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EXHIBIT 10.8
[EXECUTION COPY]
NETCOM SYSTEMS, INC.
SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (this "Agreement") is made and
entered into as of August 29, 1997, by and among Netcom Systems, Inc., a
California corporation (the "Company"), each of the Persons listed on the
Schedule of Investors attached hereto (each, an "Investor" and collectively, the
"Investors") and each of the Persons listed on the Schedule of Existing
Shareholders attached hereto (each, an "Existing Shareholder" and collectively,
the "Existing Shareholders"). The Investors and the Existing Shareholders are
collectively referred to herein as the "Shareholders" and individually as a
"Shareholder." Except as otherwise provided herein, capitalized terms used
herein are defined in paragraph 9 hereof.
The Investors shall purchase shares of the Company's Class A
Redeemable Preferred Stock and Class B Convertible Preferred Stock pursuant to a
Recapitalization Agreement, dated as of August 29, 1997, by and among the
Investors, the Existing Shareholders and the Company (as the same may be amended
from time to time in accordance with its terms, the "Recapitalization
Agreement"). The Existing Shareholders are holders on the date hereof of shares
of the Company's Common Stock and/or options to purchase shares of the Company's
Common Stock.
The Company and the Shareholders desire to enter into this
Agreement for the purposes, among others, of (i) establishing the composition of
the Company's board of directors (the "Board"), (ii) assuring continuity in the
management and ownership of the Company and (iii) limiting the manner and terms
by which Shares may be transferred. The execution and delivery of this Agreement
is a condition to the Closing under the Recapitalization Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Agreement
hereby agree as follows:
1. Board of Directors.
(a) From and after the Closing (as defined in the
Recapitalization Agreement) and until the provisions of this paragraph 1 cease
to be effective, each holder of Shares shall vote all of his, her or its Shares
which are voting shares and any other voting securities of the Company over
which such holder has voting control and shall take all other necessary or
desirable actions within his, her or its control (whether in his, her or its
capacity as a shareholder, director, member of a board committee or officer of
the Company or otherwise, and including attendance at meetings in person or by
proxy for purposes of obtaining a quorum and execution of written consents in
lieu of meetings), and the Company shall take all necessary or desirable actions
within its control (including calling special board and shareholder meetings),
so that:
(i) the authorized number of directors on the Board
shall be established at five (5) directors;
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(ii) the following representatives shall be elected
to the Board:
(A) one representative designated by the
Existing Shareholders (the "Existing Shareholder
Director"), which representative shall be designated
pursuant to the first sentence of paragraph 1A of
Section 1 of Subdivision D of Article V of the Articles
of Incorporation so long as any Convertible Preferred
Stock remains outstanding or pursuant to the second
sentence of paragraph 1A of Subdivision D of Article V
of the Articles of Incorporation at such time as there
is no Convertible Preferred Stock outstanding (in either
case, determined by a vote of the Existing Shareholders
owning a majority of the Shares held by all of the
Existing Shareholders), with Marc Hamon serving as the
Existing Shareholder Director as of the date hereof;
(B) three representatives designated by the
Investors (the "Investor Directors"), which
representatives shall be designated pursuant to
paragraph 5A of Section 5 of Subdivision C of Article V
of the Articles of Incorporation so long as any
Convertible Preferred Stock remains outstanding or
pursuant to the second sentence of paragraph 1A of
Subdivision D of Article V of the Articles of
Incorporation at such time as there is no Convertible
Preferred Stock outstanding (in either case, determined
by a vote of the Investors owning at least 66 2/3% of
the Shares held by all of the Investors), one of which
(who shall initially be Walter G. Kortschak) to be
selected by Summit, one of which (who shall initially be
Robert H. Sheridan III) to be selected by NCC and one of
which (who shall initially be William B. Bunting) to be
selected by Northstar so long as such representative is
reasonably acceptable to Summit; and
(C) one representative (the "Other
Director") mutually designated by the Investors
(determined by a vote of the Investors owning at least
66 2/3% of the Shares held by all of the Investors) and
the Existing Shareholders (determined by a vote of the
Existing Shareholders owning a majority of the Shares
held by all of the Existing Shareholders), which
representative shall be designated pursuant to paragraph
5A of Section 5 of Subdivision C of Article V of the
Articles of Incorporation so long as any Convertible
Preferred Stock remains outstanding or pursuant to the
second sentence of paragraph 1A of Subdivision D of
Article V of the Articles of Incorporation at such time
as there is no Convertible Preferred Stock outstanding;
(iii) for so long as any Investor shall hold any
Shares, one of the Investor Directors shall serve as Chairman of
the Board having the powers and duties of such office as set
forth in the Company's bylaws, with Walter G. Kortschak serving
as Chairman of the Board as of the date hereof;
(iv) the composition of the board of directors of
each of the Company's Subsidiaries (a "Sub Board") shall be the
same as that of the Board (subject to the requirements of any
jurisdiction that the Sub Board include only residents of such
jurisdiction or that the Sub Board also include one or more
residents of such jurisdiction);
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(v) (A) a three member Compensation Committee of the
Board shall be established and shall include the three Investor
Directors and (B) any other committees established by the Board
or a Sub Board shall (to the extent possible) be proportionately
equivalent to that of the Board;
(vi) (A) the removal from the Board or a Sub Board
(with or without cause) of the Existing Shareholder Director
shall be at the written request of the Existing Shareholders
(determined by a vote of the Existing Shareholders owning a
majority of the Shares held by all of the Existing
Shareholders), but only upon such written request and under no
other circumstances, (B) the removal from the Board or a Sub
Board (with or without cause) of any Investor Director shall be
at the written request of the Investor who is entitled to select
such Investor Director pursuant to subparagraph (ii)(B) above,
but only upon such written request and under no other
circumstances and (C) the removal from the Board or a Sub Board
(with or without cause) of the Other Director shall be at the
mutual written request of the Investors (determined by a vote of
the Investors owning at least 66 2/3% of the Shares held by all
of the Investors) and the Existing Shareholders (determined by a
vote of the Existing Shareholders owning a majority of the
Shares held by all of the Existing Shareholders), but only upon
such mutual written request and under no other circumstances;
and
(vii) (A) in the event that the Existing Shareholder
Director ceases to serve as a member of the Board or a Sub Board
during his or her term of office, the resulting vacancy on the
Board or a Sub Board shall be filled by a representative
designated as provided in subparagraph (ii)(A) above, (B) in the
event that any Investor Director ceases to serve as a member of
the Board or a Sub Board during his or her term of office, the
resulting vacancy on the Board or a Sub Board shall be filled by
the Investor who is entitled to select such Investor Director as
provided in subparagraph (ii)(B) above, and (C) in the event
that the Other Director ceases to serve as a member of the Board
or a Sub Board during his or her term of office, the resulting
vacancy on the Board or a Sub Board shall be filled by a
representative designated as provided in subparagraph (ii)(C)
above.
(b) The Company shall pay the reasonable out-of-pocket
expenses incurred by each director in connection with attending the meetings of
the Board or a Sub Board and any committees thereof. So long as any Investor
Director, Other Director or Existing Shareholder Director serves on the Board or
a Sub Board, the Company's Articles of Incorporation and bylaws shall provide
for indemnification and exculpation of directors to the fullest extent permitted
under applicable law.
(c) If any party fails to designate a representative to fill
a directorship pursuant to the terms of this paragraph 1, the individual
previously holding such directorship shall be elected to such position, or if
such individual fails or declines to serve, the election of an individual to
such directorship shall be accomplished in accordance with the Company's
Articles of Incorporation and bylaws and applicable law; provided that the
Shareholders shall vote to remove such individual if the party or parties which
failed to designate such directorship so direct.
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(d) The right of each of Summit, NCC and Northstar to select
one of the Investor Directors under this paragraph 1 shall terminate at such
time as such Person (together with its Affiliates) shall hold less than 25% of
the Shares held by such Person immediately following the Closing, and at such
time the remaining Investor or Investors holding more than 25% of the Shares
held by such Persons immediately following the Closing shall have the right to
designate a representative(s) to fill the vacant Investor Director or Investor
Directors' positions (determined by a vote of such remaining Investors owning at
least 66 2/3% of the Shares held by all such remaining Investors).
