<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-25992
NETVANTAGE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 95-4324525
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation)
201 Continental Blvd. Suite 201, El Segundo, CA 90245
(Address of Principal Executive Offices)
(310) 726-4130
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ X ] NO [ ]
The number of shares outstanding of each of the Registrant's classes of
Common Stock as of November 6, 1997: 10,053,153 shares of Class A Common Stock,
304,698 shares of Class B Common Stock and 540,995 shares of Class E Common
Stock.
1
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NetVantage, Inc.
Quarterly Report on Form 10-Q
Index
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION:................................................................... 3
Item 1. Financial Statements:.................................................................... 3
Balance Sheets -- September 30, 1997 and December 31, 1996............................... 3
Statements of Operations -- Three Month and Nine Month Periods Ended September 30, 1997
and 1996................................................................................. 4
Statements of Cash Flows - For the Nine Months Ended September 30, 1997 and 1996......... 5
Notes to Financial Statements ........................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 9
PART II.OTHER INFORMATION........................................................................ 13
Item 1. Legal Proceedings........................................................................ 13
Item 2. Changes in Securities.................................................................... 13
Item 3. Defaults upon Senior Securities.......................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders...................................... 13
Item 5. Other Information........................................................................ 13
Item 6. Exhibits and Reports on Form 8-K......................................................... 14
Signatures............................................................................... 14
Exhibit Index............................................................................ 15
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NetVantage, Inc.
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996
------------- ------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,236,940 $ 2,787,593
Accounts receivable, net allowance of $135,000 at
September 30, 1997 and $50,000 at December 31, 1996 6,593,007 8,667,627
Accounts receivable - other 177,020 740,975
Due from related parties - 100,000
Inventory 10,232,898 7,440,038
Prepaid expenses and other current assets 159,874 113,655
------------- ------------
Total current assets 36,399,739 19,849,888
Deferred warrant call costs - 157,500
Fixed assets, net 1,933,891 1,572,804
Goodwill and other intangibles, net 281,576 350,890
Note receivable 750,000 -
Other assets 25,523 32,688
------------- ------------
Total assets $ 39,390,729 $ 21,963,770
============= ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,176,559 $ 3,081,664
Accrued expenses 672,125 1,171,989
------------- ------------
Total current liabilities 3,848,684 4,253,653
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $0.01 per share,
5,000,000 shares authorized, none issued - -
Class A Common Stock, par value $0.001 per share,
17,000,000 shares authorized, 10,021,567
issued and outstanding at September 30,
1997 (5,941,523 at December 31, 1996) 10,022 5,941
Class B Common Stock, convertible into Class A
Common Stock, par value $0.001 per share,
1,800,000 shares authorized, 336,284 issued
and outstanding at September 30, 1997 (689,701
at December 31, 1996) 336 690
Class E Common Stock, convertible into Class B
Common Stock, par value $0.001 per share,
1,200,000 shares authorized, 540,995 issued, all
shares are held in escrow 541 541
Additional paid-in-capital - Other 63,114,443 37,638,720
Additional paid-in-capital - Issuance of warrants 1,574,910 1,462,185
Accumulated deficit (29,158,207) (21,397,960)
------------- -------------
Total stockholders' equity 35,542,045 17,710,117
------------- -------------
Total liabilities and stockholders' equity $ 39,390,729 $ 21,963,770
============= =============
See accompanying notes to financial statements.
</TABLE>
3
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NetVantage, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------
1977 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue - sale of product and service $ 5,120,557 $ 9,586,186 $14,133,628 $15,376,615
Cost and expenses:
Cost of revenue 5,178,521 7,916,305 13,814,519 14,328,132
Research and development 1,374,187 1,221,788 4,545,780 2,851,387
Marketing and selling 605,162 651,963 1,884,927 1,340,553
General and administrative 565,843 514,545 2,315,088 1,613,122
----------- ----------- ----------- -----------
7,723,713 10,304,601 22,560,314 20,133,194
----------- ----------- ----------- -----------
Loss from operations (2,603,156) (718,415) (8,426,686) (4,756,579)
Interest income 294,772 7,913 767,566 70,507
Interest expense (16,954) (56,381) (101,127) (56,381)
----------- ----------- ----------- -----------
Net loss $(2,325,338) $ (766,883) $(7,760,247) $(4,742,453)
=========== =========== =========== ===========
Net loss per share $ (0.22) $ (0.22) $ (0.76) $ (1.43)
=========== =========== =========== ===========
Weighted average number of
shares outstanding 10,357,851 3,565,217 10,238,597 3,311,251
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
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NetVantage, Inc.
Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
---------- ---------
<S> <C> <C>
Net loss $ (7,760,247) $ (4,742,453)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 633,137 286,692
Provision for losses on accounts receivable 85,000 -
Compensation recorded upon issuance of warrants 112,725 -
Provision for losses on inventory 801,479 -
Changes in assets and liabilities:
Accounts receivable 1,989,620 (7,441,328)
Accounts receivable - other 563,955 -
Due from related parties 100,000 -
Inventory (3,594,339) (4,747,162)
Prepaid expenses and other current assets (46,219) (213,405)
Other assets 7,165 -
Note receivable (750,000) -
Accounts payable 94,895 6,429,067
Accrued expenses (499,864) 343,637
Due to related parties - 213,307
----------- -----------
Net cash used in operating activities (8,262,693) (9,871,645)
----------- -----------
Investing activities:
Purchase of fixed assets (924,910) (1,320,860)
----------- -----------
Net cash used in investing activities (924,910) (1,320,860)
----------- -----------
Financing activities:
Proceeds from issuance of warrant calls 26,233,120 1,647,796
Issuance costs on warrant call (596,170) -
Proceeds received from private placement - 5,000,000
Increase in bank line of credit - 4,351,983
----------- -----------
Net cash provided by financing activities 25,636,950 10,999,779
----------- -----------
Net increase (decrease) in cash and cash equivalents 16,449,347 (192,726)
Cash and cash equivalents at beginning of period 2,787,593 482,535
----------- -----------
Cash and cash equivalents at end of period $ 19,236,940 $ 289,809
=========== ===========
Supplemental cash flow information:
Cash paid for interest expense $ - $ 56,381
=========== ===========
</TABLE>
During 1997 the Company applied $157,500 of deferred warrant call
costs as a reduction of additional paid-in-capital - Other.
See accompanying notes to financial statements.
5
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NetVantage, Inc.
Notes to Financial Statements
(Unaudited)
1. Description of Business and Basis of Presentation
NetVantage, Inc. (the "Company") is a leading worldwide provider of
Ethernet Workgroup switching products to the Original Equipment Manufacturer
("OEM") marketplace. Ethernet Workgroup switches increase the information
handling capacity of Local Area Networks ("LANs"). Other applications for the
Company's switching products include connecting LANs to each other to extend the
network's scope and power and to provide installed networks with the ability to
connect to networking devices incorporating new technologies such as
Asynchronous Transfer Mode or "ATM," Gigabit Ethernet and Layer 3 Switching.
The Company's switching products require no special skills to install, and
require no changes to existing user network equipment, wiring, hub equipment,
software protocols or applications. The Company's products offer end-users cost
effective solutions for their connectivity needs.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The unaudited financial statements reflect, in the
opinion of management, adjustments, all of which are of a normal recurring
nature, necessary to present fairly the financial position of the Company as of
September 30, 1997, the results of operations for the three month and nine month
periods ended September 30, 1997 and 1996, and its cash flows for the nine
months ended September 30, 1997 and 1996. The unaudited financial statements
should be read in conjunction with the Company's audited annual financial
statements and notes included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
Certain previously disclosed amounts have been reclassified in order
to confirm to the current presentation.
2. Inventory
The Company's inventory as of September 30, 1997 and December 31, 1996
was comprised of the following:
September 30, 1997 December 31, 1996
------------------ -----------------
Finished goods $ 185,140 $ 108,030
Work in process 1,749,947 -
Parts and materials 8,297,811 7,332,008
---------- ----------
$10,232,898 $7,440,038
=========== ==========
Inventories consisted of material, direct labor and overhead cost associated
with the procurement, storage, and manufacturing of inventory.
3. Net Loss Per Share
Net loss per share was computed based on the weighted average number
of the Company's Class "A" and "B" Common Stock Shares outstanding and excludes
the shares of Class E Common Stock held in escrow because the conditions for the
release of these shares from escrow have not been satisfied. Common Stock
equivalents were not considered in the net loss per share calculation because
the effect on the net loss would be antidilutive.
In February 1997, the Financial Accounting Standards Board issued the
Statement on Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share", which is required to be adopted on December 31, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of common stock
equivalents will be excluded. The impact of SFAS 128 on the calculation of
earnings per share is not expected to be material.
6
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4. Stockholders' Equity
Class E Escrow Arrangement
In connection with the public offering of the units (comprised of one share of
the Company's Class A Common Stock, one Class A Warrant and one Class B Warrant)
on May 3, 1995, all outstanding shares of Class E Common Stock were placed in
escrow by existing stockholders. All shares of Class E Common Stock placed into
escrow, including those shares which may be issued upon exercise of options,
("Escrowed Contingent Shares") are not transferable (but those issued and
outstanding may be voted).
These shares were initially negotiated to be released from escrow in the event
that net income before provision for income taxes, and exclusive of any
extraordinary earnings or charges and the compensation charges discussed in the
next paragraph, reaches certain targets during the next three years (the first
600,000 shares will be released if pretax income exceeds $4.3 million, $5.8
million or $7.2 million in fiscal years 1996, 1997 or 1998, respectively, and
the remaining 600,000 will be released if pretax income exceeds $5.3 million,
$7.1 million, or $8.9 million in fiscal years 1996, 1997 or 1998, respectively);
or the market price of the common stock reaches specified levels over the next
three years (the first 600,000 shares will be released if, commencing at May 3,
1995 and ending November 3, 1996, the bid price of the Company's common stock
averages in excess of $13.33 per share for 30 consecutive business days, or
commencing November 3, 1996 and ending May 3, 1998, the bid price averages
$16.67 per share for 30 consecutive business days and the remaining 600,000
shares will be released if, commencing at May 3, 1995 and ending November 3,
1996, the bid price of the Company's common stock averages in excess of $18.50
per share for 30 consecutive business days or commencing November 3, 1996 and
ending May 3, 1998, the bid price averages in excess of $23.50 for 30
consecutive business days). Any options to purchase common stock shall be
deemed converted into similar options to acquire Class B and Class E Common
Stock in the same proportion that outstanding Class E Common Stock is converted
upon attaining the specified earnings or market price levels.
On October 17, 1996, the criteria for the release of certain Escrowed
Contingent Shares were met and on that date, 600,000 shares, including 541,062
shares held by employees, officers, directors, consultants and their relatives,
were released from escrow. The release of 541,062 shares was deemed
compensatory and, accordingly, resulted in a charge to earnings of $4,189,428 in
the fourth quarter of 1996 equal to the fair market value of the Escrowed
Contingent Shares on release.
The release of Escrowed Contingent Shares held by individuals that have not
had any relationship with the Company, other than that of a common stockholder,
have been deemed not to be compensatory.
All Escrowed Contingent Shares that have not been released from escrow by
March 31, 1999 are subject to redemption by the Company at a redemption price of
$0.01 per share.
Warrants
The Company redeemed its then outstanding Class B Warrants on January 10,
1997, pursuant to its November 27, 1996 notice of redemption. Prior to the
redemption date, Class B Warrants representing 4,142,931 shares of Class A stock
were exercised, resulting in gross proceeds to the Company during 1997 of
approximately $26,233,000.
5. Credit Facility
The Company had a secured revolving bank line of credit of $5,000,000 which
carried interest at the prime rate (as defined) plus 2%. This agreement
initially was scheduled to expire in July 1997, however, the Company amended the
loan agreement to extend the expiration date to October 15, 1997. All other
terms remained the same. The credit facility required the Company to comply with
certain financial covenants. The Company was in compliance with or has received
a waiver for these covenants as of September 30, 1997. As of September 30, 1997
and throughout 1997, the line of credit was unused. The Company allowed the
credit facility to expire at October 15, 1997 and is currently negotiating a
larger credit facility.
6. Note Receivable
During April 1997, the Company provided a loan to the President of the
Company. The $750,000 loan is due on the earlier of April 22, 2000 or 180 days
following the date the President ceases to be an employee of the Company. The
loan has a stated annual interest rate of 6.23%. Interest only on the loan is
due annually. At the time of the interest payment, the Company will pay the
President a bonus of $49,250. If the President's employment with the Company
terminates for any reason, the Company will forgive a portion of the principal
balance up to $421,667. The President is required to use 60% of any profit on
the exercise of his options to reduce the principal of the note. The loan is
secured by a portion of the President's options covering 182,875 shares of
Company Common Stock.
7
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7. Stock Option Repricing
On April 22, 1997, the Company repriced certain options and warrants
issued to certain of its executive officers and key employees. The per share
exercise prices of options to purchase an aggregate of 823,983 shares of Class A
Common Stock were changed to $5.8125, options to purchase an aggregate of 49,017
shares of Class B and Class E Common Stock (exercisable two-thirds Class B and
one-third Class E Common Stock) were changed to $4.65, warrants to purchase an
aggregate of 30,000 shares of Class A Common Stock were changed to $5.8125 and
warrants to purchase an aggregate of 22,875 shares of Class A Common Stock were
changed to $3.8125. Prior to the repricing, the options to purchase Class A
Common Stock had per share exercise prices ranging from $6.06 to $14.625 the
options to purchase Class B and Class E Common Stock had per share exercise
prices ranging from $4.70 to $5.90, and the warrants had per share exercise
prices ranging from $7.125 to $9.00. The options to purchase an aggregate of
10,500 shares of Class A Common Stock, with per share exercise prices below the
new per share exercise prices, were not changed. On April 22, 1997, $5.8125 was
the average of the bid and ask prices of a share of Class A Common Stock as
reported by the NASDAQ Stock Market. Due to certain restrictions on
transferability of the Class B and Class E Common Stock, the per share exercise
price for the options to purchase such shares was set at 80% of $5.8125.
8. Revenue and Accounts Receivable Concentrations
Revenue to customers which constituted greater than 10% of the revenue
during the three months, and nine months ended September 30, 1997 and 1996 were
as follows (percentage of total revenue for the period is in parentheses "( )"):
<TABLE>
<CAPTION>
Revenue Revenue
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
1997 1996 1997 1996
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Customer A $ 3,493,959 (68%) $ 2,179,625 (23%) $ 7,736,277 (55%) $3,295,600 (21%)
Customer B 616,200 (12%) 1,028,560 (11%) 2,189,500 (15%)
Customer C 4,343,600 (46%) 8,003,350 (52%)
Customer E 2,730,720 (19%)
</TABLE>
Revenue and accounts receivable concentrations are expected due to the
large individual orders, characteristic of our OEM customer base.
Accounts receivable concentration percentages for customers which
constituted greater than 10% of our outstanding accounts receivable as of
September 30, 1997 and December 31, 1996 are as follows:
September 30, 1997 December 31, 1996
---------------------- ----------------------
Customer A 66% 21%
Customer E 46%
Customer F 10%
Due to certain consolidations in our customer base during 1997,
reported revenue and accounts receivable concentrations for the 1997 and 1996
periods have been combined above in order to reflect the current ownership of
our customers.
8
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve certain
risks and uncertainties that could cause the actual results to differ materially
from the forward-looking statements. Potential risks and uncertainties include,
without limitation, those mentioned in this report, as well as those in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996
(including those listed under the heading "Risk Factors") and other factors
described from time to time in other filings made by the Company with the
Securities and Exchange Commission.
The following discussion should be read in conjunction with the
unaudited financial statements and accompanying notes, included in Part I - Item
1 of this Quarterly Report, and the audited financial statements and
accompanying notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
GENERAL
In mid-1994, the Company introduced its first 8 port Ethernet switch
and began commercial shipments of this product in late 1994. In 1995, the
Company attempted to market this product both through distribution channels and
to Original Equipment Manufacturers ("OEMs"). Late in the third quarter of
1995, the Company focused its marketing efforts exclusively on OEM customers and
discontinued its marketing through distribution channels. This strategy
eliminated potential distribution channel conflicts. In the first quarter of
1996, production and sale of the original 8 port product was discontinued and
the Company began commercial shipments of its second generation product, a 16
port Ethernet switch with a 100 Base T uplink capability. During the third
quarter of 1996, the Company added an 8 port Ethernet switch with a 100 Base T
uplink capability to its product line.
In 1996, the Company began development of its first Application
Specific Integrated Circuit ("ASIC"). Development and testing of this component,
code named "Coyote", has been completed and commercial shipments of product
containing the Coyote ASIC began in the second quarter of 1997 confirming the
Company's ASIC capability. Significant internal investment has been made in ASIC
technology and in building a strong engineering knowledge base as ASIC-based
products provide higher levels of component integration resulting in significant
manufacturing cost reductions. The Company has also made significant investments
in the development of two new ASIC-based families of Ethernet switches based
upon ASICs code named, Cyclone(TM) and Cougar(TM). These two new Ethernet
switches are expected to contain high feature content and significant
price/performance improvements over the Company's current product line.
