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As filed with the Securities and Exchange Commission on April 9, 2012

Registration No. 333-178479            

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



PROOFPOINT, INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  7372
(Primary standard industrial
classification code number)
  51-0414846
(I.R.S. employer
identification no.)



892 Ross Drive
Sunnyvale, CA 94089
(408) 517-4710
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)



Gary Steele
Chief Executive Officer
Proofpoint, Inc.
892 Ross Drive
Sunnyvale, CA 94089
(408) 517-4710
(Name, address, including zip code, and telephone number,
including area code, of agent for service)



Copies to:

Matthew P. Quilter, Esq.
Jeffrey R. Vetter, Esq.
Fenwick & West LLP
801 California Street
Mountain View, CA 94041
(650) 988-8500

 

Michael T. Yang, Esq.
Proofpoint, Inc.
892 Ross Drive
Sunnyvale, CA 94089
(408) 517-4710

 

Jeffrey D. Saper, Esq.
Robert G. Day, Esq.
Michael E. Coke, Esq.
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300



Approximate date of commencement of proposed sale to the public:

           As soon as practicable after the effective date of this Registration Statement.



           If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the "Securities Act"), check the following box.     o

           If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

           If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

           If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

           Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a smaller reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of
Securities to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Offering Price Per
Share

  Proposed Maximum
Aggregate Offering
Price(2)

  Amount of
Registration Fee(3)

 

Common Stock, $0.0001 par value per share

  7,129,335   $12.00   $85,552,020   $9,805

 

(1)
Estimated pursuant to Rule 457(a) under the Securities Act of 1933, as amended. Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.

(2)
Estimated solely for the purpose of calculating the registration fee.

(3)
The Registrant previously paid $5,730 of the registration fee with the prior filings of this Registration Statement.

            The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


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The information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED APRIL 9, 2012

6,199,421 Shares

LOGO

Proofpoint, Inc.

Common Stock



        This is the initial public offering of our common stock. We are selling 5,000,000 shares of common stock and the selling stockholders identified in this prospectus are selling 1,199,421 shares of common stock. We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholders.

        Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $10.00 and $12.00 per share. We have applied to list our common stock on the NASDAQ Global Market under the symbol "PFPT."

        The underwriters have the option to purchase from us a maximum of 750,000 additional shares and from the selling stockholders a maximum of 179,914 additional shares to cover over-allotments of shares.

         Investing in our common stock involves risks. See "Risk Factors" beginning on page 13.

 
  Price to
Public
  Underwriting
Discounts and
Commissions
  Proceeds to
Proofpoint
  Proceeds
to Selling
Stockholders
 

Per share

  $     $     $     $    

Total

  $     $     $     $    

        Delivery of the shares of common stock will be made on or about on                      , 2012.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Credit Suisse   Deutsche Bank Securities

RBC Capital Markets   Pacific Crest Securities   First Analysis Securities Corp.

The date of this prospectus is                      , 2012.


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GRAPHIC


Table of Contents

TABLE OF CONTENTS

 
  Page

PROSPECTUS SUMMARY

  1

RISK FACTORS

  13

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

  35

INDUSTRY AND MARKET DATA

  36

USE OF PROCEEDS

  37

DIVIDEND POLICY

  37

CAPITALIZATION

  38

DILUTION

  40

SELECTED CONSOLIDATED FINANCIAL DATA

  42

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  44

BUSINESS

  76

MANAGEMENT

  95

EXECUTIVE COMPENSATION

  104

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

  129

PRINCIPAL AND SELLING STOCKHOLDERS

  131

DESCRIPTION OF CAPITAL STOCK

  135

SHARES ELIGIBLE FOR FUTURE SALE

  140

CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES TO NON-U.S. HOLDERS

  143

UNDERWRITING

  147

NOTICE TO CANADIAN RESIDENTS

  152

LEGAL MATTERS

  154

EXPERTS

  154

WHERE YOU CAN FIND ADDITIONAL INFORMATION

  154

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

  F-1




Dealer Prospectus Delivery Obligation

         Until                        , 2012 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.

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PROSPECTUS SUMMARY

         This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read the entire prospectus carefully, including the section entitled "Risk Factors" and our consolidated financial statements and related notes included elsewhere in this prospectus, before making an investment in our common stock.

Company Overview

        Proofpoint is a pioneering security-as-a-service vendor that enables large and mid-sized organizations worldwide to defend, protect, archive and govern their most sensitive data. Our security-as-a-service platform is comprised of an integrated suite of on-demand data protection solutions, including threat protection, regulatory compliance, archiving and governance, and secure communication. Our solutions are built on a flexible, cloud-based platform and leverage a number of proprietary technologies, including big data analytics, machine learning, deep content inspection, secure storage and advanced encryption, to address today's rapidly changing threat landscape.

        A fundamental shift in the sources of cyber crime, from hackers to organized crime and governments, combined with the emergence of international data trafficking, are driving an unprecedented wave of targeted, malicious attacks designed to steal valuable information. At the same time, the growth of business-to-business collaboration, as well as the consumerization of IT and the associated adoption of mobile devices and unmanaged Internet-based applications, have proliferated sensitive data and reduced the effectiveness of many existing security products. These factors have contributed to an increasing number of severe data breaches and expanding regulatory mandates, all of which have accelerated demand for effective data protection and governance solutions.

        Our platform addresses this growing challenge by not only protecting data as it flows into and out of the enterprise via on-premise and cloud-based email, instant messaging, social media and other web-based applications, but also securely archiving these communications for compliance and discovery. We address four important problems for the enterprise:

        Our platform and its associated solutions are sold to customers on a subscription basis and can be deployed through our unique cloud-based architecture that leverages both our global data centers as well as optional points-of-presence behind our customers' firewalls. Our flexible deployment model enables us to deliver superior security and compliance while maintaining the favorable economics afforded by cloud computing, creating a competitive advantage for us over legacy on-premise and cloud-only offerings.

        Our solutions are used by approximately 2,400 customers worldwide, including 26 of the Fortune 100, protecting tens of millions of end-users. We market and sell our solutions worldwide both directly through our sales teams and indirectly through a hybrid model where our sales organization actively assists our network of distributors and resellers. We also distribute our solutions through strategic partners including International Business Machines Corp. (IBM), Microsoft Corporation and VMware, Inc.

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Industry Background

        A number of trends are leading to a significant shift in the nature and severity of data security threats and the measures required to address them:

        To protect their data assets, organizations have typically employed a number of disparate on-premise security products. However, these solutions are not well suited to addressing today's challenges and many organizations are still unable to adequately protect their data assets for a variety of reasons, including:

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Market Opportunity

        In an attempt to defend against the constantly evolving threat landscape and to comply with government mandates, enterprises are beginning to implement new, more robust corporate policies for data protection, archiving and governance. To enforce these new policies, secure communication technologies and policy-based encryption are being used to limit the leakage of sensitive data and intellectual property, and archiving and eDiscovery solutions are being used to reduce legal compliance risks. According to International Data Corporation (IDC), a third-party market research company, the total worldwide market for data protection solutions is estimated to grow from $5.2 billion in 2011 to $8.0 billion by 2015, a compound annual growth rate (CAGR) of 11%.*


*
See "Industry and Market Data."

The Proofpoint Solution

        Our integrated suite of on-demand security-as-a-service solutions enables large and mid-sized organizations to defend, protect, archive and govern their sensitive data. Our comprehensive platform provides threat protection, regulatory compliance, archiving and governance, and secure communication. These solutions are built on a cloud-based architecture, protecting data not only as it flows into and out of the enterprise via on-premise and cloud-based email, instant messaging, social media and other web-based applications, but also securely archiving these communications for compliance and discovery. We have pioneered the use of innovative technologies to deliver better ease-of-use, greater protection against the latest advanced threats, and lower total cost of ownership than traditional alternatives. The key elements of our solution include:

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Our Business Strategy

        Our objective is to be the leading security-as-a-service provider of next-generation data protection and governance solutions. The key elements of our strategy include:

Recent Developments

        The following financial information for the quarter ended March 31, 2012 is preliminary, based upon our estimates and subject to completion of our quarter-end financial closing procedures. This data has been prepared by and is the responsibility of management and has not been reviewed or audited by our independent registered public accounting firm. Accordingly, our independent registered public accounting firm does not express an opinion or any other form of assurance with respect to this preliminary data. This summary is not a comprehensive statement of our financial results for the quarter and our actual results may differ from these estimates. Total revenue for the quarter ended March 31, 2012 is expected to be between $23.5 million and $24.5 million, which would represent an increase of between 25.0% and 30.3% from total revenue of $18.8 million for the quarter ended March 31, 2011. We expect our total expenses for the quarter ended March 31, 2012, including cost of revenue and operating expense, to be consistent with the quarter ended December 31, 2011, primarily as a result of certain non-recurring marketing expenses and legal and acquisition costs that occurred in the quarter ended December 31, 2011, offset by an increase in cost of revenue and research and development expenses in the quarter ended March 31, 2012. Therefore, we expect a modest improvement in our operating loss in the quarter ended March 31, 2012 relative to the quarter ended December 31, 2011. These preliminary results should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," in particular "—Components of Our Results of Operations" and "—Quarterly Results of Operations" therein, and our consolidated financial statements and the related notes included elsewhere in this prospectus.

Risks Affecting Us

        Our business is subject to numerous risks, as highlighted in the section entitled "Risk Factors" immediately following this prospectus summary. Some of these risks include:

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Corporate Information

        We were incorporated in Delaware in 2002. Our principal executive offices are located at 892 Ross Drive, Sunnyvale, California 94089, and our telephone number is (408) 517-4710. Our website address is www.proofpoint.com. The information on, or that can be accessed through, our website is not incorporated by reference into this prospectus and should not be considered to be a part of this prospectus.

        Unless otherwise indicated, the terms "Proofpoint," "we," "us" and "our" refer to Proofpoint, Inc., a Delaware corporation, together with its consolidated subsidiaries.

        "Proofpoint" is our registered trademark in the United States, and the Proofpoint logo and all of our product names are our trademarks. This prospectus contains additional trade names, trademarks, and service marks of ours and of other companies. We do not intend our use or display of other companies' trade names, trademarks, or service marks to imply a relationship with these other companies, or endorsement or sponsorship of us by these other companies. Other trademarks appearing in this prospectus are the property of their respective holders.

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The Offering

Common stock offered by us

  5,000,000 shares

Common stock offered by the selling stockholders

 

1,199,421 shares

Total common stock offered

 

6,199,421 shares

Common stock to be outstanding after this offering

 

29,527,817 shares

Use of proceeds

 

We expect to use the net proceeds that we receive from this offering for working capital and other general corporate purposes. We may also use a portion of the net proceeds to acquire or invest in complementary businesses, products, services, technologies or other assets. We will not receive any proceeds from the sale of shares by the selling stockholders. See "Use of Proceeds."

Risk factors

 

You should read the "Risk Factors" section of this prospectus for a discussion of factors that you should consider carefully before deciding to invest in shares of our common stock.

Proposed NASDAQ Global Market symbol

 

PFPT

        The number of shares of our common stock to be outstanding after this offering is based upon the 24,527,817 shares of our common stock outstanding as of December 31, 2011, and does not include:

        On March 30, 2012, our board of directors approved a 1-for-2 reverse stock split of our common stock. The reverse stock split became effective on April 2, 2012. Upon the effectiveness of the reverse stock split, (i) every two shares of outstanding common stock was decreased to one share of common stock, (ii) the number of shares of common stock into which each outstanding option to purchase common stock is exercisable was proportionally decreased on a 1-for-2 basis, (iii) the exercise price of each outstanding option to purchase common stock was proportionately increased on a 1-for-2 basis, and (iv) the conversion ratio for each share of preferred stock outstanding was proportionately reduced on a 1-for-2 basis. All of the share numbers, share prices, and exercise prices have been adjusted within the registration statement to which this prospectus relates, on a retroactive basis, to reflect this 1-for-2 reverse stock split.

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        In addition, except as otherwise indicated, all information in this prospectus assumes:

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Summary Consolidated Financial Information

         The following tables present summary historical financial data for our business. You should read this information in conjunction with "Selected Consolidated Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus.

        We derived the summary consolidated statements of operations data for the years ended December 31, 2009, 2010 and 2011 from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future.

 
  Years Ended December 31,  
 
  2009   2010   2011  
 
  (in thousands, except per share data)
 

Consolidated Statements of Operations Data:

                   

Revenue:

                   
 

Subscription

  $ 42,135   $ 57,657   $ 73,896  
 

Hardware and services

    6,393     7,133     7,942  
               
   

Total revenue

    48,528     64,790     81,838  

Cost of revenue: (1)

                   
 

Subscription

    19,150     24,523     24,193  
 

Hardware and services

    3,309     4,082     5,537  
               
   

Total cost of revenue

    22,459     28,605     29,730  
               

Gross profit

    26,069     36,185     52,108  

Operating expense: (1)

                   
 

Research and development

    11,831     17,583     19,779  
 

Sales and marketing

    27,883     31,161     42,676  
 

General and administrative

    5,678     7,465     9,237  
               
   

Total operating expense

    45,392     56,209     71,692  
               

Operating loss

    (19,323 )   (20,024 )   (19,584 )

Interest income (expense), net

    87     (340 )   (300 )

Other income (expense), net

    (269 )   (258 )   113  
               

Loss before provision for income taxes

    (19,505 )   (20,622 )   (19,771 )

Provision for income taxes

    (233 )   (243 )   (370 )
               

Net loss

  $ (19,738 ) $ (20,865 ) $ (20,141 )
               

Net loss per share, basic and diluted

  $ (6.14 ) $ (5.84 ) $ (5.03 )
               

Weighted average shares outstanding, basic and diluted (2)

    3,212     3,575     4,005  
               

Pro forma net loss per share, basic and diluted (unaudited) (2)

              $ (0.86 )
                   

Weighted average pro forma shares, basic and diluted (unaudited) (2)

                23,572  
                   

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  Years Ended December 31,  
 
  2009   2010   2011  
 
  (in thousands)
 

Other Financial Data (unaudited):

                   

Adjusted subscription gross profit (3)

  $ 26,631   $ 37,236   $ 53,841  

Billings (4)

    58,184     76,545     88,977  

Adjusted EBITDA (5)

    (9,077 )   (9,016 )   (7,227 )

(1)
Includes stock-based compensation and amortization of intangible assets as follows:

   
  Years Ended December 31,  
   
  2009   2010   2011  
   
  (in thousands)
 
 

Stock-based compensation

                   
   

Cost of subscription revenue

  $ 275   $ 357   $ 366  
   

Cost of hardware and services revenue

    11     17     29  
   

Research and development

    848     1,010     1,247  
   

Sales and marketing

    1,030     1,113     1,976  
   

General and administrative

    732     868     930  
 

Amortization of intangible assets

                   
   

Cost of subscription revenue

  $ 3,371   $ 3,745   $ 3,772  
   

Research and development

            1  
   

Sales and marketing

    408     637     769  
(2)
Please see notes 12 and 13 of our notes to consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of basic and diluted net loss per share and pro forma net loss per share.

(3)
Adjusted subscription gross profit is a non-GAAP measure. Please see "—Reconciliation of Non-GAAP Financial Measures" below for more information and the reconciliation of subscription gross profit to adjusted subscription gross profit.

(4)
The billings metric is a non-GAAP measure. Please see "—Reconciliation of Non-GAAP Financial Measures" below for more information and the reconciliation of total revenue to billings.

(5)
Adjusted EBITDA is a non-GAAP measure. Please see "—Reconciliation of Non-GAAP Financial Measures" below for more information and the reconciliation of net loss to adjusted EBIDTA.

 
  As of December 31, 2011  
 
  Actual   Pro Forma (1)   Pro Forma
As Adjusted (2)
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                   

Cash, cash equivalents and short-term investments

  $ 12,714   $ 12,714   $ 61,729  

Property and equipment, net

    7,353     7,353     7,353  

Total assets

    67,952     67,952     116,000  

Debt, current and long term

    4,981     4,981     4,981  

Deferred revenue, current and long term

    76,240     76,240     76,240  

Convertible preferred stock

    109,911          

Total stockholders' (deficit) equity

    (137,347 )   (27,436 )   21,579  

(1)
The pro forma consolidated balance sheet data as of December 31, 2011 reflects the automatic conversion of all our outstanding convertible preferred stock into common stock upon the completion of this offering.

(2)
The pro forma as adjusted consolidated balance sheet data as of December 31, 2011 also gives effect to our receipt of the net proceeds from the sale of the shares of common stock that we are offering at an assumed initial public offering price of $11.00 per share, which is the midpoint of the price range on the cover page of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share would increase (decrease) each of cash, cash equivalents and short-term investments, total assets and total stockholders' equity by $4.7 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

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Reconciliation of Non-GAAP Financial Measures

Adjusted subscription gross profit

        We have included adjusted subscription gross profit, a non-GAAP financial measure, in this prospectus because it is a key measure used by our management and board of directors to understand and evaluate our operating results, core operating performance, and trends to prepare and approve our annual budget and to develop short- and long-term operational plans. We have provided a reconciliation between subscription gross profit, the most directly comparable GAAP financial measure, and adjusted subscription gross profit. We believe that adjusted subscription gross profit provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

        Our use of adjusted subscription gross profit has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Because of these limitations, you should consider adjusted subscription gross profit alongside other financial performance measures, including subscription gross profit and our other GAAP results.

        The following unaudited table presents the reconciliation of subscription gross profit to adjusted subscription gross profit for the years ended December 31, 2009, 2010 and 2011:

 
  Year Ended December 31,  
 
  2009   2010   2011  
 
  (in thousands)
 

Subscription revenue

  $ 42,135   $ 57,657   $ 73,896  

Cost of subscription revenue

    19,150     24,523     24,193  
               
 

Subscription gross profit

  $ 22,985   $ 33,134   $ 49,703  

Add back:

                   
 

Stock-based compensation

    275     357     366  
 

Amortization of intangible assets

    3,371     3,745     3,772  
               
 

Adjusted subscription gross profit

  $ 26,631   $ 37,236   $ 53,841  
               

Billings

        We have included billings, a non-GAAP financial measure, in this prospectus because it is a key measure used by our management and board of directors to manage our business and monitor our near term cash flows. We have provided a reconciliation between total revenue, the most directly comparable GAAP financial measure, and billings. Accordingly, we believe that billings provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

        Our use of billings as a non-GAAP measure has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for revenue or an analysis of our results as reported under GAAP. Some of these limitations are:

    Billings is not a substitute for revenue, as trends in billings are not directly correlated to trends in revenue except when measured over longer periods of time;

    Billings is affected by a combination of factors including the timing of renewals, the sales of our solutions to both new and existing customers, the relative duration of contracts sold, and the relative amount of business derived from strategic partners. As each of these elements has unique characteristics in the relationship between billings and revenue, our billings activity is not closely correlated to revenue except over longer periods of time; and

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    Other companies, including companies in our industry, may not use billings, may calculate billings differently, or may use other financial measures to evaluate their performance - all of which reduce the usefulness of billings as a comparative measure.

        The following unaudited table presents the reconciliation of total revenue to billings for the years ended December 31, 2009, 2010 and 2011:

 
  Year Ended December 31,  
 
  2009   2010   2011  
 
  (in thousands)
 

Total revenue

  $ 48,528   $ 64,790   $ 81,838  
               

Deferred revenue

                   
 

Ending

    57,346     69,101     76,240  
 

Beginning

    47,690     57,346     69,101  
               
 

Net change

    9,656     11,755     7,139  
               

Billings

  $ 58,184   $ 76,545   $ 88,977  
               

Adjusted EBITDA

        We have included adjusted EBITDA, a non-GAAP financial measure, in this prospectus because it is a key metric used by our management and board of directors to measure operating performance and trends and to prepare and approve our annual budget. We define adjusted EBITDA as net loss, adjusted to exclude: depreciation, amortization of intangibles, interest income (expense), net, provision for income taxes, stock-based compensation, acquisition-related expense, other income, and other expense. We believe that adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:

    Adjusted EBITDA provides investors and other users of our financial information consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations and facilitates comparisons with our peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results; and

    It is useful to exclude certain non-cash charges, such as depreciation, amortization of intangible assets and stock-based compensation and non-core operational charges, such as acquisition-related expenses, from adjusted EBITDA because the amount of such expenses in any specific period may not be directly correlated to the underlying performance of our business operations and these expenses can vary significantly between periods as a result of new acquisitions, full amortization of previously acquired tangible and intangible assets or the timing of new stock-based awards, as the case may be.

        We use adjusted EBITDA in conjunction with traditional GAAP operating performance measures as part of our overall assessment of our performance, for planning purposes, including the preparation of our annual operating budget, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance.

        We do not place undue reliance on adjusted EBITDA as our only measures of operating performance. Adjusted EBITDA should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP. There are limitations to using non-GAAP financial measures, including that other companies may calculate these measures differently than we do, that they do not reflect our capital expenditures or future requirements for capital expenditures and that they do not reflect changes in, or cash requirements for, our working capital.

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        The following unaudited table presents the reconciliation of net loss to adjusted EBITDA for the years ended December 31, 2009, 2010 and 2011:

 
  Year Ended December 31,  
 
  2009   2010   2011  
 
  (in thousands)
 

Net loss

  $ (19,738 ) $ (20,865 ) $ (20,141 )
 

Depreciation

    3,012     3,261     3,142  
 

Amortization of intangible assets

    3,779     4,382     4,542  
 

Interest income (expense), net

    (87 )   340     300  
 

Provision for income taxes

    233     243     370  
               

EBITDA

    (12,801 )   (12,639 )   (11,787 )
 

Stock-based compensation expense

    2,896     3,365     4,548  
 

Acquisition-related expense

    559         125  
 

Other income

    (6 )   (20 )   (141 )
 

Other expense

    275     278     28  
               

Adjusted EBITDA

  $ (9,077 ) $ (9,016 ) $ (7,227 )
               

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RISK FACTORS

         Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in shares of our common stock. The occurrence of any of the events described below could harm our business, financial condition, results of operation and growth prospects. In such an event, the trading price of our common stock may decline and you may lose all or part of your investment.

Risks Related to Our Business and Industry

We have a history of losses, and we are unable to predict the extent of any future losses or when, if ever, we will achieve profitability in the future.

        We have incurred net losses in every year since our inception, including net losses of $19.7 million, $20.9 million and $20.1 million in 2009, 2010 and 2011, respectively. As a result, we had an accumulated deficit of $162.1 million as of December 31, 2011. Achieving profitability will require us to increase revenue, manage our cost structure, and avoid unanticipated liabilities. We do not expect to be profitable in the near term. Revenue growth may slow or revenue may decline for a number of possible reasons, including slowing demand for our solutions, increasing competition, a decrease in the growth of our overall market, or if we fail for any reason to continue to capitalize on growth opportunities. Any failure by us to obtain and sustain profitability, or to continue our revenue growth, could cause the price of our common stock to decline significantly.

We operate in a highly competitive environment with large, established competitors, and our competitors may gain market share in the markets for our solutions that could adversely affect our business and cause our revenue to decline.

        Our traditional competitors include security-focused software vendors, such as Symantec Corporation and McAfee, Inc., an Intel Corporation subsidiary, which offer software products that directly compete with our solutions. In addition to competing with these vendors directly for sales to customers, we compete with them for the opportunity to have our solutions bundled with the product offerings of our strategic partners. Our competitors could gain market share from us if any of these partners replace our solutions with the products of our competitors or if these partners more actively promote our competitors' products over our solutions. In addition, software vendors who have bundled our solutions with theirs may choose to bundle their software with their own or other vendors' software, or may limit our access to standard product interfaces and inhibit our ability to develop solutions for their platform.

        We also face competition from large technology companies, such as Cisco Systems, Inc., EMC Corporation, Google Inc., Hewlett-Packard Company, Intel and Microsoft. These companies are increasingly developing and incorporating into their products data protection and storage software that compete on various levels with our solutions. Our competitive position could be adversely affected to the extent that our customers perceive that the functionality incorporated into these products would replace the need for our solutions or that buying from one vendor would provide them with increased leverage and purchasing power and a better customer experience. We also face competition from many smaller companies that specialize in particular segments of the markets in which we compete.

        Many of our competitors have greater financial, technical, sales, marketing or other resources than we do and consequently may have the ability to influence our customers to purchase their products instead of ours. Further consolidation within our industry or other changes in the competitive environment could also result in larger competitors that compete with us on several levels. In addition, acquisitions of smaller companies that specialize in particular segments of the markets in which we compete by large technology companies would result in increased competition from these large technology companies. For example, Google's acquisition of Postini, an email and web security and

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archiving service, resulted in Google becoming one of our competitors. If we are unsuccessful in responding to our competitors or to changing technological and customer demands, our competitive position and financial results could be adversely affected.

If we are unable to maintain high subscription renewal rates, our future revenue and operating results will be harmed.

        Our customers have no obligation to renew their subscriptions for our solutions after the expiration of their initial subscription period, which typically ranges from one to three years. In addition, our customers may renew for fewer subscription services or users, renew for shorter contract lengths or renew at lower prices due to competitive or other pressures. We cannot accurately predict renewal rates and our renewal rates may decline or fluctuate as a result of a number of factors, including competition, customers' IT budgeting and spending priorities, and deteriorating general economic conditions. If our customers do not renew their subscriptions for our solutions, our revenue would decline and our business would suffer.

If we are unable to sell additional solutions to our customers, our future revenue and operating results will be harmed.

        Our future success depends on our ability to sell additional solutions to our customers. This may require increasingly sophisticated and costly sales efforts and may not result in additional sales. In addition, the rate at which our customers purchase additional solutions depends on a number of factors, including the perceived need for additional solutions, growth in the number of end-users, and general economic conditions. If our efforts to sell additional solutions to our customers are not successful, our business may suffer.

If our solutions fail to protect our customers from security breaches, our brand and reputation could be harmed, which could have a material adverse effect on our business and results of operations.

        The threats facing our customers are constantly evolving and the techniques used by attackers to access or sabotage data change frequently. As a result, we must constantly update our solutions to respond to these threats. If we fail to update our solutions in a timely or effective manner to respond to these threats, our customers could experience security breaches. Many state and foreign governments have enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach often lead to widespread negative publicity, and any association of us with such publicity may cause our customers to lose confidence in the effectiveness of our data security measures. Any security breach at one of our customers would harm our reputation as a secure and trusted company and could cause the loss of customers. Similarly, if a well-publicized breach of data security at a customer of any other cloud-based data protection or archiving service provider or other major enterprise cloud services provider were to occur, there could be a loss of confidence in the cloud-based storage of sensitive data and information generally.

        In addition, our solutions work in conjunction with a variety of other elements in customers' IT and security infrastructure, and we may receive blame and negative publicity for a security breach that may have been the result of the failure of one of the other elements not provided by us. The occurrence of a breach, whether or not caused by our solutions, could delay or reduce market acceptance of our solutions and have an adverse effect on our business and financial performance. In addition, any revisions to our solutions that we believe may be necessary or appropriate in connection with any such breach may cause us to incur significant expenses. Any of these events could have material adverse effects on our brand and reputation, which could harm our business, financial condition, and operating results.

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If our customers experience data losses, our brand, reputation and business could be harmed.

        Our customers rely on our archive solutions to store their corporate data, which may include financial records, credit card information, business information, health information, other personally identifiable information or other sensitive personal information. A breach of our network security and systems or other events that cause the loss or public disclosure of, or access by third parties to, our customers' stored files or data could have serious negative consequences for our business, including possible fines, penalties and damages, reduced demand for our solutions, an unwillingness of our customers to use our solutions, harm to our brand and reputation, and time-consuming and expensive litigation. The techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until launched against a target, and may originate from less regulated or remote areas around the world. As a result, we may be unable to proactively prevent these techniques, implement adequate preventative or reactionary measures, or enforce the laws and regulations that govern such activities. In addition, because of the large amount of data that we collect and manage, it is possible that hardware failures, human errors or errors in our systems could result in data loss or corruption, or cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant. If our customers experience any data loss, or any data corruption or inaccuracies, whether caused by security breaches or otherwise, our brand, reputation and business would be harmed.

        Our errors and omissions insurance may be inadequate or may not be available in the future on acceptable terms, or at all. In addition, our policy may not cover any claim against us for loss of data or other indirect or consequential damages. Defending a suit based on any data loss or system disruption, regardless of its merit, could be costly and divert management's attention.

Defects or vulnerabilities in our solutions could harm our reputation, reduce the sales of our solutions and expose us to liability for losses.

        Because our solutions are complex, undetected errors, failures or bugs may occur, especially when solutions are first introduced or when new versions or updates are released despite our efforts to test those solutions and enhancements prior to release. We may not be able to correct defects, errors, vulnerabilities or failures promptly, or at all.

        Any defects, errors, vulnerabilities or failures in our solutions could result in:

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        Limitation of liability provisions in our standard terms and conditions may not adequately or effectively protect us from any claims related to defects, errors, vulnerabilities or failures in our solutions, including as a result of federal, state or local laws or ordinances or unfavorable judicial decisions in the United States or other countries.

Because we provide security solutions, our software, website and internal systems may be subject to intentional disruption that could adversely impact our reputation and future sales.

        We could be a target of attacks specifically designed to impede the performance of our solutions and harm our reputation. Similarly, experienced computer hackers may attempt to penetrate our network security or the security of our website and misappropriate proprietary information and/or cause interruptions of our services. Because the techniques used by such computer hackers to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. If an actual or perceived breach of network security occurs, it could adversely affect the market perception of our solutions, and may expose us to the loss of information, litigation and possible liability. In addition, such a security breach could impair our ability to operate our business, including our ability to provide support services to our customers.

We believe that there is a trend for large and mid-sized enterprises to migrate their on-premise email systems to cloud-based offerings. If we fail to successfully develop, market, broaden or enhance our solutions to continue to be attractive to existing customers currently using cloud-based email systems or by new prospects, our ability to grow or maintain our revenue could be harmed, and our business could suffer.

        We derive a substantial portion of our revenue from our solutions that protect and archive data in our customers' on-premise email systems and expect to continue to do so for the foreseeable future. We currently derive a portion of our revenue from customers using cloud-based email systems such as Google's Google Apps and Microsoft's Office 365, both of which include varying degrees of threat protection and governance services as part of their offering. A significant market shift from on-premise email systems toward such cloud-based email systems could decrease demand for our solutions because customers who move to cloud-based email systems may no longer value our threat and governance solutions and may choose to instead use competing or low cost alternatives from companies such as Google or Microsoft that may offer competing solutions in connection with their cloud-based email systems. If our current or prospective customers who utilize cloud-based systems fail to find value in our solutions or migrate to these other threat or governance offerings, our business could be adversely affected.

Historically, our solutions have been used primarily for email, and any decrease in the use of email systems by large and mid-sized enterprises over time, or the failure of our newly developed solutions for emerging methods of communication and collaboration to gain acceptance could harm our business.

        Historically, our customers have primarily used our solutions to protect and archive data in their corporate email systems. If the use of email decreases, demand for our solutions would decrease and we may fail to diversify our revenue base by increasing demand for our other technology solutions.

        In addition, messaging and collaboration technologies are evolving rapidly. For instance, the widespread adoption and use of mobile devices, unmanaged Internet-based collaboration and file sharing applications and social networking sites have caused valuable and sensitive data to proliferate well beyond traditional corporate email systems, resulting in new and increasing security risks. We are devoting resources to continue developing and marketing our solutions for these emerging methods of communication and collaboration. However, our customers may not perceive the need to deploy our solutions intended to address these emerging areas. If we are unable to successfully develop, market, broaden or enhance our solutions to address the wider range of threats caused by the proliferation of

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new technologies and methods of communication, demand for our existing solutions would decrease, and our business would be harmed.

If functionality similar to that offered by our solutions is incorporated into our competitors' networking products, potential or existing customers may decide against adding our solutions to their network, which would have an adverse effect on our business.

        Some large, well-established providers of networking equipment, such as Cisco and Juniper Networks, Inc. currently offer, and may continue to introduce, network security features that compete with our solutions, either in stand-alone security products or as additional features in their network infrastructure products. The inclusion of, or the announcement of an intent to include, functionality perceived to be similar to that offered by our solutions in networking products that are already generally accepted as necessary components of customers' network architecture may have an adverse effect on our ability to market and sell our solutions. Furthermore, even if the functionality offered by network infrastructure providers is more limited than that offered by our solutions, a significant number of our customers may elect to accept such limited functionality in lieu of adding appliances or software from an additional vendor such as us. Many organizations have invested substantial personnel and financial resources to design and operate their networks and have established deep relationships with other providers of networking products, which may make them reluctant to add new third-party components to their networks.

Our solutions collect, filter and archive customer data which may contain personal information, which raises privacy concerns and could result in us having liability or inhibit sales of our solutions.

        Many federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use, and disclosure of personal information. Because many of the features of our solutions use, store, and report on customer data which may contain personal information from our customers, any inability to adequately address privacy concerns, or comply with applicable privacy laws, regulations and policies could, even if unfounded, result in liability to us, damage to our reputation, loss of sales, and harm to our business. Furthermore, the costs of compliance with, and other burdens imposed by, such laws, regulations and policies that are applicable to the businesses of our customers may limit the use and adoption of our solutions and reduce overall demand for them. Privacy concerns, whether or not valid, may inhibit market adoption of our solutions. For example, in the United States regulations such as the Gramm-Leach-Bliley Act (GLBA), which protects and restricts the use of consumer credit and financial information, and the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which regulates the use and disclosure of personal health information, impose significant security and data protection requirements and obligations on businesses that may affect the use and adoption of our solutions. The European Union has also adopted a data privacy directive that requires member states to impose restrictions on the collection and use of personal data that, in some respects, are more stringent, and impose more significant burdens on subject businesses, than current privacy standards in the United States.

        Any failure or perceived failure to comply with laws and regulations may result in proceedings or actions against us by government entities or others, or could cause us to lose users and customers, which could potentially have an adverse effect on our business.

If we do not effectively expand and train our sales force, we may be unable to add new customers or increase sales to our existing customers and our business will be harmed.

        We continue to be substantially dependent on our sales force to obtain new customers and to sell additional solutions to our existing customers. We believe that there is significant competition for sales personnel with the skills and technical knowledge that we require. Our ability to achieve significant revenue growth will depend, in large part, on our success in recruiting, training and retaining sufficient

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numbers of sales personnel to support our growth. New hires require significant training and may take significant time before they achieve full productivity. Our recent hires and planned hires may not become as productive as we expect, and we may be unable to hire or retain sufficient numbers of qualified individuals in the markets where we do business or plan to do business. If we are unable to hire and train sufficient numbers of effective sales personnel, or the sales personnel are not successful in obtaining new customers or increasing sales to our existing customer base, our business will be harmed.

Our sales cycle is long and unpredictable, and our sales efforts require considerable time and expense. As a result, our results are difficult to predict and may vary substantially from quarter to quarter, which may cause our operating results to fluctuate.

        We sell our security and compliance offerings primarily to enterprise IT departments that are managing a growing set of user and compliance demands, which has increased the complexity of customer requirements to be met and confirmed in the sales cycle. Additionally, we have found that increasingly security, legal and compliance departments are involved in testing, evaluating and finally approving purchases, which has also made the sales cycle longer and less predictable. We may not be able to accurately predict or forecast the timing of sales, which makes our future revenue difficult to predict and could cause our results to vary significantly. In addition, we might devote substantial time and effort to a particular unsuccessful sales effort, and as a result we could lose other sales opportunities or incur expenses that are not offset by an increase in revenue, which could harm our business.

Because our long-term success depends, in part, on our ability to expand the sales of our platform to our customers located outside of the United States, our business will be increasingly susceptible to risks associated with international operations.

        One key element of our growth strategy is to develop a worldwide customer base and expand our operations worldwide. We have added employees, offices and customers internationally, particularly in Europe and Asia. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic, political and competitive risks and competition that are different from those in the United States. Because of our limited experience with international operations, we cannot assure you that our international expansion efforts will be successful or that expected returns on such investments will be achieved in the future.

        In addition, our international operations may fail to succeed due to other risks inherent in operating businesses internationally, including:

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        Our failure to manage any of these risks successfully could harm our existing and future international operations and seriously impair our overall business.

If the market for our delivery model and cloud computing services develops more slowly than we expect, our business could be harmed.

        Our success will depend to a substantial extent on the willingness of enterprises, large and small, to increase their use of cloud computing services. The market for messaging security and data compliance solutions delivered as a service in particular is at an early stage relative to on-premise solutions, and these applications may not achieve and sustain high levels of demand and market acceptance. Many enterprises have invested substantial personnel and financial resources to integrate traditional enterprise software or hardware appliances for these applications into their businesses or may be reluctant or unwilling to use cloud computing services because they have concerns regarding the risks associated with reliability and security, among other things, of this delivery model, or its ability to help them comply with applicable laws and regulations. If enterprises do not perceive the benefits of this delivery model, then the market for our services may develop more slowly than we expect, which would adversely affect our business and operating results.

If we are unable to enhance our existing solutions and develop new solutions, our growth will be harmed and we may not be able to achieve profitability.

        Our ability to attract new customers and increase revenue from existing customers will depend in large part on our ability to enhance and improve our existing solutions and to introduce new solutions. The success of any enhancement or new solution depends on several factors, including the timely completion, introduction and market acceptance of the enhancement or solution. Any new enhancement or solution we develop or acquire may not be introduced in a timely or cost-effective manner and may not achieve the broad market acceptance necessary to generate significant revenue. If we are unable to successfully develop or acquire new solutions or enhance our existing solutions to meet customer requirements, we may not grow as expected and we may not achieve profitability.

        We cannot be certain that our development activities will be successful or that we will not incur delays or cost overruns. Furthermore, we may not have sufficient financial resources to identify and develop new technologies and bring enhancements or new solutions to market in a timely and cost effective manner. New technologies and enhancements could be delayed or cost more than we expect,

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and we cannot ensure that any of these solutions will be commercially successful if and when they are introduced.

If we are unable to cost-effectively scale or adapt our existing architecture to accommodate increased traffic, technological advances or changing customer requirements, our operating results could be harmed.

        As our customer base grows, the number of users accessing our solutions over the Internet will correspondingly increase. Increased traffic could result in slow access speeds and response times. Since our customer agreements often include service availability commitments, slow speeds or our failure to accommodate increased traffic could result in breaches of our service level agreements or obligate us to issue service credits. In addition, the market for our solutions is characterized by rapid technological advances and changes in customer requirements. In order to accommodate increased traffic and respond to technological advances and evolving customer requirements, we expect that we will be required to make future investments in our network architecture. If we do not implement future upgrades to our network architecture cost-effectively, or if we experience prolonged delays or unforeseen difficulties in connection with upgrading our network architecture, our service quality may suffer and our operating results could be harmed.

Our quarterly operating results are likely to vary significantly and be unpredictable, which could cause the trading price of our stock to decline.

        Our operating results have historically varied from period to period, and we expect that they will continue to do so as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:

        Any one of the factors above or the cumulative effect of some of the factors referred to above may result in significant fluctuations in our quarterly financial and other operating results, including

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fluctuations in our key metrics. This variability and unpredictability could result in our failing to meet the expectations of securities analysts or investors for any period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our shares could fall substantially and we could face costly lawsuits, including securities class action suits. In addition, a significant percentage of our operating expenses are fixed in nature and based on forecasted revenue and cash flow trends. Accordingly, in the event of revenue shortfalls, we are generally unable to mitigate the negative impact on margins or other operating results in the short term.

If we fail to manage our sales and distribution channels effectively or if our partners choose not to market and sell our solutions to their customers, our operating results could be adversely affected.

        We have derived and anticipate that in the future we will continue to derive a substantial portion of the sales of our solutions through channel partners. In order to scale our channel program to support growth in our business, it is important that we continue to help our partners enhance their ability to independently sell and deploy our solutions. We may be unable to continue to successfully expand and improve the effectiveness of our channel sales program.

        Our agreements with our channel partners are generally non-exclusive and some of our channel partners have entered, and may continue to enter, into strategic relationships with our competitors or are competitors themselves. Further, many of our channel partners have multiple strategic relationships and they may not regard us as significant for their businesses. Our channel partners may terminate their respective relationships with us with limited or no notice and with limited or no penalty, pursue other partnerships or relationships, or attempt to develop or acquire products or services that compete with our solutions. Our partners also may impair our ability to enter into other desirable strategic relationships. If our channel partners do not effectively market and sell our solutions, if they choose to place greater emphasis on products of their own or those offered by our competitors, or if they fail to meet the needs of our customers, our ability to grow our business and sell our solutions may be adversely affected. Similarly, the loss of a substantial number of our channel partners, and our possible inability to replace them, the failure to recruit additional channel partners, any reduction or delay in their sales of our solutions, or any conflicts between channel sales and our direct sales and marketing activities could materially and adversely affect our results of operations.

Because we recognize revenue from subscriptions over the term of the relevant service period, decreases or increases in sales are not immediately reflected in full in our operating results.

        We recognize revenue from subscriptions over the term of the relevant service period, which typically range from one to three years, with some up to five years. As a result, most of our quarterly revenue from subscriptions results from agreements entered into during previous quarters. Consequently, a shortfall in demand for our solutions in any quarter may not significantly reduce our subscription revenue for that quarter, but could negatively affect subscription revenue in future quarters. We may be unable to adjust our cost structure to compensate for this potential shortfall in subscription revenue. Accordingly, the effect of significant downturns in sales of subscriptions may not be fully reflected in our results of operations until future periods. Our subscription model also makes it difficult for us to rapidly increase our subscription revenue through additional sales in any period, as subscription revenue must be recognized over the term of the contract.

Interruptions or delays in services provided by third parties could impair the delivery of our service and harm our business.

        We currently serve our customers from third-party data center hosting facilities located in the United States, Canada and Europe. We also rely on bandwidth providers, Internet service providers, and mobile networks to deliver our solutions. Any damage to, or failure of, the systems of our third-party providers could result in interruptions to our service. If for any reason our arrangement with one

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or more of our data centers is terminated we could experience additional expense in arranging for new facilities and support. Our data center facilities providers have no obligations to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew our agreements with the facilities providers on commercially reasonable terms or if in the future we add additional data center facility providers, we may experience costs or downtime in connection with the transfer to, or the addition of, new data center facilities. In addition, the failure of our data centers to meet our capacity requirements could result in interruptions in the availability of our solutions, impair the functionality of our solutions or impede our ability to scale our operations. As we continue to add data centers, restructure our data management plans, and increase capacity in existing and future data centers, we may move or transfer our data and our customers' data. Despite precautions taken during such processes and procedures, any unsuccessful data transfers may impair the delivery of our service, and we may experience costs or downtime in connection with the transfer of data to other facilities.

        We also depend on access to the Internet through third-party bandwidth providers to operate our business. If we lose the services of one or more of our bandwidth providers, or if these providers experience outages, for any reason, we could experience disruption in delivering our solutions or we could be required to retain the services of a replacement bandwidth provider. Our business also depends on our customers having high-speed access to the Internet. Any Internet outages or delays could adversely affect our ability to provide our solutions to our customers.

        Our operations also rely heavily on the availability of electricity, which also comes from third-party providers. If we or the third-party data center facilities that we use to deliver our services were to experience a major power outage or if the cost of electricity were to increase significantly, our operations and financial results could be harmed. If we or our third-party data centers were to experience a major power outage, we or they would have to rely on back-up generators, which might not work properly or might not provide an adequate supply during a major power outage. Such a power outage could result in a significant disruption of our business.

        The occurrence of an extended interruption of ours or third-party services for any reason could result in lengthy interruptions in our services or in the delivery of customers' email and require us to provide service credits, refunds, indemnification payments or other payments to our customers, and could also result in the loss of customers.

Any failure to offer high-quality technical support services may adversely affect our relationships with our customers and harm our financial results.

        Once our solutions are deployed, our customers depend on our support organization to resolve any technical issues relating to our solutions. In addition, our sales process is highly dependent on our solutions and business reputation and on strong recommendations from our existing customers. Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality support, could harm our reputation, adversely affect our ability to sell our solutions to existing and prospective customers, and harm our business, operating results and financial condition.

        We offer technical support services with many of our solutions. We may be unable to respond quickly enough to accommodate short-term increases in customer demand for support services. We also may be unable to modify the format of our support services to compete with changes in support services provided by competitors. Increased customer demand for these services, without corresponding revenue, could increase costs and adversely affect our operating results.

        We have outsourced a substantial portion of our worldwide customer support functions to third-party service providers. If these companies experience financial difficulties, do not maintain sufficiently skilled workers and resources to satisfy our contracts, or otherwise fail to perform at a sufficient level, the level of support services to our customers may be significantly disrupted, which could materially harm our reputation and our relationships with these customers.

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If we fail to develop or protect our brand, our business may be harmed.

        We believe that developing and maintaining awareness and integrity of our company and our brand are important to achieving widespread acceptance of our existing and future offerings and are important elements in attracting new customers. We believe that the importance of brand recognition will increase as competition in our market further intensifies. Successful promotion of our brand will depend on the effectiveness of our marketing efforts and on our ability to provide reliable and useful solutions at competitive prices. We plan to continue investing substantial resources to promote our brand, both domestically and internationally, but there is no guarantee that our brand development strategies will enhance the recognition of our brand. Some of our existing and potential competitors have well-established brands with greater recognition than we have. If our efforts to promote and maintain our brand are not successful, our operating results and our ability to attract and retain customers may be adversely affected. In addition, even if our brand recognition and loyalty increases, this may not result in increased use of our solutions or higher revenue.

        In addition, independent industry analysts often provide reviews of our solutions, as well as those of our competitors, and perception of our solutions in the marketplace may be significantly influenced by these reviews. We have no control over what these industry analysts report, and because industry analysts may influence current and potential customers, our brand could be harmed if they do not provide a positive review of our solutions or view us as a market leader.

The steps we have taken to protect our intellectual property rights may not be adequate.

        We rely on a combination of contractual rights, trademarks, trade secrets, patents and copyrights to establish and protect our intellectual property rights. These offer only limited protection, however, and the steps we have taken to protect our proprietary technology may not deter its misuse, theft or misappropriation. Any of our patents, copyrights, trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. Competitors may independently develop technologies or products that are substantially equivalent or superior to our solutions or that inappropriately incorporate our proprietary technology into their products. Competitors may hire our former employees who may misappropriate our proprietary technology or misuse our confidential information. Although we rely in part upon confidentiality agreements with our employees, consultants and other third parties to protect our trade secrets and other confidential information, those agreements may not effectively prevent disclosure of trade secrets and other confidential information and may not provide an adequate remedy in the event of misappropriation of trade secrets or unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and confidential information, and in such cases we could not assert any trade secret rights against such parties.

        We might be required to spend significant resources to monitor and protect our intellectual property rights. We may initiate claims or litigation against third parties for infringement of our intellectual property rights or misappropriation of our trade secrets, or to establish the validity of our intellectual property rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel, which may adversely affect our business, operating results and financial condition. Certain jurisdictions may not provide adequate legal infrastructure for effective protection of our intellectual property rights. Changing legal interpretations of liability for unauthorized use of our solutions or lessened sensitivity by corporate, government or institutional users to refraining from intellectual property piracy or other infringements of intellectual property could also harm our business.

        Our issued patents may not provide us with any competitive advantages or may be challenged by third parties, and our patent applications may never be granted at all. It is possible that innovations for which we seek patent protection may not be protectable. Additionally, the process of obtaining patent

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protection is expensive and time consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Given the cost, effort, risks and downside of obtaining patent protection, including the requirement to ultimately disclose the invention to the public, we may not choose to seek patent protection for certain innovations. However, such patent protection could later prove to be important to our business. Even if issued, there can be no assurance that any patents will have the coverage originally sought or adequately protect our intellectual property, as the legal standards relating to the validity, enforceability and scope of protection of patent and other intellectual property rights are uncertain. Any patents that are issued may be invalidated or otherwise limited, or may lapse or may be abandoned, enabling other companies to better develop products that compete with our solutions, which could adversely affect our competitive business position, business prospects and financial condition.

