date that the overdue amount
was due. The parties agree that such late charge represents a fair and
reasonable estimate of the costs Landlord will incur by reason of late payment
by Tenant, excluding interest and attorneys fees and costs. If any rent or other
sum due from Tenant remains delinquent for a period in excess of thirty (30)
days then, in addition to such late charge, Tenant shall pay to Landlord
interest on any rent that is not paid when due at the Agreed Interest Rate
specified in Section 19.1 following the date such amount became due until paid.
Acceptance by Landlord of such late charge shall not constitute a waiver of
Tenant's default with respect to such overdue amount nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of Base Monthly Rent, then the Base Monthly Rent shall
automatically become due and payable quarterly in advance, rather than monthly,
notwithstanding any provision of this Lease to the contrary.
C. Security Deposit: Prior to the Lease Commencement Date, Tenant
shall deposit with Landlord the sum of Four Hundred Sixty Five Thousand Three
Hundred and No/100 Dollars ($465,300.00) ("Security "Deposit"). Notwithstanding
the foregoing, Landlord agrees that in lieu of a cash security deposit, Tenant
may deposit a letter of credit in a form reasonably acceptable to Landlord.
Landlord shall be entitled to draw against the letter of credit at any time
provided only that Landlord certifies to the issuer of the letter of credit that
Tenant is in default under the Lease. Tenant shall keep the letter of credit in
effect during the entire Lease Term, as the same may be extended, plus a period
of four (4) weeks after expiration of the Lease Term. At least thirty (30) days
prior to expiration of any letter of credit, the term thereof shall be renewed
or extended for a period of at least one (1) year. Tenant's failure to so renew
or extend the letter of credit shall be a material default of this Lease by
Tenant. In the event Landlord draws against the letter of credit, Tenant shall
replenish the existing letter of credit or cause a new letter of credit to be
issued such that the aggregate amount of letters of credit available to Landlord
at all times during the Lease Term is the amount of the security deposit
originally required. Provided Tenant has not been in monetary default under the
Lease during the first three years of the Lease Term, Tenant shall be entitled
to reduce the amount of the Security Deposit at the commencement of the fourth
year of the Lease Term to Two Hundred Thirty Two Thousand Six Hundred Fifty and
No/100 Dollars ($232,650.00). Tenant shall further be entitled to reduce the
Security Deposit to $77,550.00 after Tenant completes its public offering,
provided the reduced Security Deposit is in cash. Landlord shall not be deemed a
trustee of the Security Deposit may use the Security Deposit in business, and
shall not be required to segregate it from its general accounts. Tenant shall
not be entitled to interest on the Security Deposit. If Tenant defaults with
respect to any provisions of the Lease, including but not limited to the
provisions relating to payment of Base Monthly Rent or other charges, Landlord
may, to the extent reasonably necessary to remedy Tenant's default, use any or
all of the Security Deposit towards payment of the following: (i) Base Monthly
Rent or other charges in default: (ii) any other amount which Landlord may
2.
<PAGE>
spend or become obligated to spend by reason of Tenant's default including, but
not limited to Tenant's failure to restore or clean the Premises following
vacation thereof; and (iii) any other loss or damage which Landlord may suffer
by reason of Tenant's default. If any portion of the Security Deposit is so used
or applied, Tenant shall, within ten (10) days after written demand from
Landlord, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its full original amount, and shall pay to Landlord such
other sums as necessary to reimburse Landlord for any sums paid by Landlord.
Tenant waives the provisions of California Civil Code Section 1950.7, and all
other provisions of law now in force or that become in force after the date of
execution of this Lease, that provide that Landlord may claim from a security
deposit only those sums reasonably necessary to remedy defaults in the payment
of Rent, to repair damage caused by Tenant, or to clean the Premises. Landlord
and Tenant agree that Landlord may, in addition, claim those sums reasonably
necessary, to compensate Landlord for any other foreseeable or unforeseeable
loss or damage caused by the act or omission of Tenant or Tenant's agents,
employees, contractors and invitees ("Tenant's Agents"). Tenant may not assign
or encumber the Security Deposit without the consent of Landlord. Any attempt to
do so shall be void and shall not be binding on Landlord. If Tenant performs
every provision of this Lease to be performed by Tenant, the Security Deposit
shall be returned to Tenant within thirty (30) days after the Expiration Date.
and surrender of the Premises to Landlord, less any amount deducted in
accordance with this Section, together with Landlord's written notice itemizing
the amounts and purposes for such deduction, in the event of termination of
Landlord's interest in this Lease, Landlord may deliver or credit the Security
Deposit to Landlord's successor in interest in the Premises and thereupon be
relieved of further responsibility with respect to the Security Deposit.
5. CONSTRUCTION:
A. Tenant Improvements: Tenant has hired, at Landlord's expense,
ArcTec to prepare an interior improvement plan ("Tenant Improvement Plan")
detailing the improvements to be made to the interior of Premises ("Tenant
Improvements"). The Tenant Improvement Plan shall be completed by January 14,
1998 in sufficient detail to allow ArcTec to prepare construction drawings for
submittal to the City of San Jose. The Tenant Improvements shall be constructed
by McLarney Construction ("General Contractor"). Tenant shall contract directly
with General Contractor for construction of the Tenant Improvements. As an
inducement to Tenant to enter into this Lease, Landlord has agreed to provide
Tenant a work allowance to be utilized by Tenant for the cost of Tenant
Improvements ("Work Allowance") in an amount equal to the General Contractors
bid (including profit, overhead and any other administrative or supervisory
fees) to perform the following work: (i) remove any existing partitioning not
desired by Tenant and reconfigure the ceiling and Building's HVAC, mechanical,
electrical and plumbing to accommodate such removal; (ii) patch and repaint all
remaining interior walls; (iii) replace all existing VCT and install new
carpeting in those areas without floor coverings (the foregoing notwithstanding,
Tenant shall have the right to designate between carpet and VCT in areas that
are to receive new floor coverings); and (ix,) bring the Building into
compliance with any applicable building codes. The Work Allowance shall be paid
by Landlord to Tenant as payments become due to General Contractor. Any other
work Tenant elects to have performed by General Contractor as part of the Tenant
Improvements shall not be subject to reimbursement to Tenant through the Work
Allowance, but shall be paid in cash by Tenant to General Contractor. All costs
for Tenant Improvements shall be fully documented and verified by Tenant. The
Tenant Improvements shall not be removed or altered by Tenant without the prior
written consent of Landlord as provided in Section 7. Tenant shall have the
right to depreciate and claim and collect any investment tax credits in the
Tenant Improvements during the Lease Term. Upon expiration of the Lease Term or
any earlier termination of the Lease, the Tenant Improvements shall become the
property of Landlord and shall remain upon and be surrendered with the Premises,
and title thereto shall automatically vest in Landlord without any payment
therefore. Notwithstanding the provisions of this Paragraph 5.A, in the event
Tenant elects to submit a Tenant Improvement Plan detailing Tenant Improvements
for only a portion of the Building, Tenant shall retain the right to submit at a
later date a Tenant Improvement Plan detailing Tenant Improvements for the
remainder of the Building, and the cost for such later Tenant Improvements shall
be paid pursuant to the provisions of this Paragraph. The foregoing does not in
any way alter Tenant's obligation to meet the time frames specified in this
Paragraph for the initial submittal of a Tenant Improvement Plan by January 14,
1998, nor does it affect any other of Tenant's obligations under this Lease.
3.
<PAGE>
B. Change Orders: Tenant shall have the right to order changes in
the manner and type of construction of the Tenant Improvements. Upon request and
prior to Tenant's submitting any binding change order, General Contractor shall
promptly provide Tenant with written statements of the cost to implement and the
time delay and increased construction costs associated with any proposed change
order, which statements shall be binding on General Contractor. If no time delay
or increased construction cost amount is noted on the written statement, the
parties agree that there shall be no adjustment to the construction cost or the
Commencement Date associated with such change order. If ordered by Tenant,
General Contractor shall implement such change order and the cost of
constructing the Tenant Improvements shall be increased or decreased in
accordance with the cost statement previously delivered by General Contractor to
Tenant for any such change order.
C. Construction: Landlord shall use its reasonable efforts to
substantially complete construction of Tenant Improvements by April 1, 1998. The
preceding date assumes the following timeline: (i) delivery of the final Tenant
Improvement Plan by Tenant to ArcTec by January 14, 1998 (which Tenant
Improvement Plan may be for a portion of the Premises if Tenant elects to
construct the Tenant Improvements in two phases pursuant to Paragraph 5.A
above); (ii) submittal by ArcTec of construction drawings to the City of San
Jose within three (3) weeks of receipt of the Tenant, Improvement Plan; and
(iii) an eight (8) week construction schedule. The Tenant Improvements shall be
deemed substantially complete ("Substantially Complete" or "Substantial
Completion") when the Tenant Improvements have been substantially completed in
accordance with the Tenant Improvement Plan, as evidenced by the completion of a
final inspection or the issuance of a certificate of occupancy or its equivalent
by the appropriate governmental authority. Installation of Tenant's furniture
and data and phone cabling shall not be required in order to deem the Premises
Substantially Complete. If Landlord cannot obtain building permits or
Substantially Complete construction by the dates set forth herein, this Lease
shall not be void or voidable nor shall Landlord be liable for any loss or
damage resulting therefrom; however the Commencement Date shall be adjusted to
the date of Substantial Completion.
Notwithstanding the foregoing, if the Premises are not Substantially Complete on
or before July 31, 1998, Tenant, upon written notice to Landlord, shall be
entitled to terminate this Lease without further liability to Landlord. The
July 31, 1998 date shall be extended one day for every day of delay in
completion caused by labor strikes, material shortages, inclement weather,
permit or other governmental approvals, Tenant Delays or other causes beyond the
reasonable control of Landlord. The delay in the commencement of rent and/or
the termination of the Lease provided herein shall be the sole and exclusive
remedy of Tenant with respect by the failure by Landlord to achieve Substantial
Completion by the Commencement Date.
D. Tenant Delays: A "Tenant Delay" shall mean any delay in
Substantial Completion of the Tenant Improvements as a result of any of the
following: (i) Tenant's failure to complete or approve the Tenant Improvement
Plan by the dates set forth above, (ii) changes to the plans requested by Tenant
which delay the progress of the work, (iii) Tenant's request for materials
components, or finishes which are not available in a commercially reasonable
time given the anticipated Commencement Date, and (iv) Tenant's failure to pay,
when due, any amounts required to be paid by Tenant pursuant hereto.
Notwithstanding anything to the contrary set forth in this Lease and regardless
of the actual date the Premises are Substantially Complete, the Commencement
Date shall be deemed to be the date the Commencement Date would have occurred if
no Tenant Delay had occurred as reasonable determined by Landlord. In addition,
if a Tenant Delay results in an increase in the cost of the labor or materials,
Tenant shall pay the cost of such increases.
E. Punch List: After the Tenant Improvements are Substantially
Complete, Landlord shall cause the General Contractor to immediately correct any
construction defect or other "punch list" item which Tenant brings to General
Contractor's attention. All such work shall be performed so as to reasonably
minimize the interruption to Tenant and its activities on the Premises.
F. Other Work by Tenant: All work not described in the Tenant
Improvement Plan, such as furniture, telephone equipment, telephone wiring and
office equipment work, shall be furnished and installed by Tenant. When the
construction of the Tenant Improvements has proceeded to the point where
Tenant's work of installing its fixtures and equipment in the Premises can be
commenced, General Contractor shall notify Tenant and shall permit Tenant and
its authorized representatives and contractors access to the Premises before the
Commencement Date for the purpose of installing
4.
<PAGE>
Tenant's trade fixtures and equipment. Any such installation work by Tenant or
its authorized representatives and contractor shall be undertaken upon the
following conditions: (i) if the entry, into the Premises by Tenant or its
representatives or contractors interferes with or delays General Contractor's
work, Tenant shall cause the party responsible for such interference or delay to
leave the Premises; and (ii) any contractor used by Tenant in connection with
such entry and installation shall not interfere with General Contractor's work.
6. ACCEPTANCE OF POSSESSION AND COVENANTS TO SURRENDER:
A. Delivery and Acceptance: On the Commencement Date, Landlord shall
deliver and Tenant shall accept possession of the Premises and enter into
occupancy of the Premises on the Commencement Date. Tenant acknowledges that it
has had an opportunity to conduct, and has conducted, such inspections of the
Premises as it deems necessary to evaluate its condition. Landlord agrees to
make all repairs to the HVAC system necessary to ensure that such system is in
good operating condition and repair (taking into account its age) as of the
Lease Commencement Date. The exact scope of such repairs shall be determined by
an inspection report from Therma dated September 27, 1996 and attached to this
Lease as Exhibit B, plus any additional recommended repairs Therma may make as a
result of a subsequent inspection of the HVAC systems and an updated report to
be issued during the next forty five (45) days. Except as otherwise specifically
provided herein, Tenant agrees to accept possession of the Premises in its then
existing condition, subject to all Restrictions and without representation or
warranty by Landlord. Tenant's taking possession of any part of the Premises
shall be deemed to be an acceptance of any work of improvement done by Landlord
in such part as complete and in accordance with the terms of this Lease except
for "Punch List" type items of which Tenant has given Landlord written notice
prior to the time Tenant takes possession.
Notwithstanding the foregoing, Landlord warrants to Tenant that on the
Commencement Date, the Premises and all improvements thereon shall: (i) be free
from material defects; and (ii) comply with all applicable laws, regulations,
conditions, covenants and restrictions, or other promulgations of lawful
governmental authority including, without limitation, Title 24 of the California
Administrative Code and the Americans with Disabilities Act. The only exception
to the foregoing shall be any compliance necessitated because of Tenant's
construction of Alterations.
B. Condition Upon Surrender: Tenant further agrees on the Expiration
Date or on the sooner termination of this Lease, to surrender the Premises to
Landlord in good condition and repair, normal wear and tear excepted. In this
regard, "normal wear and tear" shall be construed to mean wear and tear caused
to the Premises by the natural aging process which occurs in spite of prudent
application of the customary standards for maintenance, repair replacement, and
janitorial practices, and does not include items of neglected or deferred
maintenance. In any event, Tenant shall cause the following to be done prior to
the Expiration Date or sooner termination of this Lease: (i) all interior walls
shall be painted or cleaned so that they appear freshly painted, (ii) all tiled
floors shall be cleaned and waxed, (iii) all carpets shall be cleaned and
shampooed, (iv) all broken, marred, stained or nonconforming acoustical ceiling
tiles shall be replaced, (v) all cabling placed above the ceiling by Tenant or
Tenant's contractors shall be removed, (vi) all windows shall be washed; (vii)
the HVAC system shall be serviced by a reputable and licensed service firm and
left in "good operating condition and repair" as so certified by such firm,
(viii) the plumbing and electrical systems and lighting shall be placed in good
order and repair (including replacement of any burned out, discolored or broken
light bulbs, ballasts, or lenses. The foregoing notwithstanding, Tenant shall
not be required to surrender the Premises to Landlord in any better condition
than its condition as of the Lease Commencement Date. On or before the
Expiration Date or sooner termination of this Lease, Tenant shall remove all its
personal property and trade fixtures from the Premises. All property and
fixtures not so removed shall be deemed as abandoned by Tenant. Tenant shall
ascertain from Landlord within ninety (90) days before the Expiration Date
whether Landlord desires to have the Premises or any parts thereof restored to
their condition as of the Commencement Date, or to cause Tenant to surrender all
Alterations (as defined in Section 7) in place to Landlord. If Landlord shall so
desire, Tenant shall, at Tenant's sole cost and expense, remove such Alterations
as Landlord requires and shall repair and restore said Premises or such parts
thereof before the Expiration Date. Such repair and restoration shall include
causing the Premises to be brought into compliance with all applicable building
codes and laws in effect at the time of the removal to extent such compliance is
necessitated by the repair and restoration work.
5.