QUARTER ENDED SEPTEMBER 30, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1996
Revenue for the quarters ended September 30, 1997 and 1996 was
$5,120,557 and $9,586,186, respectively. The decrease of $4,465,629 or (47%)
was due to lower than expected orders for the Company's 8500 series and 7500
series products due to unexpected steep price reductions initiated by the two
largest networking equipment vendors. The Company's customer's ordering process
is also affected by the expected release of the Company's next generation
products which are expected to be shipped as evaluation units late in the fourth
quarter of 1997. The Company's revenue in any period is highly dependent upon
the sales efforts and success of the Company's OEM customers. The Company's
products are subject to intense competition in the switching market
characterized by frequent product introductions with improved price/performance
characteristics, significant price reductions, rapid technological changes and
continued emergence of new industry standards.
Cost of revenues for the three months ended September 30, 1997 and
1996 was $5,178,521 or 101% of revenue and $7,916,305 or 83% of revenue,
respectively. The negative gross margins in the third quarter of 1997 were due
to the Company charging operations $300,000 for inventory valuation issues.
During the quarter, the Company sold products to our largest customer at
significantly reduced margins so as to retain marketshare while decreasing the
Company's exposure on certain previously purchased inventory. In addition, the
Company's operating model requires greater manufacturing volumes in order to
obtain the necessary purchasing economies of scale, production efficiencies and
reasonable overhead application rates required to significantly improve gross
margins. The Company expects margins to remain low for the remainder of the
existing product line's life cycle, but expects significant margin improvement
when the next generation products begin to be sold in volume. The 1996 positive
gross margin of 17% was due in part to more favorable market conditions along
with the high market acceptance of the Company's 7500 series product thus
creating increased manufacturing volumes resulting in component cost reductions.
See additional information under "Liquidity and Capital Resources".
In the future, the Company's gross margins may be affected by several
factors, including the mix of products sold, the price of products sold, price
competition, manufacturing volumes, fluctuations in material costs, changes in
other components of cost of revenue and the technological innovativeness of
products sold. Timing of new product introductions and ASIC revisions will
impact gross margins and could result in excess or obsolete inventories.
9
<PAGE>
Research and development expense for the quarters ended September 30,
1997 and 1996 was $1,374,187 or 27% of revenue and $1,221,788 or 13% of revenue,
respectively. The increase of expenses as a percentage of revenue from the
quarters ended September 30, 1997 to the same period of 1996, is due to
increases in expenditures and the decline in revenue. A significant portion of
the $152,399 or 12% increase was due to the addition of new personnel and
related incentive and recruitment costs, depreciation on equipment, and
increased costs associated with the development of the Company's next generation
of products based upon the Cyclone(TM) and Cougar(TM)ASICs. Level or increasing
research and development expenditures are expected for the foreseeable future as
the Company continues with the development of additional products and features
based upon the next generation product architecture.
Marketing and selling expenses for the three months ended September
1997 and 1996 were $605,162 or 12% of revenues and $651,963 or 7% of revenues,
respectively. The decrease was primarily due to a decrease in commission
expenses due to the lower revenues.
General and administrative expense for the quarters ended September
30, 1997 and 1996 was $565,843 or 11% of revenue and $514,545 or 5% of revenue,
respectively. The increase of $51,298 or 10% was due in part to the wages and
additional costs associated with the increase in headcount from five to ten
people over the prior period.
Interest income for three months ended September 30, 1997 and 1996 was
$294,772 and $7,913, respectively. The increase was due to the increase of
investable funds as a result of the redemption of the Company's Class B Warrants
during the first quarter of 1997.
The net loss for the three months ended September 30, 1997 and 1996
was $2,325,338 and $766,883, respectively. The $1,558,455 increase in net loss
was due to a lower than expected sales volume as well as sales at reduced
margins, continued charges for inventory valuation issues and continued research
and development expense increases offset by interest earned on the Company's
investments.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Revenue for the nine months ended September 30, 1997 and 1996 was
$14,133,628 and $15,376,615, respectively. The decrease of $1,242,987 was a
direct result of lower than expected shipments of the 8500 series products
as well as reduced sales of our mature 7500 series products. Revenues were also
negatively reduced due to price reductions on all of our products initiated in
response to market conditions. For the nine months ended September 30, 1997 and
1996 the Company shipped 8500 series and 7500 series Ethernet switching units
aggregating 16,023 and 12,296 units, respectively. The 3,727 or 30% increase
in units shipped over the prior year has allowed the Company to maintain its
marketshare. The Company has continued to increase its OEM customer base from
1996, and thus with each new OEM, the Company expands the potential market
access for its current and future products.
Cost of revenue for the nine months ended September 30, 1997 was
$13,814,519 or 98% of revenue compared to $14,328,132 or 93% of revenue for the
same period ended September 30, 1996. The 1997 two percent (2%) gross margin is
due to a number of factors including the Company's sale of certain previously
manufactured inventory at below cost in order to reduce the Company's inventory
exposure. In addition, the timing of orders were such that additional
manufacturing costs were incurred in order to meet scheduled shipment
requirements. During the second quarter of 1997, the Company substantially
eliminated the building of product for anticipated orders. Currently, the
Company builds the final product after receipt of a customer's purchase order.
This strategic change is expected to reduce our future exposure to inventory
valuation risks but could also result in, the costly, but economically more
preferable, increased expedite charges as the Company works to meet the
customer's product delivery schedule. During the past nine months of 1997, the
Company has charged operations approximately $900,000 for inventory valuation
issues identified by Management. See additional information under "Liquidity and
Capital Resources".
The low 1996 gross margin of 7% was due primarily to a large
concentration of sales to one customer of a particular product which had
negative gross margin.
In the future, the Company's gross margins may be affected by several
factors, including the mix of products sold, the price of products sold, price
competition, manufacturing volumes, fluctuations in material costs, changes in
other components of cost of revenue and the technological innovativeness of
products sold. Timing and new product introductions may impact gross margins
and result in excess or obsolete inventories.
10
<PAGE>
Research and development expense for the nine months ended September
30, 1997 and 1996 was $4,545,780 or 32% of revenues and $2,851,387 or 19% of
revenues, respectively. The increase of $1,694,393 or 59% over the 1996 prior
period is due to the significant Company effort expended in the development of
the new generation products based on the Cyclone(TM) and Cougar(TM)ASICs. The
increases in costs are primarily due to increases in engineering employment
levels, which increased from 22 people at September 30, 1996 to 31 people at
September 30, 1997. In addition, costs of licensing certain remote management
software and higher depreciation expense resulting from the significant capital
investments made in 1996 have also contributed to the increase in research and
development expense in 1997.
Marketing and selling expense for the nine months ended September 30,
1997 and 1996 was $1,884,927 or 13% of revenues and $1,340,553 or 9% of
revenues, respectively. The increase of $544,374 or 41% over the 1996 prior
period was due primarily to a full nine months of payroll related costs
associated with the additional sales and marketing personnel as compared to the
prior period. The Company intends to selectively continue the expansion of the
sales force presence through additional domestic and international hiring and
negotiating strategic domestic and foreign relationships.
General and administrative expense for the nine months ended September
30, 1997 and 1996 was $2,315,088 or 16% of revenue and $1,613,122 or 10% of
revenue, respectively. The increase of $701,966 or 44% over the 1996 prior
period was due primarily to additional legal, accounting and consulting costs
incurred after the resignation of the Company's Chief Financial Officer in
January 1997, in addition to, increased bad debt expense, wages and related
benefits, insurance costs and the issuance of warrants to a key executive.
Interest income for the nine months ended September 30, 1997 and 1996
was $767,566 and $70,507, respectively. The increase of $697,059 or 989% is due
to the increase of investable funds as a result of the redemption of the
Company's Class B Warrants during the first quarter of 1997.
The net loss for the nine months ended September 30, 1997 and 1996 was
$7,760,247 and $4,742,453, respectively. The increase of $3,017,794 or 64% is
primarily due to increases in the Company's research and development effort not
being absorbed by adequate sales margin in addition to the sales, marketing and
general and administrative expense increases mentioned above The Company's
results were favorably impacted by the interest income earned on the proceeds of
the Class B Warrant exercise. Management is reviewing all of the costs of the
business in order to seek ways to reduce or better manage future costs.
However, additional investments are expected in research and development and
sales as the Company positions itself for the release of the Cyclone(TM) and
Cougar(TM) based ASIC product lines.
VARIABILITY OF PERIODIC RESULTS AND SEASONALITY
Results from any one period cannot be used to predict the results for
other periods. Revenues fluctuate from period to period; however, management
does not see any overriding seasonality or a high level of predictability to
these fluctuations at this time. Revenues can be negatively affected by, among
other things, expected releases of both the Company's or its competitors' new
product lines. The Company's reliance on a few base product types also makes it
more susceptible to revenue shortfalls.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in March 1991, the Company has financed its
development activities, operations and capital resources through a combination
of an initial public offering completed in 1995 and private transactions
involving the issuance of common stock for cash, convertible notes, bridge notes
and the exercise of stock options and warrants. For the period from March 12,
1991 to September 30, 1997, the Company raised approximately $64,700,000 from
such sources. In October 1996, the Company completed the redemption of its
Class A Warrants which resulted in the issuance of 2,335,568 shares of Class A
Common Stock and the same number of Class B Warrants. In addition, in October
1996, Class B Warrants to purchase 368,360 shares of Class A Common Stock were
voluntarily exercised. Total proceeds during 1996 from the exercise of all
Class A and Class B Warrants was approximately $17,368,000. On January 10,
1997, the Company redeemed its Class B Warrants pursuant to its November 27,
1996 notice of redemption. Greater than 99% of the outstanding Class B Warrants
were exercised, resulting in gross proceeds to the Company during 1997 of
approximately $26,233,000.
The Company's cash and cash equivalents increased by $16,449,347 during the
nine months to $19,236,940 at September 1997 from $2,787,593 at December 31,
1996. This increase was primarily due to the net proceeds from the redemption of
Class B Warrants of $25,636,950 partially offset by cash used for operating
activities of $8,262,693 and further increases in fixed assets of $924,910
primarily to support our research and development effort.
Inventory decreased $1,065,814 or 9% from the March 31, 1997 level of
$11,298,712. However, for the nine months ended September 30, 1997, inventory
increased $2,792,860 or 38% from the December 31, 1996 level. Fluctuations in
inventory are primarily affected by the timing in the receipt of key, long lead
time, component parts critical to meeting the shipping demand of certain
products. During June 1997, Management initiated a program to tighten its level
of inventory control with a key goal of increasing the level of inventory
turnover. This ongoing program includes evaluating the best use of our existing
component inventory along with researching more efficient product kitting
arrangements with our vendors. During the first nine months of 1997, the Company
charged operations $900,000 for inventory valuation issues. During December
1997, Management intends to complete the evaluation of the Company's existing
inventory and will make valuation decisions based upon a number of factors
including date of expected volume shipments of the Company's next generation
products, status of negotiations with vendors on returning certain excess
product and the feasibility of integrating certain existing inventory components
into future products. Management believes that the processes are in place to
increase the level of inventory turnover and that a disciplined strategic
reduction and management of our inventory will reduce our future exposure to
changing market conditions and internally generated technological obsolescence,
in addition to, providing additional liquidity. Although, reductions are
expected in the inventory, future short-term increases are possible due to the
timing of key component inventory receipts and the monetary value of inventory
on the production line at our subcontract manufacturers at the end of a
reporting period.
At September 30, 1997, the Company had working capital of $32,551,055. The
Company requires substantial working capital to fund its business, particularly
to finance its research and development efforts, inventories and accounts
receivable. The Company's future capital requirements will depend on many
factors, including the rate of revenue growth, the timing and extent of spending
to support product development and sales and marketing efforts, the timing of
introductions of new products and enhancements to existing products, and market
acceptance of the Company's products.
In July 1997, the Company extended its existing revolving line of credit
with a bank to October 15, 1997. The line of credit provided for borrowings of
up to $5,000,000. The line of credit had not been used during 1997. The Company
allowed the credit facility to expire on October 15, 1997 and is currently
negotiating a larger credit facility.
The Company believes that its existing cash position is sufficient to meet
the liquidity requirements of the Company for the next twelve months. However,
due to the continuing investments in research and development, operating losses
or possible business acquisitions, the Company may need to seek additional
credit, alternative financing and/or further equity investment in the future.
The sources of such credit or equity investment may include increased lines of
credit and/or issuance of additional securities. There can be no assurance,
however, that additional funds from equity or debt sources will be available on
favorable terms or at all. The Company's future capital requirements will depend
upon numerous factors, including the progress of the Company's cost reduction
efforts for its existing products, the success or lack thereof of its new
product development, the amount of resources devoted to manufacturing and
marketing, technological advances, the status of competitors and the success or
lack thereof of the Company's marketing activities.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Not applicable.
ITEM 2. Changes in Securities
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security
None
ITEM 5. Other Information
None
13
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.12 1994 Incentive and Nonstatutory Stock Option Plan
Exhibit 10.13 1992 Incentive and Nonstatutory Stock Option Plan
Exhibit 10.18 Amended and Restated Common Stock Purchase Warrant
between Company and Stephen R. Rizzone for 15,000
shares
Exhibit 10.19 Amended and Restated Common Stock Purchase Warrant
between Company and Stephen R. Rizzone for 15,000
shares
Exhibit 10.20 Amended and Restated Common Stock Purchase Warrant
between Company and Stephen R. Rizzone for 11,110
shares
Exhibit 10.21 Amended and Restated Common Stock Purchase Warrant
between Company and Stephen R. Rizzone for 11,765
shares
Exhibit 10.22 Form of Indemnification Agreement
Exhibit 27 Financial Data Schedule - Electronic Format Only
(b) Reports on Form 8-K
None
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Date: November 13, 1997 NetVantage, Inc.
------------ (Registrant)-------------
By: /s/ Stephen R. Rizzone
--------------------------------
STEPHEN R. RIZZONE,
Chairman of the Board, President
and Chief Executive Officer
By: /s/ Thomas Iwanski
--------------------------------
THOMAS IWANSKI,
Vice President of Finance,
Secretary and Chief Financial
Officer
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER TITLE PAGES
------ -----
<C> <S> <C>
10.12 1994 Incentive and Nonstatutory Stock
Option Plan
10.13 1992 Incentive and Nonstatutory Stock
Option Plan
10.18 Amended and Restated Common Stock Purchase
Warrant between Company and Stephen R. Rizzone
for 15,000 shares
10.19 Amended and Restated Common Stock Purchase Warrant
between Company and Stephen R. Rizzone for 15,000
shares
10.20 Amended and Restated Common Stock Purchase Warrant
between Company and Stephen R. Rizzone for 11,110
shares
10.21 Amended and Restated Common Stock Purchase Warrant
between Company and Stephen R. Rizzone for 11,765
shares
10.22 Form of Indemnification Agreement
27 Financial Data Schedule - Electronic Format Only
</TABLE>
15
<PAGE>
EXHIBIT 10.12
-------------
NETVANTAGE, INC.
1994 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
-------------------------------------------------
1. Purpose
-------
This Incentive and Nonstatutory Stock Option Plan (the "Plan") is intended
to further the growth and financial success of NETVANTAGE, INC., a Delaware
corporation (the "Corporation") by providing additional incentives to selected
employees of and consultants to the Corporation or parent corporation or
subsidiary corporation of the Corporation as those terms are defined in Sections
424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the "Code")
(such parent corporations and subsidiary corporations hereinafter collectively
referred to as "Affiliates") so that such employees may acquire or increase
their proprietary interest in the Corporation. Stock options granted under the
Plan (hereinafter "Options") may be either "Incentive Stock Options", as defined
in Section 422 of the Code and any regulations promulgated under said Section,
or "Nonstatutory Options" at the discretion of the Board of Directors of the
Corporation (the "Board") and as reflected in the respective written stock
option agreements granted pursuant hereto.
2. Administration
--------------
The Plan shall be administered by the Board; provided however, that the
Board may delegate such administration to a committee of not fewer than two (2)
members (the "Committee"), each of whom is a member of the Board and all of whom
are disinterested persons, as contemplated by Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3"); and provided
further, that the foregoing requirement for disinterested administration shall
not apply prior to the date of the first registration of any of the securities
of the Corporation under Securities Act of 1933, as amended.