        We cannot assure you that the measures we have taken to protect our intellectual property will adequately protect us, and any failure to protect our intellectual property could harm our business.

Third parties claiming that we infringe their intellectual property rights could cause us to incur significant legal expenses and prevent us from selling our solutions.

        Companies in the software and technology industries, including some of our current and potential competitors, own large numbers of patents, copyrights, trademarks and trade secrets and frequently enter into litigation based on allegations of infringement, misappropriation or other violations of intellectual property rights. In addition, many of these companies have the capability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. The litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our potential patents may provide little or no deterrence. We have received, and may in the future receive, notices that claim we have infringed, misappropriated or otherwise violated other parties' intellectual property rights. To the extent we gain greater visibility, we face a higher risk of being the subject of intellectual property infringement claims, which is not uncommon with respect to software technologies in general and information security technology in particular. There may be third-party intellectual property rights, including issued or pending patents that cover significant aspects of our technologies or business methods. Any intellectual property claims, with or without merit, could be very time consuming, could be expensive to settle or litigate and could divert our management's attention and other resources. These claims could also subject us to significant liability for damages, potentially including treble damages if we are found to have willfully infringed patents or copyrights. These claims could also result in our having to stop using technology found to be in violation of a third party's rights. We might be required to seek a license for the intellectual property, which may not be available on reasonable terms or at all. Even if a license were available, we could be required to pay significant royalties, which would increase our operating expenses. As a result, we may be required to develop alternative non-infringing technology, which could require significant effort and expense. If we cannot license or develop technology for any infringing aspect of our business, we would be forced to limit or stop sales of one or more of our solutions or features of our solutions and may be unable to compete effectively. Any of these results would harm our business, operating results and financial condition.

        In addition, our agreements with customers and channel partners include indemnification provisions under which we agree to indemnify them for losses suffered or incurred as a result of claims of intellectual property infringement and, in some cases, for damages caused by us to property or persons. Large indemnity payments could harm our business, operating results and financial condition.

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We rely on technology and intellectual property licensed from other parties, the failure or loss of which could increase our costs and delay or prevent the delivery of our solutions.

        We utilize various types of software and other technology, as well as intellectual property rights, licensed from unaffiliated third parties in order to provide certain elements of our solutions. Any errors or defects in any third-party technology could result in errors in our solutions that could harm our business. In addition, licensed technology and intellectual property rights may not continue to be available on commercially reasonable terms, or at all. While we believe that there are currently adequate replacements for the third-party technology we use, any loss of the right to use any of this technology on commercially reasonable terms, or at all, could result in delays in producing or delivering our solutions until equivalent technology is identified and integrated, which delays could harm our business. In this situation we would be required to either redesign our solutions to function with software available from other parties or to develop these components ourselves, which would result in increased costs. Furthermore, we might be forced to limit the features available in our current or future solutions. If we fail to maintain or renegotiate any of these technology or intellectual property licenses, we could face significant delays and diversion of resources in attempting to develop similar or replacement technology, or to license and integrate a functional equivalent of the technology.

Some of our solutions contain "open source" software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.

        Some of our solutions are distributed with software licensed by its authors or other third parties under so-called "open source" licenses, which may include, by way of example, the GNU General Public License, or GPL, and the Apache License. Some of these licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software, and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. By the terms of certain open source licenses, we could be required to release the source code of our proprietary software, and to make our proprietary software available under open source licenses, if we combine our proprietary software with open source software in a certain manner. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technologies, or otherwise be limited in the licensing of our technologies, each of which could reduce or eliminate the value of our technologies and solutions. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. We have established processes to help alleviate these risks, including a review process for screening requests from our development organizations for the use of open source software, but we cannot be sure that all open source software is submitted for approval prior to use in our solutions, that our programmers have not incorporated open source software into our proprietary solutions and technologies or that they will not do so in the future. In addition, many of the risks associated with usage of open source software cannot be eliminated, and could, if not properly addressed, negatively affect our business.

Governmental regulations affecting the export of certain of our solutions could negatively affect our business.

        Our products are subject to U.S. export controls, and we incorporate encryption technology into certain of our products. These encryption products and the underlying technology may be exported outside the United States only with the required export authorizations, including by license, a license exception or other appropriate government authorizations, including the filing of an encryption registration. Governmental regulation of encryption technology and regulation of imports or exports, or our failure to obtain required import or export approval for our products, could harm our international sales and adversely affect our revenue.

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        We determined that subsequent to our acquisition of Fortiva, Inc., a Canadian company, in August 2008, we may have shipped a particular hardware appliance model to a limited number of international customers that, prior to shipment, may have required either a one-time product review or application for an encryption registration number in lieu of such product review. We have made a voluntary submission and a supplemental submission to the U.S. Commerce Department's Bureau of Industry and Security (BIS) to report this potential violation.

        The U.S. government also prohibits U.S. companies from doing business with customers in certain restricted countries, including Iran. As part of a pre-IPO due diligence review, we discovered a potential export violation involving the provision of web-based, email communication services through our Everyone.net service, which we acquired in October 2009. Our records indicate that there were two end-users who may have, for a portion of their respective service periods, been located in Iran, a U.S.-designated state sponsor of terrorism. Our internal investigation has progressed and we have found that the issues identified are specific to the acquired Everyone.net system, which has a separate customer database and billing system from that of Proofpoint's other businesses. We do not have any indication that these services were utilized by the Iranian government. The accounts of both end-users were terminated in 2010 and accounted for approximately $14,500 in payments to us in 2009 and $6,000 in payments to us in 2010. We have made a voluntary submission and a supplemental submission to the U.S. Department of Treasury's Office of Foreign Assets Control (OFAC) to report this potential violation.

        Failure to comply with such regulations and these recent voluntary submissions could result in penalties, costs, and restrictions on export privileges, which could also harm our operating results.

We have experienced rapid growth in recent periods. If we fail to manage such growth and our future growth effectively, we may be unable to execute our business plan, maintain high levels of service or adequately address competitive challenges.

        We have experienced significant growth in recent periods. For example, we grew from 158 employees as of December 31, 2007 to 376 as of December 31, 2011. This growth has placed, and any future growth may place, a significant strain on our management and operational infrastructure, including our hosting operations. Our success will depend, in part, on our ability to manage these changes effectively. We will need to continue to improve our operational, financial and management controls and our reporting systems and procedures. Failure to effectively manage growth could result in declines in service quality or customer satisfaction, increases in costs, difficulties in introducing new features or other operational difficulties. Any failure to effectively manage growth could adversely impact our business and reputation.

The forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, we cannot assure you our business will grow at similar rates, if at all.

        Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates which may not prove to be accurate. Forecasts relating to the expected growth in the security and other markets may prove to be inaccurate. Even if these markets experience the forecasted growth, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including our success in implementing our business strategy, which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

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We have and may further expand through acquisitions of, or investments in, other companies, which may divert our management's attention, dilute our stockholders and consume corporate resources that otherwise would be necessary to sustain and grow our business.

        Our business strategy may, from time to time, include acquiring complementary products, technologies or businesses. We also may enter into relationships with other businesses in order to expand our solutions, which could involve preferred or exclusive licenses, additional channels of distribution, or investments by or between the two parties. Negotiating these transactions can be time consuming, difficult and expensive, and our ability to close these transactions may be subject to third-party approvals, such as government regulation, which are beyond our control. Consequently, we can make no assurance that these transactions, once undertaken and announced, will close.

        These kinds of transactions may result in unforeseen operating difficulties and expenditures. In particular, we may encounter difficulties assimilating or integrating the businesses, technologies, products, personnel or operations of acquired companies, particularly if the key personnel of the acquired business choose not to work for us, and we may have difficulty retaining the customers of any acquired business. Acquisitions may also disrupt our ongoing business, divert our resources and require significant management attention that would otherwise be available for development of our business. Any acquisition or investment could expose us to unknown liabilities. In addition, as of December 31, 2011, we had $24.7 million in goodwill and intangible assets recorded on our consolidated balance sheet. We may in the future need to incur charges with respect to the write-down or impairment of goodwill or intangible assets, which could adversely affect our operating results. Moreover, we cannot assure you that the anticipated benefits of any acquisition or investment would be realized or that we would not be exposed to unknown liabilities. In connection with these types of transactions, we may issue additional equity securities that would dilute our stockholders, use cash that we may need in the future to operate our business, incur debt on terms unfavorable to us or that we are unable to repay, incur large charges or substantial liabilities, encounter difficulties integrating diverse business cultures, and become subject to adverse tax consequences, substantial depreciation or deferred compensation charges. These challenges related to acquisitions or investments could adversely affect our business, operating results and financial condition.

If we are unable to attract and retain qualified employees, lose key personnel, fail to integrate replacement personnel successfully, or fail to manage our employee base effectively, we may be unable to develop new and enhanced solutions, effectively manage or expand our business, or increase our revenue.

        Our future success depends upon our ability to recruit and retain key management, technical, sales, marketing, finance, and other critical personnel. Despite the economic downturn, competition for qualified management, technical and other personnel is intense, and we may not be successful in attracting and retaining such personnel. If we fail to attract and retain qualified employees, our ability to grow our business could be harmed. Our officers and other key personnel are employees-at-will, and we cannot assure you that we will be able to retain them. Competition for people with the specific skills that we require is significant. In order to attract and retain personnel in a competitive marketplace, we believe that we must provide a competitive compensation package, including cash and equity-based compensation. Volatility in our stock price may from time to time adversely affect our ability to recruit or retain employees. If we are unable to hire and retain qualified employees, or conversely, if we fail to manage employee performance or reduce staffing levels when required by market conditions, our business and operating results could be adversely affected.

        In addition, hiring, training, and successfully integrating replacement personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful, which could negatively impact future revenue.

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Changes in laws and/or regulations related to the Internet or changes in the Internet infrastructure itself may diminish the demand for our solutions, and could have a negative impact on our business.

        The future success of our business depends upon the continued use of the Internet as a primary medium for commerce, communication and business applications. Federal, state or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws or regulations affecting data privacy and the use of the Internet as a commercial medium. Changes in these laws or regulations could require us to modify our solutions in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the Internet or commerce conducted via the Internet. These laws or charges could limit the growth of Internet-related commerce or communications generally, result in a decline in the use of the Internet and the viability of Internet-based applications such as ours and reduce the demand for our solutions.

        The legal and regulatory framework also drives demand for our solutions. Our customers are subject to laws, regulations and internal policies that mandate how they process, handle, store, use and transmit a variety of sensitive data and communications. These laws and regulations are subject to revision, change and interpretation at any time, and any such change could either help or hurt the demand for our solutions. We cannot be sure that the legal and regulatory framework in any given jurisdiction will be favorable to our business or that we will be able to sustain or grow our business if there are any adverse changes to these laws and regulations.

If we are required to collect sales and use taxes on the solutions we sell, we may be subject to liability for past sales and our future sales may decrease.

        State and local taxing jurisdictions have differing rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. In particular, the applicability of sales taxes to our subscription services in various jurisdictions is unclear. We have recorded sales tax liabilities of $0.1 million on our consolidated balance sheet as of December 31, 2011 in respect of sales and use tax liabilities in various states and local jurisdictions. It is possible that we could face sales tax audits and that our liability for these taxes could exceed our estimates as state tax authorities could still assert that we are obligated to collect additional amounts as taxes from our customers and remit those taxes to those authorities. We could also be subject to audits with respect to state and international jurisdictions for which we have not accrued tax liabilities. A successful assertion that we should be collecting additional sales or other taxes on our services in jurisdictions where we have not historically done so and do not accrue for sales taxes could result in substantial tax liabilities for past sales, discourage customers from purchasing our application or otherwise harm our business and operating results.

Adverse conditions in the national and global economies and financial markets may adversely affect our business and financial results.

        Our financial performance depends, in part, on the state of the economy, which deteriorated in the recent broad recession, and which may deteriorate in the future. Challenging economic conditions worldwide have from time to time contributed, and may continue to contribute, to slowdowns in the information technology industry, resulting in reduced demand for our solutions as a result of continued constraints on IT-related capital spending by our customers and increased price competition for our solutions. Moreover, we target some of our solutions to the financial services industry and therefore if there is consolidation in that industry, or layoffs, or lack of funding for IT purchases, our business may suffer. If unfavorable economic conditions continue or worsen, our business, financial condition and operating results could be materially and adversely affected.

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Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by manmade problems such as terrorism.

        Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a strong negative effect on us. We have significant operations in the Silicon Valley area of Northern California, a region known for seismic activity. A major earthquake or other natural disaster, fire, act of terrorism or other catastrophic event that results in the destruction or disruption of any of our critical business operations or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our future operating results could be harmed. These negative events could make it difficult or impossible for us to deliver our services to our customers, and could decrease demand for our services. Because we do not carry earthquake insurance for direct quake-related losses, and significant recovery time could be required to resume operations, our financial condition and operating results could be materially adversely affected in the event of a major earthquake or catastrophic event.

A portion of our revenue is generated by sales to government entities, which are subject to a number of challenges and risks.

        Sales to U.S. and foreign federal, state and local governmental agency customers have accounted for a portion of our revenue in past periods, and we may in the future increase sales to government entities. Sales into government entities are subject to a number of risks. Selling to government entities can be highly competitive, expensive and time consuming, often requiring significant upfront time and expense without any assurance that we will win a sale. We have invested in the creation of a cloud offering certified under the Federal Information Security Management Act (FISMA) for government usage but we cannot be sure that we will continue to sustain or renew this certification, that the government will continue to mandate such certification or that other government agencies or entities will use this cloud offering. Government demand and payment for our solutions may be impacted by public sector budgetary cycles and funding authorizations, with funding reductions or delays adversely affecting public sector demand for our solutions. Government entities may have contractual or other legal rights to terminate contracts with our distributors and resellers for convenience or due to a default, and any such termination may adversely impact our future results of operations. For example, if the distributor receives a significant portion of its revenue from sales to such governmental entity, the financial health of the distributor could be substantially harmed, which could negatively affect our future sales to such distributor. Governments routinely investigate and audit government contractors' administrative processes, and any unfavorable audit could result in the government refusing to continue buying our solutions, a reduction of revenue or fines or civil or criminal liability if the audit uncovers improper or illegal activities. Any such penalties could adversely impact our results of operations in a material way.

If we fail to maintain an effective system of internal controls, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.

        As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the rules and regulations of the NASDAQ Global Market. We expect that the requirements of these rules and regulations will continue to increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources.

        The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are continuing to develop and refine our disclosure controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file with the Securities and Exchange Commission,

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or the SEC, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in reports under the Exchange Act is accumulated and communicated to our principal executive and financial officers.

        Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our internal controls may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Any failure to implement and maintain effective internal controls also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we are required to include in our periodic reports we will file with the SEC under Section 404 of the Sarbanes-Oxley Act. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock.

        In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs, and provide significant management oversight. Any failure to maintain the adequacy of our internal controls, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and could materially impair our ability to operate our business. In the event that we are not able to demonstrate compliance with Section 404 of the Sarbanes-Oxley Act that our internal controls are perceived as inadequate or that we are unable to produce timely or accurate financial statements, investors may lose confidence in our operating results and our stock price could decline. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The NASDAQ Global Market.

        We are not currently required to comply with the SEC rules that implement Sections 302 and 404 of the Sarbanes-Oxley Act, and are therefore not required to make a formal assessment of the effectiveness of our internal controls over financial reporting for that purpose. Upon becoming a public company, we will be required to comply with these rules, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of our internal control over financial reporting. Though we will be required to disclose changes made in our internal control and procedures on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC, or until we are no longer an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, after such act is effective. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring accounting or internal audit staff.

        Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until the year following our first annual report required to be filed with the SEC, or until we are no longer an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, after such act is effective. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating. Our remediation efforts may not enable us to avoid a material weakness in the future.

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We will incur significantly increased costs and devote substantial management time as a result of operating as a public company.

        As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be required to comply with certain of the requirements of the Sarbanes-Oxley Act and the Dodd Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC, and the NASDAQ Global Market, our stock exchange, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, when applicable to us. In that regard, we currently do not have an internal audit function, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

Risks Related to Our Common Stock

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

        The initial public offering price of our common stock will be substantially higher than the net tangible book value per share of our outstanding common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur immediate dilution of $11.11 in net tangible book value per share from the price you paid assuming we offer our shares at $11.00, the mid-point of the range on the cover of this prospectus. In addition, investors purchasing common stock in this offering will have contributed 29.0% of the total consideration paid by our stockholders to purchase shares of common stock, but will own 16.9% of our outstanding common stock. Moreover, we issued options and a warrant in the past to acquire common stock at prices significantly below the initial public offering price. As of December 31, 2011, there were 10,705,300 shares of our common stock issuable upon the exercise of stock options outstanding, with a weighted-average exercise price of $3.83 per share. To the extent that these outstanding options are ultimately exercised, you will incur further dilution.

An active, liquid and orderly trading market for our common stock may not develop, the price of our stock may be volatile, and you could lose all or part of your investment.

        Prior to this offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest in us will lead to the development of an active trading market in our common stock or how liquid that market might become. An active public market for our common stock may not develop or be sustained after the offering. If an active public market does not develop or is not sustained, it may be difficult for you to sell your shares of common stock at a price that is attractive to you, or at all. The market price for shares of our common stock may decline below the initial public offering price, and you may not be able to resell your shares of common stock at or above the initial public offering price. In addition, the trading price of our common stock following the offering is likely to be highly volatile and could be subject to wide fluctuations in response to various

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factors, including but not limited to, those described in this "Risk Factors" section, performance by other companies in our industry and in the technology industry generally, and overall market conditions, some of which are beyond our control. If the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. Some companies that have had volatile market prices for their securities have had securities class actions filed against them. If a suit were filed against us, regardless of its merits or outcome, it would likely result in substantial costs and divert management's attention and resources. This could have a material adverse effect on our business, operating results and financial condition.

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

        Our certificate of incorporation and bylaws contain provisions that could have the effect of rendering more difficult, delaying or preventing an acquisition of our company deemed undesirable by our board of directors. These provisions could also reduce the price that investors might be willing to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it would be without these provisions. Our corporate governance documents include provisions:

These provisions, alone or together, could frustrate, delay or prevent hostile takeovers and changes in control or changes in our management.

        As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations merging or combining with us without approval of the holders of a substantial majority of all of our outstanding common stock.

Our directors, executive officers and principal stockholders will continue to have substantial control over us after this offering and could delay or prevent a change in control or acquisition of us.

        After this offering, our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, will beneficially own, in the aggregate, 59.4% of our outstanding common stock. As a result, these stockholders, if they were to act together, would have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and the approval of any merger or consolidation of our company or sale of all or substantially all of our assets. In addition, these stockholders, if they were to act together, would have the ability to control the management and affairs of our company through their ability to elect the members of our board of directors. The interests of these stockholders may not always coincide or could conflict with

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the interests of our other stockholders. For example, these stockholders may cause us to enter into transactions or agreements that we would not otherwise consider or consider transactions that other stockholders may not agree with. In addition, this concentration of ownership might harm the market price of our common stock by:

        Please see "Principal and Selling Stockholders" below for more information regarding the ownership of our outstanding stock by our executive officers and directors, together with their affiliates.

Most of our total outstanding shares may be sold into the market when the "lock-up" period ends. If there are substantial sales of shares of our common stock, the price of our common stock could decline.

        The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, or if a large number of shares of our common stock becomes available for sale in the public market. After this offering, there will be 29,527,817 shares of our common stock issued and outstanding, based on the 24,527,817 shares of our capital stock outstanding as of December 31, 2011. This number of shares includes the shares that we are selling in this offering, which may be resold in the public market immediately. The remaining outstanding shares are currently restricted from resale as a result of market standoff agreements. In addition, certain of these shares are also subject to lock-up agreements, as more fully described in "Underwriters." In each case, these shares will become available to be sold 181 days after the date of this prospectus, subject to extension in some circumstances. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.

        After this offering, the holders of an aggregate of approximately 20,270,985 shares of our common stock outstanding will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders. All of these shares are subject to market standoff and/or lock-up agreements restricting their sale for 180 days after the date of this prospectus subject to extension in some circumstances. We also intend to register shares of common stock for sale that we have issued and may issue under our employee equity incentive plans. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to existing market standoff and/or lock-up agreements. Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. may, in their sole discretion, permit our officers, directors, employees and current stockholders who are subject to contractual lock-up agreements to sell shares prior to the expiration of the lock-up agreements. See the "Underwriters" section of this prospectus for more information.

        The market price of the shares of our common stock could decline as a result of sales of a substantial number of our shares in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

Our management will have broad discretion over the use of the proceeds we receive from this offering and might not apply the proceeds in ways that increase the value of your investment.

        Our management will have broad discretion to use our net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply these proceeds in ways that increase the value of your investment. We intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters, and capital

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expenditures. We may also use a portion of the net proceeds to acquire, invest in, or obtain rights to complementary technologies, solutions, or businesses. If we do not apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline. You will not have the opportunity to influence our decisions on how we use our net proceeds from this offering.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

        The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We currently do not have and may never obtain research coverage by securities analysts, and industry analysts that currently cover us may cease to do so. If no securities analysts commence coverage of our company, or if industry analysts cease coverage of our company, the trading price for our stock would be negatively impacted. In the event we obtain securities analyst coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

Our failure to raise additional capital or generate the significant capital necessary to expand our operations and invest in new solutions could reduce our ability to compete and could harm our business.

        We may need to raise additional funds, and we may not be able to obtain additional debt or equity financing on favorable terms, if at all. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests and the per share value of our common stock could decline. If we issue equity securities in any additional financing, the new securities may have rights and preferences senior to our common stock. If we engage in debt financing, we may be required to accept terms that restrict our ability to incur additional indebtedness and force us to maintain specified liquidity or other ratios. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:

We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.

        We do not anticipate paying cash dividends on our common stock in the future. As a result, only appreciation of the price of our common stock will provide a return to our stockholders. Investors seeking cash dividends should not invest in our common stock.

About this Prospectus

        You should rely only on the information contained in this document or to which we have referred you. Neither we, the selling stockholders nor the underwriters have authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document, or such other dates as are stated in this document, regardless of the time of delivery of this prospectus or of any sale of our common stock.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        In addition to historical information, this prospectus contains forward-looking statements. We may, in some cases, use words, such as "project," "believe," "anticipate," "plan," "expect," "estimate," "intend," "continue," "should," "would," "could," "potentially," "will" or "may," or other similar words and expressions that convey uncertainty about future events or outcomes to identify these forward-looking statements. Forward-looking statements in this prospectus include, among other things, statements about:

        The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These risks, uncertainties and factors include those we discuss in this prospectus under the section entitled "Risk Factors." You should read these risk factors and the other cautionary statements made in this prospectus as being applicable to all related forward-looking statements wherever they appear in this prospectus.

        The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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INDUSTRY AND MARKET DATA

        This prospectus contains estimates and other statistical data, including those relating to our industry, that we have obtained from industry publications and reports, including reports from IDC, Ponemon Institute and Gartner, Inc. These industry publications and reports generally indicate that they have obtained their information from sources believed to be reliable, but do not guarantee the accuracy and completeness of their information. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates, as there is no assurance that any of them will be reached. Although we have not independently verified the accuracy or completeness of the data contained in these industry publications and reports, based on our industry experience we believe that the publications and reports are reliable and that the conclusions contained in the publications and reports are reasonable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors." These and other factors could cause our actual results to differ materially from those expressed in the industry publications and reports.

        The reports from Gartner described herein, or the Gartner Reports, represent data, research opinion or viewpoints published as part of a syndicated subscription service, by Gartner, and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this prospectus) and the opinions expressed in the Gartner Reports are subject to change without notice.

        In certain instances the sources of the industry and market data contained in this prospectus are identified by superscript asterisk notations. The sources of these data are provided below:

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USE OF PROCEEDS

        We estimate that the net proceeds from the sale of shares of our common stock that we are selling in this offering will be approximately $49.0 million, based on an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' option to purchase additional shares from us and the selling stockholders is exercised in full, we estimate that we will receive additional net proceeds of $7.7 million. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders. A $1.00 increase or decrease in the assumed initial public offering price of $11.00 per share would increase or decrease the net proceeds that we receive from this offering by approximately $4.7 million, assuming the number of shares offered by us remains the same and after deducting the estimated underwriting discounts and commissions payable by us.

        The principal purposes of this offering are to increase our financial flexibility, improve our visibility in the marketplace and create a public market for our common stock. We expect to use the net proceeds that we receive from this offering for working capital and other general corporate purposes. While we have no specific plans at this time, we may use some of the proceeds from this offering to fund the expansion of our domestic and international data center infrastructure or to pay down a portion of our outstanding balances under our equipment loans. As of December 31, 2011, we had $4.9 million outstanding under our equipment loans. In addition, as of December 31, 2011, we had contractual obligations related to capital and operating lease obligations and purchase obligations over the next three years of approximately $5.6 million. The amount of proceeds we use for these purposes, if any, will depend on the level of cash generated from operations. We may also use a portion of the net proceeds that we receive from this offering for investments in or acquisitions of complementary businesses, products, services, technologies or other assets.

        Except as set forth above, we currently have no specific plans for the use of the net proceeds that we receive from this offering. Accordingly, we will have broad discretion in using the net proceeds that we receive from this offering. Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.


DIVIDEND POLICY

        We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings and do not expect to pay any cash dividends on our common stock for the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and will be dependent on a number of factors, including our earnings, capital requirements and overall financial conditions. In addition, the terms of our equipment loan agreement with Silicon Valley Bank limit our ability to pay dividends.

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CAPITALIZATION

        The following table sets forth our consolidated cash, cash equivalents and short-term investments and capitalization as of December 31, 2011 on:

        The information below is illustrative only, and our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at the pricing of this offering. You should read this table together with our consolidated financial statements and related notes, "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," each included elsewhere in this prospectus.

 
  As of December 31, 2011  
 
  Actual   Pro Forma   Pro Forma
As Adjusted
 
 
  (in thousands, except per share data)
 

Cash, cash equivalents and short-term investments

  $ 12,714   $ 12,714   $ 61,729  
               

Convertible preferred stock, $0.0001 par value per share: 39,424 shares authorized, 38,942 shares issued and outstanding, actual; no shares authorized, no shares issued or outstanding, pro forma or pro forma as adjusted

  $ 109,911   $   $  
               

Stockholders' equity (deficit):

                   
 

Preferred stock, $0.0001 par value per share: no shares authorized, issued or outstanding, actual or pro forma; 5,000 shares authorized pro forma as adjusted

             
 

Common stock, $0.0001 par value per share: 71,400 shares authorized, 4,961 shares issued and outstanding, actual; 71,400 shares authorized, 24,528 shares issued and outstanding, pro forma; 200,000 shares authorized and 29,528 shares issued and outstanding, pro forma as adjusted

    1     5     6  
 

Additional paid-in capital

    24,773     134,680     183,694  
 

Accumulated other comprehensive loss

    (3 )   (3 )   (3 )
 

Accumulated deficit

    (162,118 )   (162,118 )   (162,118 )
               
   

Total stockholders' equity (deficit)

    (137,347 )   (27,436 )   21,579  
               
     

Total capitalization

  $ (27,436 ) $ (27,436 ) $ 21,579  
               

        A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted cash, cash equivalents and short-term investments,

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additional paid-in capital, total stockholders' equity and total capitalization by approximately $4.7 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions payable by us.

        The number of shares of common stock issued and outstanding as of December 31, 2011 actual, pro forma and pro forma as adjusted in the table above does not include the following shares:

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DILUTION

        If you invest in our common stock in this offering, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Our pro forma net tangible book value as of December 31, 2011 was $(53.2 million), or $(2.17) per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding as of December 31, 2011, after giving effect to the conversion of all outstanding shares of our convertible preferred stock into an aggregate of 19,567,258 shares of our common stock immediately upon the completion of this offering.

        After giving effect to the sale by us of 5,000,000 shares of common stock in this offering at an assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2011 would have been approximately $(3.2 million), or approximately $(0.11) per share. This amount represents an immediate increase in pro forma net tangible book value of $2.06 per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $11.11 per share to new investors purchasing shares of common stock in this offering at the assumed initial public offering price, or approximately 101.0% of the assumed initial public offering price.

        The following table illustrates this dilution:

Assumed initial public offering price per share

        $ 11.00  
 

Pro forma net tangible book value per share as of December 31, 2011

  $ (2.17 )      
             
 

Increase in pro forma net tangible book value per share attributable to new investors

  $ 2.06        
             

Pro forma as adjusted net tangible book value per share after this offering

          (0.11 )
             

Dilution per share to investors in this offering

        $ 11.11  
             

        A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase (decrease) our adjusted net tangible book value per share to new investors by approximately $0.16 and would increase (decrease) dilution per share to new investors by approximately $0.84, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us. In addition, to the extent any outstanding options or the outstanding warrant are exercised, you will experience further dilution.

        The following table presents on a pro forma as adjusted basis as of December 31, 2011, after giving effect to the conversion of all outstanding shares of convertible preferred stock into common stock immediately upon the completion of this offering, the differences between the existing stockholders and the new investors purchasing shares of our common stock in this offering, with respect to the number of shares purchased from us, the total consideration paid or to be paid to us, which includes proceeds received from the issuance of common and convertible preferred stock, cash received from the exercise of stock options and the average price per share paid by our existing stockholders and by our new investors purchasing shares in this offering at an assumed offering price of $11.00 per share, which is the midpoint of the estimated offering price range set forth on the cover page of this

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prospectus, before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 
  Shares Purchased   Total Consideration    
 
 
  Average
Price Per
Share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders

    24,527,817     83.1 % $ 134,683,555     71.0 % $ 5.49  

New investors

    5,000,000     16.9     55,000,000     29.0     11.00  
                         
 

Total

    29,527,817     100.0 % $ 189,683,555     100.0 %      
                         

        A $1.00 increase (decrease) in the assumed initial public offering price of $11.00 per share would increase (decrease) the total consideration paid by new investors by $5.0 million and increase (decrease) the percent of total consideration paid by new investors by 1.8% points, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions payable by us.

        Assuming the underwriters' option to purchase additional shares is exercised in full, sales by us in this offering will reduce the percentage of shares held by existing stockholders to 81.0% and will increase the number of shares held by our new investors to 5,750,000, or 19.0%.

        The number of shares of our common stock to be outstanding after this offering is based upon the number of shares of our common stock outstanding as of December 31, 2011 and excludes:

        To the extent that outstanding options or the outstanding warrant are exercised, or outstanding RSUs are settled, you will experience further dilution.

        In addition, to the extent we choose to raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

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SELECTED CONSOLIDATED FINANCIAL DATA

         The following tables present selected historical financial data for our business. You should read this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, related notes and other financial information included elsewhere in this prospectus. The selected consolidated financial data in this section are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this prospectus.

        We derived the consolidated statements of operations data for the years ended December 31, 2009, 2010 and 2011, and the consolidated balance sheet data as of December 31, 2010 and 2011 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the consolidated statements of operations data for the years ended December 31, 2007 and 2008 and the consolidated balance sheet data as of December 31, 2007, 2008 and 2009 from our audited financial statements not included in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future.

 
  Years Ended December 31,  
 
  2007   2008   2009   2010   2011  
 
  (in thousands, except per share data)
 

Consolidated Statements of Operations Data:

                               

Revenue:

                               
 

Subscription

  $ 20,823   $ 31,115   $ 42,135   $ 57,657   $ 73,896  
 

Hardware and services

    5,105     7,128     6,393     7,133     7,942  
                       
   

Total revenue

    25,928     38,243     48,528     64,790     81,838  

Cost of revenue: (1)

                               
 

Subscription

    5,767     11,907     19,150     24,523     24,193  
 

Hardware and services

    3,319     3,850     3,309     4,082     5,537  
                       
   

Total cost of revenue

    9,086     15,757     22,459     28,605     29,730  
                       

Gross profit

    16,842     22,486     26,069     36,185     52,108  

Operating expense: (1)

                               
 

Research and development

    6,221     10,926     11,831     17,583     19,779  
 

Sales and marketing

    19,445     32,439     27,883     31,161     42,676  
 

General and administrative

    3,925     5,224     5,678     7,465     9,237  
                       
   

Total operating expense

    29,591     48,589     45,392     56,209     71,692  
                       

Operating loss

    (12,749 )   (26,103 )   (19,323 )   (20,024 )   (19,584 )

Interest income (expense), net

    491     536     87     (340 )   (300 )

Other income (expense), net

    73     (183 )   (269 )   (258 )   113  
                       

Loss before provision for income taxes

    (12,185 )   (25,750 )   (19,505 )   (20,622 )   (19,771 )

Provision for income taxes

    (102 )   (138 )   (233 )   (243 )   (370 )
                       

Net loss

  $ (12,287 ) $ (25,888 ) $ (19,738 ) $ (20,865 ) $ (20,141 )
                       

Net loss per share, basic and diluted

  $ (4.84 ) $ (8.73 ) $ (6.14 ) $ (5.84 ) $ (5.03 )
                       

Weighted average shares outstanding, basic and diluted (2)

   
2,539
   
2,964
   
3,212
   
3,575
   
4,005
 
                       

Pro forma net loss per share, basic and diluted (unaudited) (2)

                          $ (0.86 )
                               

Weighted average pro forma shares, basic and diluted (unaudited) (2)

                            23,572  
                               

(1)
Includes stock-based compensation and amortization of intangible assets as follows:

 
  Years Ended December 31,  
 
  2007   2008   2009   2010   2011  
 
  (in thousands)
 

Stock-based compensation

                               
 

Cost of subscription revenue

  $ 21   $ 178   $ 275   $ 357   $ 366  
 

Cost of hardware and services revenue

    2     1     11     17     29  
 

Research and development

    200     519     848     1,010     1,247  
 

Sales and marketing

    208     703     1,030     1,113     1,976  
 

General and administrative

    330     707     732     868     930  

Amortization of intangible assets

                               
 

Cost of subscription revenue

  $   $ 1,488   $ 3,371   $ 3,745   $ 3,772  
 

Research and development

                    1  
 

Sales and marketing

        163     408     637     769  

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(2)
Please see notes 12 and 13 of our notes to consolidated financial statements included elsewhere in this prospectus for an explanation of the calculations of basic and diluted net loss per share of common stock and pro forma net loss per share of common stock.

 
  As of December 31,  
 
  2007   2008   2009   2010   2011  
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                               

Cash, cash equivalents and short-term investments

  $ 9,185   $ 19,355   $ 11,317   $ 12,747   $ 12,714  

Property and equipment, net

    2,410     3,861     4,455     4,630     7,353  

Total assets

    28,419     64,138     63,722     62,352     67,952  

Debt, current and long term

    1,108     723     741     264     4,981  

Deferred revenue, current and long term

    34,292     47,690     57,346     69,101     76,240  

Convertible preferred stock

    58,103     102,380     108,329     109,820     109,911  

Total stockholders' deficit

    (72,043 )   (95,508 )   (112,142 )   (128,401 )   (137,347 )

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

         The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those forward-looking statements below. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the section entitled "Risk Factors" included elsewhere in this prospectus.

Overview

        Proofpoint is a pioneering security-as-a-service vendor that enables large and mid-sized organizations worldwide to defend, protect, archive and govern their most sensitive data. Our security-as-a-service platform is comprised of an integrated suite of on-demand data protection solutions, including threat protection, regulatory compliance, archiving and governance, and secure communication.

        We were founded in 2002 to provide a unified solution to help enterprises address their growing data security requirements. Our first solution was commercially released in 2003 to combat the burgeoning problem of spam and viruses and their impact on corporate email systems. As the threat environment has continued to evolve, we have dedicated significant resources to meet the ongoing challenges that this highly dynamic environment creates for our customers. In addition, we have invested significantly to expand the breadth of our data protection platform:

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        Our business is based on a recurring revenue model. Our customers pay a subscription fee to license the various components of our security-as-a-service platform for a contract term that is typically one to three years. At the end of the license term, customers may renew their subscription and in each year since the launch of our first solution in 2003, we have retained over 90% of our customers. We derive this retention rate by calculating the total annually recurring subscription revenue from customers currently using our security-as-a-service platform and dividing it by the total annually recurring subscription revenue from both these current customers as well as all business lost through non-renewal. A growing number of our customers increase their annual subscription fees after their initial purchase by broadening their use of our platform or by adding more users, as evidenced by the fact that these sales consistently represent 15% or more of our billings each year since 2008. As our business has grown, our subscription revenue has increased as a percentage of our total revenue, from 87% of total revenue in 2009 to 90% in 2011.

        We market and sell our solutions to large and mid-sized customers both directly through our field and inside sales teams and indirectly through a hybrid model where our sales organization actively assists our network of distributors and resellers. We also derive a lesser portion of our revenue from the license of our solutions to strategic partners who offer our solutions in conjunction with one or more of their own products or services.

        Our sales and marketing operation consists of sales people and associated marketing resources, each of whom are assigned to a specific geographic territory. Their mission is to grow additional revenue within their respective territory in whatever manner is most efficient, either by obtaining new customers or by working with existing customers to expand their use of our solutions. Our sales teams are compensated equally for sales to new customers or sales of additional solutions to existing customers, and we do not allocate sales and marketing resources between activities related to the acquisition of new customers and activities associated with the sale of additional solutions to existing customers.

        We invoice our customers for the entire contract amount at the start of the term. The majority of these invoiced amounts are treated as deferred revenue on our consolidated balance sheet and are recognized ratably over the term of the contract. We invoice our strategic partners on a monthly basis, and the associated fees vary based upon the level of usage during the month by their customers. These amounts are recognized as revenue at the time of invoice.

        Our solutions are designed to be implemented, configured and operated without the need for any training or professional services. For those customers that seek to develop deeper expertise in the use of our solutions or would like assistance with complex configurations or the importing of data, we offer various training and professional services. In some cases, we provide a hardware appliance to those customers that elect to host elements of our solution behind their firewall. Increasing adoption of virtualization in the data center has led to a decline in the sales of our hardware appliances and a shift towards our software-based virtual appliances, which are delivered as a download via the Internet. Our hardware and services offerings carry lower margins and are provided as a courtesy to our customers. The revenue derived from these offerings has declined from 13% of total revenue in 2009 to 10% of total revenue in 2011. We view this trend as favorable to our business and expect the overall proportion of total revenue derived from these offerings to continue to gradually decline.

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        The substantial majority of our revenue is derived from our customers in the United States. We believe the markets outside of the United States offer an opportunity for growth and we intend to make additional investments in sales and marketing to expand in these markets. Customers from outside of the United States represented 23%, 20% and 21% of total revenue for 2009, 2010 and 2011, respectively. As of December 31, 2011, we had approximately 2,400 customers around the world, including 25 of the Fortune 100. No single partner or customer accounted for more than 10% of our total revenue in 2009, 2010 or 2011.

        We have not been profitable to date and will need to grow revenue at a rate faster than our investments in cost of revenue and operating expenses in order to achieve profitability, as discussed in more detail below.

Key Opportunities and Challenges

        The majority of costs associated with generating customer agreements are incurred up front. These upfront costs include direct incremental sales commissions, which are recognized upon the billing of the contract. The costs associated with the teams tasked with closing business with new customers and additional business with our existing customers have represented more than 90% of our total sales and marketing costs since 2008. Although we expect customers to be profitable over the duration of the customer relationship, these upfront costs typically exceed related revenue during the earlier periods of a contract. As a result, while our practice of invoicing our customers for the entire amount of the contract at the start of the term provides us with a relatively immediate contribution to cash flow, the revenue is recognized ratably over the term of the contract, and hence contributions toward operating income are limited in the period where these sales and marketing costs are incurred. Accordingly, an increase in the mix of new customers as a percentage of total customers would likely negatively impact our near-term operating results. On the other hand, we expect that an increase in the mix of existing customers as a percentage of total customers would positively impact our operating results over time. As we accumulate customers that continue to renew their contracts, we anticipate that our mix of existing customers will increase, contributing to a decrease in our sales and marketing costs as a percentage of total revenue and a commensurate improvement in our operating income.

        As part of maintaining our security-as-a-service platform, we provide ongoing updates and enhancements to the platform services both in terms of the software as well as the underlying hardware and data center infrastructure. These updates and enhancements are provided to our customers at no additional charge as part of the subscription fees paid for the use of our platform. While more traditional products eventually become obsolete and require replacement, we are constantly updating and maintaining our cloud-based services and as such they operate with a continuous product life cycle. Much of this work is designed to both maintain and enhance the customers' experience over time while also lowering our costs to deliver the service, as evidenced by our improvements in gross profit over the past three years. Our security-as-a-service platform is a shared infrastructure that is used by all of our approximately 2,400 customers. Accordingly, the costs of the platform are spread in a relatively uniform manner across the entire customer base and no specific infrastructure elements are directly attached to any particular customer. As such, in the event that a customer chooses to not renew its subscription, the underlying resources are reallocated either to new customers or to accommodate the expanding needs of our existing customers and, as a result, we do not believe that the loss of any particular customer has a meaningful impact on our gross profit as long as we continue to grow our customer base.

        To date, our customers have primarily used our solutions in conjunction with email messaging content. We have developed solutions to address the new and evolving messaging solutions such as social media and file sharing applications, but these solutions are relatively nascent. If customers increase their use of these new messaging solutions in the future, we anticipate that our growth in revenue associated with email messaging solutions may slow over time. Although revenue associated

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with our social media and file sharing applications has not been material to date, we believe that our ability to provide security, archiving, governance and discovery for these new solutions will be viewed as valuable by our existing customers, enabling us to derive revenue from these new forms of messaging and communication.

        While the majority of our current and prospective customers run their email systems on premise, we believe that there is a trend for large and mid-sized enterprises to migrate these systems to the cloud. While our current revenue derived from customers using cloud-based email systems is approximately 10% of our total revenue, many of these cloud-based email solutions offer some form of threat protection and governance services, potentially mitigating the need for customers to buy these capabilities from third parties such as ourselves. We believe that we can continue to provide security, archiving, governance, and discovery solutions that are differentiated from the services offered by cloud-based email providers, and as such our platform will continue to be viewed as valuable to enterprises once they have migrated their email services to the cloud, enabling us to continue to derive revenue from this new trend toward cloud-based email deployment models.

        We are currently in the midst of a significant investment cycle in which we have taken steps designed to drive future revenue growth and profitability. For example, we plan to build out our infrastructure, develop our technology, offer additional security-as-a-service solutions, and expand our sales and marketing personnel both in North America and internationally. Accordingly, we expect that our total cost of revenue and operating expenses will continue to increase in absolute dollars, limiting our ability to achieve and maintain positive operating cash flow and profitability in the near term.

        With the majority of our business, we invoice our customers for the entire contract amount at the start of the term and these amounts are recorded as deferred revenue on our balance sheet, with the dollar weighted average duration of these contracts for any given period over the past three years typically ranging from 20 to 25 months. As a result, while our practice of invoicing customers for the entire amount of the contract at the start of the term provides us with a relatively immediate contribution to cash flow, the revenue is recognized ratably over the term of the contract, and hence contributions toward operating income are realized over an extended period. Accordingly, when comparing 2011 with 2008, our cash flow related to operating activities improved by $7.4 million while our operating income improved by only $6.5 million. As such, our efforts to improve our profitability require us to invest far less in operating expenses than the cash flow generated by our business might otherwise allow. As we strive to invest in an effort to continue to increase the size and scale of our business, we expect that the level of investment afforded by our growth in revenue should be sufficient to fund the investments needed to drive revenue growth and broaden our product line.

        Considering all of these factors, we do not expect to be profitable on a GAAP basis in the near term and in order to achieve profitability we will need to grow revenue at a rate faster than our investments in operating expenses and cost of revenue.

        We intend to grow our revenue through acquiring new customers by investing in our sales and marketing activities. We believe that an increase in new customers in the near term will result in a larger base of renewal customers, which, over time we expect to be more profitable for us.

        Sales and marketing is our greatest expense and hence a significant contributing factor to our operating losses. Given that our costs to acquire new revenue sources, either in the form of new customers or the sale of additional solutions to existing customers, often exceed the actual revenue recognized in the initial periods, we believe that our opportunity to improve our return on investment on sales and marketing costs relies primarily on our ongoing ability to cost effectively renew our business with existing customers, thereby lowering our overall sales and marketing costs as a percentage of revenue as the mix of revenue derived from this more profitable renewal activity increases over time. Therefore, we anticipate that our initial significant investments in sales and marketing activities will over time generate a larger base of more profitable customers. Cost of subscription revenue is also a

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significant expense for us, and we expect to continue to build on the improvements over the past three years, such as in replacing third-party technology with our proprietary technology and improving the utilization of our fixed investments in equipment and infrastructure, in order to provide the opportunity for improved subscription gross margins over time. Although we plan to continue enhancing our solutions, we intend to lower our rate of investment in research and development as a percentage of revenue over time by deriving additional revenue from our existing platform of solutions rather than by adding entirely new categories of solutions. In addition, as personnel costs are one of the primary drivers of the increases in our operating expenses, we plan to reduce our historical rate of headcount growth over time.

Key Metrics

        We regularly review a number of metrics, including the following key metrics presented in the unaudited table below, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions. Many of these key metrics, such as adjusted subscription gross profit and billings, are non-GAAP measures. This non-GAAP information is not necessarily comparable to non-GAAP information of other companies. Non-GAAP information should not be viewed as a substitute for, or superior to, net loss prepared in accordance with GAAP as a measure of our profitability or liquidity. Users of this financial information should consider the types of events and transactions for which adjustments have been made. See "Summary Consolidated Financial Information—Reconciliation of Non-GAAP Financial Measures" above for a reconciliation of the non-GAAP information to GAAP.

 
  Year Ended December 31,  
 
  2009   2010   2011  
 
  (in thousands)
 

Total revenue

  $ 48,528   $ 64,790   $ 81,838  
 

Growth

    27 %   34 %   26 %

Subscription revenue

 
$

42,135
 
$

57,657
 
$

73,896
 
 

Growth

    35 %   37 %   28 %

Adjusted subscription gross profit

 
$

26,631
 
$

37,236
 
$

53,841
 
 

% of subscription revenue

    63 %   65 %   73 %

Billings

 
$

58,184
 
$

76,545
 
$

88,977
 
 

Growth

    13 %   32 %   16 %

        Subscription revenue.     Subscription revenue represents the recurring subscription fees paid by our customers and recognized as revenue during the period for the use of our security-as-a-service platform, typically licensed for one to three years at a time. We consider subscription revenue to be a key business metric because it reflects the recurring aspect of our business model and is the primary driver of growth for our business over time. The consistent growth in subscription revenue over the past several years has resulted from our ongoing investment in sales and marketing personnel, our efforts to expand our customer base, and our efforts to broaden the use of our platform with existing customers.

        Adjusted subscription gross profit.     Adjusted subscription gross profit is a non-GAAP financial measure that we calculate as the gross profit generated by our subscription revenue, adjusted to exclude stock-based compensation and the amortization of intangibles related to prior acquisitions. We believe that adjusted subscription gross profit provides useful information to investors in understanding and evaluating our operating results in the same manner as our management and board of directors. This metric represents the gross profit on our recurring subscription revenue and is directly related to our ability to generate profitability. Adjusted subscription gross profit, when measured as a percentage of subscription revenue, improved from 65% in 2010 to 73% during 2011. These improvements resulted

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from our ongoing efforts to reduce our cost of subscription revenue through the replacement of technology licensed from third parties with our own proprietary technology in conjunction with improved operating leverage on our data center infrastructure. Improvements in the gross profit of these subscription services enhance our ability to drive positive cash flow and profitability for our business overall. For more information about adjusted subscription gross profit, see "Summary Consolidated Financial Information—Reconciliation of Non-GAAP Financial Measures."