<PAGE>
C. Failure to Surrender: If the Premises are not surrendered at the
Expiration Date or sooner termination of this Lease in the condition required by
this Section 6, Tenant shall be deemed in a holdover tenancy pursuant to this
Section 6.C and Tenant shall indemnify, defend, and hold Landlord harmless
against loss or liability resulting from delay by Tenant in so surrendering the
Premises including, without limitation, any claims made by any succeeding tenant
founded on such delay and costs incurred by Landlord in returning the Premises
to the required condition, plus interest at the Agreed Interest Rate. Any
holding over after the termination or Expiration Date with Landlord's express
written consent, shall be construed as month-to-month tenancy, terminable on
thirty (30) days written notice from either party, and Tenant shall pay as Base
Monthly Rent to Landlord a rate equal to one hundred twenty five percent (125%)
of the Base Monthly Rent due in the month preceding the termination or
Expiration Date, plus all other amounts payable by Tenant under this Lease. Any
holding over shall otherwise be on the terms and conditions herein specified,
except those provisions relating to the Lease Term and any options to extend or
renew, which provisions shall be of no further force and effect following the
expiration of the applicable exercise period. If Tenant remains in possession
of the Premises after expiration or earlier termination of this Lease without
Landlord's consent, Tenant's continued possession shall be on the basis of a
tenancy at sufferance and Tenant shall pay as rent during the holdover period an
amount equal to two hundred percent (200%) of the Base Monthly Rent due in the
month preceding the termination or Expiration Date, plus all other amounts
payable by Tenant under this Lease. This provision shall survive the
termination or expiration of the Lease.
7. ALTERATIONS AND ADDITIONS:
A. Tenant's Alterations: Tenant shall not make, or suffer to be
made, any alteration or addition to the Premises ("Alterations"), or any part
thereof, without obtaining Landlord's prior written consent and delivering to
Landlord the proposed architectural and structural plans for all such
Alterations at least fifteen (15) days prior to the start of construction. If
such Alterations affect the structure of the Building, Tenant additionally
agrees to reimburse Landlord its reasonable out-of-pocket costs incurred in
reviewing Tenant's plans. Landlord shall notify Tenant at the time of its
consent whether or not Landlord will require Tenant to remove the Alteration by
the Lease Expiration Date. After obtaining Landlord's consent, Tenant shall not
proceed to make such Alterations until Tenant has obtained all required
governmental approvals and permits, and provides Landlord reasonable security,
in form reasonably approved by Landlord to protect Landlord against mechanics'
lien claims. Tenant agrees to provide Landlord written notice of the anticipated
and actual start-date of the work, and a complete set of half-size (15" X 21")
vellum as-built drawings. All Alterations shall be constructed in compliance
with applicable buildings codes and laws. Any Alterations, except movable
furniture and trade fixtures, shall become at once a part of the realty and
belong to Landlord but shall nevertheless be subject to removal by Tenant as
provided in Section 6 above. Alterations which are not deemed as trade fixtures
include heating, lighting, electrical systems, air conditioning, walls,
carpeting, or any other installation which has become an integral part of the
Premises. All Alterations shall be maintained, replaced or repaired by Tenant at
its sole cost and expense.
Notwithstanding the foregoing, Tenant shall be entitled without obtaining
Landlord's consent, to make Alterations which (i) do not affect the structure of
the Building, (ii) cost does not exceed $5,000 per Alteration nor an aggregate
of $15,000 in any 12-month period; and (iii) do not adversely affect the
Building electrical, plumbing or HVAC systems; provided, however, that Tenant
will remain responsible to provide Landlord, at Landlord's request, a set of
half-size (15" X 21") vellum as-built drawings detailing such Alterations.
Landlord retains the right to have Tenant remove at the expiration of the Lease
any Alterations for which Landlord's consent is not required pursuant to this
paragraph, if Tenant has not received Landlord's consent.
B. Free From Liens: Tenant shall keep the Premises free from all
liens arising out of work performed, materials furnished, or obligations
incurred by Tenant or claimed to have been performed for Tenant. In the event
Tenant fails to discharge any such lien within ten (10) days after receiving
notice of the filing, Landlord shall be entitled to discharge the lien at
Tenant's expense and all resulting costs incurred by Landlord, including
attorney's fees shall be due from Tenant as additional rent.
C. Compliance With Governmental Regulations: The term Governmental
Regulations shall include all federal, state, county, city or governmental
agency laws, statutes, ordinances, standards, rules, requirements, or orders now
in force or hereafter enacted, promulgated, or issued. The term also includes
government measures regulating
6.
<PAGE>
or enforcing public access, traffic mitigation, occupational, health, or safety
standards for employers, employees, landlords, or tenants. Tenant, at Tenant's
sole expense shall make all repairs, replacements, alterations, or improvements
needed to comply with all Governmental Regulations. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action or proceeding
against Tenant (whether Landlord be a party thereto or not) that Tenant has
violated any such law, regulation or other requirement in its use of the
Premises shall be conclusive of that fact as between Landlord and Tenant.
Notwithstanding the foregoing, If any improvement or alteration to the Premises
is required as a result of any future laws or regulations affecting the Premises
not related to Tenant's specific use of the Premises, and provided further said
improvement or alteration is not required because of Alterations made by Tenant,
the cost of such improvements shall be allocated between Landlord and Tenant
such that Tenant shall pay to Landlord upon completion of such improvement, the
portion of the cost thereof equal to the remaining number of years in the lease
term including any subsequent option terms exercised by Tenant, divided by the
anticipated useful life of such improvement.
8. MAINTENANCE OF PREMISES:
A. Landlord's Obligations: Landlord at its sole cost and expense,
shall maintain in good condition, order, and repair, and replace as and when
necessary, the foundation, exterior load bearing walls and roof structure of the
Building Shell.
B. Tenant's Obligations: Tenant shall clean, maintain, repair and
replace when necessary the Premises and every part thereof through regular
inspections and servicing, including but not limited to: (i) all plumbing and
sewage facilities, (ii) all heating ventilating and air conditioning facilities
and equipment, (iii) all fixtures, interior walls floors, carpets and ceilings,
(iv) all windows, door entrances, plate glass and glazing systems including
caulking, and skylights, (v) all electrical facilities and equipment, (vi) all
automatic fire extinguisher equipment, (vii) the parking lot and all underground
utility facilities servicing the Premises, (viii) the roof membrane system, and
(ix) all waterscape, landscaping and shrubbery. All wall surfaces and floor tile
are to be maintained in an as good a condition as when Tenant took possession
free of holes, gouges, or defacements. With respect to items (ii) and (viii)
above, Tenant shall provide Landlord a copy of a service contract between Tenant
and a licensed service contractor providing for periodic maintenance of all such
systems or equipment in conformance with the manufacturer's recommendations.
Tenant shall provide Landlord a copy of such preventive maintenance contracts
and paid invoices for the recommended work if requested by Landlord.
Notwithstanding the foregoing, in the event Tenant's maintenance or repair
obligations under this Lease would require Tenant to pay for a capital repair or
replacement costing in excess of Five Thousand and No/100 Dollars ($5,000.00),
Tenant shall only be required to pay (i) the initial $5,000.00, and (ii) that
portion of the cost over the initial $5,000.00 equal to the product of such cost
multiplied by a fraction, the numerator of which is the number of years
remaining in the Lease Term including options to extend the Lease exercised by
Tenant, the denominator of which is the useful life (in years) of the
replacement.
C. Waiver of Liability: Unless due to the active negligence or
willful misconduct of Landlord, failure by Landlord to perform any defined
services, or any cessation thereof, when such failure is caused by accident,
breakage, repairs, strikes, lockout or other labor disturbances or labor
disputes of any character or by any other cause, similar or dissimilar, shall
not render Landlord liable to Tenant in any respect, including damages to either
person or property, nor be construed as an eviction of Tenant, nor cause an
abatement of rent, nor relieve Tenant from fulfillment of any covenant or
agreement hereof. Should any equipment or machinery utilized in supplying the
services listed herein break down or for any cause cease to function properly,
upon receipt of written notice from Tenant of any deficiency or failure of any
services, Landlord shall use reasonable diligence to repair the same promptly,
but Tenant shall have no right to terminate this Lease and shall have no claim
for rebate of rent or damages on account of any interruptions in service
occasioned thereby or resulting therefrom, unless due to Landlord's active
negligence or willful misconduct. Tenant waives the provisions of California
Civil Code Sections 1941 and 1942 concerning the Landlord's obligation of
tenantability and Tenant's right to make repairs and deduct the cost of such
repairs from the rent. Landlord shall not be liable for a loss of or injury to
person or property, however occurring, through or in connection with or
incidental to furnishing, or its failure to furnish, any of the foregoing,
unless due to Landlord's active negligence or willful misconduct.
7.
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9. HAZARD INSURANCE:
A. Tenant's Use: Tenant shall not use or permit the Premises, or any
part thereof, to be used for any purpose other than that for which the Premises
are hereby leased; and no use of the Premises shall be made or permitted, nor
acts done, which will cause an increase in premiums or a cancellation of any
insurance policy covering the Premises or any part thereof, nor shall Tenant
sell or permit to be sold, kept, or used in or about the Premises, any article
prohibited by the standard form of fire insurance policies. Tenant shall, at its
sole cost, comply with all requirements of any insurance company or organization
necessary for the maintenance of reasonable fire and public liability insurance
covering the Premises and appurtenances.
B. Landlord's Insurance: Landlord agrees to purchase and keep in
force fire, extended coverage insurance in an amount equal to the replacement
cost of the Building (not including any Tenant Improvements or Alterations paid
for by Tenant from sources other than the Work Allowance) as determined by
Landlord's insurance company's appraisers. If required by the holder of the
first deed of trust on the property, such fire and property damage insurance may
be endorsed to cover loss caused by such additional perils against which
Landlord may elect to insure, including earthquake and/or flood, and shall
contain reasonable deductibles which, in the case of earthquake and flood
insurance may be up to 15% of the replacement value of the property.
Additionally Landlord may maintain a policy of (i) commercial general liability
insurance insuring Landlord (and such others designated by Landlord) against
liability for personal injury, bodily injury, death and damage to property
occurring or resulting from an occurrence in, on or about the Premises or
Project in an amount as Landlord determines is reasonably necessary for its
protection, and (ii) rental lost insurance covering a twelve (12) month period.
Tenant agrees to pay Landlord as additional rent, on demand, the full cost of
said insurance as evidenced by insurance billings to Landlord, and in the event
of damage covered by said insurance, the amount of any deductible under such
policy except for the deductible for earthquake or flood insurance, which
Landlord shall pay. Payment shall be due to Landlord within ten (10) days after
written invoice to Tenant. It is understood and agreed that Tenant's obligation
under this Section will be prorated to reflect the Lease Commencement and
Expiration Dates.
C. Tenant's Insurance: Tenant agrees, at its sole cost, to insure its
personal property, Tenant Improvements (for which it has paid from sources other
than the Work Allowance), and Alterations for their full replacement value
(without depreciation) and to obtain worker's compensation and public liability
and property damage insurance for occurrences within the Premises with a
combined single limit of not less than Five Million Dollars ($5,000,000.00).
Tenant's liability insurance shall be primary insurance containing a cross-
liability endorsement, and shall provide coverage on an "occurrence" rather than
on a "claims made" basis. Tenant shall name Landlord and Landlord's lender as
an additional insured and shall deliver a copy of the policies and renewal
certificates to Landlord. All such policies shall provide for thirty (30) days'
prior written notice to Landlord of any cancellation, termination, or reduction
in coverage.
D. Waiver: Landlord and Tenant hereby waive all rights each may have
against the other on account of any loss or damage sustained by Landlord or
Tenant, as the case may be, or to the Premises or its contents, which may arise
from any risk covered by their respective insurance policies (or which would
have been covered had such insurance policies been maintained in accordance with
this Lease) as set forth above. The parties shall use their reasonable efforts
to obtain from their respective insurance companies a waiver of any right of
subrogation which said insurance company may have against Landlord or Tenant, as
the case may be.
10. TAXES: Tenant shall be liable for and shall pay as additional rental, prior
to delinquency, the following: (i) all taxes and assessments levied against
Tenant's personal property and trade or business fixtures; (ii) all real estate
taxes and assessment installments or other impositions or charges which may be
levied on the Premises or upon the occupancy of the Premises, including any
substitute or additional charges which may be imposed applicable to the Lease
Term; and (iii) real estate tax increases due to an increase in assessed value
resulting from a sale, transfer or other change of ownership of the Premises as
it appears on the City and County tax bills during the Lease Term. Tenant's
obligation under this Section shall be prorated to reflect the Lease
Commencement and Expiration Dates. If, at any time during the Lease Term a tax,
excise on rents, business license tax or any other tax, however described, is
levied or assessed against Landlord as a substitute or addition, in whole or in
part, for taxes assessed or imposed on land or Buildings, Tenant shall pay and
discharge its pro rata share of such tax or excise on rents or other tax before
it becomes delinquent; except that this provision is not intended to cover net
income taxes, inheritance, gift or estate
8.
<PAGE>
tax imposed upon Landlord. In the event that a tax is placed, levied, or
assessed against Landlord and the taxing authority takes the position that
Tenant cannot pay and discharge its pro rata share of such tax on behalf of
Landlord, then at Landlord's sole election, Landlord may increase the Base
Monthly Rent by the exact amount of such tax and Tenant shall pay such increase.
If by virtue of any application or proceeding brought by or on behalf of
Landlord, there results a reduction in the assessed value of the Premises during
the Lease Term, Tenant agrees to reimburse Landlord for all costs incurred by
Landlord in connection with such application or proceeding.
Tenant, at its cost, shall have the right at any time to seek a reduction in or
otherwise contest any Taxes for which it is obligated to reimburse Landlord
pursuant to this Paragraph, by action or proceeding against the entity with
authority to assess or impose the same. Landlord shall not be required to join
in any proceeding or action brought by Tenant unless the provisions of
applicable regulations require that such proceeding or action be brought by or
in the name of Landlord, in which event Landlord shall join in such proceeding
or action or permit it to be brought in Landlord's name, provided that Tenant
protect, indemnify, and hold Landlord free and harmless from and against any
liability, cost or expense in connection with such proceeding or contest. Tenant
shall continue, during the pendency of such proceeding or action, to pay the
Taxes due as determined by Landlord. If Tenant is successful in such action or
proceeding, Landlord shall reimburse to Tenant Tenant's Share of the reduction
in Taxes realized by Tenant in such contest or proceeding within ten (10) days
after the amount of such reduction has been determined.
11. UTILITIES: Tenant shall pay directly to the providing utility all water,
gas, electric, telephone, and other utilities supplied to the Premises. Unless
due to Landlord's active negligence or willful misconduct, Landlord shall not be
liable for loss of or injury to person or property, however occurring, through
or in connection with or incidental to furnishing or the utility company's
failure to furnish utilities to the Premises, and Tenant shall not be entitled
to abatement or reduction of any portion of Base Monthly Rent or any other
amount payable under this Lease.
12. TOXIC WASTE AND ENVIRONMENTAL DAMAGE:
A. Tenant's Responsibility: Landlord represents and warrants, to the
best of its knowledge, that as of the Commencement Date, there do not exist any
Hazardous Materials on the Premises or the property on which the Premises are a
part. Without the prior written consent of Landlord, Tenant shall not bring,
use, or permit upon the Premises, or generate, create, release, emit, or dispose
(nor permit any of the same) from the Premises any chemicals, toxic or hazardous
gaseous, liquid or solid materials or waste, including without limitation,
material or substance having characteristics of ignitability, corrosivity,
reactivity, or toxicity or substances or materials which are listed on any of
the Environmental Protection Agency's lists of hazardous wastes or which are
identified in Division 22 Title 26 of the California Code of Regulations as the
same may be amended from time to time or any wastes, materials or substances
which are or may become regulated by or under the authority of any applicable
local, state or federal laws, judgments, ordinances, orders, rules, regulations,
codes or other governmental restrictions, guidelines or requirements.