Subject to the provisions of the Plan, the Board and/or the Committee shall
have authority to (a) grant, in its discretion, Incentive Stock Options in
accordance with Section 422 of the Code or Nonstatutory Options; (b) determine
in good faith the fair market value of the stock covered by an Option; (c)
determine which eligible persons shall be granted Options and the number of
shares to be covered thereby and the term thereof; (d) construe and interpret
the Plan; (e) promulgate, amend and rescind rules and regulations relating to
its administration, and correct defects, omissions and inconsistencies in the
Plan or any Option; (f) consistent with the Plan and with the consent of the
optionee, as appropriate, amend any outstanding Option or amend the exercise
date or dates thereof; (g) determine the duration and purpose of leaves of
absence which may be granted to optionholders without constituting termination
of their employment for the purpose of the Plan; and (h) make all other
determinations necessary or advisable for the Plan's administration. The
interpretation and construction by the Board of any provisions of the Plan or of
any Option shall be conclusive and final. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option.
<PAGE>
3. Eligibility
-----------
The persons who shall be eligible to receive Options shall be key employees
of or consultants to the Corporation or any of its Affiliate ("Optionees"). The
term consultant shall mean any person who is engaged by the Corporation to
render services and is compensated for such services, and any director of the
Corporation whether or not compensated for such services; provided that, if the
Corporation registers any of its securities pursuant to the Securities Exchange
Act of 1934, the term consultant shall thereafter not include directors who are
not compensated for their services or are paid only a director fee by the
Corporation.
(a) Incentive Stock Options. Incentive Stock Options may only be
-----------------------
issued to employees of the Corporation or its Affiliates. Incentive Stock
Options may be granted to officers, whether or not they are directors, but a
director shall not be granted an Incentive Stock Option unless such director is
also an employee of the Corporation. Payment of a director fee shall not be
sufficient to constitute employment by the Corporation. Any grant of option to
an officer or director of the Corporation subsequent to the first registration
of any of the securities of the Corporation under Securities Act of 1933, as
amended, shall comply with the requirements of Rule 16b-3. An optionee may hold
more than one Option.
The Corporation shall not grant an Incentive Stock Option under the
Plan to any employee if such grant would result in such employee holding the
right to exercise for the first time in any one calendar year, under all options
granted to such employee under the Plan or any other stock option plan
maintained by the Corporation or any Affiliate, with respect to shares of stock
having an aggregate fair market value, determined as of the date of the Option
is granted, in excess of $100,000. Should it be determined that an Incentive
Stock Option granted under the Plan exceeds such maximum for any reason other
than a failure in good faith to value the stock subject to such option, the
excess portion of such option shall be considered a Nonstatutory Option. To the
extent the employee holds two (2) or more such options which become exercisable
for the first time in the same calendar year, the foregoing limitation on the
exercise of such option as incentive stock options under the Federal tax laws
shall be applied on the basis of the order in which such options are granted.
If, for any reason, an entire option does not qualify as an Incentive Stock
Option by reason of exceeding such maximum, such option shall be considered a
Nonstatutory Option.
(b) Nonstatutory Option. The provisions of the foregoing Section 3(a)
-------------------
shall not apply to any option designated as a "Nonstatutory Stock Option
Agreement" or which sets forth the intention of the parties that the option be a
Nonstatutory Option.
4. Stock
-----
The stock subject to Options shall be shares of the Corporation's
authorized but unissued or reacquired Class A Common Stock (the "Stock").
(a) Number of Shares. Subject to adjustment as provided in Paragraph
----------------
5(i) of this Plan, the total number of shares of Stock which may be purchased
through exercise of Options granted under this Plan shall not exceed Three
Hundred Twenty-Five Thousand (325,000) shares. If any
2
<PAGE>
Option shall for any reason terminate or expire, any shares allocated thereto
but remaining unpurchased upon such expiration or termination shall again be
available for the grant of Options with respect thereto under this Plan as
though no Option had been granted with respect to such shares.
(b) Reservation of Shares. The Corporation shall reserve and keep
---------------------
available at all times during the term of the Plan such number of shares as
shall be sufficient to satisfy the requirements of the Plan. If, after
reasonable efforts, which efforts shall not include the registration of the Plan
or Options under the Securities Act of 1933, the Corporation is unable to obtain
authority from any applicable regulatory body, which authorization is deemed
necessary by legal counsel for the Corporation for the lawful issuance of shares
hereunder, the Corporation shall be relieved of any liability with respect to
its failure to issue and sell the shares for which such requisite authority was
so deemed necessary unless and until such authority is obtained.
5. Terms and Conditions of Options
-------------------------------
Options granted hereunder shall be evidenced by agreements between the
Corporation and the respective Optionees, in such form and substance as the
Board or Committee shall from time to time approve. Such agreements need not be
identical, and in each case may include such provisions as the Board or
Committee may determine, but all such agreements shall be subject to and limited
by the following terms and conditions:
(a) Number of Shares: Each Option shall state the number of shares to
----------------
which it pertains.
(b) Option Price: Each Option shall state the Option Price, which
------------
shall be determined as follows:
(i) Any Option granted to a person who at the time the Option is
granted 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 or value of all classes of stock of the Corporation, or of any
Affiliate, ("Ten Percent Holder") shall have an Option Price of no less
than 110% of the fair market value of the Stock as of the date of grant.
(ii) Incentive Stock Options granted to a person who at the time
the Option is granted is not a Ten Percent Holder shall have an Option
Price of no less than 100% of the fair market value of the Stock as of the
date of grant.
(iii) Nonstatutory Options granted to a person who at the time
the Option is granted is not a Ten Percent Holder shall have an Option
Price of no less than 85% of the fair market value of the Stock as of the
date of grant.
For the purposes of this Paragraph 5(b), the fair market value shall
be as determined by the Board, in good faith, which determination shall be
conclusive and binding; provided however, that if there is a public market for
the such Stock, the fair market value per share shall be the average of the bid
and asked prices (or may be the closing price if such Stock is listed on the
Nasdaq National Market System) on the date of grant of the Option, or if listed
on a stock exchange, the closing price on such exchange on such date of grant.
3
<PAGE>
(c) Medium and Time of Payment: The Option exercise price shall
--------------------------
become immediately due upon exercise of the Option and shall be paid in cash or
check made payable to the Corporation. Should the Corporation's outstanding
Stock be registered under Section 12(g) of the Securities Exchange Act of 1934
at the time the Option is exercised, then the exercise price may also be paid as
follows:
(i) in shares of the Corporation's Stock held by the Optionee
for the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at fair market value
on the exercise date, or
(ii) through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable written
instructions (a) to a Corporation designated brokerage firm to effect the
immediate sale of the purchased shares and remit to the Corporation, out of
the sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares plus
all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such purchase and
(b) to the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale transaction.
At the discretion of the Board, exercisable either at the time of
Option grant or of Option exercise, the exercise price may also be paid (i) by
Optionee's delivery of a promissory note in form and substance satisfactory to
the Corporation and permissible under the California Securities Regulations and
bearing interest at a rate determined by the Board in its sole discretion, but
in no event less than the minimum rate of interest required to avoid the
imputation of compensation income to the Optionee under the Federal tax laws, or
(ii) in such other form of consideration permitted by the California
Corporations Code as may be acceptable to the Board.
(d) Term and Exercise of Options: Any Option granted to an Employee
----------------------------
of the Corporation shall become exercisable over a period of no longer than five
(5) years, and no less than twenty percent (20%) of the shares covered thereby
shall become exercisable annually. No Option shall be exercisable, in whole or
in part, prior to one (1) year from the date it is granted unless the Board
shall specifically determine otherwise, as provided herein. In no event shall
any Option be exercisable after the expiration of ten (10) years from the date
it is granted, and no Incentive Stock Option granted to a Ten Percent Holder
shall, by its terms, be exercisable after the expiration of five (5) years from
the date of the Option. Unless otherwise specified by the Board or the
Committee in the resolution authorizing such option, the date of grant of an
Option shall be deemed to be the date upon which the Board or the Committee
authorizes the granting of such Option.
Each Option shall be exercisable to the nearest whole share, in
installments or otherwise, as the respective option agreements may provide.
During the lifetime of an Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable by the Optionee, and no
other person shall acquire any rights therein. To the extent not exercised,
installments (if more than one) shall accumulate, but shall be exercisable, in
whole or in part, only during the period for exercise as stated in the option
agreement, whether or not other installments are then exercisable.
4
<PAGE>
(e) Termination of Status as Employee or Consultant: If Optionee's
-----------------------------------------------
status as an employee or consultant shall terminate for any reason other than
Optionee's disability or death, then the Optionee (or if the Optionee shall die
after such termination, but prior to exercise, Optionee's personal
representative or the person entitled to succeed to the Option) shall have the
right to exercise the portions of any of Optionee's Options which were
exercisable as of the date of such termination, in whole or in part, at any time
within three (3) months after such termination (or in the event of "termination
for good cause" as that term is defined under the California Labor Code and case
law related thereto, such shorter period as the option agreement may specify,
but not less than 30 days) or the remaining term of the Option, whichever is the
lesser; provided, however, that with respect to Nonstatutory Options, the Board
may specify such longer period, not to exceed six (6) months, for exercise
following termination as the Board deems reasonable and appropriate. The Option
may be exercised only with respect to installments that the Optionee could have
exercised at the date of termination of employment. Nothing contained herein or
in any Option granted pursuant hereto shall be construed to affect or restrict
in any way the right of the Corporation to terminate the employment of an
Optionee with or without cause.
(f) Disability of Optionee: If an Optionee is disabled (within the
----------------------
meaning of Section 22(e)(3) of the Code) at the time of termination, the three
(3) month period set forth in Paragraph 5(e) shall be a period, as determined by
the Board and set forth in the Option, of not less than six months nor more than
one year.
(g) Death of Optionee: If an Optionee dies while employed or engaged
-----------------
as a consultant by the Corporation or an Affiliate, the portion of such
Optionee's Option or Options which were exercisable at the date of death may be
exercised, in whole or in part, by the estate of the decedent or by a person
succeeding to the right to exercise such Option or Options, at any time within
(i) a period, as determined by the Board and set forth in the Option, of not
less than six (6) months nor more than one (1) year after Optionee's death,
which period shall not be less, in the case of a Nonstatutory Option, than the
period for exercise following termination, or (ii) during the remaining term of
the Option, whichever is the lesser. The Option may be so exercised only with
respect to installments exercisable at the time of Optionee's death and not
previously exercised by the Optionee.
(h) Nontransferability of Option: No Option shall be transferable by
----------------------------
the Optionee, except by will or by the laws of descent and distribution.
(i) Recapitalization: Subject to any required action by the
----------------
stockholders, the number of shares of Stock covered by each outstanding Option,
and the price per share thereof set forth in each such Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock of the Corporation resulting from a subdivision or consolidation
of shares or the payment of a stock dividend, or any other increase or decrease
in the number of such shares affected without receipt of consideration by the
Corporation.
Subject to any required action by the stockholders, if the Corporation
shall be the surviving entity in any merger or consolidation, each outstanding
Option thereafter shall pertain to and apply to the securities to which a holder
of shares of Stock equal to the shares subject to the Option would have been
entitled by reason of such merger or consolidation. A dissolution or
liquidation of the Corporation or a merger or consolidation in which the
Corporation is not the
5
<PAGE>
surviving entity shall cause each outstanding Option to terminate on the
effective date of such dissolution, liquidation, merger or consolidation. In
such event, if the entity which shall be the surviving entity does not tender to
Optionee an offer, for which it has no obligation to do so, to substitute for
any unexercised Option a stock option or capital stock of such surviving entity,
as applicable, which on an equitable basis shall provide the Optionee with
substantially the same economic benefit as such unexercised Option, then the
Board may grant to such Optionee, but shall not be obligated to do so, the right
for a period commencing thirty (30) days prior to and ending immediately prior
to such dissolution, liquidation, merger or consolidation or during the
remaining term of the Option, whichever is the lesser, to exercise any unexpired
Option or Options, without regard to the installment provisions of Paragraph
5(d) of this Plan; provided, that any such right granted shall be granted to all
Optionees not receiving an offer to substitute on a consistent basis, and
provided further, that any such exercise shall be subject to the consummation of
such dissolution, liquidation, merger or consolidation.
In the event of a change in the Stock of the Corporation as presently
constituted, which is limited to a change of all of its authorized shares
without par value into the same number of shares with a par value, the shares
resulting from any such change shall be deemed to be the Stock within the
meaning of this Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided in this Paragraph 5(i), the Optionee shall have no
rights by reason of any subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class, and the number or price of shares of
Stock subject to any Option shall not be affected by, and no adjustment shall be
made by reason of, any dissolution, liquidation, merger or consolidation, or any
issue by the Corporation of shares of stock of any class or securities
convertible into shares of stock of any class.
The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Corporation to make any adjustments,
reclassifications, reorganizations or changes in its capital or business
structure or to merge, consolidate, dissolve, or liquidate or to sell or
transfer all or any part of its business or assets.
(j) Rights as a Stockholder: An Optionee shall have no rights as a
-----------------------
stockholder with respect to any shares covered by an Option until the effective
date of issuance of the shares following exercise of this Option by Optionee.
No adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or distributions or other rights for which
the record date is prior to the date such stock certificate is issued, except as
expressly provided in Paragraph 5(i) hereof.
(k) Modification, Acceleration, Extension and Renewal of Options:
------------------------------------------------------------
Subject to the terms and conditions and within the limitations of the Plan, the
Board may modify an Option, or once an Option is exercisable, accelerate the
rate at which it may be exercised, and may extend or renew outstanding Options
granted under the Plan or accept the surrender of outstanding Options (to the
6
<PAGE>
extent not theretofore exercised) and authorize the granting of new Options in
substitution for such Options, provided such action is permissible under Section
422 of the Code.
Notwithstanding the foregoing provisions of this Paragraph 5(k),
however, no modification of an Option shall, without the consent of the
Optionee, alter to the Optionee's detriment or impair any rights or obligations
under any Option theretofore granted under the Plan.
(l) Investment Intent: Unless and until the issuance and sale of the
-----------------
shares subject to the Plan are registered under the Securities Act of 1933, as
amended (the "Act") or shall be exempt pursuant to the rules promulgated
thereunder, each Option under the Plan shall provide that the purchases of Stock
thereunder shall be for investment purposes and not with a view to, or for
resale in connection with, any distribution thereof. Further, unless the
issuance and sale of the Stock have been registered under the Act, each Option
shall provide that no shares shall be purchased upon the exercise of such Option
unless and until (i) any then applicable requirements of state and federal laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Corporation and its counsel, and (ii) if requested to do so by the
Corporation, the person exercising the Option shall (i) give written assurances
as to knowledge and experience of such person (or a representative employed by
such person) in financial and business matters and the ability of such person
(or representative) to evaluate the merits and risks of exercising the Option,
and (ii) execute and deliver to the Corporation a letter of investment intent
and/or such other form related to applicable exemptions from registration, all
in such form and substance as the Corporation may require. If shares are issued
upon exercise of an Option without registration under the Act, subsequent
registration of such shares shall relieve the purchaser thereof of any
investment restrictions or representations made upon the exercise of such
Options.
(m) Exercise Before Exercise Date: At the discretion of the Board,
-----------------------------
the Option may, but need not, include a provision whereby the Optionee may elect
to exercise all or any portion of the Option prior to the stated exercise date
of the Option or any installment thereof. Any shares so purchased prior to the
stated exercise date shall be subject to repurchase by the Corporation upon
termination of Optionee's employment as contemplated by Paragraphs 5(e), 5(f)
and 5(g) hereof prior to the exercise date stated in the Option and such other
restrictions and conditions as the Board or Committee may deem advisable.
(n) Other Provisions: The Option agreements authorized under this
----------------
Plan shall contain such other provisions, including, without limitation,
restrictions upon the exercise of the Options, as the Board or the Committee
shall deem advisable. Shares shall not be issued pursuant to the exercise of an
Option, if the exercise of such Option or the issuance of shares thereunder
would violate, in the opinion of legal counsel for the Corporation, the
provisions of any applicable law or the rules or regulations of any applicable
governmental or administrative agency or body, such as the Act, the Securities
Exchange Act of 1934, the rules promulgated under the foregoing or the rules and
regulations of any exchange upon which the shares of the Corporation are listed.
6. Availability of Information
---------------------------
During the term of the Plan and any additional period during which an
Option granted pursuant to the Plan shall be exercisable, the Corporation shall
make available, upon request, not
7
<PAGE>
later than one hundred and twenty (120) days following the close of each of its
fiscal years such financial and other information regarding the Corporation as
is required by the bylaws of the Corporation and applicable law to be furnished
in an annual report to the stockholders of the Corporation.
7. Effectiveness of Plan; Expiration
---------------------------------
Subject to approval by the stockholders of the Corporation, this Plan shall
be deemed effective as of the date it is adopted by the Board. The Plan shall
expire on April 30, 2002, but such expiration shall not affect the validity of
outstanding Options.