        Billings.     Billings is a non-GAAP financial measure that is a direct reflection of our overall sales activity in the period. Billings can be derived by adding the change in the deferred revenue between the start and end of the period to the revenue recognized in the same time frame. Billings consist of all amounts invoiced to customers for non-cancelable sales transactions and hence are important as they correspond directly to our near-term cash flow. However, trends in billings are not directly correlated to trends in revenue except when measured over longer periods of time, as billings are affected by a combination of factors including the timing of renewals, the sales of our solutions to both new and existing customers, the relative duration of contracts sold, and the relative amount of business derived from strategic partners. Each of these elements has unique characteristics in the relationship between billings and revenue, and as such our billings activity is not closely correlated to revenue over shorter periods of time. For more information about billings, see "Summary Consolidated Financial Information—Reconciliation of Non-GAAP Financial Measures."

Components of Our Results of Operations

Revenue

        We derive our revenue primarily through the license of various solutions and services on our security-as-a-service platform on a subscription basis, supplemented by the sales of training, professional services and hardware depending upon our customers' requirements.

        Subscription.     We license our platform and its associated solutions and services on a subscription basis. The fees are charged on a per user, per year basis. Subscriptions are typically one to three years in duration. We invoice our customers upon signing for the entire term of the contract. The invoiced amounts billed in advance are treated as deferred revenue on the balance sheet and are recognized ratably, in accordance with the appropriate revenue recognition guidelines, over the term of the contract (see —Critical Accounting Policies). We also derive a portion of our subscription revenue from the license of our solutions to strategic partners. We bill these strategic partners monthly. As our business has grown, our subscription revenue has increased as a percentage of our total revenue, from 87% of total revenue in 2009 to 90% in 2011.

        Hardware and services.     We provide hardware appliances as a convenience to our customers and as such it represents a small part of our business. Our solutions are designed to be implemented, configured and operated without the need for any training or professional services. For those customers that seek to develop deeper expertise in the use of our solutions or would like assistance with complex configurations or the importing of data, we offer various training and professional services. We typically invoice the customer for hardware at the time of shipment. Effective January 1, 2011, we adopted the revenue recognition guidance of Accounting Standards Update (ASU) 2009-13 and ASU 2009-14, which mandate that our revenue derived from the sale of hardware be recognized at the time of shipment. Prior to the adoption of this new accounting guidance, hardware revenue was recognized ratably over the duration of the contract. We typically invoice customers for services at the time the order is placed and recognize this revenue ratably over the term of the contract. On occasion, customers may retain us for special projects such as archiving import and export services; these types of services are recognized upon completion of the project. The revenue derived from these hardware and services offerings has declined from 13% of total revenue in 2009 to 10% of total revenue in 2011. We view this trend as

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favorable to our business and expect the overall proportion of revenue derived from these offerings to continue to decline gradually.

Total Cost of Revenue

        Cost of Subscription Revenue.     Cost of subscription revenue primarily includes personnel costs, consisting of salaries, benefits, bonuses, and stock-based compensation, for employees who provide support services to our customers and operate our data centers. Our operations and customer support headcount increased from 30 employees as of January 1, 2009 to 66 employees as of December 31, 2011. Other costs include fees paid to contractors who supplement our support and data center personnel; expenses related to the use of third-party data centers in both the United States and internationally; depreciation of data center equipment; amortization of licensing fees and royalties paid for the use of third-party technology; amortization of capitalized research and development costs; and the amortization of intangible assets related to prior acquisitions. Growth in subscription revenue generally consumes production resources, requiring us to gradually increase our cost of subscription revenue in absolute dollars as we expand our investment in data center equipment, the third party data center space required to house this equipment, and the personnel needed to manage this higher level of activity. However, our cost of subscription revenue has declined in recent periods as a percentage of its associated revenue as we have replaced third-party licensed technology with our proprietary technology, and we expect the benefit of these initiatives to continue in future periods.

        Cost of Hardware and Services Revenue.     Cost of hardware and services revenue includes personnel costs for employees who provide training and professional services to our customers as well as the cost of server hardware shipped to our customers that we procure from third parties and configure with our software solutions. Our manufacturing, training and professional services headcount increased from five employees as of January 1, 2009 to seven employees as of December 31, 2011. Effective January 1, 2011, in conjunction with the adoption of the new revenue recognition guidance, the cost of hardware is expensed at the time of shipment. Prior to the adoption of this new guidance, these hardware costs were recognized ratably over the duration of the contract with which they were sold. Our cost of hardware and services as a percentage of its associated revenue has been relatively consistent from period to period in the past, but with the adoption of our new accounting guidance we expect that it may gradually increase as a percentage of hardware and services revenue in future periods.

Operating Expenses

        Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs, which consist of salaries, benefits, bonuses, and stock-based compensation, are the most significant component of our operating expenses. Our headcount increased from 240 employees as of January 1, 2009 to 376 employees as of December 31, 2011. As a result of this growth in headcount, operating expenses have increased significantly over these periods. We expect personnel costs to continue to increase in absolute dollars as we hire new employees to continue to grow our business, however, we do not anticipate that our historical rates of headcount growth will continue over the longer term.

        Research and Development.     Research and development expenses include personnel costs, consulting services and depreciation. Our research and development headcount increased from 64 employees as of January 1, 2009 to 108 employees as of December 31, 2011, reflecting our ongoing investment in solutions developed internally as well as those added through acquisitions. We believe that these investments have played an important role in broadening the capabilities of our platform over the course of our operating history, enhancing the relevance of our solutions in the market in general and helping us to retain our customers over time. We expect to continue to devote substantial resources to research and development in an effort to continuously improve our existing solutions as well as to develop new offerings. We believe that these investments are necessary to maintain and

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improve our competitive position, however, over the longer term, we intend to monitor these costs so as to decrease this spending as a percentage of revenue. Our research efforts include both software developed for our internal use on behalf of our customers as well as software elements to be used by our customers in their own facilities. To date, for software developed for internal use on behalf of our customers, we have capitalized costs of approximately $0.4 million, all of which was incurred during 2011, and will be amortized as cost of subscription revenue over a two-year period. Based on our current plans, we expect to capitalize a similar portion of our development costs in the future. For the software developed for use on our customers' premises, the costs associated with the development work between technological feasibility and the general availability has not been material and as such we have not capitalized any of these development costs to date.

        Sales and Marketing.     Sales and marketing expenses include personnel costs, sales commissions, and other costs including travel and entertainment, marketing and promotional events, public relations and marketing activities. All of these costs are expensed as incurred, including sales commissions. These costs also include amortization of intangible assets as a result of our past acquisitions. During 2009, in response to the challenging global economic conditions, we chose to modestly reduce our investment in sales and marketing operations, resulting in a decrease in headcount from 120 employees as of January 1, 2009 to 96 employees as of December 31, 2009. As the economy gradually improved, we began to hire again during 2010 and 2011, increasing our headcount in our sales and marketing organization from 96 as of December 31, 2009, to 119 as of December 31, 2010 and to 155 employees as of December 31, 2011. We plan to continue to invest in growing our sales and marketing operations, both domestically and internationally. Our sales personnel are typically not immediately productive, and therefore the increase in sales and marketing expenses we incur when we add new sales representatives is not immediately offset by increased revenue and may not result in increased revenue over the long-term if these new sales people fail to become productive. The timing of our hiring of new sales personnel and the rate at which they generate incremental revenue will affect our future financial performance. We expect that sales and marketing expenses will continue to increase in absolute dollars and be among the most significant components of our operating expenses.

        General and Administrative.     General and administrative expenses include personnel costs, consulting services, audit fees, tax services, legal expenses and other general corporate items. Our general and administrative headcount increased from 21 employees as of January 1, 2009 to 40 employees as of December 31, 2011. We expect our general and administrative expenses to increase in absolute dollars in future periods as we continue to expand our operations, hire additional personnel and transition from being a private company to a public company, although we expect these expenses to decrease as a percentage of revenue.

Total Other Income (Expense), Net

        Total other income (expense), net, consists of interest income (expense), net and other income (expense), net. Interest income (expense), net, consists primarily of interest income earned on our cash and cash equivalents offset by the interest expense for our capital lease payments and borrowings under our equipment loans. Other income (expense), net, consists primarily of the net effect of foreign currency transaction gain or loss.

Provision for Income Taxes

        The provision for income taxes is related to certain state and foreign income taxes. As we have incurred operating losses in all periods to date and recorded a full valuation allowance against our deferred tax assets, we have not historically recorded a provision for federal income taxes. Realization of any of our deferred tax assets depends upon future earnings, the timing and amount of which are uncertain. Utilization of our net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions.

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An analysis was conducted through 2009 to determine whether an ownership change had occurred since inception. The analysis indicated that although an ownership change occurred in a prior year, the net operating losses and research and development credits would not expire before utilization. In the event we have subsequent changes in ownership, net operating losses and research and development credit carryovers could be limited and may expire unutilized.

Results of Operations

        The following table is a summary of our consolidated statements of operations.

 
  Year Ended December 31,  
 
  2009   2010   2011  
 
  (in thousands)
 

Revenue:

                   
 

Subscription

  $ 42,135   $ 57,657   $ 73,896  
 

Hardware and services

    6,393     7,133     7,942  
               
   

Total revenue

    48,528     64,790     81,838  

Cost of revenue: (1)

                   
 

Subscription

    19,150     24,523     24,193  
 

Hardware and services

    3,309     4,082     5,537  
               
   

Total cost of revenue

    22,459     28,605     29,730  
               

Gross profit

    26,069     36,185     52,108  

Operating expense: (1)

                   
 

Research and development

    11,831     17,583     19,779  
 

Sales and marketing

    27,883     31,161     42,676  
 

General and administrative

    5,678     7,465     9,237  
               
   

Total operating expense

    45,392     56,209     71,692  
               

Operating loss

    (19,323 )   (20,024 )   (19,584 )

Interest income (expense), net

    87     (340 )   (300 )

Other income (expense), net

    (269 )   (258 )   113  
               

Loss before provision for income taxes

    (19,505 )   (20,622 )   (19,771 )

Provision for income taxes

    (233 )   (243 )   (370 )
               

Net loss

  $ (19,738 ) $ (20,865 ) $ (20,141 )
               

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        The following table sets forth our consolidated results of operations for the specified periods as a percentage of our total revenue for those periods.

 
  Year Ended December 31,  
 
  2009   2010   2011  

Revenue:

                   
 

Subscription

    87 %   89 %   90 %
 

Hardware and services

    13     11     10  
               
   

Total revenue

    100     100     100  

Cost of revenue: (1)

                   
 

Subscription

    39     38     30  
 

Hardware and services

    7     6     6  
               
   

Total cost of revenue

    46     44     36  
               

Gross profit

    54     56     64  

Operating expense: (1)

                   
 

Research and development

    24     27     24  
 

Sales and marketing

    57     48     52  
 

General and administrative

    12     12     12  
               
   

Total operating expense

    94     87     88  
               

Operating loss

    (40 )   (31 )   (24 )

Interest income (expense), net

        (1 )    

Other income (expense), net

    (1 )        
               

Loss before provision for income taxes

    (40 )   (32 )   (24 )

Provision for income taxes

            (1 )
               

Net loss

    (41 )%   (32 )%   (25 )%
               

(1)
Includes stock-based compensation and amortization of intangible assets as follows:

 
  Year Ended December 31,  
 
  2009   2010   2011  
 
  (in thousands)
 

Stock-based compensation

                   
 

Cost of subscription revenue

  $ 275   $ 357   $ 366  
 

Cost of hardware and services revenue

    11     17     29  
 

Research and development

    848     1,010     1,247  
 

Sales and marketing

    1,030     1,113     1,976  
 

General and administrative

    732     868     930  

Amortization of intangible assets

                   
 

Cost of subscription revenue

  $ 3,371   $ 3,745   $ 3,772  
 

Research and development

            1  
 

Sales and marketing

    408     637     769  

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Comparison of Years Ended December 31, 2010 and 2011

Revenue

 
  Year Ended
December 31,
  Change  
 
  2010   2011   $   %  
 
  (in thousands)
   
 

Revenue

                         
 

Subscription

  $ 57,657   $ 73,896   $ 16,239     28 %
 

Hardware and services

    7,133     7,942     809     11  
                     

Total revenue

  $ 64,790   $ 81,838   $ 17,048     26 %

        Subscription revenue increased $16.2 million, or 28%, for 2011 as compared to 2010. This increase was primarily due to a $12.7 million increase in revenue from the United States and, to a lesser extent, a $3.5 million increase from our international operations. From 2010 to 2011, we added 36 personnel to the sales and marketing organization, which represented a 30% increase in the size of the team from the prior year. These new resources directly contributed to the further growth in the sales capacity of our field sales organization and were the primary reason for the 26% overall growth in revenue from the previous year. We believe that the fundamental shift in the overall threat landscape, the growth of business-to-business collaboration as well as the consumerization of IT, coupled with an ongoing improvement in economic conditions, led to the increase in demand for data protection and governance solutions.

        Hardware and services revenue increased $0.8 million, or 11%, for 2011 as compared to 2010. Revenue from the United States contributed $0.7 million of this increase and international business accounted for $0.1 million. This increase was attributable to our adoption of new revenue recognition guidance (as more fully described in our Critical Accounting Policies) effective January 1, 2011 under which revenue from sales of hardware appliances began to be recognized when sold.

Cost of Revenue

 
  Year Ended
December 31,
  Change  
 
  2010   2011   $   %  
 
  (in thousands)
   
 

Cost of revenue

                         
 

Subscription

  $ 24,523   $ 24,193   $ (330 )   (1 )%
 

Hardware and services

    4,082     5,537     1,455     36  
                     

Total cost of revenue

  $ 28,605   $ 29,730   $ 1,125     4 %

        Cost of subscription revenue decreased $0.3 million, or 1%, for 2011 as compared to 2010. The decrease in cost of subscription revenue was primarily due to a $1.8 million decrease in royalty expense driven by the replacement of third-party licensed technology with our proprietary technology, as well as improved economic terms associated with other ongoing licensing agreements. We expect that the combination of these two initiatives will also continue to contribute to reduced royalty expenses in future periods. These savings were partially offset by increased data center costs of $0.5 million associated with ongoing growth in usage by new and existing customers, increased personnel costs of $0.4 million as a result of increased headcount of seven and increased customer support service expenses of $0.6 million.

        Cost of hardware revenue and services revenue increased $1.5 million, or 36%, for 2011 as compared to 2010. This increase was primarily due to the adoption of the new revenue recognition guidance effective January 1, 2011 under which costs from sales of hardware appliances are now

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recognized when the associated hardware revenue is recognized. Accordingly, $1.5 million of this cost increase was a result of the change in revenue recognition guidance, offset by a decrease in appliance costs attributable to a decrease in corresponding revenue. This decrease was offset by an increase in services expense directly correlated to an increase in services revenue during the fiscal year.

Operating Expenses

 
  Year Ended
December 31,
  Change  
 
  2010   2011   $   %  
 
  (in thousands)
   
 

Research and development

  $ 17,583   $ 19,779   $ 2,196     12 %
 

Percent of total revenue

    27 %   24 %            

        Research and development expenses increased $2.2 million, or 12%, for 2011 as compared to 2010. The increase was primarily due to additional personnel costs from headcount added at the end of 2010, resulting in the $2.0 million increase for 2011, as the full expense impact of that additional headcount was reflected across the ensuing year, with the remaining increase primarily due to an increase in outside service fees.

 
  Year Ended
December 31,
  Change  
 
  2010   2011   $   %  
 
  (in thousands)
   
 

Sales and marketing

  $ 31,161   $ 42,676   $ 11,515     37 %
 

Percent of total revenue

    48 %   52 %            

        Sales and marketing expenses increased $11.5 million, or 37%, for 2011 as compared to 2010. Headcount increased by 36 on a worldwide basis, resulting in increased personnel costs of $6.5 million and an increase in travel expenses of $1.0 million. Additionally, as our business grew, commission expense increased by $1.8 million. Marketing program spending increased $1.4 million as a result of our continued investment in lead generation programs, tradeshows and our corporate branding programs.

 
  Year Ended
December 31,
  Change  
 
  2010   2011   $   %  
 
  (in thousands)
   
 

General and administrative

  $ 7,465   $ 9,237   $ 1,772     24 %
 

Percent of total revenue

    12 %   11 %            

        General and administrative expenses increased $1.8 million, or 24%, for 2011 as compared to 2010. The increase was primarily due to an increase in headcount of nine which resulted in increased personnel costs of $0.9 million as we filled additional roles in preparation of becoming a public company. Additionally, an increase of $0.8 million was related to acquisition expenses, external consulting fees and legal expenses.

Total Other Income (Expense), Net

 
  Year Ended
December 31,
  Change  
 
  2010   2011   $   %  
 
  (in thousands)
   
 

Total other income (expense), net

  $ (598 ) $ (187 ) $ 411     69 %

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        Total other income (expense), net decreased $0.4 million for 2011 as compared to 2010. The change was primarily due to a decrease in interest expense as we continued to pay down our capital equipment loans, offset by an adjustment related to foreign currency translation.

Comparison of Years Ended December 31, 2009 and 2010

Revenue

 
  Year Ended
December 31,
  Change  
 
  2009   2010   $   %  
 
  (in thousands)
   
 

Revenue

                         
 

Subscription

  $ 42,135   $ 57,657   $ 15,522     37 %
 

Hardware and services

    6,393     7,133     740     12  
                     

Total revenue

  $ 48,528   $ 64,790   $ 16,262     34 %

        Subscription revenue increased $15.5 million, or 37%, for 2010 as compared to 2009. This growth was primarily due to $13.6 million in higher demand for our solutions in the United States, aided by improved economic conditions in that region over the prior period. From 2009 to 2010 we added 23 personnel to the sales and marketing organization, which represented a 24% increase in the size of the team from the prior year. These new resources directly contributed to the growth in the sales capacity of our field sales organization and were the primary reason for the 34% overall growth in revenue from the previous year. Additionally, we believe the increased threat environment drove subscription revenue growth.

        Hardware and services revenue grew $0.7 million, or 12%, for 2010 as compared to 2009. This growth was primarily due to a modest increase in the sale of both hardware and professional services. The relatively slow growth in hardware and services as compared to subscription revenue reflects the ongoing shift in deployment models towards our cloud-based and virtual appliance solutions. Revenue from the United States contributed $0.9 million of this increase, partially offset by a decline of $0.1 million from our international business.

Cost of Revenue

 
  Year Ended
December 31,
  Change  
 
  2009   2010   $   %  
 
  (in thousands)
   
 

Cost of revenue

                         
 

Subscription

  $ 19,150   $ 24,523   $ 5,373     28 %
 

Hardware and services

    3,309     4,082     773     23  
                     

Total cost of revenue

  $ 22,459   $ 28,605   $ 6,146     27 %

        Cost of subscription revenue increased $5.4 million, or 28%, for 2010 as compared to 2009. The increase was primarily due to increased personnel costs of $2.9 million driven by additional headcount of 14, as well as increased data center costs of $0.8 million, increased depreciation and amortization of $0.8 million, which included a full year of amortization of developed technology as it relates to the Everyone.net, Inc. acquisition and a $0.2 million increase in travel expenses as a result of increased headcount.

        Cost of hardware and services revenue increased $0.8 million, or 23%, for 2010 as compared to 2009. The increase was primarily due to growth in personnel costs of $0.5 million resulting from the addition of services headcount during the year.

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Operating Expenses

 
  Year Ended
December 31,
  Change  
 
  2009   2010   $   %  
 
  (in thousands)
   
 

Research and development

  $ 11,831   $ 17,583   $ 5,752     49 %
 

Percent of total revenue

    24 %   27 %            

        Research and development expenses increased $5.8 million, or 49%, for 2010 as compared to 2009. This increase was primarily due to increased personnel costs of $4.1 million resulting from 25 additional headcount, as well as a full year of cost for the personnel obtained in the Everyone.net acquisition. We also incurred $1.3 million in consulting fees, primarily related to achieving our FISMA certification.

 
  Year Ended
December 31,
  Change  
 
  2009   2010   $   %  
 
  (in thousands)
   
 

Sales and marketing

  $ 27,883   $ 31,161   $ 3,278     12 %
 

Percent of total revenue

    57 %   48 %            

        Sales and marketing expenses increased $3.3 million, or 12%, for 2010 as compared to 2009. This increase was primarily due to a $0.9 million increase in personnel expenses due to increased headcount of 23, a $0.9 million increase in sales commissions, and a $0.5 million increase in both travel related expenses and sales and marketing programs. The continued growth in marketing-related spending reinforces our commitment to grow the business.

 
  Year Ended
December 31,
  Change  
 
  2009   2010   $   %  
 
  (in thousands)
   
 

General and administrative

  $ 5,678   $ 7,465   $ 1,787     31 %
 

Percent of total revenue

    12 %   12 %            

        General and administrative expenses increased $1.8 million, or 31%, for 2010 as compared to 2009. The increase was primarily due to personnel costs of $1.4 million resulting from seven additional headcount and, to a lesser extent, an increase of $0.5 million driven by third-party consultants retained to assist us in the implementation of systems and preparation for compliance with public company rules and regulations.

Total Other Income (Expense), Net

 
  Year Ended
December 31,
  Change  
 
  2009   2010   $   %  
 
  (in thousands)
   
 

Total other income (expense), net

  $ (182 ) $ (598 ) $ (416 )   NM  

        Total other income (expense), net decreased $0.4 million for 2010 as compared to 2009 primarily due to adjustments to the present value of an earn-out consideration resulting from an acquisition.

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Quarterly Results of Operations

        The following table sets forth our unaudited quarterly consolidated statements of operations data for each of the eight quarters in the period ended December 31, 2011. We have prepared the quarterly data on a basis consistent with our audited annual financial statements, including, in the opinion of management, all normal recurring adjustments necessary for the fair statement of the financial information contained in these statements. The historical results are not necessarily indicative of future results and should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus.

 
  Three Months Ended  
 
  Mar. 31,
2010
  June 30,
2010
  Sept. 30,
2010
  Dec. 31,
2010
  Mar. 31,
2011
  June 30,
2011
  Sept. 30,
2011
  Dec. 31,
2011
 
 
  (in thousands, except per share data)
 

Consolidated Statements of Operations Data:

                                                 

Revenue:

                                                 
 

Subscription

  $ 12,994   $ 13,639   $ 14,868   $ 16,156   $ 16,077   $ 17,663   $ 18,793   $ 21,363  
 

Hardware and services

    1,848     1,755     1,647     1,883     2,704     2,217     1,693     1,328  
                                   
   

Total revenue

    14,842     15,394     16,515     18,039     18,781     19,880     20,486     22,691  

Cost of revenue: (1)

                                                 
 

Subscription

    5,934     5,900     6,072     6,617     5,816     5,801     5,936     6,640  
 

Hardware and services

    970     967     1,033     1,112     1,583     1,530     1,313     1,111  
                                   
   

Total cost of revenue

    6,904     6,867     7,105     7,729     7,399     7,331     7,249     7,751  
                                   

Gross profit

   
7,938
   
8,527
   
9,410
   
10,310
   
11,382
   
12,549
   
13,237
   
14,940
 

Operating expense: (1)

                                                 
 

Research and development

    3,738     4,119     4,862     4,864     4,941     4,881     4,594     5,363  
 

Sales and marketing

    6,648     7,276     8,292     8,945     9,445     9,846     10,779     12,606  
 

General and administrative

    1,652     1,747     2,091     1,975     2,048     2,092     2,043     3,054  
                                   
   

Total operating expense

    12,038     13,142     15,245     15,784     16,434     16,819     17,416     21,023  
                                   

Operating loss

   
(4,100

)
 
(4,615

)
 
(5,835

)
 
(5,474

)
 
(5,052

)
 
(4,270

)
 
(4,179

)
 
(6,083

)

Interest income (expense), net

    (10 )   (9 )   (299 )   (22 )   (76 )   (112 )   (70 )   (42 )

Other income (expense), net

    (106 )   (51 )   34     (135 )   149     94     (31 )   (99 )
                                   

Loss before provision for income taxes

    (4,216 )   (4,675 )   (6,100 )   (5,631 )   (4,979 )   (4,288 )   (4,280 )   (6,224 )

Provision for income taxes

    (32 )   (54 )   (58 )   (99 )   (106 )   (30 )   (33 )   (201 )
                                   

Net loss

  $ (4,248 ) $ (4,729 ) $ (6,158 ) $ (5,730 ) $ (5,085 ) $ (4,318 ) $ (4,313 ) $ (6,425 )
                                   

(1)
Includes stock-based compensation expense and amortization of intangible assets as follows:

 
  Three Months Ended  
 
  Mar. 31,
2010
  June 30,
2010
  Sept. 30,
2010
  Dec. 31,
2010
  Mar. 31,
2011
  June 30,
2011
  Sept. 30,
2011
  Dec. 31,
2011
 
 
  (in thousands)
 
   

   Stock-based compensation:

                                                 
     

  Cost of subscription revenue

  $ 77   $ 88   $ 94   $ 98   $ 98   $ 107   $ 76   $ 85  
     

  Cost of hardware and services revenue

    3     4     4     6     7     6     7     9  
     

  Research and development

    233     234     260     283     278     283     307     379  
     

  Sales and marketing

    255     265     269     324     429     478     511     558  
     

  General and administrative

    169     243     212     244     245     239     220     226  
                                   
       

  Total stock based compensation expenses

  $ 737   $ 834   $ 839   $ 955   $ 1,057   $ 1,113   $ 1,121   $ 1,257  
                                   
   

   Amortization of intangible assets:

                                                 
     

  Cost of subscription revenue

  $ 925   $ 935   $ 940   $ 945   $ 925   $ 935   $ 949   $ 963  
     

  Research and development

                                1  
     

  Sales and marketing

    157     158     161     161     343     141     142     143  
                                   
       

  Total amortization of intangible assets

  $ 1,082   $ 1,093   $ 1,101   $ 1,106   $ 1,268   $ 1,076   $ 1,091   $ 1,107  
                                   

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Table of Contents

        The following table sets forth our consolidated results of operations data as a percentage of total revenue.

 
  Three Months Ended  
 
  Mar. 31,
2010
  June 30,
2010
  Sept. 30,
2010
  Dec. 31,
2010
  Mar. 31,
2011
  June 30,
2011
  Sept. 30,
2011
  Dec. 31,
2011
 

Consolidated Statements of Operations Data:

                                                 

Revenue:

                                                 
 

Subscription

    88 %   89 %   90 %   90 %   86 %   89 %   92 %   94 %
 

Hardware and services

    12     11     10     10     14     11     8     6  
                                   
   

Total revenue

    100     100     100     100     100     100     100     100  

Cost of revenue:

                                                 
 

Subscription

    40     39     37     37     31     29     29     29  
 

Hardware and services

    7     6     6     6     8     8     7     5  
                                   
   

Total cost of revenue

    47     45     43     43     39     37     36     34  
                                   

Gross profit

   
53
   
55
   
57
   
57
   
61
   
63
   
64
   
66
 

Operating expense:

                                                 
 

Research and development

    25     27     29     27     26     25     22     24  
 

Sales and marketing

    45     47     50     49     51     50     53     56  
 

General and administrative

    11     11     13     11     11     10     10     13  
                                   
   

Total operating expense

    81     85     92     87     88     85     85     93  
                                   

Operating loss

   
(28

)
 
(30

)
 
(35

)
 
(30

)
 
(27

)
 
(22

)
 
(21

)
 
(27

)

Interest income (expense), net

            (2 )                    

Other income (expense), net

    (1 )           (1 )   1     1          
                                   

Loss before provision for income taxes

    (29 )   (30 )   (37 )   (31 )   (26 )   (22 )   (21 )   (27 )

Provision for income taxes

        (1 )       (1 )   (1 )           (1 )
                                   

Net loss

    (29 )%   (31 )%   (37 )%   (32 )%   (27 )%   (22 )%   (21 )%   (28 )%
                                   

        Revenue and gross profit grew sequentially quarter over quarter in each quarter presented.

        Cost of revenue as a percent of revenue generally decreased in each period presented primarily as a result of our ongoing cost reduction initiatives.

        Operating expenses grew as we continued to expand our business. We experienced noteworthy headcount growth in the quarters ended June 30, 2010, September 30, 2010 and June 30, 2011. Growth in research and development expenses was related to our further efforts to improve our solutions and develop new products. As a result, our research and development expenses increased in each period presented except for the quarters ended June 30, 2011 and September 30, 2011, due to increased capitalized software costs during the periods.

        Our sales organization experienced considerable headcount growth as we continued to invest in this area as part of our focus to grow the business domestically and internationally. As a result, our sales and marketing expenses increased in each period presented and have also generally increased as a percent of total revenue during the periods presented. In addition, we continued to significantly ramp our sales and marketing activities over the periods.

        General and administrative expenses have increased as we have expanded operations and prepared to become a public company, particularly during the quarter ended December 31, 2011.

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Other Financial Data

        The following unaudited table presents the reconciliation of subscription gross profit to adjusted subscription gross profit for the eight fiscal quarters ended December 31, 2011:

 
  Three Months Ended  
 
  Mar. 31,
2010
  June 30,
2010
  Sept. 30,
2010
  Dec. 31,
2010
  Mar. 31,
2011
  June 30,
2011
  Sept. 30,
2011
  Dec. 31,
2011
 
 
  (in thousands)
 

Subscription revenue

  $ 12,994   $ 13,639   $ 14,868   $ 16,156   $ 16,077   $ 17,663   $ 18,793   $ 21,363  

Cost of subscription revenue

    5,934     5,900     6,072     6,617     5,816     5,801     5,936     6,640  
                                   
 

Subscription gross profit

  $ 7,060   $ 7,739   $ 8,796   $ 9,539   $ 10,261   $ 11,862   $ 12,857   $ 14,723  

Add back:

                                                 
 

Stock-based compensation

    77     88     94     98     98     107     76     85  
 

Amortization of intangible assets

    925     935     940     945     925     935     949     963  
                                   
 

Adjusted subscription gross profit

  $ 8,062   $ 8,762   $ 9,830   $ 10,582   $ 11,284   $ 12,904   $ 13,882   $ 15,771  
                                   

        See "Summary Consolidated Financial Information—Reconciliation of Non-GAAP Financial Measures" for more information on adjusted subscription gross profit.

        The following unaudited table presents the reconciliation of total revenue to billings for the eight fiscal quarters ended December 31, 2011:

 
  Three Months Ended  
 
  Mar. 31,
2010
  June 30,
2010
  Sept. 30,
2010
  Dec. 31,
2010
  Mar. 31,
2011
  June 30,
2011
  Sept. 30,
2011
  Dec. 31,
2011
 
 
  (in thousands)
 

Total revenue

  $ 14,842   $ 15,394   $ 16,515   $ 18,039   $ 18,781   $ 19,880   $ 20,486   $ 22,691  

Deferred revenue

                                                 
 

Ending

    59,118     61,775     65,277     69,101     69,472     71,170     72,259     76,240  
 

Beginning

    57,346     59,118     61,775     65,277     69,101     69,472     71,170     72,259  
 

Net change

    1,772     2,658     3,502     3,824     371     1,698     1,089     3,982  

Billings

  $ 16,614   $ 18,052   $ 20,017   $ 21,863   $ 19,152   $ 21,578   $ 21,575   $ 26,673  
                                   

        See "Summary Consolidated Financial Information—Reconciliation of Non-GAAP Financial Measures" for more information on billings.

        The following unaudited table presents the reconciliation of net loss to adjusted EBITDA for the eight fiscal quarters ended December 31, 2011:

 
  Three Months Ended  
 
  Mar. 31,
2010
  June 30,
2010
  Sept. 30,
2010
  Dec. 31,
2010
  Mar. 31,
2011
  June 30,
2011
  Sept. 30,
2011
  Dec. 31,
2011
 
 
  (in thousands)
 

Net Loss

  $ (4,248 ) $ (4,729 ) $ (6,158 ) $ (5,730 ) $ (5,085 ) $ (4,318 ) $ (4,313 ) $ (6,425 )
 

Depreciation

    812     848     893     708     687     757     815     883  
 

Amortization of intangible assets

    1,082     1,093     1,101     1,106     1,268     1,076     1,091     1,107  
 

Interest expense, net

    10     9     299     22     76     112     70     42  
 

Income tax expense

    32     54     58     99     106     30     33     201  
                                   

EBITDA

    (2,312 )   (2,725 )   (3,807 )   (3,795 )   (2,948 )   (2,343 )   (2,304 )   (4,192 )
 

Stock-based compensation expense

    737     834     839     955     1,057     1,113     1,121     1,257  
 

Acquisition related expense

                        28         97  
 

Other income

    (1 )   (16 )   (1 )   (2 )   (60 )   (78 )   (2 )   (1 )
 

Other expense

    107     67     (33 )   137     (89 )   (16 )   33     100  
                                   

Adjusted EBITDA

  $ (1,469 ) $ (1,840 ) $ (3,002 ) $ (2,705 ) $ (2,040 ) $ (1,296 ) $ (1,152 ) $ (2,739 )
                                   

        See "Summary Consolidated Financial Information—Reconciliation of Non-GAAP Financial Measures" for more information on adjusted EBITDA.

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Table of Contents

Liquidity and Capital Resources

        Since our inception, we have relied principally on sales of our preferred stock to fund our operating activities. To date, we have raised $92.8 million of equity capital. Additionally, we have utilized equipment lines to fund capital purchases.

        We entered into a new equipment loan agreement with Silicon Valley Bank in April 2011 for an aggregate loan principal amount of $6.0 million. Interest on the advances are equal to prime rate plus 0.50%. As of December 31, 2011, the interest rate on the advances was 4.50%. We have the ability to draw down on this equipment line through April 19, 2012. Each drawn amount is due 48 months after funding. Borrowings outstanding under the equipment loan at December 31, 2011 were $4.9 million. Equipment financed under this loan arrangement is collateralized by the respective assets underlying the loan. The loan includes a covenant that requires us to maintain cash and cash equivalents plus net accounts receivables of at least two times the amount of all outstanding indebtedness. As of December 31, 2011, we were in compliance with this financial covenant.

        We plan to grow our customer base by continuing to emphasize investments in sales and marketing to add new customers, expand our customers' use of our platform, and maintain high renewal rates. We also expect to incur additional cost of subscription revenue in accordance with the resulting growth in our customer base. We believe that the combination of our ongoing improvements in gross margins, the benefits of lower sales and marketing costs associated with our renewal activity, and the fact that our contracts are structured to bill our customers in advance should enable us to improve our cash flow from operations as we grow. Based on our current level of operations and anticipated growth, both of which are expected to be consistent with recent quarters, we believe that our existing sources of liquidity will be sufficient to fund our operations for at least the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, the expansion of our sales and marketing activities, and the timing and extent of spending to support product development efforts and expansion into new territories, and the timing of introductions of new features and enhancements to our solutions. To the extent that existing cash and cash equivalents and cash from operations are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. We may also seek to invest in or acquire complementary businesses, applications or technologies, any of which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all.

Cash Flows

        The following table sets forth a summary of our consolidated cash flows for the periods indicated:

   
  Years Ended
December 31,
 
   
  2009   2010   2011  
   
  (in thousands)
 
 

Net cash provided by (used in) operating activities

  $ (3,707 ) $ 3,409   $ (168 )
 

Net cash provided by (used in) investing activities

    (5,132 )   306     (7,353 )
 

Net cash provided by financing activities

    4,778     1,445     5,201  

    Net Cash Flows Provided by (Used in) Operating Activities

        Our net loss and cash flows from operating activities are significantly influenced by our investments in headcount and data center operations to support anticipated growth. Our cash flows are also influenced by cash payments from customers. We invoice customers for the entire contract amount at the start of the term, and as such our cash flow from operations is also affected by the length of a customer contract.

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Table of Contents

        We used $0.2 million of cash in operating activities in 2011. This use of cash was the result of a net loss of $20.1 million, offset by non-cash expenditures of $12.4 million, which included depreciation, amortization and stock-based compensation expense. These non-cash expenditures increased due to capital expenditure and headcount growth, primarily related to continued investment in our business. Cash used in operations was further offset by an increase in deferred revenue of $7.1 million due to sales growth and a decrease in deferred product costs of $2.8 million. The remaining use of funds was due to the net change in working capital items, most notably an increase in accounts receivable of $2.7 million due to strong sales efforts during the last quarter of the fiscal year, an increase of $0.8 million in prepaid expenses and other current assets, and an increase in accrued liabilities of $0.7 million related to timing of compensation and capital expenditures.

        Cash provided by operating activities in 2010 of $3.4 million was the result of a net loss of $20.9 million, offset by non-cash expenditures of $11.4 million, which included depreciation, amortization and stock-based compensation expense, due to headcount growth and investment in the business. This was further offset by an increase in deferred revenue of $11.8 million and a decrease in deferred product costs of $1.6 million as a result of our increased sales activity. The remaining use of funds of $0.5 million was from the net change in working capital items, most notably an increase in accounts receivable of $3.1 million due to growth and timing of increased sales, and increases in accounts payable and accrued liabilities of $1.0 million and $1.8 million respectively, related to timing of royalty, inventory, data center obligations, and employee compensation accruals.

        We used $3.7 million of cash in operating activities in 2009. This use of cash was the result of a net loss of $19.7 million, offset by non-cash expenditures of $10.0 million, which included depreciation, amortization and stock-based compensation expense, due to headcount growth and investment in the business. This was further offset by an increase in deferred revenue of $9.6 million and increase in deferred product costs of $0.4 million. The remaining use of funds of $3.2 million was from the net change in working capital items, most notably an increase in accounts receivable of $0.7 million due to growth and timing of increased sales, and decreases in accounts payable and accrued liabilities of $1.7 million and $1.5 million respectively, related to timing of royalty, employee compensation and acquisition-related accruals.

    Net Cash Flows Provided by (Used in) Investing Activities

        Our primary investing activities have consisted of capital expenditures in support of expanding our infrastructure and workforce and the purchase and sale of short-term investments. As our business grows, we expect our capital expenditures and our investment activity to continue to increase.

        We used $7.4 million of cash in investing activities during 2011. This was primarily from the net purchase of $2.3 million in short-term investments. In addition, we used $4.9 million to purchase equipment for infrastructure expansion. These expenditures were primarily for replacement and upgrade of equipment to lower the cost of deployment as well as to improve the efficiency for our cloud-based architecture.

        Investing activities in 2010 resulted in net proceeds of $0.3 million. This was primarily from $3.7 million of net proceeds from short-term investments, offset by $3.4 million of equipment purchases used for infrastructure expansion and other fixed assets.

        We used $5.1 million of cash in investing activities in 2009. The main uses were a $6.6 million acquisition and $2.5 million used for infrastructure equipment and other fixed assets, offset by net proceeds from short-term investments of $4.0 million.

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Table of Contents

    Net Cash Flows Provided by (Used in) Financing Activities

        Cash provided by financing activities in 2011 was $5.2 million. This consisted of $1.2 million of proceeds from the exercise of stock options and borrowings under our new equipment line of $4.9 million during this period, partially offset by repayments under our equipment financing loans of $0.2 million and $0.7 million in earn-out payments.

        Cash provided by financing activities in 2010 was $1.4 million. This consisted of proceeds from sales our Series F preferred stock financing of $1.5 million along with $1.2 million from the exercise of employee stock options, partially offset by repayment of equipment financing loans of $0.5 million and $0.8 million towards earn-out payments.

        Cash provided by financing activities in 2009 was $4.8 million. This consisted of proceeds from sales of our Series F preferred stock of $5.0 million along with $0.2 million from the exercise of employee stock options, partially offset by repayment of equipment financing loans of $0.4 million.

    Contractual Obligations and Commitments

        Our principal commitments consist of obligations under our outstanding leases for our office space and third-party data centers as well as equipment leases and loans for certain computer and office equipment. The following table summarizes our contractual obligations as of December 31, 2011 (in thousands):

 
  Payment Due By Period  
Contractual Obligations
  Total   Less Than
1 Year
  1-3 Years   3-5 Years   More Than
5 Years
 

Debt obligations (1)

  $ 4,925   $ 411   $ 3,248   $ 1,266   $  

Interest expense payments (2)

    516     218     272     26      

Capital and operating lease obligations (3)

    3,314     1,559     1,755          

Purchase obligations (4)

    2,304     1,622     682          
                       
 

Total

  $ 11,059   $ 3,810   $ 5,957   $ 1,292   $  
                       

(1)
Represents our outstanding debt under our equipment loan, including the new loan and equipment agreement commencing April 2011.

(2)
Represents interest payments on our outstanding debt under our equipment loan, including the new loan and equipment agreement commencing April 2011.

(3)
Consists of capital leases and contractual obligations under operating leases for office space, including the new facility lease commencing April 2011.

(4)
Consists of purchase obligations for servers and similar equipment to support our third-party data centers.

        We entered into a new equipment loan agreement with Silicon Valley Bank in April 2011 for an aggregate loan principal amount of $6.0 million. For more information about our equipment loan agreement please see "Liquidity and Capital Resources."

        In March 2011, we entered into a lease agreement to occupy an additional 23,121 square feet of office space at our headquarters facility. The lease term is 39 months for 74,338 square feet in the aggregate, with a monthly rental of $74,338 commencing on April 1, 2011, and expiring on June 30, 2014.

        We have recorded a liability for sales and use taxes. A variety of factors could affect the liability, which factors include recovery of amounts from customers and any changes in relevant statutes in the various states in which we have done business. To the extent that the actual amount of our liabilities for sales and use taxes materially differs from the amount we have recorded on our consolidated balance sheet, our future results of operations and cash flows could be negatively affected.

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        As of December 31, 2011, the amount of cash and cash equivalents held by our foreign subsidiaries was $3.6 million, including intercompany receivable balances. If these funds were needed for our operations in the United States, we would be required to withhold foreign taxes on the funds repatriated of approximately $0.2 million. We have not provided for these taxes in accordance with ASC 740-30-25, as it is our intention that these funds are permanently reinvested outside the United States and our current plans do not demonstrate a need to repatriate these funds to our United States operations.

        Under the indemnification provisions of our standard customer agreements, we agree to indemnify, defend and hold harmless our customers against, among other things, infringement of any patents, trademarks or copyrights under any country's laws or the misappropriation of any trade secrets arising from the customer's legal use of our solutions. Certain indemnification provisions potentially expose us to losses in excess of the aggregate amount paid to us by the customer under the applicable customer agreement. No material claims have been made against us pursuant to these indemnification provisions to date.

Off-Balance Sheet Arrangements

        During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are therefore not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships.

Quantitative and Qualitative Disclosures about Market Risk

        We have operations both within the United States and internationally, and we are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate, foreign exchange and inflation risks, as well as risks relating to changes in the general economic conditions in the countries where we conduct business. To reduce certain of these risks, we monitor the financial condition of our large clients and limit credit exposure by collecting in advance and setting credit limits as we deem appropriate. In addition, our investment strategy has been to invest in financial instruments that are highly liquid and readily convertible into cash with maturity dates within three months from the date of purchase. To date, we have not used derivative instruments to mitigate the impact of our market risk exposures. We have also not used, nor do we intend to use, derivatives for trading or speculative purposes.

Interest Rate Risk

        We are exposed to market risk related to changes in interest rates. Our investments are considered cash equivalents and primarily consist of money market funds, corporate debt securities and a certificate of deposit. As of December 31, 2011, we had cash, cash equivalents, and short-term investments of $12.7 million. The carrying amount of our cash, cash equivalents and short-term investments reasonably approximates fair value, due to the short maturities of these investments. The primary objectives of our investment activities are the preservation of capital, the fulfillment of liquidity needs and the fiduciary control of cash and investments. We do not enter into investments for trading or speculative purposes. Our investments are exposed to market risk due to a fluctuation in interest rates, which may affect our interest income and the fair market value of our investments. Due to the short-term nature of our investment portfolio, we believe only dramatic fluctuations in interest rates would have a material effect on our investments. As such we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

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        As of December 31, 2011 we had borrowings outstanding with principal amounts of $4.9 million. Our outstanding long-term borrowings consist of fixed and variable interest rate financial instruments. The interest rates of our borrowings range from 2.9% to 10.6%. A hypothetical 10% increase or decrease in interest rates relative to our current interest rates would not have a material impact on the fair values of all of our outstanding borrowings. Changes in interest rates would, however, affect operating results and cash flows, because of the variable rate nature of our borrowings. A hypothetical 10% increase or decrease in interest rates relative to interest rates at December 31, 2011 would result in an insignificant impact to interest expense for 2012.

Foreign Currency Risk

        Our sales to international customers are generally U.S. dollar-denominated. As a result, there are no significant foreign currency gains or losses related to these transactions. The functional currency for our wholly owned foreign subsidiaries is the U.S. dollar. Accordingly, the subsidiaries remeasure monetary assets and liabilities at period-end exchange rates, while nonmonetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average exchange rates in effect during the year. Remeasurement adjustments are recognized in the statement of operations as foreign currency transaction gains or losses in the year of occurrence. Aggregate foreign currency transaction losses included in determining net loss were $0.2 million, $0.2 million and $8,000 for 2009, 2010 and 2011, respectively. Transaction gains and losses are included in other income (expense), net.

        As our international operations grow, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk. In addition, currency fluctuations or a weakening U.S. dollar can increase the costs of our international expansion. To date, we have not entered into any foreign currency hedging contracts, since exchange rate fluctuations have not had a material impact on our operating results and cash flows. Based on our current international structure, we do not plan on engaging in hedging activities in the near future.

Inflation Risk

        We do not believe that inflation has had a material effect on our business, financial condition or results of operations. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Critical Accounting Policies

        Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires us to make certain estimates and judgments that can affect the reported amounts of assets and liabilities as of the dates of the consolidated financial statements, the disclosure of contingencies as of the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the periods presented. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. If actual results or events differ materially from those contemplated by us in making these estimates, our reported financial condition and results of operations for future periods could be materially affected. See "Risk Factors" for certain matters that may affect our future financial condition or results of operations. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if the changes in estimate that are reasonably likely to occur could materially impact the financial statements. Our management has discussed the

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development, selection and disclosure of these estimates with the audit committee of our board of directors.

        The following critical accounting policies reflect significant judgments and estimates used in the preparation of our consolidated financial statements:

    Revenue recognition and deferred revenue;

    Stock-based compensation;

    Allowance for doubtful accounts;

    Capitalized software costs;

    Impairment of long lived assets; and

    Income taxes.

Revenue Recognition and Deferred Revenue

        We derive our revenue primarily from two sources: (1) subscription revenue for rights related to the use of our security-as-a-service platform and (2) hardware, training, and professional services revenue provided to customers related to their use of our platform. Subscription revenue is derived from a subscription-based enterprise licensing model with contract terms typically ranging from one to three years, and consists of (i) subscription fees from the licensing of our security-as-a-service platform, (ii) subscription fees for access to the on-demand elements of our platform and (iii) subscription fees for the right to access our customer support services.