("Hazardous Materials"). The foregoing exludes underground migration from other
sources over which Tenant has no control. In order to obtain consent, Tenant
shall deliver to Landlord its written proposal describing the toxic material to
be brought onto the Premises, measures to be taken for storage and disposal
thereof, safety measures to be employed to prevent pollution of the air, ground,
surface and ground water, Landlord's approval may be withheld in its reasonable
judgment. In the event Landlord consents to Tenant's use of Hazardous Materials
on the Premises, Tenant represents and warrants that it shall comply with all
Governmental Regulations applicable to Hazardous Materials including doing the
following: (i) adhere to all reporting and inspection requirements imposed by
Federal, State, County or Municipal laws, ordinances or regulations and will
provide Landlord a copy of any such reports or agency inspections; (ii) obtain
and provide Landlord copies of all necessary permits required for the use and
handling Hazardous Materials on the Premises; (iii) enforce Hazardous Materials
handling and disposal practices consistent with industry standards; (iv)
surrender the Premises free from any Hazardous Materials arising from Tenant's
bringing, using, permitting, generating, creating, releasing, emitting or
disposing of Hazardous Materials; and (v) properly close the facility with
regard to Hazardous Materials including the removal or decontamination of any
process piping, mechanical ducting, storage tanks, containers, or trenches which
have come into contact with Hazardous MateriaLs and obtain a closure certificate
from the local administering agency prior to the Expiration Date.
9.
<PAGE>
Notwithstanding the foregoing, Tenant shall not be required to obtain Landlord's
consent to bring onto the Premises or use usual and customary amounts of office
and janitorial supplies.
B. Tenant's Indemnity Regarding Hazardous Materials: Tenant shall, at its
sole cost and expense, comply with all laws pertaining to, and shall with
counsel reasonably acceptable to Landlord, indemnify, defend and hold harmless
Landlord and Landlord's shareholders, directors, officers, employees, partners,
affiliates, and agents from, any claims, liabilities, costs or expenses incurred
or suffered by Landlord arising from the bringing, using, permitting,
generating, emitting or disposing of Hazardous Materials by Tenant or a third
party through the surface soils of the Premises during the Lease Term or the
violation of any Governmental Regulation or environmental law, by Tenant or
Tenant's Agents. Tenant's indemnification and hold harmless obligations include,
without limitation, the following: (i) claims, liability, costs or expenses
resulting from or based upon administrative, judicial (civil or criminal) or
other action, legal or equitable, brought by any private or public person under
common law or under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), the Resource Conservation and Recovery Act of
1980 ("RCRA") or any other Federal, State, County or Municipal law, ordinance or
regulation; (ii) claims, liabilities, costs or expenses pertaining to the
identification, monitoring, cleanup, containment, or removal of Hazardous
Materials from soils, riverbeds or aquifers including the provision of an
alternative public drinking water source; (iii) all costs of defending such
claims; (iv) losses attributable to diminution in the value of the Premises or
the Building; (v) loss or restriction of use of rentable space in the Building;
(vi) Adverse effect on the marketing of any space in the Building; and (vi) all
other liabilities, obligations, penalties, fines, claims, actions (including
remedial or enforcement actions of any kind and administrative or judicial
proceedings, orders or judgments), damages (including consequential and punitive
damages), and costs (including attorney, consultant, and expert fees and
expenses) resulting from the release or violation. This indemnification shall
survive the expiration or termination of this Lease.
C. Landlord's Indemnity Regarding Hazardous Materials: Landlord shall
indemnify, defend and hold Tenant harmless from any claims, liabilities, costs
or expenses incurred or suffered by Tenant related to the removal,
investigation, monitoring or remediation of Hazardous Materials which are
present or which come to be present on the Premises except to the extent the
presence of such Hazardous Materials is caused by Tenant or by Tenant's failure
to prevent a third party from dumping Hazardous Materials through the surface of
the Premises. Landlord's indemnification and hold harmless obligations include,
without limitation, (i) claims, liability, costs or expenses resulting from or
based upon administrative, judicial (civil or criminal) or other action, legal
or equitable, brought by any private or public person under common law or under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Resource Conservation and Recovery Act of 1980 ("RCRA") or any
other Federal, State, County or Municipal law, ordinance or regulation, (ii)
claims, liabilities, costs or expenses pertaining to the identification,
monitoring, cleanup, containment, or removal of Hazardous Materials from soils,
riverbeds or aquifers including the provision of an alternative public drinking
water source, and (iii) all costs of defending such claims. In no event shall
Landlord be liable for any consequential damages suffered or incurred by Tenant
as a result of any such contamination.
D. Actual Release by Tenant: Tenant agrees to notify Landlord of any
lawsuits or orders which relate to the remedying of or actual release of
Hazardous Materials on or into the soils or ground water at or under the
Premises. Tenant shall also provide Landlord all notices required by Section
25359.7(b) of the Health and Safety Code and all other notices required by law
to be given to Landlord in connection with Hazardous Materials.
Without limiting the foregoing, Tenant shall also deliver to Landlord, within
twenty (20) days after receipt thereof, any written notices from any
governmental agency alleging a material violation of, or material failure to
comply with, any federal, state or local laws, regulations, ordinances or
orders, the violation of which of failure to comply with poses a foreseeable and
material risk of contamination of the ground water or injury to humans (other
than injury solely to Tenant, Tenant's Agents and employees within the
Building).
In the event of any release on or into the Premises or into the soil or
ground water under the Premises, the Building or the Project of any Hazardous
Materials used, treated, stored or disposed of by Tenant, Tenant agrees to
comply, at its sole cost, with all laws, regulations, ordinances and orders of
any federal, state or local agency relating to the monitoring or remediation of
such Hazardous
10.
<PAGE>
Materials. In the event of any such release of Hazardous Materials Tenant shall
immediately give verbal and follow-up written notice of the release to Landlord,
and Tenant agrees to meet and confer with Landlord and its Lender to attempt to
eliminate and mitigate any financial exposure to such Lender and resultant
exposure to Landlord under California Code of Civil Procedure Section 736(b) as
a result of such release, and promptly to take reasonable monitoring, cleanup
and remedial steps given, inter alia, the historical uses to which the Property
has and continues to be used, the risks to public health posed by the release,
the then available technology and the costs of remediation, cleanup and
monitoring, consistent with acceptable customary practices for the type and
severity of such contamination and all applicable laws. Nothing in the preceding
sentence shall eliminate, modify or reduce the obligation of Tenant under 12.B
of this Lease to indemnify and hold Landlord harmless from any claims
liabilities, costs or expenses incurred or suffered by Landlord. Tenant shall
provide Landlord prompt written notice of Tenant's monitoring, cleanup and
remedial steps.
In the absence of an order of any federal, state or local governmental or quasi-
governmental agency relating to the cleanup, remediation or other response
action required by applicable law, any dispute arising between Landlord and
Tenant concerning Tenant's obligation to Landlord under this Section 12.C
concerning the level, method, and manner of cleanup, remediation or response
action required in connection with such a release of Hazardous Materials shall
be resolved by mediation and/or arbitration pursuant to the provisions of
Section 19.E of this Lease.
E. Environmental Monitoring: Landlord and its agents shall have the right,
at Landlord's cost, to inspect, investigate, sample and monitor the Premises
including any air, soil, water, ground water or other sampling or any other
testing, digging, drilling or analysis to determine whether Tenant is complying
with the terms of this Section 12. If Landlord discovers that Tenant is not in
compliance with the terms of this Section 12, any such costs incurred by
Landlord, including attorneys' and consultants' fees, shall be due and payable
by Tenant to Landlord within five (5) days following Landlord's written demand
therefore.
13. TENANT'S DEFAULT: The occurrence of any of the following shall constitute a
material default and breach of this Lease by Tenant: (i) Tenant's failure to pay
any rent including additional rent or any other payment due under this Lease
within ten (10) days following written notice by Landlord that such rent is due,
(ii) the abandonment of the Premises by Tenant; (iii) Tenant's failure to
observe and perform any other required provision of this Lease, where such
failure continues for thirty (30) days after written notice from Landlord; (iv)
Tenant's making of any general assignment for the benefit of creditors; (v) the
filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or
of a petition for reorganization or arrangement under any law relating to
bankruptcy (unless, in the case of a petition filed against Tenant, the same is
dismissed after the filing); (vi) the appointment of a trustee or receiver to
take possession of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where possession is not restored to
Tenant within sixty (60) days; or (vii) the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where such seizure is not discharged
within sixty (60) days.
A. Remedies: In the event of any such default by Tenant, then in addition
to other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder
by giving written notice of such intention to terminate. In the event Landlord
elects to so terminate this Lease, Landlord may recover from Tenant all the
following: (i) the worth at time of award of any unpaid rent which had been
earned at the time of such termination; (ii) the worth at time of award of the
amount by which the unpaid rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss for the same
period that Tenant proves could have been reasonably avoided; (iii) the worth at
time of award of the amount by which the unpaid rent for the balance of the
Lease Term after the time of award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; (iv) any other amount necessary to
compensate Landlord for all detriment proximately caused by Tenant's failure to
perform its obligations under this Lease, or which in the ordinary course of
things would be likely to result therefrom; including the following: (x)
expenses for repairing, altering or remodeling the Premises for purposes of
reletting, (y) broker's fees, advertising costs or other expenses of reletting
the Premises, and (z) costs of carrying the Premises such as taxes, insurance
premiums, utilities and security precautions, and (v) at Landlord's election,
such other amounts in addition to or in lieu of the foregoing as may be
permitted by applicable California law. The term "rent", as used herein, is
defined as the minimum monthly installments of Base Monthly Rent and all
11.
<PAGE>
other sums required to be paid by Tenant pursuant to this Lease, all such other
sums being deemed as additional rent due hereunder. As used in (i) and (ii)
above, "worth at the time of award" shall be computed by allowing interest at a
rate equal to the discount rate of the Federal Reserve Bank of San Francisco
plus five (5%) percent per annum. As used in (iii) above, "worth at the time of
award" shall be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one (1%)
percent.
B. Right to Re-enter: In the event of any such default by Tenant, Landlord
shall have the right, after terminating this Lease, to re-enter the Premises and
remove all persons and property. Such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of Tenant, and
disposed of by Landlord in any manner permitted by law.
C. Abandonment: If Landlord does not elect to terminate this Lease as
provided in Section 13.A or 13.B above, then the provisions of California Civil
Code Section 1951.4, (Landlord may continue the lease in effect after Tenant's
breach and abandonment and recover rent as it becomes due if Tenant has a right
to sublet and assign, subject only to reasonable limitations) as amended from
time to time, shall apply and Landlord may from time to time, without
terminating this Lease, either recover all rental as it becomes due or relet the
Premises or any part thereof for such term or terms and at such rental or
rentals and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable, with the right to make alterations and repairs to
the Premises. In the event that Landlord elects to so relet, rentals received by
Landlord from such reletting shall be applied in the following order to: (i) the
payment of any indebtedness other than Base Monthly Rent due hereunder from
Tenant to Landlord; (ii) the payment of any reasonable cost of such reletting;
(iii) the payment of the cost of any alterations and repairs to the Premises
necessary to relet; and (iv) the payment of Base Monthly Rent due and unpaid
hereunder. The residual rentals, if any, shall be held by Landlord and applied
in payment of future Base Monthly Rent as the same may become due and payable
hereunder. Landlord shall have no obligation to relet the Premises following a
default if Landlord has other available space within the Building or Project. In
the event the portion of rentals received from such reletting which is applied
to the payment of rent hereunder during any month be less than the rent payable
during that month by Tenant hereunder, then Tenant shall pay such deficiency to
Landlord immediately upon demand. Such deficiency shall be calculated and paid
monthly. Tenant shall also pay to Landlord, as soon as ascertained, any
reasonable costs and expenses incurred by Landlord in such reletting or in
making such alterations and repairs necessary to relet not covered by the
rentals received from such reletting.
D. No Termination: Landlord's re-entry or taking possession of the
Premises pursuant to 13.B or 13.C shall not be construed as an election to
terminate this Lease unless written notice of such intention is given to Tenant
or unless the termination is decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Landlord because of any
default by Tenant, Landlord may at any time after such reletting elect to
terminate this Lease for any such default.
E. Non-Waiver: Landlord may accept Tenant's payments without waiving any
rights under this Lease, including rights under a previously served notice of
default. No payment by Tenant or receipt by Landlord of a lesser amount than any
installment of rent due shall be deemed as other than payment on account of the
amount due. If Landlord accepts payments after serving a notice of default.
Landlord may nevertheless commence and pursue an action to enforce rights and
remedies under the previously served notice of default without giving Tenant any
further notice or demand. Furthermore, the Landlord's acceptance of rent from
the Tenant when the Tenant is holding over without express written consent does
not convert Tenants Tenancy from a tenancy at sufferance to a month to month
tenancy. No waiver of any provision of this Lease shall be implied by any
failure of Landlord to enforce any remedy for the violation of that provision,
even if that violation continues or is repeated. Any waiver by Landlord of any
provision of this Lease must be in writing. Such waiver shall affect only the
provision specified and only for the time and in the manner stated in the
writing. No delay or omission in the exercise of any right or remedy by Landlord
shall impair such right or remedy or be construed as a waiver thereof by
Landlord. No act or conduct of Landlord, including, without limitation, the
acceptance of keys to the Premises, shall constitute acceptance of the surrender
of the Premises by Tenant before the Expiration Date. Only written notice from
Landlord to Tenant of acceptance shall constitute such acceptance of surrender
of the Premises. Landlord's consent to or approval of any act by Tenant which
requires Landlord's consent or approvals shall not be deemed to waive or render
12.
<PAGE>
unnecessary. Landlord's consent to or approval of any subsequent act by Tenant.
F. Performance by Landlord: If Tenant fails to perform any obligation
required under this Lease or by law or governmental regulation, Landlord in its
sole discretion may, without notice, without waiving any rights or remedies and
without releasing Tenant from its obligations hereunder, perform such
obligation, in which event Tenant shall pay Landlord as additional rent all sums
paid by Landlord in connection with such substitute performance, including
interest at the Agreed Interest Rate within ten (10) days of Landlord's written
notice for such payment.
G. Habitual Default: The provisions of Section 13 notwithstanding, the
parties agree that if Tenant shall have defaulted in the performance of any (but
not necessarily the same) material term or condition of this Lease for four or
more times during any twelve (12) month period during the Lease Term, then such
conduct shall, at the election of the Landlord, represent a separate event of
default which cannot be cured by Tenant. Tenant acknowledges that the purpose of
this provision is to prevent repetitive defaults by Tenant, which work a
hardship upon Landlord and deprive Landlord of Tenant's timely performance under
this Lease.
14. LANDLORD'S LIABILITY:
A. Limitation on Landlord's Liability: In the event of Landlord's failure
to perform any of its covenants or agreements under this Lease, Tenant shall
give Landlord written notice of such failure and shall give Landlord thirty (30)
days to cure or commence to cure such failure prior to any claim for breach or
resultant damages, provided, however, that if the nature of the default is such
that it cannot reasonably be cured within the 30-day period, Landlord shall not
be deemed in default if it commences within such period to cure, and thereafter
diligently prosecutes the same to completion. In addition, upon any such failure
by Landlord, Tenant shall give notice by registered or certified mail to any
person or entity with a security interest in the Premises ("Mortgagee") that has
provided Tenant with notice of its interest in the Premises, and shall provide
Mortgagee a reasonable opportunity to cure such failure, including such time to
obtain possession of the Premises by power of sale or judicial foreclosure, if
such should prove necessary to effectuate a cure. Tenant agrees that each of the
Mortgagees to whom this Lease has been assigned is an expressed third-party
beneficiary hereof. Tenant waives any right under California Civil Code Section
1950.7 or any other present or future law to the collection of any payment or
deposit from Mortgagee or any purchaser at a foreclosure sale of Mortgagee's
interest unless Mortgagee or such purchaser shall have actually received and not
refunded the applicable payment or deposit. Tenant Further waives any right to
terminate this Lease and to vacate the Premises on Landlord's default under this
Lease. Tenant's sole remedy on Landlord's default is an action for damages or
injunctive or declaratory relief.
B. Limitation on Tenant's Recourse: If Landlord is a corporation trust,
partnership, joint venture, unincorporated association or other form of business
entity: (i) the obligations of Landlord shall not constitute personal
obligations of the officers, directors, trustees, partners, joint venturers,
members, owners, stockholders, or other principals or representatives except to
the extent of their interest in the Premises. Tenant shall have recourse only to
the interest of Landlord in the Premises or for the satisfaction of the
obligations of Landlord and shall not have recourse to any other assets of
Landlord for the satisfaction of such obligations.