8. Amendment and Termination of the Plan
-------------------------------------
The Board may, insofar as permitted by law, from time to time, with respect
to any shares at the time not subject to Options, suspend or terminate the Plan
or revise or amend it in any respect whatsoever, except that without the
approval of the stockholders of the Corporation, no such revision or amendment
shall (i) increase the number of shares subject to the Plan, (ii) decrease the
price at which Options may be granted, (iii) materially increase the benefits to
Optionees, or (iv) change the class of persons eligible to receive Options under
this Plan; provided, however, no such action shall alter or impair the rights
and obligations under any Option outstanding as of the date thereof without the
written consent of the Optionee thereunder. No Option may be granted while the
Plan is suspended or after it is terminated, but the rights and obligations
under any Option granted while the Plan is in effect shall not be impaired by
suspension or termination of the Plan.
9. Indemnification of Board
------------------------
In addition to such other rights or indemnifications as they may have as
directors or otherwise, and to the extent allowed by applicable law, the members
of the Board and the Committee shall be indemnified by the Corporation against
the reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any claim, action, suit or
proceeding, or in connection with any appeal thereof, to which they or any of
them may be a party by reason of any action taken, or failure to act, under or
in connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation) or paid by them in
satisfaction of a judgment in any such claim, action, suit or proceeding, except
in any case in relation to matters as to which it shall be adjudged in such
claim, action, suit or proceeding that such Board member is liable for
negligence or misconduct in the performance of his or her duties; provided that
within sixty (60) days after institution of any such action, suit or Board
proceeding the member involved shall offer the Corporation, in writing, the
opportunity, at its own expense, to handle and defend the same.
10. Application of Funds
--------------------
The proceeds received by the Corporation from the sale of Stock pursuant to
the exercise of Options will be used for general corporate purposes.
8
<PAGE>
11. No Obligation to Exercise Option
--------------------------------
The granting of an Option shall impose no obligation upon the Optionee to
exercise such Option.
12. Notices
-------
All notice, requests, demands, and other communications pursuant this Plan
shall be in writing and shall be deemed to have been duly given on the date of
service if served personally on the party to whom notice is to be given, or on
the third day following the mailing thereof to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid.
* * * * *
The foregoing 1994 Incentive and Nonstatutory Stock Option Plan (the
"Plan") was duly adopted and approved by the Board of Directors of NetVantage, a
California corporation and the Corporation's predecessor, on October 7, 1994,
and approved by the shareholders of NetVantage on October 21, 1994. The Plan
was assumed by the Corporation in connection with a duly approved merger of
NetVantage into the Corporation on December 12, 1994. The Plan was duly
amended, to increase the authorized number of shares under Paragraph 4(a) to a
total of 325,000 shares, by the Board of Directors of the Corporation on June
22, 1995, which amendment was duly approved by the stockholders of the
Corporation on October 24, 1995. The foregoing Plan has been restated to
generally reflect the terms and conditions of the merger and the 1995 amendment.
/s/ THOMAS G. IWANSKI
-------------------------------------
Thomas G. Iwanski, Secretary
9
<PAGE>
EXHIBIT 10.13
-------------
NETVANTAGE, INC.
1992 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
-------------------------------------------------
1. Purpose
-------
This Incentive and Nonstatutory Stock Option Plan (the "Plan") is intended
to further the growth and financial success of NETVANTAGE, INC. (the
"Corporation") by providing additional incentives to selected employees of and
consultants to the Corporation or parent corporation or subsidiary corporation
of the Corporation as those terms are defined in Sections 425(e) and 425(f) of
the Internal Revenue Code of 1986, as amended (the "Code") (such parent
corporations and subsidiary corporations hereinafter collectively referred to as
"Affiliates") so that such employees may acquire or increase their proprietary
interest in the Corporation. Stock options granted under the Plan (hereinafter
"Options") may be either "Incentive Stock Options", as defined in Section 422A
of the Code and any regulations promulgated under said Section, or "Nonstatutory
Options" at the discretion of the Board of Directors of the Corporation (the
"Board") and as reflected in the respective written stock option agreements
granted pursuant hereto.
2. Administration
--------------
The Plan shall be administered by the Board; provided however, that the
Board may delegate such administration to a committee of not fewer than three
(3) members (the "Committee"), at least two (2) of whom are members of the Board
and all of whom are disinterested administrators, as contemplated by Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Rule 16b-
3"); and provided further, that the foregoing requirement for disinterested
administrators shall not apply prior to the date of the first registration of
any of the securities of the Corporation under Securities Act of 1933, as
amended.
Subject to the provisions of the Plan, the Board and/or the Committee shall
have authority to (a) grant, in its discretion, Incentive Stock Options in
accordance with Section 422A of the Code or Nonstatutory Options; (b) determine
in good faith the fair market value of the stock covered by an Option; (c)
determine which eligible persons shall be granted Options and the number of
shares to be covered thereby and the term thereof; (d) construe and interpret
the Plan; (e) promulgate, amend and rescind rules and regulations relating to
its administration, and correct defects, omissions and, inconsistencies in the
Plan or any Option; (f) consistent with the Plan and with the consent of the
optionee, as appropriate, amend any outstanding Option or amend the exercise
date or dates thereof; (g) determine the duration and purpose of leaves of
absence which may be granted to optionholders without constituting termination
of their employment for the purpose of the Plan; and (h) make all other
determinations necessary or advisable for the Plan's administration. The
interpretation and construction by the Board of any provisions of the Plan or of
any Option shall be conclusive and final. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Option.
<PAGE>
3. Eligibility
-----------
The persons who shall be eligible to receive Options shall be key employees
of or consultants to the Corporation or any of its Affiliate ("Optionees"). The
term consultant shall mean any person who is engaged by the Corporation to
render services and is compensated for such services, and any director of the
Corporation whether or not compensated for such services; provided that, if the
Corporation registers any of its securities pursuant to the Securities Exchange
Act of 1934, the term consultant shall thereafter not include directors who are
not compensated for their services or are paid only a director fee by the
Corporation.
(a) Incentive Stock Options. Incentive Stock Options may only be
-----------------------
issued to employees of the Corporation or its Affiliates. Incentive Stock
Options may be granted to officers, whether or not they are directors, but a
director shall not be granted an Incentive Stock Option unless such director is
also an employee of the Corporation. Payment of a director fee shall not be
sufficient to constitute employment by the Corporation. Any grant of option to
an officer or director of the Corporation subsequent to the first registration
of any of the securities of the Corporation under Securities Act of 1933, as
amended, shall comply with the requirements of Rule 16b-3. An optionee may hold
more than one Option.
The Corporation shall not grant an Incentive Stock Option under the
Plan to any employee if such grant would result in such employee holding the
right to exercise for the first time in any one calendar year, under all options
granted to such employee under the Plan or any other stock option plan
maintained by the Corporation or any Affiliate, with respect to shares of stock
having an aggregate fair market value, determined as of the date of the Option
is granted, in excess of $100,000. Should it be determined that an Incentive
Stock Option granted under the Plan exceeds such maximum for any reason other
than a failure in good faith to value the stock subject to such option, the
excess portion of such option shall be considered a Nonstatutory Option. If,
for any reason, an entire option does not qualify as an Incentive Stock Option
by reason of exceeding such maximum, such option shall be considered a
Nonstatutory Option.
(b) Nonstatutory Option. The provisions of the foregoing Section
-------------------
3(a) shall not apply to any option designated as a "Nonstatutory Stock Option
Agreement" or which sets forth the intention of the parties that the option be a
Nonstatutory Option.
4. Stock
-----
The stock subject to Options shall be shares of the Corporation's
authorized but unissued or reacquired Class B and Class E Common Stock (the
"Stock").
(a) Number of Shares. Subject to adjustment as provided in Paragraph
----------------
5(i) of this Plan, the total number of shares of Stock which may be purchased
through exercise of Options granted under this Plan shall not exceed Two Hundred
Thousand (200,000). If any Option shall for any reason terminate or expire, any
shares allocated thereto but remaining unpurchased upon such expiration or
termination shall again be available for the grant of Options with respect
thereto under this Plan as though no Option had been granted with respect to
such shares.
2
<PAGE>
(b) Reservation of Shares. The Corporation shall reserve and keep
---------------------
available at all times during the term of the Plan such number of shares as
shall be sufficient to satisfy the requirements of the Plan. If, after
reasonable efforts, which efforts shall not include the registration of the Plan
or Options under the Securities Act of 1933, the Corporation is unable to obtain
authority from any applicable regulatory body, which authorization is deemed
necessary by legal counsel for the Corporation for the lawful issuance of shares
hereunder, the Corporation shall be relieved of any liability with respect to
its failure to issue and sell the shares for which such requisite authority was
so deemed necessary unless and until such authority is obtained.
5. Terms and Conditions of Options
-------------------------------
Options granted hereunder shall be evidenced by agreements between the
Corporation and the respective Optionees, in such form and substance as the
Board or Committee shall from time to time approve. Such agreements need not be
identical, and in each case may include such provisions as the Board or
Committee may determine, but all such agreements shall be subject to and limited
by the following terms and conditions:
(a) Number of Shares: Each Option shall state the number of shares to
----------------
which it pertains.
(b) Option Price: Each Option shall state the Option Price, which
------------
shall be determined as follows:
(i) Any Option granted to a person who at the time the Option is
granted owns (or is deemed to own pursuant to Section 425(d) of the Code)
stock possessing more than ten percent (10%) of the total combined voting
power or value of all classes of stock of the Corporation, or of any
Affiliate, ("Ten Percent Holder") shall have an Option Price of no less
than 110% of the fair market value of the Stock as of the date of grant.
(ii) Incentive Stock Options granted to a person who at the time
the Option is granted is not a Ten Percent Holder shall have an Option
Price of no less than 100% of the fair market value of the Stock as of the
date of grant.
(iii) Nonstatutory Options granted to a person who at the time
the Option is granted is not a Ten Percent Holder shall have an Option
Price of no less than 85% of the fair market value of the Stock as of the
date of grant.
For the purposes of this Paragraph 5(b), the fair market value shall
be as determined by the Board, in good faith, which determination shall be
conclusive and binding; provided however, that if there is a public market for
the such Stock, the fair market value per share shall be the average of the bid
and asked prices (or may be the closing price if such Stock is listed on the
Nasdaq National Market System) on the date of grant of the Option, or if listed
on a stock exchange, the closing price on such exchange on such date of grant.
(c) Medium and Time of Payment: To the extent permissible by
--------------------------
applicable law, the Option price shall be paid, at the discretion of the Board,
at either the time of grant or the time of exercise of the Option (i) in cash or
by check, (ii) by delivery of other common stock of the
3
<PAGE>
Corporation, provided such tendered stock was not acquired directly or
indirectly from the Corporation, or, if acquired from the Corporation, has been
held by the Optionee for more than six (6) months, (iii) by the Optionee's
promissory note in a form satisfactory to the Corporation and bearing interest
at a rate determined by the Board, in its sole discretion, but in no event less
than 6% per annum, or (iv) such other form of legal consideration permitted by
the California Corporations Code as may be acceptable to the Board.
(d) Term and Exercise of Options: Any Option granted to an Employee of
----------------------------
the Corporation shall become exercisable over a period of no longer than five
(5) years, and no less than twenty percent (20%) of the shares covered thereby
shall become exercisable annually. No Option shall be exercisable, in whole or
in part, prior to one (1) year from the date it is granted unless the Board
shall specifically determine otherwise, as provided herein. In no event shall
any Option be exercisable after the expiration of ten (10) years from the date
it is granted, and no Incentive Stock Option granted to a Ten Percent Holder
shall, by its terms, be exercisable after the expiration of five (5) years from
the date of the Option. Unless otherwise specified by the Board or the
Committee in the resolution authorizing such option, the date of grant of an
Option shall be deemed to be the date upon which the Board or the Committee
authorizes the granting of such Option.
Each Option shall be exercisable to the nearest whole share, in
installments or otherwise, as the respective option agreements may provide.
During the lifetime of an Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable by the Optionee, and no
other person shall acquire any rights therein. To the extent not exercised,
installments (if more than one) shall accumulate, but shall be exercisable, in
whole or in part, only during the period for exercise as stated in the option
agreement, whether or not other installments are then exercisable.
(e) Termination of Status as Employee or Consultant: If Optionee's
-----------------------------------------------
status as an employee or consultant shall terminate for any reason other than
Optionee's disability or death, then the Optionee (or if the Optionee shall die
after such termination, but prior to exercise, Optionee's personal
representative or the person entitled to succeed to the Option) shall have the
right to exercise the portions of any of Optionee's Options which were
exercisable as of the date of such termination, in whole or in part, at any time
within three (3) months after such termination (or in the event of "termination
for good cause" as that term is defined under the California Labor Code and case
law related thereto, such shorter period as the option agreement may specify,
but not less than 30 days) or the remaining term of the Option, whichever is the
lesser; provided, however, that with respect to Nonstatutory Options, the Board
may specify such longer period, not to exceed six (6) months, for exercise
following termination as the Board deems reasonable and appropriate. The Option
may be exercised only with respect to installments that the Optionee could have
exercised at the date of termination of employment. Nothing contained herein or
in any Option granted pursuant hereto shall be construed to affect or restrict
in any way the right of the Corporation to terminate the employment of an
Optionee with or without cause.
(f) Disability of Optionee: If an Optionee is disabled (within the
----------------------
meaning of Section 22(e)(3) of the Code) at the time of termination, the three
(3) month period set forth in Paragraph 5(e) shall be a period, as determined by
the Board and set forth in the Option, of not less than six months nor more than
one year.
4
<PAGE>
(g) Death of Optionee: If an Optionee dies while employed or engaged
-----------------
as a consultant by the Corporation or an Affiliate, the portion of such
Optionee's Option or Options which were exercisable at the date of death may be
exercised, in whole or in part, by the estate of the decedent or by a person
succeeding to the right to exercise such Option or Options, at any time within
(i) a period, as determined by the Board and set forth in the Option, of not
less than six (6) months nor more than one (1) year after Optionee's death,
which period shall not be less, in the case of a Nonstatutory Option, than the
period for exercise following termination, or (ii) during the remaining term of
the Option, whichever is the lesser. The Option may be so exercised only with
respect to installments exercisable at the time of Optionee's death and not
previously exercised by the Optionee.
(h) Nontransferability of Option: No Option shall be transferable by
----------------------------
the Optionee, except by will or by the laws of descent and distribution.
(i) Recapitalization: Subject to any required action by the
----------------
stockholders, the number of shares of Stock covered by each outstanding Option,
and the price per share thereof set forth in each such Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock of the Corporation resulting from a subdivision or consolidation
of shares or the payment of a stock dividend, or any other increase or decrease
in the number of such shares affected without receipt of consideration by the
Corporation.
Subject to any required action by the stockholders, if the Corporation
shall be the surviving entity in any merger or consolidation, each outstanding
Option thereafter shall pertain to and apply to the securities to which a holder
of shares of Stock equal to the shares subject to the Option would have been
entitled by reason of such merger or consolidation. A dissolution or
liquidation of the Corporation or a merger or consolidation in which the
Corporation is not the surviving entity shall cause each outstanding Option to
terminate on the effective date of such dissolution, liquidation, merger or
consolidation. In such event, if the entity which shall be the surviving entity
does not tender to Optionee an offer, for which it has no obligation to do so,
to substitute for any unexercised Option a stock option or capital stock of such
surviving entity, as applicable, which on an equitable basis shall provide the
Optionee with substantially the same economic benefit as such unexercised
Option, then the Board may grant to such Optionee, but shall not be obligated to
do so, the right for a period commencing thirty (30) days prior to and ending
immediately prior to such dissolution, liquidation, merger or consolidation or
during the remaining term of the Option, whichever is the lesser, to exercise
any unexpired Option or Options, without regard to the installment provisions of
Paragraph 5(d) of this Plan; provided, that any such right granted shall be
granted to all Optionees not receiving an offer to substitute on a consistent
basis, and provided further, that any such exercise shall be subject to the
consummation of such dissolution, liquidation, merger or consolidation.
In the event of a change in the Stock of the Corporation as presently
constituted, which is limited to a change of all of its authorized shares
without par value into the same number of shares with a par value, the shares
resulting from any such change shall be deemed to be the Stock within the
meaning of this Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the Board,
whose determination in that respect
5
<PAGE>
shall be final, binding and conclusive. Except as expressly provided in this
Paragraph 5(i), the Optionee shall have no rights by reason of any subdivision
or consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class, and the number or price of shares of Stock subject to any Option
shall not be affected by, and no adjustment shall be made by reason of, any
dissolution, liquidation, merger or consolidation, or any issue by the
Corporation of shares of stock of any class or securities convertible into
shares of stock of any class.
The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Corporation to make any adjustments,
reclassifications, reorganizations or changes in its capital or business
structure or to merge, consolidate, dissolve, or liquidate or to sell or
transfer all or any part of its business or assets.
(j) Rights as a Stockholder: An Optionee shall have no rights as a
-----------------------
stockholder with respect to any shares covered by an Option until the date of
the issuance of a stock certificate to Optionee for such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
expressly provided in Paragraph 5(i) hereof.