(e) The provisions of this paragraph 1 shall survive the
Company's initial Public Offering (unless terminated in connection therewith by
Pa vote of the Investors owning at least 66 2/3% of the Shares held by all of
the Investors) and shall remain in full force and effect thereafter until
terminated by a vote of the Investors owning at least 66 2/3% of the Shares held
by all of the Investors.
2. Representations and Warranties. Each Shareholder
represents and warrants that (i) this Agreement has been duly authorized,
executed and delivered by such Shareholder and constitutes the valid and binding
obligation of such Shareholder, enforceable in accordance with its terms, and
(ii) such Shareholder has not granted and is not a party to any proxy, voting
trust or other agreement which is inconsistent with, conflicts with or violates
any provision of this Agreement. No holder of Shares shall grant any proxy or
become party to any voting trust or other agreement which is inconsistent with,
conflicts with or violates any provision of this Agreement.
3. Restrictions on Transfer of Shares.
(a) General. No holder of Shares shall sell, transfer,
assign, pledge or otherwise dispose of (whether with or without consideration
and whether voluntarily or involuntarily or by operation of law) any interest in
any Shares (a "Transfer"), except pursuant to a Public Sale or an Approved Sale
(an "Exempt Transfer") or the provisions of this paragraph 3. Prior to making
any Transfer other than an Exempt Transfer, each Existing Shareholder
transferring any Shares (a "Transferring Shareholder") shall deliver a written
notice (a "Sale Notice") to the Company and the Shareholders other than the
Transferring Shareholder (the "Other Shareholders") in order to allow the
Company and the Investors to exercise the rights granted pursuant to paragraphs
3(b) and 3(c) below and the Existing Shareholders to exercise the rights granted
pursuant to paragraph 3(c) below. Prior to making any transfer other than an
Exempt Transfer, each Investor transferring any shares of Common Stock (a
"Transferring Shareholder") shall deliver a written notice (a "Sale Notice") to
the Other Shareholders in order to allow the Other Shareholders to exercise the
rights granted pursuant to paragraph 3(c) below. The Sale Notice shall disclose
in reasonable detail the identity of the prospective transferee(s), the number
of Shares to be transferred and the terms and conditions of the proposed
Transfer. In no event shall any Transfer of Shares pursuant to this paragraph 3
be made by any Existing Shareholder for any consideration other than cash
payable upon consummation of such Transfer or in installments over time. No
Shareholder shall consummate any Transfer until 30 days after the Sale Notice
has been given to the Company and the Other Shareholders (the "Election
Period"), unless the parties to the Transfer have been finally determined
pursuant to this paragraph 3 prior to the expiration of such 30-day period. The
date of the first to occur of such events is referred to herein as the
"Authorization Date."
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(b) First Refusal Rights Applicable to Existing
Shareholders. The Company may elect to purchase all or any portion of an
Existing Shareholder's Shares to be transferred upon the same terms and
conditions as those set forth in the Sale Notice by delivering a written notice
of such election to such Existing Shareholder and the Investors within 20 days
after the Sale Notice has been delivered to the Company. If the Company has not
elected to purchase all of such Existing Shareholder's Shares to be transferred,
the Investors may elect to purchase the remaining Shares to be transferred upon
the same terms and conditions as those set forth in the Sale Notice by
delivering written notice of such election to such Existing Shareholder within
25 days after the Sale Notice has been given to the Investors. If more than one
of the Investors elects to purchase such Shares, the Shares to be sold shall be
allocated among the Investors pro rata according to the number of Shares owned
by each such Investor. If the Company and/or the Investors have not elected to
purchase all of such Existing Shareholder's Shares specified in the Sale Notice,
such Existing Shareholder may Transfer the Shares specified in the Sale Notice,
subject to the provisions of paragraph 3(c) below, at a price and on terms no
more favorable to the transferee(s) thereof than specified in the Sale Notice
during the 30-day period immediately following the Authorization Date. Any such
Existing Shareholder's Shares not transferred within such 30-day period shall be
subject to the provisions of this paragraph 3 upon subsequent Transfer. If the
Company or any of the Investors have elected to purchase any Shares hereunder,
the Transfer of such shares shall be consummated as soon as practical after the
delivery of the election notice(s) to the Transferring Shareholder, but in any
event within 15 days after the expiration of the Election Period. The Company
and/or the Investors may assign their rights under this paragraph 3(b) to one or
more designees.
(c) Participation Rights. If the Company and/or the
Investors have not elected to purchase all of the Shares to be transferred by an
Existing Shareholder pursuant to paragraph 3(b) above, or in the event of a
Transfer of shares of Common Stock by an Investor, each Other Shareholder may
elect to participate in the contemplated Transfer by delivering written notice
to the Transferring Shareholder and the Company within 30 days after receipt by
such Other Shareholder of the Sale Notice. If any Other Shareholder has elected
to participate in such Transfer, the Transferring Shareholder and the electing
Other Shareholder(s) shall be entitled to sell in the con templated Transfer, at
the same price and on the same terms, a number of shares of Common Stock equal
to the product of (i) the quotient determined by dividing the percentage of
Shares owned by such Person by the aggregate percentage of Shares owned by the
Transferring Shareholder and all electing Other Shareholder(s) and (ii) the
number of shares of Common Stock to be sold in the contemplated sale.
For example, if the Sale Notice contemplated a sale of 100 shares of
Common Stock, and if the Transferring Shareholder was at such time the
owner of 30% of all Shares and if one Other Shareholder elected to
participate and such Other Shareholder owned 20% of all Shares, the
Transferring Shareholder would be entitled to sell 60 shares of Common
Stock (30% divided by 50% x 100 shares of Common Stock) and the electing
Other Shareholder would be entitled to sell 40 shares of Common Stock
(20% divided by 50% x 100 shares of Common Stock).
The Transferring Shareholder shall use his, her or its best efforts to obtain
the agreement of the prospective transferee(s) to the participation of the Other
Shareholders in the contemplated Transfer and shall not Transfer any shares of
Common Stock to the prospective transferee(s) if such trans-
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feree(s) refuses to allow the participation of the Other Shareholders. Each
Shareholder transferring shares of Common Stock pursuant to this paragraph 3(c)
shall pay its pro rata share (based on the number of shares of Common Stock to
be sold) of the expenses incurred by the Shareholders in connection with such
Transfer and shall be obligated to join on a pro rata basis (based on the number
of shares of Common Stock to be sold) in any indemnification or other
obligations that the Transferring Shareholder agrees to provide in connection
with such Transfer (other than any such obligations that relate specifically to
a particular Shareholder such as indemnification with respect to representations
and warranties given by a Shareholder regarding such Shareholder's title to and
ownership of shares of Common Stock).
(d) Certain Permitted Transfers. The restrictions contained
in this paragraph 3 shall not apply with respect to any Transfer of Shares by
any Shareholder (i) in the case of any Shareholder which is an individual,
pursuant to applicable laws of descent and distribution or among such
Shareholder's Family Group or (ii) in the case of an Investor, among its
Affiliates or among any of the other Investors or their Affiliates (collectively
referred to herein as "Permitted Transferees"); provided that such restrictions
shall continue to be applicable to the Shares after any such Transfer and the
transferees of such Shares shall agree in writing to be bound by the provisions
of this Agreement as a condition precedent to any such Transfer. An individual
Shareholder's "Family Group" means such Shareholder's spouse and descendants
(whether natural or adopted) or any trust, family partnership or other entity
established solely for the benefit of such Shareholder and/or such Shareholder's
spouse and/or descendants. An Investor's "Affiliate" means any other Person
directly or indirectly controlling, controlled by or under common control with
such Investor and any partner or member of an Investor which is a partnership or
limited liability company. Notwithstanding the foregoing, no party hereto shall
avoid the provisions of this Agreement by making one or more transfers to one or
more Permitted Transferees and then disposing of all or any portion of such
party's interest in any such Permitted Transferee.
(e) Termination of Restrictions. The restrictions set forth
in this paragraph 3 shall continue with respect to each Share following any
Transfer thereof (other than an Exempt Transfer or a Transfer to the Company or
an Investor or its designee pursuant to paragraph 3(b) above or a Transfer
pursuant to paragraph 3(c) above); provided that all such restrictions shall
terminate upon the consummation of a Public Offering.
