SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, For Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Under Rule 14a-12
PROCERA NETWORKS, INC.
(Name of Registrant as Specified In Its Charter)
___________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
5) Total fee paid:
- -------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials:
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule0-11(a)(2)and
1
identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
1) Amount previously paid:
- -------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
- -------------------------------------------------------------------------------
3) Filing Party:
- -------------------------------------------------------------------------------
4) Date Filed:
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2
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 12, 2004
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Procera Networks, Inc. We will be holding the Annual Meeting at the Company's
offices located at 3175 South Winchester Boulevard, Campbell, California, 95008
on Tuesday, October 12, 2004, at 9:00 a.m., Pacific Daylight Savings Time.
At the 2004 Annual Meeting, we will ask you to:
1. Elect four (4) directors to the Board of Directors of the Company to
serve for a one-year term;
2. Ratify the appointment of Burr, Pilger & Mayer LLP as the Company's
independent accountants for the fiscal year ending January 2, 2005;
3. Adopt the Procera Networks 2004 Stock Option Plan; and
4. Transact such other business as may properly come before the meeting
or any adjournment thereof.
Enclosed with this letter is a Proxy Statement, a proxy card and a return
envelope. Also enclosed is Procera Networks' Annual Report on Form 10-KSB for
the fiscal year ended December 31, 2003.
Only holders of common stock of the Company of record at the close of
business on August 6, 2004 are entitled to notice of and to vote at the Annual
Meeting. The Board of Directors of the Corporation is soliciting the proxies.
Your vote is very important to us regardless of the number of shares that
you own. All stockholders, whether or not you expect to attend the Annual
Meeting, are urged to sign and date the enclosed Proxy and return it promptly in
the enclosed postage-paid envelope. The prompt return of proxies will ensure a
quorum and save the Company the expense of further solicitation. Each proxy
granted may be revoked by the stockholder appointing such proxy at any time
before it is voted. If you receive more than one proxy card because your shares
are registered in different names or addresses, each such proxy card should be
signed and returned to ensure that all of your shares will be voted. If you
return your proxy and later decide to attend the Annual Meeting, you may cancel
your previous vote and vote in person at the meeting.
By Order of the Board of Directors:
/s/ Douglas J. Glader
- ------------------------
Douglas J. Glader, President & CEO
Campbell, California
September 3, 2004
3
PROCERA NETWORKS, INC.
3175 SOUTH WINCHESTER BOULEVARD
CAMPBELL, CALIFORNIA, 95008
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 12, 2004
GENERAL INFORMATION
-------------------
This Proxy Statement provides information that you should read before you vote
on the proposals that will be presented to you at the 2004 Annual Meeting of
Procera Networks, Inc. (the "Company", "we" or "our"). The 2004 Annual Meeting
will be held at the Company's offices located at 3175 South Winchester
Boulevard, Campbell, California, 95008 on Tuesday, October 12, 2004, at 9:00
a.m., Pacific Daylight Savings Time.
This Proxy Statement provides detailed information about the Annual Meeting, the
proposals you will be asked to vote on at the Annual Meeting, and other relevant
information. The Board of Directors of Procera is soliciting these proxies.
At the Annual Meeting, you will be asked to vote on the following proposals:
1. Elect four (4) directors to the Board of Directors of the Company to
serve for a one-year term;
2. Ratify the appointment of Burr, Pilger & Mayer LLP as the Company's
independent accountants for the fiscal year ending January 2, 2005;
3. Adopt the Procera Networks 2004 Stock Option Plan; and
4. Transact such other business as may properly come before the meeting
or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR ELECTION OF THE
BOARD'S NOMINEES FOR DIRECTOR AND FOR APPROVAL OF EACH OF THE OTHER PROPOSALS.
On September 10, 2004, we began mailing this proxy statement to people who,
according to our records, owned shares of our common stock as of the close of
business on August 6, 2004. We have mailed with this proxy statement a copy of
our Annual Report on Form 10-KSB for the fiscal year ended December 31, 2003.
INFORMATION ABOUT THE 2004 ANNUAL MEETING AND VOTING
----------------------------------------------------
THE ANNUAL MEETING
- --------------------
The Annual Meeting will be held at our corporate headquarter offices located at
3175 South Winchester Boulevard, Campbell, California, 95008, on Tuesday,
October 12, 2004, at 9:00 a.m. Pacific Daylight Savings Time.
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THIS PROXY SOLICITATION
- -------------------------
We are sending you this proxy statement because our Board of Directors (the
"Board") is seeking a proxy to vote your shares at the Annual Meeting. This
proxy statement is intended to assist you in deciding how to vote your shares.
On September 10, 2004, we began mailing this proxy statement and the
accompanying proxy card and Annual Report on Form 10-K to all people who,
according to our stockholder records, owned shares at the close of business on
August 6, 2004. In addition, we have provided brokers, dealers, banks, voting
trustees and their nominees, at our expense, with additional copies of the
Annual Report on Form 10-K and the other accompanying materials described above
so that such record holders could supply these materials to the beneficial
owners as of August 6, 2004. We will bear the entire cost of this proxy
solicitation.
VOTING YOUR SHARES
- --------------------
You may vote your shares at the Annual Meeting by completing and returning the
enclosed proxy card, or by voting in person at the Annual Meeting.
Whether or not you plan to attend the Meeting, please take the time to vote.
Votes may be cast:
- by traditional paper proxy card; or
- in person at the Meeting.
Please take a moment to read the instructions, choose the way to vote that you
find most convenient and cast your vote as soon as possible.
Voting by Proxy Card. If proxies in the accompanying form are properly executed
and returned, the shares of Common Stock represented thereby will be voted in
the manner specified therein. If not otherwise specified, the shares of Common
Stock represented by the proxies will be voted (i) FOR the election of the
nominees named below as directors of the Company; (ii) FOR the ratification of
the appointment of Burr, Pilger & Mayer LLP as independent accountants for the
year ending January 2, 2005; (iii) FOR the ratification of the Procera Networks
2004 Stock Option Plan; and (iv) in the discretion of the persons named in the
enclosed form of proxy on any other proposals which may properly come before the
Meeting or any adjournment or adjournments thereof. Any stockholder who has
submitted a proxy may revoke it at any time before it is voted, by written
notice addressed to and received by the Secretary of the Company, by submitting
a duly executed proxy bearing a later date or by electing to vote in person at
the Meeting. The mere presence at the Meeting of the person appointing a proxy
does not, however, revoke the appointment. IF YOU DECIDE TO VOTE BY PROXY, THE
PROXY CARD WILL BE VALID ONLY IF YOU SIGN, DATE AND RETURN IT BEFORE THE ANNUAL
MEETING TO BE HELD ON TUESDAY, OCTOBER 12, 2004.
Voting in Person. To vote in person, you must attend the Annual Meeting and
obtain and submit a ballot. Ballots for voting in person will be available at
the Annual Meeting. To vote by proxy, you must complete and return the enclosed
proxy card in time to be received by us by the Annual Meeting. By completing and
returning the proxy card, you will be directing the persons designated on the
proxy card to vote your shares at the Annual Meeting in accordance with the
instructions you give on the proxy card.
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Attendance at the Meeting will not, by itself, result in the revocation of a
previously submitted proxy. Even if you are planning to attend the Meeting, we
encourage you to submit the proxy card in advance to ensure the representation
of your shares at the Meeting.
If you hold your shares with a broker and you do not tell your broker how to
vote, your broker has the authority to vote on all routine proposals.
VOTE REQUIRED FOR APPROVAL
- -----------------------------
Shares Entitled to Vote. On August 6, 2004, (the "Record Date"), 24,104,406
- --------------------------
shares of our common stock were issued and outstanding. Each share issued and
outstanding on the Record Date will be entitled to one vote on each of the
proposals.
Quorum. The quorum requirement for holding the meeting and transacting business
- ------
is that a majority of the issued and outstanding shares on the Record Date be
present in person or represented by proxy and entitled to be voted. Accordingly,
12,052,204 shares must be present in person or by proxy for a quorum to be
present. If a quorum is not present, a vote cannot occur. Both abstentions and
broker non-votes are counted as present for the purposes of determining the
presence of a quorum.
Votes Required. In the election of directors, the four persons receiving the
- ---------------
highest number of "FOR" votes will be elected. All other proposals require the
affirmative "FOR" vote of a majority of those shares present and entitled to
vote.
ADDITIONAL INFORMATION
- -----------------------
We are mailing our Annual Report on Form 10-K for the fiscal year ended December
31, 2003, including consolidated financial statements, to all shareholders
entitled to vote at the Annual Meeting together with this proxy statement. The
Annual Report on Form 10-K does not constitute a part of the proxy solicitation
material. The Annual Report on Form 10-K tells you how to get additional
information about us.
6
PROPOSAL 1:
ELECTION OF DIRECTORS
Nominees for election to the Board of Directors are:
Douglas J. Glader
Scott McClendon
Thomas Saponas
Thomas H. Williams
Each director will be elected to serve for a one-year term, unless he resigns or
is removed before his term expires, or until his replacement is elected and
qualified. All of the four nominees are currently members of the Board of
Directors and have consented to serve as directors if re-elected. Douglas J.
Glader is our President and Chief Executive Officer. More detailed information
about each of the nominees is available in the section of this proxy statement
titled "Directors and Executive Officers".
There are no known arrangements or understandings between any director or
executive officer and any other person pursuant to which any of the above-named
directors was selected as a director of the Company.
If any of the nominees cannot serve for any reason (which is not anticipated),
the Board of Directors may designate a substitute nominee or nominees. If a
substitute is nominated, we will vote all valid proxies for the election of the
substitute nominee or nominees. Alternatively, the Board of Directors may also
decide to leave the board seat or seats open until a suitable candidate or
candidates are located, or it may decide to reduce the size of the Board.
The Board of Directors has established the size of the board at five members.