(k) Modification, Acceleration, Extension, and Renewal of Options:
-------------------------------------------------------------
Subject to the terms and conditions and within the limitations of the Plan, the
Board may modify an Option, or once an Option is exercisable, accelerate the
rate at which it may be exercised, and may extend or renew outstanding Options
granted under the Plan or accept the surrender of outstanding Options (to the
extent not theretofore exercised) and authorize the granting of new Options in
substitution for such Options, provided such action is permissible under Section
422A of the Code.
Notwithstanding the foregoing provisions of this Paragraph 5(k),
however, no modification of an Option shall, without the consent of the
Optionee, alter to the Optionee's detriment or impair any rights or obligations
under any Option theretofore granted under the Plan.
(l) Investment Intent: Unless and until the issuance and sale of the
-----------------
shares subject to the Plan are registered under the Securities Act of 1933, as
amended (the "Act"), each Option under the Plan shall provide that the purchases
of Stock thereunder shall be for investment purposes and not with a view to, or
for resale in connection with, any distribution thereof. Further, unless the
issuance and sale of the Stock have been registered under the Act, each Option
shall provide that no shares shall be purchased upon the exercise of such Option
unless and until (i) any then applicable requirements of state and federal laws
and regulatory agencies shall have been fully complied with to the satisfaction
of the Corporation and its counsel, and (ii) if requested to do so by the
Corporation, the person exercising the Option shall (i) give written assurances
as to knowledge and experience of such person (or a representative employed by
such person) in financial and business matters and the ability of such person
(or representative) to evaluate the merits and risks of exercising the Option,
and (ii) execute and deliver to the Corporation a letter of investment intent,
all in such form and substance as the Corporation may require. If shares are
issued upon exercise of an Option without registration under the Act, subsequent
registration of such shares shall relieve the purchaser thereof of any
investment restrictions or representations made upon the exercise of such
Options.
6
<PAGE>
(m) Exercise Before Exercise Date: At the discretion of the Board, the
-----------------------------
Option may, but need not, include a provision whereby the Optionee may elect to
exercise all or any portion of the Option prior to the stated exercise date of
the Option or any installment thereof. Any shares so purchased prior to the
stated exercise date shall be subject to repurchase by the Corporation upon
termination of Optionee's employment as contemplated by Paragraphs 5(e), 5(f)
and 5(g) hereof prior to the exercise date stated in the Option and such other
restrictions and conditions as the Board or Committee may deem advisable.
(n) Other Provisions: The Option agreements authorized under this Plan
----------------
shall contain such other provisions, including, without limitation, restrictions
upon the exercise of the Options, as the Board or the Committee shall deem
advisable. Shares shall not be issued pursuant to the exercise of an Option, if
the exercise of such Option or the issuance of shares thereunder would violate,
in the opinion of legal counsel for the Corporation, the provisions of any
applicable law or the rules or regulations of any applicable governmental or
administrative agency or body, such as the Act, the Securities Exchange Act of
1934, the rules promulgated under the foregoing or the rules and regulations of
any exchange upon which the shares of the Corporation are listed.
6. Availability of Information
---------------------------
During the term of the Plan and any additional period during which an
Option granted pursuant to the Plan shall be exercisable, the Corporation shall
make available, upon request, not later than one hundred and twenty (120) days
following the close of each of its fiscal years such financial and other
information regarding the Corporation as is required by the bylaws of the
Corporation and applicable law to be furnished in an annual report to the
stockholders of the Corporation
7. Effectiveness of Plan; Expiration
---------------------------------
Subject to approval by the stockholders of the Corporation, this Plan shall
be deemed effective as of the date it is adopted by the Board. The Plan shall
expire on April 30, 2002, but such expiration shall not affect the validity of
outstanding Options.
8. Amendment and Termination of the Plan
-------------------------------------
The Board may, insofar as permitted by law, from time to time, with respect
to any shares at the time not subject to Options, suspend or terminate the Plan
or revise or amend it in any respect whatsoever, except that without the
approval of the stockholders of the Corporation, no such revision or amendment
shall (i) increase the number of shares subject to the Plan, (ii) decrease the
price at which Options may be granted, (iii) materially increase the benefits to
Optionees, or (iv) change the class of persons eligible to receive Options under
this Plan; provided, however, no such action shall alter or impair the rights
and obligations under any Option outstanding as of the date thereof without the
written consent of the Optionee thereunder. No Option may be granted while the
Plan is suspended or after it is terminated, but the rights and obligations
under any Option granted while the Plan is in effect shall not be impaired by
suspension or termination of the Plan.
7
<PAGE>
9. Indemnification of Board
------------------------
In addition to such other rights or indemnifications as they may have as
directors or otherwise, and to the extent allowed by applicable law, the members
of the Board and the Committee shall be indemnified by the Corporation against
the reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any claim, action, suit or
proceeding, or in connection with any appeal thereof, to which they or any of
them may be a party by reason of any action taken, or failure to act, under or
in connection with the Plan or any Option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation) or paid by them in
satisfaction of a judgment in any such claim, action, suit or proceeding, except
in any case in relation to matters as to which it shall be adjudged in such
claim, action, suit or proceeding that such Board member is liable for
negligence or misconduct in the performance of his or her duties; provided that
within sixty (60) days after institution of any such action, suit or Board
proceeding the member involved shall offer the Corporation, in writing, the
opportunity, at its own expense, to handle and defend the same.
10. Application of Funds
--------------------
The proceeds received by the Corporation from the sale of Stock pursuant to
the exercise of Options will be used for general corporate purposes.
11. No Obligation to Exercise Option
--------------------------------
The granting of an Option shall impose no obligation upon the Optionee to
exercise such Option.
12. Notices
-------
All notice, requests, demands, and other communications pursuant this Plan
shall be in writing and shall be deemed to have been duly given on the date of
service if served personally on the party to whom notice is to be given, or on
the third day following the mailing thereof to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid.
* * * * *
The foregoing 1992 Incentive and Nonstatutory Stock Option Plan (the
"Plan") was duly adopted and approved by the Board of Directors of NetVantage, a
California corporation and the Corporation's predecessor, on June 15, 1992, and
approved by the shareholders of NetVantage on June 30, 1992. The Plan was
assumed by the Corporation in connection with a duly approved merger of
NetVantage into the Corporation on December 12, 1994. The foregoing Plan has
been restated to generally reflect the terms and conditions of the merger.
/s/ THOMAS G. IWANSKI
____________________________________
Thomas G. Iwanski, Secretary
8
<PAGE>
EXHIBIT 10.18
-------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT
TO THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER OR
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED.
Void after January 1, 1999 Right to Purchase 15,000 shares
of Class A Common Stock of
NetVantage, Inc.
NETVANTAGE, INC.
AMENDED AND RESTATED
COMMON STOCK PURCHASE WARRANT
NETVANTAGE, INC., a Delaware corporation (the "Company"), hereby certifies
that, for the sum of $150.00 and other valuable consideration, receipt of which
is hereby acknowledged, STEPHEN R. RIZZONE or assigns ("Holder") is entitled,
subject to the terms set forth below, to purchase from the Company at any time
after the Commencement Date described in Section 15 hereof (the "Commencement
Date") but before 4:30 p.m., Los Angeles time, on January 1, 1999 (the
"Termination Date"), Fifteen Thousand (15,000) fully paid and nonassessable
shares of Class A Common Stock, $.001 par value per share, of the Company (the
"Warrant Stock") upon surrender hereof at the principal office of the Company
(with a Subscription form as attached hereto duly executed) and the simultaneous
payment of the applicable purchase price described in Section 1.2 hereof (the
"Purchase Price per Share"); provided that the number of shares issuable upon
the exercise of this Amended and Restated Common Stock Purchase Warrant
("Warrant") is subject to change in accordance with subsections 1.1, 1.2 and 1.3
and Section 3 hereof.
This Warrant, evidencing the right to purchase an aggregate of 15,000
shares of Warrant Stock, was initially issued pursuant to Article III, Section 9
of that Employment Agreement between the Holder and the Company dated as of
March 26, 1996 (which Employment Agreement has been amended and restated since
March 26, 1996). The Warrant initially issued has been surrendered by the
Holder, and cancelled, in exchange for this Warrant.
A permit for the sale and issuance of this Warrant and the issuance of Warrant
Stock upon exercise was not obtained from the Commissioner of Corporations of
the State of California by reason of an exemption from such requirement pursuant
to Section 25102(f) of the California Corporations Code. ACCORDINGLY, THE
PURCHASER AND ANY TRANSFEREE OF THIS WARRANT AND TRANSACTION PURSUANT TO WHICH
IT IS ISSUED, SOLD OR TRANSFERRED MUST MEET THE REQUIREMENTS OF SAID SECTION
25102(f) AND/OR SECTION 25104 AND THE RULES PROMULGATED THEREUNDER.
<PAGE>
TERMS AND CONDITIONS OF WARRANT
1. PURCHASE PRICE; EXERCISE OF WARRANT.
1.1 This Warrant may be exercised by the Holder at any time between the
Commencement Date and the Termination Date, in full or from time to time in
part, by surrender of this Warrant, together with a duly executed subscription
in the form attached hereto, to the Company at its principal office, accompanied
by payment in cash or by certified or bank cashier's check payable to the order
of the Company in an amount determined by multiplying (i) the number of shares
of Warrant Stock being purchased by (ii) the Purchase Price per Share, as such
amount may be adjusted from time to time pursuant to Section 3 hereof.
1.2 The Purchase Price per Share for any exercise of this Warrant to
purchase Warrant Stock shall be $5.8125 per Share.
1.3 In the event that a bank or trust company shall have been appointed as
trustee for the Holders of the Warrant pursuant to subsection 3.4, such bank or
trust company shall have all the powers and duties of a warrant agent duly
appointed, and shall accept, in its own name for the account of the Company or
such successor person as may be entitled thereto, all amounts otherwise payable
to the Company or such successor on exercise of this Warrant pursuant to this
Section 1.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable after
the exercise of this Warrant in full or in part, and in any event within 20 days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder or as the Holder (upon payment by Holder of any applicable transfer
taxes) may direct, a certificate or certificates for the number of fully paid
and nonassessable shares of Warrant Stock to which the Holder shall be entitled
on such exercise. If this Warrant is exercised with respect to less than all of
the Warrant Stock, the Company shall cancel this Warrant and issue and deliver
to the Holder a new Warrant document of like tenor covering the Warrant Stock
not purchased. This Warrant shall be exercisable only for a whole number of
shares of Warrant Stock.
3. ADJUSTMENT FOR CERTAIN EVENTS.
3.1 Reorganization, Consolidation, Merger or Sale. If the Company after
---------------------------------------------
the date of this Warrant shall (a) effect a reorganization, (b) consolidate with
or merge into any other entity, or (c) transfer all or substantially all of its
properties or assets to any other person or entity under any plan or arrangement
contemplating the dissolution of the Company within 24 months from the date of
such transfer, then, in each such case, the Holder, on the exercise hereof as
provided in Section 1 at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Warrant Stock issuable on such exercise
prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which the Holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if the Holder had so exercised this Warrant, immediately prior
thereto.
2
<PAGE>
3.2 Distributions Other Than Dividends from Surplus. In case at any time
-----------------------------------------------
after the date of this Warrant, the holders of Class A Common Stock shall have
received, without payment therefor, (i) other or additional stock or other
securities or property (other than cash) by way of dividend, or (ii) cash paid
or payable except out of earned surplus as at the close of the fiscal year
immediately preceding the date thereof, then in each case the Holder, upon
exercise hereof shall be entitled to receive the amount of stock and other
securities and property or cash which the Holder would hold on the date of such
exercise if on the date hereof he or she had been a holder of record of the
number of shares of Class A Common Stock called for on the face of this Warrant
and had thereafter, during the period from the date of this Warrant to and
including the date of such exercise, retained such shares and all other
securities and property receivable by him or her during such period, giving
effect to all adjustments called for during such period.
3.3 Stock Dividends. In case the Company shall declare any dividend, or
---------------
make any other distribution, on or in respect of any stock of the Company of any
class, which dividend or distribution is payable or paid in Class A Common
Stock, such declaration or other distribution shall be deemed to be a
distribution without consideration and the number of shares issuable upon
exercise of this Warrant shall thereupon be adjusted in the manner described in
subsection 3.2 to reflect such issue of shares.
3.4 Dissolution or Sale of All Assets. In the event of any dissolution of
---------------------------------
the Company following the transfer of all or substantially all of its properties
or assets, the Company, prior to such dissolution, shall at its expense deliver
or cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the Holders after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in Los Angeles County, California, as trustee for the
Holder or Holders.
3.5 Continuation of Warrant. Upon occurrence of any of the events
-----------------------
described in this Section 3 which result in an adjustment, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to
the shares of stock and other securities and property receivable on the exercise
of this Warrant after the consummation or effective date of such transaction or
event, and shall be binding upon the issuer of any such stock or other
securities received pursuant thereto including, in the case of any such
transfer, the person acquiring all or substantially all of the properties or
assets of the Company, whether or not such person shall have expressly assumed
the terms of this Warrant as provided in Section 4 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of Warrant Stock
receivable on the exercise of the Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Warrant Stock on the exercise of all Warrants from time
to time
3
<PAGE>
outstanding, or (c) will not transfer all or substantially all of its properties
and assets to any other person or entity or permit a consolidation with or
merger into the Company (if the Company is not the surviving entity), unless the
surviving entity shall expressly assume in writing and will be bound by all the
terms of the Warrant.
5. NOTIFICATION OF CORPORATE ACTIONS. In the event of:
(a) 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 any right to
subscribe for, purchase or otherwise acquire any shares of stock or any
other securities or property, or to receive any other right, or
(b) any capital reorganization, voluntary or involuntary dissolution, or
liquidation of the Company, any reclassification or recapitalization of the
capital stock of the Company or any transfer of all or substantially all
the assets of the Company to, or consolidation or merger of the Company
with or into, any other person, or
(c) any proposed issue or grant of the Company of any of its securities, or
rights to acquire any of its securities (other than the issuance of Warrant
Stock upon exercise of the Warrant), in each case at a price less than the
fair market value thereof,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if fixed, as of which the holders of record of Warrant
Stock or other capital stock of the Company shall be entitled to exchange their
securities of the Company for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall be mailed at least 20 days prior to
the date specified in such notice on which any such action is to be taken.
6. NO RIGHTS AS STOCKHOLDER. Holder shall have no rights as a stockholder
with respect to the Shares covered by any installment of this Warrant until the
effective date of issuance of the Shares following exercise of this Warrant, and
no adjustment will be made for dividends or other rights for which the record
date is prior to the date such stock certificate or certificates are issued
except as provided in Section 3 hereof.
7. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company will at
all times reserve and keep available, solely for issuance and delivery on the
exercise of the Warrant, all shares of Warrant Stock from time to time issuable
on the exercise of the Warrant.
4
<PAGE>
8. EXCHANGE OF WARRANT. On surrender for exchange of the Warrant properly
endorsed to the Company, the Company at its expense will issue and deliver to or
on the order of the Holder a new Warrant or Warrants of like tenor, in the name
of the Holder or as the Holder (upon payment by Holder of any applicable
transfer taxes) may direct calling in the aggregate on the face or faces thereof
for the number of shares of Warrant Stock called for on the face or faces of the
Warrant (or any warrant issued in respect of the Warrant) so surrendered.
9. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of the Warrant (or any
warrant issued in respect of the Warrant) and, in the case of any such loss,
theft or destruction of any Warrant, on delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of such Warrant, the
Company at its expense will execute and deliver in lieu thereof, a new Warrant
of like tenor.
10. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees that,
absent an effective registration statement or notification of a valid exemption
thereto, in either case under the Securities Act of 1933, covering the
disposition of the Warrant or Warrant Stock for which the Warrant is
exercisable, the Holder will not sell or transfer any or all of such Warrant or
Warrant Stock, as the case may be, without first providing the Company with a
satisfactory opinion of counsel to the effect that such sale or transfer will be
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, and the Holder consents to the Company's making a
notation on its records or giving instructions to any transfer agent of the
Warrant or such Warrant Stock in order to implement such restriction on
transferability.
11. REMEDIES. The Company stipulates that the remedies at law of the Holder in
the event of any default or threatened default by the Company in the performance
of or compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
12. NOTICES. All notices and other communications from the Company to the
Holder shall be mailed by first class, registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company in writing by
the Holder or, until such Holder furnishes to the Company a new address or
address of a new Holder, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant is being delivered in the State of California and shall be
construed and enforced in accordance with its laws and subject to the exclusive
jurisdiction of the courts therein. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. This Warrant is being executed as an instrument under seal. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provisions.
5
<PAGE>
14. ENTIRE UNDERSTANDING. This Warrant, along with the Employment Agreement
(as amended and restated), sets forth the entire understanding between the
Company and the Holder (or any other party claiming rights hereunder) and there
are no other agreements, understandings or restrictions between the parties
other than those set forth herein with respect to the subject matter hereof.