4. Holdback Agreement. No Shareholder shall effect any
public sale or distribution (including sales pursuant to Rule 144 or any similar
provision then in force) under the Securities Act of any Shares or of any other
capital stock or equity securities of the Company, or any securities convertible
into or exchangeable or exercisable for such stock or securities, during the
seven days prior to, and the 180-day period beginning on, the effective date of
the Company's initial public offering of its Common Stock under the Securities
Act or during the seven days prior to, and the 90-day period beginning on the
effective date of the next registered public offering of the Company's Common
Stock (except as part of such underwritten registration), unless the
underwriters managing the registration otherwise agree. The restrictions on
transfer set forth in this paragraph 4 shall continue with respect to each Share
until the date on which such Share has been transferred in a Public Sale.
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5. Sale of the Company.
(a) If the Board and the holders of at least 66 2/3% of the
Shares held by the Investors approve a sale of all or substantially all of the
Company's assets determined on a consolidated basis or a sale or exchange of all
or substantially all of the Company's outstanding capital stock (whether by
merger, sale, recapitalization, consolidation, reorganization, combination or
otherwise) to any Person or Persons (an "Approved Sale"), each holder of Shares
shall vote for, consent to and raise no objections against such Approved Sale
and shall waive any dissenters' rights, appraisal rights or similar rights in
connection therewith. If the Approved Sale is structured as a sale of stock,
each holder of Shares shall agree to sell all of his, her or its Shares and
rights to acquire Shares on the terms and conditions approved by the Board and
the holders of at least 66 2/3% of the Shares held by the Investors. Each holder
of Shares shall take all necessary and desirable actions in his, her or its
capacity as a shareholder in connection with the consummation of the Approved
Sale as requested by the Company (including attendance at meetings in person or
by proxy for purposes of obtaining a quorum and execution of written consents in
lieu of meetings).
(b) The obligations of the holders of Shares with respect to
an Approved Sale are subject to the satisfaction of the following conditions:
(i) upon the consummation of the Approved Sale, all of the holders of Common
Stock shall receive the same form and amount of consideration per share of
Common Stock, or if any holders of Common Stock are given an option as to the
form and amount of consideration to be received, all holders shall be given the
same option; and (ii) in connection with the Approved Sale all holders of Shares
representing then currently exercisable rights to acquire shares of Common Stock
(including all holders of Convertible Preferred Stock) shall only be permitted
to either (A) exercise such rights (including conversion rights in the case of
the holders of Convertible Preferred Stock) prior to the consummation of the
Approved Sale and participate in such sale as holders of Common Stock or (B)
upon the consummation of the Approved Sale, receive in exchange for such rights
consideration equal to the amount determined by multiplying (1) the same amount
of consideration per share of Common Stock received by the holders of Common
Stock in connection with the Approved Sale less the exercise price (if any) per
share of Common Stock of such rights to acquire Common Stock by (2) the number
of shares of Common Stock represented by such then currently exercisable rights
and shall not be entitled to exercise their rights under paragraph 4A of
Subdivision C of Article V of the Company's Articles of Incorporation in
connection with any such Approved Sale and receive the aggregate consideration
provided for thereunder in preference to the holders of Common Stock.
(c) Each holder of Shares shall bear his, her or its pro
rata share (based upon the number of Shares held by such holder) of the costs of
any Approved Sale to the extent such costs are incurred for the benefit of all
holders of Shares and are not otherwise paid by the Company or the acquiring
party and shall be obligated to join on a pro rata basis (based on the number of
Shares held by such holder) in any indemnification or other obligations that the
Investors holding at least [66 2/3%] of the Shares held by all of the Investors
agree to provide in connection with such Approved Sale (other than any such
obligations that relate specifically to a holder of Shares such as
indemnification with respect to representations and warranties given by a holder
regarding such holder's title to and ownership of Shares).
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(d) In order to secure each Existing Shareholder's
obligation to vote his, her or its Shares and other voting securities of the
Company in accordance with the provisions of this paragraph 5, each Existing
Shareholder hereby appoints the Investor Representative as his, her or its true
and lawful proxy and attorney-in-fact, with full power of substitution, to vote
all of his, her or its Shares and other voting securities of the Company for the
approval and consummation of an Approved Sale and all such other matters as
expressly provided for in this paragraph 5. The Investor Representative may
exercise the irrevocable proxy granted to it hereunder at any time any Existing
Stockholder fails to comply with the provisions of this paragraph 5. The proxies
and powers granted by each Existing Shareholder pursuant to this paragraph 5(d)
are coupled with an interest and are given to secure the performance of each
Existing Shareholder's obligations and duties under this paragraph 5. Such
proxies and powers shall be irrevocable for so long as such Existing Shareholder
holds any Shares and shall survive the death, incompetency, disability,
bankruptcy or dissolution of such Existing Shareholder and the subsequent
holders of his, her or its Shares.
(e) The provisions of this paragraph 5 shall terminate upon
the consummation of a Public Offering.
6. First Refusal Rights Applicable to Issuances of Common
Stock.
(a) Except for issuances of Common Stock (a) to the
Company's and any of its Subsidiaries' employees, consultants, lenders or
lessors as approved by the Board or the Compensation Committee (including
pursuant to options or other rights to acquire Common Stock approved by the
Board or the Compensation Committee), (b) in connection with the acquisition of
another company or business or (c) pursuant to a Public Offering, if the Company
authorizes the issuance or sale of any shares of Common Stock or any securities
(including debt securities) containing options or rights to acquire any shares
of Common Stock (other than as a dividend on the outstanding shares of Common
Stock) or any securities exchangeable for or convertible into Common Stock or
such securities exchangeable for or convertible into Common Stock, the Company
shall first offer to sell to each Investor holding any Shares and to each of the
Existing Shareholders holding any Shares, a portion of such shares or securities
equal to the quotient determined by dividing (1) the number of shares of Common
Stock held by such Person (including the number of shares of Common Stock
issuable upon conversion of the Convertible Preferred Stock) by (2) the total
number of shares of Common Stock then outstanding (including the number of
shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock). Each Investor and each of the Existing Shareholders shall be entitled to
purchase such shares or securities at the most favorable price and on the most
favorable terms as such shares or securities are to be offered or sold to any
other Persons; provided that if all Persons entitled to purchase or receive such
stock or securities are required to also purchase other securities of the
Company, each Investor and each of the Existing Shareholders exercising their
rights pursuant to this paragraph shall also be required to purchase the same
strip of securities (on the same terms and conditions) that such other Persons
are required to purchase. The purchase price for all shares and securities
offered to the Investors and the Existing Shareholders shall be payable in cash
or, to the extent otherwise consistent with the terms offered to any other
Persons, installments over time.
(b) In order to exercise its purchase rights hereunder, an
Investor or an Existing Shareholder must within 20 days after receipt of written
notice from the Company describing in
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reasonable detail the shares or securities being offered, the purchase price
therefor, the payment terms and such Investor's or such Existing Shareholder's
percentage allotment, deliver a written notice to the Company describing its
election hereunder. If all of the shares and securities offered to the Investors
and the Existing Shareholders are not fully subscribed by the Investors and the
Existing Shareholders, the remaining stock and securities shall be reoffered by
the Company to any of the Investors or the Existing Shareholders purchasing such
Person's full allotment upon the terms set forth in this paragraph, except that
such holders must exercise their purchase rights within five days after receipt
of such reoffer.
(c) Upon the expiration of the offering periods described
above, the Company shall be entitled to sell such shares or securities which the
Investors and the Existing Shareholders have not elected to purchase during the
60 days following such expiration on terms and conditions no more favorable to
the purchasers thereof than those offered to the Investors and the Existing
Shareholders. Any shares or securities offered or sold by the Company after such
60-day period must be reoffered to the Investors and the Existing Shareholders
pursuant to the terms of this paragraph 6.
(d) The rights of the Investors and the Existing
Shareholders under this paragraph 6 shall terminate upon the consummation of a
Public Offering.
7. Legend. Each certificate evidencing Shares and each
certificate issued in exchange for or upon the Transfer of any Shares (if such
shares remain Shares after such Transfer) shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The securities represented by this certificate are subject to a
Shareholders Agreement dated as of August 29, 1997, among the issuer of
such securities (the "Company") and certain of the Company's
shareholders, as amended and modified from time to time. A copy of such
Shareholders Agreement shall be furnished without charge by the Company
to the holder hereof upon written request."