        We apply the provision of Accounting Standard Codification (ASC) 985-605, "Software Revenue Recognition," and related interpretations, to all transactions involving the licensing of software, as well as related support, training, and other professional services. ASC 985-605 requires revenue earned on software arrangements involving multiple elements such as software license, support, training, and other professional services to be allocated to each element based on the relative fair values of these elements. The fair value of an element must be based on vendor-specific objective evidence (VSOE) of fair value. VSOE of fair value of each element is based on the price charged when the element is sold separately. Revenue is recognized when all of the following criteria are met as set forth in ASC 985-605:

    Persuasive evidence of an arrangement exists;

    Delivery has occurred;

    The fee is fixed or determinable; and

    Collectability is probable.

        We have analyzed all of the elements included in our multiple element arrangements and have determined that we do not have sufficient VSOE of fair value to allocate revenue to our subscription and software license agreements, support, training, and professional services. We defer all revenue under the arrangement until the commencement of the subscription services and any associated professional services. Once the subscription services and the associated professional services have commenced, the entire fee from the arrangement is recognized ratably over the remaining period of the arrangement. If the professional services are essential to the functionality of the subscription, then the revenue recognition does not commence until such services are completed.

        Our hosted on-demand service agreements do not provide customers with the right to take possession of the software supporting the hosted service. We recognize revenue from our on-demand services in accordance with ASC 605-20, and as such recognize revenue when the following criteria are met:

    Persuasive evidence of an arrangement exists;

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    Delivery of our obligations to our customers has occurred;

    Collection of the fees is probable; and

    The amount of fees to be paid by the customer is fixed or determinable.

        In October 2009, the Financial Accounting Standards Board (FASB) amended the accounting guidance for multiple element arrangements (ASU 2009-13) to:

    Provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the arrangement consideration should be allocated among its elements;

    Require an entity to allocate revenue in an arrangement that has separate units of accounting using best estimated selling price (BESP) of deliverables if a vendor does not have VSOE of fair value or third-party evidence of selling price (TPE); and

    Eliminate the use of the residual method and require an entity to allocate revenue using the relating selling price method to the separate unit of accounting.

        Concurrently, the FASB amended the accounting guidance for revenue recognition (ASU 2009-14) to exclude hardware appliances containing software components and hardware components that function together to deliver the hardware appliance's essential functionality from the scope of the software revenue recognition guidance of ASC 985-605.

        Prior to the adoption of ASU 2009-14, revenue derived from hardware appliance sales were recognized based on the software revenue recognition guidance. We could not establish VSOE of fair value for the undelivered elements in the arrangement, and therefore the entire fee from the arrangement was recognized ratably over the contractual term of the agreement. In addition, we were unable to establish VSOE of fair value of our hosted on-demand service agreements, and therefore the entire fee for the agreement was recognized ratably over the contractual term of the agreement.

        As a result of the adoption of this new accounting guidance, revenue derived from our subscription services and hardware appliance sales are no longer subject to industry-specific software revenue recognition guidance. For all arrangements within the scope of the new guidance, including our hosted on-demand services, we evaluate each element in a multiple element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within our control. Revenue derived from the licensing of the security-as-a-service platform continue to be accounted for in accordance with the industry specific revenue recognition guidance.

        When we are unable to establish the selling price of our non-software deliverables using VSOE or TPE, we use BESP in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. We determine BESP for an individual element within a multiple element revenue arrangement using the same methods utilized to determine the selling price of an element sold on a standalone basis. We estimate the selling price for our subscription solutions by considering internal factors such as historical pricing practices and we estimate the selling price of our hardware and services using a combination of our historical costs paired with external measurements regarding the pricing of similar products and services in similar industries. As there is a significant amount of judgment when determining BESP, we regularly review all of our assumptions and inputs around BESP and maintain internal controls over the establishment and updates of these estimates.

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        Hardware appliance revenue is recognized upon shipment. Subscription and support revenue are recognized over the contract period commencing on the start date of the contract. Professional services and training, when sold with hardware appliances or subscription and support services, are accounted for separately when those services have standalone value. In determining whether professional services and training services can be accounted for separately from subscription and support services, we consider the following factors: availability of the services from other vendors, the nature of the services, and the dependence of the subscription services on the customer's decision to buy the professional services. If professional services and training do not qualify for separate accounting, we recognize the professional services and training ratably over the contract term of the subscription services.

        Delivery generally occurs when the hardware appliance is delivered to a common carrier freight on board shipping point by us or the hosted service has been activated and communicated to the customer accordingly. Our fees are typically considered to be fixed or determinable at the inception of an arrangement and are negotiated at the outset of an arrangement, generally based on specific products and quantities to be delivered. In the event payment terms are provided that differ significantly from our standard business practices, the fees are deemed to not be fixed or determinable and revenue is recognized as the fees become paid.

        We assess collectability based on a number of factors, including credit worthiness of the customer and past transaction history of the customer. Through December 31, 2011, we have not experienced any significant credit losses.

        We elected to adopt this new guidance in the first quarter of 2011 for new and materially modified revenue arrangements originating after January 1, 2011. Prior to the adoption of this new accounting guidance, hardware revenue was recognized ratably over the duration of the contract. Accordingly, as of December 31, 2010, our deferred revenue balance reflected amounts yet to be recognized under our then-current accounting practices. These deferred amounts will continue to be recognized ratably under their original amortization schedules until the end of the associated contract term. As such, until the end of these contract periods, we will recognize hardware revenue both from sales in prior periods subject to the original accounting guidance as well as from sales in current periods subject to the new accounting guidance, with the principal impact being in 2011 and to a lesser extent 2012 and future periods. Given the marginal contribution toward profitability of our hardware appliances, we do not expect this transition to contribute materially toward our profitability.

Stock-Based Compensation

        Effective January 1, 2006, we adopted ASC 718, which requires non-public companies that used the minimum value method under ASC 718 for either recognition or pro forma disclosures to apply ASC 718 using the prospective-transition method. In accordance with ASC 718, we recognize the compensation cost of employee stock-based awards granted subsequent to December 31, 2005 in the statement of operations using the straight-line method over the vesting period of the award.

        The following table set for the stock-based compensation expense included in the related consolidated financial statement line items:

 
  Years Ended December 31,  
 
  2009   2010   2011  
 
  (in thousands)
 

Stock-based compensation:

                   
 

Cost of subscription revenue

  $ 275   $ 357   $ 366  
 

Cost of hardware and services revenue

    11     17     29  
 

Research and development

    848     1,010     1,247  
 

Sales and marketing

    1,030     1,113     1,976  
 

General and administrative

    732     868     930  

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        We estimated the fair value of each option granted using the Black-Scholes option pricing method using the following assumptions for the periods presented in the table below:

 
  Year Ended December 31,  
 
  2009   2010   2011  

Estimated fair value of common stock

    $3.14     $4.58     $7.98  

Estimated volatility

    62%-65%     60%-61%     59%-61%  

Estimated dividend yield

    0%     0%     0%  

Expected term (years)

    5.85-6.08     6-6.08     5.85-6.08  

Risk-free rate

    2%-2.8%     1.8%-2.8%     1.2%-2.5%  

        As of each stock option grant date, we considered the fair value of the underlying common stock, determined as described below, in order to establish the options exercise price.

        As there has been no public market for our common stock prior to this offering, and therefore a lack of company-specific historical and implied volatility data, we have determined the share price volatility for options granted based on an analysis of reported data for a peer group of companies that granted options with substantially similar terms. We analyzed a population of possible comparable companies and selected those for our peer group that we considered to be the most comparable to us in terms of industry business model, revenue, growth and gross profit margins. The expected volatility of options granted has been determined using an average of the historical volatility measures of this peer group of companies for a period equal to the expected life of the option. We intend to continue to consistently apply this process using the same or similar entities until a sufficient amount of historical information regarding the volatility of our own share price becomes available, or unless circumstances change such that the identified entities are no longer similar to us. In this latter case, more suitable entities whose share prices are publicly available would be utilized in the calculation.

        The expected life of options granted has been determined utilizing the "simplified" method as prescribed by the SEC's Staff Accounting Bulletin, or SAB, No. 107, Share-Based Payment, or SAB 107. The risk-free interest rate is based on a daily treasury yield curve rate whose term is consistent with the expected life of the stock options. We have not, historically, paid and, in the future, do not anticipate paying cash dividends on our shares of common stock and therefore, the expected dividend yield is assumed to be zero.

        In addition, ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We apply an estimated forfeiture rate based on our historical forfeiture experience.

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        We have historically granted stock options at exercise prices no less than the fair market value as determined by our board of directors, with input from management and a third-party valuation firm. Since the beginning of 2010, we granted stock options with exercise prices as follows:

Date of Grant
  Number of
Shares
  Exercise
Price
  Fair Value
Per Share
 

February 9, 2010

    189,000   $ 3.88   $ 3.88  

March 9, 2010

    757,634     3.88     3.88  

April 20, 2010

    444,248     3.88     3.88  

July 30, 2010

    397,248     4.98     4.98  

October 28, 2010

    879,371     4.88     4.88  

December 15, 2010

    647,764     5.38     5.38  

January 27, 2011

    56,875     5.38     5.38  

April 29, 2011

    942,850     5.48     5.48  

August 5, 2011

    526,900     5.76     5.76  

October 12, 2011

    355,898     6.58     6.58  

December 29, 2011

    651,625     7.98     7.98  

January 23, 2012

    838,550     7.98     7.98  

        We used a third-party valuation firm to assist us with the development of contemporaneous valuations. Our board of directors determined the fair value of our common stock on the date of grant based on a number of factors including:

    Our performance, growth rate and financial condition at the approximate time of the option grant;

    The value of companies that we consider peers based on a number of factors including, but not limited to, similarity to us with respect to industry, business model, stage of growth, financial risk or other factors;

    Changes in the company and our prospects since the last time the board approved option grants and made a determination of fair value;

    Amounts recently paid by investors for our common stock and convertible preferred stock in arm's-length transactions with stockholders;

    The rights, preferences and privileges of preferred stock relative to those of our common stock;

    Future financial projections; and

    Valuations completed in conjunction with, and at the time of, each option grant.

        For our valuations we calculated the enterprise value by applying both the market approach and the income approach. In the market approach the valuations and outcomes of comparable peer companies in the public market were reviewed. The income approach consists of a discounted cash flow analysis. The methodology we use derives equity values utilizing a probability-weighted expected return method. Under this approach, various potential liquidity events are identified and each possible outcome is assigned a probability based on discussion with our management. For each of the possible events, a range of future equity values is estimated based on both the market and income approaches where applicable, applying various possible dates for each event. The timing of these events is based on discussion with our management. For each future equity liquidity value scenario, the rights and preferences of each stockholder class are considered in order to determine the appropriate allocation of value to common shares. The value of each common share is then multiplied by a discount factor derived from the calculated discount rate and the expected timing of the event. The value per common share, taking into account sensitivities to the timing of the event, is then multiplied by an estimated probability for each of the possible events. The calculated value per common share under a private

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company scenario is then discounted for a lack of marketability. A probability-weighted value per share of common stock is then determined. Under this approach, the value of our common stock is estimated based upon an analysis of values for our common stock assuming the following various possible future events for the company, including initial public offering, strategic merger or sale, remaining a private company, and dissolution of the business with no resulting value to common stockholders.

Discussion of specific valuation inputs for 2010 and 2011

        February 9, March 9 and April 20, 2010.     During the first quarter of 2010, total revenue grew at approximately 5% compared to the preceding quarter, and both profitability and cash flow were negative. Given that these grants occurred within a span of approximately 60 days and there were no material changes to the business during that time, we used the same sets of assumptions in assessing the valuation for all three dates. For these grants, we determined our valuation using the income and market approaches with 60% weighting assigned to the market approach and 40% assigned to the income approach. We then applied the option pricing method, where the rights of the various holders of preferred and common stock are evaluated against these two valuations in order to arrive at a fair value associated with the common stock. In addition, this analysis used a 25% lack of marketability discount. Based on all of these factors, our board of directors determined a fair value of our common stock to be $3.88 per share at each respective date.

        July 30, 2010.     In July 2010, our total revenue continued to grow at a modest pace of 4% compared to the preceding quarter during the early stages of the economic recovery. In estimating the fair value as of July 30, 2010, key assumptions included a time to liquidity of greater than 12 months for an initial public offering or a strategic merger or sale of the company, with the expected outcomes weighted 40% towards an initial public offering, 30% towards a strategic merger or sale, 25% towards remaining a private company and 5% towards a liquidation scenario. In addition, this analysis used a 25% lack of marketability discount as there was not a perceived change in the likelihood of a liquidation event. Based on all these factors, the board of directors determined a fair value of our common stock to be $4.98 per share.

        October 28, 2010.     In October 2010, our total revenue continued to grow and we generated cash flow from operations for the first time since the economic downturn. In estimating the fair value as of October 28, 2010, key assumptions included a time to liquidity of greater than 12 months in terms of an initial public offering, strategic merger or sale of the company, with the expected outcomes weighted 40% towards an initial public offering, 30% towards a strategic merger or sale, 25% towards remaining a private company and 5% towards a liquidation scenario. In addition, this analysis used a 20% lack of marketability discount. Despite our 4% quarter over quarter revenue growth, a pullback in stock valuations as evidenced by a decline in the S&P 500 index of approximately 10% over this same period of time resulted in a decline in valuations for our peer group. Based on all these factors, the board of directors determined a fair value of our common stock to be $4.88 per share.

        December 15, 2010.     In December 2010, our total revenue was growing at a rate of almost 10% compared to the preceding quarter and we continued to generate cash from operations. In estimating the value for December 15, 2010, key assumptions included an expected time to an initial public offering of one year and the lowering of our marketability discount to 17.5%, given the promising acceleration in the growth of our business and positive cash flow. The expected time to strategic merger or sale in the event of not completing a public offering was still deemed to be greater than 12 months. The expected outcomes were weighted 40% towards an initial public offering, 55% towards a strategic merger or sale and 5% towards a liquidation scenario. Based on all these factors, the board of directors determined a fair value of our common stock to be $5.38 per share.

        January 27, 2011.     In January 2011, our business had performed as expected based on our observations on December 15, 2010. Given that a little over a month had passed since our prior valuation and there were no material changes to the business since that time, we applied the same sets

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of assumptions as ones used on December 15, 2010 in assessing the valuation and as such we did not have an updated valuation report prepared by our valuation firm. Accordingly, our board of directors determined a fair value of our common stock to remain $5.38 per share.

        April 29, 2011.     In April 2011, our total revenue growth rate had slowed to 4% compared to the preceding quarter and we were no longer generating cash from operations. In estimating the fair value as of April 29, 2011, key assumptions included an expected time to an initial public offering deemed to be greater than 12 months given the slowdown in the business. The expected time for a strategic merger or sale was also estimated to be greater than 12 months. The expected outcomes were weighted 40% towards an initial public offering, 55% towards a strategic merger or sale and 5% towards a liquidation scenario. In addition, this analysis used a 17% lack of marketability discount. Based on all these factors, the board of directors determined a fair value of our common stock to be $5.48 per share.

        August 5, 2011.     In August 2011, our total revenue growth rate continued at a slower rate of 3% compared to the preceding quarter and we continued to generate negative cash flow. In estimating the fair value as of August 5, 2011, key assumptions included an expected time to an initial public offering, strategic merger or sale to be greater than 12 months. The expected outcomes were weighted 40% towards an initial public offering, 55% towards a strategic merger or sale and 5% towards a liquidation scenario. In addition, this analysis used a 15% lack of marketability discount, as the ongoing growth of the business implied a gradual improvement in the potential marketability of the common stock. Based on all these factors, the board of directors determined a fair value of our common stock to be $5.76 per share.

        October 12, 2011.     In October 2011, our board of directors approved a plan to proceed with the preparation for a filing for an initial public offering. While the timing of the offering was uncertain, this decision substantially increased the likelihood of a public offering as compared to other liquidation events and, as such, the expected outcome weighting for an initial public offering was changed to 95%, with the remaining 5% assigned towards a liquidation scenario. In addition, this analysis used a 15% lack of marketability discount given the uncertain timing of the public offering as well as increased volatility in the capital markets. Based on all of these factors, our board of directors determined a fair value of our common stock to be $6.58 per share.

        December 29, 2011.     In December 2011, we filed with the SEC the initial registration statement for this offering. The filing, in conjunction with our revenue growing at approximately 25% as compared to the same period in the year prior, improved our confidence of completing an initial public offering and we adjusted our assumptions to reflect that the offering could potentially be executed in the first half of 2012. Given the ongoing economic uncertainty in Europe, we maintained the expected outcome weighting for an initial public offering of 95%, with the remaining 5% assigned towards a liquidation scenario in the event of a renewed global economic crises. In addition, this analysis used a 15% lack of marketability discount given the ongoing uncertainty of the timing of the public offering as well as increased volatility in the capital markets. Based on all of these factors, our board of directors determined a fair value of our common stock to be $7.98 per share.

        January 23, 2012.     Given the limited time that had passed since our prior valuation and that there were no material changes to the business since that time, we applied the same sets of assumptions as used on December 29, 2011 in assessing the valuation and as such we did not have an updated valuation report prepared by our valuation firm. Accordingly, our board of directors determined a fair value of our common stock to remain $7.98 per share.

        We have determined, after consultation with the underwriters, that our anticipated initial offering price range as reflected in this prospectus is $10.00 to $12.00 per share. As of the date of our most recent stock option grants in late January 2012, our board of directors determined the fair value of our common stock to be $7.98 per share. The determination was based upon the objective and subjective

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factors described above and, in part, on a valuation report that we received on December 29, 2011. We believe the difference between the fair value of our common stock on the most recent date of grant, as determined by our board of directors, and the anticipated offering price range is a result of the following factors:

    the increased likelihood of consummating our initial public offering in the near term, particularly with the significant recent improvement in major stock market indices, assuming an April 2012 launch, pricing and close;

    the anticipated price range necessarily assumes that the initial public offering has occurred and a public market for our common stock has been created, and therefore excludes any marketability or illiquidity discount for our common stock, which was appropriately taken into account in our board of directors' fair value determination in late January 2012 and prior;

    the forecasted improvement in our projected financial outlook is based on our continued revenue growth and a steadying U.S. economy and capital markets recovery; and

    the consideration of recent financial, trading and market statistics of comparable companies and a broader set of software companies, including some that have either recently completed or currently have pending initial public offerings, discussed between us and the underwriters as compared to the more narrow prior analysis applied and comparable companies used by the board of directors.

Allowance for Doubtful Accounts

        We assess collectability based on a number of factors, including credit worthiness of the customer along with past transaction history; in addition, we perform periodic evaluations of our customers' financial condition. Credit losses historically have not been material, which is directly attributable to our subscription-based services model, enabling us to immediately discontinue the availability of the services in question in the event of non-payment. Through December 31, 2011, we have not experienced any significant credit losses.

Capitalized Software Costs

        Our research and development efforts include both software created for our internal use on behalf of our customers as well as software elements to be used by our customers in their own facilities. As such, we consider both ASC 350-40 and ASC 985-20 when accounting for our research and development costs.

        ASC 350-40, Internal-Use Software , contains the following provisions: (1) Preliminary project costs are expensed as incurred; (2) All costs associated with the development of the application are to be capitalized; and (3) All costs associated with the post-implementation operation of the software shall be expenses as incurred. As well, the costs for all upgrades and enhancements to the originally developed software may be capitalized if additional functionality is added. Accordingly, we capitalize certain software development costs, including the costs to develop new solutions or significant enhancements to existing solutions, which are developed or obtained for internal use. We capitalize software development costs when application development begins, it is probable that the project will be completed, and the software will be used as intended. Such capitalized costs are amortized on a straight-line basis over the estimated useful life of the related asset, which is generally two years. Costs associated with preliminary project stage activities, training, maintenance and all post implementation stage activities are expensed as incurred. To date in 2011, we have capitalized costs of approximately $0.4 million in aggregate under ASC 350-40. Based on our current plans, we expect to capitalize a similar portion of our development costs in the future.

        ASC 985-20, Costs of Software to be Sold, Leased, or Marketed, contains the following provisions: (1) all costs to establish the technological feasibility shall be expensed when incurred; (2) costs of

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producing product masters incurred subsequent to establishing technological feasibility shall be capitalized; and (3) capitalization of computer software costs shall cease when the product is available for general release to customers. Accordingly, software development costs related to software services to be distributed and sold are capitalized once technological feasibility has been established and prior to the general availability of the solution, with amortization determined for each individual solution based on the solution's expected economic life. For all development projects subject to this accounting guidance, the costs to establish technological feasibility have been expensed as incurred. To date, all costs subsequent to technological feasibility but prior to general availability have not been material and as such we have not capitalized any costs associated with projects subject to ASC 985-20. All costs subsequent to general availability have been expensed as incurred.

Impairment of Long Lived Assets

        In accordance with ASC 360, Property, Plant, and Equipment , we evaluate long-lived assets, such as property and equipment and intangible assets other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. No assets were determined to be impaired to date.

Income Taxes

        We account for income taxes in accordance with authoritative guidance, which requires the use of the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on the difference between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the years in which differences are expected to be reversed.

        We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.

        We have elected to use the "with and without" approach as described in ASC 740-20, Intraperiod Tax Allocation , in determining the order in which tax attributes are utilized. As a result, we will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to us have been utilized. In addition, we have elected to account for the impact of stock-based awards on other tax attributes, such as the research tax credit, through the consolidated statement of operations.

        In July 2006, the FASB issued guidance which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with ASC 740. The guidance provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the guidance and in subsequent periods. ASC 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the guidance effective January 1, 2009, and as a result of the implementation, we recognized a $0.8 million increase in unrecognized tax benefits. There was no increase in the January 1, 2009 balance of accumulated deficit since the benefit related to attribute carryovers for which the related deferred tax assets were subject to a full valuation allowance.

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Recent Accounting Pronouncements

        In June 2011, the FASB issued amended guidance on the presentation of the Statement of Comprehensive Income. The amended guidance eliminates the current option to report other comprehensive income and its components of other comprehensive income as part of the statement of changes in stockholders' equity. In addition, it gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The requirement to present reclassification adjustments out of accumulated other comprehensive income on the face of the consolidated statement of income has been deferred. This guidance will be effective for reporting periods beginning after December 15, 2011 and will be applied retrospectively. We do not expect that this guidance will have an impact on our financial position, results of operations or cash flows, but will impact our financial statement presentation.

        In September 2011, the FASB issued amended guidance relating to the goodwill impairment test. The guidance provides that an entity first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under that option, an entity no longer would be required to calculate the fair value of a reporting unit unless the entity determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance also includes examples of the types of events and circumstances to consider in conducting the qualitative assessment. The guidance will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We are currently evaluating this amended guidance but we do not expect that it will have an impact on our consolidated financial statements.

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BUSINESS

Overview

        Proofpoint is a pioneering security-as-a-service vendor that enables large and mid-sized organizations worldwide to defend, protect, archive and govern their most sensitive data. Our security-as-a-service platform is comprised of an integrated suite of on-demand data protection solutions, including threat protection, regulatory compliance, archiving and governance, and secure communication. Our solutions are built on a flexible, cloud-based platform and leverage a number of proprietary technologies, including big data analytics, machine learning, deep content inspection, secure storage and advanced encryption, to address today's rapidly changing threat landscape.

        A fundamental shift in the sources of cyber crime, from hackers to organized crime and governments, combined with the emergence of international data trafficking, are driving an unprecedented wave of targeted, malicious attacks designed to steal valuable information. At the same time, the growth of business-to-business collaboration, as well as the consumerization of IT and the associated adoption of mobile devices and unmanaged Internet-based applications, have proliferated sensitive data and reduced the effectiveness of many existing security products. These factors have contributed to an increasing number of severe data breaches and expanding regulatory mandates, all of which have accelerated demand for effective data protection and governance solutions.

        Our platform addresses this growing challenge by not only protecting data as it flows into and out of the enterprise via on-premise and cloud-based email, instant messaging, social media and other web-based applications, but also securely archiving these communications for compliance and discovery. We address four important problems for the enterprise:

        Our platform and its associated solutions are sold to customers on a subscription basis and can be deployed through our unique cloud-based architecture that leverages both our global data centers as well as optional points-of-presence behind our customers' firewalls. Our flexible deployment model enables us to deliver superior security and compliance while maintaining the favorable economics afforded by cloud computing, creating a competitive advantage for us over legacy on-premise and cloud-only offerings.

        We were founded in 2002 to provide a unified solution to help enterprises address their growing data security requirements. Our first solution was commercially released in 2003 to combat the burgeoning problem of spam and viruses and their impact on corporate email systems. To address the evolving threat landscape and the adoption of communication and collaboration systems beyond corporate email and networks, we have broadened our solutions to defend against a wide range of threats, protect against outbound security risks, and archive and govern corporate information. Today, our solutions are used by approximately 2,400 customers worldwide, including 26 of the Fortune 100, protecting tens of millions of end-users. We market and sell our solutions worldwide both directly through our sales teams and indirectly through a hybrid model where our sales organization actively assists our network of distributors and resellers. We also distribute our solutions through strategic partners including IBM, Microsoft and VMware.

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Industry Background

        A number of trends are leading to a significant shift in the nature and severity of data security threats and the measures required to address them:


*
See "Industry and Market Data."

Consumerization of IT and growth of business-to-business collaboration increase risk of data loss.   The widespread adoption of consumer technologies throughout the enterprise, including mobile devices, unmanaged Internet-based collaboration and file sharing applications and social networking sites, have caused valuable and sensitive enterprise data to move beyond the reach of traditional corporate data protection measures. In addition, many companies today operate as part of global, distributed value chains working closely with an extensive network of suppliers, sub-contractors and distribution partners, with valuable data being constantly exchanged among these business partners. As data increasingly moves beyond traditional network boundaries it becomes more challenging for enterprises to control and govern.

Consequences of data breaches have become more severe.   The monetary and reputational cost of data breaches, whether malicious or inadvertent, is increasing rapidly. An ongoing wave of high profile breaches in multiple industries has exposed a broad range of data, including personal information, diplomatic communications, online banking credentials, financial accounts and health care records, causing significant financial and reputational impact to the affected organizations. A 2011 Ponemon Institute study estimated a 44% increase in successful cyber attacks from the prior year's study contributing to a 56% increase in the median annualized cost of cyber crime.* In addition, according to Gartner, the federal government estimates there is $5 trillion of intellectual property in the United States, most of it commercially owned, with more than $300 billion of intellectual property stolen each year from U.S. networks.* Potentially more damaging is the reputational impact to organizations entrusted with sensitive data that is subsequently compromised.

Regulatory mandates create additional data protection and governance requirements.   Governments around the world and at all levels of jurisdiction are continuing to enact new laws regarding data protection and privacy as well as new regulations to mandate closer oversight over all aspects of regulatory adherence. Privacy laws and regulations require that enterprises and government organizations create and enforce policies for the assurance, protection and archiving of various types of corporate information, and the availability of that information in response to litigation

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        To protect their data assets, organizations have typically employed a number of disparate on-premise security products. However, these solutions are not well suited to addressing today's threats and challenges and many organizations are still unable to adequately protect their data assets for a variety of reasons, including:

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        In an attempt to defend against the constantly evolving threat landscape and to comply with government mandates, enterprises are beginning to implement new, more robust corporate policies for data protection, archiving and governance. To enforce these new policies, secure communication technologies and policy-based encryption are being used to limit the leakage of sensitive data and intellectual property, and archiving and eDiscovery solutions are being used to reduce legal compliance risks. According to International Data Corporation (IDC), a third-party market research company, the total worldwide market for data protection solutions is estimated to grow from $5.2 billion in 2011 to $8.0 billion by 2015, a CAGR of 11%.*


*
See "Industry and Market Data."

The Proofpoint Solution

        Our integrated suite of on-demand security-as-a-service solutions enables large and mid-sized organizations to defend, protect, archive and govern their sensitive data. Our comprehensive platform provides threat protection, regulatory compliance, archiving and governance, and secure communication. These solutions are built on a cloud-based architecture, protecting data not only as it flows into and out of the enterprise via on-premise and cloud-based email, instant messaging, social media and other web-based applications, but also securely archiving these communications for compliance and discovery. We have pioneered the use of innovative technologies to deliver better ease-of-use, greater protection against the latest advanced threats, and lower total cost of ownership than traditional alternatives. The key elements of our solution include:

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Our Business Strategy

        Our objective is to be the leading security-as-a-service provider of next-generation data protection and governance solutions. The key elements of our strategy include:

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Our Security-as-a-Service Platform

        We provide a multi-tiered security-as-a-service platform consisting of solutions, platform technologies and infrastructure. Our platform currently includes four solutions bundled for the convenience of our customers, distributors and resellers: Proofpoint Enterprise Protection, Proofpoint Enterprise Privacy, Proofpoint Enterprise Archive and Proofpoint Enterprise Governance. Each of these solutions is built on our security-as-a-service platform, which includes both platform services and enabling technologies. Our platform services provide the key functionality to enable our various solutions while our enabling technologies work in conjunction with our platform services to enable the efficient construction, scaling and maintenance of our customer-facing solutions.

        Our suite is delivered by a cloud infrastructure and can be deployed as a secure cloud-only solution, or as a hybrid solution with optional physical or virtual points-of-presence behind our customers' firewalls for those who prefer to deploy certain functionality inside their security perimeter. In all deployment scenarios, our cloud-based architecture enables us to leverage the benefits of the cloud to cost-effectively deliver superior security and compliance while maintaining the flexibility to optimize deployments for customers' unique environments. The modularity of our solutions enables our existing customers to implement additional modules in a simple and efficient manner.

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GRAPHIC

Solutions

        Our security-as-a-service platform includes four solutions bundled for the convenience of our customers: Proofpoint Enterprise Protection, Proofpoint Enterprise Privacy, Proofpoint Enterprise Archive and Proofpoint Enterprise Governance.

Proofpoint Enterprise Protection

        Proofpoint Enterprise Protection is our communications and collaboration security suite designed to protect customers' mission-critical messaging infrastructure from outside threats including spam, phishing, unpredictable email volumes, malware and other forms of objectionable or dangerous content before they reach the enterprise. Key capabilities within Proofpoint Enterprise Protection include:

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        Key benefits of Proofpoint Enterprise Protection include:

Proofpoint Enterprise Privacy

        Our data loss prevention, encryption and compliance solution defends against leaks of confidential information, and helps ensure compliance with common U.S., international and industry-specific data protection regulations - including HIPAA, GLBA, PIPEDA and PCI-DSS. Key capabilities within Proofpoint Enterprise Privacy include:

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Proofpoint Enterprise Archive

        Proofpoint Enterprise Archive is designed to ensure: accurate enforcement of data governance, data retention and supervision policies and mandates; cost effective litigation support through efficient discovery; and active legal hold management. Proofpoint Enterprise Archive can store, govern and discover a wide range of data including email, instant message conversations, social media interactions, and other files throughout the enterprise. The key capabilities within Proofpoint Enterprise Archive include:

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Proofpoint Enterprise Governance

        Proofpoint Enterprise Governance provides organizations the ability to track, classify, monitor, and apply governance policies to unstructured information across the enterprise. By proactively governing unstructured information "in-place," organizations can effectively manage regulatory compliance, increase control over information and mitigate legal and financial risks. The key capabilities within Proofpoint Enterprise Governance include:

        Key benefits of Proofpoint Enterprise Governance include:

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Platform Services

        Our platform services provide the key functionality to enable our various solutions, using our enabling technologies. Our platform services consist of:

Enabling Technologies

        Our enabling technologies are a proprietary set of building blocks that work in conjunction with our application services to enable the efficient construction, scaling and maintenance of our customer-facing solutions. These technologies consist of:

Infrastructure

        We deliver our security-as-a-service solutions through our cloud architecture and international data center infrastructure. We operate thousands of physical and virtual servers across nine data centers located in the United States, Canada, the Netherlands, Germany and Australia.

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        Our cloud architecture is optimized to meet the unique demands of delivering real-time security-as-a-service to global enterprises. Key design elements include:

        During 2011, we had $4.9 million in capital spending in part to support infrastructure expansion. These expenditures are primarily in connection with the replacement and upgrade of equipment to lower the cost of deployment as well as to improve the efficiency for our cloud-based architecture.

Customers

        As of December 31, 2011 we had approximately 2,400 customers of all sizes across a wide variety of industries, including 25 of the Fortune 100. Our largest customers use our platform to protect millions of users and handle tens of millions of messages per day. We have a highly diversified customer base, with no single partner or customer accounting for more than 10% of total revenue in 2009, 2010 or 2011. In each year since the launch of our first solution in 2003, we have retained over 90% of our customers.

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        We target large and mid-sized organizations across all major verticals including financial services, retail, manufacturing, aerospace and defense, healthcare, education and government. We have been particularly successful selling to the largest enterprises; 19 of the 50 largest companies in the United States as ranked by Fortune Magazine are our customers. We have also had success penetrating the market leaders (as measured by revenue) in a number of significant verticals including:

        Among our customers are: Alticor Inc., AON Corporation, Bank of America Corporation, Bank of China Limited, Burlington Coat Factory Warehouse Corporation, First Data Corporation, Grant Thornton LLP, Hospital Corporation of America, Hitachi Data Systems Corporation, Huntsman Corporation, Kaiser Permanente, Mary Kay, Inc., Petco Animal Supplies, Inc., Pitney Bowes Inc., The Radio France Group, Raymond James Financial, Inc., Royal Mail Group Ltd., Scottsdale Healthcare Corporation, the State of California, Sub-Zero, Inc., T-Mobile Wireless USA, Inc., Tyson Foods, Inc., UCLA Health System, University of North Carolina at Charlotte, United States Department of Agriculture, VF Corporation, Washington State University, Weatherford International Ltd., and Zions Bancorporation.

Case studies

        We believe that the following case studies provide a representative sample of how our customers deploy our solutions and the associated benefits that they experience.

Industrial products manufacturer

        This Fortune 100 manufacturer of industrial products was experiencing declining anti-spam and anti-virus effectiveness from its previous on-premise security system and sought a replacement to protect its 160,000 users.

        The company deployed the Proofpoint Enterprise Protection for email security along with Proofpoint Enterprise Privacy for data loss prevention and email encryption. During its evaluation of our inbound security solution, the company realized the benefits of adding the outbound capabilities of Proofpoint Enterprise Privacy, allowing it to replace a legacy on-premise data loss prevention solution. The customer reported benefits including:

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Farm, construction and forestry equipment manufacturer

        A Fortune 500 manufacturer of farm, construction and forestry equipment needed better protection from increasingly malicious inbound spam and malware threats. The company sought to reduce its security costs while still retaining a high level of administrative control and visibility over its messaging infrastructure.

        The company chose to deploy the cloud-based version of Proofpoint Enterprise Protection to protect its 60,000 email users, replacing an incumbent solution running behind the firewall. The company found that only we delivered a cloud offering with the same administration, reporting and security features typically associated with on-premise solutions. The customer reported benefits including:

Financial services firm

        This Fortune 500 organization is a leading provider of risk management services with an employee base of 59,000 people working in over 500 offices in more than 120 countries. The company required an archiving solution that could support tens of thousands of email users worldwide, meet FINRA compliance supervisory review requirements for broker-dealers, and improve the organization's litigation readiness.

        The company deployed Proofpoint Enterprise Archive across its U.S. offices, quickly expanding its deployment to more than 33,000 users. The company continues to expand its deployment of our archiving solution to additional U.S. and international office locations. The customer reported the following benefits:

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Global consumer products, manufacturing and logistics services company

        A global company that offers consumer products, manufacturing and logistics services in more than 80 countries and territories worldwide had been using a legacy security solution and, as part of its regular assessments of its messaging environment and security stance, was looking for solutions that offered superior security, performance and value. With 14,000 employees spread across numerous global locations, the company required a solution that was accessible and easy-to-use for end-users and administrators who work in a wide variety of different languages, cultures and regulatory environments.

        The company chose to deploy Proofpoint Enterprise Protection, originally deployed on-premise using hardware appliances. As its requirements grew, the company enhanced that deployment with virtual appliances, allowing the company to more easily and cost-effectively scale their deployment to support its fast-growing business.

        The company regularly assesses its requirements and has continued to stay with us through multiple evaluations of its messaging and security environment. In the most recent assessment, the company realized it could improve performance and reduce costs by moving certain functions to the cloud-based version of Proofpoint Enterprise Protection. The company now uses a hybrid environment where inbound email processing is handled in the cloud while certain policy enforcement and email routing functions are performed on-premise.

        The customer reported benefits including:

Sales and Marketing

Sales

        We primarily target large and mid-sized organizations across all industries. Our sales and marketing programs are organized by geographic regions, including Asia-Pacific, EMEA, Japan, North America, and South America, and we further segment and organize our sales force into teams that focus on large enterprises (2,500 employees and above), mid-sized organizations (500 - 2,500 employees) and existing customers. In addition, we create integrated sales and marketing programs targeting specific vertical-markets. This vertical-market approach enables us to provide a higher level of service and understanding of our customers' unique needs, including the industry-specific business and regulatory requirements in industries such as healthcare, financial services, retail and education.

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        We sell through both direct and indirect channels, including technology and channel partners:

        For sales involving a partner such as a distributor, reseller or strategic partner, the partner engages with the prospective customer directly and involves our sales team as needed to assist in developing and closing an order. At the conclusion of a successful sales cycle, we sell the associated subscription, hardware and services to the partner who in turn resells these items to the customer, with the partner earning a fee based on the total value of the order. With the order completed, we provide these customers with direct access to our security-as-a-service platform and other associated services, enabling us to establish a direct relationship and provide them with support as part of ensuring that the customer has a good experience with our platform. At the end of the contract term, the partner engages with the customer to execute a renewal order, with our team providing assistance as required. For 2011, over half of our billings were sold through one of these partners.

Marketing

        Our marketing programs include a variety of online marketing, advertising, conferences, events, white-papers, public relations activities and web-based seminar campaigns targeted at key decision makers within our prospective customers.

        We have a number of marketing initiatives to build awareness about our solutions and encourage customer adoption of our solutions. We offer free trials, competitive evaluations and free compliance risk audits to allow prospective customers to experience the quality of our solutions, to learn in detail about the features and functionality of our suite, and to quantify the potential benefits of our solutions.

Customer Service and Support

        We believe that our customer service and support provide a competitive advantage and are critical to retaining and expanding our customer base. We conduct regular third-party surveys to measure customer loyalty and satisfaction with our solutions.

Proofpoint Support Services

        We deliver 24x7x365 customer support from support centers located in New York, California, Japan, Malaysia, Singapore, Canada, Mexico and the United Kingdom. We offer a wide range of support offerings with varying levels of access to our support resources.

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Proofpoint Professional Services and Training

        With our security-as-a-service model, our solutions are designed to be implemented, configured, and operated without the need for any training or professional services. For those customers that would like to develop deeper expertise in the use of our solutions or would like some assistance with complex configurations or the importing of data, we offer various training and professional services. Many implementation services can be completed in one day and are primarily provided remotely using web-based conferencing tools. If requested, our professional services organization also provides additional assistance with data importing, design, implementation, customization, or advanced reporting. We also offer a learning center for both in-person and online training and certification.

Research and Development

        We devote significant resources to improve and enhance our existing security solutions and maintain the effectiveness of our platform. We also work closely with our customers to gain valuable insights into their threat environments and security management practices to assist us in designing new solutions and features that extend the data protection, archiving and governance capabilities of our platform. Our technical staff monitors and tests our software on a regular basis, and we maintain a regular release process to update and enhance our existing solutions. Leveraging our on-demand platform model, we can deploy real-time upgrades with no downtime.

        Research and development expenses were $11.8 million, $17.6 million and $19.8 million for 2009, 2010 and 2011, respectively.

Competition

        Our markets are highly competitive, fragmented and subject to rapid changes in technology. We compete primarily with companies that offer a broad array of data protection and governance solutions. Providers of data protection solutions generally have product offerings that include threat protection, virus protection, data loss prevention, flexible remediation, data encryption, and in some cases secure file transfer. Providers of governance solutions generally have product offerings that provide data storage, search, policy enforcement, legal hold management, and in some cases supervision.

        Key competitors include:

    Data protection:   Cisco (through its acquisition of IronPort), Google (through its acquisition of Postini), McAfee, an Intel subsidiary (through its acquisitions of Secure Computing and MX Logic), Microsoft (through its acquisition of Frontbridge), and Symantec (through its acquisitions of Brightmail and MessageLabs)

    Governance:   EMC (through its acquisitions of Legato and Kazeon), Hewlett-Packard (through its acquisition of Autonomy) and Symantec (through its acquisitions of KVS and LiveOffice)

        We believe we compete favorably based on the following factors:

    level of protection against advanced threats;

    comprehensiveness and integration of the solution;

    flexibility of delivery models;

    total cost of ownership;

    scalability and performance;

    customer support; and

    extensibility of platform.

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        Certain of our competitors have greater sales, marketing and financial resources, more extensive geographic presence and greater name recognition than we do. We may face future competition in our markets from other large, established companies, as well as from emerging companies. In addition, we expect that there is likely to be continued consolidation in our industry that could lead to increased price competition and other forms of competition.

Intellectual Property

        We rely on a combination of trade secrets, patents, copyrights and trademarks, as well as contractual protections, to establish and protect our intellectual property rights and protect our proprietary technology. As of December 31, 2011, we had 14 patents and six patent applications. We have a number of registered and unregistered trademarks. We require our employees, consultants and other third parties to enter into confidentiality and proprietary rights agreements and control access to software, documentation and other proprietary information. Although we rely on intellectual property rights, including trade secrets, patents, copyrights and trademarks, as well as contractual protections to establish and protect our proprietary rights, we believe that factors such as the technological and creative skills of our personnel, creation of new modules, features and functionality, and frequent enhancements to our solutions are more essential to establishing and maintaining our technology leadership position.

        Despite our efforts to protect our proprietary technology and our intellectual property rights, unauthorized parties may attempt to copy or obtain and use our technology to develop products with the same functionality as our solution. Policing unauthorized use of our technology and intellectual property rights is difficult.

        We expect that software and other solutions in our industry may be subject to third-party infringement claims as the number of competitors grows and the functionality of products in different industry segments overlaps. Any of these third parties might make a claim of infringement against us at any time.

Employees

        As of December 31, 2011, we employed 376 people, including 155 in sales and marketing, 66 in operations and customer support, eight in manufacturing, training and professional services, 107 in product development, and 40 in a general and administrative capacity. As of such date, we had 306 employees in the United States and 70 employees internationally. We also engage a number of temporary employees and consultants. None of our employees is represented by a labor union with respect to his or her employment with us. We have not experienced any work stoppages and we consider our relations with our employees to be good. Our future success will depend upon our ability to attract and retain qualified personnel. Competition for qualified personnel remains intense and we may not be successful in retaining our key employees or attracting skilled personnel.

Facilities

        Our corporate headquarters, which includes our operations and research and development facilities, is located in Sunnyvale, California, and consists of 74,338 square feet of space under a lease that expires in 2014. We have an option to extend the lease for three years.

        We have additional U.S. offices in Draper, Utah and Herndon, Virginia. We also lease offices in Toronto, Canada; Paris, France; Tokyo, Japan; Singapore; and Reading, United Kingdom. We believe our facilities are adequate for our current needs and for the foreseeable future.

        We operate nine data centers at third-party facilities throughout the world: four in the United States, two in Canada, one in the Netherlands, one in Germany and one in Australia.

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Legal Proceedings

        From time to time, we are involved in various legal proceedings arising from the normal course of business activities. We are not presently a party to any litigation the outcome of which, we believe, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, operating results, cash flows or financial condition.

        As part of a pre-IPO due diligence review, we discovered a potential export violation involving the provision of web-based, email communication services through our Everyone.net service, which we acquired in October 2009. Our records indicate that there were two end-users who may have, for a portion of their respective service periods, been located in Iran, a U.S.-designated state sponsor of terrorism. Our internal investigation has progressed and we have found that the issues identified are specific to the acquired Everyone.net system, which has a separate customer database and billing system from that of Proofpoint's main businesses. We do not have any indication that these services were utilized by the Iranian government. The accounts of both end-users were terminated in 2010 and accounted for approximately $14,500 in payments to us in 2009 and $6,000 in payments to us in 2010. Although we had ceased providing the services, we have made a voluntary submission and a supplemental submission to OFAC to report this potential violation.

        In addition, we determined that subsequent to our acquisition of Fortiva in August 2008, we may have shipped a particular hardware appliance model to a limited number of international customers that, prior to shipment, may have required either a one-time product review or application for an encryption registration number in lieu of such product review. We have since acquired the appropriate encryption registration number. We have also made a voluntary submission and a supplemental submission to BIS to report this potential violation. Our investigation of these matters has covered the last five fiscal years and we have not found any additional violations. We are in the process of supplementing our existing systems and procedures designed to ensure that we do not have any such violations in the future. It is possible these recent voluntary submissions could result in penalties, costs, and restrictions on export privileges, which could harm our operating results.

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MANAGEMENT

Executive Officers and Directors

        The following table provides information regarding our executive officers and directors as of March 31, 2012.

Name
  Age   Position(s)

Gary Steele

    49   Chief Executive Officer and Director

Paul Auvil

   
48
 

Chief Financial Officer

Wade Chambers

   
44
 

Executive Vice President, Engineering

Tom Cooper

   
53
 

Executive Vice President, Worldwide Field Operations

David Knight

   
45
 

Executive Vice President, Product Management and Marketing

Eric Hahn (3)

   
52
 

Founder, Chairman and Director

Anthony Bettencourt

   
51
 

Director

Dana Evan (1) (2)

   
52
 

Director

Jonathan Feiber (1) (3)

   
55
 

Director

Kevin Harvey (1)

   
47
 

Director

Philip Koen (2)

   
60
 

Director

Rob Ward (2)

   
44
 

Director


(1)
Current member of our compensation committee.

(2)
Current member of the audit committee.

(3)
Current member of the nominating and governance committee.

         Gary Steele has served as our Chief Executive Officer and as a director since 2002. Prior to joining our company, Mr. Steele served from June 1997 to July 2002 as the Chief Executive Officer of Portera Systems Inc., a software company. Before Portera, Mr. Steele served as the vice president and general manager of the Middleware and Data Warehousing Product Group at Sybase, Inc., an enterprise and mobile software company. Mr. Steele's prior experience includes business development, marketing, and engineering roles at Sun Microsystems, Inc. and Hewlett-Packard Company, computer, computer software and information technology companies. He holds a B.S. degree in computer science from Washington State University. The board of directors determined that Mr. Steele should serve as a director based on his position as our Chief Executive Officer and his understanding of the Internet security industry.

         Paul Auvil has served as our Chief Financial Officer since March 2007. Prior to joining our company, from September 2006 to March 2007, Mr. Auvil was with Benchmark Capital, a venture capital firm, as an entrepreneur-in-residence. Prior to that, from 2002 to July 2006, he served as the chief financial officer at VMware, Inc., a virtualization company. Previously, he served as the chief financial officer for Vitria Technology, Inc., an eBusiness platform company and held various executive positions at VLSI Technology, Inc., a semiconductor and circuit manufacturing company, including vice president of the Internet and Secure Products Division. Since 2007, Mr. Auvil has served on the board of directors for Quantum Corporation and currently holds the position of lead independent director in addition to serving on the audit and governance committees. Mr. Auvil holds a Bachelor of

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Engineering degree from Dartmouth College and a Master of Management degree from the J.L. Kellogg Graduate School of Management, Northwestern University.

         Wade Chambers has served as our Executive Vice President, Engineering since November 2008. Prior to joining our company, Mr. Chambers worked at Yahoo Inc., an Internet company, from 2005 to September 2008 in various roles, including as Vice President of Engineering for Platforms. Prior to Yahoo! Inc., from 2003 to 2005, Mr. Chambers was Vice President of Engineering at Intalio, Inc., a cloud solutions company. Before Intalio, Mr. Chambers was the Vice President of Engineering at Opsware, Inc., a server and network software company. Prior to Opsware, Mr. Chambers held various engineering and engineering management roles at AOL Inc., an Internet services and media company, Verity Inc., a software company, other start-ups and the White House.