Proxies for the Annual Meeting may not be voted for more than four directors.
The Board of Directors has one vacant seat that will remain vacant until a
suitable nominee can be found.
BOARD RECOMMENDATION
- ---------------------
The Board of Directors unanimously recommends a vote "FOR" each of the nominees
to the Board of Directors.
DOUGLAS J. GLADER has served as our President and Chief Executive Officer and as
a member of our Board of Directors since the October 2003 merger. He served as
President and Chief Executive Officer of PNI since founding PNI in May 2002.
Prior to founding PNI, Mr. Glader served from 1996 to 2002 in key senior
executive positions at Digi International, Inc., including Executive Vice
President, Chief Operating Officer, Senior Vice President of Worldwide
Manufacturing and Operations, and General Manager of Milan Technology, Digi's
LAN products division. Mr. Glader has more than 27 years of experience in
general management with firms such as Memorex, Measurex Corporation, Altus
Corporation and Direct Incorporated, all located in the San Francisco Bay Area.
In addition to co-founding Greyhawk Systems, Inc., a manufacturer of electronic
imaging hardware and software, Mr. Glader has managed manufacturing operations
in Belgium, Ireland, Mexico and the Pacific Rim. Mr. Glader serves on the board
of directors of Uromedica, a privately held company in Plymouth, Minnesota.
7
SCOTT MCCLENDON has served as a member of our Board of Directors since March 1,
2004. He is currently a member of the Audit Committee. Mr. McClendon served as
the President and Chief Executive Officer of Overland Storage, Inc. (NASDAQ:
OVRL) from October 1991 to March 2001, when he was named Chairman, and was an
officer and employee until June 2001. He was employed by Hewlett-Packard
Company, a global manufacturer of computing, communications and measurement
products and services, for over 32 years in various positions in engineering,
manufacturing, sales and marketing. He last served as the General Manager of the
San Diego Technical Graphics Division and Site Manager of Hewlett-Packard in San
Diego, California. Mr. McClendon is a director of SpaceDev, Inc., an aerospace
development company. Mr. McClendon has a BSEE and MSEE from Stanford University.
THOMAS SAPONAS has served as a member of our Board of Directors since April 1,
2004. Mr. Saponas served as the Senior Vice President and Chief Technology
Officer of Agilent Technologies, Inc. (NASDAQ: A) from August 1999 until he
retired in October 2003. Prior to being named Chief Technology Officer, from
June 1998 to April 1999, Mr. Saponas was Vice President and General Manager of
Hewlett-Packard's Electronic Instruments Group. Mr. Saponas has held a number of
positions since the time he joined Hewlett-Packard. Mr. Saponas served as
General Manager of the Lake Stevens Division from August 1997 to June 1998 and
General Manager of the Colorado Springs Division from August 1989 to August
1997. In 1986, he was a White House Fellow in Washington, D.C. Mr. Saponas has a
BSEE/CS (Electrical Engineering and Computer Science) and an MSEE from the
University of Colorado. Mr. Saponas is on the Board of Directors of The
University of Colorado Foundation and on the Board of Directors of the El Paso
County Red Cross Organization.
THOMAS H. WILLIAMS has served as a member of our Board of Directors since the
October 2003 merger. He is currently a member of the Audit Committee. He
served as a Director of PNI from May 2002 to October 2003. Mr. Williams has 20
years' experience as CFO and General Counsel in start-up and medium-sized
venture capital-backed technology companies. Mr. Williams' early years were
spent with IBM and Shell Oil Company in engineering and legal positions. In
1971, Mr. Williams joined the management team of Measurex Corp., a process
control start-up, responsible for engineering project budgeting and patent
matters as the company grew from $4 million to $50 million in revenues. In
1976, Mr. Williams and two partners took over management of Altus Corporation,
guided the company through bankruptcy and raised venture capital. From 1984
though 1993, Mr. Williams was CFO and General Counsel for Greyhawk Systems, an
innovator in high-resolution electronic imaging, which was sold in 1993. From
1993 to 1997, Mr. Williams was in the private practice of law. In 1997 he was
appointed as CFO of IC WORKS, Inc., a venture capital-backed semiconductor
company, on an interim basis to guide a financial turnaround. Within six
months, the company was brought from near bankruptcy to a cash positive
position, which allowed the company to be sold in 1998 for more than $100
million. Since 1999, Mr. Williams has been CFO at Bandwidth9, a company
developing tunable lasers for the fiber optics industry. Mr. Williams holds a
B.S. degree in electrical engineering, and a law degree from the University of
Minnesota and a M.B.A. from the University of California at Berkeley. He is a
member of the California, New York (inactive), Federal and Patent bars.
8
PROPOSAL 2:
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed BURR, PILGER & MAYER LLP ("BPM"), an
accounting firm of independent certified public accountants, to act as
independent accountants for Procera and its consolidated subsidiaries for our
fiscal year ending January 2, 2005. BPM has advised Procera that the firm does
not have any direct or indirect financial interest in Procera or any of its
subsidiaries, other than its capacity as our independent certified public
accountants. BPM has served as our independent auditors since October 24, 2003.
On October 24, 2003, we engaged BPM to serve as our independent auditors. The
decision to engage BPM was recommended by the Company's management team and
unanimously approved by the Company's Audit Committee of the Board of Directors,
and unanimously approved by the full Board of Directors. We did not seek the
advice of BPM on specific audit issues relating to the application of accounting
principles to a specified transaction, either completed or proposed, the type of
audit opinion that might be rendered on our financial statements, or any matter
that was a reportable event prior to engagement of this firm.
In making the recommendation for BPM to become the Company's independent
accountants for the fiscal year ending January 2, 2005, the Company's management
team and the Audit Committee reviewed the audit and non-audit services proposed
to be performed during fiscal year 2004. In selecting BPM, the Audit Committee
and the Board of Directors carefully considered BPM's independence. The Audit
Committee has determined that the performance of the non-audit services proposed
to be performed by BPM will not impair the independence of BPM.
BPM has confirmed to Procera that it is in compliance with all rules, standards
and policies of the Independence Standards Board and the Securities and Exchange
Commission ("SEC") governing auditor independence.
A representative of BPM is expected to attend the Annual Meeting. The
representative will have the opportunity to make a statement if he or she
desires to do so and will be able to respond to appropriate questions from
stockholders. In addition, you may obtain additional information about BPM by
visiting their website at www.bpmllp.com.
--------------
RECOMMENDATION
- --------------
The Board of Directors unanimously recommends a vote "FOR" ratification of the
appointment of Burr, Pilger & Mayer LLP.
9
PROPOSAL 3:
APPROVAL OF THE 2004 STOCK OPTION PLAN
We are requesting that the stockholders vote in favor of adopting the 2004
Stock Option Plan (the "2004 Plan"), which was approved by the Board on
September 3, 2004. If adopted, this 2004 Plan will replace our 2003 Stock Option
Plan, and will become the sole plan for providing stock-based incentive
compensation to eligible employees and non-employee directors. We firmly believe
that a broad-based stock option program is a necessary and powerful employee
incentive and retention tool that benefits all of Procera's stockholders. The
following summary of certain major features of the 2004 Plan is subject to the
specific provisions contained in the full text of the 2004 Plan set forth as
EXHIBIT A.
- ---------
Approval of the 2004 Plan is intended to enable Procera to achieve the
following objectives:
1. The continued ability to offer stock-based incentive compensation to
substantially all of Procera's eligible employees and non-employee directors.
2. The ability to utilize stock options, as deemed appropriate management,
to maintain Procera's competitive ability to attract, retain and motivate
employees at all levels. A stock option is the right to purchase a certain
number of shares of stock, at a certain exercise price, in the future. Procera
has historically utilized stock options as its sole form of equity compensation.
We intend to continue to use stock options as our primary form of equity
compensation, but may use other forms of equity compensation on a limited basis,
as necessary, for the attraction, retention and motivation of employees.
BACKGROUND ON STOCK COMPENSATION AT PROCERA
- ------------------------------------------------
The use of stock options has long been a vital component of many companies'
overall compensation philosophy, which is premised on the principle that any
long-term pay-for-performance incentive compensation should be closely aligned
with stockholders' interests. Fixed-price stock options align employees'
interests directly with those of other stockholders, because an increase in
stock price after the date of award is necessary for employees to realize any
value, thus rewarding employees only upon improved stock price performance.
We believe that stock options have been and will continue to be very
effective in enabling us to attract and retain the talent critical for an
innovative and growth-focused company. We believe that broad-based stock options
focus employees at every level of the company on the same performance
improvement goals, and have embedded in the company's culture the necessity for
employees to think and act as stockholders. Procera's general compensation
philosophy is that total cash compensation should vary with the company's
performance in achieving financial and non-financial objectives. Procera's
compensation programs include base salaries, set below that of our identified
competitor companies (both a cross-industry subset of companies as well as a
technology industry subset of companies generally considered to be comparable to
Procera), as well as a significant focus on pay-for-performance through stock
options. Procera's total compensation goal is to deliver lower total
compensation than our competitor companies in periods of poor company
performance, but provide a premium for superior company performance.
10
Without stock options, Procera would be forced to consider cash replacement
alternatives to provide a market-competitive total compensation package
necessary to attract, retain and motivate the employee talent critical to the
future success of the Company. These cash replacement alternatives would then
reduce the cash available for investment in innovation and technology. We intend
to continue to use stock options as our primary means of providing equity
compensation to our employees.
We have evaluated the merits of other equity vehicles and, notwithstanding
certain proposed changes in accounting policies for stock options, continue to
believe that stock options are still the best vehicle for directly linking the
interests of employees with those of stockholders, thereby maintaining Procera's
and its employees' focus on continuing performance improvement. As long as
Procera's stock price is greater than zero, restricted stock, which is
increasingly used by other companies, has value to an employee regardless of
performance. If the stock price drops below the grant price of the restricted
stock, the restricted stock would still have value; however, a stock option
grant would have no value. Additionally, for an innovative and growth-focused
company like Procera, we believe restricted stock provides less incentive for
continuing employee performance, due to a reduced potential for employee gains
compared to stock options. Generally, fewer full-value restricted shares are
awarded to participants based on the continued value of restricted stock to
employees even in a declining stock price environment. Restricted stock,
however, may be desirable for critical hiring or retention concerns.