The Company shall imprint such legend on certificates evidencing Shares
outstanding as of the date hereof. The legend set forth above shall be removed
from the certificates evidencing any shares which cease to be Shares in
accordance with paragraph 9 hereof.
8. Transfers; Future Sales. Prior to any holder of Shares
Transferring any Shares (other than pursuant to an Exempt Transfer) to any
Person, such holder shall cause the prospective transferee to be bound by this
Agreement and to execute and deliver to the Company and the other Shareholders a
counterpart of this Agreement. Transferees of Shares held by Investors shall be
deemed to be Investors hereunder. Transferees of Shares held by Existing
Shareholders (other than the Investors or their designees, who shall be deemed
to be Investors hereunder) shall be deemed to be Existing Shareholders hereunder
(except that no such transferees from the Existing Shareholders shall have the
right to participate in any sale of shares of Common Stock by the Investors
pursuant to paragraph 3(c) above). The provisions of this paragraph 8 shall
terminate upon the consummation of a Public Offering.
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9. Definitions.
"Articles of Incorporation" means the Company's articles of
incorporation as in effect from time to time.
"Closing" has the meaning given to such term in the
Recapitalization Agreement.
"Common Stock" means the Company's common stock, no par value
per share.
"Convertible Preferred Stock" means the Company's Class B
Convertible Preferred Stock, no par value per share.
"Event of Noncompliance" has the meaning given to such term in
the Articles of Incorporation.
"Financing" has the meaning given to such term in the
Recapitalization Agreement.
"Investor Representative" means Summit.
"NCC" means NationsBanc Capital Corp., a Texas corporation.
"Northstar" means Northstar Investors, LLC, a Delaware limited
liability company.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Public Offering" means any offering by the Company of its
Common Stock to the public pursuant to an effective registration statement under
the Securities Act or any comparable statement under any similar federal statute
then in force.
"Public Sale" means any sale of Shares to the public pursuant to
an offering registered under the Securities Act or to the public through a
broker, dealer or market maker pursuant to the provisions of Rule 144 adopted
under the Securities Act (or any similar provision then in force).
"SBA" has the meaning given to such term in the Recapitalization
Agreement.
"SBIC Purchaser" has the meaning given to such term in the
Recapitalization Agreement.
"SBIC Regulations" has the meaning given to such term in the
Recapitalization Agreement.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
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"Shares" means (i) any Common Stock purchased or otherwise
acquired or held by any Shareholder, (ii) any Common Stock issued or issuable
directly or indirectly upon the conversion, exercise or exchange of any
securities purchased or otherwise acquired by any Shareholder which are
convertible into or exercisable or exchangeable for Common Stock (including the
Convertible Preferred Stock and any stock options granted by the Company) and
(iii) any capital stock or other equity securities issued or issuable directly
or indirectly with respect to the securities referred to in clauses (i) or (ii)
above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to any particular securities constituting Shares hereunder,
such securities shall cease to be Shares when they have been (x) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them or (y) sold to the public through a broker,
dealer or market maker pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more Subsidiaries
of that Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the limited
liability company, partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by that Person or one or
more Subsidiaries of that Person or a combination thereof. For purposes hereof,
a Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of the limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing director, managing member or general partner of
such limited liability company, partnership, association or other business
entity.
"Summit" means Summit Ventures IV, L.P., a Delaware limited
partnership.
10. Financial Statements and Other Information. So long as
any Investor or Existing Shareholder holds any Shares, the Company shall deliver
to such Investor or Existing Shareholder, as the case may be:
(a) Not later than 30 days prior to the last day of each
fiscal year, capital and operating expense budgets, projections of sources and
applications of funds and profit and loss projections (prepared in accordance
with generally accepted accounting principles, consistently applied) for the
Company (and each of the Subsidiaries with which it prepares consolidated
financial statements) on a consolidated basis for each month of the next
succeeding fiscal year, all itemized in reasonable detail and prepared by
Company. Any material revisions made in such budgets or projections shall be
furnished promptly to each Investor and Existing Shareholder;
(b) As soon as available and in any event within 90 days
after the end of each fiscal year, audited financial statements of the Company
(and the Subsidiaries with which it prepares consolidated financial statements)
on a consolidated and consolidating basis, including a balance sheet as at the
end of such fiscal year, statements of income and retained earnings and a
related
-11-
12
statement of cash flows for such fiscal year and the figures for the preceding
year, together with all notes thereto, prepared in reasonable detail and in
accordance with generally accepted accounting principles consistently applied
and accompanied by the report thereof of an independent accounting firm of
recognized national standing as may be selected by the Company, (i) stating,
among other things, that in the course of their audit, nothing has come to their
attention suggesting that a condition or event has occurred that constitutes an
Event of Noncompliance or a default or event of default under the Senior Loan
Documents (as such term is defined in the Recapitalization Agreement) and (ii)
containing no exceptions or qualifications (except for qualifications regarding
specific contingent liabilities) (or if there was such a condition or event,
specifying the same);
(c) As soon as available and in any event within 45 days
after the end of each fiscal quarter, unaudited financial statements of the
Company (and the Subsidiaries with which it prepares consolidated financial
statements) on a consolidated and consolidating basis, including a balance sheet
as at the end of the preceding fiscal quarter, statements of income and retained
earnings and a related statement of cash flows for such quarter (prepared in
accordance with generally accepted accounting principles, consistently applied),
such figures for the corresponding fiscal quarter of the preceding fiscal year
and comparisons to the budget for such fiscal quarter. Such financial statements
shall be certified by the chief financial officer of the Company to be (to his
knowledge) complete and accurate, to fairly present the financial condition of
the Company and its Subsidiaries and to be prepared in accordance with generally
accepted accounting principles, consistently applied;
(d) As soon as available in any event within 30 days after
the end of each month, monthly financial reports of the Company (and the
Subsidiaries with which it prepares consolidated financial statements) on a
consolidated basis, including a balance sheet as at the end of the preceding
calendar month and statements of income and retained earnings and a related
statement of cash flows for such month (prepared in accordance with generally
accepted accounting principles, consistently applied), such figures for the
corresponding month of the preceding fiscal year and comparisons to the budget
for such month. Such financial statements shall be certified by the chief
financial officer of the Company to be (to his knowledge) complete and accurate,
to fairly present the financial condition of the Company and its Subsidiaries
and to be prepared in accordance with generally accepted accounting principles,
consistently applied;
(e) As soon as reasonably possible and in any event within
30 days after the end of each month, a statement signed by the chief financial
officer of the Company, setting forth in reasonable detail a consolidated report
setting forth operational data reasonably requested by each Investor;
(f) Promptly, and in no event more than ten days after
receipt thereof, copies of all audit reports, so-called "management letters" and
other communications and reports submitted to the Company or any of its
Subsidiaries by independent certified public accountants in connection with each
interim or special audit of the Company or any of its Subsidiaries made by such
accountants; and
(g) Promptly, but in any event within ten days after the
Company has knowledge thereof, (i) written notice of any actual or anticipated
material adverse change in the operations or
-12-
13
financial condition of the Company or any of its Subsidiaries, and (ii) copies
of any report of any Person with respect to the condition of the Company or any
Subsidiary citing any material adverse condition at the Company or such
Subsidiary.
11. SBIC Regulatory Provisions.
(a) Number of Stockholders. As long as the SBIC Purchaser
holds any Class A Redeemable Preferred Stock of the Company or any Shares, the
Company shall notify the SBIC Purchaser (i) at least 15 days prior to taking any
action after which the number of record holders of the Company's voting stock
would be increased from fewer than 50 to 50 or more, and (ii) of any other
action or occurrence after which the number of record holders of the Company's
voting stock was increased (or would increase) from fewer than 50 to 50 or more,
as soon as practicable after the Company becomes aware that such other action or
occurrence has occurred or is proposed to occur.
(b) Use of Proceeds. At the same time the Company delivers
its annual audited financials hereunder and at such other times as the SBIC
Purchaser reasonable requests, the Company shall deliver to the SBIC Purchaser a
written statement certified by the Company's president or chief financial
officer describing in reasonable detail the use of the proceeds of the Financing
by the Company and its Subsidiaries. In addition to any other rights granted
hereunder, the Company shall grant the SBIC Purchaser and the SBA access to the
Company's books and records for the purpose of verifying the use of such
proceeds and verifying the certifications made by the Company in SBA Forms 480
and 652 delivered pursuant to the Recapitalization Agreement and for the purpose
of determining whether the principal business activity of the Company and its
Subsidiaries continues to constitute an eligible business activity (within the
meaning of the SBIC Regulations).