C. Indemnification of Landlord: As a material part of the consideration
rendered to Landlord, Tenant hereby waives all claims against Landlord for
damages to goods, wares and merchandise, and all other personal property in,
upon or about said Premises and for injuries to persons in or about said
Premises, from any cause arising at any time to the fullest extent permitted by
law, and Tenant shall indemnify and hold Landlord exempt and harmless from any
damage or injury to any person, or to the goods, wares and merchandise and all
other personal property of any person, arising from the use of the Premises,
Building, and/or Project by Tenant and Tenant's Agents or from the failure of
Tenant to keep the Premises in good condition and repair as herein provided,
except to the extent due to the active negligence or willful misconduct of
Landlord. Further, in the event Landlord is made party to any litigation due to
the acts or omission of Tenant and Tenant's Agents, tenant will indemnify,
defend (with counsel reasonably acceptable to Landlord) and hold Landlord
harmless from any such claim or liability including Landlord's costs and
expenses and reasonable attorney's fees incurred in defending such claims.
15. DESTRUCTION OF PREMISES:
A. Landlord's Obligation to Restore: In the event of a destruction of the
Premises during the Lease Term Landlord shall repair the same to the approximate
condition which existed prior to such
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destruction. Such destruction shall not annul or void this Lease; however,
Tenant shall be entitled to a proportionate reduction of Base Monthly Rent while
repairs are being made, such proportionate reduction to be based upon the extent
to which the repairs interfere with Tenant's business in the Premises, as
reasonably determined by Landlord. In no event shall Landlord be required to
replace or restore Alterations, Tenant Improvements paid for by Tenant from
sources other than the Work Allowance, Tenant's fixtures or personal property.
With respect to a destruction which Landlord is obligated to repair or may elect
to repair under the terms of this Section, Tenant waives the provisions of
Section 1932, and Section 1933, Subdivision 4, of the Civil Code of the State of
California, and any other similarly enacted statute, and the provisions of this
Section 15 shall govern in the case of such destruction.
B. Limitations on Landlord's Restoration Obligation: Notwithstanding the
provisions of Section 15.A, Landlord shall have no obligation to repair, or
restore the Premises if any of the following occur: (i) if the repairs cannot be
made in 180 days from the date of receipt of all governmental approvals
necessary under the laws and regulations of State, Federal, County or Municipal
authorities, as reasonably determined by Landlord, (ii) if the holder of the
first deed of trust or mortgage encumbering the Building elects not to permit
the insurance proceeds payable upon damage or destruction to be used for such
repair or restoration, (iii) the damage or destruction is not fully covered by
the insurance maintained by Landlord, (iv) the damage or destruction occurs in
the last twenty four (24) months of the Lease Term, (v) Tenant is in default
pursuant to the provisions of Section 13, or (vi) Tenant has vacated the
Premises for more than ninety (90) days. In any such event Landlord may elect
either to (i) complete the repair or restoration, or (ii) terminate this Lease
by providing Tenant written notice of its election within sixty (60) days
following the damage or destruction. Tenant shall also have the right to
terminate this Lease in the event of either (i) or (iv) above, by providing
Landlord written notice of its election within sixty (60) days following the
damage or destruction.
16. CONDEMNATION: If any part of the Premises shall be taken for any public or
quasi-public use, under any statute or by right of eminent domain or private
purchase in lieu thereof, and only a part thereof remains which is susceptible
of occupation hereunder, this Lease shall, as to the part so taken, terminate as
of the day before title vests in the condemnor or purchaser ("Vesting Date") and
Base Monthly Rent payable hereunder shall be adjusted so that Tenant is required
to pay for the remainder of the Lease Term only such portion of Base Monthly
Rent as the value of the part remaining after such taking bears to the value of
the entire Premises prior to such taking; but in such event, Landlord shall have
the option to terminate this Lease as of the Vesting Date. If all of the
Premises or such part thereof be taken so that there does not remain a portion
susceptible for occupation hereunder, this Lease shall terminate on the Vesting
Date. If part or all of the Premises be taken, all compensation awarded upon
such taking shall go to Landlord, and Tenant shall have no claim thereto; but
Landlord shall cooperate with Tenant, without cost to Landlord, to recover
compensation for damage to or taking of any Alterations, Tenant Improvements
paid for by Tenant from sources other than the Work Allowance, or for Tenant's
moving costs. Tenant hereby waives the provisions of California Code of Civil
Procedures Section 1265.130 and any other similarly enacted statue, and the
provisions of this Section 16 shall govern in the case of such taking.
Nothing herein contained shall be deemed or construed to prevent Tenant from
interposing and prosecuting in any condemnation proceedings a claim for the
value of any fixtures or improvements installed in or made to the Premises by
Tenant, or for its costs of moving or loss of business by reason of such
condemnation. Notwithstanding anything to the contrary set forth in this
paragraph, in the event that Tenant's leasehold estate only shall be so taken or
appropriated, and the taking or appropriation shall be for a period of less than
the balance of the Lease Term, this Lease shall continue in full force and
effect, Tenant shall receive any award or consideration paid by the condemning
or appropriating authority and Tenant shall continue to pay Landlord all sums
due under this Lease.
17. ASSIGNMENT OR SUBLEASE:
A. Consent by Landlord: Except as specifically provided in this Section 17,
Tenant may not assign, sublet, hypothecate, or allow a third party to use the
Premises without the express written consent of Landlord. In the event Tenant
desires to assign this Lease or any interest herein including, without
limitation, a pledge, mortgage or other hypothecation, or sublet the Premises or
any part thereof, Tenant shall deliver to Landlord (i) executed counterparts of
any agreement and of all ancillary agreements with the proposed
assignee/subtenant, (ii) current financial statements of the transferee covering
the preceding three years, (iii) the nature of the proposed transferee's
business to be carried on in the
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Premises, (v) all consideration to be given on account of the Transfer, and (vi)
a current financial statement of Tenant. Landlord may condition its approval of
any Transfer to a certification from both Tenant and the proposed transferee of
all consideration to be paid to Tenant in connection with such Transfer. At
Landlord's request, Tenant shall also provide additional information reasonably
required by Landlord to determine whether it will consent to the proposed
assignment or sublease. Landlord shall have a thirty (30) day period following
receipt of all the foregoing within which to notify Tenant in writing that
Landlord elects to: (i) permit Tenant to assign or sublet such space to the
named assignee/subtenant on the terms and conditions set forth in the notice; or
(ii) refuse consent. If Landlord should fail to notify Tenant in writing of such
election within the 30-day period, Landlord shall be deemed to have elected
option (ii) above. In the event Landlord elects option (i) above, Landlord's
written consent to the proposed assignment or sublease shall not be unreasonably
withheld, provided and upon the condition that: (i) the proposed assignee or
subtenant is engaged in a business that is limited to the use expressly
permitted under this Lease; (ii) the proposed assignee or subtenant is a company
with sufficient financial worth and management ability to undertake the
financial obligation of this Lease and Landlord has been furnished with
reasonable proof thereof; (iii) the proposed assignment or sublease is in form
reasonably satisfactory to Landlord; (iv) the amount of the aggregate rent to be
paid by the proposed subtenant is not less than the then current "Fair Market
Rental" as defined in Section 18.A below; (v) Tenant reimburses Landlord on
demand for any reasonable costs that may be incurred by Landlord in connection
with said assignment or sublease, including the costs of making investigations
as to the acceptability of the proposed assignee or subtenant and legal costs
incurred in connection with the granting of any requested consent, such legal
costs not to exceed $6,000.00; and (vi) Tenant shall not have advertised or
publicized in any way the availability of the Premises without prior notice to
Landlord. In the event all or any one of the foregoing conditions are not
satisfied, Landlord shall be considered to have acted reasonably if it withholds
its consent.
B. Assignment or Subletting Consideration: Any rent or other economic
consideration realized by Tenant under any sublease and assignment, in excess of
the rent payable hereunder and reasonable subletting and assignment costs, shall
be divided and paid fifty percent (50%) to Landlord and fifty percent (50%) to
Tenant. Tenant's obligation to pay over Landlord's portion of the consideration
constitutes an obligation for additional rent hereunder. The above provisions
relating to Landlord's right to terminate the Lease and relating to the
allocation of bonus rent are independently negotiated terms of the Lease which
constitute a material inducement for the Landlord to enter into the Lease, and
are agreed by the parties to be commercially reasonable. No assignment or
subletting by Tenant shall relieve it of any obligation under this Lease except
as specifically provided herein. Any assignment or subletting which conflicts
with the provisions hereof shall be void.
C. No Release: Any assignment or sublease shall be made only if and shall
not be effective until the assignee or subtenant shall execute and deliver to
Landlord an agreement, in form and substance reasonably satisfactory to
Landlord, whereby the assignee or subtenant shall assume all the obligations of
this Lease on the part of Tenant to be performed or observed and shall be
subject to all the covenants, agreements, terms, provisions and conditions in
this Lease. Notwithstanding any such sublease or assignment and the acceptance
of rent by Landlord from any subtenant or assignee, Tenant and any guarantor
shall remain fully liable for the payment of Base Monthly Rent and additional
rent due, and to become due hereunder, for the performance of all the covenants,
agreements, terms, provisions and conditions contained in this Lease on the part
of Tenant to be performed and for all acts and omissions of any licensee,
subtenant, assignee or any other person claiming under or through any subtenant
or assignee that shall be in violation of any of the terms and conditions of
this Lease, and any such violation shall be deemed a violation by Tenant. Tenant
shall indemnify, defend and hold Landlord harmless from and against all losses,
liabilities, damages, costs and expenses (including reasonable attorney fees)
resulting from any claims that may be made against Landlord by the proposed
assignee or subtenant or by any real estate brokers or other persons claiming
compensation in connection with the proposed assignment or sublease.
D. Reorganization of Tenant: The provisions of this Section 17.D shall
apply if Tenant is a corporation and: (i) there is a dissolution, merger,
consolidation, or other reorganization of or affecting Tenant, where Tenant is
not the surviving corporation, or (ii) there is a sale or transfer to one person
or entity (or to any group of related persons or entities) of stock possessing
more than 50% of the total combined voting power of all classes of
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Tenant's capital stock issued, outstanding and entitled to vote for the election
of directors, and after such sale or transfer of stock Tenant's stock is no
longer publicly traded. In a transaction under clause (i) the surviving
corporation shall promptly execute and deliver to Landlord an agreement in form
reasonably satisfactory to Landlord under which such corporation assumes the
obligations of Tenant hereunder, and in a transaction under clause (ii) the
transferee shall promptly execute and deliver to Landlord an agreement in form
reasonably satisfactory to Landlord under which such transferee assumes the
obligations of Tenant to the extent accruing after such transferee's acquisition
of Tenant's stock possessing more than 50% of the total combined voting of all
classes of Tenant's capital stock issued, outstanding and entitled to vote for
the election of directors.
E. Permitted Transfers: Notwithstanding anything contained in this Section
17, so long as Tenant otherwise complies with the provisions of this Article,
Tenant may enter into any of the following transfers (a "Permitted Transfer")
without Landlord's prior consent, and Landlord shall not be entitled to
terminate the Lease or to receive any part of any subrent resulting therefrom
that would otherwise be due pursuant to Sections 17.A and 17.B. Tenant may
sublease all or part of the Premises or assign its interest in this Lease to (i)
any corporation which controls, is controlled by, or is under common control
with the original Tenant to this Lease by means of an ownership interest of more
than 50%; (ii) a corporation which results from a merger, consolidation or other
reorganization in which Tenant is not the surviving corporation, so long as the
surviving corporation has a net worth at the time as such assignment that is
equal to or greater than the net worth of Tenant immediately prior to such
transaction; and (iii) a corporation which purchases or otherwise acquires all
or substantially all of the assets of Tenant so long as such acquiring
corporation has a net worth at the time of such assignment that is equal to or
greater than the net worth of Tenant immediately prior to such transaction.
F. Effect of Default: In the event of Tenant's default in payment of Base
Monthly Rent or any other sums due under this Lease, Tenant hereby assigns all
rents due from any assignment or subletting to Landlord as security for
performance of its obligations under this Lease, and Landlord may collect such
rents as Tenant's Attorney-in-Fact, except that Tenant may collect such rents
unless a default occurs as described in Section 13 above. A Lease termination
due to Tenant's default shall not automatically terminate an assignment or
sublease then in existence; rather at Landlord's election, such assignment or
sublease shall survive the Lease termination, the assignee or subtenant shall
attorn to Landlord, and Landlord shall undertake the obligations of Tenant under
the sublease or assignment; except that Landlord shall not be liable for prepaid
rent, security deposits or other defaults of Tenant to the subtenant or
assignee, or for any acts or omissions of Tenant and Tenant's Agents.
G. Conveyance by Landlord: As used in this Lease, the term "Landlord" is
defined only as the owner for the time being of the Premises, so that in the
event of any sale or other conveyance of the Premises or in the event of a
master lease of the Premises, Landlord shall be entirely freed and relieved of
all its covenants and obligations hereunder, and it shall be deemed and
construed, without further agreement between the parties and the purchaser at
any such sale or the master tenant of the Premises, that the purchaser or master
tenant of the Premises has assumed and agreed to carry out any and all covenants
and obligations of Landlord hereunder. Such transferor shall transfer and
deliver Tenant's security deposit and any other pre-paid sums to the purchaser
at any such sale or the master tenant of the Premises, and thereupon the
transferor shall be discharged from any further liability in reference thereto.
H. Successors and Assigns: Subject to the provisions this Section 17, the
covenants and conditions of this Lease shall apply to and bind the heirs,
successors, executors, administrators and assigns of all parties hereto; and all
parties hereto shall be jointly and severally liable hereunder.
18. OPTION TO EXTEND THE LEASE TERM:
A. Grant and Exercise of Option: Landlord grants to Tenant, subject to the
terms and conditions set forth in this Section 18.A, an option ("Option") to
extend the Lease Term for an additional term of sixty (60) months (the "Option
Term"). The Option shall be exercised, if at all, by written notice to Landlord
no earlier than fifteen (15) months prior to the Expiration Date but no later
than nine (9) months prior to the Expiration Date. If Tenant exercises the
Option, all of the terms, covenants and conditions of this Lease except this
Section shall apply during the Option Term as though the expiration date of the
Option Term was the date originally set forth herein as the Expiration Date,
provided that Base Monthly Rent for the Premises payable by Tenant during the
Option Term shall be
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the greater of either the Base Monthly Rent applicable to the period immediately
prior to the commencement of the Option Term, or 95% of the Fair Market Rental
as hereinafter defined. Notwithstanding anything herein to the contrary, if
Tenant is in monetary or material nonmonetary default under any of the terms,
covenants or conditions of this Lease either at the time Tenant exercises the
Option or at any time thereafter prior to the commencement date of the Option
Term, Landlord shall have, in addition to all of Landlord's other rights and
remedies provided in this Lease, the right to terminate the Option upon notice
to Tenant, in which event the expiration date of this Lease shall be and remain
the Expiration Date. As used herein, the term "Fair Market Rental" is defined as
the rental and all other monetary payments, including any escalations and
adjustments thereto (including without limitation Consumer Price Indexing) that
Landlord could obtain during the Option Term from a third party desiring to
lease the Premises, based upon the current use and other potential uses of the
Premises, as determined by the rents then being obtained for new leases of space
comparable in age and quality to the Premises in the locality of the Building.
Fair Market Rental shall further take into account that Tenant is in occupancy
and making functional use of the Premises in its then existing condition.