         Tom Cooper has served as our Executive Vice President, Worldwide Field Operations since December 2010. Prior to joining our company, from November 2006 to November 2010, Mr. Cooper was senior vice president and general manager of the Small and Midsize organization at SAP AG, a business management software, solutions and services company. Before SAP, Mr. Cooper worked at JBoss, Inc., a software company, from 2005 to 2006. Mr. Cooper also served from 1999 to 2002 as Executive Vice President and President of Americas for i2 Technologies, Inc., a supply chain management software and services company. Mr. Cooper has also held positions at Oracle Corporation, a computer technology company, EXE Technologies, Inc., a supply chain execution software company and Data General Corporation, a minicomputer company. Mr. Cooper holds a B.S. in computer Science from Missouri State University.

         David Knight has served as our Executive Vice President of Product Management and Marketing since March 2011. Prior to joining our company, from May 2007 to February 2011, Mr. Knight served as Chief Technology Officer of the Collaboration Software Group and Senior Director of Product Management at Cisco Systems, Inc., a networking and communications technology company. Mr. Knight was previously vice president of product management, vice president of platforms, and senior director of product management for WebEx Communications Inc., a collaboration software company, from 2002 to May 2007. From 1998 to 2002, he was vice president of marketing and product management for Portera Systems Inc.. Mr. Knight has also held management positions at Sybase, Inc., an enterprise and mobile software company, and Oracle. He holds a master of science in industrial administration and a B.S. in industrial management and information systems from Carnegie Mellon University.

         Eric Hahn founded our company in June 2002 and has served as a director since July 2002. Mr. Hahn is the founding partner of the Inventures Group, a mentor investment firm, which was founded in 1998. From 1997 to 1998, Mr. Hahn served as the Chief Technical Officer for Netscape Communications, Inc., a computer services and web browser company, and was a member of Netscape's Executive Committee. In addition, Mr. Hahn was the founder and Chief Executive Officer of Collabra Software, Inc., a groupware provider that was acquired by Netscape in 1995. Prior to Collabra, Mr. Hahn ran the cc:Mail division of Lotus Development Corporation, a business applications company. Mr. Hahn holds a B.S. degree from the Worcester Polytechnic Institute, which also bestowed to Mr. Hahn an honorary Ph.D. in computer science. The board of directors determined that Mr. Hahn should serve as a director based on his significant experience investing in and serving on the boards of directors of other technology companies, his management and leadership experience as a former founder and executive of multiple startup technology companies and his significant software engineering and product development experience.

         Anthony Bettencourt has served as a director since March 2012. From November 2010 to the present, Mr. Bettencourt has served as the President, Chief Executive Officer and Chairman of the Board of Coverity, Inc., a privately held company that develops and markets development testing solutions that assist software developers in detecting and fixing quality and security problems. From January 2006 to October 2009, Mr. Bettencourt served as Senior Vice President of Special Projects at

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Autonomy Corporation plc. From 2003 to 2005, Mr. Bettencourt served as the Chief Executive Officer of Verity Inc., an enterprise search company and led the company through an acquisition by Autonomy in 2005. Mr. Bettencourt currently serves as the Non-Executive Chairman of the board of directors of Blinkx, Inc., an Internet video search engine company whose stock trades on the AIM market of the London Stock Exchange, and also serves on the board of directors of several privately held companies. Mr. Bettencourt holds a B.A. in English from Santa Clara University. The board of directors determined that Mr. Bettencourt should serve as a director based on his extensive experience in the operation and management of technology and Internet companies.

         Dana Evan has served as a director since June 2008. Since July 2007, Ms. Evan has invested in and served on the boards of directors of companies in the Internet, technology and media sectors, including Fusion-io, Inc. and Omniture, Inc. From 1996 until July 2007, Ms. Evan served as chief financial officer of VeriSign, Inc., a provider of intelligent infrastructure services for the Internet and telecommunications networks. Previously, Ms. Evan worked as a financial consultant in the capacity of chief financial officer, vice president of finance or corporate controller over an eight-year period for various public and private companies and partnerships, including VeriSign, Inc., Delphi Bioventures, a venture capital firm, and Identix Incorporated, a multi-biometric technology company. Prior to serving as a financial consultant, Ms. Evan worked in a variety of positions at KPMG LLP. Ms. Evan also serves on the board of directors of a number of privately held companies. Ms. Evan is a certified public accountant (inactive) and holds a B.S. in Commerce with a concentration in Accounting and Finance from Santa Clara University. The board of directors determined that Ms. Evan possesses specific attributes that qualify her to serve as a member of our board of directors, including broad expertise in operations, strategy, accounting, financial management and investor relations at both publicly and privately held technology, media and Internet companies.

         Jonathan Feiber has served as a director since 2002. Mr. Feiber is a general partner at Mohr Davidow Ventures, a venture capital firm, which he joined in 1992. As a general partner at Mohr Davidow Ventures, Mr. Feiber serves on the board of directors of a number of privately held companies. Prior to joining Mohr Davidow Ventures, Mr. Feiber worked in various managerial positions at Sun Microsystems, a computer software and information technology company. Mr. Feiber holds a B.A. degree in computer science and mathematics from the University of Colorado. The board of directors determined that Mr. Feiber should serve as a director based on his significant experience in the venture capital industry analyzing, investing in and serving on the boards of directors of other technology companies, his significant management, software engineering and product development experience and his relationship with Mohr Davidow Ventures, one of our largest stockholders.

         Kevin Harvey has served as a director since 2002. Mr. Harvey is a founder and general partner of Benchmark Capital, which he joined in 1995. Before founding Benchmark, Mr. Harvey was founder, president and Chief Executive Officer of Approach Software Corp., a server database company. Before founding Approach Software, Mr. Harvey founded Styleware, Inc., a software company. Mr. Harvey received his B.S. degree in engineering from Rice University in 1987. The board of directors determined that Mr. Harvey should serve as a director based on his significant experience investing in and serving on the boards of directors of other technology companies, his management and leadership experience as a former founder and executive of multiple startup technology companies and his relationship with Benchmark Capital, one of our largest stockholders.

         Philip Koen has served as a director since October 2010. Mr. Koen has been Chairman of the Board and Chief Executive Officer of Intermedia.net, Inc., a cloud-based provider of hosted Microsoft Exchange, collaboration and content management services, since May 2011. From February 2010 to May 2011, Mr. Koen was Chief Executive Officer of Montero Partners, an advisory services company. From March 2006 to January 2010, Mr. Koen served as Chief Executive officer and Director of Savvis, Inc., a cloud infrastructure and hosted IT solutions provider. From July 1999 until February 2006, Mr. Koen was employed by Equinix, Inc. a provider of network neutral data centers and Internet

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exchange services, as President and Chief Operating Officer and as Chief Financial Officer. Mr. Koen currently serves on the boards of Infinera Corp., an optical networking company, and Xeralux, a provider for sustainable outdoor lighting solutions. Mr. Koen earned a bachelor's degree from Claremont McKenna College and an M.B.A. from the University of Virginia. Mr. Koen also serves on the board of trustees of Webster University. The board of directors determined that Mr. Koen should serve as a director based on his extensive experience in operations, accounting and financial management at technology and Internet companies.

         Rob Ward has served as a director since 2004. Mr. Ward is a founder of Meritech Capital Partners, a venture capital firm, which he joined in 1999. Mr. Ward leads Meritech Capital Partner's investment practice in the enterprise infrastructure and data center markets including storage, security and database sectors. From 1996 to 1999, prior to founding Meritech Capital Partners, Mr. Ward was a principal at Montgomery Securities LLC, an investment bank, in the private equity group. Prior to joining Montgomery Securities, Mr. Ward spent five years in the corporate finance department at Smith Barney Inc., an investment bank. Mr. Ward received a B.A. degree from Williams College and a M.S. degree from the Massachusetts Institute of Technology. The board of directors determined that Mr. Ward should serve as a director based on his significant experience investing in and serving on the boards of directors of other technology companies and his relationship with Meritech Capital Partners, one of our largest stockholders.

        Our executive officers are elected by, and serve at the discretion of, our board of directors. There are no familial relationships among our directors and officers.

Board of Directors Composition

Current Board of Directors

        Under our bylaws, our board of directors may set the authorized number of directors. Our board of directors currently consists of seven members.

        Pursuant to the amended and restated voting agreement dated as of February 19, 2008 between our company and the holders of our preferred stock, Messrs. Feiber, Harvey, Ward, Koen, Bettencourt, Steele and Hahn and Ms. Evan have been designated to serve as members of our board of directors. Pursuant to that agreement, Messrs. Feiber and Harvey were selected as representatives of the holders of our Series A Stock, Ms. Evan was selected as the representative of the holders of our Series B preferred stock, and Mr. Ward was selected as the representative of the holders of our Series C preferred stock. The current members of our board of directors will continue to serve as directors until their resignations or until their successors are duly elected by the holders of our common stock, despite the fact that the voting agreement will terminate upon the closing of this offering. Upon the termination of this agreement, there will be no further contractual obligations regarding the election of our directors.

Classified Board of Directors Following this Offering

        Our restated certificate of incorporation and bylaws that will be in effect upon the completion of this offering provide for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms. Our directors will be divided among the three classes as follows:

    Class I directors, who will be Messrs. Koen and Ward, whose initial term will expire at the annual meeting of stockholders to be held in 2013;

    Class II directors, who will be Messrs. Feiber, Hahn, and Harvey, whose initial term will expire at the annual meeting of stockholders to be held in 2014; and

    Class III directors, who will be Ms. Evan and Messrs. Bettencourt and Steele, whose initial term will expire at the annual meeting of stockholders to be held in 2015.

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        Directors in a particular class will be elected for three-year terms at the annual meeting of stockholders in the year in which their terms expire. As a result, only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Each director's term continues until the election and qualification of his successor, or his earlier death, resignation or removal.

        Our restated certificate of incorporation and bylaws that will be in effect upon the completion of this offering provide that only our board of directors may increase or decrease the size of our board of directors and fill vacancies on our board of directors until the next annual meeting of stockholders. Any additional directorships resulting from an increase in the authorized number of directors would be distributed among the three classes so that, as nearly as possible, each class would consist of one-third of the authorized number of directors.

        The classification of our board of directors and provisions described above may have the effect of delaying or preventing a change in control of our company. See "Description of Capital Stock—Anti-Takeover Provisions—Restated Certificate of Incorporation and Restated Bylaw Provisions."

Director Independence

        We have applied to list our common stock on the NASDAQ Global Market. The listing rules of the NASDAQ Global Market require that a majority of the members of our board of directors be independent. Our board of directors undertook a review of its composition and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, our board of directors determined that none of our non-employee directors has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is "independent" as that term is defined under the rules of the NASDAQ Global Market. In making this determination, our board of directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. The independence of our board committee members is discussed below.

Board Leadership

        Our board of directors is led by our chairman. The chairman of the board chairs all meetings of our board of directors, including executive sessions. The chairman of the board also acts as liaison between the independent directors and management. We believe that having different people serving in the roles of chairman of the board and Chief Executive Officer is an appropriate and effective organizational structure for our company at this time. Separating these positions allows our chairman of the board to lead the board of directors in its fundamental role of providing advice to and independent oversight of management, while enabling our Chief Executive Officer to focus his time on our day-to-day business. The board of directors further recognizes the commitment required to serve as our chairman, particularly as the board of directors' oversight responsibilities continue to grow, as well as the time, effort and energy that our Chief Executive Officer is required to devote to his position. However, we also recognize that no single leadership model is right for all companies at all times, and that depending on the circumstances, other leadership models, such as having one person serving as both the chairman of the board and Chief Executive Officer, might become appropriate. Accordingly, the board of directors anticipates periodically reviewing its leadership structure.

Committees of Our Board of Directors

        Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee. The composition and responsibilities of each committee are described below. Members serve on these committees until their resignations or until otherwise

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determined by our board of directors. Our board of directors has adopted a charter for each of these committees, which it believes complies with the applicable requirements of current NASDAQ Global Market rules. We intend to comply with future requirements to the extent they are applicable to us. Following the closing of this offering, copies of the charters for each committee will be available on the investor relations portion of our website.

Audit Committee

        Our audit committee is currently comprised of Ms. Evan, who is the chair of the audit committee, and Messrs. Ward and Koen. We believe that the composition of our audit committee prior to this offering, and our audit committee's charter and functioning will comply with the requirements for independence under current NASDAQ Global Market and SEC rules and regulations. Each member of our audit committee is financially literate as required by current NASDAQ Global Market listing standards. In addition, our board of directors has determined that Ms. Evan is an audit committee financial expert within the meaning of Item 407(d) of Regulation S-K under the Securities Act. Our audit committee, among other things:

    selects a qualified firm to serve as the independent registered public accounting firm to audit our financial statements;

    helps to ensure the independence and performance of the independent registered public accounting firm;

    discusses the scope and results of the audit with the independent registered public accounting firm, and reviews, with management and the independent accountants, our interim and year-end operating results;

    develops procedures for employees to submit concerns anonymously about questionable accounting or audit matters;

    reviews our policies on risk assessment and risk management;

    will review the adequacy and effectiveness of our internal control policies and procedures and review our critical accounting policies;

    obtains and reviews a report by the independent registered public accounting firm at least annually, that describes our internal quality-control procedures, any material issues with such procedures, and any steps taken to deal with such issues;

    approves (or, as permitted, pre-approves) all audit and all permissible non-audit services, other than de minimis non-audit services, to be performed by the independent registered public accounting firm; and

    will review our annual, quarterly and periodic reports related to financial matters to be filed with the SEC.

Compensation Committee

        Our compensation committee is currently comprised of Mr. Harvey, who is the chair of the compensation committee, Ms. Evan and Mr. Feiber. The composition of our compensation committee meets the requirements for independence under current NASDAQ rules. Each member of this committee is also a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and an outside director, as defined pursuant to Section 162(m) of the Code. The purpose of our compensation committee is to discharge the

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responsibilities of our board of directors relating to compensation of our executive officers. Our compensation committee, among other things:

    reviews, approves and determines, or makes recommendations to our board of directors regarding, the compensation of our executive officers;

    administers our stock and equity incentive plans;

    reviews, approves and makes recommendations to our board of directors regarding incentive compensation and equity plans;

    will review the compensation discussion and analysis to be included in our annual and quarterly reports to be filed with the SEC and our compensation report to be included in our annual proxy statement; and

    establishes and reviews general policies relating to compensation and benefits of our employees.

Nominating and Governance Committee

        Our nominating and governance committee is currently comprised of Mr. Hahn, who is the chair of the nominating and governance committee, and Mr. Feiber. The composition of our nominating and governance committee meets the requirements for independence under current NASDAQ Global Market rules. Our nominating and governance committee, among other things:

    identifies, evaluates and selects, or makes recommendations to our board of directors regarding, nominees for election to our board of directors and its committees;

    evaluates the performance of our board of directors and of individual directors;

    considers and makes recommendations to our board of directors regarding the composition of our board of directors and its committees;

    reviews related party transactions and proposed waivers of our code of conduct;

    reviews developments in corporate governance practices;

    evaluates the adequacy of our corporate governance practices and reporting; and

    develops and makes recommendations to our board of directors regarding corporate governance guidelines and matters.

        The nominating and corporate governance committee does not have a formal diversity policy in place but will consider diversity of relevant experience, expertise and background, among other factors, in identifying nominees for directors.

Compensation Committee Interlocks and Insider Participation

        During 2011, most of our compensation decisions were made by our compensation committee. No interlocking relationship exists between our board of directors and the board of directors or compensation committee of any other company, nor has any interlocking relationship existed in the past. None of the members of our compensation committee has at any time during the prior three years been an officer or employee of ours.

        In addition, in multiple closings between February 2008 and May 2010, we sold 563,910 shares of our Series F Preferred Stock for an aggregate purchase price of $3,000,001 to MDV VII, L.P., of which Seventh MDV Partners, L.L.C. is the general partner and Mr. Feiber is a managing member of such general partner, and 973,006 shares of our Series F Preferred Stock for an aggregate purchase price of $5,176,392 to Benchmark Capital Partners IV, L.P., of which Benchmark Capital Management Co. IV, L.L.C. is the general partner and Mr. Harvey is a managing member of such general partner. In

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connection with the sales of our preferred stock, we entered into agreements that grant customary preferred stock rights to all of our major preferred stock investors, including holders of more than 5% of our outstanding stock. These rights include registration rights, rights of first refusal, co-sale rights with respect to certain stock transfers, a voting agreement providing for the election of investor designees to the Board, information rights and other similar rights. The Fourth Amended and Restated Investors' Rights Agreement, which contains the registration rights and many of the other rights described above, is filed as an exhibit to the registration statement of which this prospectus is a part. All of these rights, other than the registration rights, will terminate upon the closing of this offering. Investment funds controlled by Seventh MDV Partners, L.L.C. and Benchmark Capital Management Co. IV, L.L.C. are parties to such agreements.

Code of Ethics and Business Conduct

        Our board of directors has adopted a code of ethics and business conduct that will become effective upon completion of this offering. The code of ethics and business conduct will apply to all of our employees, officers and directors. Following the completion of this offering, the full text of our code of ethics and business conduct will be posted on the investor relations portion of our website at www.proofpoint.com and will be available without charge, upon request in writing to Proofpoint, Inc., 892 Ross Drive, Sunnyvale, California 94089, Attn: Investor Relations. We intend to disclose future amendments to certain provisions of our codes of ethics and business conduct, or waivers of such provisions, at the same location on our website identified above and also in public filings.

Director Compensation

        Following the closing of this offering, we intend to compensate our non-employee directors with a combination of cash and equity awards. Non-employee directors will receive an annual retainer fee for service on our board of directors of $30,000, and the additional annual retainer fee for service:

        Pursuant to a policy adopted by our board of directors, each non-employee director who first becomes a member of our board of directors on or after the completion of this offering will receive an initial option to purchase 37,500 shares of our common stock. At each annual meeting of our stockholders, each non-employee director will automatically be granted an annual option grant to purchase 12,500 shares of our common stock if the non-employee director has served continuously as a member of our board of directors for at least six months. Each initial stock option award granted to non-employee directors vests in equal annual installments over three years from the date of grant, the shares underlying which are exercisable at a price per share equal to the fair market value of the stock on the date of grant. Each annual stock option award vests in full immediately prior to the first annual meeting of our stockholders to occur after the date of grant. Each of these awards is immediately exercisable in full; however, any unvested shares issued upon exercise will be subject to a right of repurchase by us upon termination of the director's service at a price per share equal to the fair market value of the stock on the date of grant, which right lapses in accordance with the vesting schedule described above. The vesting of the awards made to non-employee directors under the policy described above will accelerate and vest in full in the event of a change in control of our company. The awards will have 10-year terms and will terminate three months following the date the director ceases to be one of our directors or consultants or 12 months following that date if the termination is due to death

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or disability. In addition to the awards provided for above, non-employee directors are eligible to receive discretionary awards of stock options. All grants to non-employee directors will be made on a discretionary basis under the 2012 Equity Incentive Plan.

        Non-employee directors receive no other form of remuneration, perquisites or benefits, but are reimbursed for travel, meal and other expenses incurred to attend meetings. Other than reimbursement of reasonable travel and related expenses incurred by non-employee directors in connection with their attendance at meetings of our board of directors and its committees, we did not pay any other fees, make any equity or non-equity awards to, or pay any other compensation to our non-employee directors in 2011. On January 23, 2012, Eric Hahn was granted an option award to purchase 15,000 shares of our common stock, which have an exercise price of $7.98 per share, the fair market value of the stock on the date of grant. On March 30, 2012, Anthony Bettencourt was appointed to our board of directors. Mr. Bettencourt will receive compensation according to our director compensation policy described above. All compensation that we paid to Mr. Steele, our only employee director, is set forth in the tables below under "Executive Compensation—Executive Compensation Tables." No compensation was paid to Mr. Steele in his capacity as a director.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

        This Compensation Discussion and Analysis provides an overview of the material components of our executive compensation program for:

        We refer to these executive officers collectively in this Compensation Discussion and Analysis and the related compensation tables as the "Named Executive Officers."

        Specifically, this Compensation Discussion and Analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program, and each component of compensation that we provide. In addition, we explain how and why the compensation committee of our board of directors arrived at the specific compensation policies and decisions involving our executive officers, including the Named Executive Officers listed in the Summary Compensation Table set forth below, during 2011.

Executive Compensation Philosophy and Objectives

        We operate in a highly competitive business environment, which is characterized by frequent technological advances, rapidly changing market requirements, and the emergence of new market entrants. To successfully grow our business in this dynamic environment, we must continually develop and refine our solutions to stay ahead of customer needs and challenges. To achieve these objectives, we need a highly talented and seasoned team of technical, sales, marketing, operations, and other business professionals.

        We compete with many other companies in seeking to attract and retain a skilled management team. To meet this challenge, we have embraced a compensation philosophy of offering our executive officers a competitive total compensation program that recognizes and rewards individual performance and contributions to our success, allowing us to attract, retain, and motivate talented executives with the skills and abilities needed to drive our desired business results.

        The specific objectives of our executive compensation program are to:

Compensation Program Design

        Our executive compensation consists of base salary, an annual cash bonus opportunity, a sales commission plan for our sales executives, equity compensation in the form of stock options, and certain employee welfare benefits.

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        Historically, the key component of our executive compensation program has been equity awards for shares of our common stock. As a privately-held company, we have emphasized the use of equity to provide incentives for our executive officers to focus on the growth of our overall enterprise value and, correspondingly, to create value for our stockholders. We have used stock options as our primary equity award vehicle for all of our employees. We believe that stock options offer our employees, including the Named Executive Officers, a valuable long-term incentive that aligns their interests with the long-term interests of our stockholders. Going forward, we may introduce other forms of stock-based compensation awards, as we deem appropriate, into our executive compensation program to offer our executive officers additional types of long-term equity incentives that further this objective.

        We also offer cash compensation in the form of base salaries, annual cash bonus opportunities, and sales commissions. Typically, we have structured our annual cash bonus opportunities to focus on the achievement of specific short-term financial and strategic objectives that will further our longer-term growth objectives.

        Historically, we have used standard industry surveys, including the Radford High-Technology Executive Compensation Survey, particularly for companies with annual revenue of up to $200 million, to assist the compensation committee in establishing cash compensation levels for our executive officers with an emphasis on technology companies with a similar size, stage of development, and growth potential. Using this information as a guideline, the compensation committee has emphasized remaining competitive in our market and differentiating total cash compensation levels through the use of an annual cash bonus plan and sales commissions. Equity compensation has been delivered on a discretionary basis with the goal to retain top talent and align the interests of our executive officers with the long-term interests of our stockholders.

        We have not adopted any formal policies or guidelines for allocating compensation between current and long-term compensation, between cash and non-cash compensation, or among different forms of non-cash compensation. Instead, the compensation committee reviews each component of executive compensation separately and also takes into consideration the value of each executive officer's compensation package as a whole and its relative size in comparison to our other executive officers.

Compensation-Setting Process

        Since 2004, the compensation committee has been responsible for evaluating, approving, and reviewing the compensation arrangements, plans, policies, and programs for our executive officers, including the Named Executive Officers (other than our CEO), and directors, and overseeing our cash-based and equity-based compensation plans. Generally, decisions with respect to the cash compensation of our executive officers have been made by the compensation committee, while decisions with respect to their equity compensation awards have been made by our board of directors, based upon the recommendations of the compensation committee. In the case of our CEO's equity compensation awards, decisions have been made by the independent members of our board of directors.

        At the beginning of each year, the compensation committee, after consulting with management, establishes the corporate performance objectives for our company and makes decisions with respect to any base salary adjustment, approves certain individual performance objectives and target annual cash bonus opportunities and formulates recommendations with respect to equity awards for our executive officers, including the Named Executive Officers, for the upcoming year. Any recommendations for equity awards to our executive officers are submitted to our board of directors for its consideration and approval. After the end of the fiscal year, the compensation committee reviews the performance of our

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executive officers, including the Named Executive Officers, to determine the payouts for the annual cash bonus opportunities for the previous year.

        The compensation committee reviews on a periodic basis, at least annually, our executive compensation program, including any incentive compensation plans, to determine whether they are appropriate, properly coordinated, and achieve their intended purposes and recommends to our board of directors any modifications or new plans or arrangements.

        In carrying out its responsibilities, the compensation committee works with members of our management, including our CEO. Typically, our management assists the compensation committee by providing information on corporate and individual performance, market data, and management's perspective and recommendations on compensation matters. This information has included an analysis of the compensation mix and levels of our executive officers compared to the competitive market (as determined using compensation survey data) prepared by our Human Resources Department. The compensation committee then uses this information as reference points in its deliberations on specific compensation actions and decisions.

        Historically, the initial compensation arrangements with our executive officers, including the Named Executive Officers, have been determined in negotiations with each individual executive. Our CEO has been responsible for negotiating these arrangements, with the oversight and final approval of the compensation committee (except for Mr. Cooper's initial compensation arrangement, which was negotiated and approved by the compensation committee).

        Typically, our CEO will make recommendations to the compensation committee regarding compensation matters, including the compensation of our executive officers (except with respect to his own compensation). Historically, these recommendations have been based on a review of competitive market data as prepared by our Human Resources Department and his evaluation of each executive officer's individual performance. He also attends compensation committee meetings, except with respect to discussions involving his own compensation. Further, he recuses himself from meetings of our board of directors when they engage in deliberations with respect to his equity compensation awards.

        While the compensation committee solicits and reviews our CEO's recommendations and proposals with respect to compensation-related matters, the compensation committee only uses these recommendations and proposals as one factor in making compensation decisions.

        The compensation committee is authorized to retain the services of one or more executive compensation advisors from time to time, as it sees fit, in connection with carrying out its duties.

        Beginning in 2010, the compensation committee engaged Compensia, Inc., a national compensation consulting firm that provides executive compensation advisory services, to assist it in administering our executive compensation program. In addition, as we have begun the transition to public company status, Compensia has assisted the compensation committee in evaluating various alternatives for our equity compensation strategies and funding, and various other aspects of our executive compensation program. In the future, we expect that the compensation committee, as part of its annual review of our executive officers' compensation, will instruct its executive compensation advisor to perform an analysis of our executive compensation program to ensure alignment with our compensation strategy and competitive market practices. Compensia serves at the discretion of the compensation committee.

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        To assess the competitiveness of our executive compensation program and current compensation levels and to assist it in setting compensation levels, historically the compensation committee referred to standard industry surveys, including the Radford High-Technology Executive Compensation Survey. While the compensation committee reviewed this compensation data to inform its decision-making process, it did not set compensation components to meet specific benchmarks. Instead, the compensation committee used this data as a point of reference so that it could set total compensation levels that it believed were reasonably competitive. While compensation levels differed among our executive officers based on competitive factors, and the role, responsibilities, and performance of each specific executive officer, there were not material differences in the compensation policies and practices for our executive officers, including the Named Executive Officers.

        During 2011, the compensation committee, assisted by our management and Compensia, began to develop a compensation peer group comprised of comparably-sized publicly-held companies, taking into consideration size and growth potential, to be used as a reference source in connection with its executive compensation deliberations. This compensation peer group, which consisted of both technology companies that had conducted an initial public offering of their equity securities within the past several years and similarly-sized companies in the same industry sector, was used by the compensation committee for reference purposes during its compensation deliberations during 2011.

        This peer group is comprised of the following companies:

Actuate Corporation   LivePerson, Inc.

BroadSoft, Inc.

 

LogMeIn, Inc.

comScore, Inc.

 

Smith Micro Software, Inc.

Constant Contact, Inc.

 

SolarWinds, Inc.

DemandTec, Inc.

 

Sourcefire, Inc.

Envestnet, Inc.

 

SuccessFactors, Inc.

Fortinet, Inc.

 

TeleNav, Inc.

IntraLinks Holdings, Inc.

 

VASCO Data Security International, Inc.

KIT digital, Inc.

 

Vocus, Inc.

Executive Compensation Program Components

        The following describes each component of our executive compensation program, the rationale for each, and how compensation amounts and awards are determined.

        Base salary is the primary fixed component of our executive compensation program. We use base salary to compensate our executive officers, including the Named Executive Officers, for services rendered during the year, and to ensure that we remain competitive in attracting and retaining executive talent. The compensation committee conducts an annual review of each executive officer's base salary and makes adjustments as it determines to be reasonable and necessary to reflect the scope of an executive officer's performance, contributions, responsibilities, experience, prior salary level and position (in the case of a promotion), and market conditions.

        In February 2011, the compensation committee reviewed the base salaries of our executive officers, including the Named Executive Officers, taking into consideration a compensation analysis performed

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by Compensia and the base salary recommendations of our CEO (except with respect to his own base salary), as well as the other factors described above. Exercising its judgment and discretion, the compensation committee determined to make adjustments to the annual base salaries of certain of our executive officers that ranged from 0% to 17%. The compensation committee took into account data from the Radford High-Technology Executive Compensation Survey and the data from the peer group companies compiled by Compensia in making these subjective determinations. The compensation committee determined that such adjustments were necessary and appropriate to maintain the fixed component of our executive officers' compensation at competitive levels.

        The adjustments to the base salaries of the Named Executive Officers for 2011 were as follows:

Named Executive Officer
  2010 Base Salary   Percentage Increase   2011 Base Salary  

Mr. Steele

  $ 300,000     17 % $ 350,000  

Mr. Auvil

    240,000     17     280,000  

Mr. Cooper

    250,000         250,000  

Mr. Chambers

    230,000     11     255,000  

        These base salary adjustments were effective on March 1, 2011. Mr. Steele's base salary was increased and his base salary is below the 50 th  percentile of the compensation data from the Radford survey and data from Compensia. Similarly, Mr. Auvil's base salary was increased to maintain his base salary at approximately the 50 th  percentile of such data. Finally, Mr. Chamber's base salary was increased to maintain his base salary at approximately the 50 th  percentile of such data.

        Mr. Knight's annual base salary was set at $225,000 when he joined our company on March 21, 2011. This amount was determined based on arms-length negotiations between Mr. Knight and the compensation committee in establishing his employment relationship with us.

        The base salaries paid to the Named Executive Officers during 2011 are set forth in the Summary Compensation Table below.

        We use cash bonuses to motivate our executive officers, including the Named Executive Officers, to achieve our annual financial and operational objectives, while making progress towards our longer-term growth and other goals. Generally at the beginning of each year (typically, in February), the compensation committee adopts an annual bonus plan for our management team and selects one or more corporate financial and operational measures based on our annual operating plan for use in determining the target size of the bonus pool for the year from which bonuses will be paid. In addition, with respect to our executive officers, including the Named Executive Officers, the compensation committee also establishes target bonus opportunities for each executive officer and determines the individual performance objectives for variable compensation for certain executive officers.

        In February 2011, the compensation committee approved our Executive Bonus Plan for purposes of providing bonus opportunities to our management team, including the Named Executive Officers.

        Under the Executive Bonus Plan, the target bonus opportunities were designed to reward our executive officers based on our overall company performance and the individual executive officer's contribution to that performance. As in prior years, the compensation committee determined that the target bonus opportunities for each executive officer should be determined as a percentage of such

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executive officer's base salary. The target bonus opportunities for the Named Executive Officers were as follows:

Named Executive Officer
  Target Bonus Opportunity
(as a percentage of base salary)
 

Mr. Steele

    75 %

Mr. Auvil

    50  

Mr. Chambers

    50  

        With respect to each of the Named Executive Officers listed above, the amount of his target bonus opportunity was established by the compensation committee in consultation with our CEO (except with respect to his own target bonus opportunity) and was based on several factors, including the scope of the Named Executive Officer's performance, contributions, responsibilities, experience, prior years' target bonus opportunities and position (in the case of a promotion), and market conditions.

        Mr. Cooper's target bonus opportunity under the Executive Bonus Plan for 2011 was set at $150,000 when he joined our company on December 6, 2010. As with his base salary, this amount was determined based on arms-length negotiations between Mr. Cooper and the compensation committee in establishing his employment relationship with us. In addition to this bonus opportunity, Mr. Cooper also was eligible to receive sales commissions based on the sales commission plan as described below.

        Mr. Knight's target bonus opportunity under the Executive Bonus Plan for 2011 was set at 30% of his base salary when he joined our company in March 2011. This amount was determined based on arms-length negotiations between Mr. Knight and the compensation committee in establishing his employment relationship with us.

Corporate Performance Measures

        Under the Executive Bonus Plan, the compensation committee selected free cash flow and annual bookings as the two corporate performance measures that best supported our annual operating plan and enhanced long-term value creation for purposes of funding the bonus pool. For purposes of funding the plan bonus pool, the free cash flow measure was weighted 25% and the annual bookings measure was weighted 75%. For 2011, the target levels for these two performance measures were set as follows:

Performance Measure
  Target Performance Level  

Free cash flow

  $ (5.2 million)  

Annual bookings

    100.0 million  

        The compensation committee believed that the target levels for these two performance measures for 2011 would require a focused effort by management to generate the target funding for the bonus pool associated with these measures. The Executive Bonus Plan provided that the bonus pool would receive minimum funding at 25% of the target funding level established for the annual bookings measure if we achieved at least 85% of our annual bookings target for the year (on a weighted value basis, this amount would represent 18.8% of the potential funding of the bonus pool). At 90% achievement of our annual bookings target for the year, the bonus pool would receive funding at 50% of the target funding level established for the annual bookings measure (on a weighted value basis, this amount would represent 37.5% of the potential funding of the bonus pool). Between 90% and 100% achievement of our annual bookings target for the year, the funding of the bonus pool with respect to the bookings measure would increase by 5% for each 1% of performance. Finally, above our annual bookings target for the year, the funding of the bonus pool with respect to the bookings measure would increase by 12.5% for each 2.5% of performance up to a maximum funding of 175% if we achieved 115% of our annual bookings target.

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        The Executive Bonus Plan also provided that, in the event that we achieved our free cash flow target for the year, the bonus pool would receive funding of an additional 25% of the target funding level for the overall bonus pool. A failure to achieve this target level would result in no funding of the bonus pool with respect to this measure.

Individual Performance Measures

        Under the Executive Bonus Plan, if we achieved between 85-90% of our annual bookings target for the year, our CEO, in his discretion, could formulate recommendations on the amount payable, if any, to each executive officer, subject to the approval of the compensation committee.

        To achieve our compensation objective of rewarding individual performance, our CEO developed a series of performance objectives for our executive officers, including the other Named Executive Officers (other than himself), which he deemed to be integral to the achievement of the corporate performance objectives as well as the strengthening of our internal operations. In addition, the compensation committee determined the individual performance objectives that would be applicable to our CEO.

        For purposes of the Executive Bonus Plan, these performance objectives for the Named Executive Officers participating in the Executive Bonus Plan were as follows: for Mr. Steele, his performance objectives related to achieving our revenue and gross margin goals in the aggregate over four quarters, IPO preparedness, staffing recruitment and development sales team productivity, and geographic revenue mix; for Mr. Auvil, his performance objectives related to timely audit, system integration, implementing internal controls and process initiatives, continued cost reductions, quarterly cash balance objectives, and continuing to improve the forecasting and reporting process; for Mr. Cooper, his performance objectives related to an internal revenue milestone, an internal international bookings milestone, and the increased productivity of the sales organization; for Mr. Chambers, his performance objectives related to product development milestones, cost efficiency, and employee attrition; and for Mr. Knight, his performance objectives related to the development of strategic and marketing plans for our company with the oversight and direction of our CEO, the expansion of our marketing organization and the development of our sales organization.

        Further, our CEO was to evaluate each executive officer's individual contributions towards the achievement of these performance objectives. In the case of our CEO, the compensation committee would evaluate his individual contributions towards the achievement of his performance objectives.

Award Decisions and Analysis

        In January 2012, the compensation committee evaluated our performance during 2011 and determined the amount of the annual cash bonuses to be paid to our executive officers, including the Named Executive Officers, for 2011. In making these awards, the compensation committee consulted with our CEO with respect to the Named Executive Officers (except with respect to his own bonus) and evaluated our financial and operational performance and the level of achievement of the corporate performance objectives for the year. The compensation committee determined that, with respect to the annual bookings measure, we had achieved 90% of our annual bookings target for the year, and with respect to the free cash flow measure, had exceeded our cash flow target for the same period. Based on these results, the compensation committee then set the size of the bonus pool to be used to pay cash bonuses under the Executive Bonus Plan at 62.5% of the target. Therefore, target bonus based on achievement of corporate objectives would be 62.5% of the amount of each Named Executive Officers' target bonus.

        Our CEO evaluated the achievement of each executive officer against his individual performance objectives and formulated a recommendation for each such executive officer's annual bonus for consideration by the compensation committee. These recommendations were based on his subjective

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assessment of each individual's contributions against the personal performance objectives during the year. In the case of our CEO, the compensation committee evaluated his performance against his individual performance objectives and determined the amount of his annual bonus. Mr. Steele was determined to have satisfied his performance objectives at a level of 98%. Mr. Auvil was determined to have satisfied his personal performance objectives at a level of 98%. Mr. Cooper was determined to have satisfied his personal performance objectives at a level of 75%. Mr. Chambers was determined to have satisfied his personal performance objectives at a level of 70%. Mr. Knight was determined to have satisfied his personal performance objectives at a level of 97%.

        Based on these determinations, the compensation committee approved cash bonuses based on pro-rated salaries to account for salary increases for the Named Executive Officers as follows:

Named Executive Officer
  Target Cash Bonus Opportunity   Cash Bonus  

Mr. Steele

  $ 244,500   $ 149,756  

Mr. Auvil

    129,120     79,086  

Mr. Cooper (1)

    150,000     70,313  

Mr. Chambers

    118,140     51,686  

Mr. Knight (2)

    52,650     31,919  

(1)
As described below, Mr. Cooper was also eligible to receive monthly commissions based on his attainment of quota under the terms and conditions of the Company's applicable commission plan.

(2)
Mr. Knight's target cash bonus opportunity was pro-rated for 2011 to reflect his actual employment with us.

        As our Executive Vice President, Worldwide Field Operations, Mr. Cooper was eligible to participate in a commission plan providing for the opportunity to receive incentive compensation based on the ability of our sales organization to achieve specified pre-established bookings quotas throughout the year.

        For 2011, his target incentive compensation opportunity was equal to $150,000. This target incentive compensation opportunity was based on the sales organization's actual performance during the year as measured against our monthly, quarterly, and annual bookings quotas for new business, renewals and professional services. The amounts earned under his incentive compensation opportunity were calculated by multiplying the applicable commission rate by the actual bookings for each month and were to be paid one month in arrears following our determination of the actual bookings for each month.

        We have not disclosed the specific target levels for the commission bookings quotas or commission rates because we believe that such disclosure would result in competitive harm to our company. The specific target levels were based on our historical operating results and growth rates, as well as our expected future results, and were designed to require significant effort on the part of Mr. Cooper.

        Mr. Cooper earned sales commissions of $135,681 during 2011, related to the productivity of our sales organization.

        The cash bonuses paid to the Named Executive Officers for 2011 are set forth in the Summary Compensation Table below.

        We use equity awards to incentivize and reward our executives officers, including the Named Executive Officers, for long-term corporate performance based on the value of our common stock and, thereby, to align the interests of our executive officers with those of our stockholders. These equity

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awards have been granted in the form of stock options to purchase shares of our common stock. We believe that stock options, when granted with exercise prices equal to the fair market value of our common stock on the date of grant, provide an appropriate long-term incentive for our executive officers, since the stock options reward them only to the extent that our stock price grows and stockholders realize value following their grant date.

        Typically, we have granted stock options to our executive officers, including the Named Executive Officers, as part of the compensation committee's annual review of executive compensation. To date, the compensation committee has not applied a rigid formula in determining the size of these equity awards. Instead, the compensation committee formulates an equity award recommendation for each executive officer after taking into consideration a compensation analysis performed by our Human Resources Department and/or the compensation committee's compensation consultant, the equity award recommendations of our CEO (except with respect to his own award), the scope of an executive officer's performance, contributions, responsibilities and experience, and the amount of equity compensation held by the executive officer (including the current economic value of his unvested equity and the ability of these unvested holdings to satisfy our retention objectives, market conditions, and internal equity). These recommendations are then submitted to our board of directors for approval. In making its award decisions, our board of directors exercises its judgment and discretion to set the size of each award at a level it considers appropriate to create a meaningful opportunity for reward predicated on the creation of long-term stockholder value.

        On February 16, 2011, the compensation committee approved recommendations for stock option grants for certain of our executive officers, including the Named Executive Officers, in light of the contributions listed above, including each executive officer's individual performance for 2010, and an overall assessment of our financial performance in areas such as revenue, bookings, gross margin and cash flow. These recommendations then were submitted to our board of directors for review and consideration. On April 29, 2011, our board of directors approved stock option grants for certain of our executive officers, including the Named Executive Officers. In the case of our CEO, the independent members of our board of directors approved his stock option grant.

        The size of these stock option grants was determined by the compensation committee based on its evaluation of a compensation analysis prepared by Compensia, its subjective assessment of the performance of each of our executive officers, and its motivation and retention objectives for each of our executive officers. Initially, the compensation committee reviewed the analysis prepared by Compensia, which was based on its evaluation of the recent equity decisions of the companies in the compensation peer group described above, as well as the practices of similarly-sized companies as reflected in the Radford High-Technology Executive Compensation Survey. This information was used by the compensation committee to assess current market practices for equity awards to executives and to evaluate how the contemplated awards would influence the total direct compensation of the executive officers.

        The compensation committee then exercised its subjective judgment to set the value of the equity awards for each executive officer, taking into consideration its assessment of each individual's performance (based largely on the recommendations of our CEO), the current equity holdings of each executive officer (with an emphasis on the remaining vesting requirements of any unvested holdings), the relative roles and responsibilities of each executive officer, and its desire to maintain parity in the awards granted to executive officers performing substantially similar responsibilities. In particular, in the case of the awards for Messrs. Auvil and Chambers, the compensation committee considered their performance of their responsibilities as our principal financial and operational executives during 2010 and its expectations with respect to their performance of these roles in 2011 as we moved towards an initial public offering of our equity securities. The compensation committee also noted that a majority of the shares of our common stock subject to the outstanding equity awards held by each of these executive officers was already vested and a new award would provide them with additional incentive to

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remain with the company for the next several years as we transitioned to public company status. The compensation committee also decided that, in view of his having joined us in December 2010, Mr. Cooper's initial equity award served as an appropriate motivation and retention vehicle for him.

        In the case of the award for Mr. Steele, the compensation committee considered his performance in 2010 in preparing us for an initial public offering of our equity securities, as well as his success in recruiting an experienced senior executive to lead our sales organization and his efforts to develop our senior management team. The compensation committee also noted that, as the chief executive officer of a pre-public company with a recent history of steady revenue growth, his ability in moving us toward profitability, and his proven leadership in a growing industry sector, a meaningful equity award was appropriate to set his overall total direct compensation opportunity at a level commensurate with the chief executive officers of the companies in the compensation peer group. Finally, the compensation committee determined that, in view of his role and responsibilities compared to our other executive officers, Mr. Steele's award should be significantly larger than those of these other individuals.

        These stock options were granted with an exercise price equal to $5.48 per share, the fair market value of our common stock as determined by our board of directors on that date. The stock option grants made to the Named Executive Officers were as follows:

Named Executive Officer
  Number of Shares Underlying
Stock Option Grant
 

Mr. Steele

    100,000  

Mr. Auvil

    37,500  

Mr. Cooper

     

Mr. Chambers

    37,500  

        In April 2011, in connection with his joining us as our Executive Vice President, Product Management and Marketing, the compensation committee recommended, and our board of directors approved, the grant to Mr. Knight of a stock option to purchase 250,000 shares of our common stock with an exercise price equal to $5.48 per share, the fair market value of our common stock as determined by our board of directors on that date. The size of the stock option grant was determined based on arms-length negotiations between Mr. Knight and the compensation committee in establishing his employment relationship with us. In agreeing upon the overall value of his award, the compensation committee considered the value of recent equity awards made to the senior marketing executives of the companies in the compensation peer group, as well as the practices of similarly-sized companies as reflected in the Radford High-Technology Executive Compensation Survey. This stock option grant is discussed in more detail below.

        We have established a tax-qualified Section 401(k) retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age and length of service. We currently do not match any contributions made to the plan by our employees, including executive officers. We intend for the plan to qualify under Section 401(a) of the Internal Revenue Code so that contributions by employees to the plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the plan.

        In addition, we provide other benefits to our executive officers, including the Named Executive Officers, on the same basis as all of our full-time employees in the country in which they are resident. These benefits include medical, dental, and vision benefits, medical and dependent care flexible spending accounts, short-term and long-term disability insurance, accidental death and dismemberment insurance, and basic life insurance coverage.

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        We design our employee benefits programs to be affordable and competitive in relation to the market, as well as compliant with applicable laws and practices. We adjust our employee benefits programs as needed based upon regular monitoring of applicable laws and practices and the competitive market.

        Currently, we do not view perquisites or other personal benefits as a significant component of our executive compensation program. Accordingly, we do not provide perquisites to our executive officers, except in situations where we believe it is appropriate to assist an individual in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment and retention purposes. During 2011, none of the Named Executive Officers received perquisites or other personal benefits that were, in the aggregate, $10,000 or more for each Named Executive Officer.

        In the future, we may provide perquisites or other personal benefits in limited circumstances, such as where we believe it is appropriate to assist an individual executive officer in the performance of his or her duties, to make our executive officers more efficient and effective, and for recruitment, motivation, or retention purposes. All future practices with respect to perquisites or other personal benefits will be approved and subject to periodic review by the compensation committee.

Employment Agreements

        We have entered into employment agreements with each of our executive officers, except as described below, which are comprised of an offer letter, the Proprietary Information and Inventions Agreement, and the Arbitration Agreement. Our employment agreement with Mr. Steele is comprised solely of an offer letter and the Employee Confidentiality Agreement. Each of these arrangements was approved on our behalf by our board of directors or, in certain instances, the compensation committee. We believe that these employment offer letters were necessary to induce these individuals to forego other employment opportunities or leave their current employer for the uncertainty of a demanding position in a new and unfamiliar organization.

        In filling these executive positions, our board of directors and the compensation committee, as applicable, was aware that it would be necessary to recruit candidates with the requisite experience and skills to manage a growing business in a unique market niche. Accordingly, it recognized that it would need to develop competitive compensation packages to attract qualified candidates in a dynamic labor market. At the same time, our board of directors and the compensation committee was sensitive to the need to integrate new executive officers into the executive compensation structure that it was seeking to develop, balancing both competitive and internal equity considerations.

        Each of these employment offer letters provided for "at will" employment and sets forth the initial compensation arrangements for the executive officer, including an initial base salary, an annual cash bonus opportunity and/or a commissions plan, and an equity award in the form of a stock option to purchase shares of our common stock. Certain of the employment offer letters contain certain qualifying termination and change in control benefits in favor of certain Named Executive Officers. These arrangements provide for payments and benefits upon termination of their employment in specified circumstances, including following a change in control. These arrangements (including potential payments and terms) are discussed in more detail in "—Offer Letters and Arrangements" and "—Potential Payments upon Termination or Change in Control" sections below.

        Except as described below in "Offer Letters and Arrangements," in the event that the employment of an executive officer is involuntarily terminated within 18 months following a change in control of our company for executive officers who have worked for our company one year or more prior to involuntary termination, the unvested shares of our common stock subject to all of the outstanding

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stock options previously granted to such executive officer will become immediately vested and exercisable in full, as described in "—Potential Payments Upon Termination or Change in Control."