(c) Economic Impact Information. Promptly after the end of
each fiscal year, the Company shall deliver to the SBIC Purchaser a written
assessment of the economic impact of the SBIC Purchaser's investment in the
Company, specifying the full-time equivalent jobs created or retained in
connection with the investment, the impact of such SBIC Purchaser's Financing on
the revenues and profits of the Company and its Subsidiaries and on taxes paid
by the Company and its employees.
(d) Prohibited Activities. Neither the Company nor any of
its Subsidiaries shall engage in any activities for which an SBIC is prohibited
from providing funds by the SBIC Regulations (including 13 CFR Section 107.720).
12. Inspection Rights. The Company shall permit any
representatives designated by any Investor and any Existing Shareholder (so long
as such Investor or Existing Shareholder holds any Shares), upon reasonable
notice and during normal business hours and at such other times as any such
holder may reasonably request (and, in the Company's discretion, subject to the
execution of a satisfactory confidentiality agreement), to visit and inspect any
of the properties of the Company and its Subsidiaries and examine the corporate
and financial records of the Company and its Subsidiaries.
-13-
14
13. Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Shares in violation of any provision of this Agreement
shall be void, and the Company shall not record such Transfer on its books or
treat any purported transferee of such Shares as the owner of such Shares for
any purpose.
14. Amendment and Waiver. Except as otherwise provided
herein, no modification, amendment or waiver of any provision of this Agreement
shall be effective against the Company or the Shareholders unless such
modification, amendment or waiver is approved in writing by the Company, the
Investors holding at least 66 2/3% of the Shares then held by the Investors and
the Existing Shareholders holding a majority of the Shares then held by the
Existing Shareholders. The failure of any party to enforce any of the provisions
of this Agreement shall in no way be construed as a waiver of such provisions
and shall not affect the right of such party thereafter to enforce each and
every provision of this Agreement in accordance with its terms.
15. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
the validity, legality or enforceability of any other provision of this
Agreement in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Agreement
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained herein.
16. Entire Agreement. Except as otherwise expressly set
forth herein, this Agreement embodies the complete agreement and understanding
among the parties hereto with respect to the subject matter hereof and
supersedes and preempts any prior understandings, agreements or representations
by or among the parties, written or oral, which may have related to the subject
matter hereof in any way.
17. Successors and Assigns. Except as otherwise expressly
provided herein, this Agreement shall bind and inure to the benefit of and be
enforceable by the Company and its successors and assigns and the Shareholders
and any subsequent holders of Shares and the respective successors and assigns
of each of them, so long as they hold Shares; provided that the rights of the
Existing Shareholders under paragraphs 1, 3(c), 6 and 12 above may not be
assigned without the prior written approval of the holders of at least 66 2/3%
of the Shares held by the Investors.
18. Counterparts. This Agreement may be executed in multiple
counterparts (including by means of telecopied signature pages), each of which
shall be an original and all of which taken together shall constitute one and
the same agreement.
19. Remedies. The parties hereto shall be entitled to
enforce their rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in their favor. The parties hereto agree and acknowledge
that money damages would not be an adequate remedy for any breach of the
provisions of this Agreement and that the Company and any Shareholder may in its
sole discretion apply to any court of law or equity of competent jurisdiction
for specific performance and/or injunctive relief
-14-
15
(without posting a bond or other security) in order to enforce or prevent any
violation of the provisions of this Agreement.
20. Notices. Any notice provided for in this Agreement shall
be in writing and shall be either personally delivered, or mailed first class
mail (postage prepaid) or sent by reputable overnight courier service (charges
prepaid) to the Company at the address set forth below and to any other
recipient at the address indicated on the schedules hereto and to any subsequent
holder of Shares subject to this Agreement at such address as indicated by the
Company's records, or at such address or to the attention of such other Person
as the recipient party has specified by prior written notice to the sending
party. Notices shall be deemed to have been given hereunder when delivered
personally, five days after deposit in the U.S. mail and one day after deposit
with a reputable overnight courier service (charges prepaid). The Company's
address is:
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Attention: Chief Executive Officer
with a copy to:
(which shall not constitute notice to the Company)
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Steven E. Bochner, Esq.
21. Governing Law. All issues and questions concerning the
construction, validity, interpretation and enforcement of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of California without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of California
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.
22. Business Days. If any time period for giving notice or
taking action hereunder expires on a day which is a Saturday, Sunday or legal
holiday in the state in which the Company's chief executive office is then
located, the time period shall automatically be extended to the business day
immediately following such Saturday, Sunday or legal holiday.
23. Descriptive Headings, etc. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement. The use of the term "including" herein shall mean "including
without limitation."
24. No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question or intent or interpretation arises, this
Agreement shall be construed as it was drafted jointly by the parties hereto,
and no presumption or burden of proof shall arise favoring or disfavoring any
party hereto by virtue of the authorship of any of the provisions of this
Agreement.
* * * * *
-15-
16
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
NETCOM SYSTEMS, INC.
By:
-------------------------------------
Its:
------------------------------------
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.,
its General Partner
By: Stamps, Woodsum& Co. IV,
its General Partner
By:
-------------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By:
-------------------------------------
Authorized Signatory
NATIONSBANC CAPITAL CORP.
By:
-------------------------------------
Todd A. Binkowski, its
Authorized Signatory
NORTHSTAR INVESTORS, LLC
By:
-------------------------------------
Its:
------------------------------------
[Signature Page to Shareholders Agreement]
17
SPITFIRE CAPITAL PARTNERS, L.P.
By: MS Spitfire LLC, its General Partner
By:
-------------------------------------
William B. Bunting, its
Authorized Signatory
PETER MOONEY, AS NOMINEE FOR THE
BROADVIEW PARTNERS GROUP
By:
-------------------------------------
Its:
------------------------------------
BAIN SECURITIES, INC.
By:
-------------------------------------
Leonard C. Banos, its Vice President
WS INVESTMENT COMPANY 97B
By:
-------------------------------------
Its:
------------------------------------
WSGR PROFIT SHARING TRUST FBO
STEVEN E. BOCHNER
By:
-------------------------------------
Its:
------------------------------------
----------------------------------------
Steven E. Bochner
----------------------------------------
Nevan C. Elam
----------------------------------------
Todd Cleary
[Signature Page to Shareholders Agreement]
18
----------------------------------------
Marc Hamon
----------------------------------------
Henri Hamon
----------------------------------------
James Jordan
----------------------------------------
Warren B. Phelps III
----------------------------------------
Jing Zhang
----------------------------------------
Stephane Johnson
----------------------------------------
Richard Bass
[Signature Page to Shareholders Agreement]
19
Consent and Community Property Waiver
The undersigned hereby acknowledges that the undersigned has
read this Agreement and understands its contents. The undersigned is aware that
this Agreement provides for the purchase of shares of Common Stock from the
undersigned's spouse. The undersigned hereby acknowledges and agrees that the
interest of the undersigned's spouse in such Common Stock is subject to this
Agreement and any interest the undersigned may have in such Common Stock shall
be irrevocably bound by this Agreement and further that the undersigned's
community property interest, if any, shall be similarly bound by this Agreement.
The undersigned has sought legal advice with respect to such waiver and has
determined after carefully reviewing this Agreement that the undersigned will
waive such community property right.
----------------------------------------
By: [Spouse's Name]
- ------------------------------------
Witness
20
SCHEDULE OF INVESTORS
Name and Address
- ----------------
Summit Ventures IV, L.P. WS Investment Company 97B
499 Hamilton Avenue c/o Wilson Sonsini Goodrich & Rosati
Palo Alto, California 94301 650 Page Mill Road
Attn: Mr. Walter G. Kortschak Palo Alto, California 94304
Attn: Steven E Bochner, Esq.
Summit Investors III, L.P.
499 Hamilton Avenue WSGR Profit Sharing Trust FBO
Palo Alto, California 94301 Steven E. Bochner
Attn: Mr. Walter G. Kortschak c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
NationsBanc Capital Corp. Palo Alto, California 94304
NationsBank Corporate Center Attn: Steven E Bochner, Esq.