15. COMMENCEMENT AND EXPIRATION OF EXERCISE RIGHTS. This Warrant shall become
exercisable as of the date the first one-half of the outstanding Class E Common
Stock are converted to Class B Common Stock pursuant to Section 4(c)(1)(a) of
the Corporation's Restated Certificate of Incorporation in effect as of the
Commencement Date. The right to exercise this Warrant shall expire at 4:30
p.m., Los Angeles time, on January 1, 1999 (Termination Date).
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Common Stock Purchase Warrant as of April 22, 1997.
"Company" NETVANTAGE, INC.
(Corporate Seal) By: /s/ THOMAS G. IWANSKI
-------------------------------
Thomas G. Iwanski, Secretary
"Holder"
/s/ STEPHEN R. RIZZONE
___________________________________
STEPHEN R. RIZZONE
6
<PAGE>
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned, the Holder of the within Warrant, irrevocably exercises
this Warrant and purchases _____ of the _______ shares of Class A Common Stock
of NETVANTAGE, INC. purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
Dated:
__________________________________________
Stephen R. Rizzone
__________________________________________
Street Address
__________________________________________
City State Zip Code
_____________
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered owner of this NETVANTAGE,
INC. Warrant hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under the Warrant, with respect to the
number of shares of Class A Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ___________________________
Attorney to make such transfer on the books of NETVANTAGE, INC. maintained for
the purpose, with full power of substitution in the premises. I represent and
warrant that each of such transferees meets the requirements of Section 25102(f)
or Section 25104 of the California Corporations Code and rules promulgated
thereunder.
Dated:
By: _________________________________________
Stephen R. Rizzone
_____________________________________________
(Witness)
7
<PAGE>
EXHIBIT 10.19
-------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT
TO THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER OR
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED.
Void after January 1, 1999 Right to Purchase 15,000 shares
of Class A Common Stock of
NetVantage, Inc.
NETVANTAGE, INC.
AMENDED AND RESTATED
COMMON STOCK PURCHASE WARRANT
NETVANTAGE, INC., a Delaware corporation (the "Company"), hereby certifies
that, for the sum of $150.00 and other valuable consideration, receipt of which
is hereby acknowledged, STEPHEN R. RIZZONE or assigns ("Holder") is entitled,
subject to the terms set forth below, to purchase from the Company at any time
after the Commencement Date described in Section 15 hereof (the "Commencement
Date") but before 4:30 p.m., Los Angeles time, on January 1, 1999 (the
"Termination Date"), Fifteen Thousand (15,000) fully paid and nonassessable
shares of Class A Common Stock, $.001 par value per share, of the Company (the
"Warrant Stock") upon surrender hereof at the principal office of the Company
(with a Subscription form as attached hereto duly executed) and the simultaneous
payment of the applicable purchase price described in Section 1.2 hereof (the
"Purchase Price per Share"); provided that the number of shares issuable upon
the exercise of this Amended and Restated Common Stock Purchase Warrant
("Warrant") is subject to change in accordance with subsections 1.1, 1.2 and 1.3
and Section 3 hereof.
This Warrant, evidencing the right to purchase an aggregate of 15,000
shares of Warrant Stock, was initially issued pursuant to Article III, Section 9
of that Employment Agreement between the Holder and the Company dated as of
March 26, 1996 (which Employment Agreement has been amended and restated since
March 26, 1996). The Warrant initially issued has been surrendered by the
Holder, and cancelled, in exchange for this Warrant.
A permit for the sale and issuance of this Warrant and the issuance of Warrant
Stock upon exercise was not obtained from the Commissioner of Corporations of
the State of California by reason of an exemption from such requirement pursuant
to Section 25102(f) of the California Corporations Code. ACCORDINGLY, THE
PURCHASER AND ANY TRANSFEREE OF THIS WARRANT AND TRANSACTION PURSUANT TO WHICH
IT IS ISSUED, SOLD OR TRANSFERRED MUST MEET THE REQUIREMENTS OF SAID SECTION
25102(f) AND/OR SECTION 25104 AND THE RULES PROMULGATED THEREUNDER.
<PAGE>
TERMS AND CONDITIONS OF WARRANT
1. PURCHASE PRICE; EXERCISE OF WARRANT.
1.1 This Warrant may be exercised by the Holder at any time between the
Commencement Date and the Termination Date, in full or from time to time in
part, by surrender of this Warrant, together with a duly executed subscription
in the form attached hereto, to the Company at its principal office, accompanied
by payment in cash or by certified or bank cashiers check payable to the order
of the Company in an amount determined by multiplying (i) the number of shares
of Warrant Stock being purchased by (ii) the Purchase Price per Share, as such
amount may be adjusted from time to time pursuant to Section 3 hereof.
1.2 The Purchase Price per Share for any exercise of this Warrant to
purchase Warrant Stock shall be $5.8125 per Share.
1.3 In the event that a bank or trust company shall have been appointed as
trustee for the Holders of the Warrant pursuant to subsection 3.4, such bank or
trust company shall have all the powers and duties of a warrant agent duly
appointed, and shall accept, in its own name for the account of the Company or
such successor person as may be entitled thereto, all amounts otherwise payable
to the Company or such successor on exercise of this Warrant pursuant to this
Section 1.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable after
the exercise of this Warrant in full or in part, and in any event within 20 days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder or as the Holder (upon payment by Holder of any applicable transfer
taxes) may direct, a certificate or certificates for the number of fully paid
and nonassessable shares of Warrant Stock to which the Holder shall be entitled
on such exercise. If this Warrant is exercised with respect to less than all of
the Warrant Stock, the Company shall cancel this Warrant and issue and deliver
to the Holder a new Warrant document of like tenor covering the Warrant Stock
not purchased. This Warrant shall be exercisable only for a whole number of
shares of Warrant Stock.
3. ADJUSTMENT FOR CERTAIN EVENTS.
3.1 Reorganization, Consolidation, Merger or Sale. If the Company after
---------------------------------------------
the date of this Warrant shall (a) effect a reorganization, (b) consolidate with
or merge into any other entity, or (c) transfer all or substantially all of its
properties or assets to any other person or entity under any plan or arrangement
contemplating the dissolution of the Company within 24 months from the date of
such transfer, then, in each such case, the Holder, on the exercise hereof as
provided in Section 1 at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Warrant Stock issuable on such exercise
prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which the Holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if the Holder had so exercised this Warrant, immediately prior
thereto.
2
<PAGE>
3.2 Distributions Other Than Dividends from Surplus. In case at any time
-----------------------------------------------
after the date of this Warrant, the holders of Class A Common Stock shall have
received, without payment therefor, (i) other or additional stock or other
securities or property (other than cash) by way of dividend, or (ii) cash paid
or payable except out of earned surplus as at the close of the fiscal year
immediately preceding the date thereof, then in each case the Holder, upon
exercise hereof shall be entitled to receive the amount of stock and other
securities and property or cash which the Holder would hold on the date of such
exercise if on the date hereof he or she had been a holder of record of the
number of shares of Class A Common Stock called for on the face of this Warrant
and had thereafter, during the period from the date of this Warrant to and
including the date of such exercise, retained such shares and all other
securities and property receivable by him or her during such period, giving
effect to all adjustments called for during such period.
3.3 Stock Dividends. In case the Company shall declare any dividend, or
---------------
make any other distribution, on or in respect of any stock of the Company of any
class, which dividend or distribution is payable or paid in Class A Common
Stock, such declaration or other distribution shall be deemed to be a
distribution without consideration and the number of shares issuable upon
exercise of this Warrant shall thereupon be adjusted in the manner described in
subsection 3.2 to reflect such issue of shares.
3.4 Dissolution or Sale of All Assets. In the event of any dissolution of
---------------------------------
the Company following the transfer of all or substantially all of its properties
or assets, the Company, prior to such dissolution, shall at its expense deliver
or cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the Holders after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in Los Angeles County, California, as trustee for the
Holder or Holders.
3.5 Continuation of Warrant. Upon occurrence of any of the events
-----------------------
described in this Section 3 which result in an adjustment, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to
the shares of stock and other securities and property receivable on the exercise
of this Warrant after the consummation or effective date of such transaction or
event, and shall be binding upon the issuer of any such stock or other
securities received pursuant thereto including, in the case of any such
transfer, the person acquiring all or substantially all of the properties or
assets of the Company, whether or not such person shall have expressly assumed
the terms of this Warrant as provided in Section 4 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of Warrant Stock
receivable on the exercise of the Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Warrant Stock on the exercise of all Warrants from time
to time
3
<PAGE>
outstanding, or (c) will not transfer all or substantially all of its properties
and assets to any other person or entity or permit a consolidation with or
merger into the Company (if the Company is not the surviving entity), unless the
surviving entity shall expressly assume in writing and will be bound by all the
terms of the Warrant.
5. NOTIFICATION OF CORPORATE ACTIONS. In the event of:
(a) 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 any right to
subscribe for, purchase or otherwise acquire any shares of stock or any
other securities or property, or to receive any other right, or
(b) any capital reorganization, voluntary or involuntary dissolution, or
liquidation of the Company, any reclassification or recapitalization of the
capital stock of the Company or any transfer of all or substantially all
the assets of the Company to, or consolidation or merger of the Company
with or into, any other person, or
(c) any proposed issue or grant of the Company of any of its securities, or
rights to acquire any of its securities (other than the issuance of Warrant
Stock upon exercise of the Warrant), in each case at a price less than the
fair market value thereof,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if fixed, as of which the holders of record of Warrant
Stock or other capital stock of the Company shall be entitled to exchange their
securities of the Company for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall be mailed at least 20 days prior to
the date specified in such notice on which any such action is to be taken.
6. NO RIGHTS AS STOCKHOLDER. Holder shall have no rights as a stockholder
with respect to the Shares covered by any installment of this Warrant until the
effective date of issuance of the Shares following exercise of this Warrant, and
no adjustment will be made for dividends or other rights for which the record
date is prior to the date such stock certificate or certificates are issued
except as provided in Section 3 hereof.
7. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company will at
all times reserve and keep available, solely for issuance and delivery on the
exercise of the Warrant, all shares of Warrant Stock from time to time issuable
on the exercise of the Warrant.
4
<PAGE>
8. EXCHANGE OF WARRANT. On surrender for exchange of the Warrant properly
endorsed to the Company, the Company at its expense will issue and deliver to or
on the order of the Holder a new Warrant or Warrants of like tenor, in the name
of the Holder or as the Holder (upon payment by Holder of any applicable
transfer taxes) may direct calling in the aggregate on the face or faces thereof
for the number of shares of Warrant Stock called for on the face or faces of the
Warrant (or any warrant issued in respect of the Warrant) so surrendered.
9. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of the Warrant (or any
warrant issued in respect of the Warrant) and, in the case of any such loss,
theft or destruction of any Warrant, on delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of such Warrant, the
Company at its expense will execute and deliver in lieu thereof, a new Warrant
of like tenor.
10. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees that,
absent an effective registration statement or notification of a valid exemption
thereto, in either case under the Securities Act of 1933, covering the
disposition of the Warrant or Warrant Stock for which the Warrant is
exercisable, the Holder will not sell or transfer any or all of such Warrant or
Warrant Stock, as the case may be, without first providing the Company with a
satisfactory opinion of counsel to the effect that such sale or transfer will be
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, and the Holder consents to the Company's making a
notation on its records or giving instructions to any transfer agent of the
Warrant or such Warrant Stock in order to implement such restriction on
transferability.
11. REMEDIES. The Company stipulates that the remedies at law of the Holder in
the event of any default or threatened default by the Company in the performance
of or compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
12. NOTICES. All notices and other communications from the Company to the
Holder shall be mailed by first class, registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company in writing by
the Holder or, until such Holder furnishes to the Company a new address or
address of a new Holder, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant is being delivered in the State of California and shall be
construed and enforced in accordance with its laws and subject to the exclusive
jurisdiction of the courts therein. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. This Warrant is being executed as an instrument under seal. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provisions.
5
<PAGE>
14. ENTIRE UNDERSTANDING. This Warrant, along with the Employment Agreement
(as amended and restated), sets forth the entire understanding between the
Company and the Holder (or any other party claiming rights hereunder) and there
are no other agreements, understandings or restrictions between the parties
other than those set forth herein with respect to the subject matter hereof.
15. COMMENCEMENT AND EXPIRATION OF EXERCISE RIGHTS. This Warrant shall become
exercisable as of the date all remaining outstanding Class E Common Stock are
converted to Class B Common Stock pursuant to Section 4(c)(1)(b) of the
Corporation's Restated Certificate of Incorporation in effect as of the
Commencement Date. The right to exercise this Warrant shall expire at 4:30
p.m., Los Angeles time, on January 1, 1999 (Termination Date).
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Common Stock Purchase Warrant as of April 22, 1997.
"Company" NETVANTAGE, INC.
(Corporate Seal) By: /s/ THOMAS G. IWANSKI
_______________________________
Thomas G. Iwanski, Secretary
"Holder"
/s/ STEPHEN R. RIZZONE
_______________________________
STEPHEN R. RIZZONE
6
<PAGE>
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned, the Holder of the within Warrant, irrevocably exercises
this Warrant and purchases _____ of the _______ shares of Class A Common Stock
of NETVANTAGE, INC. purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
Dated:
__________________________________________
Stephen R. Rizzone
__________________________________________
Street Address
__________________________________________
City State Zip Code
_____________
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered owner of this NETVANTAGE,
INC. Warrant hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under the Warrant, with respect to the
number of shares of Class A Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ___________________________
Attorney to make such transfer on the books of NETVANTAGE, INC. maintained for
the purpose, with full power of substitution in the premises. I represent and
warrant that each of such transferees meets the requirements of Section 25102(f)
or Section 25104 of the California Corporations Code and rules promulgated
thereunder.
Dated:
By: _________________________________________
Stephen R. Rizzone
_____________________________________________
(Witness)
7
<PAGE>
EXHIBIT 10.20
-------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT
TO THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER OR
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED.
Void after October 14, 2001 Right to Purchase 11,110 shares
of Class A Common Stock of
NetVantage, Inc.
NETVANTAGE, INC.
AMENDED AND RESTATED
COMMON STOCK PURCHASE WARRANT
NETVANTAGE, INC., a Delaware corporation (the "Company"), hereby certifies
that, for good and valuable consideration, receipt of which is hereby
acknowledged, STEPHEN R. RIZZONE or assigns ("Holder") is entitled, subject to
the terms set forth below, to purchase from the Company at any time after the
date hereof (the "Commencement Date") but before 4:30 p.m., Los Angeles time, on
October 14, 2001 (the "Termination Date"), Eleven Thousand, One Hundred Ten
(11,110) fully paid and nonassessable shares of Class A Common Stock, $.001 par
value per share, of the Company (the "Warrant Stock") upon surrender hereof at
the principal office of the Company (with a Subscription form as attached hereto
duly executed) and the simultaneous payment of the applicable purchase price
described in Section 1.2 hereof (the "Purchase Price per Share"); provided that
the number of shares issuable upon the exercise of this Amended and Restated
Common Stock Purchase Warrant ("Warrant") is subject to change in accordance
with subsections 1.1, 1.2 and 1.3 and Section 3 hereof.
This Warrant, evidencing the right to purchase an aggregate of 11,110
shares of Warrant Stock, was initially issued pursuant to an interim financing
proposal approved by the Board of Directors of the Company on June 6, 1996. The
Warrant initially issued has been surrendered by the Holder, and cancelled, in
exchange for this Warrant.
A permit for the sale and issuance of this Warrant and the issuance of Warrant
Stock upon exercise was not obtained from the Commissioner of Corporations of
the State of California by reason of an exemption from such requirement pursuant
to Section 25102(f) of the California Corporations Code. ACCORDINGLY, THE
PURCHASER AND ANY TRANSFEREE OF THIS WARRANT AND TRANSACTION PURSUANT TO WHICH
IT IS ISSUED, SOLD OR TRANSFERRED MUST MEET THE REQUIREMENTS OF SAID SECTION
25102(f) AND/OR SECTION 25104 AND THE RULES PROMULGATED THEREUNDER.
<PAGE>
TERMS AND CONDITIONS OF WARRANT
1. PURCHASE PRICE; EXERCISE OF WARRANT.
1.1 This Warrant may be exercised by the Holder at any time between the
Commencement Date and the Termination Date, in full or from time to time in
part, by surrender of this Warrant, together with a duly executed subscription
in the form attached hereto, to the Company at its principal office, accompanied
by payment in cash or by certified or bank cashiers check payable to the order
of the Company in an amount determined by multiplying (i) the number of shares
of Warrant Stock being purchased by (ii) the Purchase Price per Share, as such
amount may be adjusted from time to time pursuant to Section 3 hereof.
1.2 The Purchase Price per Share for any exercise of this Warrant to
purchase Warrant Stock shall be $3.8125 per Share.