B. Determination of Fair Market Rental: If Tenant exercises the Option,
Landlord shall send Tenant a notice setting forth the Fair Market Rental for the
Option Term within thirty (30) days following the Exercise Date. If Tenant
disputes Landlord's determination of Fair Market Rental for the Option Term,
Tenant shall, within thirty (30) days after the date of Landlord's notice
setting forth Fair Market Rental for the Option Term, send to Landlord a notice
stating that Tenant either elects to terminate its exercise of the Option, in
which event the Option shall lapse and this Lease shall terminate on the
Expiration Date, or that Tenant disagrees with Landlord's determination of Fair
Market Rental for the Option Term and elects to resolve the disagreement as
provided in Section 18.C below. If Tenant does not send Landlord a notice as
provided in the previous sentence, Landlord's determination of Fair Market
Rental shall be the basis for determining the Base Monthly Rent payable by
Tenant during the Option Term. If Tenant elects to resolve the disagreement as
provided in Section 18.C and such procedures are not concluded prior to the
commencement date of the Option Term, Tenant shall pay to Landlord as Base
Monthly Rent the Fair Market Rental as determined by Landlord in the manner
provided above. If the Fair Market Rental as finally determined pursuant to
Section 18.C is greater than Landlord's determination, Tenant shall pay Landlord
the difference between the amount paid by Tenant and the Fair Market Rental as
so determined in Section 18.C within thirty (30) days after such determination.
If the Fair Market Rental as finally determined in Section 18.C is less than
Landlord's determination, the difference between the amount paid by Tenant and
the Fair Market Rental as so determined in Section 18.C shall be credited
against the next installments of rent due from Tenant to Landlord hereunder.
C. Resolution of a Disagreement over the Fair Market Rental: Any
disagreement regarding Fair Market Rental shall be resolved as follows:
1. Within thirty (30) days after Tenant's response to
Landlord's notice setting forth the Fair Market Rental, Landlord and Tenant
shall meet at least two (2) times at a mutually agreeable time and place, in an
attempt to resolve the disagreement.
2. If within the 30-day period referred to above, Landlord and
Tenant cannot reach agreement as to Fair Market Rental, each party shall select
one appraiser to determine Fair Market Rental. Each such appraiser shall arrive
at a determination of Fair Market Rental and submit their conclusions to
Landlord and Tenant within thirty (30) days after the expiration of the 30-day
consultation period described above.
3. If only one appraisal is submitted within the requisite time
period, it shall be deemed as Fair Market Rental. If both appraisals are
submitted within such time period and the two appraisals so submitted differ by
less than ten percent (10%), the average of the two shall be deemed as Fair
Market Rental. If the two appraisals differ by more than 10%, the appraisers
shall immediately select a third appraiser who shall, within thirty (30) days
after his selection, make and submit to Landlord and Tenant a determination of
Fair Market Rental. This third appraisal will then be averaged with the closer
of the two previous appraisals and the result shall be Fair Market Rental.
4. All appraisers specified pursuant to this Section shall be
members of the American Institute of Real Estate Appraisers with not less than
ten (10) years experience appraising office and industrial properties in the
Santa Clara Valley. Each party shall pay the cost of the appraiser selected
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by such party and one-half of the cost of the third appraiser.
D. Personal to Tenant: All Options provided to Tenant in this Lease are
personal and granted to Alteon Networks and any Permitted Assignee and are not
exercisable by any third party should Tenant assign or sublet all or a portion
of its rights under this Lease, unless Landlord consents to permit exercise of
any option by any assignee or subtenant, in Landlord's sole and absolute
discretion. In the event Tenant has multiple options to extend this Lease, a
later option to extend the Lease cannot be exercised unless the prior option has
been so exercised.
19. GENERAL PROVISIONS:
A. Attorney's Fees: In the event a suit or alternative form of dispute
resolution is brought for the possession of the Premises, for the recovery of
any sum due hereunder, to interpret the Lease, or because of the breach of any
other covenant herein; then the losing party shall pay to the prevailing party
reasonable attorneys' fees including the expense of expert witnesses,
depositions and court testimony as part of its costs which shall be deemed to
have accrued on the commencement of such action. The prevailing party shall also
be entitled to recover all costs and expenses including reasonable attorney's
fees incurred in enforcing any judgment or award against the other party. The
foregoing provision relating to post-judgment costs is severable from all other
provisions of this Lease.
B. Authority of Parties: Tenant represents and warrants that it is duly
formed and in good standing, and is duly authorized to execute and deliver this
Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance with
the by-laws of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms. At Landlord's request, Tenant shall
provide Landlord with corporate resolutions or other proof in a form acceptable
to Landlord, authorizing the execution of the Lease.
C. Brokers: Tenant represents it has not utilized or contacted a real
estate broker or finder with respect to this Lease other than Cornish & Carey
Commercial and Tenant agrees to indemnify, defend and hold Landlord harmless
against any claim, cost, liability or cause of action asserted by any other
broker or finder claiming through Tenant. Landlord agrees that it will be
responsible for all real estate fees due to Cornish & Carey pursuant to a
separate agreement between Landlord and Cornish & Carey. Landlord agrees to
indemnify, defend and hold Tenant harmless against any claim, cost, liability or
cause of action asserted by any other broker or finder claiming through
Landlord.
D. Choice of Law: This Lease shall be governed by and construed in
accordance with California law. Venue shall be Santa Clara County.
E. Dispute Resolution: Landlord and Tenant and any other party that may
become a party to this Lease or be deemed a party to this Lease including any
subtenants agree that, except for any claim by Landlord for unlawful detainer or
any claim within the jurisdiction of the small claims court (which for such
claims the parties agree shall be the sole court of competent jurisdiction), any
controversy, dispute, or claim of whatever nature arising out of, in connection
with or in relation to the interpretation, performance or breach of this Lease,
including any claim based on contract, tort, or statute, shall be resolved at
the request of any party, to this agreement through a two-step dispute
resolution process administered by J. A. M. S. or another judicial mediation
service mutually acceptable to the parties located in Santa Clara County. The
dispute resolution process shall involve first, mediation, followed, if
necessary, by final and binding arbitration administered by and in accordance
with the then existing rules and practices of J. A. M. S. or other judicial
mediation service selected. In the event of any dispute subject to this
provision, either party may initiate a request for mediation and the parties
shall use reasonable efforts to promptly select a J. A. M. S. mediator and
commence the mediation. In the event the parties are not able to agree on a
mediator within thirty (30) days, J. A. M. S. or another judicial mediation
service mutually acceptable to the parties shall appoint a mediator. The
mediation shall be confidential and in accordance with California Evidence Code
(S) 1152.5. The mediation shall be held in Santa Clara County and in accordance
with the existing rules and practice of J. A. M. S. (or other judicial and
mediation service selected). The parties shall use reasonable efforts to
conclude the mediation within sixty (60) days of the date of either party's
request for mediation. The mediation shall be held prior to any arbitration or
court action (other than a claim by Landlord for unlawful detainer or any claim
within the jurisdiction of the small claims court which are not subject to this
mediation/arbitration provision and may be filed directly with a court of
competent jurisdiction). Should the prevailing party in any dispute subject to
this Section 19.E attempt an arbitration or a court action before attempting to
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mediate, THE PREVAILING PARTY SHALL NOT BE ENTITLED TO ATTORNEY'S FEES THAT
MIGHT OTHERWISE BE AVAILABLE TO THEM IN A COURT ACTION OR ARBITRATION AND IN
ADDITION THERETO, THE PARTY WHO IS DETERMINED BY THE ARBITRATOR TO HAVE RESISTED
MEDIATION, SHALL BE SANCTIONED BY THE ARBITRATOR OR JUDGE.
If a mediation is conducted but is unsuccessful, it shall be followed by final
and binding arbitration administered by and in accordance with the then existing
rules and practices of J. A. M. S. or the other judicial and mediation service
selected, and judgment upon any award rendered by the arbitrator(s) may be
entered by any state or federal court having jurisdiction thereof. The parties
to the arbitration shall have those rights of discovery that the arbitrator(s)
deem necessary (after application to the arbitrator(s)) to a full and fair
hearing of the matter. However, in no event shall the parties be entitled to
propound interrogatories or request for admissions during the arbitration
process. The arbitrator shall be a retired judge or a licensed California
attorney. The venue for any such arbitration or mediation shall be in Santa
Clara County, California.
F. Entire Agreement: This Lease and the exhibits attached hereto contains
all of the agreements and conditions made between the parties hereto and may not
be modified orally or in any other manner other than by written agreement signed
by all parties hereto or their respective successors in interest. This Lease
supersedes and revokes all previous negotiations, letters of intent, lease
proposals, brochures, agreements, representations, promises, warranties, and
understandings, whether oral or in writing, between the parties or their
respective representatives or any other person purporting to represent Landlord
or Tenant.
G. Entry by Landlord: Upon prior notice to Tenant and subject to Tenant's
reasonable security regulations, Tenant shall permit Landlord and his agents to
enter into and upon the Premises at all reasonable times, and without any rent
abatement or reduction or any liability to Tenant for any loss of occupation or
quiet enjoyment of the Premises thereby occasioned, for the following purposes:
(i) inspecting and maintaining the Premises; (ii) making repairs, alterations or
additions to the Premises; (iii) erecting additional building(s) and
improvements on the land where the Premises are situated or on adjacent land
owned by Landlord; and (iv) performing any obligations of Landlord under the
Lease including remediation of hazardous materials if determined to be the
responsibility of Landlord. Tenant shall permit Landlord and his agents, at any
time within one hundred eighty (180) days prior to the Expiration Date (or at
any time during the Lease if Tenant is in default hereunder), to place upon the
Premises "For Lease" signs and exhibit the Premises to real estate brokers and
prospective tenants at reasonable hours. Landlord's rights pursuant to this
Paragraph 19.G shall be subject to the condition that exercise of any of such
rights shall not unreasonably interfere with Tenant's use of the Premises.
H. Estoppel Certificates: At any time during the Lease Term, Tenant
shall, within ten (10) days following written notice from Landlord, execute and
deliver to Landlord a written statement certifying, if true, the following: (i)
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification); (ii) the date to which rent and other
charges are paid in advance, if any; (iii) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on Landlord's part hereunder (or
specifying such defaults if they are claimed); and (iv) such other information
as Landlord may reasonably request. Any such statement may be conclusively
relied upon by any prospective purchaser or encumbrancer of Landlord's interest
in the Premises. Tenant's failure to deliver such statement within such time
shall be conclusive upon the Tenant that this Lease is in full force and effect
without modification, except as may be represented by Landlord, and that there
are no uncured defaults in Landlord's performance. Tenant agrees to provide,
within ten (10) days of Landlord's request, Tenant's most recent three (3) years
of audited financial statements for Landlord's use in financing the Premises or
Landlord's interest therein.
I. Exhibits: All exhibits referred to are attached to this Lease and
incorporated by reference.
J. Interest: All rent due hereunder, if not paid when due, shall bear
interest at the rate of the Reference Rate published by Bank of America, San
Francisco Branch, plus two percent (2%) per annum from that date until paid in
full ("Agreed Interest Rate"). This provision shall survive the expiration or
sooner termination of the Lease. Despite any other provision of this Lease, the
total liability for interest payments shall not exceed the limits, if any,
imposed by the usury laws of the State of California. Any interest paid in
excess of those limits shall be refunded to Tenant by application of the amount
of excess interest paid against any sums outstanding in any order that Landlord
requires. If the amount of
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excess interest paid exceeds the sums outstanding, the portion exceeding those
sums shall be refunded in cash to Tenant by Landlord. To ascertain whether any
interest payable exceeds the limits imposed, any non-principal payment
(including late charges) shall be considered to the extent permitted by law to
be an expense or a fee, premium, or penalty rather than interest.
K. Modifications Required by Lender: If any Lender of Landlord or
ground lessor of the Real Property Requires a modification of this Lease that
will not increase Tenant's cost or expense or materially or adversely change
Tenant's rights and obligations, this Lease shall be so modified and Tenant
shall execute whatever documents are required and deliver them to Landlord
within ten (10) days after the request.
L. No Presumption Against Drafter: Landlord and Tenant understand,
agree and acknowledge that this Lease has been freely negotiated by both
parties; and that in any controversy, dispute, or contest over the meaning,
interpretation, validity, or enforceability of this Lease or any of its terms or
conditions, there shall be no inference, presumption, or conclusion drawn
whatsoever against either party by virtue of that party having drafted this
Lease or any portion thereof.
M. Notices: All notices, demands, requests, or consents required to be
given under this Lease shall be sent in writing by U.S. certified mail, return
receipt requested, or by personal delivery addressed to the party to be notified
at the address for such party specified in Section 1 of this Lease, or to such
other place as the party to be notified may from time to time designate by at
least fifteen (15) days prior notice to the notifying party. When this Lease
requires service of a notice, that notice shall replace rather than supplement
any equivalent or similar statutory notice, including any notices required by
Code of Civil Procedure Section 1161 or any similar or successor statute, when a
statute requires service of a notice in a particular manner, service of that
notice (or a similar notice required by this lease) shall replace and satisfy
the statutory service-of-notice procedures, including those required by Code of
Civil Procedure Section 1162 or any similar or successor statute.
N. Property Management: In addition, Tenant agrees to pay Landlord along
with the expenses to be reimbursed by Tenant a monthly fee for management
services rendered by either Landlord or a third party manager engaged by
Landlord (which may be a party affiliated with Landlord), in the amount of five
percent (5%) of the Base Monthly Rent.
O. Rent: All monetary sums due from Tenant to Landlord under this Lease,
including, without limitation, those referred to as "additional rent," shall be
deemed as rent.
P. Representations: Tenant acknowledges that neither Landlord nor any of
its employees or agents have made any agreements, representations, warranties or
promises with respect to the Premises or with respect to present or future
rents, expenses, operations, tenancies or any other matter. Except as herein
expressly set forth herein, Tenant relied on no statement of Landlord or its
employees or agents for that purpose.
Q. Rights and Remedies: All rights and remedies hereunder are cumulative
and not alternative to the extent permitted by law, and are in addition to all
other rights and remedies in law and in equity.
R. Severability: If any term or provision of this Lease is held
unenforceable or invalid by a court of competent jurisdiction, the remainder of
the Lease shall not be invalidated thereby but shall be enforceable in
accordance with its terms, omitting the invalid or unenforceable term.
S. Submission of Lease: Submission of this document for examination or
signature by the parties does not constitute an option or offer to lease the
Premises on the terms in this document or a reservation of the Premises in favor
of Tenant. This document is not effective as a lease or otherwise until
executed and delivered by both Landlord and Tenant.
T. Subordination: This Lease is subject and subordinate to ground and
underlying leases, mortgages and deeds of trust (collectively "Encumbrances")
which may now affect the Premises, to any covenants, conditions or restrictions
of record, and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided, however, if the holder or holders of any such
Encumbrance ("Holder") require that this Lease be prior and superior thereto,
within seven (7) days after written request of Landlord to Tenant, Tenant shall
execute, have acknowledged and deliver all documents or instruments, in the form
presented to Tenant, which Landlord or Holder deems necessary or desirable for
such purposes. Landlord shall have the right to cause this Lease to be and
become and
20.
<PAGE>
remain subject and subordinate to any and all Encumbrances which are now or may
hereafter be executed covering the Premises or any renewals, modifications,
consolidations, replacements or extensions thereof, for the full amount of all
advances made or to be made thereunder and without regard to the time or
character of such advances, together with interest thereon and subject to all
the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, Holder agrees to recognize Tenant's rights under this Lease as
long as Tenant is not then in default and continues to pay Base Monthly Rent and
additional rent and observes and performs all required provisions of this Lease.
Within ten (10) days after Landlord's written request. Tenant shall execute any
documents required by Landlord or the Holder to make this Lease subordinate to
any lien of the Encumbrance. If Tenant fails to do so, then in addition to such
failure constituting a default by Tenant, it shall be deemed that this Lease is
so subordinated to such Encumbrance. Notwithstanding anything to the contrary in
this Section, Tenant hereby attorns and agrees to attorn to any entity
purchasing or otherwise acquiring the Premises at any sale or other proceeding
or pursuant to the exercise of any other rights, powers or remedies under such
encumbrance.
Landlord shall cause the existing lender to furnish to Tenant, within sixty (60)
days of the date of both parties' execution of this Lease, with a written
agreement providing for (i) recognition by the lender of all of the terms and
conditions of this Lease; and (ii) continuation of this Lease upon foreclosure
of existing lender's security interest in the Premises. In the event that
Landlord is unable to provide such agreement, Tenant's sole remedy shall be
termination of the Lease, which election shall be made within fourteen (14) days
following the expiration of such sixty (60) day period.