10th Floor
100 North Tryon Steven E. Bochner
Charlotte, North Carolina 28255 c/o Wilson Sonsini Goodrich & Rosati
Attn: Mr. Robert H. Sheridan III 650 Page Mill Road
Palo Alto, California 94304
Northstar Investors, LLC
c/o Montgomery Securities Nevan C. Elam
600 Montgomery Street c/o Wilson Sonsini Goodrich & Rosati
San Francisco, California 94111 650 Page Mill Road
Attn: Mr. Derek Lemke Palo Alto, California 94304
Spitfire Capital Partners, L.P. Todd Cleary
c/o Montgomery Securities c/o Wilson Sonsini Goodrich & Rosati
600 Montgomery Street 650 Page Mill Road
San Francisco, California 94111 Palo Alto, California 94304
Attn: Mr. William B. Bunting
Peter Mooney as nominee for
the Broadview Partners Group
c/o Broadview Associates
950 Tower Lane
18th Floor
Foster City, California 94404
Attn: Mr. Stephen S. Smith
Bain Securities, Inc.
c/o Bain & Company, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attn: Mr. Leonard C. Banos
21
with a copy to:
- ---------------
(which shall not constitute notice to the Investors)
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attn: Ted H. Zook, Esq.
Fennebresque, Clark, Swindell & Hay
100 North Tryon Street, Suite 2900
Charlotte, North Carolina 28202-4011
Attn: John S. Chinuntdet, Esq.
22
SCHEDULE OF EXISTING SHAREHOLDERS
Name and Address
- ----------------
Marc Hamon
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Henri Hamon
Netcom Systems Europe
4, rue de Galilee
Immeuble Le Bellevue
ZAC du Moulin a vent 78280
Guyancourt, France
James Jordan
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Warren B. Phelps III
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Jing Zhang
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Stephane Johnson
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Richard Bass
Point of View, Inc.
410 Boylston Street
5th Floor
Boston, Massachusetts 02116
with a copy to:
- ---------------
(which shall not constitute notice to the Existing Shareholders)
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attn: Steven E. Bochner, Esq.
23
NETCOM SYSTEMS, INC.
AMENDMENT NO. 1 TO SHAREHOLDERS AGREEMENT
THIS AMENDMENT NO. 1 TO SHAREHOLDERS AGREEMENT (this
"Amendment") is made and entered into as of September 25, 1997, by and among
Netcom Systems, Inc., a California corporation (the "Company"), each of the
Persons listed on the Schedule of Investors attached hereto (each, an "Investor"
and collectively, the "Investors"), each of the Persons listed on the Schedule
of Existing Shareholders attached hereto (each, an "Existing Shareholder" and
collectively, the "Existing Shareholders") and Richard Moley ("Moley").
WHEREAS, the Company, the Investors and the Existing
Shareholders are parties to that certain Shareholders Agreement dated as of
August 29, 1997 (the "Agreement").
WHEREAS, Moley is purchasing shares of the Company's Class A
Redeemable Preferred Stock and Class B Convertible Preferred Stock pursuant to a
Preferred Stock Purchase Agreement, dated as of the date hereof, by and between
the Company and Moley.
WHEREAS, the Company, the Existing Shareholders and the
Investors desire to enter into this Amendment for the purposes of making Moley a
party to the Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Investor. For all purposes of the Agreement (as amended
by this Amendment), the term "Investor" shall include Moley.
2. Notices. All notices and other communications to Moley
provided for or permitted under the Agreement (as amended by this Amendment)
shall be made at the address of Moley set forth in the Company's books and
records.
3. Governing Law. All issues and questions concerning the
construction, validity, interpretation and enforcement of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of California without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of California
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.
4. Descriptive Headings, etc. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement. The use of the term "including" herein shall mean "including
without limitation."
5. Full Force and Effect. Except as amended hereby, the
Agreement shall remain in full force and effect.
* * * * *
-1-
24
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 1 to Shareholders Agreement on the day and year first above
written.
NETCOM SYSTEMS, INC.
By:
-------------------------------------
Its:
------------------------------------
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.,
its General Partner
By: Stamps, Woodsum& Co. IV,
its General Partner
By:
-------------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By:
-------------------------------------
Authorized Signatory
NATIONSBANC CAPITAL CORP.
By:
-------------------------------------
Todd A. Binkowski, its
Authorized Signatory
NORTHSTAR INVESTORS, LLC
By:
-------------------------------------
Its:
------------------------------------
[Amendment No. 1 to Shareholders Agreement]
25
SPITFIRE CAPITAL PARTNERS, L.P.
By: MS Spitfire LLC, its General Partner
By:
-------------------------------------
William B. Bunting, its
Authorized Signatory
PETER MOONEY, AS NOMINEE FOR THE
BROADVIEW PARTNERS GROUP
By:
-------------------------------------
Its:
------------------------------------
BAIN SECURITIES, INC.
By:
-------------------------------------
Leonard C. Banos, its Vice President
WS INVESTMENT COMPANY 97B
By:
-------------------------------------
Its:
------------------------------------
WSGR PROFIT SHARING TRUST FBO
STEVEN E. BOCHNER
By:
-------------------------------------
Its:
------------------------------------
----------------------------------------
Steven E. Bochner
----------------------------------------
Nevan C. Elam
----------------------------------------
Todd Cleary
[Amendment No. 1 to Shareholders Agreement]
26
----------------------------------------
Marc Hamon
----------------------------------------
Henri Hamon
----------------------------------------
James Jordan
----------------------------------------
Warren B. Phelps III
----------------------------------------
Jing Zhang
----------------------------------------
Stephane Johnson
----------------------------------------
Richard Bass
----------------------------------------
Richard Moley
[Amendment No. 1 to Shareholders Agreement
27
SCHEDULE OF INVESTORS
Name and Address
- ----------------
Summit Ventures IV, L.P. WS Investment Company 97B
499 Hamilton Avenue c/o Wilson Sonsini Goodrich & Rosati
Palo Alto, California 94301 650 Page Mill Road
Attn: Mr. Walter G. Kortschak Palo Alto, California 94304
Attn: Steven E Bochner, Esq.
Summit Investors III, L.P.
499 Hamilton Avenue WSGR Profit Sharing Trust FBO
Palo Alto, California 94301 Steven E. Bochner
Attn: Mr. Walter G. Kortschak c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
NationsBanc Capital Corp. Palo Alto, California 94304
NationsBank Corporate Center Attn: Steven E Bochner, Esq.
10th Floor
100 North Tryon Steven E. Bochner
Charlotte, North Carolina 28255 c/o Wilson Sonsini Goodrich & Rosati
Attn: Mr. Robert H. Sheridan III 650 Page Mill Road
Palo Alto, California 94304
Northstar Investors, LLC
c/o Montgomery Securities Nevan C. Elam
600 Montgomery Street c/o Wilson Sonsini Goodrich & Rosati
San Francisco, California 94111 650 Page Mill Road
Attn: Mr. Derek Lemke Palo Alto, California 94304
Spitfire Capital Partners, L.P. Todd Cleary
c/o Montgomery Securities c/o Wilson Sonsini Goodrich & Rosati
600 Montgomery Street 650 Page Mill Road
San Francisco, California 94111 Palo Alto, California 94304
Attn: Mr. William B. Bunting
Peter Mooney as nominee for
the Broadview Partners Group
c/o Broadview Associates
950 Tower Lane
18th Floor
Foster City, California 94404
Attn: Mr. Stephen S. Smith
Bain Securities, Inc.
c/o Bain & Company, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attn: Mr. Leonard C. Banos
28
SCHEDULE OF EXISTING SHAREHOLDERS
Name and Address
- ----------------
Marc Hamon
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Henri Hamon
Netcom Systems Europe
4, rue de Galilee
Immeuble Le Bellevue
ZAC du Moulin a vent 78280
Guyancourt, France
James Jordan
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Warren B. Phelps III
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Jing Zhang
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Stephane Johnson
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Richard Bass
Point of View, Inc.
410 Boylston Street
5th Floor
Boston, Massachusetts 02116
29
NETCOM SYSTEMS, INC.