Procera has not historically used performance-vested stock options, because
stock options already require performance in terms of stock price appreciation
for the employee to receive any benefit and are therefore directly aligned with
stockholders' interests. Performance criteria for performance-based equity are
more subjectively determined and measured than is the objectively determinable
stock price performance required for fixed-price options and may limit the
Company's ability to appropriately focus employees on both short- and long-term
goals that continuously change in a fast-paced, innovative industry. In
addition, Procera's compensation programs include a significant focus on
pay-for-performance through the combination of our reliance on stock options,
lower base salary and higher cash-based performance incentive compensation tied
to EPS and business group goals than that of the Company's competitors.
We strongly believe that our stock option programs and emphasis on employee
stock ownership have been integral to our success in the past and will be
important to our ability to achieve consistently superior performance in the
years ahead. We believe that consistently superior performance is achieved
through the ability to attract, retain and motivate the employee talent critical
to attaining long-term improved company performance and stockholder returns.
Therefore, we consider approval of the 2004 Plan vital to Procera's future
success.
PURPOSE OF 2004 PLAN
- -----------------------
The 2004 Plan will allow Procera, under the direction of the Board of
Directors or a director or officer designated by the Board (the
"Administrator"), to make broad-based grants of stock options, which may or may
not require the satisfaction of performance objectives, to employees and to
non-employee directors. The purpose of these stock awards is to attract and
retain talented employees, further align employee and stockholder interests,
continue to closely link employee compensation with company performance, and
maintain a culture based on employee stock ownership. If approved, the proposed
2004 Plan will provide an essential component of the total compensation package
offered to employees, reflecting the importance that Procera places on
motivating and rewarding superior results with long-term, performance-based
incentives.
11
KEY TERMS
- ----------
The following is a summary of the key provisions of the 2004 Plan.
PLAN TERM: September 3, 2004 to September 3, 2014
ELIGIBLE PARTICIPANTS: All full-time and part-time employees of the Company,
where legally eligible to participate, and non-employee directors of the Company
SHARES AUTHORIZED: 2,500,000 shares, subject to adjustment only to reflect
stock splits and similar events
SHARES AUTHORIZED AS A PERCENT OF OUTSTANDING COMMON STOCK: 10.4%
AWARD TYPES: Non-qualified and incentive stock options
AWARD TERMS: Stock options will have a term no longer than ten years.
VESTING: Determined by the Administrator within the following limits (subject
to exceptions for death, disability or retirement):
(1) Stock options shall not first become exercisable in less than six months.
(2) Performance vesting criteria, if any, will be established by award at
grant date.
ELIGIBILITY
- -----------
Only employees of Procera and its subsidiaries, and non-employee directors of
Procera, are eligible to receive awards under the 2004 Plan. The Administrator
will determine which employees will participate in the 2004 Plan. As of August
6, 2004, there were 23 employees and 3 non-employee directors who would be
eligible to participate in the 2004 Plan.
VESTING AND EXERCISE OF STOCK OPTIONS
- ------------------------------------------
The exercise price of stock options granted under the 2004 Plan may not be less
than the market value (the closing price at the end of the last business day
prior to date of grant) of the common stock on the date of grant. As of August
6, 2004, the average of the highest and lowest quoted sales prices of Procera
common stock was $1.60 per share. The option term may not be longer than ten
years. The Administrator will determine at the time of grant when each stock
option becomes exercisable, including the establishment of required performance
vesting criteria, if any, and provided that no stock option may be exercised
less than six months from the date of grant (except upon the death, disability
or retirement of the participant). Procera may require, prior to issuing common
stock under the 2004 Plan, that the participant remit an amount in cash
sufficient to satisfy tax withholding requirements.
TRANSFERABILITY
- ---------------
Unless otherwise determined by the Administrator, awards granted under the 2004
Plan are not transferable except by will or the laws of descent and
distribution. The Administrator will have sole discretion to permit the transfer
of an award.
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ADMINISTRATION
- --------------
The Board of Directors will administer the 2004 Plan unless and until it
appoints a committee, director, or officer to administer the 2004 Plan (the
Board or such appointee is the "Administrator"). The Administrator will select
the Procera employees who receive awards, determine the number of shares covered
thereby, and, subject to the terms and limitations expressly set forth in the
2004 Plan, establish the terms, conditions and other provisions of the grants.
The Administrator may interpret the 2004 Plan and establish, amend and rescind
any rules relating to the 2004 Plan. The Administrator may delegate to a
committee of one or more the ability to grant awards and take certain other
actions with respect to participants who are not executive officers, and may
delegate certain administrative or ministerial functions under the 2004 Plan to
an officer or officers.
AMENDMENTS
- ----------
The Board may terminate, amend or suspend the 2004 Plan, provided that no action
may be taken by the Board (except those described in "Adjustments") without
stockholder approval to increase the number of shares that may be issued under
the 2004 Plan.
ADJUSTMENTS
- -----------
In the event of a stock dividend, recapitalization, stock split,
combination of shares, extraordinary dividend of cash or assets, reorganization,
or exchange of Procera's common stock, par value $0.001 per share, or any
similar event affecting Procera's common stock, the Administrator shall adjust
the number and kind of shares available for grant under the 2004 Plan, and
subject to the various limitations set forth in the 2004 Plan, the number and
kind of shares subject to outstanding awards under the 2004 Plan, and the
exercise or settlement price of outstanding stock options and of other awards.
The impact of a merger or other reorganization of Procera on outstanding
stock options granted under the 2004 Plan shall be specified in the agreement
relating to the merger or reorganization, subject to the limitations and
restrictions set forth in the 2004 Plan. In connection with: (i) any merger,
consolidation, acquisition, separation, or reorganization in which more than
fifty percent (50%) of the shares of the Company outstanding immediately before
such event are converted into cash or into another security; (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company; (iii) any sale of more
than fifty percent (50%) of the Company's assets; or (iv) any like occurrence in
which the Company is involved, the Administrator may, in its absolute
discretion, do one or more of the following, upon ten days' prior written notice
to all optionees: (a) accelerate any vesting schedule to which an Option is
subject; (b) cancel Options upon payment to each optionee in cash, with respect
to each Option to the extent then exercisable, of any amount which, in the
absolute discretion of the Administrator, is determined to be equivalent to any
excess of the market value (at the effective time of such event) of the
consideration that such optionee would have received if the Option had been
exercised before the effective time over the exercise price of the Option; (c)
shorten the period during which such Options are exercisable (provided they
remain exercisable, to the extent otherwise exercisable, for at least ten days
after the date the notice is given); or (d) arrange that new option rights be
substituted for the option rights granted under this Plan, or that the Company's
obligations as to Options outstanding under this Plan, be assumed by an employer
corporation other than the Company or by a parent or subsidiary of such employer
corporation.
13
U.S. TAX CONSEQUENCES
- -----------------------
Stock option grants under the 2004 Plan may be intended to qualify as
incentive stock options under Section 422 of the Tax Code or may be
non-qualified stock options governed by Section 83 of the Tax Code. Generally,
no federal income tax is payable by a participant upon the grant of a stock
option and no deduction is taken by the Company. Under current tax laws, if a
participant exercises a non-qualified stock option, he or she will have taxable
income equal to the difference between the market price of the common stock on
the exercise date and the stock option grant price. Procera will be entitled to
a corresponding deduction on its income tax return. A participant will have no
taxable income upon exercising an incentive stock option after the applicable
holding periods have been satisfied (except that alternative minimum tax may
apply), and Procera will receive no deduction when an incentive stock option is
exercised. The treatment for a participant of a disposition of shares acquired
through the exercise of an option depends on how long the shares were held and
on whether the shares were acquired by exercising an incentive stock option or a
non-qualified stock option. Procera may be entitled to a deduction in the case
of a disposition of shares acquired under an incentive stock option before the
applicable holding periods have been satisfied.
As described above, awards granted under the 2004 Plan may qualify as
"performance-based compensation" under Section 162(m) in order to preserve
federal income tax deductions by Procera with respect to annual compensation
required to be taken into account under Section 162(m) that is in excess of $1
million and paid to one of Procera's five most highly compensated executive
officers. To so qualify, options and other awards must be granted under the 2004
Plan by a committee consisting solely of two or more "outside directors" (as
defined under Section 162 regulations) and satisfy the 2004 Plan's limit on the
total number of shares that may be awarded to any one participant during any
calendar year. In addition, for awards other than options to qualify, the grant,
issuance, vesting or retention of the award must be contingent upon satisfying
one or more of the performance criteria described above, as established and
certified by a committee consisting solely of two or more "outside directors."
RECOMMENDATION OF THE BOARD
- ------------------------------
The Board of Directors recommends that you vote "FOR" the Procera Networks, Inc.
2004 Stock Option Plan.
14
OTHER BUSINESS
As of the date of this proxy statement, our management was not aware of any
other matter to be presented at the Meeting other than as set forth herein.
However, if any other matters are properly brought before the Meeting, the
shares represented by valid proxies will be voted with respect to such matters
in accordance with the judgment of the persons voting them. A majority vote of
the shares represented at the meeting is necessary to approve any such matters.
15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information with respect to
beneficial ownership of our common stock as of August 6, 2004, as to:
- each person (or group of affiliated persons) known by us to own
beneficially more than five percent of our common stock;
- each of our directors, our chief executive officer, and the two other
most highly paid executive officers; and
- all our directors and officers as a group.