1.3 In the event that a bank or trust company shall have been appointed as
trustee for the Holders of the Warrant pursuant to subsection 3.4, such bank or
trust company shall have all the powers and duties of a warrant agent duly
appointed, and shall accept, in its own name for the account of the Company or
such successor person as may be entitled thereto, all amounts otherwise payable
to the Company or such successor on exercise of this Warrant pursuant to this
Section 1.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable after
the exercise of this Warrant in full or in part, and in any event within 20 days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder or as the Holder (upon payment by Holder of any applicable transfer
taxes) may direct, a certificate or certificates for the number of fully paid
and nonassessable shares of Warrant Stock to which the Holder shall be entitled
on such exercise. If this Warrant is exercised with respect to less than all of
the Warrant Stock, the Company shall cancel this Warrant and issue and deliver
to the Holder a new Warrant document of like tenor covering the Warrant Stock
not purchased. This Warrant shall be exercisable only for a whole number of
shares of Warrant Stock.
3. ADJUSTMENT FOR CERTAIN EVENTS.
3.1 Reorganization, Consolidation, Merger or Sale. If the Company after
---------------------------------------------
the date of this Warrant shall (a) effect a reorganization, (b) consolidate with
or merge into any other entity, or (c) transfer all or substantially all of its
properties or assets to any other person or entity under any plan or arrangement
contemplating the dissolution of the Company within 24 months from the date of
such transfer, then, in each such case, the Holder, on the exercise hereof as
provided in Section 1 at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Warrant Stock issuable on such exercise
prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which the Holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if the Holder had so exercised this Warrant, immediately prior
thereto.
2
<PAGE>
3.2 Distributions Other Than Dividends from Surplus. In case at any time
-----------------------------------------------
after the date of this Warrant, the holders of Class A Common Stock shall have
received, without payment therefor, (i) other or additional stock or other
securities or property (other than cash) by way of dividend, or (ii) cash paid
or payable except out of earned surplus as at the close of the fiscal year
immediately preceding the date thereof, then in each case the Holder, upon
exercise hereof shall be entitled to receive the amount of stock and other
securities and property or cash which the Holder would hold on the date of such
exercise if on the date hereof he or she had been a holder of record of the
number of shares of Class A Common Stock called for on the face of this Warrant
and had thereafter, during the period from the date of this Warrant to and
including the date of such exercise, retained such shares and all other
securities and property receivable by him or her during such period, giving
effect to all adjustments called for during such period.
3.3 Stock Dividends. In case the Company shall declare any dividend, or
---------------
make any other distribution, on or in respect of any stock of the Company of any
class, which dividend or distribution is payable or paid in Class A Common
Stock, such declaration or other distribution shall be deemed to be a
distribution without consideration and the number of shares issuable upon
exercise of this Warrant shall thereupon be adjusted in the manner described in
subsection 3.2 to reflect such issue of shares.
3.4 Dissolution or Sale of All Assets. In the event of any dissolution of
---------------------------------
the Company following the transfer of all or substantially all of its properties
or assets, the Company, prior to such dissolution, shall at its expense deliver
or cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the Holders after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in Los Angeles County, California, as trustee for the
Holder or Holders.
3.5 Continuation of Warrant. Upon occurrence of any of the events
-----------------------
described in this Section 3 which result in an adjustment, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to
the shares of stock and other securities and property receivable on the exercise
of this Warrant after the consummation or effective date of such transaction or
event, and shall be binding upon the issuer of any such stock or other
securities received pursuant thereto including, in the case of any such
transfer, the person acquiring all or substantially all of the properties or
assets of the Company, whether or not such person shall have expressly assumed
the terms of this Warrant as provided in Section 4 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of Warrant Stock
receivable on the exercise of the Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Warrant Stock on the exercise of all Warrants from time
to time
3
<PAGE>
outstanding, or (c) will not transfer all or substantially all of its properties
and assets to any other person or entity or permit a consolidation with or
merger into the Company (if the Company is not the surviving entity), unless the
surviving entity shall expressly assume in writing and will be bound by all the
terms of the Warrant.
5. NOTIFICATION OF CORPORATE ACTIONS. In the event of:
(a) 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 any right to
subscribe for, purchase or otherwise acquire any shares of stock or any
other securities or property, or to receive any other right, or
(b) any capital reorganization, voluntary or involuntary dissolution, or
liquidation of the Company, any reclassification or recapitalization of the
capital stock of the Company or any transfer of all or substantially all
the assets of the Company to, or consolidation or merger of the Company
with or into, any other person, or
(c) any proposed issue or grant of the Company of any of its securities, or
rights to acquire any of its securities (other than the issuance of Warrant
Stock upon exercise of the Warrant), in each case at a price less than the
fair market value thereof,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if fixed, as of which the holders of record of Warrant
Stock or other capital stock of the Company shall be entitled to exchange their
securities of the Company for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall be mailed at least 20 days prior to
the date specified in such notice on which any such action is to be taken.
6. NO RIGHTS AS STOCKHOLDER. Holder shall have no rights as a stockholder
with respect to the Shares covered by any installment of this Warrant until the
effective date of issuance of the Shares following exercise of this Warrant, and
no adjustment will be made for dividends or other rights for which the record
date is prior to the date such stock certificate or certificates are issued
except as provided in Section 3 hereof.
7. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company will at
all times reserve and keep available, solely for issuance and delivery on the
exercise of the Warrant, all shares of Warrant Stock from time to time issuable
on the exercise of the Warrant.
4
<PAGE>
8. EXCHANGE OF WARRANT. On surrender for exchange of the Warrant properly
endorsed to the Company, the Company at its expense will issue and deliver to or
on the order of the Holder a new Warrant or Warrants of like tenor, in the name
of the Holder or as the Holder (upon payment by Holder of any applicable
transfer taxes) may direct calling in the aggregate on the face or faces thereof
for the number of shares of Warrant Stock called for on the face or faces of the
Warrant (or any warrant issued in respect of the Warrant) so surrendered.
9. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of the Warrant (or any
warrant issued in respect of the Warrant) and, in the case of any such loss,
theft or destruction of any Warrant, on delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of such Warrant, the
Company at its expense will execute and deliver in lieu thereof, a new Warrant
of like tenor.
10. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees that,
absent an effective registration statement or notification of a valid exemption
thereto, in either case under the Securities Act of 1933, covering the
disposition of the Warrant or Warrant Stock for which the Warrant is
exercisable, the Holder will not sell or transfer any or all of such Warrant or
Warrant Stock, as the case may be, without first providing the Company with a
satisfactory opinion of counsel to the effect that such sale or transfer will be
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, and the Holder consents to the Company's making a
notation on its records or giving instructions to any transfer agent of the
Warrant or such Warrant Stock in order to implement such restriction on
transferability.
11. REMEDIES. The Company stipulates that the remedies at law of the Holder in
the event of any default or threatened default by the Company in the performance
of or compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
12. NOTICES. All notices and other communications from the Company to the
Holder shall be mailed by first class, registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company in writing by
the Holder or, until such Holder furnishes to the Company a new address or
address of a new Holder, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant is being delivered in the State of California and shall be
construed and enforced in accordance with its laws and subject to the exclusive
jurisdiction of the courts therein. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. This Warrant is being executed as an instrument under seal. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provisions.
5
<PAGE>
14. ENTIRE UNDERSTANDING. This Warrant sets forth the entire understanding
between the Company and the Holder (or any other party claiming rights
hereunder) and there are no other agreements, understandings or restrictions
between the parties other than those set forth herein with respect to the
subject matter hereof.
15. COMMENCEMENT AND EXPIRATION OF EXERCISE RIGHTS. This Warrant shall become
exercisable as of the Commencement Date. The right to exercise this Warrant
shall expire at 4:30 p.m., Los Angeles time, on October 14, 2001 (Termination
Date).
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Common Stock Purchase Warrant as of April 22, 1997.
"Company" NETVANTAGE, INC.
/s/ THOMAS G. IWANSKI
(Corporate Seal) By: _______________________________
Thomas G. Iwanski, Secretary
"Holder"
/s/ STEPHEN R. RIZZONE
______________________________
STEPHEN R. RIZZONE
6
<PAGE>
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned, the Holder of the within Warrant, irrevocably exercises
this Warrant and purchases _____ of the _______ shares of Class A Common Stock
of NETVANTAGE, INC. purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
Dated:
__________________________________________
Stephen R. Rizzone
__________________________________________
Street Address
__________________________________________
City State Zip Code
_____________
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered owner of this NETVANTAGE,
INC. Warrant hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under the Warrant, with respect to the
number of shares of Class A Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ___________________________
Attorney to make such transfer on the books of NETVANTAGE, INC. maintained for
the purpose, with full power of substitution in the premises. I represent and
warrant that each of such transferees meets the requirements of Section 25102(f)
or Section 25104 of the California Corporations Code and rules promulgated
thereunder.
Dated:
By: _________________________________________
Stephen R. Rizzone
_____________________________________________
(Witness)
7
<PAGE>
EXHIBIT 10.21
-------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT
TO THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREUNDER OR
AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER HEREOF TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED.
Void after October 14, 2001 Right to Purchase 11,765 shares
of Class A Common Stock of
NetVantage, Inc.
NETVANTAGE, INC.
AMENDED AND RESTATED
COMMON STOCK PURCHASE WARRANT
NETVANTAGE, INC., a Delaware corporation (the "Company"), hereby certifies
that, for good and valuable consideration, receipt of which is hereby
acknowledged, STEPHEN R. RIZZONE or assigns ("Holder") is entitled, subject to
the terms set forth below, to purchase from the Company at any time after the
date hereof (the "Commencement Date") but before 4:30 p.m., Los Angeles time, on
October 14, 2001 (the "Termination Date"), Eleven Thousand, Seven Hundred Sixty-
Five (11,765) fully paid and nonassessable shares of Class A Common Stock, $.001
par value per share, of the Company (the "Warrant Stock") upon surrender hereof
at the principal office of the Company (with a Subscription form as attached
hereto duly executed) and the simultaneous payment of the applicable purchase
price described in Section 1.2 hereof (the "Purchase Price per Share"); provided
that the number of shares issuable upon the exercise of this Amended and
Restated Common Stock Purchase Warrant ("Warrant") is subject to change in
accordance with subsections 1.1, 1.2 and 1.3 and Section 3 hereof.
This Warrant, evidencing the right to purchase an aggregate of 11,765
shares of Warrant Stock, was initially issued pursuant to an interim financing
proposal approved by the Board of Directors of the Company on June 6, 1996. The
Warrant initially issued has been surrendered by the Holder, and cancelled, in
exchange for this Warrant.
A permit for the sale and issuance of this Warrant and the issuance of Warrant
Stock upon exercise was not obtained from the Commissioner of Corporations of
the State of California by reason of an exemption from such requirement pursuant
to Section 25102(f) of the California Corporations Code. ACCORDINGLY, THE
PURCHASER AND ANY TRANSFEREE OF THIS WARRANT AND TRANSACTION PURSUANT TO WHICH
IT IS ISSUED, SOLD OR TRANSFERRED MUST MEET THE REQUIREMENTS OF SAID SECTION
25102(f) AND/OR SECTION 25104 AND THE RULES PROMULGATED THEREUNDER.
<PAGE>
TERMS AND CONDITIONS OF WARRANT
1. PURCHASE PRICE; EXERCISE OF WARRANT.
1.1 This Warrant may be exercised by the Holder at any time between the
Commencement Date and the Termination Date, in full or from time to time in
part, by surrender of this Warrant, together with a duly executed subscription
in the form attached hereto, to the Company at its principal office, accompanied
by payment in cash or by certified or bank cashiers check payable to the order
of the Company in an amount determined by multiplying (i) the number of shares
of Warrant Stock being purchased by (ii) the Purchase Price per Share, as such
amount may be adjusted from time to time pursuant to Section 3 hereof.
1.2 The Purchase Price per Share for any exercise of this Warrant to
purchase Warrant Stock shall be $3.8125 per Share.
1.3 In the event that a bank or trust company shall have been appointed as
trustee for the Holders of the Warrant pursuant to subsection 3.4, such bank or
trust company shall have all the powers and duties of a warrant agent duly
appointed, and shall accept, in its own name for the account of the Company or
such successor person as may be entitled thereto, all amounts otherwise payable
to the Company or such successor on exercise of this Warrant pursuant to this
Section 1.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable after
the exercise of this Warrant in full or in part, and in any event within 20 days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued in the name of and delivered to
the Holder or as the Holder (upon payment by Holder of any applicable transfer
taxes) may direct, a certificate or certificates for the number of fully paid
and nonassessable shares of Warrant Stock to which the Holder shall be entitled
on such exercise. If this Warrant is exercised with respect to less than all of
the Warrant Stock, the Company shall cancel this Warrant and issue and deliver
to the Holder a new Warrant document of like tenor covering the Warrant Stock
not purchased. This Warrant shall be exercisable only for a whole number of
shares of Warrant Stock.
3. ADJUSTMENT FOR CERTAIN EVENTS.
3.1 Reorganization, Consolidation, Merger or Sale. If the Company after
---------------------------------------------
the date of this Warrant shall (a) effect a reorganization, (b) consolidate with
or merge into any other entity, or (c) transfer all or substantially all of its
properties or assets to any other person or entity under any plan or arrangement
contemplating the dissolution of the Company within 24 months from the date of
such transfer, then, in each such case, the Holder, on the exercise hereof as
provided in Section 1 at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Warrant Stock issuable on such exercise
prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which the Holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if the Holder had so exercised this Warrant, immediately prior
thereto.
2
<PAGE>
3.2 Distributions Other Than Dividends from Surplus. In case at any time
-----------------------------------------------
after the date of this Warrant, the holders of Class A Common Stock shall have
received, without payment therefor, (i) other or additional stock or other
securities or property (other than cash) by way of dividend, or (ii) cash paid
or payable except out of earned surplus as at the close of the fiscal year
immediately preceding the date thereof, then in each case the Holder, upon
exercise hereof shall be entitled to receive the amount of stock and other
securities and property or cash which the Holder would hold on the date of such
exercise if on the date hereof he or she had been a holder of record of the
number of shares of Class A Common Stock called for on the face of this Warrant
and had thereafter, during the period from the date of this Warrant to and
including the date of such exercise, retained such shares and all other
securities and property receivable by him or her during such period, giving
effect to all adjustments called for during such period.
3.3 Stock Dividends. In case the Company shall declare any dividend, or
---------------
make any other distribution, on or in respect of any stock of the Company of any
class, which dividend or distribution is payable or paid in Class A Common
Stock, such declaration or other distribution shall be deemed to be a
distribution without consideration and the number of shares issuable upon
exercise of this Warrant shall thereupon be adjusted in the manner described in
subsection 3.2 to reflect such issue of shares.
3.4 Dissolution or Sale of All Assets. In the event of any dissolution of
---------------------------------
the Company following the transfer of all or substantially all of its properties
or assets, the Company, prior to such dissolution, shall at its expense deliver
or cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the Holders after the effective date of
such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in Los Angeles County, California, as trustee for the
Holder or Holders.
3.5 Continuation of Warrant. Upon occurrence of any of the events
-----------------------
described in this Section 3 which result in an adjustment, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable to
the shares of stock and other securities and property receivable on the exercise
of this Warrant after the consummation or effective date of such transaction or
event, and shall be binding upon the issuer of any such stock or other
securities received pursuant thereto including, in the case of any such
transfer, the person acquiring all or substantially all of the properties or
assets of the Company, whether or not such person shall have expressly assumed
the terms of this Warrant as provided in Section 4 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of Warrant Stock
receivable on the exercise of the Warrant above the amount payable therefor on
such exercise, (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Warrant Stock on the exercise of all Warrants from time
to time
3
<PAGE>
outstanding, or (c) will not transfer all or substantially all of its properties
and assets to any other person or entity or permit a consolidation with or
merger into the Company (if the Company is not the surviving entity), unless the
surviving entity shall expressly assume in writing and will be bound by all the
terms of the Warrant.
5. NOTIFICATION OF CORPORATE ACTIONS. In the event of:
(a) 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 any right to
subscribe for, purchase or otherwise acquire any shares of stock or any
other securities or property, or to receive any other right, or
(b) any capital reorganization, voluntary or involuntary dissolution, or
liquidation of the Company, any reclassification or recapitalization of the
capital stock of the Company or any transfer of all or substantially all
the assets of the Company to, or consolidation or merger of the Company
with or into, any other person, or
(c) any proposed issue or grant of the Company of any of its securities, or
rights to acquire any of its securities (other than the issuance of Warrant
Stock upon exercise of the Warrant), in each case at a price less than the
fair market value thereof,
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, (ii) the
date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up is to
take place, and the time, if fixed, as of which the holders of record of Warrant
Stock or other capital stock of the Company shall be entitled to exchange their
securities of the Company for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall be mailed at least 20 days prior to
the date specified in such notice on which any such action is to be taken.
6. NO RIGHTS AS STOCKHOLDER. Holder shall have no rights as a stockholder
with respect to the Shares covered by any installment of this Warrant until the
effective date of issuance of the Shares following exercise of this Warrant, and
no adjustment will be made for dividends or other rights for which the record
date is prior to the date such stock certificate or certificates are issued
except as provided in Section 3 hereof.
7. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANTS. The Company will at
all times reserve and keep available, solely for issuance and delivery on the
exercise of the Warrant, all shares of Warrant Stock from time to time issuable
on the exercise of the Warrant.
4
<PAGE>
8. EXCHANGE OF WARRANT. On surrender for exchange of the Warrant properly
endorsed to the Company, the Company at its expense will issue and deliver to or
on the order of the Holder a new Warrant or Warrants of like tenor, in the name
of the Holder or as the Holder (upon payment by Holder of any applicable
transfer taxes) may direct calling in the aggregate on the face or faces thereof
for the number of shares of Warrant Stock called for on the face or faces of the
Warrant (or any warrant issued in respect of the Warrant) so surrendered.
9. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of the Warrant (or any
warrant issued in respect of the Warrant) and, in the case of any such loss,
theft or destruction of any Warrant, on delivery of an indemnity agreement or
security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of such Warrant, the
Company at its expense will execute and deliver in lieu thereof, a new Warrant
of like tenor.
10. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees that,
absent an effective registration statement or notification of a valid exemption
thereto, in either case under the Securities Act of 1933, covering the
disposition of the Warrant or Warrant Stock for which the Warrant is
exercisable, the Holder will not sell or transfer any or all of such Warrant or
Warrant Stock, as the case may be, without first providing the Company with a
satisfactory opinion of counsel to the effect that such sale or transfer will be
exempt from the registration and prospectus delivery requirements of the
Securities Act of 1933, and the Holder consents to the Company's making a
notation on its records or giving instructions to any transfer agent of the
Warrant or such Warrant Stock in order to implement such restriction on
transferability.
11. REMEDIES. The Company stipulates that the remedies at law of the Holder in
the event of any default or threatened default by the Company in the performance
of or compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
12. NOTICES. All notices and other communications from the Company to the
Holder shall be mailed by first class, registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company in writing by
the Holder or, until such Holder furnishes to the Company a new address or
address of a new Holder, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
13. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant is being delivered in the State of California and shall be
construed and enforced in accordance with its laws and subject to the exclusive
jurisdiction of the courts therein. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. This Warrant is being executed as an instrument under seal. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provisions.
5
<PAGE>
14. ENTIRE UNDERSTANDING. This Warrant sets forth the entire understanding
between the Company and the Holder (or any other party claiming rights
hereunder) and there are no other agreements, understandings or restrictions
between the parties other than those set forth herein with respect to the
subject matter hereof.
15. COMMENCEMENT AND EXPIRATION OF EXERCISE RIGHTS. This Warrant shall become
exercisable as of the Commencement Date. The right to exercise this Warrant
shall expire at 4:30 p.m., Los Angeles time, on October 14, 2001 (Termination
Date).
IN WITNESS WHEREOF, the undersigned have executed this Amended and
Restated Common Stock Purchase Warrant as of April 22, 1997.
"Company" NETVANTAGE, INC.
/s/ THOMAS G. IWANSKI
(Corporate Seal) By: _______________________________
Thomas G. Iwanski, Secretary
"Holder"
/s/ STEPHEN R. RIZZONE
_______________________________
STEPHEN R. RIZZONE
6
<PAGE>
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
The undersigned, the Holder of the within Warrant, irrevocably exercises
this Warrant and purchases _____ of the _______ shares of Class A Common Stock
of NETVANTAGE, INC. purchasable with this Warrant, and herewith makes payment
therefor, all at the price and on the terms and conditions specified in this
Warrant.
Dated:
__________________________________________
Stephen R. Rizzone
__________________________________________
Street Address
__________________________________________
City State Zip Code
_____________
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered owner of this NETVANTAGE,
INC. Warrant hereby sells, assigns and transfers unto the Assignee named below
all of the rights of the undersigned under the Warrant, with respect to the
number of shares of Class A Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ___________________________
Attorney to make such transfer on the books of NETVANTAGE, INC. maintained for
the purpose, with full power of substitution in the premises. I represent and
warrant that each of such transferees meets the requirements of Section 25102(f)
or Section 25104 of the California Corporations Code and rules promulgated
thereunder.
Dated:
By: _________________________________________
Stephen R. Rizzone
_____________________________________________
(Witness)
7
<PAGE>
Exhibit 10.22
-------------
FORM OF
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into
as of ___________, 199_, by and between NETVANTAGE, INC., a Delaware corporation
(the "Company"), and ______________________ (the "Indemnitee").
RECITALS
--------
A. The Indemnitee is currently serving or will serve as a director or
officer of the Company or both and in such capacity renders or will render
valuable services to the Company.
B. The Company's Bylaws provide for the indemnification of its directors
and officers to the full extent permitted by applicable law.
C. The Company has investigated whether additional protective measures
are warranted to protect its directors and officers against various legal risks
and potential liabilities to which such individuals are subject due to their
position with the Company and has concluded that additional protective measures
are warranted.
D. Section 145(f) of the Delaware General Corporation Law allows for
indemnification by means of, among other things, indemnification agreements such
as is contemplated herein.
E. In order to induce and encourage highly experienced and capable
persons such as the Indemnitee to continue to serve as a director, officer or
both, the Board of Directors has determined, after due consideration, that this
Agreement is not only reasonable and prudent but necessary to promote and ensure
the best interests of the Company and its stockholders.
AGREEMENT
---------
ACCORDINGLY, in consideration of the Indemnitee's service or continued
service after the date hereof, and for other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged by the parties, the
parties agree as follows:
1. Agreement to Serve. The Indemnitee agrees to continue to serve as a
------------------
director or officer of the Company, or both, at the will of the Company for so
long as Indemnitee is duly elected or appointed or until such time as Indemnitee
tenders a resignation in writing (subject to any other contractual obligation or
any obligation imposed by operation of law).
2. Definitions. For purposes of this Agreement:
-----------
(a) "Change in Control" shall be deemed to have occurred if (i) any
-----------------
"person" (as such term is used in Sections 13(d) and 14(d) of Securities
Exchange Act of 1934, as amended (the "Act")), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company
acting in such capacity, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Act),
<PAGE>
directly or indirectly, of securities of the Company representing 35% or more of
the combined voting power of the Company's then outstanding securities without
the prior approval of at least two-thirds of the members of the Board of
Directors in office immediately prior to such person attaining such percentage
interest; (ii) there occurs a proxy contest, or the Company is a party to a
merger, consolidation, sale of assets, plan of liquidation or other
reorganization not approved by at least two-thirds of the members of the Board
of Directors then in office, as a consequence of which members of the Board of
Directors in office immediately prior to such transaction or event constitute
less than a majority of the Board of Directors thereafter; or (iii) during any
period of two consecutive years, other than as a result of an event described in
clause (a)(ii) of this Section 2, individuals who at the beginning of such
period constituted the Board of Directors (including for this purpose any new
director whose election or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such period) cease for any reason
to constitute at least a majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or was
----------------
a director, officer, employee or agent of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person is or was serving at the request of the Company.
(c) "Disinterested Director" means a director of the Company who is
----------------------
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(d) "Expenses" shall include, without limitation, all attorneys' fees,
--------
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a law firm,
-------------------
that is experienced in matters of corporation law and neither presently is, nor
in the past three years has been, retained to represent (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(f) "Proceeding" includes any threatened, pending or completed action,
----------
suit, arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding, whether civil, criminal,
administrative or investigative, except one (i) initiated by an Indemnitee
pursuant to Section 11 of this Agreement to enforce his rights under this
Agreement or (ii) pending on or before the date of this Agreement.
3. Indemnification - General. The Company shall indemnify, and advance
-------------------------
Expenses to, Indemnitee (i) as provided in this Agreement; and (ii) to the
fullest extent permitted by
2
<PAGE>
applicable law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement or the Company's
Certificate of Incorporation or Bylaws, or by statute. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement. In the event
of any change after the date of this Agreement in any applicable law, statute or
rule which expands that right of a Delaware corporation to indemnify its
directors, officers, employees, agents or fiduciaries, it is the intent of the
parties that Indemnitee shall enjoy the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify its directors,
officers, employees, agents or fiduciaries, such change, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement,
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
4. Proceedings Other Than Proceedings by or in the Right of the Company.
--------------------------------------------------------------------
The Company shall indemnify Indemnitee as provided in this Section 4 if, by
reason of his Corporate Status, he was or is, or is threatened to be made, a
party to any Proceeding other than a Proceeding by or in the right of the
Company. Pursuant to this Section 4, Indemnitee shall be indemnified against
all Expenses, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding, or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful.
5. Proceedings by or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee as provided in this Section 5 if, by reason of his
Corporate Status, he was or is, or is threatened to be made, a party to any
Proceeding brought by or in the right of the Company to procure a judgment in
its favor. Pursuant to this Section 5, Indemnitee shall be indemnified against
all Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company; provided, however, that, if applicable law so provides, no
-------- -------
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware, or the court in which such Proceeding shall
have been brought or is pending, shall determine that such indemnification may
be made.
6. Indemnification for Expenses of a Party Who is Wholly or Partly
---------------------------------------------------------------
Successful. Notwithstanding any other provision of this Agreement, to the
- ----------
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation,
3
<PAGE>
the termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
7. Indemnification for Expenses of a Witness. Notwithstanding any other
-----------------------------------------
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a witness in any Proceeding to which Indemnitee is not a
party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
8. Advancement of Expenses. The Company shall advance all reasonable
-----------------------
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within ten days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by a written
undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses.
9. Indemnification Procedure; Determination of Entitlement to
----------------------------------------------------------
Indemnification.
- ---------------
(a) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Company a written request, including such information and
attaching such documentation as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification under
Section 9(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in the specific case:
(i) if a Change in Control shall have occurred, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; or (ii) if a Change of Control shall not have incurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors or (B) if a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable, such quorum of
Disinterested Directors so directs, by Independent Counsel in a written opinion
to the Board of Directors, a copy of which shall be delivered to Indemnitee or
(C) if so directed by the Board of Directors, by the stockholders of the
Company; and, if it is so determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten days after such
determination. Indemnitee shall cooperate with the person, persons or entity
making such determination with respect to Indemnitee's entitlement to
indemnification, including providing to such person, persons or entity upon
reasonable advance request any documentation or information which is not
privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating with the person, persons or entity making such
determination shall be borne by the Company (irrespective of the determination
as to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
4
<PAGE>
(c) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel under Section 9(b) hereof, the Independent
Counsel shall be selected as provided in this Section 9(c). If a Change of
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a
Change of Control shall have occurred, the Independent Counsel shall be selected
by Indemnitee (unless Indemnitee shall request that such selection be made by
the Board of Directors, in which event the preceding sentence shall apply), and
Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within ten days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection; provided, however, that such
-------- -------
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 2 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. If such written objection is
so made and substantiated, the Independent Counsel so selected may not serve as
Independent Counsel unless and until such objection is withdrawn or a court has
determined that such objection is without merit. If, within 20 days after
submission by Indemnitee of a written request for indemnification pursuant to
Section 9(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as
the Court shall designate, and the person with respect to whom all objections
are so resolved or the person so appointed shall act as Independent Counsel
under Section 9(b) hereof. The Company shall pay any and all reasonable fees
and expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 9(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
9(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 11(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing)
10. Presumptions and Effect of Certain Proceedings.
----------------------------------------------
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 9(a) of this
Agreement, and the Company shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, offer, settlement or conviction, or upon a plea of nolo
----
contendere or its equivalent,
- ----------
5
<PAGE>
shall not (except as otherwise expressly provided in this Agreement) of itself
adversely affect the right of Indemnitee to indemnification or create a
presumption that Indemnitee 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 Company
or, with respect to any criminal Proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful.
11. Remedies of Indemnitee.
----------------------
(a) In the event that (i) a determination is made under Section 9 of
this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8
of this Agreement, (iii) no determination of entitlement to indemnification
shall have been made pursuant to Section 9(b) of this Agreement within 90 days
after receipt by the Company of the request for indemnification, (iv) payment of
indemnification is not made pursuant to Section 6 or 7 of this Agreement within
ten days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten days after a determination has
been made that Indemnitee is entitled to indemnification, Indemnitee shall be
entitled to an adjudication in an appropriate court of the State of Delaware, or
in any other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association. Indemnitee shall commence such proceeding seeking an adjudication
or an award in arbitration within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 11(a); provided, however, that the foregoing clause shall not apply in
-------- -------
respect of a proceeding brought by Indemnitee to enforce his rights under
Section 6 of this Agreement.
(b) In the event that a determination shall have been made pursuant to
Section 9(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced under this
Section 11 shall be conducted in all respects as a de novo trial, or
-- ----
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced under this Section 11, the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made under Section 9(b) of this
Agreement that Indemnitee is entitled to indemnification, the Company shall be
bound by such determination in any judicial proceeding or arbitration commenced
under this Section 11, absent (i) a misstatement by Indemnitee of a material
fact, or an omission of a material fact necessary to make Indemnitee's statement
not materially misleading, in connection with the request for indemnification,
or (ii) a prohibition of such indemnification under applicable law.
(d) In the event that Indemnitee, under this Section 11, seeks a
judicial adjudication of or an award in arbitration to enforce his rights under,
or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 2 of this Agreement) actually and reasonably incurred by him
in such judicial adjudication or arbitration, but only if he prevails therein.
If it shall be determined in said
6
<PAGE>
judicial adjudication or arbitration that Indemnitee is entitled to receive part
but not all of the indemnification or advancement of expenses sought, the
expenses incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
12. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.
-----------------------------------------------------------
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Company's Certificate of Incorporation or Bylaws, any agreement, a vote
of stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees or
agents of the Company or of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies
in accordance with its or their terms to the maximum extent of the coverage
available for any such director, officer, employee or agent under such policy or
policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent that
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
13. Duration of Agreement. This Agreement shall continue until and
---------------------
terminate upon the later of (i) five years after the date that Indemnitee shall
have ceased to serve as a director, officer, employee, or agent of the Company
or of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which Indemnitee served at the request of the Company;
or (ii) the final termination of any Proceeding then pending in respect of which
Indemnitee is granted rights of indemnification or advancement of expenses
hereunder and of any proceeding commenced by Indemnitee pursuant to Section 11
of this Agreement relating thereto. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his or heirs, executors and administrators.
14. Severability. If any provision or provisions of this Agreement shall
------------
be held to be invalid, illegal or unenforceable for any reason whatsoever (i)
the validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (ii) to the fullest extent
possible, the provisions of this Agreement
7
<PAGE>
(including, without limitation, each portion of any Section of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.
15. Exception to Right of Indemnification or Advancement of Expenses.
----------------------------------------------------------------
Notwithstanding any other provision of this Agreement, Indemnitee shall not be
entitled to indemnification or advancement of Expenses under this Agreement with
respect to (i) any Proceeding brought by Indemnitee, or any claim therein, prior
to a Change in Control, unless the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors; or (ii) any Proceeding
arising from the purchase and/or sale by Indemnitee of securities in violation
of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any
similar successor statute.
16. 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 one and the same Agreement. Only one
such counterpart signed by the party against whom enforceability is sought needs
to be produced to evidence the existence of this Agreement.
17. Headings. The headings of the Sections and subsections of this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
18. Modification and Waiver. No supplement, modification or amendment of
-----------------------
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
19. Notice by Indemnitee. Indemnitee agrees promptly to notify the
--------------------
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
20. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to
____________________
____________________
____________________
8
<PAGE>
(b) If to the Company, to:
NetVantage, Inc.
201 Continental Boulevard, Suite 201
El Segundo, California 90245
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
21. Governing Law. The parties agree that this Agreement shall be
-------------
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware applicable to contracts entered into and wholly to be
performed within that State.
22. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
---------------------
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required to undertake
with the Securities and Exchange Commission to submit the questions of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
23. Miscellaneous. Use of the masculine pronoun shall be deemed to
-------------
include usage of the feminine pronoun where applicable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
THE COMPANY:
NETVANTAGE, INC.
By____________________________________
Title:__________________________________
INDEMNITEE:
______________________________________
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET INCOME STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 19,236,940
<SECURITIES> 0
<RECEIVABLES> 6,728,007
<ALLOWANCES> (135,000)
<INVENTORY> 10,232,898
<CURRENT-ASSETS> 36,399,739
<PP&E> 3,101,107
<DEPRECIATION> (1,167,216)
<TOTAL-ASSETS> 39,390,729
<CURRENT-LIABILITIES> 3,848,684
<BONDS> 0
0
0
<COMMON> 10,899
<OTHER-SE> 64,689,353
<TOTAL-LIABILITY-AND-EQUITY> 39,390,729
<SALES> 5,120,557
<TOTAL-REVENUES> 5,120,557
<CGS> 5,178,521
<TOTAL-COSTS> 7,723,713
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (16,954)
<INCOME-PRETAX> (2,325,338)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,325,338)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> 0
</TABLE>