AMENDMENT NO. 2 TO SHAREHOLDERS AGREEMENT
THIS AMENDMENT NO. 2 TO SHAREHOLDERS AGREEMENT (this
"Amendment") is made and entered into as of January 8, 1998, by and among Netcom
Systems, Inc., a California corporation (the "Company"), each of the Persons
listed on the Schedule of Investors attached hereto (each, an "Investor" and
collectively, the "Investors"), each of the Persons listed on the Schedule of
Existing Shareholders attached hereto (each, an "Existing Shareholder" and
collectively, the "Existing Shareholders").
WHEREAS, the Company, the Investors and the Existing
Shareholders are parties to that certain Shareholders Agreement dated as of
August 29, 1997, as amended (the "Agreement").
WHEREAS, The parties hereto wish to amend certain provisions of
the Agreement relating to the voting of shares of capital stock of the Company
as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties to this Amendment
hereby agree as follows:
1. Restatement. Section 1 of the Agreement is amended and
restated in its entirety to read as follows:
1. Board of Directors.
(a) From and after the Closing (as defined in the
Recapitalization Agreement) and until the provisions of this paragraph 1 cease
to be effective, each holder of Shares shall vote all of his, her or its Shares
which are voting shares and any other voting securities of the Company over
which such holder has voting control and shall take all other necessary or
desirable actions within his, her or its control (whether in his, her or its
capacity as a shareholder, director, member of a board committee or officer of
the Company or otherwise, and including attendance at meetings in person or by
proxy for purposes of obtaining a quorum and execution of written consents in
lieu of meetings), and the Company shall take all necessary or desirable actions
within its control (including calling special board and shareholder meetings),
so that:
(i) the authorized number of directors on the Board
shall be established at six (6) directors;
(ii) the following representatives shall be elected
to the Board:
-1-
30
(A) one representative designated by the
Existing Shareholders (the "Existing Shareholder Director"),
which representative shall be designated pursuant to the first
sentence of paragraph 1A of Section 1 of Subdivision D of
Article V of the Articles of Incorporation so long as any
Convertible Preferred Stock remains outstanding or pursuant to
the second sentence of paragraph 1A of Subdivision D of Article
V of the Articles of Incorporation at such time as there is no
Convertible Preferred Stock outstanding (in either case,
determined by a vote of the Existing Shareholders owning a
majority of the Shares held by all of the Existing
Shareholders), with Marc Hamon serving as the Existing
Shareholder Director as of the date hereof;
(B) three representatives designated by the
Investors (the "Investor Directors"), which representatives
shall be designated pursuant to paragraph 5A of Section 5 of
Subdivision C of Article V of the Articles of Incorporation so
long as any Convertible Preferred Stock remains outstanding or
pursuant to the second sentence of paragraph 1A of Subdivision D
of Article V of the Articles of Incorporation at such time as
there is no Convertible Preferred Stock outstanding (in either
case, determined by a vote of the Investors owning at least
66 2/3% of the Shares held by all of the Investors), one of
which (who shall initially be Walter G. Kortschak) to be
selected by Summit, one of which (who shall initially be Robert
H. Sheridan III) to be selected by NCC and one of which (who
shall initially be William B. Bunting) to be selected by
Northstar so long as such representative is reasonably
acceptable to Summit; and
(C) two representatives (the "Other
Directors") mutually designated by the Investors (determined by
a vote of the Investors owning at least 66 2/3% of the Shares
held by all of the Investors) and the Existing Shareholders
(determined by a vote of the Existing Shareholders owning a
majority of the Shares held by all of the Existing
Shareholders), which representatives shall be designated
pursuant to paragraph 5A of Section 5 of Subdivision C of
Article V of the Articles of Incorporation so long as any
Convertible Preferred Stock remains outstanding or pursuant to
the second sentence of paragraph 1A of Subdivision D of Article
V of the Articles of Incorporation at such time as there is no
Convertible Preferred Stock outstanding;
(iii) for so long as any Investor shall hold any
Shares, one of the Investor Directors shall serve as Chairman of the
Board having the powers and duties of such office as set forth in the
Company's bylaws, with Walter G. Kortschak serving as Chairman of the
Board as of the date hereof;
(iv) the composition of the board of directors of
each of the Company's Subsidiaries (a "Sub Board") shall be the same as
that of the Board (subject to the requirements of any jurisdiction that
the Sub Board include only
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31
residents of such jurisdiction or that the Sub Board also include one or
more residents of such jurisdiction);
(v) (A) a three member Compensation Committee of the
Board shall be established and shall include the three Investor
Directors and (B) any other committees established by the Board or a Sub
Board shall (to the extent possible) be proportionately equivalent to
that of the Board;
(vi) (A) the removal from the Board or a Sub Board
(with or without cause) of the Existing Shareholder Director shall be at
the written request of the Existing Shareholders (determined by a vote
of the Existing Shareholders owning a majority of the Shares held by all
of the Existing Shareholders), but only upon such written request and
under no other circumstances, (B) the removal from the Board or a Sub
Board (with or without cause) of any Investor Director shall be at the
written request of the Investor who is entitled to select such Investor
Director pursuant to subparagraph (ii)(B) above, but only upon such
written request and under no other circumstances and (C) the removal
from the Board or a Sub Board (with or without cause) of any Other
Director shall be at the mutual written request of the Investors
(determined by a vote of the Investors owning at least 66 2/3% of the
Shares held by all of the Investors) and the Existing Shareholders
(determined by a vote of the Existing Shareholders owning a majority of
the Shares held by all of the Existing Shareholders), but only upon such
mutual written request and under no other circumstances; and
(vii) (A) in the event that the Existing Shareholder
Director ceases to serve as a member of the Board or a Sub Board during
his or her term of office, the resulting vacancy on the Board or a Sub
Board shall be filled by a representative designated as provided in
subparagraph (ii)(A) above, (B) in the event that any Investor Director
ceases to serve as a member of the Board or a Sub Board during his or
her term of office, the resulting vacancy on the Board or a Sub Board
shall be filled by the Investor who is entitled to select such Investor
Director as provided in subparagraph (ii)(B) above, and (C) in the event
that any Other Director ceases to serve as a member of the Board or a
Sub Board during his or her term of office, the resulting vacancy on the
Board or a Sub Board shall be filled by a representative designated as
provided in subparagraph (ii)(C) above.
(b) The Company shall pay the reasonable out-of-pocket
expenses incurred by each director in connection with attending the meetings of
the Board or a Sub Board and any committees thereof. So long as any Investor
Director, Other Director or Existing Shareholder Director serves on the Board or
a Sub Board, the Company's Articles of Incorporation and bylaws shall provide
for indemnification and exculpation of directors to the fullest extent permitted
under applicable law.
(c) If any party fails to designate a representative to fill
a directorship pursuant to the terms of this paragraph 1, the individual
previously holding such directorship shall be elected to such position, or if
such individual fails or declines to serve, the election of an individual to
such directorship shall be accomplished in accordance with the
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32
Company's Articles of Incorporation and bylaws and applicable law; provided that
the Shareholders shall vote to remove such individual if the party or parties
which failed to designate such directorship so direct.
(d) The right of each of Summit, NCC and Northstar to select
one of the Investor Directors under this paragraph 1 shall terminate at such
time as such Person (together with its Affiliates) shall hold less than 25% of
the Shares held by such Person immediately following the Closing, and at such
time the remaining Investor or Investors holding more than 25% of the Shares
held by such Persons immediately following the Closing shall have the right to
designate a representative(s) to fill the vacant Investor Director or Investor
Directors' positions (determined by a vote of such remaining Investors owning at
least 66 2/3% of the Shares held by all such remaining Investors).
(e) The provisions of this paragraph 1 shall survive the
Company's initial Public Offering (unless terminated in connection therewith by
a vote of the Investors owning at least 66 2/3% of the Shares held by all of the
Investors) and shall remain in full force and effect thereafter until terminated
by a vote of the Investors owning at least 66 2/3% of the Shares held by all of
the Investors."
2. Governing Law. All issues and questions concerning the
construction, validity, interpretation and enforcement of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of California without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of California
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.
3. Descriptive Headings, etc. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement. The use of the term "including" herein shall mean "including
without limitation."
4. Full Force and Effect. Except as amended hereby, the
Agreement shall remain in full force and effect.
* * * * *
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33
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 1 to Shareholders Agreement on the day and year first above
written.
NETCOM SYSTEMS, INC.