For the purposes of calculating percentage ownership as of August 6, 2004,
24,106,406 shares were issued and outstanding and, for any individual who
beneficially owns shares represented by options or warrants exercisable on or
before August 6, 2004, these shares are treated as if outstanding for that
person. Unless otherwise indicated, the address of each of the individuals and
entities named below is: c/o Procera Networks, Inc., 3175 South Winchester
Boulevard, Campbell, California, 95008.
The following table sets forth certain information known to us with respect
to the beneficial ownership of our common stock as of August 6, 2004 by: (i)
all persons who are known to us to be beneficial owners of five percent or more
of the common shares; (ii) each of our Directors; (iii) the Executive Officers
named in the Executive Compensation section of this proxy statement; and (iv)
all current Directors and Executive Officers as a group.
Name and Address of Beneficial Owner Shares Beneficially Percent of Class
Owned Beneficially Owned
Douglas Glader (1) 4,268,754 shares 17.7%
Jay R. Zerfoss 680,318 shares 2.8%
Anil Sahai (2) 660,970 shares 2.7%
Thomas H. Williams (3) 108,000 shares *
46410 Fremont Blvd.
Fremont, CA 94538
Eric McAfee (4) (5) 1,300,940 shares 5.4%
10600 N. De Anza Blvd., Suite 250
Cupertino, CA 95014
Scott McClendon (6) 14,000 shares *
Thomas Saponas (8) 7,000 shares *
Clyde Berg (5) (7) 1,292,940 shares 5.4%
3175 S. Winchester Blvd.
10600 N. De Anza Blvd.,
Suite 250
Cupertino, CA 95014
All officers and directors 7,709,552 shares 30.9%
as a group (ten persons)
16
* Indicates less than 1%
(1) Douglas Glader, who owns 4,148,970 shares of Procera's common stock, is the
father of Eric Glader, who owns 119,784 shares of Procera's common stock.
(2) Shares beneficially owned by Anil Sahai include options to purchase 575,000
shares of Procera's common stock at $1.50 per share that are exercisable in
whole or in part within 60 days of August 6, 2004, 20,970 shares issued in
Procera's acquisition of EZ2, and 65,000 shares issued to Ezyte, Inc., which is
(3) Shares beneficially owned by Thomas H. Williams include options to purchase
8,000 shares of Procera's common stock at $3.35 per share that are exercisable
in whole or in part within 60 days of August 6, 2004.
(4) Eric McAfee resigned as a director on July 15, 2004. Eric McAfee owns
832,500 shares of Procera's common stock as an individual. Mr. McAfee's
children also own 100,000 shares of Procera's common stock. Shares beneficially
owned by Mr. McAfee include options to purchase 8,000 shares of Procera's common
stock at $3.35 per share that are exercisable in whole or in part within 60 days
of August 6, 2004.
(5) Berg McAfee Companies owns 720,880 shares of Procera's common stock and is
owned in equal shares by Eric McAfee and Clyde Berg. Therefore, Eric McAfee is
the beneficial owner of 50%, or 360,440 of those shares, and Clyde Berg is the
beneficial owner of 50%, or 360,440 of those shares.
(6) Shares beneficially owned by Scott McClendon include options to purchase
14,000 shares of Procera's common stock at $3.35 per share that are exercisable
in whole or in part within 60 days of August 6, 2004.
(7) Clyde Berg is the owner of 932,500 shares of Procera's common stock as an
individual.
(8) Shares beneficially owned by Thomas Saponas include options to purchase
7,000 shares of Procera's common stock at $1.70 per share that are exercisable
in whole or in part within 60 days of August 6, 2004.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Common shares subject to options or warrants that
are currently exercisable or exercisable within 60 days of August 6, 2004 are
deemed to be outstanding and to be beneficially owned by the person or group
holding such options or warrants for the purpose of computing the percentage
ownership of such person or group, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person or group.
Unless otherwise indicated, the address for each of the individuals listed in
the table is care of Procera Networks, Inc., 3175 South Winchester Boulevard,
Campbell, California 95008. Unless otherwise indicated by footnote, the persons
named in the table have sole voting and sole investment power with respect to
all common shares shown as beneficially owned by them, subject to applicable
community property laws. Percentage of beneficial ownership is based on
24,106,406 shares of our common stock outstanding as of August 6, 2004.
DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
Name Age Position
Douglas J. Glader 60 President, Chief Executive Officer and a
Director
Jay R. Zerfoss 70 Chief Financial Officer and Secretary
Anil Sahai 44 Chief Technology Officer
Greg Dewing 48 Vice President of Sales
Magnus Hansen 58 Vice President of Engineering
John A. McQuade 57 Director of Operations and Support
Patrick Wong 41 Director of Product Management and
Marketing
Scott McClendon 64 Director
Thomas Saponas 55 Director
Thomas H. Williams 65 Director
17
DOUGLAS J. GLADER see prior description.
JAY R. ZERFOSS has served as our Chief Financial Officer and Secretary
since the October 2003 merger. He served as the Chief Financial Officer and
Secretary of PNI from May 2002 to October 2003. Mr. Zerfoss is an accomplished
CPA with extensive experience as a Controller, Treasurer, Director of Finance,
Vice President of Finance and Administration, and CFO for a variety of
organizations. His areas of expertise include start-up high technology
manufacturing companies with national and global concerns, rendering board of
directors reporting, financial statement preparation, cash management reporting,
planning and budgeting, policies and internal controls, attorney, auditor, and
banking relationships. Prior to joining PNI, Mr. Zerfoss was Director of
Finance at InnoWave Broadband Inc. from January 1998 until November 2001. From
November 2001 until May 2002, Mr. Zerfoss was an independent financial
consultant.
ANIL SAHAI has served as our Chief Technology Officer since March 2004.
From 1990 until 1994, Dr. Sahai was a core member of the engineering team at
Amdahl which architected one of the first Redundant Array of Independent Drives
("RAID") products for mainframes using Small Computer System Interface ("SCSI")
drives and Enterprise Systems Connection ("ESCON") channels. From 1997 until
1999 at Compaq Corporation Dr. Sahai managed the team that was responsible for
the performance architecture of NT servers and SAN line of products based on
Servernet technologies. In June 2000, Dr. Sahai founded Ezyte, Inc. whose
intellectual property he sold to Procera in May 2004. He has a PhD in computer
science with specialization in packet switching architecture from University of
California, Santa Cruz, and a Masters from Sloan at MIT, with specialization in
new product development and international corporate strategies. Dr. Sahai has
published technical papers in many journals, and presented seminars at various
conferences, tradeshows and universities all over the world in the areas of high
performance packet switching, storage architecture, wireless Internet
architectures, system performance modeling, and international corporate
strategies.
GREG DEWING has served as our Vice President of Sales since the October
2003 merger. He served as Vice President of Sales of PNI from November 2002 to
October 2003. Mr. Dewing is a senior sales executive with more than 19 years of
experience in OEM, end user and VAR partnerships. Prior to joining PNI, Mr.
Dewing was with Network Peripherals Inc. from December 1998 until July 2002,
where he led the OEM sales efforts for North America, Europe and Asia Pacific.
Mr. Dewing took a sabbatical prior to joining PNI.
MAGNUS HANSEN has served as our Vice President of Engineering since the
October 2003 merger. He served as Vice President of Engineering of PNI from May
2002 to October 2003. Mr. Hansen is a senior executive with extensive
experience in software, optical, electrical, and mechanical engineering. His
management experience includes more than 27 years leading development and design
teams at a variety of organizations in the Silicon Valley area. Prior to
joining PNI, Mr. Hansen was Director of Technology at Milan Technology from June
1996 until May 2002.
JOHN A. MCQUADE has served as our Director of Operations and Support since
the October 2003 merger. He served as Director of Operations and Support for
PNI from May 2002 to October 2003. Mr. McQuade is a senior executive with 25
years of high-tech operations, quality and technical support experience,
including expatriate positions in Asia and Europe. He worked with Digi from
November 1992 to May 2002 as the Director of Customer Service and Technical
Support in Sunnyvale on the General Manager's staff.
18
PATRICK WONG has served as our Director of Product Management and Marketing
since the October 2003 merger. He served as Director of Product Management and
marketing of PNI from July 2003 to October 2003. Mr. Wong has over 18 years
experience in marketing, business development, IT, engineering and management.
His industry experience spans networking, software development, security and
optical networking. He worked as the Sales and Marketing Manager at Finisar
Corp. from April 1998 until August 2000. From August 2000 until March 2002 he
was the Director of Product Marketing at Nexgi Systems Corp.
SCOTT MCCLENDON see prior description.
THOMAS SAPONAS see prior description.
THOMAS H. WILLIAMS see prior description.
Our executive officers are elected by the Board of Directors on an annual
basis and serve at the discretion of the Board of Directors, subject to the
terms of any employment agreements with us, until their successors have been
duly elected and qualified or until their earlier resignation or removal. There
are no family relationships between any directors and executive officers.
BOARD COMMITTEES
- -----------------
We currently have two committees of our Board of Directors: the Audit
Committee and the Compensation Committee.
The Compensation Committee determines the salaries and incentive
compensation of our officers and provides recommendations for the salaries and
incentive compensation of our other employees. The Compensation Committee also
administers our stock option plan. In the prior fiscal year, Messrs. McAfee and
Williams served on the Compensation Committee. Mr. McAfee resigned on July 15,
2004 and his position as a member of the Compensation Committee has not been
filled to date.
The Audit Committee reviews, acts on and reports to the Board of Directors
regarding various auditing and accounting matters, including the selection of
our independent auditors, the monitoring of the rotation of the partners of the
independent auditors, the review of our financial statements, the scope of the
annual audits, fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices. There are currently two
members of the Audit Committee, Messrs. Williams and McClendon.