        We believe that these protections assisted us in attracting these individuals to join our company. We also believe that these protections serve our executive retention objectives by helping the Named Executive Officers maintain continued focus and dedication to their responsibilities to maximize stockholder value, including in the event that there is a potential transaction that could involve a change in control of our company. The terms of these agreements were determined after review by our board of directors or the compensation committee, as applicable, of our retention goals for each executive officer and an analysis of relevant market data.

        For a summary of the material terms and conditions of these severance and change in control arrangements, see "Potential Payments Upon Termination or Change in Control" below.

Other Compensation Policies

        Currently, we have not implemented a policy regarding minimum stock ownership requirements for our executive officers, including the Named Executive Officers.

        Currently, we have not implemented a policy regarding retroactive adjustments to any cash or equity-based incentive compensation paid to our executive officers and other employees where the payments were predicated upon the achievement of financial results that were subsequently the subject of a financial restatement. We intend to adopt a general compensation recovery (clawback) policy covering our annual and long-term incentive award plans and arrangements once we are a publicly-traded company and after the SEC adopts final rules implementing the requirement of Section 954 of the Dodd-Frank Act.

        Currently, we have not implemented a policy regarding the trading of derivatives or the hedging of our equity securities by our employees, including the Named Executive Officers, and directors.

Tax and Accounting Considerations

        Section 162(m) of the Internal Revenue Code generally disallows public companies a tax deduction for federal income tax purposes of remuneration in excess of $1.0 million paid to the chief executive officer and each of the three other most highly-compensated executive officers (other than the chief financial officer) in any taxable year. Generally, remuneration in excess of $1.0 million may only be deducted if it is "performance-based compensation" within the meaning of the Code. In this regard, the compensation income realized upon the exercise of stock options granted under a stockholder-approved stock option plan generally will be deductible so long as the options are granted by a committee whose members are non-employee directors and certain other conditions are satisfied.

        As we are not currently publicly-traded, our board of directors has not previously taken the deductibility limit imposed by Section 162(m) into consideration in setting compensation for our executive officers. We expect that, where reasonably practicable, the compensation committee will seek to qualify the variable compensation paid to our executive officers for the "performance-based

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compensation" exemption from the deductibility limit. As such, in approving the amount and form of compensation for our executive officers in the future, we will consider all elements of the cost to our company of providing such compensation, including the potential impact of Section 162(m). In the future, the compensation committee may, in its judgment, authorize compensation payments that do not comply with an exemption from the deductibility limit when it believes that such payments are appropriate to attract and retain executive talent.

        Sections 280G and 4999 of the Internal Revenue Code provide that executive officers and directors who hold significant equity interests and certain other service providers may be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of our company that exceeds certain prescribed limits, and that our company (or a successor) may forfeit a deduction on the amounts subject to this additional tax. We did not provide any executive officer, including any Named Executive Officer, with a "gross-up" or other reimbursement payment for any tax liability that the executive officer might owe as a result of the application of Sections 280G or 4999 during 2011, and we have not agreed and are not otherwise obligated to provide any executive officer with such a "gross-up" or other reimbursement.

        We follow ASC 718 for our stock-based compensation awards. ASC 718 requires companies to measure the compensation expense for all share-based payment awards made to employees and directors, including stock options, based on the grant date "fair value" of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below, even though our executive officers may never realize any value from their awards. ASC 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award.

Compensation Risk Assessment

        As part of its oversight of our compensation programs, our compensation committee has considered our executive officer and non-executive employee compensation programs as they relate to corporate risk management. Our compensation programs are currently consistent with practices of other companies in our industry, and our compensation committee has concluded that our compensation policies and practices are not likely to have a material adverse effect on us, including for the following reasons:

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Executive Compensation Tables

        The following tables provide information regarding all compensation paid to our principal executive officer, our principal financial officer and our three other most highly compensated executive officers serving as such at December 31, 2011. We refer to these individuals as our Named Executive Officers.


Summary Compensation Table

        The following table provides information concerning all plan and non plan compensation awarded to, earned by or paid to our Named Executive Officers during 2011.

Name and Principal Position
  Year   Salary   Option
Awards (1)
  Non-Equity
Incentive Plan
Compensation (2)
  Total  

Gary Steele

    2011   $ 341,667   $ 308,900   $ 149,756   $ 800,323  
 

Chief Executive Officer

    2010     289,167     816,884     121,125     1,227,176  

Paul Auvil

   
2011
   
273,333
   
115,838
   
79,086
   
468,257
 
 

Chief Financial Officer

    2010     236,667     444,400     59,976     741,043  

Tom Cooper

   
2011
   
250,000
   
   
205,994
   
455,994
 
 

Executive Vice President,

    2010     18,859     1,945,949     N/A     1,964,808  
 

Worldwide Field Operations

                               

Wade Chambers

   
2011
   
250,833
   
115,838
   
51,686
   
418,357
 
 

Executive Vice President,

    2010     230,000     113,560     52,785     396,345  
 

Engineering

                               

David Knight

   
2011
   
176,538
   
772,500
   
31,919
   
980,957
 
 

Executive Vice President,

    2010     N/A     N/A     N/A     N/A  
 

Product Management and

                               
 

Marketing

                               

(1)
The amounts reported reflect the grant date fair value of the stock options granted during 2010 and 2011, computed in accordance with ASC 718. The valuation assumptions used in calculating the grant date fair value of the stock options are set forth in note 11 to our consolidated financial statements included elsewhere in this prospectus.

(2)
The amounts reported in the non-equity incentive plan compensation column represent our Named Executive Officer's performance-based awards under our cash incentive award program and/or sales commissions plan earned for services rendered during the covered fiscal years. For more information about their non-equity incentive plan compensation, see "Compensation Discussion and Analysis—Award Decisions and Analysis."

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        The following table provides information with regard to potential cash bonuses paid or payable in 2011 under our performance-based, non-equity incentive plans, and with regard to each stock option granted to a Named Executive Officer during 2011.


Grants of Plan-Based Awards

 
   
  Estimated Possible
Payouts Under Non-Equity
Incentive Plan Awards (1)
  Number
of Shares
Underlying
Option
Awards (2)
   
   
 
 
   
  Exercise
Price of
Option
Awards (3)
  Grant Date
Fair Value of
Option
Awards (4)
 
 
  Grant
Date
 
Name
  Threshold   Target   Maximum  

Gary Steele

      $ 45,844   $ 244,500   $ 382,031              

    04/29/11                 100,000   $ 5.48   $ 308,900  

Paul Auvil

   

   
24,210
   
129,120
   
201,750
   
   
   
 

    04/29/11                 37,500     5.48     115,838  

Tom Cooper

   

   
37,500
   
150,000

(5)
 
231,375
   
   
   
 

                             

Wade Chambers

   

   
22,151
   
118,140
   
184,594
   
   
   
 

    04/29/11                 37,500     5.48     115,838  

David Knight

   

   
9,872
   
52,650
   
82,266
   
   
   
 

    04/29/11                 250,000     5.48     772,500  

(1)
The actual payments made for 2011 under the bonus plan and the commission plan are reported in the "Non-Equity Incentive Plan Compensation" column in the "Summary Compensation Table" above.

(2)
These stock options are immediately exercisable and vest as to 25% of the shares of our common stock subject to the option on the first anniversary of the vesting commencement date, with the remainder of the shares vesting monthly in equal installments over the next three years. All options were granted under our 2002 Stock Option/Stock Issuance Plan, which is described below under "—Employee Benefit Plans," and contain provisions that call for accelerated vesting upon certain events following a termination and change in control event, as discussed above in "—Compensation Discussion and Analysis" and below in "—Potential Payments Upon Termination or Change in Control."

(3)
Represents the fair market value of a share of our common stock, as determined by our board of directors, on the option's grant date. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operation—Critical Accounting Policies—Stock-Based Compensation" above for a discussion of how we have valued our common stock.

(4)
The amounts reported in this column represent the grant date fair value for stock option awards granted to our Named Executive Officers. See note 11 of our notes to consolidated financial statements for a description of the valuation assumptions used.

(5)
Represents Mr. Cooper's sales commissions plan and bonus opportunity related to monthly, quarterly, and annual bookings quotas.

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        The following table provides information regarding each unexercised stock option held by our Named Executive Officers as of December 31, 2011.


Outstanding Equity Awards at December 31, 2011 (1)

 
  Number of Securities
Underlying
Unexercised Options (1)
   
   
 
 
  Option
Exercise
Price (4)
  Option
Expiration
Date
 
Name
  Exercisable (2)   Unexercisable (3)  

Gary Steele

   
666,689
   
 
$

0.10
   
12/16/2012
 

    312,268         1.90     10/25/2016  

    49,999     13,540 (5)   3.06     01/26/2019  

    251,763     78,675 (5)   3.06     03/15/2019  

    367,634     291,044 (5)(6)   3.88     03/08/2020  

    100,000     100,000 (5)   5.48     04/28/2021  

Paul Auvil

   
292,438
   
   
2.30
   
04/25/2017
 

    200,000     158,334 (5)(6)   3.88     03/08/2020  

    37,500     37,500 (5)   5.48     04/28/2021  

Tom Cooper

   
631,514
   
473,635

(5)
 
5.38
   
12/14/2020
 

Wade Chambers

   
294,999
   
67,604

(5)
 
3.06
   
12/02/2018
 

    50,000     28,124 (5)   3.88     03/08/2020  

    37,500     37,500 (5)   5.48     04/28/2021  

David Knight

   
250,000
   
250,000

(5)
 
5.48
   
04/28/2021
 

(1)
Unless otherwise noted in these footnotes, all stock options referenced in this table vest as to 25% of the shares of our common stock subject to the option on the first anniversary of the vesting commencement date, with the remainder of the shares vesting monthly in equal installments over the next three years.

(2)
Because all stock options granted under our 2002 Stock Options/Stock Issuance Plan are immediately exercisable, subject to a right of repurchase in our favor which lapses as the shares vest, this column reflects the number of shares of our common stock that were subject to options held by our Named Executive Officers that were exercisable as of December 31, 2011.

(3)
Because all stock options granted under our 2002 Stock Options/Stock Issuance Plan are immediately exercisable, subject to a right of repurchase in our favor which lapses as the shares vest, this column reflects the number of shares of our common stock that were subject to options held by our Named Executive Officers that were exercisable and unvested as of December 31, 2011.

(4)
Represents the fair market value of a share of our common stock, as determined by our board of directors, on the option's grant date. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operation—Critical Accounting Policies—Stock-Based Compensation" for a discussion of how we have valued our common stock.

(5)
Pursuant to the existing option agreements, in the event of a change in control of our company, 100% of the then-unvested portion of each Named Executive Officer's options will accelerate in full in the event of an involuntary termination of employment, as defined in the Named Executive Officer's option agreement, in connection with or within 18 months following a change in control of our company.

(6)
Stock options granted commenced vesting monthly on February 11, 2011.

        No shares of our common stock were acquired pursuant to the exercise of options by our Named Executive Officers during 2011.

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Offer Letters and Arrangements

    Gary Steele

        We entered into an offer letter agreement with Mr. Steele, our Chief Executive Officer, on November 17, 2002. Pursuant to the offer letter, Mr. Steele's initial base salary was established at $190,000 per year. In addition, following his first year of employment, Mr. Steele was eligible to receive a bonus of $20,000 based on the achievement of mutually agreed-upon objectives. On December 18, 2002, in accordance with the terms of his offer letter, Mr. Steele was granted a stock option to purchase 666,689 shares of our common stock at an exercise price of $0.10 per share, which was equal to the fair market value of our common stock on the date the option was granted as determined by our board of directors. This option fully vested four years from the date of Mr. Steele's commencement of employment. Mr. Steele's employment is at will and may be terminated at any time, with or without cause.

    Paul Auvil

        We entered into an offer letter agreement with Mr. Auvil, our Chief Financial Officer, on March 9, 2007. Pursuant to the offer letter, Mr. Auvil's initial base salary was established at $200,000 per year. In addition, during his first year of employment, Mr. Auvil was eligible to receive a bonus targeted at 20% of his annual base salary, with upside potential based upon individual and/or company over-performance. The bonus was subject to the terms and conditions of the Executive Bonus Plan. On April 26, 2007, in accordance with the terms of his offer letter, Mr. Auvil was granted a stock option to purchase 541,398 shares of our common stock at an exercise price of $2.30 per share, which was equal to the fair market value of our common stock on the date the option was granted as determined by our board of directors. This option vests according to the 2002 Stock Option/Stock Issuance Plan and related stock option agreement. As of December 31, 2011, this option was fully vested. Mr. Auvil's employment is at will and may be terminated at any time, with or without cause.

    Tom Cooper

        We entered into an offer letter agreement with Mr. Cooper, our Executive Vice President, Worldwide Field Operations, on November 5, 2010. Pursuant to the offer letter, Mr. Cooper's initial base salary was established at $250,000 per year with an annual on-target bonus opportunity of $150,000, with upside potential based upon individual and/or company performance, subject to the terms and conditions of the Proofpoint Bonus Plan Document. In addition, during his first year of employment, Mr. Cooper was eligible to receive up to $150,000 in commissions based on the attainment of the quota under the terms and conditions of the company's applicable commission plan. On, December 15, 2010, in accordance with the terms of his offer letter, Mr. Cooper was granted a stock option to purchase 631,514 shares of our common stock at an exercise price of $5.38 per share, which was equal to the fair market value of our common stock on the date the option was granted as determined by our board of directors. Otherwise, this option vests according to the 2002 Stock Option/Stock Issuance Plan and related stock option agreement. As of December 31, 2011, 473,635 shares of our common stock subject to this option were unvested.

        Mr. Cooper's offer letter agreement provides that if his employment is terminated for Cause (as defined in the offer letter) or he resigns without Good Reason (as defined in the offer letter), he will only be entitled to all base salary and commissions (in accordance with the terms of his commission plan) earned through the termination or resignation date. However, if we terminate his employment without Cause or Mr. Cooper resigns with Good Reason, provided that he executes and does not revoke a substantially similar General Release of Claims, we will provide severance benefits equal to his base salary as in effect on the date of termination for the six months following the date of termination or resignation and the averaged monthly commission amount (as defined in the offer

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letter) for the six months following the date of termination or resignation. Mr. Cooper would also be entitled to health insurance benefits under the Consolidated Omnibus Budget Reconciliation Act for six months. Mr. Cooper's employment is at will and may be terminated at any time, with or without cause.

    Wade Chambers

        We entered into an offer letter agreement with Mr. Chambers, our Executive Vice President, Engineering, on November 3, 2008. Pursuant to the offer letter, Mr. Chambers's initial base salary was established at $230,000 per year. In addition, Mr. Chambers was eligible to receive a bonus targeted at 20% of his annual base salary with upside potential based upon individual and/or company over-performance. The bonus was subject to the terms and conditions of the Executive Bonus Plan. On, December 3, 2008, in accordance with the terms of his offer letter, Mr. Chambers was granted a stock option to purchase 294,999 shares of our common stock at an exercise price of $3.06 per share, which was equal to the fair market value of our common stock on the date the option was granted as determined by our board of directors. This option vests according to the 2002 Stock Option/Stock Issuance Plan and related stock option agreement. As of December 31, 2011, 67,604 shares of our common stock subject to this option were unvested. Mr. Chambers's employment is at will and may be terminated at any time, with or without cause.

    David Knight

        We entered into an offer letter agreement with Mr. Knight, our Executive Vice President, Product Management and Marketing, on March 14, 2011. Pursuant to the offer letter, Mr. Knight's initial base salary was established at $225,000 per year. In addition, Mr. Knight was eligible to receive a bonus targeted at 30% of his annual base salary with an additional potential bonus based upon individual and/or company over-performance. The bonus was subject to the terms and conditions of the Executive Bonus Plan. On April 29, 2011, in accordance with the terms of his offer letter, Mr. Knight was granted a stock option to purchase 250,000 shares of our common stock at an exercise price of $5.48 per share, which was equal to the fair market value of our common stock on the date the option was granted, as determined by our board of directors. This option vests according to the 2002 Stock Option/Stock Issuance Plan and related stock option agreement. As of December 31, 2011, all of the shares of our common stock subject to this option were unvested. Mr. Knight's employment is at will and may be terminated at any time, with or without cause.

Potential Payments Upon Termination or Change in Control

    Termination

        The following table summarizes the amount of the cash severance payment that each of our Named Executive Officers would have been entitled to receive assuming a qualifying termination of employment as of December 31, 2011. The Named Executive Officers would not have any accelerated stock option benefits for any termination of employment.

Name
  Cash
Severance Amount
 

Gary Steele

  $  

Paul Auvil

     

Tom Cooper

    182,046  

Wade Chambers

     

David Knight

     

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    Change in Control Arrangements

        Generally, our stock option agreements with each of our Named Executive Officers provide for acceleration of vesting of 100% of the unvested shares of our common stock underlying such options in the event of an involuntary termination of employment (as such term is defined in the stock option agreement) within 18 months following a change in control in our company for employees who have worked for our company for one year or more prior to the involuntary termination of employment. In the case of an involuntary termination of employment (as such term is defined in Mr. Cooper's stock option agreement), Mr. Cooper's options would accelerate as described under "—Offer Letters and Arrangements" and "—Grants of Plan-Based Awards."

        The following table summarizes the intrinsic value of this acceleration benefit to our Named Executive Officers pursuant to these awards, assuming an involuntary termination of employment and change in control of our company as of December 31, 2011. Values are based upon the value of a share of our common stock as of December 31, 2011, which we assumed to be the midpoint of the price range set forth on the cover page of this prospectus, less the exercise price of each outstanding stock option.

Name
  Accelerated Stock Option
Payment Value
 

Gary Steele

  $ 3,356,420  

Paul Auvil

    1,334,338  

Tom Cooper

    2,661,829  

Wade Chambers

    944,019  

David Knight

    1,380,000  

Employee Benefit Plans

    2002 Stock Option/Stock Issuance Plan

        Our board of directors adopted our 2002 Stock Option/Stock Issuance Plan in December 2002. Our 2002 Stock Option/Stock Issuance Plan was also approved by our stockholders. The 2002 Stock Option/Stock Issuance Plan provides for the grant of both incentive stock options, which qualify for favorable tax treatment to their recipients under Section 422 of the Code, and nonstatutory stock options, as well as for the issuance of shares of restricted stock. We may grant incentive stock options only to our employees. We may grant nonstatutory stock options to our employees, directors and consultants. The exercise price of each incentive stock option must be at least equal to the fair market value of our common stock on the date of grant and the exercise price of each nonstatutory stock option will be determined by the plan administrator. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of the fair market value of our common stock on the date of grant. The maximum permitted term of options granted under our 2002 Stock Option/Stock Issuance Plan is ten years. In the event of a "change in control," as defined in the 2002 Stock Option/Stock Issuance Plan, the 2002 Stock Option/Stock Issuance Plan provides that, unless the applicable option agreement provides otherwise, options held by current employees, directors and consultants will terminate if not assumed or substituted with no acceleration of vesting. However, options granted after October 28, 2010 provide that if the applicable option agreement provides for acceleration of vesting in connection with a change in control followed by the optionee's involuntary termination, and the option is not assumed or substituted with a new option, then vesting of the option shall accelerate as to the applicable unvested portion of the option as if the optionee had been involuntarily terminated at the time of the change in control.

        As of December 31, 2011, we had reserved 14,603,546 shares of our common stock for issuance under our 2002 Stock Option/Stock Issuance Plan. As of December 31, 2011, options to purchase 3,520,127 of these shares had been exercised, options to purchase 10,705,300 of these shares remained

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outstanding and 363,859 of these shares remained available for future grant. The options outstanding as of December 31, 2011 had a weighted-average exercise price of $3.83. Our 2012 Equity Incentive Plan will be effective upon the date of this prospectus. As a result, we will not grant any additional options under the 2002 Stock Option/Stock Issuance Plan following that date and the 2002 Stock Option/Stock Issuance Plan will terminate at that time. However, any outstanding options granted under the 2002 Stock Option/Stock Issuance Plan will remain outstanding, subject to the terms of our 2002 Stock Option/Stock Issuance Plan and stock option agreements, until such outstanding options are exercised or until they terminate or expire by their terms. Options granted under the 2002 Stock Option/Stock Issuance Plan generally have terms similar to those described below with respect to options granted under our 2012 Equity Incentive Plan, except that stock option agreements evidencing options granted to employees under our 2002 Stock Option/Stock Issuance Plan generally provide for partial acceleration of vesting in connection with a change in control followed by the optionee's involuntary termination.

    NextPage, Inc. 2007 Stock Plan

        We assumed the RSUs outstanding under the NextPage, Inc. 2007 Stock Plan, or 2007 Stock Plan, pursuant to our acquisition of NextPage on December 23, 2011. The 2007 Stock Plan provides for the grant of incentive stock options, within the meaning of Section 422 of the Code to our employees and any parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options to our employees, outside directors and consultants and any parent and subsidiary corporations' employees and consultants. The 2007 Stock Plan also allows for RSU awards and awards of our common stock. Awards are no longer granted under the 2007 Stock Plan.

        As of December 31, 2011 RSUs covering 22,561 shares of common stock were outstanding under RSUs granted pursuant to this plan. RSUs cover a number of shares of common stock and may be settled in cash, or by the issuances of common stock. Settlement means the delivery of shares of common stock vested under an RSU. No purchase price applies to RSUs. Unless and until such time as shares of common stock are issued in settlement of vested RSUs, the holders of RSUs have no ownership of the shares of common stock allocated to the RSUs and have no right to dividends or to vote such shares. RSUs that vest in a calendar year must be settled in the subsequent calendar year on a date determined by us, but in any event not later than December 31st of the calendar year following the year in which the RSUs vest. Settlement of vested RSUs will occur whether or not the holder of such vested RSUs is providing services to us at the time of settlement. In its sole discretion, upon settlement, we may withhold a number of shares of common stock with a fair market value (determined on the date the RSUs are settled) equal to the minimum amount we are then required to withhold for taxes. In the event a successor or acquiring corporation in a change in control does not assume, convert, replace or substitute outstanding RSUs, the vesting of RSUs will accelerate in full.

    2012 Equity Incentive Plan

        We have adopted a 2012 Equity Incentive Plan that will become effective on the date of this prospectus and will serve as the successor to our earlier stock plans. We have reserved 4,096,280 shares of our common stock to be issued under our 2012 Equity Incentive Plan. The number of shares reserved for issuance under our 2012 Equity Incentive Plan will increase automatically on the first day of January of each of 2013 through 2016 by the number of shares equal to 5% of the total outstanding shares of our common stock as of the immediately preceding December 31, but not more than 3,723,891 shares. However, our board of directors or compensation committee may reduce the amount

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of the increase in any particular year. In addition, the following shares will again be available for grant and issuance under our 2012 Equity Incentive Plan:

    shares subject to options or stock appreciation rights granted under our 2012 Equity Incentive Plan that cease to be subject to the option or stock appreciation right for any reason other than exercise of the option;

    shares subject to awards granted under our 2012 Equity Incentive Plan that are subsequently forfeited or repurchased by us at the original issue price;

    shares subject to awards granted under our 2012 Equity Incentive Plan that otherwise terminate without shares being issued;

    shares not issued or subject to outstanding grants under our 2002 Stock Option/Stock Issuance Plan on the date of this prospectus;

    shares issuable upon the exercise of options under our 2002 Stock Option/Stock Issuance Plan prior to the date of this prospectus that expire or become unexercisable for any reason without having been exercised in full after the date of this prospectus; and

    any shares issued under our 2002 Stock Option/Stock Issuance Plan that are forfeited or repurchased by us after the date of this prospectus.

        Our 2012 Equity Incentive Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, RSUs, performance awards and stock bonuses. No person will be eligible to receive more than 875,000 shares in any calendar year under our 2012 Equity Incentive Plan other than a new employee of ours, who will be eligible to receive no more than 1,750,000 shares under the plan in the calendar year in which the employee commences employment.

        Our 2012 Equity Incentive Plan will be administered by our compensation committee, all of the members of which are non-employee directors under applicable federal securities laws and outside directors as defined under applicable federal tax laws, or by our board of directors acting in place of our compensation committee. The compensation committee will have the authority to construe and interpret our 2012 Equity Incentive Plan, grant awards and make all other determinations necessary or advisable for the administration of the plan.

        Our 2012 Equity Incentive Plan will provide for the grant of incentive stock options that qualify under Section 422 of the Code only to our employees. No more than 25,000,000 shares may be issued under the 2012 Equity Incentive Plan as incentive stock options. All awards other than incentive stock options may be granted to our employees, directors, consultants, independent contractors and advisors, provided the consultants, independent contractors and advisors render services not in connection with the offer and sale of securities in a capital-raising transaction. The exercise price of stock options must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive stock options granted to 10% stockholders must be at least equal to 110% of that value.

        In general, options will vest over a four-year period. Options may vest based on time or achievement of performance conditions. Our compensation committee may provide for options to be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to our right of repurchase that lapses as the shares vest. The maximum term of options granted under our 2012 Equity Incentive Plan is ten years, except that incentive stock options granted to 10% stockholders will have a maximum term of five years.

        A restricted stock award is an offer by us to sell shares of our common stock subject to restrictions. A restricted stock award may vest based on time or achievement of performance conditions. The price (if any) of a restricted stock award will be determined by the compensation committee. Unless otherwise determined by the compensation committee at the time of award, vesting

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will cease on the date the participant no longer provides services to us and unvested shares will be forfeited to us.

        Stock appreciation rights provide for a payment, or payments, in cash or shares of our common stock, to the holder based upon the difference between the fair market value of our common stock on the date of exercise and the stated exercise price up to a maximum amount of cash or number of shares. Stock appreciation rights may vest based on time or achievement of performance conditions.

        RSUs represent the right to receive shares of our common stock at a specified date in the future, subject to forfeiture of that right because of termination of employment or failure to achieve certain performance conditions. If a restricted stock unit has not been forfeited, then on the date specified in the restricted stock unit agreement, we will deliver to the holder of the restricted stock unit whole shares of our common stock (which may be subject to additional restrictions), cash or a combination of our common stock and cash.

        Performance shares are performance awards that cover a number of shares of our common stock that may be settled upon achievement of the pre-established performance conditions in cash or by issuance of the underlying shares. These awards are subject to forfeiture prior to settlement because of termination of employment or failure to achieve the performance conditions.

        Stock bonuses may be granted as additional compensation for service and/or performance, and therefore, not be issued in exchange for cash.

        In the event there is a specified type of change in our capital structure without our receipt of consideration, such as a stock split, appropriate adjustments will be made to the number of shares reserved under our 2012 Equity Incentive Plan, the maximum number of shares by which the share reserve may increase automatically each year and the limit on incentive stock options, the maximum number of shares that can be granted in a calendar year, and the number of shares and exercise price, if applicable, of all outstanding awards under our 2012 Equity Incentive Plan.

        Awards granted under our 2012 Equity Incentive Plan may not be transferred in any manner other than by will or by the laws of descent and distribution or as determined by our compensation committee. Unless otherwise permitted by our compensation committee, stock options may be exercised during the lifetime of the optionee only by the optionee or the optionee's guardian or legal representative. Options granted under our 2012 Equity Incentive Plan generally may be exercised for a period of three months after the termination of the optionee's service to us, or for a period of 12 months in cases of death or disability, or such longer period as our compensation committee may provide. Options generally terminate immediately upon termination of employment for cause.

        If we are dissolved or liquidated or have a change in control transaction, outstanding awards, including any vesting provisions, may be assumed or substituted by the successor company. Outstanding awards that are not assumed or substituted will expire upon the dissolution, liquidation or closing of a change in control transaction. In the event of specified change in control transactions, our compensation committee may accelerate the vesting of awards (a) immediately upon the occurrence of the transaction, whether or not the award is continued, assumed or substituted by a surviving corporation or its parent in the transaction, or (b) in connection with a termination of a participant's service following such a transaction. If the applicable award agreement provides for acceleration of vesting in connection with a change in control followed by the participant's involuntary termination, and outstanding awards are not assumed or substituted, then vesting of the award shall accelerate as to the applicable unvested portion of the award as if the participant had been involuntarily terminated at the time of the change in control.

        Our 2012 Equity Incentive Plan will terminate ten years from the later of the date our board of directors approves the plan or the date our board of directors adopted the most recent increase in the number of shares of our common stock available under the plan which was approved by our

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stockholders, unless it is terminated earlier by our board of directors. Our board of directors may amend or terminate our 2012 Equity Incentive Plan at any time. If our board of directors amends our 2012 Equity Incentive Plan, it does not need to ask for stockholder approval of the amendment unless required by applicable law.

    2012 Employee Stock Purchase Plan

        We have adopted a 2012 Employee Stock Purchase Plan that will become effective on the date of this prospectus which is a plan designed to enable eligible employees to purchase shares of our common stock periodically at a discount following the date of this prospectus. Purchases will be accomplished through participation in discrete purchase periods. Our 2012 Employee Stock Purchase Plan is intended to qualify as an employee stock purchase plan under Section 423 of the Code. We will initially reserve 744,778 shares of our common stock for issuance under our 2012 Employee Stock Purchase Plan. The number of shares reserved for issuance under our 2012 Employee Stock Purchase Plan will increase automatically on the first day of January of each of 2013 through 2020 by the number of shares equal to 1% of the total outstanding shares of our common stock as of the immediately preceding December 31st (rounded to the nearest whole share), but not more than 1,489,556 shares of our common stock. However, our board of directors or compensation committee may reduce the amount of the increase in any particular year.

        Our compensation committee will administer our 2012 Employee Stock Purchase Plan. Our employees generally are eligible to participate in our 2012 Employee Stock Purchase Plan if they are employed by us for at least 20 hours per week and more than five months in a calendar year. Employees who are 5% stockholders, or would become 5% stockholders as a result of their participation in our 2012 Employee Stock Purchase Plan, are ineligible to participate in our 2012 Employee Stock Purchase Plan. We may impose additional restrictions on eligibility. Under our 2012 Employee Stock Purchase Plan, eligible employees are able to acquire shares of our common stock by accumulating funds through payroll deductions. Our eligible employees will be able to select a rate of payroll deduction between 1% and 15% of their cash compensation. We will also have the right to amend or terminate our 2012 Employee Stock Purchase Plan, except that, subject to certain exceptions, no such action may adversely affect any outstanding rights to purchase stock under the plan. Our 2012 Employee Stock Purchase Plan will terminate on the tenth anniversary of the last day of the first purchase period, unless it is terminated earlier by our board of directors.

        When an initial purchase period commences, our employees who meet the eligibility requirements for participation in that purchase period will automatically be granted a nontransferable option to purchase shares in that purchase period. For subsequent purchase periods, new participants will be required to enroll in a timely manner. Once an employee is enrolled, participation will be automatic in subsequent purchase periods. Each purchase period will run for no more than six months. An employee's participation automatically ends upon termination of employment for any reason.

        Except for the first purchase period, each purchase period will be for six months (commencing each May and November). The first purchase period will begin upon the effective date of this offering and will end on October 31, 2012.

        No participant will have the right to purchase more than 1,750 shares of our common stock in any purchase period, or such smaller number of shares as our compensation committee shall approve. No participant will have the right to purchase our shares in an amount, when aggregated with purchase rights under all our employee stock purchase plans that are also in effect in the same calendar year(s), that has a fair market value of more than $25,000, determined as of the first day of the applicable purchase period, for each calendar year in which that right is outstanding. The purchase price for shares of our common stock purchased under our 2012 Employee Stock Purchase Plan will be 85% of

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the lesser of the fair market value of our common stock on (i) the first trading day of the purchase period and (ii) the last trading day of that purchase period.

        If we experience a change in control transaction, the purchase period that commenced prior to the closing of the proposed change in control transaction will be shortened and terminated on a new purchase date. The new purchase date will occur prior to the closing of the proposed change in control transaction and our 2012 Employee Stock Purchase Plan will then terminate on the closing of the proposed change in control.

    401(k) Plan

        We sponsor a retirement plan intended to qualify for favorable tax treatment under Section 401(a) of the Code, containing a cash or deferred feature that is intended to meet the requirements of Section 401(k) of the Code. Employees who have attained at least 21 years of age are generally eligible to participate in the plan on the first day of the calendar month following the employees' date of hire. Participants may make pre-tax contributions to the plan from their eligible earnings up to the statutorily prescribed annual limit on pre-tax contributions under the Code. Participants who are 50 years of age or older may contribute additional amounts based on the statutory limits for catch-up contributions. Pre-tax contributions by participants that we make to the plan and the income earned on those contributions are generally not taxable to participants until withdrawn. Employer contributions that we make to the plan are generally deductible when made. Participant contributions are held in trust as required by law. No minimum benefit is provided under the plan. An employee's interest in his or her pre-tax deferrals is 100% vested when contributed. Although the plan provides for a discretionary employer matching contribution, to date we have not made such a contribution on behalf of employees. The Plan permits all eligible Plan participants to contribute between 1% and 50% of eligible compensation, on a pre-tax or after-tax (Roth 401k) basis, into their accounts.

Limitation of Liability and Indemnification of Directors and Officers

        Our restated certificate of incorporation and bylaws contains provisions that limit the liability of our directors, officers and employees for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except for liability:

    for any breach of their duty of loyalty to our company or our stockholders;

    for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

    unlawful payments of dividends or unlawful stock purchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

    for any transaction from which they derived an improper personal benefit.

        Any amendment to or repeal of these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission or claim that occurred or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest extent permitted by the Delaware General Corporation Law.

        Our restated bylaws provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our directors or officers or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise. Our restated bylaws provide that we may indemnify to the fullest extent permitted by law

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any person who is or was a party or is threatened to be made a party to any action, suit or proceeding by reason of the fact that he or she is or was one of our employees or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Our restated bylaws also provide that we must advance expenses incurred by or on behalf of a director or officer in advance of the final disposition of any action or proceeding, subject to very limited exceptions.

        Prior to the closing of this offering, we intend to enter into indemnification agreements with each of our directors and executive officers that may be broader than the specific indemnification provisions contained in our restated certificate of incorporation and bylaws. These indemnification agreements may require us, among other things, to indemnify our directors and executive officers against liabilities that may arise by reason of their status as a director, officer or employee or their service to our company. These indemnification agreements may also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action, suit or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors and executive officers.

        The limitation of liability and indemnification provisions in our restated certificate of incorporation and restated bylaws or in these indemnification agreements may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, we are not aware of any pending litigation or proceeding involving any person who is or was one of our directors, officers, employees or other agents or is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

        We have obtained insurance policies under which, subject to the limitations of the policies, coverage is provided to our directors and officers against loss arising from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or officer, including claims relating to public securities matters, and to us with respect to payments that may be made by us to these officers and directors pursuant to our indemnification obligations or otherwise as a matter of law.

        Certain of our non-employee directors may, through their relationships with their employers, be insured and/or indemnified against certain liabilities incurred in their capacity as members of our board of directors.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling our company pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

        In addition to the compensation arrangements, including employment, termination of employment and change in control arrangements and indemnification arrangements, discussed above in the sections entitled "Management" and "Executive Compensation," the registration rights described below under "Description of Capital Stock—Registration Rights," and the voting rights in our fourth amended and restated voting agreement described above under "Management—Board of Directors Composition," the following is a description of each transaction since January 1, 2008 and each currently proposed transaction in which:

Stock Option Exchange

        In January 2009, our board of directors determined that certain stock options granted to our employees, including our executive officers, were no longer providing the incentive intended when they were originally granted and the holders of all outstanding, unexercised options, whether vested or unvested, that had exercise prices per share equal to $4.56 or higher were offered an opportunity to cancel such options in exchange for a new option with an exercise price per share equal to the then current fair market value per share. In exchange for the lower exercise price per share the new stock options were treated for vesting purposes as if they were granted on the date of the exchange, whether such options were previously vested or not. The new exercise price per share and revised vesting schedule was designed to incentivize our employees, including our executive officers, to work towards achieving our long-term financial goals. Two of our executive officers, Mr. Steele and Mr. Hickman-Smith, participated in the stock option exchange. Mr. Steele and Mr. Hickman-Smith exchanged options convertible into a total of 251,763 and 281,152 shares of our common stock, respectively.

Indemnification Agreements

        Prior to the completion of this offering, we plan to enter into indemnification agreements with each of our directors and executive officers. See "Executive Compensation—Limitation of Liability and Indemnification of Directors and Officers."

Sale of Series F Preferred Stock

        In multiple closings between February 2008 and May 2010, we sold an aggregate of 6,461,729 shares of our Series F Preferred Stock at a purchase price of $5.32 per share for an aggregate purchase price of approximately $34.4 million. Each share of our Series F Preferred Stock will convert automatically into 0.5 shares of our common stock upon the completion of this offering.

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        The following table summarizes the Series F Preferred Stock purchased by related parties in connection with the transaction described in this section. The terms of these purchases were the same as those made available to unaffiliated purchasers.

Investor
  Shares of Series F Preferred Stock   Aggregate Purchase Price  

MDV VII, L.P. (1)

    563,910   $ 3,000,001  

Benchmark Capital Partners IV, L.P. (2)

    973,006     5,176,392  

Entities affiliated with Meritech Capital Partners II, L.P. (3)

    939,850     5,000,002  

Entities affiliated with DAG Ventures GP Fund III, LLC (4)

    2,819,549     15,000,001  

Entities affiliated with RRE Ventures Fund III, L.P. (5)

    187,970     1,000,000  

(1)
Mr. Feiber, a director of ours, is a managing member of Seventh MDV Partners, L.L.C., the general partner of MDI VII, L.P., which holds more than 5% of our capital stock.

(2)
Mr. Harvey, a director of ours, is a managing member of Benchmark Capital Management Co. IV, L.L.C., the general partner of Benchmark Capital Partners IV, L.P., which holds more than 5% of our capital stock.

(3)
Includes 909,493 shares purchased by Meritech Capital Partners II, L.P., 23,402 shares purchased by Meritech Capital Affiliates II, L.P. and 6,955 shares purchased by MCP Entrepreneur Partners II, L.P. The general partner of these entities is Meritech Management Associates II, L.L.C., of which Mr. Ward, a director of ours, is a member.

(4)
Includes 2,030 shares purchased by DAG Ventures GP Fund III, LLC, 193,759 shares purchased by DAG Ventures III, L.P., 2,059,850 shares purchased by DAG Ventures III—QP, L.P., and 563,910 shares purchased by DAG Ventures I-N, LLC. These entities hold more than 5% of our capital stock.

(5)
Includes 13,906 shares purchased by RRE Ventures Fund III, L.P., 7,658 shares purchased by RRE Ventures III, L.P., and 166,406 shares purchased by RRE Ventures III-A, L.P. These entities hold more than 5% of our capital stock.

Stockholder Agreements

        In connection with the sales of our preferred stock, we entered into agreements that grant customary preferred stock rights to all of our major preferred stock investors, including holders of more than 5% of our outstanding stock. These rights include registration rights, rights of first refusal, co-sale rights with respect to certain stock transfers, a voting agreement providing for the election of investor designees to the Board, information rights and other similar rights. The Fourth Amended and Restated Investors' Rights Agreement, which contains the registration rights and many of the other rights described above, is filed as an exhibit to the registration statement of which this prospectus is a part. All of these rights, other than the registration rights, will terminate upon the closing of this offering. Investment funds controlled by Mohr Davidow Ventures, Benchmark Capital Partners and Meritech Capital Partners are parties to such agreements, and are affiliated with Mr. Feiber, Mr. Harvey and Mr. Ward, respectively, who are directors of ours. In addition entities affiliated with Mr. Hahn, a director of ours, are party to such agreements.

        Upon the closing of this offering, holders of approximately 20,270,985 shares of our common stock, or their permitted transferees, will be entitled to rights with respect to the registration of these shares under the Securities Act. For a more detailed description of these registration rights, see "Description of Capital Stock—Registration Rights."

Review, Approval or Ratification of Transactions With Related Parties

        Our policy and the charters of our audit committee and our nominating and governance committee to be effective upon the closing of this offering, require that any transaction with a related party that must be reported under applicable rules of the SEC (other than compensation-related matters) must be reviewed and approved or ratified by the audit committee, unless the related party is, or is associated with, a member of that committee, in which event the transaction must be reviewed and approved by the nominating and governance committee. These committees have not adopted policies or procedures for review of, or standards for approval of, related party transactions but intend to do so in the future.

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PRINCIPAL AND SELLING STOCKHOLDERS

        The following table presents information with respect to the beneficial ownership of our common stock as of March 31, 2012, and as adjusted to reflect the sale of common stock in this offering assuming no exercise of the underwriters' option to purchase additional shares, by:

        We have determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to our securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. We have deemed shares of our common stock subject to options that are currently exercisable or exercisable within 60 days of March 31, 2012 to be outstanding and to be beneficially owned by the person holding the option for the purpose of computing the percentage ownership of that person but have not treated them as outstanding for the purpose of computing the percentage ownership of any other person.

        We have based percentage ownership of our common stock before this offering on 25,887,851 shares of our common stock outstanding on March 31, 2012, which includes 19,567,258 shares of common stock resulting from the automatic conversion of all outstanding shares of our preferred stock upon the completion of this offering, as if this conversion had occurred as of March 31, 2012. Percentage ownership of our common stock after the offering also assumes our sale of 5,000,000 shares of common stock in the offering. Unless otherwise indicated, the address of each of the individuals and

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entities named below that owns 5% or more of our common stock is c/o Proofpoint Inc., 892 Ross Drive, Sunnyvale, California 94089.

 
   
   
   
   
   
   
  Shares
Beneficially Owned
After the Offering if
Over-Allotment
Option is
Exercised in Full
 
 
   
   
   
   
   
  Number of
Additional
Shares Being
Offered if
Over-Allotment
Option is
Exercised
in Full
 
 
  Shares Beneficially
Owned Prior to
This Offering
  Number of
Shares
Being Offered
in This Offering
  Shares Beneficially
Owned After
This Offering
 
Name and Address of Beneficial Owner
  Shares   Percentage    
  Shares   Percentage   Shares   Percentage  

Directors and Named Executive Officers

                                                 

Gary Steele (1)

    1,548,353     5.7 %       1,548,353     4.8 %       1,548,353     4.7 %

Anthony Bettencourt

    7,113     *         7,113     *         7,113     *  

Dana Evan (2)

    106,217     *         106,217     *         106,217     *  

Jonathan Feiber (3)

    4,457,118     17.2     347,826 (4)   4,109,292     13.3     52,174 (4)   4,057,118     12.8  

Eric Hahn (5)

    1,073,368     4.1         1,073,368     3.5         1,073,368     3.4  

Kevin Harvey (6)

    4,273,150     16.5         4,273,150     13.8         4,273,150     13.5  

Philip Koen (7)

    50,000     *         50,000     *         50,000     *  

Rob Ward (8)

    3,134,057     12.1         3,134,057     10.1         3,134,057     9.9  

Paul Auvil (9)

    816,398     3.1         816,398     2.6         816,398     2.6  

Wade Chambers (10)

    419,999     1.6         419,999     1.3         419,999     1.3  

Tom Cooper (11)

    631,514     2.4         631,514     2.0         631,514     2.0  

Dean Hickman-Smith (12)

    331,151     1.3         331,151     1.1         331,151     1.0  

All current director and executive officers as a group (12 persons) (13)

    16,848,438     57.9     347,826 (4)   16,500,612     48.4     52,174 (4)   16,448,438     47.2  

5% or Greater Stockholders

                                                 

MDV VII, L.P. (14)

    4,444,618     17.2     347,826     4,096,792     13.3     52,174     4,044,618     12.8  

Benchmark Capital Partners IV, L.P. (15)

    4,260,650     16.5         4,260,650     13.8         4,260,650     13.5  

Entities affiliated with
Meritech Capital Partners II, L.P. (16)

    3,121,557     12.1         3,121,557     10.1         3,121,557     9.9  

Entities affiliated with
DAG Ventures GP Fund III, LLC (17)

    1,409,774     5.5         1,409,774     4.6         1,409,774     4.5  

Entities affiliated with
RRE Ventures Fund III, L.P. (18)

    2,330,855     9.0         2,330,855     7.6         2,330,855     7.4  

Other Selling Stockholders

                                                 

1413780 Ontario Inc. (19)

    484,071     1.9     420,931     63,140     *     63,140          

Ventures West 8 Limited Partnership (20)

    514,099     2.0     217,391     296,708     *     32,609     264,099     *  

Entities affiliated with Paul Chen (21)

    110,173     *     95,803     14,370     *     14,370          

Entities affiliated with
Lighthouse Capital IV, L.P. (22)

    76,362     *     66,402     9,960     *     9,960          

Labrador Ventures IV, L.P. (23)

    30,334     *     26,377     3,957     *     3,957          

Dominion Capital Management LLC (24)

    19,938     *     17,337     2,601     *     2,601          

Praising Gaw (25)

    8,457     *     7,354     1,103     *     1,103          

*
Represents beneficial ownership of less than 1% of our outstanding shares of common stock.

(1)
Consists of 1,206,664 shares subject to options held by Mr. Steele that are exercisable within 60 days of March 31, 2012, of which 509,364 are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Steele's cessation of service prior to vesting.

(2)
Consists of 106,217 shares subject to options held by Ms. Evan that are exercisable within 60 days of March 31, 2012, of which 14,452 are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Ms. Evan's cessation of service prior to vesting.

(3)
Consists of 12,500 shares subject to options held by Mr. Feiber that are exercisable within 60 days of March 31, 2012, all of which are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Feiber's cessation of service prior to vesting. Also includes shares held by MDV VII, L.P. See footnote 13.

(4)
Represents shares to be sold by MDV VII, L.P.

(5)
Includes 138,235 shares subject to options held by Mr. Hahn that are exercisable within 60 days of March 31, 2012, of which 30,000 are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Hahn's cessation of service prior to vesting. Also includes 222,008 shares held by the Hahn Family Trust dated 10/20/1999, 40,000 shares held by the Evan Matthew Hahn Trust, U/A DTD 3/14/1996 and 40,000 shares held by the Jeremy Stephen Hahn Trust, U/A DTD 10/20/1999. Mr. Hahn is a trustee of each of the foregoing trusts and as such may be deemed to have shared voting and investment power over these shares.

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(6)
Includes 12,500 shares subject to options held by Mr. Harvey that are exercisable within 60 days of March 31, 2012, all of which are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Harvey's cessation of service prior to vesting. Also includes shares held by Benchmark Capital Partners IV, L.P. See footnote 14.

(7)
Consists of 50,000 shares subject to options held by Mr. Koen that are exercisable within 60 days of March 31, 2012, of which 37,500 are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Koen's cessation of service prior to vesting.

(8)
Includes 12,500 shares subject to options held by Mr. Ward that are exercisable within 60 days of March 31, 2012, all of which are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Ward's cessation of service prior to vesting. Also includes shares held by entities affiliated with Meritech Capital Partners II L.P. See footnote 15.

(9)
Includes 275,000 shares subject to options held by Mr. Auvil that are exercisable within 60 days of March 31, 2012, of which 201,563 are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Auvil's cessation of service prior to vesting.

(10)
Consists of 419,999 shares subject to options held by Mr. Chambers that are exercisable within 60 days of March 31, 2012, of which 123,854 are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Chambers' cessation of service prior to vesting.

(11)
Consists of 631,514 shares subject to options held by Mr. Cooper that are exercisable within 60 days of March 31, 2012, of which 407,852 are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Cooper's cessation of service prior to vesting.

(12)
Includes 331,151 shares subject to options held by Mr. Hickman-Smith that are exercisable within 60 days of March 31, 2012, of which 81,488 are unvested and early exercisable and would be subject to a right of repurchase in our favor upon Mr. Hickman-Smith's cessation of service prior to vesting.