U. Survival of Indemnities: All indemnification, defense, and hold
harmless obligations of Landlord and Tenant under this Lease shall survive the
expiration or sooner termination of the Lease.
V. Time: Time is of the essence hereunder.
W. Transportation Demand Management Programs: Should a government agency
or municipality require Landlord to institute TDM (Transportation Demand
Management) facilities and/or program, Tenant agrees that the cost of TDM
imposed facilities required on the Premises, including but not limited to
employee showers, lockers, cafeteria, or lunchroom facilities, shall be paid by
Tenant. Further, any ongoing costs or expenses associated with a TDM program
which are required for the Premises and not provided by Tenant, such as an on-
site TDM coordinator, shall be provided by Landlord with such costs being
included as additional rent and reimbursed to Landlord by Tenant within thirty
(30) days after demand.
X. Waiver of Right to Jury: Landlord and Tenant Trial waive their
respective rights to trial by jury of any contract or tort claim, counterclaim,
cross-complaint, or cause of action in any action, proceeding, or hearing
brought by either party against the other on any matter arising out of or in any
way connected with this Lease, the relationship of Landlord and Tenant, or
Tenant's use or occupancy of the Premises, including any claim of injury or
damage or the enforcement of any remedy under any current or future law,
statute, regulation, code, or ordinance.
21.
<PAGE>
IN WITNESS WHEREOF, landlord and Tenant have executed this Lease on the day and
year first above written.
Landlord, South San Jose Interests, Tenant: Alteon Networks
a California Limited Partnership a Delaware Corporation
By: /s/ By: /s/ J. Booker 12/24/97
------------------------------------- --------------------------
Its: General Partner Its: V.P. of Operations
------------------------------------- ---------------------------
22.
<PAGE>
THERMA
2051 RINGWOOD AVENUE
SAN JOSE, CALIFORNIA 95131
(408) 433-5577
FAX 434-0773
September 27, 1996
Kristie Kuechler
SOBRATO PROPERTY MANAGEMENT
Regarding: 6201 San Ignacio, San Jose, CA
Dear Kristie:
We have performed the inspection as requested at the above-referenced address
and following are our findings. These units were not numbered, therefore I am
enclosing a map for your reference. The numbers are being used as
identification only.
AC-1
- ----
Replace filters, clean indoor coil, condensate pan, and electrical section.
FOR THE SUM OF:..................................................... $ 269.02
AC-2
- ----
Replace filters, clean indoor coil, pan, electrical compartment and indoor
blower.
FOR THE SUM OF:..................................................... $ 386.02
AC-3
- ----
Replace unit filters, outdoor metal filters, indoor coil; replace worn belt and
sheaves.
FOR THE SUM OF:..................................................... $ 649.68
AC-4
- ----
Replace filters and belt.
FOR THE SUM OF:..................................................... $ 100.63
AC-5
- ----
Replace filter, clean indoor and outdoor coils.
FOR THE SUM OF:..................................................... $ 231.10
AC-6
- ----
Replace unit filters, outdoor metal filters, worn belt, sheave, and pulley.
FOR THE SUM OF:..................................................... $ 589.20
AC-7
- ----
Replace filters; clean indoor and outdoor coils.
FOR THE SUM OF:..................................................... $ 269.02
AC-8
- ----
Replace filters, indoor blower bearings, belt and sheave; clean coils.
FOR THE SUM OF:..................................................... $ 984.59
1.
<PAGE>
AC-9
- ----
Replace filters, indoor blower bearings, belt and sheave; clean outdoor coil.
FOR THE SUM OF:.................................................... $ 987.82
AC-10
- -----
Replace filters and clean coils.
FOR THE SUM OF:.................................................... $ 269.02
AC-11
- -----
No filter in unit or rooftop ductwork. Duct needs to be properly capped.
FOR THE SUM OF:.................................................... $ 371.26
AC-12
- -----
Replace filters, indoor blower bearings, sheave and belt; clean coils.
FOR THE SUM OF:.................................................... $ 984.59
AC-13
- -----
Replace filters, belt, and missing reset relay; repair economizer linkage; clean
coils.
FOR THE SUM OF:.................................................... $ 562.40
AC-14
- -----
Replace filters, blower bearings, sheave, and belt; clean indoor and outdoor
coils.
FOR THE SUM OF:.................................................... $ 960.34
AC-15
- -----
Install missing filter; clean coils and indoor blower wheel.
FOR THE SUM OF:.................................................... $ 379.28
AC-16
- -----
Replace filters and belt.
FOR THE SUM OF:.................................................... $ 154.17
AC-17
- -----
Replace filters, belt, and sheave; clean coils.
FOR THE SUM OF:.................................................... $ 363.30
AC-18
- -----
Replace filters, blower bearings, belt, and sheave; clean coils and indoor
blower wheel.
FOR THE SUM OF:.................................................... $1,024.99
AC-19
- -----
Replace filters and compressor contactor; clean coils.
FOR THE SUM OF:.................................................... $ 328.28
AC-20
- -----
Replace filters, clean coils and indoor blower wheel.
2.
<PAGE>
FOR THE SUM OF:................................................. $ 346.02
AC-21
- -----
Replace filters and compressor contactor; clean coils; repair condensate drain
line.
FOR THE SUM OF:................................................. $ 819.30
AC-22
- -----
Replace filters and compressor contactor; clean coils.
FOR THE SUM OF:................................................. $ 321.55
AC-23
- -----
Replace filters, indoor blower bearings, belt, and sheave; clean coils and
blower wheel.
FOR THE SUM OF:................................................. $1,005.64
AC-24
- -----
Replace filters, clean coils and indoor blower wheel
FOR THE SUM OF:................................................. $ 385.02
AC-25
- -----
Replace filter and compressor contactor; clean coils
FOR THE SUM OF:................................................. $ 321.55
AC-26
- -----
Replace filters and compressor contactor; clean coils and indoor blower wheel
Refrigerant circuit is out of refrigerant; we need to locate leak(s), repair,
recharge with refrigerant, and install liquid line filter drier
FOR THE SUM OF:................................................. $1,381.55
AC-27
- -----
Replace filters, clean coils and indoor blower wheel.
FOR THE SUM OF:................................................. $ 386.02
AC-28
- -----
Replace filters and compressor contactor; clean coils and indoor blower wheel.
FOR THE SUM OF:................................................. $ 562.28
AC-29
- -----
Replace filters and compressor contactor, clean coils and indoor blower wheel.
FOR THE SUM OF:................................................. $ 562.28
AC-30
- -----
Replace filters and compressor contactor; clean coils and indoor blower wheel.
FOR THE SUM OF:................................................. $ 989.97
AC-31
- -----
Replace filters, indoor blower bearings, belt, and sheave; clean coils.
3.
<PAGE>
FOR THE SUM OF:................................................. $ 562.28
AC-32
- -----
Replace filters and compressor contactor; clean coils and indoor blower wheel.
FOR THE SUM OF:................................................. $ 386.02
AC-33
- -----
Replace filters, clean coils and indoor blower wheel.
FOR THE SUM OF:................................................. $ 386.02
AC-34
- -----
Replace filters; clean coils and indoor blower wheel.
FOR THE SUM OF:................................................. $ 386.02
AC-35
- -----
Replace filters and clean coils.
FOR THE SUM OF:................................................. $ 386.02
AC-36
- -----
Replace filters and clean coils.
FOR THE SUM OF:................................................. $ 386.02
AC-37
- -----
Replace filters, belt, and sheave; clean coils.
FOR THE SUM OF:................................................. $ 427.83
AC-38
- -----
We were unable to shut this unit down to perform the inspection.
Restroom Exhaust
- ----------------
Exhaust consits of three Mushroom fans--need to clean wheels.
FOR THE SUM OF:................................................. $ 255.55
All labor is to be performed using straight-time hours. If you have any
questions, please give me a call.
Sincerely,
/s/ Diana Rossi
Diana Rossi
4.
<PAGE>
EXHIBIT "A" - Premises
[GRAPHIC DEPICTS FLOOR PLAN OF 6201 SAN IGNACIO AVENUE
INCLUDING PARKING FOR APPROXIMATELY 275 CARS]
<PAGE>
[GRAPHIC DEPICTS FLOOR PLAN OF FRONT OF BUILDING]
<PAGE>
EXHIBIT "B"
[GRAPHIC DEPICTS FLOOR PLAN OF INTERIOR OF BUILDING]
<PAGE>
FIRST AMENDMENT TO LEASE
This amendment to lease ("First Amendment") is made this, 20/th/ day of April,
1998 by and between South San Jose Interests, a California Limited Partnership,
having an address at 10600 N. De Anza Blvd., Suite 200, Cupertino, California
95014 ("Landlord") and Alteon Networks, a Delaware corporation having its
principal place of business at 6351 San Sobrato Ignacio Avenue, San Jose,
California, ("Tenant").
WITNESSETH
WHEREAS Landlord and Tenant entered into a lease dated December 24, 1997
("Lease") for the premises ("Premises") located at 6201 San Ignacio Avenue in
San Jose, California; and
WHEREAS effective the date of this First Amendment, Landlord and Tenant wish to
(i) specify the Lease Commencement Date; (ii) modify the Monthly Rent schedule
specified in Lease paragraph 4.A.; and (iii) increase the-amount of the Security
Deposit specified in Lease paragraph 4.C. and modify the terms under which it
will be reduced over the Lease Term.
NOW, THEREFORE, in order to effect the intent of the parties as set forth above
and for good and valuable consideration exchanged between the parties, the Lease
is amended as follows:
1. The Commencement Date of the Lease is May 1, 1998.
2. Base Monthly Rent due pursuant to Lease paragraph 4.A. is changed to the
following schedule:
Months 01 -06: $38,775.00 per month
Months 07 -12: $77,550.00 per month
Months 13 -24: $81,427.00 per month -
Months 25 -36: $94,999.00 per month
Months 37 -48: $98,876.00 per month
Months 49 -60: $93,060.00 per month
3. The amount of the Security Deposit as specified in Lease paragraph 4.C. is
changed to $697,950.00. In lieu of a cash Security Deposit, Tenant shall
post a letter of credit in a form reasonably acceptable to Landlord for the
amount of the Security Deposit concurrent with Tenant's execution of this
First Amendment. Provided Tenant has not been in monetary default under the
Lease during the first three years of the Lease Term, Tenant shall be
entitled to reduce the amount of the Security Deposit at the commencement of
the fourth year of the Lease Term to $348,975.00, and again at the
commencement of the fifth year of the Lease Term to $232,650.00. All other
provisions of Lease paragraph 4.C. remain in effect.
4. All defined terms shall have the same meanings as in the Lease, except as
otherwise stated in this Amendment.
1.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands to this Amendment as
of the day and date first above written.
Landlord Tenant
South San Jose Interests, Alteon Networks, Inc.
a California Limited Partnership a Delaware corporation
By: /s/ By: /s/ Joe Booker
------------------------------- ------------------------------------
Its: General Partner Its: Vice President of Operations
----------------------------------
2.
<PAGE>
EXHIBIT 10.8
SUBLEASE
THIS SUBLEASE ("Sublease"), dated April 7, 1999 for reference purposes
only, is entered into by and between ALTEON NETWORKS, INC., a Delaware
corporation ("Sublessor") and SILICON VALLEY COLLEGE, a California corporation
("Sublessee").
Recitals
A. Sublessor leases certain premises (the "Master Premises") consisting
of a building located at 6201 San Ignacio Avenue, San Jose, California, from
South San Jose Interests, a California limited partnership ("Prime Landlord")
pursuant to that certain lease dated December 24, 1997 (the "Prime Lease") as
attached hereto as Exhibit A. Capitalized terms used but not defined herein have
the same meanings as they have in the Prime Lease.
B. Sublessor desires to sublease a portion of the Master Premises to
Sublessee, and Sublessee desires to sublease a portion of the Master Premises
from Sublessor on the terms and provisions hereof.
Now, Therefore, in consideration of the mutual covenants and conditions
contained herein, Sublessor and Sublessee covenant and agree as follows:
AGREEMENT
1. Subleased Premises. On and subject to the terms and conditions below,
Sublessor hereby leases to Sublessee, and Sublessee hereby leases from
Sublessor, a portion of the Master Premises (the "Premises"). The Premises
contain approximately Thirty Thousand (30,000) square feet, and are more
particularly described in Exhibit B.
2. Term. Subject to the consent of the Prime Landlord, this Sublease
shall commence May 1, 1999 (the "Commencement Date"), and shall expire February
28, 2003, unless sooner terminated pursuant to any provision hereof.
3. Possession. If for any reason Sublessor cannot deliver possession of
the Premises to Sublessee on the Commencement Date, Sublessor shall not be
subject to any liability therefor, nor shall such failure affect the validity of
this Sublease or the obligations of Sublessee hereunder.
4. Rent.
(a) Commencing on the Commencement Date and continuing throughout the
term of this Sublease, Sublessee shall pay to Sublessor monthly Basic Rent (the
"Basic Rent") in the following amounts:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Month 01-03 $17,250.00
Month 04-12 $40,200.00
Month 13-24 $36,000.00
Month 25-34 $37,500.00
</TABLE>
<PAGE>
(b) In addition to Basic Rent, Sublessee shall pay to Sublessor
thirty nine percent (39%) of all amounts due from Sublessor to Prime Landlord
pursuant to the Prime Lease, excepting Base Monthly Rent (the "Additional
Rent"). Such Basic Rent and Additional Rent shall be referred to herein as
"Rent."
(c) Rent shall be payable to Sublessor in lawful money of the United
States, in advance, without prior notice, demand, or offset, on or before the
first day of each calendar month during the term hereof. All Rent shall be paid
to Sublessor at the address specified for notice to Sublessor in Section 16,
below. If the Commencement Date does not fall on the first day of a calendar
month, Rent for the first month shall be prorated on a daily basis based upon a
thirty day calendar month.
(d) Upon execution of this Sublease, Sublessee shall pay to Sublessor
the sum of Seventeen Thousand Two Hundred Fifty and 00/100 Dollars ($17,250.00),
constituting payment in advance of the first month's Rent, together with the
Security Deposit, as set forth in Section 5 below.
(e) In the event of any casualty or condemnation affecting the
Premises, Rent payable by Sublessee shall be abated hereunder, but only to the
extent that Rent under the Prime Lease is abated, and Sublessee waives any right
to terminate the Sublease in connection with such casualty or condemnation
except to the extent the Prime Lease is also terminated as to the Premises or
any portion thereof.
5. Security Deposit. Upon execution of this Sublease, Sublessee shall
deposit with Sublessor the cash sum of Seventy Five Thousand Six Hundred and
00/100 Dollars ($75,600.00) as a security deposit ("Security Deposit"). If
Sublessee fails to pay Rent or other charges when due under this Sublease, or
fails to perform any of its other obligations hereunder, Sublessor may use or
apply all or any portion of the Security Deposit for the payment of any Rent or
other amount then due hereunder and unpaid, for the payment of any other sum for
which Sublessor may become obligated by reason of Sublessee's default or breach,
or for any loss or damage sustained by Sublessor as a result of Sublessee's
default or breach. If Sublessor so uses any portion of the Security Deposit,
Sublessee shall restore the Security Deposit to the full amount originally
deposited within ten (10) days after Sublessor's written demand. Sublessor shall
not be required to keep the Security Deposit separate from its general accounts,
and shall have no obligation or liability for payment of interest on the
Security Deposit. The Security Deposit, or so much thereof as had not
theretofore been applied by Sublessor, shall be returned to Sublessee within
thirty (30) days of the expiration or earlier termination of this Sublease,
provided Sublessee has vacated the Premises.
6. Assignment and Subletting.
(a) Sublessee may not assign, sublet, transfer, pledge, hypothecate
or otherwise encumber the Premises, in whole or in part, or permit the use or
occupancy of the Premises by anyone other than Sublessee, unless Sublessee has
obtained Sublessor's consent thereto (which shall not be unreasonably withheld)
and the consent of Prime Landlord. Regardless of Sublessor's consent, no
subletting or assignment shall release Sublessee of its obligations hereunder.
Any rent or other consideration payable to Subtenant pursuant to any
2
<PAGE>
sublease or assignment permitted by this paragraph which is in excess of the
Rent payable to Netscape pursuant hereto ("Sublease Bonus Rent") shall be
divided equally between Netscape and Subtenant.