DIRECTORS' COMPENSATION
- ------------------------
Directors who are also our employees receive no additional compensation for
serving on the Board. We reimburse non-employee Directors for all travel and
other expenses incurred in connection with attending meetings of the Board of
Directors and with non-qualified stock options. Our Directors who are also
employees may participate in other incentive plans described under "Executive
Compensation."
19
EXECUTIVE COMPENSATION
- -----------------------
The following table sets forth all compensation paid in respect of the
individuals who served, during the year ended December 31, 2003, as our Chief
Executive Officer and the next five mostly highly compensated executive officers
(collectively the "NAMED EXECUTIVE OFFICERS") whose total salary and bonus was
in excess of $100,000 per annum. Except as listed below, there are no bonuses,
other annual compensation, restricted stock awards or stock options/SARS or any
other compensation paid to executive officers.
Name and principal Year Annual compensation
position Salary ($) Bonus ($) Other annual
compensation ($)
(a) (b) (c) (d) (e)
- ----------------------------------------------------------------------------
Douglas J. Glader, CEO 2003 (1) $ 222,203 0 0
- ----------------------------------------------------------------------------
2002 $ 63,928
- ----------------------------------------------------------------------------
Jay Zerfoss, CFO 2003 $ 94,746 0 0
- ----------------------------------------------------------------------------
2002 $ 50,329
- ----------------------------------------------------------------------------
Magnus Hansen 2003 $ 58,157 0 0
- ----------------------------------------------------------------------------
2002 $ 29,416
- ----------------------------------------------------------------------------
Patrick Wong 2003 $ 51,154 0 0
- ----------------------------------------------------------------------------
2002 $ 0
- ----------------------------------------------------------------------------
John McQuade 2003 $ 63,735 0 0
- ----------------------------------------------------------------------------
2002 $ 25,860
- ----------------------------------------------------------------------------
Gregory Dewing 2003 $ 53,217 0 0
- ----------------------------------------------------------------------------
2002 $ 2,340
- ----------------------------------------------------------------------------
Dan Spaulding, CEO 2003 (2) 0 0 0
- ----------------------------------------------------------------------------
2002 0 0 $ 200 (3)
- ----------------------------------------------------------------------------
(1) Mr. Glader's employment letter provides that he receive his then current
base salary for an additional 18 months in the event that he is terminated
without cause. There are no other severance provisions.
(2) Mr. Spaulding resigned from all positions that he held with Zowcom,
effective October 17, 2003 pursuant to the merger with PNI.
(3) Mr. Spaulding was issued 200,000 shares of the Company's common stock with
a fair market value of $200 for services rendered as a promoter in 2002.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Frank Drechsler was issued 5,000,000 shares of our common stock in July
2002 in exchange for his services as our promoter. The value of the services
performed by Mr. Drechsler was approximately $5,000. Marc Seely was issued
800,000 shares of our common stock in July 2002 in exchange for his services as
our promoter. The value of the services performed by Mr. Seely was
approximately $800. Dan Spaulding was issued 200,000 shares of our common stock
in July 2002 in exchange for his services as our promoter. The value of the
services performed by Mr. Spaulding was approximately $200.
Eric McAfee received rights to purchase 1,200,000 shares of common stock
for his services as a financial advisor to the Company from May 1, 2002 through
October 31, 2002. Eric McAfee then assigned the rights to Berg McAfee
Companies, which is owned in equal parts by Eric McAfee and Clyde Berg. Eric
McAfee purchased 600,000 shares of common stock at $0.001 per share in August
2003.
20
Cagan McAfee Capital Partners ("CMCP") received rights to purchase
2,000,000 shares of common stock for its services as a finder in our December
2003 private placement. Eric McAfee, as an owner of CMCP purchased 665,000
shares at $0.001 per share in August 2003.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions with affiliated persons be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested outside directors on the Board of Directors, and
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Effective on October 24, 2003, and as a result of the Merger, Lesley,
Thomas, Schwarz & Postma, Inc. was dismissed as the principal accountant engaged
to audit Zowcom's financial statements. Lesley, Thomas, Schwarz & Postma, Inc.
performed the audit of Zowcom's financial statements for the fiscal years ended
December 31, 2001 and 2002. During this period and the subsequent interim
period prior to their dismissal, there were no disagreements with Lesley,
Thomas, Schwarz & Postma, Inc. on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Lesley, Thomas, Schwarz &
Postma, Inc. would have caused them to make reference to this subject matter of
the disagreements in connection with their report, nor were there any
"reportable events" as such term is defined in Item 304(a)(1)(iv) of Regulation
S-B, promulgated under the Securities Exchange Act of 1934, as amended
("Regulation S-B").
The audit reports of Lesley, Thomas, Schwarz & Postma, Inc. for Zowcom's
fiscal years ended December 31, 2001 and 2002 did not contain an adverse
opinion, or a disclaimer of opinion, or qualification or modification as to
uncertainty, audit scope, or accounting principles.
Zowcom requested Lesley, Thomas, Schwarz & Postma, Inc. to furnish it with
a letter addressed to the Securities and Exchange Commission stating whether it
agrees with the statements made above by us. A copy of such letter, dated
October 24, 2003, has been filed with the SEC.
Effective October 24, 2003, we engaged Burr, Pilger & Mayer LLP, whose
address is Two Palo Alto Square, 3000 El Camino Real, Suite 250, Palo Alto,
California, 94306 to audit our financial statements. During our most recent
fiscal year and the subsequent period prior to such appointment, we have not
consulted the newly engaged accountant regarding the application of accounting
principles to a specified transaction or the type of audit opinion that might be
rendered on our financial statements, nor on any matter that was either the
subject of a disagreement or a reportable event.
Our Board of Directors approved the change in accountants described herein.
21
INFORMATION REGARDING THE FEES PAID TO BURR, PILGER & MAYER LLP DURING THE YEARS
ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2002
Below is the aggregate amount of fees billed for professional services rendered
by our principal accountants with respect to our last two fiscal years:
2003 2002
------- -----
Audit fees $44,795 $ ---
Audit-related fees 36,315 ---
Tax fees --- ---
All other fees --- ---
All of the professional services rendered by our principal accountants for the
audit of our annual financial statements and review of financial statements
included in our Form 10-QSB's or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for last two fiscal years were approved by the audit committee.
The Audit Committee has adopted policies and procedures for the
pre-approval of the above fees. All requests for services to be provided by the
Company's independent accountants are submitted to the Audit Committee. Requests
for all non-audit related services require pre-approval form the Audit
Committee.
CORPORATE GOVERNANCE INFORMATION
Stockholders can access Procera's corporate governance information, at
Procera's website, www.proceranetworks.com , the content of which website is not
incorporated by, referenced into, or considered a part of, this document.
ADDITIONAL INFORMATION
THE COMPANY'S 2003 ANNUAL REPORT ON FORM 10-KSB, INCLUDING FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2003, IS BEING DISTRIBUTED TO ALL
STOCKHOLDERS OF THE COMPANY TOGETHER WITH THIS PROXY STATEMENT, IN SATISFACTION
OF THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION. ADDITIONAL COPIES
OF THE REPORT, EXCEPT FOR EXHIBITS, ARE AVAILABLE AT NO CHARGE UPON REQUEST. TO
OBTAIN ADDITIONAL COPIES OF THE ANNUAL REPORT ON FORM 10-KSB, PLEASE CONTACT
PROCERA NETWORKS, INC., 3175 SOUTH WINCHESTER BOULEVARD, CAMPBELL, CALIFORNIA
95008, OR AT TELEPHONE NUMBER (408) 874-4332.
COMMUNICATING WITH THE BOARD OF DIRECTORS
In order to communicate with the Board of Directors as a whole, with
non-management directors or with specified individual directors, correspondence
may be directed to the Secretary at 3175 SOUTH WINCHESTER BOULEVARD, CAMPBELL,
CALIFORNIA 95008.
Stockholders may propose business to be brought before an annual meeting.
In order for a stockholder to submit a proposal for consideration at Procera's
annual meeting, the stockholder must fulfill the requirements set forth in Rule
14a-8 setting forth specified information with
22
respect to the stockholder and additional information as would be required under
Regulation 14A under the Exchange Act and Rule 14a-8 for a proxy statement used
to solicit proxies for such nominee. In general, the notice must be delivered
not less than one hundred and twenty (120) days prior to the first anniversary
of the preceding year's mailing date of the annual meeting's proxy statement.
If you intend to propose any matter for action at our 2005 Annual Meeting
of Stockholders and wish to have the proposal included in our proxy statement,
you must submit your proposal to the Secretary of Procera Networks, Inc. at 3175
SOUTH WINCHESTER BOULEVARD, CAMPBELL, CALIFORNIA 95008, on or before January 1,
2005, not later than 5:00 p.m. Pacific Standard Time. Please note that proposals
must comply with all of the requirements of Rule 14a-8 under the Securities
Exchange Act of 1934. Only then can we consider your proposal for inclusion in
our proxy statement and proxy relating to the 2005 Annual Meeting. We will be
able to use proxies you give us for the next year's meeting to vote for or
against any shareholder proposal that is not included in the proxy statement at
our discretion unless the proposal is submitted to us on or before January 1,
2005.
/s/ Douglas J. Glader
- ------------------------
Douglas J. Glader
President and Chief Executive Officer
Campbell, California
September 7, 2004
23
EXHIBIT A
---------
2004 STOCK OPTION PLAN
----------------------
PROCERA NETWORKS, INC.
2004 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN
-----------------------
The purposes of this 2004 Stock Option Plan (the "Plan") of Procera
Networks, Inc., a Nevada corporation (the "Company") are to:
(i) Encourage employees to accept or continue employment with the
Company or its Affiliates; and
(ii) Increase the interest of officers, directors, key employees and
consultants in the Company's welfare through participation in the growth in
value of the common stock of the Company ("Common Stock").
Options granted under this Plan ("Options") may be "incentive stock
options" ("ISOs") intended to satisfy the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or "nonqualified
options" ("NQOs").