(13)
Consists of 3,196,280 shares subject to options that are exercisable within 60 days of March 31, 2012 that are held by our directors and officers as a group, of which 1,443,573 are unvested and early exercisable and would be subject to a right of repurchase in our favor upon the holder's cessation of service prior to vesting.

(14)
Seventh MDV Partners, L.L.C. is the general partner of MDV VII, L.P. and has sole voting and investment power over the shares. Nancy J. Schoendorf and Mr. Feiber, as managing members of Seventh MDV Partners, L.L.C., share such power. Mr. Feiber is a member of our board of directors. The address for MDV VII, L.P. is 3000 Sand Hill Road, 3-290, Menlo Park, CA 94025.

(15)
Benchmark Capital Management Co. IV, L.L.C. is the general partner of Benchmark Capital Partners IV, L.P. and has sole voting and investment power over the shares. Steven Spurlock, J. William Gurley, Alexandre Balkanski, Robert Kagle, Bruce Dunlevie and Mr. Harvey, as managing members of Benchmark Capital Management Co. IV, L.L.C., share such power. Mr. Harvey is a member of our board of directors. The address for Benchmark Capital Partners IV, L.P. is 2480 Sand Hill Road, Suite 200, Menlo Park, CA 94025.

(16)
Consists of 3,020,732 shares held by Meritech Capital Partners II, L.P. (MCP), 77,726 shares held by Meritech Capital Affiliates II, L.P. (MCA), and 23,099 shares held by MCP Entrepreneur Partners II, L.P. (MCP ENT). Meritech Capital Associates II, L.L.C. is the general partner of MCP, MCA and MCP ENT. Meritech Management Associates II, L.L.C. is the managing member of Meritech Capital Associates II, L.L.C. Paul Madera and Michael Gordon are the managing members of Meritech Management Associates II, L.L.C. and as such share voting and investment power over the shares. Mr. Ward, who is a member of our board of directors, is a member of Meritech Management Associates II, L.L.C. but is not deemed to share such power. The address for entities affiliated with MCP is 245 Lytton Avenue, Suite 350, Palo Alto, CA 94301.

(17)
Consists of 1,015 shares held by DAG Ventures GP Fund III, LLC (DAG GP), 96,879 shares held by DAG Ventures III, L.P. (DAG III), 1,029,925 shares held by DAG Ventures III-QP, L.P. (DAG III-QP), and 281,955 shares held by DAG Ventures I-N, LLC (DAG I-N). DAG Ventures Management III, LLC is the general partner of DAG III and DAG III-QP, and the manager of DAG GP, and has sole voting and investment power over the shares. R. Thomas Goodrich and John Cadeddu, as managing members of DAG Ventures Management III, LLC, share such power. DAG Ventures Management, LLC is the manager of DAG I-N and has sole voting and investment power over the shares. John Duff, Jr., R. Thomas Goodrich and John Cadeddu, as managing members of DAG Ventures Management, LLC, share such power. The address for entities affiliated with DAG GP is 251 Lytton Avenue, Palo Alto, CA 94301.

(18)
Consists of 172,449 shares held by RRE Ventures Fund III, L.P. (RRE), 78,916 shares held by RRE Ventures III, L.P. (RRE III), and 2,079,490 shares held by RRE Ventures III-A, L.P. (RRE III-A). RRE Ventures GP III LLC is the general partner of RRE, RRE III and RRE III-A and has sole voting and investment power over the shares. Andrew Zalasin, as managing member of RRE Ventures GP III LLC, shares such power. The address for entities affiliated with RRE is 130 East 59th Street, 17th Floor, New York, NY 10022.

(19)
1319318 Ontario Limited is the sole stockholder of 1413780 Ontario Inc. McLean Watson Capital Inc., as the sole member of 1319318 Ontario Limited, has sole voting and investment power over the shares owned by 1413780 Ontario Inc. John F. Eckert and Loudon F. Owen, as the sole stockholders of McLean Watson Capital Inc., share such power. The address for 1413780 Ontario Inc. is 1 First Canadian Place, Suite 2510, Toronto, Ontario, Canada, M5X1A4.

(20)
Ventures West 8 Management Ltd. (VW8M) is the general partner of Ventures West 8 Limited Partnership (VW8LP). Ventures West Capital Ltd. (VWC) is the sole shareholder of VW8M and has sole voting and investment power over the shares owned by VW8LP. Howard Riback, Edward Anderson, Kenneth Galbraith, David Berkowitz and Samuel Znamer, as directors and common shareholders of VWC, share such power. The address for VW8LP is #400-999 W. Hasting Street, Vancouver, BC, Canada, V6C2W2.

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(21)
Consists of 107,620 shares held by the Chen Family Trust, of which Paul Chen is the Sole Trustee and 2,553 shares held by Aloha III Corp., of which Paul Chen is the sole director and shareholder. The address for the entities affiliated with Paul Chen is 650 Cranleigh Crt, Mississauga, Ontario, Canada, L5H4M5.

(22)
Consists of 38,181 shares held by Lighthouse Capital Partners IV, L.P. (LIV) and 38,181 shares held by Lighthouse Capital V, L.P. (LV). Lighthouse Management Partners IV, L.L.C. is the general partner of LIV and has sole voting and investment power over the shares owned by LIV. Richard Stubblefield, Gwill York and Ned Hazen, as managing members of Lighthouse Management Partners IV, L.L.C., share such power. Lighthouse Management Partners V, L.L.C. is the general partner of LV and has sole voting and investment power over the shares owned by LV. Richard Stubblefield, Gwill York, Ned Hazen and Anurag Chandra, as managing members of Lighthouse Management Partners V, L.L.C., share such power. The address for the entities affiliated with LIV is 300 Drake's Landing Road, Suite 210, Greenbrae, CA 94904.

(23)
Labrador Management IV LLC is the general partner of Labrador Ventures IV, L.P. and has sole voting and investment power over the shares owned by Labrador Ventures IV, L.P. Larry Kubal and Stuart Davidson, as the managing members of Labrador Management IV LLC share such power. The address of Labrador Ventures IV, L.P. is 101 University Avenue, 4 th  Floor, Palo Alto, CA 94301.

(24)
Robert Molke, as the managing member of Dominion Capital Management, LLC, has sole voting and investment power over the shares of the shares owned by Dominion Capital Management, LLC. The address of Dominion Capital Management, LLC is 311 California St. #420, San Francisco, CA 94104.

(25)
The address for Praising Gaw is 2087 Lakeshore Blvd West, #1405, Toronto, Ontario, Canada, M8V4G3.

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DESCRIPTION OF CAPITAL STOCK

        Upon the closing of this offering and the filing of our restated certificate of incorporation, our authorized capital stock will consist of 200,000,000 shares of common stock, $0.0001 par value per share, and 5,000,000 shares of undesignated preferred stock, $0.0001 par value per share. The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the information that may be important to you. For a complete description, you should refer to our restated certificate of incorporation and restated bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law.

        Assuming the conversion of all outstanding shares of our preferred stock into shares of our common stock, which will occur immediately upon the completion of this offering, as of December 31, 2011, there were 24,527,817 shares of our common stock outstanding, held by 245 stockholders of record, and no shares of our preferred stock outstanding. Our board of directors is authorized, without stockholder approval, to issue additional shares of our capital stock.

Common Stock

        Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See "Dividend Policy" above.

        Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our restated certificate of incorporation. Accordingly, holders of a majority of the shares of our common stock will be able to elect all of our directors. Our restated certificate of incorporation establishes a classified board of directors, to be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms.

        Our common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.

        Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.

Preferred Stock

        Upon the closing of this offering, each currently outstanding share of preferred stock will be converted into common stock. All series of preferred stock will convert at a ratio of 0.5 shares of common stock for each share of preferred stock, except for the Series D preferred stock, which will convert at a ratio of 0.625 shares of common stock for each share of Series D preferred stock and

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Series E preferred stock, which will convert at a ratio of 0.502315 shares of common stock for each share of Series E preferred stock.

        Following this offering, our board of directors will be authorized, subject to limitations prescribed by Delaware law, to issue preferred stock in one or more series, to establish from time to time the number of shares to be included in each series, and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions, in each case without further vote or action by our stockholders. Our board of directors can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of our company and might adversely affect the market price of our common stock and the voting and other rights of the holders of our common stock. We have no current plan to issue any shares of preferred stock.

Options

        As of December 31, 2011, we had outstanding options to purchase an aggregate of 10,705,300 shares of our common stock, with a weighted-average exercise price of $3.83.

Warrant

        As of December 31, 2011, we had outstanding one warrant to purchase 2,187 shares of our common stock with an exercise price of $0.30 per share.

RSUs

        As of December 31, 2011 we had outstanding RSUs covering 22,561 shares of our common stock.

Registration Rights

        Pursuant to the terms of our fourth amended and restated investors' rights agreement, immediately following this offering, the holders of approximately 20,270,985 shares of our common stock will be entitled to rights with respect to the registration of these shares under the Securities Act, as described below.

        The holders of at least 50% of the then-outstanding shares having registration rights may make a written request to us for the registration of the offer and sale of all or part of the shares having registration rights or registrable securities. The holders of at least 25% of the then-outstanding shares may make the same request at any time after six months after the effective date of our first registration statement, if the amount of registrable securities to be registered has an aggregate market value of at least $10.0 million. We are only required to file two registration statements that are declared effective upon exercise of these demand registration rights. We may postpone the filing of a registration statement for up to 90 days in a 12-month period if our board of directors determines that the filing would be seriously detrimental to us and our stockholders.

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        If we register any of our securities for public sale, holders of shares having registration rights will have the right to include their shares in the registration statement. However, this right does not apply to a registration relating to sales of shares of participants in one of our stock plans or a registration relating to a corporate reorganization. The underwriters of any underwritten offering will have the right to limit the number of shares registered by these holders if they determine in good faith that marketing factors require limitation, in which case the number of shares to be registered will be apportioned pro rata among these holders, according to the total amount of securities entitled to be included by each holder, or in a manner mutually agreed upon by the holders. However, the number of shares to be registered by these holders cannot be reduced below 25% of the total shares covered by the registration statement.

        The holders of then-outstanding shares having registration rights can request that we register all or part of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3 and if the aggregate price to the public of the shares offered is at least $2.0 million. The stockholders may only require us to effect two registration statements on Form S-3 in a 12-month period. We may postpone the filing of a registration statement on Form S-3 no more than twice during any 12-month period for a total cumulative period of not more than 90 days if our board of directors determines that the filing would be detrimental to us and our stockholders.

        We generally will pay all expenses, other than underwriting discounts and commissions and the reasonable fees and disbursements of one counsel for the selling stockholders, incurred in connection with the registrations described above.

        The registration rights described above will expire, with respect to any particular holder of these rights, on the earlier of the fifth anniversary of the closing of this offering or when that holder can sell all of its registrable securities without restriction under Rule 144 of the Securities Act.

Anti-Takeover Provisions

        The provisions of Delaware law, our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of this offering, could have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us because negotiation of these proposals could result in an improvement of their terms.

        We are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation

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from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:

        Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation's outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also anticipate that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

        Our restated certificate of incorporation and our restated bylaws, as we expect they will be in effect upon the completion of this offering, include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of our company, including the following:

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Listing

        We have applied to list our common stock on the NASDAQ Global Market under the symbol "PFPT."

Transfer Agent and Registrar

        The transfer agent and registrar for our common stock will be Computershare Trust Company, N.A. The transfer agent's address is 250 Royall Street, Canton, Massachusetts 02021. Our shares of common stock will be issued in uncertificated form only, subject to limited circumstances.

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SHARES ELIGIBLE FOR FUTURE SALE

        Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options, in the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.

        Upon the closing of this offering, we will have a total of 30,887,851 shares of our common stock outstanding, based on the 25,887,851 shares of our capital stock outstanding as of March 31, 2012. Of these outstanding shares, all of the 5,000,000 shares of common stock sold in this offering will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.

        The remaining outstanding shares of our common stock will be deemed "restricted securities" as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rule 144 or Rule 701 promulgated under the Securities Act, which rules are summarized below. In addition, all of our security holders have entered into market standoff agreements with us or lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus, as described below. As a result of these agreements and the provisions of our investors' rights agreement described above under "Description of Capital Stock—Registration Rights," subject to the provisions of Rule 144 or Rule 701, based on an assumed offering date of March 31, 2012, shares will be available for sale in the public market as follows:

Lock-Up/Market Standoff Agreements

        All of our directors and officers and substantially all of our security holders are subject to lock-up agreements or market standoff provisions that, subject to exceptions described in the section entitled "Underwriting" below, prohibit them from offering for sale, selling, contracting to sell, granting any option for the sale of, transferring or otherwise disposing of any shares of our common stock, options to acquire shares of our common stock or any security or instrument related to this common stock, option or warrant, or entering into any swap, hedge or other arrangement that transfers to another any of the economic consequences of ownership of the common stock, for a period of at least 180 days following the date of this prospectus without the prior written consent of Credit Suisse Securities

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(USA) LLC and Deutsche Bank Securities Inc. See "Underwriting." The 180-day restricted period described above will be extended if:

in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the release or the occurrence of the material news or material event, unless such extension is waived, in writing by Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. However, the extension provisions described above will not be applicable upon the passage into federal law of the Jumpstart Our Business Startups Act of 2012 to the extent that such act prohibits the SEC or any national securities associations from adopting or maintaining rules requiring the foregoing extension, and FINRA confirms through its rulemaking process or otherwise that such rules are, in fact, no longer applicable to Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc.

Rule 144

        In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.

        In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up and market standoff agreements described above, within any three-month period, a number of shares that does not exceed the greater of:

        Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

        Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of

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Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.

Stock Options

        As soon as practicable after the closing of this offering, we intend to file one or more registration statements on Form S-8 under the Securities Act covering all of the shares of our common stock subject to outstanding options and the shares of our common stock reserved for issuance under our stock plans. In addition, we intend to file a registration statement on Form S-8 or such other form as may be required under the Securities Act for the resale of shares of our common stock issued upon the exercise of options that were not granted under Rule 701. We expect to file this registration statement as soon as permitted under the Securities Act. However, the shares registered on Form S-8 may be subject to the volume limitations and the manner of sale, notice and public information requirements of Rule 144 and will not be eligible for resale until expiration of the lock-up and market standoff agreements to which they are subject.

Registration Rights

        We have granted demand, piggyback and Form S-3 registration rights to certain of our stockholders to sell our common stock. Registration of the sale of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For a further description of these rights, see "Description of Capital Stock—Registration Rights."

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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES TO NON-U.S. HOLDERS

        The following is a summary of certain material U.S. federal income tax consequences of the purchase, ownership and disposition of our common stock to non-U.S. holders (defined below), who purchase our common stock pursuant to this offering and hold our stock as a capital asset (generally, on asset hold for investment purposes), but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income tax consequences different from those set forth below. We have not sought any ruling from the Internal Revenue Service (the "IRS") with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.

        This summary does not address the tax considerations arising under the laws of any foreign, state or local jurisdiction. Except to the limited extent below, this summary does not address tax considerations arising under estate or gift tax laws. In addition, this discussion does not address tax considerations applicable to an investor's particular circumstances or to investors that may be subject to special tax rules, including, without limitation:

        In addition, if a partnership (including any other entity classified as a partnership for U.S. federal income tax purposes) holds our common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, this summary does not address tax considerations applicable to partnerships that hold our common stock, and partners in such partnerships should consult their tax advisors.

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         YOU ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

Non-U.S. Holder Defined

        For purposes of this discussion, you are a non-U.S. holder if you are any holder, other than:

        If you are an individual, you may, in many cases, be deemed to be a resident alien, as opposed to a nonresident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For these purposes, all the days present in the current year, one-third of the days present in the immediately preceding year, and one-sixth of the days present in the second preceding year are counted. Resident aliens are subject to U.S. federal income tax as if they were U.S. citizens. Such an individual is urged to consult his or her own tax advisor regarding U.S. federal income tax consequences of the ownership of our common stock.

Distributions

        We have not made any distributions on our common stock, and we do not plan to make any distributions for the foreseeable future. However, if we do make distributions on our common stock, those payments will constitute dividends for U.S. tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock.

        Any dividend paid to you generally will be subject to U.S. withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. Generally, in order for us or our paying agent to withhold tax at a lower treaty rate, a non-U.S. holder must certify its entitlement to treaty benefits. A non-U.S. holder generally can meet this certification requirement by providing a Form W-8BEN (or any successor form) or appropriate substitute form to us or our paying agent. If the holder holds the stock through a financial institution or other agent acting on the holder's behalf, the holder will be required to provide appropriate documentation to the agent. The holder's agent will then be required to provide certification to us or our paying agent, either directly or through other intermediaries. For payments made to a foreign partnership or other pass-through entity, the certification requirements generally apply to the partners

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or other owners rather than to the partnership or other entity, and the partnership or other entity must provide the partners' or other owners' documentation to us or our paying agent.

        Dividends received by you that are effectively connected with your conduct of a U.S. trade or business and, if required by an applicable income tax treaty, attributed to a permanent establishment in the United States, are exempt from such withholding tax. In order to obtain this exemption, you must provide us with an applicable IRS form W-8 (generally Form W-8ECI) properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to U.S. persons, net of certain deductions and credits and subject to an applicable income tax treaty providing otherwise. In addition, if you are a corporate non-U.S. holder, dividends that you receive that are effectively connected with your conduct of a U.S. trade or business, subject to certain adjustments, may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty.

        If you are eligible for a reduced rate of withholding tax pursuant to a tax treaty, you may be able to obtain a refund of any excess amounts currently withheld if you timely file an appropriate claim for refund with the IRS.

Gain on Disposition of Common Stock

        You generally will not be subject to U.S. federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

        We believe that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as a U.S. real property interest only if you actually or constructively hold more than 5% of such regularly traded common stock at any time during the applicable period that is specified in the Code.

        If you are a non-U.S. holder described in the first bullet above, you will generally be required to pay tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates, and corporate non-U.S. holders described in the first bullet above may be subject to the additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. If you are an individual non-U.S. holder described in the second bullet above, you will be required to pay a flat 30% tax on the gain derived from the sale, which tax may be offset by U.S. source capital losses (even though you are not considered a resident of the United States). You should consult any applicable income tax or other treaties that may provide for different rules.

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Federal Estate Tax

        Our common stock that is held by an individual non-U.S. holder at the time of death will be included in such holder's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Backup Withholding and Information Reporting

        Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address, and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.

        Payments of dividends or of proceeds on the disposition of stock made to you may be subject to additional information reporting and backup withholding (currently at a rate of 28%) unless you either (i) provide a correct taxpayer identification number and certify that you are not subject to backup withholding on Form W-9, or (ii) establish an exemption, for example by properly certifying your non-U.S. status on a Form W-8BEN or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that you are a U.S. person and you have not provided a correct taxpayer identification number, or if we or our paying agent has received notice from the IRS that backup withholding is required.

        Backup withholding is not an additional tax; rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit generally may be obtained, provided that the required information is furnished to the IRS in a timely manner.

Recent Legislative Developments

        Recent legislation may begin imposing withholding at a rate of 30% on payments to certain foreign entities (including financial institutions, as specifically defined in this new legislation and certain other non-U.S. entities) of dividends on, and the gross proceeds of dispositions of, U.S. common stock, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations or (ii) the foreign non-financial entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner. If the payee is a foreign financial institution, it must enter into an agreement with the U.S. Treasury requiring, among other things, that it undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions prevent it from complying with these reporting and other requirements. The withholding requirements are generally scheduled to phase-in beginning on January 1, 2014. You should consult your tax advisor regarding the possible implications of this legislation on your investment in our common stock.

         THE PRECEDING DISCUSSION OF UNITED STATES FEDERAL TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY. IT IS NOT TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF OUR COMMON STOCK, INCLUDING THE CONSEQUENCES OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.

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UNDERWRITING

        Under the terms and subject to the conditions contained in an underwriting agreement dated                                    , 2012 we and the selling stockholders have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. are acting as representatives, the following respective numbers of shares of common stock:

Underwriter
  Number
of Shares
 

Credit Suisse Securities (USA) LLC

       

Deutsche Bank Securities Inc. 

       

RBC Capital Markets, LLC

       

Pacific Crest Securities LLC. 

       

First Analysis Securities Corporation. 

       
       
 

Total

    5,000,000  
       

        The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in this offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.

        We and the selling stockholders have granted to the underwriters a 30-day option to purchase up to 750,000 additional shares from us and 179,914 additional shares from the selling stockholders at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock.

        The underwriters proposes to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $            per share. After the initial public offering the representatives may change the public offering price and concession and discount to broker/dealers.

        The following table summarizes the compensation and estimated expenses we and the selling stockholders will pay:

 
  Per Share   Total  
 
  No
Exercise
  Full
Exercise
  No
Exercise
  Full
Exercise
 

Underwriting discounts and commissions paid by us

  $     $     $     $    

Expenses payable by us

  $     $     $     $    

Underwriting discounts and commissions paid by selling stockholders

  $     $     $     $    

Expenses payable by the selling stockholders

  $     $     $     $    

        The representatives have informed us that they do not expect sales to accounts over which the underwriters have discretionary authority to exceed 5% of the shares of common stock being offered.

        We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of the representatives for a period of 180 days after the date of this prospectus. However, in the event that either (1) during the last 17 days of the "lock-up" period, we release earnings results or material news

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or a material event relating to us occurs or (2) prior to the expiration of the "lock-up" period, we announce that we will release earnings results during the 16-day period beginning on the last day of the "lock-up" period, then in either case the expiration of the "lock-up" will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless the representatives waive, in writing, such an extension. However, the extension provisions described above will not be applicable upon the passage into federal law of the Jumpstart Our Business Startups Act of 2012 to the extent that such act prohibits the SEC or any national securities associations from adopting or maintaining rules requiring the foregoing extension, and FINRA confirms through its rulemaking process or otherwise that such rules are, in fact, no longer applicable to the representatives.

        Our officers and directors and holders of substantially all of our outstanding stock and options have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of the representatives for a period of 180 days after the date of this prospectus. However, in the event that either (1) during the last 17 days of the 'lock-up" period, we release earnings results or material news or a material event relating to us occurs or (2) prior to the expiration of the "lock-up" period, we announce that we will release earnings results during the 16-day period beginning on the last day of the "lock-up" period, then in either case the expiration of the "lock-up" will be extended until the expiration of the 18-day period beginning on the date of the release of the earnings results or the occurrence of the material news or event, as applicable, unless the representatives waive, in writing, such an extension. However, the extension provisions described above will not be applicable upon the passage into federal law of the Jumpstart Our Business Startups Act of 2012 to the extent that such act prohibits the SEC or any national securities associations from adopting or maintaining rules requiring the foregoing extension, and FINRA confirms through its rulemaking process or otherwise that such rules are, in fact, no longer applicable to the representatives.

        The restrictions described in the two immediately preceding paragraphs shall not apply to:

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        We and the selling stockholders have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.

        We have applied to list the shares of common stock on the NASDAQ Global Market, under the symbol "PFPT."

        In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act.

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        These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NASDAQ Global Market or otherwise and, if commenced, may be discontinued at any time.

        A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make Internet distributions on the same basis as other allocations.

        From time to time, the underwriters may perform investment banking and advisory services for us for which they may receive customary fees and expenses.

        In the ordinary course of business, we have, and may in the future, sell solutions or services to one or more of the underwriters in arms length transactions on market competitive terms.

        The shares of common stock are offered for sale in those jurisdictions in the United States, Europe and elsewhere where it is lawful to make such offers.

        Each of the underwriters has represented and agreed that it has not offered, sold or delivered and will not offer, sell or deliver any of the shares of common stock directly or indirectly, or distribute this prospectus or any other offering material relating to the shares of common stock, in or from any jurisdiction except under circumstances that will result in compliance with the applicable laws and regulations thereof and that will not impose any obligations on us except as set forth in the underwriting agreement.

Pricing of the Offering

        Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations among us, the selling stockholders, and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price will be our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours. The estimated initial public offering price range set forth on the cover page of this preliminary prospectus is subject to change as a result of market conditions and other factors.

European Economic Area

        In relation to each Member State of the European Economic Area that has implemented the Prospectus Directive, each, a Relevant Member State, each underwriter represents and agrees that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, it has not made and will not make an offer of

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Securities to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Securities that has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of Securities to the public in that Relevant Member State at any time:

        For the purposes of this provision, the expression an "offer of Shares to the public" in relation to any Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Shares to be offered so as to enable an investor to decide to purchase or subscribe the Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Notice to Investors in the United Kingdom

        Each of the underwriters severally represents, warrants and agrees as follows:

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NOTICE TO CANADIAN RESIDENTS

Resale Restrictions

        The distribution of the common stock in Canada is being made only in the provinces of Ontario, Quebec, Alberta, British Columbia and Manitoba on a private placement basis exempt from the requirement that we and the selling stockholders prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of the common stock in Canada must be made under applicable securities laws which may vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock.

Representations of Purchasers

        By purchasing common stock in Canada and accepting delivery of a purchase confirmation, a purchaser is representing to us, the selling stockholders and the dealer from whom the purchase confirmation is received that:

Rights of Action—Ontario Purchasers

        Under Ontario securities legislation, certain purchasers who purchase a security offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the common stock, for rescission against us and the Selling Stockholders in the event that this prospectus contains a misrepresentation without regard to whether the purchaser relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the common stock. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the common stock. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us or the Selling Stockholders. In no case will the amount recoverable in any action exceed the price at which the common stock were offered to the purchaser and if the purchaser is shown to have purchased the securities with knowledge of the misrepresentation, we and the Selling Stockholders will have no liability. In the case of an action for damages, we and the Selling Stockholders will not be liable for all or any portion of the damages that are proven to not represent

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the depreciation in value of the common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.

Enforcement of Legal Rights

        All of our directors and officers as well as the experts named herein and the Selling Stockholders may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.

Taxation and Eligibility for Investment

        Canadian purchasers of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and about the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation.

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LEGAL MATTERS

        The validity of our common stock offered by this prospectus will be passed upon for us by Fenwick & West LLP, Mountain View, California. Certain legal matters in connection with this offering will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California.


EXPERTS

        The financial statements as of December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.


WHERE YOU CAN FIND ADDITIONAL INFORMATION

        We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to our common stock. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some items of which are contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the exhibits and the consolidated financial statements and notes filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed for the complete contents of that contract or document. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. A copy of the registration statement, including the exhibits and the consolidated financial statements and related notes filed as a part of the registration statement, may be inspected without charge at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the SEC upon the payment of fees prescribed by it. You may call the SEC at 1-800-SEC-0330 for more information on the operation of the public reference facilities. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with it.

        As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended, and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference facilities and the website of the SEC referred to above.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
  Page

Report of Independent Registered Public Accounting Firm

  F-2

Consolidated Balance Sheets

  F-3

Consolidated Statements of Operations

  F-4

Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit

  F-5

Consolidated Statements of Cash Flows

  F-6

Notes to Consolidated Financial Statements

  F-7

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Proofpoint, Inc.

        In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, convertible preferred stock and stockholders' deficit and cash flows present fairly, in all material respects, the financial position of Proofpoint, Inc. and its subsidiaries (the "Company") at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        As discussed in Note 1 of the financial statements, the Company changed the manner in which it accounts for revenue recognition related to multiple element arrangements in 2011.

/s/ PricewaterhouseCoopers LLP
San Jose, California

February 29, 2012, except for the section titled "Reverse Stock Split" of Note 1,
as to which the date is April 2, 2012

The accompanying notes are an integral part of these consolidated financial statements.

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Proofpoint, Inc.
Consolidated Balance Sheets
(in thousands, except per share amounts)

 
  At December 31,   Pro forma
Stockholders' Deficit
At December 31,
2011
 
 
  2010   2011  
 
   
   
  (unaudited)
 

Assets

                   

Current assets

                   
 

Cash and cash equivalents

  $ 12,087   $ 9,767        
 

Short-term investments

    660     2,947        
 

Accounts receivable, net of allowance for doubtful accounts of $257 and $233 at December 2010 and 2011

    12,885     15,789        
 

Inventory

    585     729        
 

Deferred product costs, current

    3,360     1,803        
 

Prepaid expenses and other current assets

    1,748     2,556        
                 
     

Total current assets

    31,325     33,591        

Property and equipment, net

    4,630     7,353        

Deferred product costs, noncurrent

    2,209     987        

Goodwill

    15,932     18,557        

Intangible assets, net

    7,797     6,189        

Other noncurrent assets

    459     1,275        
                 
     

Total assets

  $ 62,352   $ 67,952        
                 

Liabilities, Convertible Preferred Stock and Stockholders' Deficit

                   

Current liabilities

                   
 

Accounts payable

  $ 2,508   $ 3,504        
 

Accrued liabilities

    8,990     10,061        
 

Notes payable and lease obligations

    208     467        
 

Deferred rent

    70     517        
 

Deferred revenue

    39,409     52,836        
                 
     

Total current liabilities

    51,185     67,385        

Notes payable and lease obligations, noncurrent

    56     4,514        

Other long term liabilities, noncurrent

        85        

Deferred revenue, noncurrent

    29,692     23,404        
                 
     

Total liabilities

    80,933     95,388        
                 

Commitments and contingencies (Note 7)

                   

Convertible preferred stock (Note 9), $0.0001 par value—39,424 shares authorized at December 31, 2010 and 2011; 38,893 and 38,942 shares issued and outstanding at December 31, 2010 and 2011, respectively, net of issuance costs (liquidation preference of $110,275 and $110,338 at December 31, 2010 and 2011, respectively), no shares issued and outstanding, pro forma (unaudited)

   
109,820
   
109,911
 
$

 
               

Stockholders' deficit

                   
 

Common stock, $0.0001 par value—70,000 and 71,400 shares authorized at December 31, 2010 and 2011, respectively; 3,829 and 4,961 shares outstanding at December 31, 2010 and 2011, respectively; 71,400 shares authorized, 24,528 shares issued and outstanding, pro forma (unaudited)

    1     1     5  
 

Additional paid-in capital

    13,575     24,773     134,680  
 

Accumulated other comprehensive loss

        (3 )   (3 )
 

Accumulated deficit

    (141,977 )   (162,118 )   (162,118 )
               
     

Total stockholders' deficit

    (128,401 )   (137,347 ) $ (27,436 )
               
     

Total liabilities, convertible preferred stock, and stockholders' deficit

  $ 62,352   $ 67,952        
                 

The accompanying notes are an integral part of these consolidated financial statements.

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Proofpoint, Inc.
Consolidated Statements of Operations
(in thousands, except per share amounts)

 
  Year Ended December 31,  
 
  2009   2010   2011  

Revenue:

                   
 

Subscription

  $ 42,135   $ 57,657   $ 73,896  
 

Hardware and services

    6,393     7,133     7,942  
               
   

Total revenue

    48,528     64,790     81,838  

Cost of revenue: (1)(2)

                   
 

Subscription

    19,150     24,523     24,193  
 

Hardware and services

    3,309     4,082     5,537  
               
   

Total cost of revenue

    22,459     28,605     29,730  
               

Gross profit

    26,069     36,185     52,108  

Operating expense: (1)(2)

                   
 

Research and development

    11,831     17,583     19,779  
 

Sales and marketing

    27,883     31,161     42,676  
 

General and administrative

    5,678     7,465     9,237  
               
   

Total operating expense

    45,392     56,209     71,692  
               

Operating loss

    (19,323 )   (20,024 )   (19,584 )

Interest income (expense), net

    87     (340 )   (300 )

Other income (expense), net

    (269 )   (258 )   113  
               

Loss before provision for income taxes

    (19,505 )   (20,622 )   (19,771 )

Provision for income taxes

    (233 )   (243 )   (370 )
               

Net loss

  $ (19,738 ) $ (20,865 ) $ (20,141 )
               

Net loss per share, basic and diluted

  $ (6.14 ) $ (5.84 ) $ (5.03 )
               

Weighted average shares outstanding, basic and diluted

    3,212     3,575     4,005  
               

Pro forma net loss per share, basic and diluted (unaudited)

              $ (0.86 )
                   

Weighted average pro forma shares, basic and diluted (unaudited)

                23,572  
                   


                   

(1)   Includes stock-based compensation expense as follows:

                   
     

Cost of subscription revenue

  $ 275   $ 357   $ 366  
     

Cost of hardware and services revenue

    11     17     29  
     

Research and development

    848     1,010     1,247  
     

Sales and marketing

    1,030     1,113     1,976  
     

General and administrative

    732     868     930  

(2)   Includes intangible amortization expense as follows:

                   
     

Cost of subscription revenue

  $ 3,371   $ 3,745   $ 3,772  
     

Research and development

            1  
     

Sales and marketing

    408     637     769  

The accompanying notes are an integral part of these consolidated financial statements.

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Proofpoint, Inc.

Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' Deficit

(in thousands)

 
  Convertible
Preferred Stock
   
   
   
   
   
   
   
 
 
  Common Stock    
   
  Accumulated
Other
Comprehensive
Income (Loss)
   
   
 
 
  Additional
Paid-In
Capital
  Deferred
Stock-Based
Compensation
  Accumulated
Deficit
  Total
Stockholders'
Deficit
 
 
  Shares   Amount   Shares   Amount  

Balances at December 31, 2008

    37,486   $ 102,380     3,139   $ 1   $ 5,868   $ (3 ) $ 1   $ (101,374 ) $ (95,507 )

Net loss

                                (19,738 )   (19,738 )

Unrealized gain (loss) on short-term investments

                            (2 )       (2 )
                                                       

Comprehensive loss

                                                    (19,740 )
                                                       

Issuance of Series F preferred stock for cash, net of issuance costs of $38

    940     4,962                              

Issuance of Series F preferred stock as part of the consideration for acquisitions

    187     1,000                              

Repurchase of Series F preferred stock

    (2 )   (13 )                            

Stock-based compensation expense

                    2,893     3             2,896  

Stock options exercised

            160         184                 184  

Vesting of early exercise options

                      25                 25  
                                       

Balances at December 31, 2009

    38,611     108,329     3,299     1     8,970         (1 )   (121,112 )   (112,142 )

Net loss

                                (20,865 )   (20,865 )

Unrealized gain (loss) on short-term investments

                            1           1  
                                                       

Comprehensive loss

                                                    (20,864 )
                                                       

Issuance of Series F preferred stock for cash, net of issuance costs of $9

    282     1,491                              

Stock-based compensation expense

                    3,365                 3,365  

Stock options exercised

            530         1,231                 1,231  

Vesting of early exercise options

                    9                 9  
                                       

Balances at December 31, 2010

    38,893     109,820     3,829     1     13,575             (141,977 )   (128,401 )

Net loss

                                (20,141 )   (20,141 )

Unrealized gain (loss) on short-term investments

                            (3 )       (3 )
                                                       

Comprehensive loss

                                                    (20,144 )
                                                       

Issuance of Series B preferred stock upon net exercise of warrants

    49     91                              

Issuance of common stock as part of the consideration for acquisitions

            677         5,406                 5,406  

Fair value of vested restricted stock units assumed in connection with acquisition

                    58                 58  

Stock-based compensation expense

                    4,548                 4,548  

Stock options exercised

            456         1,178                 1,178  

Repurchase of stock options

            (1 )       (4 )               (4 )

Vesting of early exercise options

                      12                 12  
                                       

Balances at December 31, 2011

    38,942   $ 109,911     4,961   $ 1   $ 24,773   $   $ (3 ) $ (162,118 ) $ (137,347 )
                                       

The accompanying notes are an integral part of these consolidated financial statements.

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Proofpoint, Inc.
Consolidated Statements of Cash Flows
(in thousands)

 
  Year Ended
December 31,
 
 
  2009   2010   2011  

Cash flows from operating activities

                   
 

Net loss

  $ (19,738 ) $ (20,865 ) $ (20,141 )
 

Adjustments to reconcile net loss to net cash provided by (used in) operating activities

                   
   

Depreciation and amortization

    6,791     7,643     7,684  
   

Gain (loss) on disposal of property and equipment

    12     (11 )    
   

Provision for allowance for doubtful accounts

    318     44     8  
   

Stock issued for services

        29      
   

Stock-based compensation

    2,896     3,365     4,548  
   

Change in fair value of warrant liability

        73     (66 )
   

Change in fair value of contingent earn-outs

        297     208  
   

Changes in assets and liabilities, net of effect of acquisitions:

                   
     

Accounts receivable

    (698 )   (3,116 )   (2,702 )
     

Inventory

    522     348     (144 )
     

Deferred products costs

    (384 )   1,610     2,779  
     

Prepaid expenses and other current assets

    178     (250 )   (778 )
     

Noncurrent assets

    (56 )   (43 )   168  
     

Accounts payable

    (1,666 )   1,001     300  
     

Accrued liabilities

    (1,468 )   1,759     722  
     

Earn-out payment (1)

        (220 )   (285 )
     

Deferred rent

    (28 )   (10 )   447  
     

Deferred revenue

    9,614     11,755     7,084  
               
       

Net cash provided by (used in) operating activities

    (3,707 )   3,409     (168 )
               

Cash flows from investing activities

                   
 

Proceeds from sales and maturities of short-term investments

    14,799     5,149     2,791  
 

Purchase of short-term investments

    (10,824 )   (1,418 )   (5,080 )
 

Purchase of property and equipment, net

    (2,492 )   (3,425 )   (4,930 )
 

Acquisitions of business (net of cash acquired)

    (6,615 )       (134 )
               
       

Net cash provided by (used in) investing activities

    (5,132 )   306     (7,353 )
               

Cash flows from financing activities

                   
 

Proceeds from issuance of common stock, net of repurchases

    209     1,211     1,199  
 

Proceeds from issuance of convertible preferred stock, net of repurchases and issuance costs

    4,949     1,491      
 

Proceeds from equipment financing loans

            4,925  
 

Repayments of equipment financing loans

    (380 )   (477 )   (208 )
 

Earn-out payment (1)

        (780 )   (715 )
               
       

Net cash provided by financing activities

    4,778     1,445     5,201  
               
       

Net increase (decrease) in cash and cash equivalents

    (4,061 )   5,160     (2,320 )

Cash and cash equivalents

                   
 

Beginning of period

    10,988     6,927     12,087  
               
 

End of period

  $ 6,927   $ 12,087   $ 9,767  
               

Supplemental disclosures of cash flow information

                   
 

Cash paid for interest

  $ 48   $ 63   $ 97  
 

Cash paid for taxes

    282     206     210  

Supplemental disclosure of noncash investing and financing activities

                   
 

Common stock issued in connection with acquisition

          $ 5,406  
 

Convertible preferred stock issued in connection with acquisitions

    1,000          
 

Fair value of vested restricted stock units assumed in connection with acquisition

            58  
 

Issuance of Series B preferred stock upon net exercise of warrants

            91  
 

Unpaid deferred initial public offering costs

            967  

(1)
The consolidated statement of cash flows for the year ended December 31, 2010 has been revised to reflect the correction of an immaterial error related to the classification of an earn-out payment in the consolidated statements of cash flows.

The accompanying notes are an integral part of these consolidated financial statements.

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Proofpoint, Inc.
Notes to Consolidated Financial Statements
(dollars and share amounts in thousands, except per share amounts)

1. The Company and Summary of Significant Accounting Policies

The Company

        Proofpoint, Inc. (the "Company") was incorporated in Delaware in June 2002 and is headquartered in California.

        Proofpoint is a pioneering security-as-a-service vendor that enables large and mid-sized organizations worldwide to defend, protect, archive and govern their most sensitive data. The Company's security-as-a-service platform is comprised of a number of data protection solutions, including threat protection, regulatory compliance, archiving and governance, and secure communication.

Reverse Stock Split

        On March 30, 2012, the Company's Board of Directors approved a 1-for-2 reverse stock split of the Company's common stock. The reverse stock split became effective on April 2, 2012. Upon the effectiveness of the reverse stock split, (i) every two shares of outstanding common stock was decreased to one share of common stock, (ii) the number of shares of common stock into which each outstanding option to purchase common stock is exercisable was proportionally decreased on a 1-for-2 basis, (iii) the exercise price of each outstanding option to purchase common stock was proportionately increased on a 1-for-2 basis, and (iv) the conversion ratio for each share of preferred stock outstanding was proportionately reduced on a 1-for-2 basis. All of the share numbers, share prices, and exercise prices have been retrospectively adjusted to reflect the reverse stock split.

Liquidity

        The Company has relied principally on preferred stock financings to fund its operating activities to date and at December 31, 2011, the Company had an accumulated deficit of $162,118. During the years ended December 31, 2009, 2010 and 2011 the Company incurred a net loss of $19,738, $20,865 and $20,141, respectively, and had negative cash flows from operations of $3,707, positive cash flows from operations of $3,409 and negative cash flows from operations of $168 for the years ended December 31, 2009, 2010 and 2011, respectively. Management plans to improve operating results by growing revenue while controlling costs. Management believes that its plans provide sufficient liquidity for the Company to finance its operations for at least the next 12 months from December 31, 2011. There is no assurance, however, that management will be successful with its plans or otherwise achieve its intended business objectives and that financing alternatives, if needed, will be available on terms acceptable to the Company, or at all. Failure to generate sufficient cash from operations, raise additional capital or control operating costs may require the Company to modify, delay or abandon planned expenditures and could have an impact on the Company's ability to achieve intended business objectives.

Principles of Consolidation

        The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

1. The Company and Summary of Significant Accounting Policies (Continued)

Foreign Currency Remeasurement and Transactions

        The Company's sales to international customers are generally U.S. dollar-denominated. As a result, there are no significant foreign currency gains or losses related to these transactions. The functional currency for the Company's wholly-owned foreign subsidiaries is the U.S. dollar. Accordingly, the subsidiaries remeasure monetary assets and liabilities at period-end exchange rates, while nonmonetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average exchange rates in effect during the year. Remeasurement adjustments are recognized in the consolidated statement of operations as transaction gains or losses within other income (expense), net, in the period of occurrence. Aggregate transaction losses included in determining net loss were $177, $187 and $8 for the years ended December 31, 2009, 2010 and 2011, respectively.

Certain Significant Risks and Uncertainties

        The Company operates in a rapidly changing environment that involves a number of risks, some of which are beyond the Company's control that could have a material adverse effect on the Company's business, operating results, and financial condition. These risks include, among others: the Company's history of losses, and ability to achieve profitability in the future; highly competitive environment with large established competitors; ability to maintain high subscription renewal rates and sell additional solutions to current subscribers; ability to maintain demand for its solutions if there is significant migration of on-premise corporate email systems to the cloud or if new messaging and collaboration technologies cause a decline in the use of email; ability to protect its customers from security breaches; and potential data losses.

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates and such difference may be material to the financial statements.

Cash and Cash Equivalents

        The Company considers all highly liquid instruments purchased with an original maturity date of 90 days or less from the date of purchase to be cash equivalents. Cash equivalents consist of money market funds. Cash equivalents were $8,660 and $6,850 as of December 31, 2010 and 2011, respectively.

Short-term Investments

        Short-term investments consist of readily marketable securities with remaining maturity of more than three months from the date of purchase and include commercial paper, corporate bonds, and debt securities. At December 31, 2010 and 2011, all of the Company's short-term investments were classified as available-for-sale and were carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive loss. Realized gains and losses are included in "other

F-8


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

1. The Company and Summary of Significant Accounting Policies (Continued)


income (expense), net." Fair value is estimated based on available market information. The cost of securities sold is based on the specific identification method.

Inventories

        Inventories are stated at lower of cost or market value, with costs computed on a first-in, first-out basis. Cost is determined using standard costs which approximate actual costs. The Company periodically reviews its inventories for excess and obsolete items and adjusts carrying costs to estimated net realizable values when they are determined to be less than cost.

        Inventories held at December 31, 2010 and 2011 consist of finished goods.

Revenue Recognition

        The Company derives its revenue primarily from two sources: (1) subscription revenue for rights related to the use of the security-as-a-service platform and (2) hardware, training and professional services revenue provided to customers related to their use of the platform. Subscription revenue is derived from a subscription-based enterprise licensing model with contract terms typically ranging from one to three years, and consist of (i) subscription fees from the licensing of the security-as-a-service platform, (ii) subscription fees for access to the on-demand elements of the platform and (iii) subscription fees for the right to access the company's customer support services.

        The Company applies the provision of ASC 985-605, "Software Revenue Recognition," and related interpretations, to all transactions involving the licensing of software, as well as related support, training, and other professional services. ASC 985-605 requires revenue earned on software arrangements involving multiple elements such as software license, support, training and other professional services to be allocated to each element based on the relative fair values of these elements. The fair value of an element must be based on vendor-specific objective evidence ("VSOE") of fair value. VSOE of fair value of each element is based on the price charged when the element is sold separately. Revenue is recognized when all of the following criteria are met as set forth in ASC 985-605:

    Persuasive evidence of an arrangement exists,

    Delivery has occurred,

    The fee is fixed or determinable, and

    Collectability is probable.

        The Company has analyzed all of the elements included in its multiple element arrangements and has determined that it does not have sufficient VSOE of fair value to allocate revenue to its subscription and software license agreements, support, training, and professional services. The Company defers all revenue under the software arrangement until the commencement of the subscription services and any associated professional services. Once the subscription services and the associated professional services have commenced, the entire fee from the arrangement is recognized ratably over the remaining period of the arrangement. If the professional services are essential to the functionality of the subscription, then the revenue recognition does not commence until such services are completed.

F-9


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

1. The Company and Summary of Significant Accounting Policies (Continued)

        In the consolidated statement of operations, revenue is categorized as "subscription" and "hardware and services." Although the Company is unable to separate its multiple elements under the applicable revenue recognition guidance since it does not have sufficient VSOE of fair value for revenue recognition purposes, the Company has used a systematic and rational estimate to classify revenue between "subscription" and "hardware and services." For presentation purposes only, the Company allocates revenue to hardware and services based upon management's best estimate of fair value of such deliverables using a cost plus model. The remaining consideration of the arrangement is then allocated to subscription services. Management believes that this methodology provides a reasonable basis to allocate revenue between subscription and hardware and services for presentation purposes.

        The hosted on-demand service agreements do not provide customers with the right to take possession of the software supporting the hosted service. The Company recognizes revenue from its hosted on-demand services in accordance with ASC 605-20, and as such recognizes revenue when the following criteria are met:

    Persuasive evidence of an arrangement exists,

    Delivery of the Company's obligations to its customers has occurred,

    Collection of the fees is probable, and

    The amount of fees to be paid by the customer is fixed or determinable.

        In October 2009, the FASB amended the accounting guidance for multiple element arrangements ("ASU 2009-13") to:

    Provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the arrangement consideration should be allocated among its elements;

    Require an entity to allocate revenue in an arrangement that has separate units of accounting using best estimated selling price ("BESP") of deliverables if a vendor does not have VSOE of fair value or third-party evidence of selling price ("TPE"), and

    Eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method to the separate unit of accounting.

        Concurrently, the FASB amended the accounting guidance for revenue recognition ("ASU 2009-14") to exclude hardware appliances containing software components and hardware components that function together to deliver the hardware appliance's essential functionality from the scope of the software revenue recognition guidance of ASC 985-605.

        The Company elected to adopt this new guidance in the first quarter of fiscal 2011 for new and materially modified revenue arrangements originating after January 1, 2011.

        Prior to the adoption of ASU 2009-14, revenue derived from hardware appliance sales were recognized based on the software revenue recognition guidance. The Company could not establish VSOE of fair value for the undelivered elements in the arrangement, and therefore the entire fee from the arrangement was recognized ratably over the contractual term of the agreement. In addition, the

F-10


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

1. The Company and Summary of Significant Accounting Policies (Continued)


Company was unable to establish VSOE of fair value of its hosted on-demand service agreements, and therefore the entire fee for the agreement was recognized ratably over the contractual term of the agreement.