(b) Within thirty (30) days after Sublessee's request to assign or
sublease, Sublessor may (by giving written notice to Sublessee) terminate this
Sublease with respect to the Premises (or the space requested to be assigned or
sublet) as of the effective date of the proposed assignment or sublease, and all
obligations under this Sublease as to such space shall expire except as to any
obligations that expressly survive any termination of this Sublease.
7. Condition of Subleased Premises. Sublessee has used due diligence in
inspecting the Premises and agrees to accept the Premises in "as-is" condition
and with all faults as of the date of Sublessee's execution of this Sublease,
without any representation or warranty of any kind or nature whatsoever, or any
obligation on the part of Sublessor to modify, improve or otherwise prepare the
Premises for Sublessee's occupancy except as otherwise provided in Section 8
hereof. By entry hereunder, Sublessee accepts the Premises in their present
condition and without representation or warranty of any kind by Sublessor.
Sublessee hereby expressly waives the provisions of subsection 1 of Section 1932
and Sections 1941 and 1942 of the California Civil Code and all rights to make
repairs at the expense of Sublessor as provided in Section 1942 of said Civil
Code.
8. Condition of the Premises upon Commencement.
(a) As of the Commencement Date, Sublessor agrees to the following:
(i) Perform all repairs necessary to ensure that the building
systems (including lighting fixtures) and roof membrane are in
good operating condition and repair;
(ii) Patch and repaint all existing remaining interior walls;
(iii) Replace all existing VCT and all damaged or stained ceiling
tiles;
(iv) Install new tile or carpeting in those areas without floor
covering;
(v) Remove all the de-ionized water system (including water
lines) and compressed air lines; and
(vi) Clean the Premises (including window blinds and both sides
of windows).
(b) Any additional alterations or improvements shall be done at the
sole cost and expense of Sublessee and shall be subject to the provisions of
this Sublease.
9. Use. Sublessee may use the Premises only for the purposes as allowed
in the Prime Lease, and no other purpose. Sublessee shall promptly comply with
all applicable statutes, ordinances, rules, regulations, orders, restrictions of
record, and requirements in effect during the term of this Sublease governing,
affecting and regulating the Premises, including but not limited to the use
thereof. Sublessee shall not use or permit the use of the Premises in a manner
that will create waste or a nuisance, interfere with or disturb other tenants in
the Building or violate the provisions of the Prime Lease. Notwithstanding the
foregoing, Sublessor shall not
3
<PAGE>
unreasonably withhold its consent to any proposed alternative use and shall use
reasonable good faith efforts to obtain the consent of the Prime Landlord for
any proposed alternative use.
10. Parking. Sublessee shall have such parking rights as Sublessor may
with respect to the Premises pursuant to the Prime Lease.
11. Signage. Sublessee shall share equally all rights of signage as
Sublessor may have with respect to the Premises pursuant to the Prime Lease.
12. Incorporation of Sublease.
(a) All of the terms and provisions of the Prime Lease, except as
provided in subsection (b) below, are incorporated into and made a part of this
Sublease and the rights and obligations of the parties under the Prime Lease are
hereby imposed upon the parties hereto with respect to the Premises, Sublessor
being substituted for the "Landlord" in Prime Lease, and Sublessee being
substituted for the "Tenant" in the Prime Lease. It is further understood that
where reference is made in the Prime Lease to the "Premises," the same shall
mean the Premises as defined herein; where reference is made to the
"Commencement Date," the same shall mean the Commencement Date as defined
herein; and where reference is made to "this Lease," the same shall mean this
Sublease.
(b) The following Sections of the Prime Lease are not incorporated
herein: Sections 1, 2, 4A, 4C, 5, 6A, 8A, 9B, the second paragraph of Section
10, the second sentence of 14B, 15, 16, 17, 18, 19C, 19E, 19M and 19N and all
Exhibits.
(c) Sublessee hereby assumes and agrees to perform for Sublessor's
benefit, during the term of this Sublease, all of Sublessor's obligations with
respect to the Premises under the Prime Lease, except as otherwise provided
herein. Sublessee shall not commit or permit to be committed any act or omission
which violates any term or condition of the Prime Lease. Except as otherwise
provided herein, this Sublease shall be subject and subordinate to all of the
terms of the Prime Lease.
13. Insurance. Sublessee shall comply with the insurance provisions of the
Prime Lease as incorporated. Additionally, such insurance shall insure the
performance by Sublessee of its indemnification obligations hereunder and shall
name Prime Landlord and Sublessor as additional insureds. All insurance required
under this Sublease shall contain an endorsement requiring thirty (30) days
written notice from the insurance company to Sublessee and Sublessor before
cancellation or change in the coverage, insureds or amount of any policy.
Sublessee shall provide Sublessor with certificates of insurance evidencing such
coverage prior to the commencement of this Sublease.
14. Utilities. Sublessee shall be responsible for its pro-rata share of
all utilities to the Master Premises.
15. Default. In addition to defaults contained in the Prime Lease, failure
of Sublessee to make any payment of Rent when due hereunder shall constitute an
event of default hereunder.
4
<PAGE>
16. Notices. The addresses specified in the Prime Lease for receipt of
notices to each of the parties are deleted and replaced with the following:
To Sublessor at: Alteon Networks, Inc.
50 Great Oaks Blvd.
San Jose, CA 95119-1325
Attn: Joe Booker
With copy to: Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
Attn: Toni P. Wise
To Sublessee at: Silicon Valley College
41350 Christy Street
Fremont, Ca 94538
Attn: Darryl Lindsey, President
17. Sublessor's Obligations.
(a) To the extent that the provision of any services or the
performance of any maintenance or any other act respecting the Premises or
building is the responsibility of Prime Landlord (collectively "Prime Landlord
Obligations"), upon Sublessee's request, Sublessor shall make reasonable efforts
to cause Prime Landlord to perform such Prime Landlord Obligations, provided,
however, that in no event shall Sublessor be liable to Sublessee for any
liability, loss or damage whatsoever in the event that Prime Landlord should
fail to perform the same, nor shall Sublessee be entitled to withhold the
payment of Rent or terminate this Sublease.
(b) It is expressly understood that the services and repairs which
are incorporated herein by reference, including but not limited to, maintenance
of the foundation, exterior load bearing walls and roof structure of the
building, or other services will in fact be furnished by Prime Landlord, and not
by Sublessor. In addition, Sublessor shall not be liable for any maintenance,
restoration (following casualty or destruction) or repairs in or to the Building
or Subleased Premises, other than its obligation hereunder to use reasonable
efforts to cause Prime Landlord to perform its obligations under the Prime
Lease. Except as otherwise provided herein, Sublessor shall have no other
obligations to Sublessee with respect to the Premises or the performance of the
Prime Landlord Obligations.
18. Early Termination of Sublease. If, without the fault of Sublessor, the
Prime Lease should terminate prior to the expiration of this Sublease, Sublessor
shall have no liability to Sublessee on account of such termination. To the
extent that the Prime Lease grants Sublessor any discretionary right to
terminate the Prime Lease, whether due to casualty, condemnation, or otherwise,
Sublessor shall be entitled to exercise or not exercise such right in its
complete and absolute discretion.
19. Consent of Prime Landlord and Sublessor. If Sublessee desires to take
any action which requires the consent or approval of Sublessor pursuant to the
terms of this Sublease,
5
<PAGE>
prior to taking such action, including, without limitation, making any
alterations, then, notwithstanding anything to the contrary herein, (a)
Sublessor shall have the same rights of approval or disapproval as Prime
Landlord has under the Prime Lease, and (b) Sublessee shall not take any such
action until it obtains the consent of Sublessor and Prime Landlord, as may be
required under this Sublease or the Prime Lease. This Sublease shall not be
effective unless and until any required written consent of the Prime Landlord
shall have been obtained.
20. Brokers. Each party hereto represents and warrants that it has dealt
with no broker in connection with this Sublease and the transactions
contemplated herein, except Cornish & Carey Commercial/ONCOR International.
Each party shall indemnify, protect, defend and hold the other party harmless
from all costs and expenses (including reasonable attorneys' fees) arising from
or relating to a breach of the foregoing representation and warranty.
21. No Third Party Rights. The benefit of the provisions of this Sublease
is expressly limited to Sublessor and Sublessee and their respective permitted
successors and assigns. Under no circumstances will any third party be
construed to have any rights as a third party beneficiary with respect to any of
said provisions.
22. Counterparts. This Sublease may be signed in two or more counterparts,
each of which shall be deemed an original and all of which shall constitute one
agreement.
IN WITNESS WHEREOF, the parties have executed this Sublease as of the date
first written above.
Sublessor: Sublessee:
ALTEON NETWORKS, INC. SILICON VALLEY COLLEGE
By: James Burke By: Darryl Lindsey
------------------------ ---------------------------
Title: CFO Title: President
--------------------- ------------------------
Signature: /s/ J.M. Burke Signature: /s/ Darryl Lindsey
----------------- ---------------------
Date: 4/9/99 Date: 4/9/99
---------------------- --------------------------
6
<PAGE>
EXHIBIT 10.9
Memorandum of Understanding
between
International Manufacturing Services, Inc.
and
Alteon Networks, Inc.
IMS shall perform turnkey manufacturing for Alteon in accordance with purchase
order requirements and releases to be issued by Alteon. This turnkey
manufacturing shall involve the following activities to the extent required in
order to accomplish the desired result.
Program Managagement: IMS shall establish a Program Manager to manage and
coordinate the IMS activities required in support of the Alteon program. The IMS
Program Manager shall be responsible to assure that all IMS resources required
to satisfy the Alteon program requirements are applied in a timely and efficient
manner.
Engineering: IMS shall utilize its Engineering staff in support of this project
to assure that the Alteon product is produced in a cost effective manner. These
IMS engineering resources shall be applied to, but not limited to product and
testing tool design, as well as manufacturability and testability review and
recommendations to Alteon. The IMS engineering staff shall assist the Alteon
engineers during the introductory phase of the new products brought to IMS
during the period of this MOU to assure a smooth transition from design to
production.
Materials Management: In accordance with the requirements of this MOU, IMS shall
be responsible for, but not limited to, the following material management
activities: purchasing, expediting, inventory control, kitting and periodic
cycle counting. When necessary, Alteon will identify preferred or sole sources
for components required for Alteon products.
Alteon shall be financially responsible for all Excess and Obsolete material
accumulated as a result of engineering changes in the product order,
cancellations, reschedules and/or product cancellations. IMS will use its best
efforts to return for credit, or use elsewhere, any excess or obsolete material.
Assembly: IMS shall be responsible for all assembly activities related to Alteon
products covered by this MOU. IMS shall determine the most efficient and cost
effective method for accomplishing this activity depending upon the product to
be assembled in accordance with Alteon design and manufacturing documentation.
All assembly workmanship will be done according to IPC 610B, Class II standards.
Testing: Alteon and IMS will jointly determine the methods for testing Alteon
products built by IMS. IMS shall test all Alteon products built under this
agreement to the extent specified in the purchase orders released by Alteon.
This testing will include in-circuit testing, functional testing and system
testing where appropriate. The results of all testing performed by IMS shall be
recorded and provided to Alteon as required.
1.
<PAGE>
Warranty: All products assembled by IMS shall be covered by a 1 year warranty on
workmanship and 90 day warranty on material. The warranty period will commence
on the date of first shipping to Alteon. Defective product will be returned by
Alteon to the IMS point of manufacturer at Alteon's expense using the IMS RMA
procedures.
Quality Assurance: IMS shall maintain and apply accepted Quality Assurance
practices throughout the entire manufacturing process from incoming inspection
to final inspection, packing and shipping. ISO 9002 Quality Systems and BABT
requirements shall apply. This QA process shall include a corrective action
process to identify root cause of any non-conformance which may occur during the
manufacture of Alteon products. Alteon reserves the right to participate in the
review and disposition of non-conforming Alteon product at any state of IMS
production. IMS quality assurance records relating to the production of Alteon
products shall be available to Alteon for review upon request.
Packing and Shipping: IMS shall prepare the finished Alteon products for
shipment in order to assure arrival at the designated destination in an
undamaged condition. Shipping destination will be designated by Alteon in the
purchase order. Alteon products shall be shipped FOB, the IMS facility in
Thailand.
Payment Terms: All Alteon payments for products shall be in United States
dollars and free of any offset or claims. Alteon is responsible for all taxes,
duties and freight. Payment terms are Net Thirty (30) days from date of invoice.
Agreed to: Agreed to:
IMS
International Manufacturing Services, Inc. Alteon Networks, Inc.
/s/ Anthony Pham /s/ Joe Booker
- --------------------------- -----------------------------
Anthony Pham Joe Booker
Senior Vice President Vice President, Operations
Date: 6-30-98 Date: 6-30-98
--------- ----------
2.
<PAGE>
EXHIBIT 10.10
January 17, 1997
Mr. Joe T. Booker
4662 Fieldstone Drive
Saratoga, CA 95070
(408)741-1677
Dear Joe,
Alteon Networks, Inc, (the "Company") is pleased to offer you the position of
Vice President of Operations and Customer Satisfaction reporting to the CEO &
- ------------------------------------------------------
President on the terms set forth below (the "Agreement").
Your initial salary will be $175,000 per year, which will be equivalent to
--------
$6,730.77 per bi-weekly pay period, less payroll deductions and withholdings.
- ---------
In addition, a $35,000 hire-on bonus will be paid to you on your first payroll
-------
period after your start date.
At its next meeting, the Company's Board of Directors will grant you the right
to purchase 420,000 shares of common stock, at the option price of the approval
-------
date pursuant to the Company's Stock Option Plan. Under this plan you will vest
25% of the Shares after your first full year of employment, and continue vesting
thereafter at the rate of 1/36th per month of then unvested shares, as long as
you are employed by the Company. (You may also elect to purchase these Shares
immediately, subject to a Company Repurchase Right that will lapse on the same
schedule that the stock options would have normally vested.) If, during the
term of your employment, the Company is acquired or sold, you will immediately
vest 50 percent (50%) of your then remaining unvested Shares. If you have
---------- -----
committed to full time employment with such acquiring company, you will continue
vesting the remaining unvested shares on an equal 1/48th per month. If,
however, the acquiring company, for any reason terminates your employment or
materially reduces your job responsibilities or compensation without cause, or
requires that you relocate from the Silicon Valley, you will immediately vest
in full of the remaining unvested shares.
Commencing on your date of hire you will be eligible to participate in Alteon's
standard benefits package, which include 16 days of paid time off (PTO),
medical, dental, life and disability (LTD) benefits plans governed by the terms,
conditions, and limitations contained in the applicable plan documents.
<PAGE>
This offer of employment is contingent upon your ability to provide and maintain
the proper and necessary documentation required for you and Alteon Networks to
comply with United States Immigration and Naturalization laws and regulations
pertaining to the right to work in the United States.
This Agreement, including attachments, constitutes the complete, final and
exclusive embodiment of the entire agreement between you and the Company with
respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a duly
authorized officer of the Company. If any provision of this agreement is
determined to invalid or unenforceable, in whole or in part, this determination
will not affect any other provision of this Agreement. This Agreement shall be
construed and interpreted in accordance with the laws of the State of
California.
To indicate your acceptance of our offer under the terms described above, please
sign, complete with your actual first day of employment and return this letter
in the enclosed self-addressed envelope.
Joe, we know that you will be a very strong contribution to our team and our
goals as a company. All of us at Alteon Networks are looking forward to having
you as part of our team.
If you have any questions, please feel free to give us a call.
Sincerely,
/s/ Dominic P. Orr
Dominic P. Orr
CEO & President
This will acknowledge my acceptance of this offer of employment.
/s/ Joe Booker 2-2-97
- ------------------------------ -----------------------
Joe Booker Date
My first day of employment at Alteon Networks will be 2-2-97
-------------------
<PAGE>
May 9, 1997
Mr. Joe T. Booker
4662 Fieldstone Drive
Saratoga, CA 95070
Dear Joe:
You and Alteon Networks, Inc. (the "Company") entered into that certain Early
Exercise Stock Purchase Agreement, dated April 28, 1997 (the "Agreement"),
pursuant to which you purchased 420,000 shares of the Company's Common Stock
(the "Shares"). In addition to the terms of the Agreement and the exhibits
thereto, the purchase and sale of the Shares was made pursuant to the rights
granted you pursuant to that certain Incentive Stock Option granted to you by
the Company on March 24, 1997 (the "Option"), and, in particular, the right to
exercise the option prior to vesting pursuant to Section 4 of the Option.