By:
-------------------------------------
Its:
------------------------------------
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.,
its General Partner
By: Stamps, Woodsum& Co. IV,
its General Partner
By:
-------------------------------------
General Partner
SUMMIT INVESTORS III, L.P.
By:
-------------------------------------
Authorized Signatory
NATIONSBANC CAPITAL CORP.
By:
-------------------------------------
Todd A. Binkowski,
its Authorized Signatory
SPITFIRE CAPITAL PARTNERS, L.P.
By: MS Spitfire LLC, its General Partner
By:
-------------------------------------
William B. Bunting,
its Authorized Signatory
[Amendment No. 2 to Shareholders Agreement]
-5-
34
PETER MOONEY, AS NOMINEE FOR THE
BROADVIEW PARTNERS GROUP
By:
-------------------------------------
Its:
------------------------------------
BAIN SECURITIES, INC.
By:
-------------------------------------
Leonard C. Banos, its Vice President
WS INVESTMENT COMPANY 97B
By:
-------------------------------------
Its:
------------------------------------
WSGR PROFIT SHARING TRUST FBO
STEVEN E. BOCHNER
By:
-------------------------------------
Its:
------------------------------------
ADVENT ATLANTIC AND PACIFIC III
By:
-------------------------------------
Its:
------------------------------------
CHASE VENTURE CAPITAL ASSOC., L.P.
By:
-------------------------------------
Its:
------------------------------------
[Amendment No. 2 to Shareholders Agreement]
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35
TA ADVENT VIII
By:
-------------------------------------
Its:
------------------------------------
TA VENTURE INVESTORS
By:
-------------------------------------
Its:
------------------------------------
----------------------------------------
Steven E. Bochner
----------------------------------------
Nevan C. Elam
----------------------------------------
Todd Cleary
----------------------------------------
Marc Hamon
----------------------------------------
Henri Hamon
----------------------------------------
James Jordan
----------------------------------------
Warren B. Phelps III
[Amendment No. 2 to Shareholders Agreement]
-7-
36
----------------------------------------
Jing Zhang
----------------------------------------
Stephane Johnson
----------------------------------------
Richard Bass
----------------------------------------
Richard Moley
----------------------------------------
David A. Baylor
----------------------------------------
Richard J. Cadenasso
----------------------------------------
Allen Chozen
----------------------------------------
Lewis W. Coleman
----------------------------------------
David V. Crowder
----------------------------------------
Frank M. Dunlevy
----------------------------------------
Clark L. Gerhardt, Jr.
[Amendment No. 2 to Shareholders Agreement]
-8-
37
----------------------------------------
Seth J. Gersch
----------------------------------------
Ansel M. Hall
----------------------------------------
John D. Hershey
----------------------------------------
Wilson T. Hileman, Jr.
----------------------------------------
Brett A. Hodess
----------------------------------------
Benjamin Howe
----------------------------------------
Murray C. Huneke
----------------------------------------
David M. Jacquin
----------------------------------------
Craig R. Johnson
----------------------------------------
Scott C. Kovalik
----------------------------------------
David S. Lehmann
[Amendment No. 2 to Shareholders Agreement]
-9-
38
----------------------------------------
Mark L. Lehmann
----------------------------------------
Derek Lemke-von Ammon
----------------------------------------
Jack G. Levin
----------------------------------------
Robert D. Long
----------------------------------------
Karl L. Matthies
----------------------------------------
J. Sanford Miller
----------------------------------------
Bernard M. Notas
----------------------------------------
Harry K. Plant
----------------------------------------
Bruce G. Potter
----------------------------------------
David B. Readerman
----------------------------------------
Rand L. Rosenberg
[Amendment No. 2 to Shareholders Agreement]
-10-
39
----------------------------------------
Joseph M. Schell
----------------------------------------
Rex Sherry
----------------------------------------
Peter B. Stoneberg
----------------------------------------
Thomas A. Thornhill, III
----------------------------------------
John P. Tinker
----------------------------------------
Otto V. Tschudi
----------------------------------------
Thomas W. Weisel
----------------------------------------
Michael L. Yagemann
[Amendment No. 2 to Shareholders Agreement]
-11-
40
SCHEDULE OF INVESTORS
Name and Address
- ----------------
Summit Ventures IV, L.P. Summit Investors III, L.P.
499 Hamilton Avenue 499 Hamilton Avenue
Palo Alto, California 94301 Palo Alto, California 94301
Attn: Mr. Walter G. Kortschak Attn: Mr. Walter G. Kortschak
NationsBanc Capital Corp. TA Venture Investors
NationsBank Corporate Center c/o TA Associates, Inc.
10th Floor High Street Tower, Suite 2500
100 North Tryon 125 High Street
Charlotte, North Carolina 28255 Boston, MA 02110
Attn: Mr. Robert H. Sheridan III Attn: Mr. Thomas Alber
Spitfire Capital Partners, L.P. Peter Mooney as nominee for
c/o Montgomery Securities the Broadview Partners Group
600 Montgomery Street c/o Broadview Associates
San Francisco, California 94111 950 Tower Lane
Attn: Mr. William B. Bunting 18th Floor
Foster City, California 94404
Attn: Mr. Stephen S. Smith
Bain Securities, Inc. WS Investment Company 97B
c/o Bain & Company, Inc. c/o Wilson Sonsini Goodrich & Rosati
Two Copley Place 650 Page Mill Road
Boston, Massachusetts 02116 Palo Alto, California 94304
Attn: Mr. Leonard C. Banos Attn: Steven E Bochner, Esq.
WSGR Profit Sharing Trust FBO Steven E. Bochner
Steven E. Bochner c/o Wilson Sonsini Goodrich & Rosati
c/o Wilson Sonsini Goodrich & Rosati 650 Page Mill Road
650 Page Mill Road Palo Alto, California 94304
Palo Alto, California 94304
Attn: Steven E Bochner, Esq.
Nevan C. Elam Todd Cleary
c/o Wilson Sonsini Goodrich & Rosati c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road 650 Page Mill Road
Palo Alto, California 94304 Palo Alto, California 94304
Richard Moley Chase Venture Capital Assoc., L.P.
19910 Robin Way 380 Madison Avenue
Saratoga, CA 95070 New York, NY 10017
Attn: Jeff Walker
-12-
41
TA Advent VIII Advent Atlantic and Pacific III
c/o TA Associates, Inc. c/o TA Associates, Inc.
High Street Tower, Suite 2500 High Street Tower, Suite 2500
125 High Street 125 High Street
Boston, MA 02110 Boston, MA 02110
Attn: Mr. Thomas Alber Attn: Mr. Thomas Alber
David A. Baylor Richard J. Cadenasso
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Allen Chozen Lewis W. Coleman
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
David V. Crowder Frank M. Dunlevy
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Clark L. Gerhardt, Jr. Seth J. Gersch
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Ansel M. Hall John D. Hershey
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Wilson T. Hileman, Jr. Brett A. Hodess
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Benjamin Howe Murray C. Huneke
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
David M. Jacquin Craig R. Johnson
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
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42
Scott C. Kovalik David S. Lehmann
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Mark L. Lehmann Derek Lemke-von Ammon
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Jack G. Levin Robert D. Long
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Karl L. Matthies J. Sanford Miller
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Bernard M. Notas Harry K. Plant
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Bruce G. Potter David B. Readerman
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Rand L. Rosenberg Joseph M. Schell
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Rex Sherry Peter B. Stoneberg
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Thomas A. Thornhill, III John P. Tinker
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
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43
Otto V. Tschudi Thomas W. Weisel
c/o Montgomery Securities c/o Montgomery Securities
600 Montgomery Street 600 Montgomery Street
San Francisco, California 94111 San Francisco, California 94111
Michael L. Yagemann
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
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44
SCHEDULE OF EXISTING SHAREHOLDERS
Name and Address
- ----------------
Marc Hamon
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Henri Hamon
Netcom Systems Europe
4, rue de Galilee
Immeuble Le Bellevue
ZAC du Moulin a vent 78280
Guyancourt, France
James Jordan
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Warren B. Phelps III
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Jing Zhang
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Stephane Johnson
Netcom Systems, Inc.
20550 Nordhoff Street
Chatsworth, California 91311
Richard Bass
Point of View, Inc.
410 Boylston Street
5th Floor
Boston, Massachusetts 02116
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