2. ELIGIBLE PERSONS
-----------------
Every person who at the date of grant of an Option is an employee of the
Company or of any Affiliate (as defined below) (including employees who are also
officers or directors of the Company or of any Affiliate) is eligible to receive
ISO's or NQO's under this Plan. The term "Affiliate," as used in the Plan,
means a parent or subsidiary corporation, as defined in the applicable
provisions (currently Sections 424(e) and (f), respectively) of the Code. Every
person who is a director of or consultant to the Company or any Affiliate at the
date of grant of an Option is eligible to receive NQOs under this Plan.
3. STOCK SUBJECT TO THIS PLAN
------------------------------
Subject to the provisions of Section 6.1.1 of the Plan, the maximum
aggregate number of shares of stock that may be granted pursuant to this Plan is
Two Million Five Hundred Thousand (2,500,000) shares of Common Stock. The shares
unexercised shall become available again for grants under the Plan.
4. ADMINISTRATION
--------------
1.2 Administrator. This Plan shall be administered by the Board of
-------------
Directors of the Company (the "Board") or a committee, director, or officer
appointed by the Board, which committee shall be constituted to comply with all
applicable federal and state laws (the Board, or such committee appointed by the
Board, shall be the "Administrator"). The Administrator shall not be liable for
any decision, action, or omission respecting the Plan, any options, or any
option shares.
1.3 Disinterested Administration. This Plan shall be administered in
-----------------------------
accordance with the disinterested administrative requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), by the Securities and Exchange Commission ("Rule 16b-3"), or any
successor rule thereto.
1.4 Authority of the Administrator. Subject to the other provisions of
------------------------------
this Plan, the Administrator shall have the authority, in its discretion: (i) to
-------------
grant Options; (ii) to determine the fair market of the Common Stock subject to
Options, in accordance with Section 6.1.11 of this Plan; (iii) to determine the
exercise price of Options granted; (iv) to determine the persons to whom, and
the time or times at which, Options shall be granted, and the number of shares
subject to each Option; (v) to interpret this Plan; (vi) to prescribe, amend,
and rescind rules and regulations relating to this Plan; (vii) to determine the
terms and provisions of each Option granted (which need not be identical),
including but not limited to, the time or times at which Options shall be
exercisable; (viii) with the consent of the optionee, to modify or amend any
Option; (ix) to defer (with the consent of the optionee) or accelerate the
exercise date or vesting of any Option; (x) to authorize any person to execute
on behalf of the Company any instrument evidencing the grant of an
1
Option; and (xi) to make all other determinations deemed necessary or advisable
for the administration of this Plan.
1.5 Determinations Final. All questions of interpretation,
---------------------
implementation, and application of this Plan shall be determined by the Board.
Such determinations shall be final and binding on all persons.
5. GRANTING OF OPTIONS: STOCK OPTION AGREEMENT
------------------------------------------------
1.6 Ten-Year Term. No Options shall be granted under this Plan after
--------------
ten (10) years from the date of adoption of this Plan by the Board.
1.7 Stock Option Agreement. Each Option shall be evidenced by a
------------------------
written Stock Option Agreement, in form satisfactory to the Company (as set
forth on EXHIBIT A attached hereto), executed by the Company and the person to
---------
whom such Option is granted; provided, however, that the failure by the Company,
the optionee, or both to execute a Stock Option Agreement shall not invalidate
the granting of any Option.
1.8 Designation as ISO or NQO. The Stock Option Agreement shall
-----------------------------
specify whether each Option it evidences is a NQO or an ISO. Notwithstanding
designation of any Option as an ISO or a NQO, if the aggregate fair market value
of the shares under Options designated as ISOs which would become exercisable
for the first time by any Optionee at a rate in excess of one hundred thousand
dollars ($100,000) in any calendar year (under all plans of the Company), then,
unless otherwise provided in the Stock Option Agreement or by the Administrator,
such Options shall be NQOs to the extent of the excess above one hundred
thousand dollars ($100,000). For purposes of this Section 5.3, Options shall be
taken into account in the order in which they were granted, and the fair market
value of the shares shall be determined as of the time the Option, with respect
to such shares, is granted.
1.9 Grant to Prospective Employees. The Administrator may approve the
-------------------------------
grant of Options under this Plan to persons who are expected to become employees
of the Company, but who are not employees at the date of approval. In such
cases, the Option shall be deemed granted, without further approval, on the date
the optionee is first treated as an employee for payroll purposes.
6. TERMS AND CONDITIONS OF OPTIONS
-----------------------------------
Each Option granted under this Plan shall be designated as a ISO or an NQO.
Each Option shall be subject to the terms and conditions set forth in Section
6.1. NQOs shall be also subject to the terms and conditions set forth in
Section 6.2, but not those set forth in Section 6.3. ISOs shall also be subject
to the terms and conditions set forth in Section 6.3, but not those set forth in
Section 6.2.
1.10 Terms and Conditions to Which Options Are Subject. Options
--------------------------------------------------------
granted under this Plan shall, as provided in Section 6, be subject to the
following terms and conditions:
1.10.1 Changes in Capital Structure. The existence of outstanding
----------------------------
Options shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations, or other changes in its or any other
corporation's capital structure or business, any merger or consolidation, any
issuance of bonds, debentures, preferred, or prior preference stock ahead of or
affecting Common Stock, the dissolution or liquidation of the Company's or any
other corporation's assets or business, or any other corporate act whether
similar to the events described above or otherwise. Subject to Section 6.1.2,
if the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, recapitalization, or other event, or converted into or
exchanged for other securities as a result of a merger, consolidation,
reorganization, or other event, appropriate adjustments shall be made in the
number and class of shares of stock subject to this Plan and each outstanding
Option; provided, however, that the Company shall not be required to issue
fractional shares as a result to any such adjustments. Each such adjustment
shall be subject to approval by the Administrator, in its sole discretion, and
may be made without regard to any resulting tax consequence to the optionee.
2
1.10.2 Corporate Transactions. In connection with: (i) any
-----------------------
merger, consolidation, acquisition, separation, or reorganization in which more
than fifty percent (50%) of the shares of the Company outstanding immediately
before such event are converted into cash or into another security; (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company; (iii) any sale of more
than fifty percent (50%) of the Company's assets; or (iv) any like occurrence in
which the Company is involved, the Administrator may, in its absolute
discretion, do one or more of the following upon ten days' prior written notice
to all optionees: (a) accelerate any vesting schedule to which an Option is
subject; (b) cancel Options upon payment to each optionee in cash, with respect
to each Option to the extent then exercisable, of any amount which, in the
absolute discretion of the Administrator, is determined to be equivalent to any
excess of the market value (at the effective time of such event) of the
consideration that such optionee would have received if the Option had been
exercised before the effective time over the exercise price of the Option; (c)
shorten the period during which such Options are exercisable (provided they
remain exercisable, to the extent otherwise exercisable, for at least ten days
after the date the notice is given); or (d) arrange that new option rights be
substituted for the option rights granted under this Plan, or that the Company's
obligations as to Options outstanding under this Plan be assumed, by an employer
corporation other than the Company, or by a parent or subsidiary of such
employer corporation. The actions described in this Section 6.1.2 may be taken
without regard to any resulting tax consequence to the optionee.
1.10.3 Time of Option Exercise. Except as necessary to satisfy
--------------------------
the requirements of Section 422 of the Code and subject to Section 5, Options
granted under this Plan shall be exercisable at such times as are specified in
the written Stock Option Agreement relating to such Option: provided, however,
that so long as the optionee is a director or officer, as those terms are used
in Section 16 of the Exchange Act, such Option may not be exercisable, in whole
or in part, at any time prior to the six (6) month anniversary of the date of
the Option grant, unless the Administrator determines that the foregoing
provision is not necessary to comply with the provisions of Rule 16b-3 or that
Rule 16b-3 is not applicable to the Plan. No Option shall be exercisable,
however, until a written Stock Option Agreement, in form satisfactory to the
Company (as set forth in EXHIBIT A attached hereto), is executed by the Company
---------
and the optionee. The Administrator, in its absolute discretion, may later waive
any limitations respecting the time at which an Option or any portion of an
Option first becomes exercisable.
1.10.4 Option Grant Date. Except as provided in Section 5.4, or
-------------------
as otherwise specified by the Board, the date of grant of an Option under this
Plan shall be the date as of which the Board approves the grant.
1.10.5 Nonassignability of Option Rights. No Option granted under
---------------------------------
this Plan shall be assignable or otherwise transferable by the optionee except
by will, by the laws of descent and distribution, or pursuant to a qualified
domestic relations order (limited in the case of an ISO, to a qualified domestic
relations order that effects a transfer of an ISO that is community property as
part of a division of community property). During the life of the optionee, an
Option shall be exercisable only by the optionee.
1.10.6 Payment. Payment in full, in cash, shall be made for all
-------
stock purchased at the time written notice of exercise of an Option is given to
the Company, and proceeds of any payment shall constitute general funds of the
Company.
1.10.7 Termination of Employment. Unless determined otherwise by
--------------------------
the Board in its absolute discretion to the extent not already expired or
exercised, every Option granted under this Plan shall terminate at the earlier
of: (a) the Expiration Date (as defined in Section 6.1.11); or (b) upon the
date of termination of employment with the Company or any Affiliate; provided
that if termination of employment is due to the optionee's "disability" (as
determined in accordance with Section 22(e)(3) of the Code), the optionee, or
the optionee's personal representative, may at any time within one-hundred
eighty (180) days after the termination of employment (or such lesser period as
is specified in the stock option agreement, but in no event after the Expiration
Date of the Option), exercise the option to the extent it was exercisable at the
date of termination; and provided further that if termination of employment is
due to the Optionee's death, the Optionee's estate or a legal representative
thereof, may at any time within and including one-hundred eighty (180) days
after the date of death of Optionee (or such lesser period as is specified in
the Stock Option Agreement, but in no event after the Expiration Date of the
Option), exercise the option to the extent it was exercisable at the date of
termination. Transfer of an optionee from the Company to an Affiliate or vice
versa, or from one Affiliate to another, or a leave of absence due to sickness,
military service, or other cause duly approved by the Company, shall
3
not be deemed a termination of employment for purposes of this Plan. For the
purpose of this Section 6.1.7, "employment" means engagement with the Company or
any Affiliate of the Company either as an employee, a director, or a consultant.