Section 2 of the Agreement gives the Company a Purchase Option (as defined in
the Agreement) pursuant to which the Company may repurchase unvested Shares upon
the occurrence of certain events.
This letter shall serve to amend Section 2 of the Agreement by incorporating by
reference into Section 2 of the Agreement the vesting provisions contained in
Section 2 of the Option. As a result, you and the Company agree that the
Purchase Option contained in Section 2 of the Agreement may only be exercised by
the Company as to those Shares which have not yet vested pursuant to the
provisions of Section 2 of the Option, provided, however, that Section 2(d) of
the Option is hereby deleted from the Option and shall not be incorporated into
the Agreement.
In addition, you and the Company agree that your death or permanent and total
disability within the meaning of Section 422(c)(6) of the Internal Revenue Code
of 1986, as amended, shall be deemed a "Change in Control" for purposes of
Section 2 of the Option.
Except as modified herein, the Agreement, including the provisions of Section 2
of the Agreement that are not inconsistent with the foregoing, shall remain in
full force and effect.
Very truly yours,
Alteon Networks, Inc. Accepted and Agreed:
By /s/ Chloe Chan /s/ Joe T. Booker
-------------------------- ----------------------------------
Joe T. Booker
Title: Corporate Controller
______________________
<PAGE>
EXHIBIT 10.11
December 2, 1996
Mr. Barton Burstein
1330 Cowper Street
Palo Alto, CA 94301
(415)323-4962
Dear Bart,
Alteon Networks, Inc, (the "Company") is pleased to offer you the position of
Director of OEM & International Sales reporting to the CEO & President for the
- -------------------------------------
interim, until a VP of Sales is appointed, on the terms set forth below (the
"Agreement").
Your salary will consist of the following components: 1) Base salary of
$100,000, 2) for the first half of Calendar 1997 (1/2/97 to 6/30/97) your MBO
- -------- -----------------
bonus will be $40,000 upon meeting your six month's goals as described on a
-------
separate exhibit. Your base salary will be paid bi-weekly equivalent to
$3,846.15, less payroll deductions and withholdings. 3) For fiscal year 1998
- ---------
(7/1/97 to 6/30/98), your MBO bonus will consist of $20,000 (details to be
-------
determined). A $60,000 commission plan will be based on quarterly quotas which
-------
will be determined as part of the FY1998's financial plan.
In addition, you have been granted 80,000 options of common stock, pending
------
approval by the board of directors, your option price will be based on the
option price of the approval date. An additional 10,000 shares of fully vested
------
options will be granted, contingent on your ability to start on or before
January 2, 1997. The incentive stock options will vest in accordance with our
- ---------------
standard stock option vesting program.
Commencing on your date of hire you will be eligible to participate in Alteon's
standard benefits package, which include 16 days of paid time off (PTO),
medical, dental, life and disability (LTD) benefits plans governed by the terms,
conditions, and limitations contained in the applicable plan documents.
This offer of employment is contingent upon your ability to provide and maintain
the proper and necessary documentation required for you and Alteon Networks to
comply with United States Immigration and Naturalization laws and regulations
pertaining to the right to work in the United States.
This Agreement, including attachments, constitutes the complete, final and
exclusive embodiment of the entire agreement between you and the Company
<PAGE>
with respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a duly
authorized officer of the Company. If any provision of this agreement is
determined to invalid or unenforceable, in whole or in part, this determination
will not affect any other provision of this Agreement. This Agreement shall be
construed and interpreted in accordance with the laws of the State of
California.
This offer of employment will expire on the end of December 2, 1996. To
----------------
indicate your acceptance of our offer under the terms described above, please
sign, complete with your actual first day of employment and return this letter
in the enclosed self-addressed envelope.
Bart, we feel that you will make a very strong contribution to our team and our
goals as a company. All of us at Alteon Networks are looking forward to having
you as part of our team.
If you have any questions, please feel free to give us a call.
Sincerely,
/s/ Dominic P. Orr
Dominic P. Orr
CEO & President
This will acknowledge my acceptance of this offer of employment.
/s/ Barton Burstein 12/2/96
------------------- -------
Barton Burstein Date
My first day of employment at Alteon Networks will be ___________________
<PAGE>
EXHIBIT 10.12
January 17, 1997
Ms. Selina Lo
165 Forest Ave #4C
Palo Alto, CA 94301
415-322-2557
Dear Selina,
Alteon Networks, Inc, (the "Company") is pleased to offer you the position of
Vice President of Marketing reporting to the CEO & President, on the terms set
- ---------------------------
forth below (the "Agreement").
Your starting salary will be $155,000 per year, which will be equivalent to
--------
$5,961.54 per bi-weekly pay period, less payroll deductions and withholdings.
- ---------
At its next meeting, the Company's Board of Directors will grant you the right
to purchase 520,000 shares of common stock, at the option price of the approval
-------
date pursuant to the Company's Stock Option Plan. Under this plan you will vest
25% of the Shares after your first full year of employment, and continue vesting
thereafter at the rate of 1/36th per month of then unvested shares, as long as
you are employed by the Company. (You may also elect to purchase these Shares
immediately, subject to a Company Repurchase Right that will lapse on the same
schedule that the stock options would have normally vested.) If, during the
term of your employment, the Company is acquired or sold, you will immediately
vest 50 percent (50%) of your then remaining unvested Shares. If you have
---------- -----
committed to full time employment with such acquiring company, you will continue
vesting the remaining unvested shares on an equal 1/48th per month. If, however,
the acquiring company, for any reason terminates your employment or materially
reduces your job responsibilities or compensation without cause, or requires
that you relocate from the Silicon Valley, you will immediately vest in full of
the remaining unvested shares.
Commencing on your date of hire you will be eligible to participate in Alteon's
standard benefits package, which include 16 days of paid time off (PTO),
medical, dental, life and disability (LTD) benefits plans governed by the terms,
conditions, and limitations contained in the applicable plan documents.
This offer of employment is contingent upon your ability to provide and maintain
the proper and necessary documentation required for you and Alteon
<PAGE>
Networks to comply with United States Immigration and Naturalization laws and
regulations pertaining to the right to work in the United States.
This Agreement, including attachments, constitutes the complete, final and
exclusive embodiment of the entire agreement between you and the Company with
respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a duly
authorized officer of the Company. If any provision of this agreement is
determined to invalid or unenforceable, in whole or in part, this determination
will not affect any other provision of this Agreement. This Agreement shall be
construed and interpreted in accordance with the laws of the State of
California.
To indicate your acceptance of our offer under the terms described above, please
sign, complete with your actual first day of employment and return this letter
in the enclosed self-addressed envelope.
Selina, we have no doubt that you will make a very strong contribution to our
team and our goals as a company. All of us at Alteon Networks are looking
forward to having you as part of our team.
If you have any questions, please feel free to give us a call.
Sincerely,
/s/ Dominic P. Orr
Dominic P. Orr
President / CEO
This will acknowledge my acceptance of this offer of employment.
/s/ Selina Lo 1/19/97
- ------------------------- ---------------------
Selina Lo Date
My first day of employment at Alteon Networks will be ___________________
<PAGE>
EXHIBIT 10.13
October 11, 1996
Mr. Dominic P. Orr
12833 Star Ridge Court
Saratoga, CA 95070
Dear Dominic:
On behalf of the Board of Directors of Alteon Networks, Inc. (the "Company"), I
am pleased to offer you the position of President, Chief Executive Officer, and
Member of the Board of Directors, commencing on or before November 1, 1996. Your
location of employment will be at the Company headquarters in San Jose,
California. Your salary will initially be $14,583.33 per month ($175,000.00 on
an annualized basis), which will be paid in accordance with the Company's normal
payroll procedures. As an employee of the Company you will be eligible to
participate in benefits generally provided by the Company to its employees.
At its next meeting, the Company's Board of Directors will grant you the right
to purchase 1,174,468 shares of Common Stock (the "Shares") at the fair market
value for such shares (currently $0.08 per share) pursuant to the Company's
Stock Option Plan. Under this plan you will vest 25% of the Shares after your
first full year of employment and continue vesting at the rate of 1/48th per
month thereafter, as long as you are employed by the Company. (You may also
elect to purchase these Shares immediately, subject to a Company Repurchase
Right that will lapse on the same schedule that the stock options would have
normally vested.) If, during the term of your employment, the Company is
acquired or sold, you will immediately vest a minimum of 80 percent of your then
remaining unvested Shares. If the Company is acquired or sold during the first
36 months of your employment, and if you commit to full time employment with
such acquiring company for a minimum of one year, you will continue vesting the
remaining 20 percent of your then unvested Shares on an equal quarterly basis
over the next four quarters. If, however, the Company is acquired after 36
months of your employment and you commit to full-time employment with the
acquiring company for a period equal to the remainder of your original four-year
vesting schedule, your then remaining unvested Shares will vest on an equal
monthly basis over that same remaining period. If the acquiring company, for any
reason, terminates your employment, or materially reduces your job
responsibilities or compensation without cause, or requires that you relocate
from the Silicon Valley, you will immediately vest 100 percent of your then
remaining unvested Shares.
Your employment with the Company is for no specified period of time and
constitutes "at will" employment. As a result, you are free to resign at any
time, for any reason, or for no reason. Similarly, the Company is free to
conclude its employment relationship with you at any time, with cause, or
without cause. If, however, the Company decides to terminate your employment for
reasons other than cause, the Company will continue your employee benefits, make
monthly severance payments of $14,583.33, and continue vesting of the Shares for
a period of twelve (12) months from the date your employment terminates. If the
Company intends to terminate your employment for cause relating to performance,
you will receive a written notice from the Board of Directors and a three (3)
month probation period in which to rectify your performance prior to
1.
<PAGE>
dismissal. "Cause" or the purpose of this letter shall mean your (i) substantial
and continuing failure to perform services to the Company as directed by the
Board, (ii) dishonesty, gross negligence or breach of fiduciary duty, or (iii)
conviction of a felony or of any crime involving fraud or embezzlement.
For the purposes of compliance with federal immigration law, you will be
required to provide to the Company documentary evidence of your identity and
eligibility for employment in the United States. This documentation must be
provided to the Company within three business days of your hire date or your
employment relationship may be terminated. In addition, as a condition of your
employment, you will be required to sign our standard Proprietary Information
Agreement; a copy is enclosed.
To indicate your acceptance of the Company's offer, please sign and date this
letter below and return it to me; a duplicate original is enclosed for your
records. This letter and the Proprietary Information Agreement set forth the
terms of your employment with the Company and supersede any prior representation
or agreement, whether written or oral. This letter may not be modified or
amended except by a written agreement signed by a representative of the Company
and by you.
Dominic, we are all very excited about your joining Alteon Networks, Inc., and
look forward to building a great company together.
Very truly yours,
ALTEON NETWORKS, INC.
/s/ Mark A. Bryers
Mark A. Bryers
For the Board of Directors
Accepted and agreed to by:
/s/ Dominic P. Orr
-------------------------------
Mr. Dominic P. Orr
October 12, 1996
-------------------------------
Date
Enclosures: Duplicate Original Letter
Proprietary Information Agreement (Original and Duplicate)
2.
<PAGE>
EXHIBIT 10.14
May 5, 1997
Mr. Shirish S. Sathaye
415 Stag Horn Drive
Wexford, PA 15090
(412) 934-3832
Dear Shirish,
Alteon Networks, Inc, (the "Company") is pleased to offer you the position of
Vice President of Engineering reporting to the CEO & President, on the terms set
- -----------------------------
forth below (the "Agreement").
Your starting salary will be $160,000 per year, which will be equivalent to
--------
$6,153.85 per bi-weekly pay period, less payroll deductions and withholdings. A
- ---------
$36,000 hire-on bonus will be paid to you on your first regular payroll, less
- -------
payroll deductions and withholdings. In the event you leave the company within
the first eighteen (18) months of employment (other than because of merger and
acquisition), you will refund the company a prorated portion of this bonus based
on the number of months you are employed by Alteon Networks.
In addition, Alteon Networks will provide you with four (4) one-way tickets from
Pittsburgh to San Jose, California (provided we obtain your travel schedule
within the two weeks travel arrangement lead-time required by our agency).
These four tickets will be your tax reporting responsibilities, Alteon Networks
will provide year-end document for your income tax reporting purpose.
At its next meeting, the Company's Board of Directors will grant you the right
to purchase 300,000 shares of common stock, at the option price of the approval
-------
date pursuant to the Company's Stock Option Plan. Under this plan you will vest
25% of the Shares after your first full year of employment, and continue vesting
thereafter at the rate of 1/48th per month of the grant, as long as you are
employed by the Company. (You may also elect to purchase these Shares
immediately, subject to a Company Repurchase Right that will lapse on the same
schedule that the stock options would have normally vested.) If, during the
term of your employment, the Company is acquired or sold, you will immediately
vest 50 percent (50%) of your then remaining unvested Shares. If you have
---------- -----
committed to full time employment with such acquiring company, you will continue
vesting the remaining unvested shares on an equal 1/48th per month. If,
however, the acquiring company, for any reason terminates your employment or
materially reduces your job responsibilities or compensation without cause, or
requires that you relocate from the Silicon
Page 1
<PAGE>
Valley, you will immediately vest in full of the remaining unvested shares. This
offer is contingent on your ability to start your employment with Alteon
Networks on or before May 21, 1997.
------------
Commencing on your date of hire you will be eligible to participate in Alteon's
standard benefits package, which include 16 days of paid time off (PTO),
medical, dental, life and disability (LTD) benefits plans governed by the terms,
conditions, and limitations contained in the applicable plan documents.
This offer of employment is contingent upon your ability to provide and maintain
the proper and necessary documentation required for you and Alteon Networks to
comply with United States Immigration and Naturalization laws and regulations
pertaining to the right to work in the United States.
This Agreement, including attachments, constitutes the complete, final and
exclusive embodiment of the entire agreement between you and the Company with
respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it supersedes
any other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a duly
authorized officer of the Company. If any provision of this agreement is
determined to invalid or unenforceable, in whole or in part, this determination
will not affect any other provision of this Agreement. This Agreement shall be
construed and interpreted in accordance with the laws of the State of
California.
This offer of employment is also contingent upon the completion of the reference
check and this offer will expire on May 5, 1997. To indicate your acceptance of
-----------
our offer under the terms described above, please sign, complete with your
actual first day of employment and return this letter by faxing a copy to
408-360-5501, and mail the original in the enclosed envelope.
Shirish, we have no doubt that you will make a pivotal contribution to our team
and our goals as a company. All of us at Alteon Networks are looking forward to
having you as part of our team.
If you have any questions, please feel free to give us a call.
Sincerely,
/s/ Dominic P. Orr
Dominic P. Orr
President/CEO
Page 2
<PAGE>
This will acknowledge my acceptance of this offer of employment.
/s/ Shirish S. Sathaye May 5, 1997
- ----------------------------- -----------------------
Shirish S. Sathaye Date
My first day of employment at Alteon Networks will be May 21, 1997
------------
Page 3
Handwritten notes states: After 3 working days I plan on taking a leave of
absence until June 4th and resume work on June 5th.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
1. Alteon WebSystems International Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS,
AND REPORT ON SCHEDULE
We consent to use in this registration statement of Alteon WebSystems, Inc.
on Form S-1 of our report dated August 14, 1998 (June 30, 1999 as to Note 14),
appearing in the prospectus, which is part of this registration statement, and
to the reference to us under the headings "Selected Consolidated Financial
Data" and "Experts" in such prospectus.
Our audits of the consolidated financial statements referred to in our report
above also included the consolidated financial statement schedule of Alteon
WebSystems, Inc., listed in Item 16(b). This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
July 9, 1999
San Jose, California
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1998 AND FOR THE YEAR THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
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0
29,862
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