1.10.8 Withholding and Employment Taxes. At the time of exercise
---------------------------------
of a Non-Qualified Option (or at such later time(s) as the Company may
prescribe), the optionee shall remit to the Company in cash all applicable (as
determined by the Company in its sole discretion) federal and state withholding
taxes.
1.10.9 Other Provisions. Each Option granted under this Plan may
-----------------
contain such other terms, provisions, and conditions not consistent with this
Plan as may be determined by the Board, and each ISO granted under this Plan
shall include such provisions and conditions as are necessary to qualify the
Option as an "incentive stock option" within the meaning of Section 422 of the
Code.
1.10.10 Determination of Value. For purposes of the Plan, the
------------------------
value of Common Stock or other securities of the Company shall be determined as
follows:
(i) If the stock of the Company is listed on any established
stock exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers
Automated Quotation System or the Over the Counter Bulletin Board, its fair
market value shall be the closing bid price for the shares of common stock of
the Company on the last business day prior to date of grant, as reported in the
Wall Street Journal.
- ---------------------
(ii) If the stock of the Company is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
stock on the date the value is to be determined (or if there is no quoted price
for the date of grant, then for the last preceding business day on which there
was a quoted price).
(iii) If the stock of the Company is as described in Section
6.1.10(i) or (ii), but is restricted by law, contract, market conditions, or
otherwise as to salability or transferability, its fair market value shall be as
set forth in Section 6.1.10(i) or (ii), as appropriate, less, as determined by
the Board, an appropriate discount, based on the nature and terms of the
restrictions.
(iv) In the absence of an established market for the stock,
the fair market value thereof shall be determined by the Board, with reference
to the Company's net worth, prospective earning power, dividend-paying capacity,
and other relevant factors, including the goodwill of the Company, the economic
outlook in the Company's industry, the Company's position in the industry and
its management, and the values of stock of other corporations in the same or a
similar line of business.
1.10.11 Option Term. No Option shall be exercisable more than ten
-----------
years after the date of grant, or such lesser period of time as set forth in the
stock option agreement (the end of the maximum exercise period stated in the
Stock Option Agreement is referred to in this Plan as the "Expiration Date").
No ISO granted to any person who owns, directly or by attribution, stock
possessing more than ten (10%) percent of the total combined voting power of all
classes of stock of the Company or any Affiliate ( a "Ten Percent Stockholder")
shall be exercisable more than five (5) years after the date of grant.
1.10.12 Exercise Price. The exercise price of any Option granted
---------------
to any Ten Percent Stockholder shall in no event be less than one hundred and
ten percent (110%) of the fair market value (determined in accordance with
Section 6.1.10) of the stock covered by the Option at the time the Option is
granted.
1.10.13 Compliance with Securities Laws. The Company shall not be
-------------------------------
obligated to offer or sell any shares upon exercise of an Option unless the
shares are at that time effectively registered or exempt from registration under
the federal securities laws and the offer and sale of the shares are otherwise
in compliance with all applicable state and local securities laws. The Company
shall have no obligation to register the shares under the federal securities
laws or take whatever other steps may be necessary to enable the shares to be
offered and sold under federal or other
4
securities laws. Upon exercising all or any portion of an Option, an optionee
may be required to furnish representations or undertakings deemed appropriate by
the Company to enable the offer and sale of the Option shares or subsequent
transfers of any interest in the shares to comply with applicable securities
laws. Stock certificates evidencing shares acquired upon exercise of options
shall bear any legend required by, or useful for purposes of compliance with,
applicable securities laws, this Plan, or the Stock Option Agreement evidencing
the Option.
1.11 Terms and Conditions to Which Only NQOs Are Subject. Options
--------------------------------------------------------
granted under this Plan which are designated as NQO's shall be subject to the
following additional terms and conditions:
1.11.1 Exercise Price. Except as set forth in Section 6.1.13, the
--------------
exercise price of a NQO shall not be less than eighty five (85) percent of the
fair market value (determined in accordance with Section 6.1.10) of the stock
subject to the Option on the date of grant.
1.12 Terms and Conditions to Which Only ISOs Are Subject. Options
--------------------------------------------------------
granted under this Plan which are designated as ISO's shall be subject to the
following additional terms and conditions:
1.12.1 Exercise Price. Except as set forth in Section 6.1.13, the
--------------
exercise price of an ISO shall be determined in accordance with the applicable
provisions of the Code and shall in no event be less than the fair market value
(determined in accordance with Section 6.1.10) of the stock covered by the
Option at the time the Option is granted.
1.12.2 Disqualifying Dispositions. If stock acquired upon
---------------------------
exercise of an ISO is disposed of in a "disqualifying disposition" within the
meaning of Section 422 of the Code, the holder of the stock immediately before
the disposition shall notify the Company in writing of the date and terms of the
disposition and comply with any other requirements imposed by the Company in
order to enable the Company to secure any related income tax deduction to which
it is entitled.
7. MANNER OF EXERCISE
--------------------
1.13 Notice of Exercise. An optionee wishing to exercise an Option
--------------------
shall give written notice to the Company at its principal executive office, to
the attention of the officer of the Company designated by the Administrator,
accompanied by payment of the exercise price as provided in Section 6.1.6. The
date the Company receives written notice of an exercise hereunder, accompanied
by payment of the exercise price and, if required, by payment of any federal or
state withholding or employment taxes required to be withheld by virtue of
exercise of the Option, will be considered as the date such Option was
exercised.
1.14 Issuance of Certificates. Subject to applicable provisions set
--------------------------
forth in the Stock Option Agreement, promptly after receipt of written notice of
exercise of an Option, the Company shall, without stock issue or transfer taxes
to the optionee or other person entitled to exercise the Option, deliver to the
optionee or such other person a certificate or certificates for the requisite
number of shares of stock. Unless the Company specifies otherwise, an optionee
or transferee of an optionee shall not have any privileges as a shareholder with
respect to any stock covered by the Option until the date of issuance of a
stock certificate. Subject to Section 6.1.1 hereof, no adjustment shall be made
for dividends or other rights for which the record date is prior to the date the
certificates are delivered.
8. EMPLOYMENT RELATIONSHIP
------------------------
Nothing in this Plan or any Option granted hereunder shall interfere with
or limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment at any time, nor confer upon any optionee
any right to continue in the employ of the Company or any of its Affiliates.
9. AMENDMENTS TO PLAN
--------------------
The Board may amend this Plan at any time. Without the consent of an
optionee, no amendment may affect outstanding Options except to conform this
Plan and ISOs granted under this Plan to federal or other tax laws relating to
5
incentive stock options. No amendment shall require shareholder approval unless
shareholder approval is required to preserve incentive stock option treatment
for tax purposes, or the Board otherwise concludes that shareholder approval is
advisable.
10. SHAREHOLDER APPROVAL: TERM
----------------------------
The Board of Directors of the Company adopted this Plan as of September 3,
2004. This Plan shall terminate ten (10) years after initial adoption by the
Board unless terminated earlier by the Board. The Board may terminate this Plan
without shareholder approval. No Options shall be granted after termination of
this Plan, but termination shall not affect rights and obligations under
then-outstanding Options.
6
EXHIBIT A
---------
PROCERA NETWORKS, INC.
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement"), by and between Procera
Networks, Inc., a Nevada corporation (the "Company"), and ________________
("Optionee"), is made effective as of this ___ day of _____________.
RECITALS
A. Pursuant to the Procera Networks, Inc., 2004 Stock Option Plan (the
"Plan"), the Board of Directors of the Company (the "Board") has authorized the
grant of an option to purchase common stock of the Company ("Common Stock") to
Optionee, effective on the date indicated above, thereby allowing Optionee to
acquire a proprietary interest in the Company in order that Optionee will have
further incentive for continuing his or her employment by, and increasing his or
her efforts on behalf of, the Company or an Affiliate of the Company.
B. The Company desires to issue a stock option to Optionee and Optionee
desires to accept such stock option on the terms and conditions set forth below.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Option Grant. The Company hereby grants to the Optionee, as a separate
-------------
incentive and not in lieu of any fees or other compensation for his or her
services, an option to purchase, on the terms and conditions hereinafter set
forth, all or any part of an aggregate of ___________________ (_____) shares of
authorized but unissued shares of Common Stock, at the Purchase Price set forth
in paragraph 2 of this Agreement.
2. Purchase Price. The Purchase Price per share (the "Option Price") shall
---------------
be $______ which is not less than one hundred percent (100%) of the fair market
value per share of Common Stock on the date hereof. The Option Price shall be
payable in the manner provided in paragraph 9 below.
3. Adjustment. The number and class of shares specified in paragraph 1
----------
above, and the Option Price, are subject to appropriate adjustment in the event
of certain changes in the capital structure of the Company such as stock splits,
recapitalizations and other events which alter the per share value of Common
Stock or the rights of holders thereof. In connection with: (i) any merger,
consolidation, acquisition, separation, or reorganization in which more than
fifty percent (50%) of the shares of the Company outstanding immediately before
such event are converted into cash or into another security; (ii) any
dissolution or liquidation of the Company or any partial liquidation involving
fifty percent (50%) or more of the assets of the Company; (iii) any sale of more
than fifty percent (50%) of the Company's assets; or (iv) any like occurrence in
which the Company is involved, the Company may, in its absolute discretion, do
one or more of the following upon ten days' prior written notice to the
Optionee: (a) accelerate any vesting schedule to which this option is subject;
(b) cancel this option upon payment to the Optionee in cash, to the extent this
option is then exercisable, of any amount which, in the absolute discretion of
the Company, is determined to be equivalent to any excess of the market value
(at the effective time of such event) of the consideration that the Optionee
would have received if this option had been exercised before the effective time
over the Option Price; (c) shorten the period during which this option is
exercisable (provided that this option shall remain exercisable, to the extent
otherwise exercisable, for at least ten (10) days after the date the notice is
given); or (d) arrange that new option rights be substituted for the option
rights granted under this option, or that the Company's obligations under this
option be assumed, by an employer corporation other than the Company or by a
parent or subsidiary of such employer corporation. The actions described in
this paragraph 3 may be taken without regard to any resulting tax consequence to
the Optionee.
7
4. Option Exercise. On the date six (6) months after the Optionee's hiring
----------------
date, so long as Optionee is still employed by the Company, the right to
exercise this option will vest as to twenty-five percent (25%) of the number of
shares subject to this option. Thereafter, the right to exercise the remainder
of this option will vest on the last calendar day of each month at a rate of
1/36th of the remaining shares subject to this option. Shares entitled to be,
but not, purchased as of any vesting date may be purchased at any subsequent
time, subject to paragraphs 5 and 6 below. The number of shares which may be
purchased at any time will be rounded up to the nearest whole number. No
partial exercise of the option may be for an aggregate exercise price of less
than One Hundred Dollars ($100). In order to exercise any part of this option,
Optionee must agree to be bound by the Company's Shareholder Buy-Sell Agreement,
if any, existing at the time of the exercise of this Option.
5. Termination of Option. This option may not be exercised after, and will
----------------------
completely expire on, the close of business on the date ten (10) years after the
effective date of this Agreement, unless terminated sooner pursuant to paragraph
6 below.
6. Termination of Employment. In the event of termination of Optionee's
---------------------------
employment with the Company for any reason, this option will terminate
immediately upon the date of the termination of Optionee's employment, unless
terminated earlier pursuant to paragraph 5 above. Optionee shall have sixty
(60) days after such termination to exercise any vested options. However, (i)
if termination is due to the death of Optionee, the Optionee's estate or a legal
representative thereof, may at any time within and including one-hundred eighty
(180) days after the date of death of Optionee, exercise the option to the
extent it was exercisable at the date of termination; or (ii) if termination is
due to Optionee's "disability" (as determined in accordance with Section
22(e)(3) of the Internal Revenue Code), Optionee may, at any time, within
one-hundred eighty (180) days following the date of this Agreement, exercise the
option to the extent it was exercisable at the date of termination. If the
Optionee or his or her legal representative fails to exercise the option within
the time periods specified in this paragraph 6, the option shall expire. The
Optionee or his or her legal representative may, on or before the close of
business on the earlier of the date for exercise set forth in paragraph 5 or the
dates specified in paragraph 4 above, exercise the option only to the extent
Optionee could have exercised the option on the date of such termination of
employment pursuant to paragraphs 4 and 5 above.
7. Transferability. This option will be exercisable during Optionee's
---------------
lifetime only by Optionee. Except as otherwise set forth in the Plan, this
option will be non-transferable.
8. Method of Exercise. Subject to paragraph 10 below, this option may be
--------------------
exercised by the person then entitled to do so as to any vested shares which may
then be purchased by delivering to the Company an exercise notice in the form
attached hereto as Exhibit A and:
----------
a. full payment in cash of the Option Price thereof (and the amount of
any tax the Company is required by law to withhold by reason of such exercise);
and
b. payment of any withholding or employment taxes, if any.
The Company will issue a certificate representing the shares so purchased within
a reasonable time after its receipt of such notice of exercise, payment of the
Option Price and withholding or employment taxes, and execution of any other
appropriate documentation, with appropriate certificate legends.
9. Securities Laws. The issuance of shares of Common Stock upon the
----------------
exercise of the option will be subject to compliance by the Company and the
person exercising the option with all applicable requirements of federal and
state securities and other laws relating thereto. No person may exercise the
option at any time when, in the opinion of counsel to the Company, such exercise
is not permitted under applicable federal or state securities laws. Nothing
herein will be construed to require the Company to register or qualify any
securities under applicable federal or state securities laws, or take any action
to secure an exemption from such registration and qualification for the issuance
of any securities upon the exercise of this option.
10. No Rights as Shareholder. Neither Optionee nor any person claiming
---------------------------
under or through Optionee will be, or
8
have any of the rights or privileges of, a shareholder of the Company in respect
of any of the shares issuable upon the exercise of the option, unless and until
this option is properly and lawfully exercised.
11. No Right to Continued Employment. Nothing in this Agreement will be
------------------------------------
construed as granting Optionee any right to continued employment. EXCEPT AS THE
COMPANY AND OPTIONEE WILL HAVE OTHERWISE AGREED IN WRITING, OPTIONEE'S
EMPLOYMENT WILL BE TERMINABLE BY THE COMPANY, AT WILL, WITH OR WITHOUT CAUSE FOR
ANY REASON OR NO REASON. Except as otherwise provided in the Plan, the Board in
its sole discretion will determine whether any leave of absence or interruption
in service (including an interruption during military service) will be deemed a
termination of employment for the purpose of this Agreement.
12. Notices. Any notice to be given to the Company under the terms of this
-------
Agreement will be addressed to the Company, in care of its Secretary, at its
executive offices, or at such other address as the Company may hereafter
designate in writing. Any notice to be given to Optionee will be in writing and
delivered or mailed by registered or certified mail, return receipt requested,
postage prepaid, addressed to Optionee at the address set forth beneath
Optionee's signature in writing. Any such notice will be deemed to have been
duly given where deposited in a United States post office in compliance with the
foregoing.
13. Non-Transferrable. Except as otherwise provided in the Plan or in this
-----------------
Agreement, the option herein granted and the rights and privileges conferred
hereby will not be transferred, assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise). Upon any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of this option, or of any right
or upon any attempted sale under any execution, attachment or similar process
upon the rights and privileges conferred hereby, this option will immediately
become null and void.
14. Successor. Subject to the limitation on the transferability of the
---------
option contained herein, this Agreement will be binding upon and inure to the
benefit of the heirs, legal representatives, successors and assigns of the
parties hereto.
15. California Law. This Agreement will be governed by and construed in
---------------
accordance with the laws of the State of California.
16. Type of Option. The option granted in this Agreement:
----------------
a. [_] Is intended to be an Incentive Stock Option ("ISO") within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.
b. [_] Is a non-qualified Option and is not intended to be an ISO.
17. Plan Provisions Incorporated by Reference. A copy of the Plan is
---------------------------------------------
attached hereto as Exhibit B and incorporated herein by this reference.
----------
18. Terms. Capitalized terms used herein, except as otherwise indicated,
-----
shall have the same meaning as those terms have under the Plan.
9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
COMPANY: PROCERA NETWORKS, INC.
By:__________________________________
Title:_______________________________
OPTIONEE: _____________________________________
Address:_____________________________
_____________________________________
_____________________________________
10
PROXY
PROCERA NETWORKS, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Douglas J. Glader with the power to appoint
his substitute, and hereby authorizes him to represent and to vote as designated
below, all the shares of common stock of Procera Networks, Inc. held of record
by the undersigned on August 6, 2004, at the Annual Meeting of Shareholders to
be held at the Company's offices located at 3175 South Winchester Boulevard,
Campbell, California, 95008, on Tuesday, October 12, 2004, at 9:00 a.m., Pacific
Daylight Savings Time, or any adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1, 2 AND 3.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF PROCERA NETWORKS,
INC. PLEASE SIGN AND RETURN THIS PROXY IN THE ENCLOSED PRE-ADDRESSED ENVELOPE.
THE GIVING OF A PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND
THE MEETING.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AT THE MEETING IN ACCORDANCE WITH
THE SHAREHOLDER'S SPECIFICATIONS ON THE REVERSE SIDE. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY IN RESPECT TO MATTERS NOT KNOWN OR DETERMINED AT THE
TIME OF THE MAILING OF THE NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS TO THE
UNDERSIGNED.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders, Proxy Statement and Annual Report.
(To be signed on the other side)
PROCERA NETWORKS, INC.
3175 SOUTH WINCHESTER BOULEVARD
CAMPBELL, CALIFORNIA 95008
ATTN: JAY ZERFOSS
VOTE BY MAIL
------------
Mark, sign, and date the enclosed proxy card and return it in the postage-paid
envelope we have provided or return it to Procera Networks, Inc., c/o ADP, 51
Mercedes Way, Edgewood, NY 11717.
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED
---------------------------------------------------
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK
-----------------------------------------------
VOTE FOR BOARD OF DIRECTORS
---------------------------
1. Election of four (4) Directors of the Company to serve until the next Annual
Meeting of Shareholders and until their successors have been duly elected and
qualified:
(01) Douglas J. Glader, ( 02) Scott McClendon, (03) Tom Saponas,
(04) Tom Williams
For Withhold For All To withhold authority to vote, mark "For All Except" and write the
All All Except: nominee's number on the line below.
[_] [_] [_] __________________________________________________________________
VOTE ON PROPOSALS
-----------------
2. The ratification of the appointment of Burr, Pilger & Mayer LLP as the
Company's independent accountants for the fiscal year ending January 2, 2005:
For Against Abstain
[_] [_] [_]
3. The ratification of the 2004 Procera Networks Stock Option Plan:
For Against Abstain
[_] [_] [_]
4. The transaction of such other business as may properly come before the
meeting or any adjournment thereof:
Signature(s) should agree with the name(s) stenciled hereon. Executors,
administrators, trustees, guardians and attorneys should indicate when signing.
Attorneys should submit powers of attorney.
________________________________________________________________________________
Signature Date Signature (Joint Owners)