        As a result of the adoption of this accounting guidance, revenue derived from our subscription services and hardware appliance sales are no longer subject to industry-specific software revenue recognition guidance. For all arrangements within the scope of these new accounting pronouncements, including the Company's hosted on-demand services, the Company evaluates each element in a multiple element arrangement to determine whether it represents a separate unit of accounting. An element constitutes a separate unit of accounting when the delivered item has standalone value and delivery of the undelivered element is probable and within the Company's control. Revenue derived from the licensing of the security-as-a-service platform continues to be accounted for in accordance with the industry specific revenue recognition guidance.

        Hardware appliance revenue is recognized upon shipment. Subscription and support revenue are recognized over the contract period commencing on the start date of the contract. Professional services and training, when sold with hardware appliances or subscription and support services, are accounted for separately when those services have standalone value. In determining whether professional services and training services can be accounted for separately from subscription and support services, the Company considers the following factors: availability of the services from other vendors, the nature of the services, and the dependence of the subscription services on the customer's decision to buy the professional services. If professional services and training do not qualify for separate accounting, the Company recognizes the professional services and training ratably over the contract term of the subscription services.

        Delivery generally occurs when the hardware appliance is delivered to a common carrier freight on board shipping point by the Company or the hosted service has been activated and communicated to the customer accordingly. The Company's fees are typically considered to be fixed or determinable at the inception of an arrangement and are negotiated at the outset of an arrangement, generally based on specific products and quantities to be delivered. In the event payment terms are provided that differ significantly from its standard business practices, the fees are deemed to not be fixed or determinable and revenue is recognized as the fees become paid.

        The Company assesses collectability based on a number of factors, including credit worthiness of the customer and past transaction history of the customer. Through December 31, 2011, the Company has not experienced significant credit losses.

        Revenue as reported and pro forma revenue that would have been reported during the year ended December 31, 2011, had the Company not adopted the new guidance is shown in the following table (in thousands):

 
  As Reported   Pro Forma Basis
(as if previous
guidance was in
effect)
 

Total revenue

  $ 81,838   $ 79,546  

F-11


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

1. The Company and Summary of Significant Accounting Policies (Continued)

Deferred Revenue

        Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from the sale of the Company's subscription fees, and training and professional services. Once the revenue recognition criteria are met, this revenue is recognized ratably over the term of the associated contract, which typically ranges from 12 to 36 months.

Deferred Product Costs

        Deferred product costs are the incremental costs that are directly associated with each noncancelable customer contract or hosting agreement and primarily consist of cost of appliances and royalty payments made to third parties, from whom the Company has obtained licenses to integrate certain software into its products. The costs are deferred and amortized over the noncancelable term of the related customer contract or hosting agreement, which typically range from 12 to 36 months.

Software Development Costs

        We capitalize certain software development costs, including the costs to develop new software solutions or significant enhancements to existing solutions, which are developed or obtained for internal use. We capitalize software development costs when application development begins, it is probable that the project will be completed, and the software will be used as intended. Such capitalized costs are amortized on a straight-line basis over the estimated useful life of the related asset, which is generally two years. Costs associated with preliminary project stage activities, training, maintenance and all post implementation stage activities are expensed as incurred.

        Software development costs related to software services to be sold are capitalized when technological feasibility has been established. Amortization of capitalized software development costs will begin as each product is available for general release to customers. Amortization will be computed on an individual solution basis for those solutions available for market and will be recognized based on the solution's economic life. Because the Company believes its current process for developing software is essentially completed concurrently with the establishment of technology feasibility. Costs associated with the development work between technological feasibility and the general availability has not been material and as such we have not capitalized any development costs to date.

Property and Equipment

        Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful life of the related asset, which is generally one to three years. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the lease term or the estimated useful life of the asset or improvement. Cost of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. When property and equipment are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is included in the other income (expense), net, in the consolidated statement of operations during the period.

F-12


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

1. The Company and Summary of Significant Accounting Policies (Continued)

Impairment of Long-Lived Assets

        In accordance with ASC 360, "Property, Plant, and Equipment," the Company evaluates long-lived assets, such as property and equipment, including intangible assets other than goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. No assets were determined to be impaired to date.

Advertising and Promotion Costs

        Expenses related to advertising and promotion of solutions is charged to sales and marketing expense as incurred. The Company did not incur any significant advertising and promotion expenses during the years ended December 31, 2009, 2010 and 2011, respectively.

Goodwill and Intangible Assets

        Goodwill represents the excess of the purchase price of the acquired enterprise over the fair value of identifiable assets acquired and liabilities assumed. The Company applies ASC 350, "Intangibles—Goodwill and Other," and performs an annual goodwill impairment test during the fourth quarter of the Company's fiscal year and more frequently if an event or circumstance indicates that an impairment may have occurred. For the purposes of impairment testing, the Company has determined that it has one reporting unit. A two-step impairment test of goodwill is required pursuant to ASC 350-20-35. In the first step, the fair value of the reporting unit is compared to its carrying value. If the fair value exceeds the carrying value, goodwill is not impaired and further testing is not required. If the carrying value exceeds the fair value, then the second step of the impairment test is required to determine the implied fair value of the reporting unit's goodwill. The implied fair value of goodwill is calculated by deducting the fair value of all tangible and intangible net assets of the reporting unit, excluding goodwill, from the fair value of the reporting unit as determined in the first step. If the carrying value of the reporting unit's goodwill exceeds its implied fair value, then an impairment loss must be recorded that is equal to the difference. The identification and measurement of goodwill impairment involves the estimation of the fair value of the Company. The estimate of fair value of the Company, based on the best information available as of the date of the assessment, is subjective and requires judgment, including management assumptions about expected future revenue forecasts and discount rates. No impairment to the carrying value of goodwill was identified by the Company during the years ended December 31, 2010 and 2011.

        Intangible assets consist of developed technology, vendor relationships and customer relationships. The values assigned to intangibles are based on estimates and judgments regarding expectations for success and life cycle of solutions and technologies acquired.

F-13


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

1. The Company and Summary of Significant Accounting Policies (Continued)

        Intangible assets are amortized on a straight-line basis over their estimated lives, which approximate the pattern in which the economic benefits of the intangible assets are consumed, as follows:

Developed technology

  4 years

Customer relationships

  4 years

Vendor relationships

  4 years

Fair Value of Financial Instruments

        The carrying amounts of certain of the Company's cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their short maturities. Based on borrowing rates that are available to the Company for loans with similar terms and consideration of the Company's credit risk, the carrying value of the note payable approximates its fair value. The carrying value of the preferred stock warrant liability represents its fair value. See Note 6, "Financial Instruments and Fair Value Measurements," regarding the fair values of the Company's investments and preferred stock warrant liability.

Warranty

        The Company provides limited warranties on all sales and provides for the estimated cost of the warranties at the date of sale, to the extent not already provided by its own vendors. The estimated cost of warranties has not been material to date.

Income Taxes

        The Company accounts for income taxes in accordance with authoritative guidance, which requires use of the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on the difference between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be reversed.

        The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.

        The Company has elected to use the "with and without" approach as described in ASC 740-20, "Intraperiod Tax Allocation," in determining the order in which tax attributes are utilized. As a result, the Company will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to the Company have been utilized. In addition, the Company has elected to account for the impact of stock-based awards on other tax attributes, such as the research tax credit, through the consolidated statement of operations.

F-14


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

1. The Company and Summary of Significant Accounting Policies (Continued)

        In July 2006, the FASB issued guidance, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with ASC 740. The guidance provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the guidance and in subsequent periods. ASC 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the guidance effective January 1, 2009, and as a result of the implementation, the Company recognized an $820 increase in its unrecognized tax benefits. There was no increase in the January 1, 2009 balance of accumulated deficit since the benefit related to attribute carryovers for which the related deferred tax assets were subject to a full valuation allowance.

        The Company recognizes interest and penalties related to uncertain tax positions within the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet.

Employee Benefit Plans

        The Company sponsors a 401(k) defined contribution plan covering all employees. The Company may make discretionary contributions to the 401(k). To date, no contributions have been made by the Company.

Stock-Based Compensation

        The Company accounts for stock-based compensation under ASC 718, "Compensation—Stock Compensation" using the prospective transition method prescribed for private companies. Using the prospective transition method, compensation expense recognized includes the compensation cost for all share-based payment awards granted to employees subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of ASC 718. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. Stock compensation expense is recognized on a straight-line basis over the requisite service period of the award, which generally equals the vesting period.

        Under ASC 718, the Company is required to estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly. The estimate of forfeitures is computed based on historical data of employee turnover and is adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from the prior estimates. Changes in estimated forfeitures are recognized in the period of change and will impact the amount of stock compensation expenses to be recognized in future periods.

        Stock-based compensation expense recognized is shown in the operating activities section of the consolidated statements of cash flows. In addition, ASC 718 requires the cash flows resulting from the tax benefits due to tax deductions on stock option exercises in excess of the stock-based compensation expense recognized (excess tax benefits) to be classified in the financing activities section of the consolidated statements of cash flows. During the years ended December 31, 2009, 2010 and 2011, the Company did not recognize any excess tax benefits.

F-15


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

1. The Company and Summary of Significant Accounting Policies (Continued)

        The Company accounts for stock options issued to nonemployees in accordance with the provisions of ASC 505-50 using a fair-value approach. The measurement of stock-based compensation for nonemployees is subject to periodic adjustments as the options vest, and the expense is recognized over the period over which services are received.

Comprehensive Income (Loss)

        Comprehensive income (loss) includes all changes in equity that are not the result of transactions with stockholders. The Company's comprehensive income (loss) consists of its net loss and changes in unrealized gains (losses) from its available-for-sale investments.

Unaudited Pro Forma Stockholders' Deficit

        The December 31, 2011 unaudited pro forma stockholders' deficit has been prepared assuming that upon the closing of a qualifying initial public offering all of the Company's convertible preferred stock outstanding will automatically convert into shares of common stock. The December 31, 2011 unaudited pro forma stockholders' deficit reflects the conversion of all outstanding preferred stock into shares of common stock.

Recent Accounting Pronouncements

        In June 2011, the FASB issued amended guidance on the presentation of the Statement of Comprehensive Income. The amended guidance eliminates the current option to report other comprehensive income and its components of other comprehensive income as part of the statement of changes in stockholders' equity. In addition, it gives an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The requirement to present reclassification adjustments out of accumulated other comprehensive income on the face of the consolidated statement of income has been deferred. This guidance will be effective for reporting periods beginning after December 15, 2011 and will be applied retrospectively. We do not expect that this guidance will have an impact on our financial position, results of operations or cash flows, but will impact our financial statement presentation.

        In September 2011, the Financial Accounting Standards Board (the "FASB") issued amended guidance relating to the goodwill impairment test. The guidance allows an entity an option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under that option, an entity no longer would be required to calculate the fair value of a reporting unit unless the entity determines, based on that qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance also includes examples of the types of events and circumstances to consider in conducting the qualitative assessment. The guidance will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We are currently evaluating the impact of this amended guidance on our consolidated financial statements.

F-16


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

2. Acquisitions

Fortiva, Inc.

        On June 20, 2008, the Company entered into a Share Purchase Agreement (the "Fortiva Agreement") with Fortiva, Inc. ("Fortiva"), an Ontario, Canada corporation, by which the Company acquired 100% of the outstanding shares of Fortiva.

        Under the terms of the Fortiva Agreement, the acquisition was closed in exchange for cash payment of $5,460, cash settlement of Fortiva's outstanding debt for $1,267, issuance to the former shareholders of Fortiva of 3,100 shares of Series F preferred stock at its fair value of $16,492 ($5.32 per share). The purchase consideration also included the acquisition related costs of $1,031. The results of Fortiva's operations have been included in the consolidated financial statements since the acquisition date.

        The Company acquired Fortiva to provide the Company with a number of benefits, including acquiring technology and adding meaningful scale to its existing business in the United States and providing exposure into the Canadian market. The total purchase price recorded was as follows:

Cash paid

  $ 5,460  

Series F preferred stock (3,100 shares)

    16,492  

Cash paid to settle Fortiva's debt

    1,267  

Transaction fees and expenses

    1,031  
       

  $ 24,250  
       

        The acquisition was accounted for as a purchase business combination. The Company allocated the purchase price to tangible assets acquired, liabilities assumed and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over the aggregate fair values was recorded as goodwill. The goodwill is not deductible for tax purposes. The following table summarizes the allocation of the purchase price and the estimated useful lives of the identifiable intangible assets acquired as of the date of the acquisition:

 
  Estimated
Fair Value
  Estimated
Useful Life

Tangible assets acquired

  $ 3,383    

Liabilities assumed

    (1,847 )  

Developed technology

    12,367   4 years

Customer relationships

    1,342   4 years

Goodwill

    9,005   Indefinite
         

  $ 24,250    
         

Secure Data in Motion, Inc.

        On August 4, 2008, the Company entered into an Asset Purchase Agreement (the "Sigaba Agreement") with Secure Data in Motion, Inc. ("Sigaba"), a Delaware corporation, that was accounted for as a business combination.

F-17


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

2. Acquisitions (Continued)

        Under the terms of the Sigaba Agreement, the Company paid total consideration of $461 for the assets. In addition, the Company agreed to pay an additional 20% of the "renewal fees," as specified in the Sigaba Agreement, actually collected by the Company from each existing Sigaba customer upon renewal up to a maximum of $150. The minimum amount due to Sigaba under the term of above agreement was $75 as of December 31, 2008, which was recorded to operating expenses in fiscal year 2008.

        The total cash consideration of $461 was allocated to goodwill.

Everyone.net, Inc.

        On October 21, 2009, the Company entered into an Agreement of Merger (the "EDN Agreement") with Everyone.net, Inc. ("EDN"), a California corporation, by which the Company acquired 100% of the outstanding shares of EDN. Under the terms of the EDN Agreement, the acquisition was closed in exchange for cash payment of $5,496, cash settlement of EDN's outstanding debts totaling $1,330, issuance of 188 shares of Series F preferred stock at its fair value of $1,000 ($5.32 per share). Additionally, the Company agreed to pay additional earn-out consideration ("earn-out") of up to $2,000 through November 2011, such earn-out being contingent upon the achievement of specified financial targets. The initial fair value of the earn-out of $1,495 was recorded as part of the purchase consideration. The change in fair value of the earn-out of $297 and $208 during the years ended December 31, 2010 and 2011, respectively, was recognized as a charge to interest income (expense), net for the year. The acquisition related costs of $559 incurred by the Company was charged to operating expense in the year ended December 31, 2009. The results of EDN's operations have been included in the consolidated financial statements since the acquisition date. During the year ended December 31, 2010, the Company paid $1,000 of earn-out to the sellers. The remaining payout of $1,000 was paid in December 2011 given that the performance criteria had been met at December 31, 2011. The Company also received $180 during the year ended December 31, 2010, in a working capital adjustment following the closing of the acquisition and such amount was recorded in the consolidated statement of operations as an offset to related expenses incurred and included in general and administrative expenses.

        The Company acquired EDN to provide the Company with a number of benefits, including adding meaningful scale to its existing business in the United States. The total purchase price was as follows:

Cash paid

  $ 5,496  

Cash paid to settle EDN's outstanding debts

    1,330  

Series F preferred stock (188 shares)

    1,000  

Earn-out (recorded at fair value)

    1,495  
       

  $ 9,321  
       

        The acquisition was accounted for as a purchase business combination. The Company allocated the purchase price to tangible assets acquired, liabilities assumed and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over the aggregate fair values was recorded as goodwill. The goodwill was not deductible for tax purposes. The following table

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

2. Acquisitions (Continued)


summarizes the allocation of the purchase price and the estimated useful lives of the identifiable intangible assets acquired as of the date of the acquisition:

 
  Estimated
Fair Value
  Estimated
Useful Life

Tangible assets acquired

  $ 1,882    

Liabilities assumed

    (2,927 )  

Developed technology

    2,690   4 years

Customer relationships

    920   4 years

Vendor relationships

    290   4 years

Goodwill

    6,466   Indefinite
         

  $ 9,321    
         

Spam and Open Relay Blocking System ("SORBS")

        On June 30, 2011, the Company entered into an asset purchase agreement (the "SORBS Agreement") with GFI Software Ltd., a British Virgin Islands corporation.

        Under the terms of the SORBS agreement, the Company paid consideration of $200 for intellectual property and fixed assets with $40 being held in escrow to secure indemnification obligations. The acquisition related costs of $29 incurred by the Company was charged to operating expenses in the year ended December 31, 2011.

        Of the total cash consideration paid, $120 was allocated to goodwill as the intellectual property purchased did not meet the criteria for purchase price allocations as set forth in ASC 805, Business Combinations, and $46 was recorded as fixed assets. The following table summarizes the allocation of the purchase price and the estimated useful lives of the identifiable intangible assets acquired as of the date of the acquisition:

 
  Estimated
Fair Value
  Estimated
Useful Life

Tangible assets acquired

  $ 46   1 year

Liabilities assumed

       

Developed technology

    34   2 years

Customer relationships

       

Vendor relationships

       

Goodwill

    120   Indefinite
         

  $ 200    
         

NextPage, Inc.

        On December 23, 2011, the Company entered into an Agreement of Merger (the "NextPage Agreement") with NextPage, Inc. ("NextPage"), a Delaware corporation, by which the Company acquired 100% of the outstanding shares of NextPage. Under the terms of the NextPage Agreement, the acquisition was completed in exchange for a cash payment of $1 and the issuance of 677 shares of

F-19


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

2. Acquisitions (Continued)


the Company's common stock at its fair value of $5,406 ($7.98 per share) and the assumption of 45 restricted stock units ("RSUs") valued at $180 ($7.98 per unit). Of the 23 RSUs assumed, 14 were fully vested on the date of acquisition. The fair value of the vested RSUs of $58 were included in the purchase price consideration. The acquisition related costs of $97 incurred by the Company was charged to general and administrative expense in the year ended December 31, 2011. The results of NextPage's operations have been included in the consolidated financial statements since the acquisition date.

        The Company acquired NextPage for its file archiving and governance capabilities and will incorporate this technology into its Enterprise Governance solution. This will provide the Company additional scale to its existing business in the United States. The total purchase price was as follows:

Common stock (677 shares)

  $ 5,406  

Restricted stock units (14 shares)

    58  

Cash Paid

    1  
       

  $ 5,465  
       

        The acquisition was accounted for as a purchase business combination. The Company allocated the purchase price to tangible assets acquired, liabilities assumed and identifiable intangible assets acquired based on their estimated fair values. The excess of the purchase price over the aggregate fair values was recorded as goodwill. The goodwill was not deductible for tax purposes. The following table summarizes the allocation of the purchase price and the estimated useful lives of the identifiable intangible assets acquired as of the date of the acquisition:

 
  Estimated
Fair Value
  Estimated
Useful Life

Tangible assets acquired

  $ 413    

Liabilities assumed

    (353 )  

Trade name

    18   2 years

Customer relationships

    146   4 years

Non-compete agreements

    106   2 years

Patent

    50   4 years

NextPage technology

    2,580   4 years

Goodwill

    2,505   Indefinite
         

  $ 5,465    
         

    Pro Forma Financial Information (unaudited)

        The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and companies that were acquired since the beginning of fiscal year 2009. The pro forma financial information includes the business combination accounting effects from the acquisitions including amortization charges from acquired intangible assets and the related tax effects as though the aforementioned companies were combined as of the beginning of 2009. The unaudited pro forma financial information for the years ended December 31, 2009, 2010 and 2011, as

F-20


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

2. Acquisitions (Continued)

presented below, is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of 2009.

 
  Year Ended
December 31,
 
 
  2009   2010   2011  

Revenue

  $ 52,917   $ 66,026   $ 83,152  

Net loss

    (22,364 )   (21,941 )   (21,930 )

Basic and diluted net loss per share

    (6.96 )   (6.14 )   (5.48 )

3. Concentration of Risks

        Financial instruments that potentially subject the Company to credit risk consist principally of cash, cash equivalents, short-term investments and accounts receivable.

        The Company limits its concentration of risk in cash equivalents and short-term investments by diversifying its investments among a variety of industries and issuers and by limiting the average maturity to one year or less. The Company's professional portfolio managers adhere to this investment policy as approved by the Company's Board of Directors.

        The Company's investment policy is to invest only in fixed income investments denominated and payable in U.S. dollars. Investment in obligations of the U.S. government and its agencies, money market instruments, commercial paper, certificates of deposit, bankers' acceptances, corporate bonds of U.S. companies, municipal securities and asset backed securities are allowed. The Company does not invest in auction rate securities, futures contracts, or hedging instruments.

        The Company's accounts receivables are derived from revenue earned from customers primarily located in the United States of America. The Company performs periodic evaluations of its customers' financial condition and generally does not require its customers to provide collateral or other security to support accounts receivable, and maintains an allowance for doubtful accounts. Credit losses historically have not been significant.

        No single customer accounted for more than 10% of total revenue in the years ended December 31, 2009, 2010 or 2011.

        At December 31, 2011, there were no customers that accounted for more than 10% of total accounts receivable. At December 31, 2010 the following customer accounted for more than 10% of total accounts receivable:

 
  As of
December 31,
 
 
  2010  

Customer A

  $ 1,590  

F-21


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

3. Concentration of Risks (Continued)

        At December 31, 2010 and 2011, the following vendor accounted for more than 10% of total accounts payable:

 
  As of
December 31,
 
 
  2010   2011  

Vendor A

  $ 425   $ 506  

Vendor B

  $   $ 355  

4. Balance Sheet Components

        Allowance for doubtful accounts activity and balances are presented below:

 
  Balance at
Beginning of
Period
  Additions
to Costs and
Expenses
  Write
Offs
  Balance at
End of
Period
 

Year ended December 31, 2009

  $ 159   $ 318   $ (181 ) $ 296  

Year ended December 31, 2010

    296     44     (83 )   257  

Year ended December 31, 2011

    257     8     (32 )   233  

        Property and equipment at December 31, 2010 and 2011, consist of the following:

 
   
  December 31,  
 
  Useful Life
(in years)
 
 
  2010   2011  

Computer equipment

  2 to 3   $ 13,724   $ 18,298  

Software

  2     1,000     1,539  

Furniture

  5     48     48  

Office equipment

  2     316     341  

Leasehold improvements

  5 years or shorter of the lease term     475     539  

Other

  2     54     54  

Construction in progress

        112     559  
               

        15,729     21,378  

Less: Accumulated depreciation and amortization

        (11,099 )   (14,025 )
               

      $ 4,630   $ 7,353  
               

        Property and equipment acquired under capital leases:

 
  December 31,  
 
  2010   2011  

Computer equipment

  $ 386   $ 386  

Less: Accumulated depreciation

    (220 )   (371 )
           

  $ 166   $ 15  
           

F-22


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

4. Balance Sheet Components (Continued)

        Depreciation expense for the years ended December 31, 2009, 2010 and 2011, was approximately $3,012, $3,261, and $3,142, respectively. This included depreciation expense for assets under capital leases of $56, $164, $151 for the years ended December 31, 2009, 2010 and 2011, respectively.

        Accrued liabilities at December 31, 2010 and 2011 consisted of the following:

 
  December 31,  
 
  2010   2011  

Accrued compensation

  $ 4,969   $ 5,909  

Accrued royalties

    594     355  

Other

    3,427     3,797  
           

  $ 8,990   $ 10,061  
           

5. Goodwill and Intangible Assets

        The goodwill activity and balances are presented below:

 
  December 31,  
 
  2010   2011  

Opening balance

  $ 15,932   $ 15,932  

Add: Goodwill from acquisitions

        2,625  
           

Closing balance

  $ 15,932   $ 18,557  
           

        The goodwill balance as of December 31, 2011 was the result of the acquisitions of Fortiva, Sigaba, EDN, SORBS and NextPage (Note 2).

Intangible Assets

        Intangible assets excluding goodwill, consisted of the following:

 
  December 31, 2010   December 31, 2011  
 
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
 

Developed technology

  $ 15,027   $ (8,605 ) $ 6,422   $ 17,641   $ (12,378 ) $ 5,263  

Customer relationships

    2,262     (1,121 )   1,141     2,408     (1,685 )   723  

Vendor relationships

    290     (86 )   204     290     (290 )    

Non-compete

                106     (1 )   105  

Trademark and patents

    30         30     98         98  
                           

  $ 17,609   $ (9,812 ) $ 7,797   $ 20,543   $ (14,354 ) $ 6,189  
                           

        In the quarter ended March 31, 2011, the Company revised the useful life of the vendor relationship intangible asset. The Company fully depreciated this intangible asset given that it is no longer using the technology provided by this vender. Accordingly, the entire remaining balance of $0.3 million was expensed.

F-23


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

5. Goodwill and Intangible Assets (Continued)

        Amortization expense of intangibles totaled $3,779, $4,382, and $4,542 during the years ended December 31, 2009, 2010 and 2011, respectively.

        Future estimated amortization costs of intangible assets as of December 31, 2011 are presented below:

2012

  $ 3,276  

2013

    1,479  

2014

    725  

2015

    709  
       

  $ 6,189  
       

6. Financial Instruments and Fair Value Measurements

        The cost and fair value of the Company's available-for-sale investments as of December 31, 2010 and 2011 were as follows:

 
  December 31, 2010  
 
  Cost Basis   Unrealized
Gains
  Unrealized
Losses
  Fair
Value
 

Certificate of deposit

  $ 250   $   $   $ 250  

Money market funds

    8,660             8,660  

Corporate debt securities

    410             410  
                   

  $ 9,320   $   $   $ 9,320  
                   

Amount classified as cash and cash equivalents

                    $ 8,660  

Amount classified as short-term investments

                      660  
                         

                    $ 9,320  
                         

 

 
  December 31, 2011  
 
  Cost Basis   Unrealized
Gains
  Unrealized
Losses
  Fair
Value
 

Money market funds

  $ 6,850   $   $   $ 6,850  

Corporate debt securities

    2,950         (3 )   2,947  
                   

  $ 9,800   $   $ (3 ) $ 9,797  
                   

Amount classified as cash and cash equivalents

                    $ 6,850  

Amount classified as short-term investments

                      2,947  
                         

                    $ 9,797  
                         

F-24


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

6. Financial Instruments and Fair Value Measurements (Continued)

        As of December 31, 2010 and 2011, all investments mature in less than one year. Estimated fair values for marketable securities are based on quoted market prices for the same or similar instruments.

Fair Value Measurements

        Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. A hierarchy for inputs used in measuring fair value has been defined to minimize the use of unobservable inputs by requiring the use of observable market data when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

        The fair value hierarchy prioritizes the inputs into three broad levels:

    Level 1 Quoted (unadjusted) prices in active markets for identical assets or liabilities.

      The Company's Level 1 assets consist of money market funds, and a certificate of deposit.

    Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

      The Company's Level 2 assets and liabilities consist of corporate bonds and agency debt securities.

    Level 3 Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

      The Company's Level 3 liabilities consist of the Series B preferred stock warrants, which were exercised during the year ended December 31, 2011.

F-25


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

6. Financial Instruments and Fair Value Measurements (Continued)

        The following tables summarize, for each category of assets or liabilities, the respective fair value as of December 31, 2010 and 2011 and the classification by level of input within the fair value hierarchy.

 
  Balance as of
December 31,
2010
  Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Unobservable
Inputs
(Level 3)
 

Cash equivalents:

                         

Money market funds

  $ 8,660   $ 8,660   $   $  

Short-term investments:

                         

Corporate debt securities

    410         410      

Certificate of deposit

    250     250          
                   

  $ 9,320   $ 8,910   $ 410   $  
                   

 

 
  Balance as of
December 31,
2011
  Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Unobservable
Inputs
(Level 3)
 

Cash equivalents:

                         

Money market funds

  $ 6,850   $ 6,850   $   $  

Short-term investments:

                         

Corporate debt securities

    2,947         2,947      
                   

  $ 9,797   $ 6,850   $ 2,947   $  
                   

        The following table is a reconciliation of the preferred stock warrant liability that is measured at fair value using significant unobservable inputs (Level 3):

Balance at December 31, 2009

  $ 83  

Change in fair value recorded in other income (expense), net

    74  
       

Balance at December 31, 2010

  $ 157  

Change in fair value recorded in other income (expense), net

    (66 )

Preferred warrant conversion

    (91 )
       

Balance at December 31, 2011

  $  
       

        In measuring fair value where Level 3 inputs were used, the Company measured the fair value of the preferred stock warrants liability using the Black-Scholes option pricing model. See Note 9, "Preferred Stock."

F-26


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

7. Commitments and Contingencies

Operating Leases

        The Company leases certain of its facilities under noncancelable operating leases with various expiration dates through June 2014.

        Rent expense was $1,117, $1,157 and $1,471 for the years ended December 31, 2009, 2010 and 2011, respectively.

Capital Leases

        The Company acquired capital leases as part of the EDN acquisition. The leases were secured by fixed assets primarily used in a data center. The leases have various expiration dates through October 2012. The interest rates range from 2.9% to 10.6%.

        At December 31, 2011, future annual minimum lease payments under noncancelable operating and capital leases were as follows:

 
  Capital
Leases
  Operating
Leases
 

Year Ending December 31,

             

2012

  $ 71   $ 3,125  

2013

        1,518  

2014

        919  
           
 

Total minimum lease payments

    71     5,562  

Less: Amount representing interest

    (15 )      
             

Present value of capital lease obligations

    56        

Less: Current portion

    (56 )      
             
 

Long-term portion of capital lease obligations

  $        
             

Contingencies

        Under the indemnification provisions of the Company's customer agreements, the Company agrees to indemnify and defend and hold harmless its customers against, among other things, infringement of any patent, trademark or copyright under any country's laws or the misappropriation of any trade secret arising from the customers' legal use of the Company's solutions. Certain indemnification provisions potentially expose the Company to losses in excess of the aggregate amount paid to the Company by the customer under the applicable customer agreement. To date, there have been no claims against the Company or its customers pursuant to these indemnification provisions.

Legal Contingencies

        From time to time, the Company is involved in claims and legal proceedings that arise in the ordinary course of business. Based on currently available information, management does not believe that the ultimate outcome of these unresolved matters, individually and in the aggregate, is likely to have a material adverse effect on the Company's financial position, results of operations or cash flows. However, litigation is subject to inherent uncertainties and the Company's view of these matters may

F-27


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

7. Commitments and Contingencies (Continued)


change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company's financial position, results of operations or cash flows for the period in which the unfavorable outcome occurs, and potentially in future periods.

        The Company determined that subsequent to its acquisition of Fortiva, Inc., a Canadian company, (see Note 2) in August 2008, it shipped a particular hardware appliance model to a limited number of international customers that, prior to shipment, required either a one-time product review or application for an encryption registration number in lieu of such product review. The Company has made voluntary submissions to the United States Commerce Department's Bureau of Industry and Security (BIS) to report this potential violation. Based upon the results of the internal investigation completed to date, the Company does not believe that the amount of any loss incurred as a result of this matter would be material to its business, financial condition, results of operations or cash flows.

        As part of a pre-IPO due diligence review, the Company discovered a potential export violation involving the provision of web-based, email communication services through its Everyone.net service, which the Company acquired in October 2009 (see Note 2). The Company's records indicate that there were two end-users who may have, for a portion of their respective service periods, been located in Iran, a United States designated state sponsor of terrorism. The Company's internal investigation has progressed and the Company has found that the issues identified are specific to the acquired Everyone.net system, which has a separate customer database and billing system from that of Proofpoint's main businesses. The Company does not have any indication that these services were utilized by the Iranian government. The accounts of both end-users were terminated in 2010 and accounted for approximately $15 in payments to us in 2009 and $6 in payments to us in 2010. Although the Company has ceased providing the service, the Company has made voluntary submissions to OFAC to report this potential violation. Based upon the results of the internal investigation completed to date, the Company does not believe that the amount of any loss incurred as a result of this matter would be material to its business, financial condition, results of operations or cash flows.

8. Debt

Equipment Financing Loans

        The Company entered into a new equipment loan agreement with Silicon Valley Bank in April 2011 for an aggregate loan principle amount of $6,000. Interest on the advances are equal to prime rate plus 0.50%. As of December 31, 2011, the interest on the advances was 4.50%. The Company has the ability to draw down on this equipment line through April 19, 2012. Each drawn amount is due 48 months after funding. Borrowings outstanding under the equipment loan at December 31, 2011 were $4,925. Equipment financed under this loan arrangement is collateralized by the respective assets underlying the loan. The terms of the loan restrict the Company's ability to pay dividends. The loan includes a covenant that requires the Company to maintain cash and cash equivalents plus net accounts receivables of at least two times the amount of all outstanding indebtedness. As of December 31, 2011, the Company was in compliance with the financial covenant.

        The Company had a previous equipment loan arrangement with Silicon Valley Bank for $2,000. The loan bore interest at an annual rate of 8.75%. The maturity date was 36 months after the funding date. Borrowings outstanding under the equipment loan at December 31, 2011 are $0, as the loan was completely repaid and closed in June 2011. Equipment financed under this loan arrangement was

F-28


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

8. Debt (Continued)

collateralized by the respective assets underlying each specific draw down. This loan required the Company to maintain a tangible net worth greater than $18,000 and during the term of the loan, the Company was in compliance with the financial covenant.

        Interest expense for the years ended December 31, 2009, 2010 and 2011 was approximately $48, $27 and $54, respectively.

        At December 31, 2011, the repayment commitments related to the equipment loans are as follows:

Year Ending December 31,

       

2012

  $ 411  

2013

    1,587  

2014

    1,661  

2015

    1,266  

2016

     
       

  $ 4,925  
       

9. Preferred Stock

        Convertible preferred stock at December 31, 2011 is as follows:

 
   
  Shares    
   
 
 
  Original
Issue Price
Per Share
  Liquidation
Amount
  Proceeds Net of
Issuance Costs
 
 
  Authorized   Outstanding  

Series A

  $ 1.00     7,400     7,400   $ 7,400   $ 7,374  

Series B

    1.28     7,109     7,080     9,062     8,937  

Series C

    2.41     8,307     8,307     20,020     19,920  

Series D

    3.01     665     665     2,001     1,954  

Series E

    3.48     5,743     5,743     20,001     19,899  

Series F

    5.32     10,200     9,747     51,854     34,238  
                         

          39,424     38,942   $ 110,338   $ 92,322  
                         

        In October 2009, the Company entered into an amendment to the Series F preferred stock Purchase agreement and issued 940 shares of Series F preferred stock at $5.32 per share, to an existing investor, for cash proceeds of $5,000 net of issuance costs of $38. Additionally, the Company issued 188 shares of Series F preferred stock, as part of the consideration paid for the acquisition of EDN, see Note 2.

        In May 2010, the Company entered into a second amendment to the Series F preferred stock Purchase agreement and issued 282 shares of Series F preferred stock at $5.32 per share to an existing investor, for cash proceeds of $1,500 net of issuance costs of $9.

F-29


Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

9. Preferred Stock (Continued)

        The preferred stock has certain rights, preferences, privileges and restrictions with respect to voting, dividends, liquidation and conversion as follows:

Voting

        Each share of the preferred stock has the same voting rights as the number of shares of common stock into which it is convertible.

Dividends

        The holders of Series A, B, C, D, E and F preferred stock are entitled to receive noncumulative dividends prior and in preference to any declaration or payment of any dividend on the common stock of the Company, at the per annum rate of $0.08, $0.1024, $0.1926, $0.2408, $0.2786 and $0.4256 per share, respectively, when and if declared by the Board of Directors. Dividends on preferred stock or common stock have never been declared by the Board of Directors.

Liquidation

        In the event of liquidation, dissolution or winding-up of the Company, either voluntary or involuntary, the holders of the preferred stock are entitled to receive, prior to and in preference to any distribution of any of the assets of the Company to the holders of common stock by reason of ownership thereof, an amount per share equal to $1.00, $1.28, $2.41, $3.01, $3.48 and $5.32 plus any declared but unpaid dividends to the holders of Series A, B, C, D, E and F preferred stock, respectively. If the assets and funds distributed among the holders of Series A, B, C, D, E and F preferred stock are insufficient to permit the payment to such holders of the full amounts, then the entire assets and funds of the Company shall be distributed ratably among the holders of Series A, B, C, D, E and F preferred stockholders. The remaining assets, if any, shall be distributed to the common stockholders. These liquidity features cause the Company's convertible preferred stock to be classified as mezzanine equity rather than as a component of stockholders' deficit.

Conversion

        Each share of Series A, B, C, D, E and F preferred stock is convertible at the option of the holder into such number of shares of common stock as is determined by dividing $1.00, $1.28, $2.41, $3.01, $3.48 and $5.32, respectively, by the conversion price applicable to such share, determined in effect on the date the certificate is surrendered for conversion. The conversion price for each share of Series A, B, C, D, E and F preferred stock was $2.00, $2.56, $4.82, $4.82, $6.94, and $10.64, respectively. Such initial conversion price shall be subject to adjustment for stock splits, reverse stock splits, stock dividends and other matters. Each share of Series A, B, C and F preferred stock is convertible into 0.5 shares of common stock. Series D preferred stock is convertible into 0.625 shares of common stock and each share of Series E preferred stock is convertible into 0.502315 shares of common stock. The shares of preferred stock are automatically converted into shares of common stock at the conversion price in effect upon the earlier of a closing of an initial public offering of common stock in which the gross proceeds exceeds $40,000 and in which the public offering price per share equals or exceeds $21.28 per share, or the date specified by the holders of a majority of the outstanding shares of the preferred stock.

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

9. Preferred Stock (Continued)

Redemption

        The convertible preferred stock is not redeemable by the Company or at the option of the preferred stockholders.

Series B Preferred Stock Warrants

        In 2004, the Company issued warrants to purchase 78 shares of the Company's Series B convertible preferred stock at a price of $1.28 per share in connection with an equipment financing arrangement. Using the Black-Scholes option-pricing model, the Company determined the fair value of each warrant to be $1.07 and $2.01 as of December 31, 2009 and 2010, respectively. The fair value of the warrants was estimated using the following assumptions.

 
  Year Ended
December 31,
2009
  Year Ended
December 31,
2010
 

Dividend yield

    None     None  

Expected volatility

    62.0 %   61.0 %

Risk-free interest rate

    2.6 %   1.8 %

Expected term (in years)

    1.5     0.5  

        The warrants were converted in August 2011 into 49 shares of the Company's Series B convertible preferred stock on a net settlement basis.

10. Common Stock

        The Company's Certificate of Incorporation, as amended on December 23, 2011, authorizes the Company to issue 71,400 shares of $0.0001 par value common stock. The Company had repurchased 162 and 164 shares of common stock, which had been early exercised, and were pending retirement at December 31, 2010 and 2011, respectively. Accordingly 3,991 and 5,125 shares of common stock were issued and 3,829 and 4,961 shares of common stock were outstanding at December 31, 2010 and 2011, respectively.

        A portion of the shares sold are subject to a right of repurchase by the Company subject to vesting, which is generally over a four year period from the earlier of grant date or employee hire date, as applicable, until vesting is complete. There were no repurchases of common stock during the year ended December 31, 2010. There was 1 share of common stock repurchased during the year ended December 31, 2011. At December 31, 2010 and 2011, there were 5 and 6 shares, respectively, subject to repurchase.

        The Company had, prior to 2009, granted a warrant to a service provider to purchase 2 shares of common stock in exchange for services performed. Such warrant for common stock issued by the Company is outstanding at December 31, 2011.

11. Stock Option Plans

        Under the Company's 2002 stock option plan (the "Plan"), the Company may grant options to purchase common stock or directly issue shares of common stock to employees, outside directors and

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

11. Stock Option Plans (Continued)


consultants at prices equal to the fair market value at the date of grant of options or issuance of common stock. The Company has the right to repurchase any unvested shares (at the option exercise price) of common stock issued directly or under option exercises. The right of repurchase generally expires over the vesting period.

        Under the 2002 Plan, the term of an option grant shall not exceed ten years from the date of its grant and options generally vest over a three to four-year period, with vesting on a monthly or annual interval. 14,604 shares of common stock are reserved for issuance to eligible participants, under the 2002 Plan. As of December 31, 2011, 364 shares were available for future grant.

        Stock option activity under the Plan is as follows:

 
  Shares subject to
Options Outstanding
 
 
  Number of
Shares
  Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term
(in years)
  Aggregate
Intrinsic
Value
 

Balance at January 1, 2009

    7,005   $ 2.73     4.71   $ 6,392  

Options granted

   
2,900
   
3.13
             

Options exercised

    (160 )   1.30              

Options forfeited and cancelled

    (1,891 )   4.24              
                         

Balance at December 31, 2009

    7,854     2.55     5.62     11,258  

Options granted

   
3,315
   
4.57
             

Options exercised

    (522 )   2.35              

Options forfeited and cancelled

    (936 )   3.51              
                         

Balance at December 31, 2010

    9,711     3.15     6.18     21,619  
                         

Options granted

   
2,533
   
6.33
             

Options exercised

    (456 )   2.63              

Options forfeited and cancelled

    (1,083 )   4.16              
                         

Balance at December 31, 2011

    10,705     3.83     6.77     44,466  
                   

Exercisable, December 31, 2011

    5,780     2.58     5.27     31,232  
                   

Vested and expected to vest, December 31, 2011

    10,054   $ 3.70     6.64   $ 43,020  
                   

        The total intrinsic value of options exercised was $297, $1,337 and $1,505, for the years ended December 31, 2009, 2010 and 2011, respectively. Total cash proceeds from such option exercises were $209, $1,211 and $1,198 for the years ended December 31, 2009, 2010 and 2011, respectively.

Stock-Based Compensation

        The fair value of options granted is estimated on the grant date using the Black-Scholes option valuation model. This valuation model for stock-based compensation expense requires the Company to

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

11. Stock Option Plans (Continued)


make assumptions and judgments about the variables used in the calculation, including the expected term (weighted-average period of time that the options granted are expected to be outstanding), the volatility of the common stock price, an assumed risk-free interest rate and the estimated forfeitures of unvested stock options. To the extent actual forfeitures differ from the estimates, the difference will be recorded as a cumulative adjustment in the period estimates are revised. No compensation cost is recorded for options that do not vest and the compensation cost from vested options, whether forfeited or not, is not reversed.

        The Board of Directors, in good faith, determine the fair market values of the Company's common stock, based on the best information available to the Board and the Company's management at the time of grant. The Company performed its analysis in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants entitled Valuation of Privately Held Company Equity Securities Issued as Compensation . The procedures performed to determine the fair value of the Company's common stock was based on a probability-weighted expected return method to estimate the aggregate equity value of the Company.

        The weighted average fair value of stock options granted to employees during the years ended December 31, 2009, 2010 and 2011, was $3.13, $4.57 and $6.33, respectively. The fair values were estimated on the grant dates using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 
  Year Ended December 31,
 
  2009   2010   2011

Expected life (in years)

  5.85 - 6.08   6 - 6.08   5.85 - 6.08

Volatility

  62% - 65%   60% - 61%   59% - 61%

Risk-free interest rate

  2% - 2.8%   1.8% - 2.8%   1.2% - 2.5%

Dividend yield

  0%   0%   0%

        The estimate for expected life of options granted reflects the midpoint of the vesting term and the contractual life computed utilizing the simplified method outlined in SEC's Staff Accounting Bulletin, or SAB, No. 107, Share-Based Payment, or SAB 107. The Company does not have significant historical share option exercise experience and hence considers the expected term assumption calculated using the simplified method to be reasonable. Since the Company's stock is not publicly traded, the stock volatility assumptions represent an estimate of the historical volatilities of the common stock of a group of publicly-traded peer companies that operate in a similar industry. The estimate was determined based on the average historical volatilities of these peer companies. The risk-free interest rate used was the Federal Reserve Bank's constant maturities interest rate commensurate with the expected life of the options in effect at the time of the grant. The expected dividend yield was zero, as the Company does not anticipate paying a dividend within the relevant time frame. Expected forfeitures are estimated based on the Company's historical experience.

        The Company realized no income tax benefit from stock option exercises in each of the periods presented due to recurring losses and valuation allowances.

        As of December 31, 2011, the Company had unamortized stock-based compensation expense of $11,535 related to stock options, that will be recognized net of forfeitures over the average remaining vesting term of the options of 2.95 years.

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

11. Stock Option Plans (Continued)

Stock Reserved for Issuance

        As of December 31, 2010 and 2011, the Company has reserved common stock for issuance of the following:

 
  As of
December 31,
 
 
  2010   2011  

Conversion of outstanding preferred stock

    39,086     39,134  

Exercise of common stock options

    9,711     10,705  
           

    48,797     49,839  
           

        During the year ended December 31, 2009, the Company re-priced options granted to 62 employees with an exercise price of $4.56 per share and granted new options at a fair value of $3.06 per share to vest over four years. The incremental expense of $541 relating to such re-pricing of options is being recorded over the new vesting term of the options.

Restricted Stock Units

        In December 2011, the Company assumed NextPage's 2007 Stock Plan (the "2007 Plan"). Under the 2007 Plan, the Company assumed 23 RSUs, which remain subject to their original terms and conditions.

        During the year ended December 31, 2011, the Company acquired NextPage, Inc. and assumed the RSUs granted to certain employees. The fair value of each unit is based on the fair value of the Company's common stock on the date of assumption. A summary of the status of RSUs awarded and unvested under the stock option plans as of December 31, 2011 is presented below (in thousands, except per share amounts):

 
  RSUs
Outstanding
 
 
  Number of
Shares
  Granted
Fair
Value
Per
Unit
 

Awarded and unvested at January 1, 2011

           

Awards assumed

    23   $ 7.98  

Awards vested

    (15 )   7.98  

Awards forfeited

        7.98  
             

Awarded and unvested at December 31, 2011

    8   $ 7.98  
           

        As of December 31, 2011, there was $58 of unamortized stock-based compensation expense related to unvested RSUs, which are expected to be recognized over a weighted average period of 1.57 years.

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

12. Net Loss per Share

        Our basic net loss per share of common stock is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The weighted-average number of shares of common stock used to calculate our basic net loss per share of common stock excludes those shares subject to repurchase related to stock options that were exercised prior to vesting as these shares are not deemed to be issued for accounting purposes until they vest. The diluted net loss per share of common stock is computed by dividing the net loss using the weighted-average number of shares of common stock, excluding common stock subject to repurchase, and, if dilutive, potential shares of common stock outstanding during the period. Potentially dilutive shares of common stock consist of common stock subject to repurchase, stock options to purchase common stock, warrants to purchase convertible preferred stock (using the treasury stock method) and the conversion of our convertible preferred stock and convertible notes payable (using the "if converted" method).

        The following table presents the calculation of basic and diluted net loss per share:

 
  Years Ended December 31,  
 
  2009   2010   2011  

Numerator:

                   
 

Net loss

  $ (19,738 ) $ (20,865 ) $ (20,141 )
               

Denominator:

                   

Weighted average number of common shares used in computing basic and diluted net loss per share

    3,212     3,575     4,005  
               

Net loss per common share

                   
 

Basic and diluted net loss per share

  $ (6.14 ) $ (5.84 ) $ (5.03 )
               

        The following table presents the potentially dilutive common shares outstanding that were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:

 
  Years Ended December 31,  
 
  2009   2010   2011  

Convertible preferred stock

    38,804     39,086     39,134  

Stock options to purchase common stock

    7,854     9,711     10,705  

Common stock subject to repurchase

    7     5     6  

Convertible preferred stock warrants

    78     78      

Common stock warrants

    2     2     2  
               

Total

    46,745     48,882     49,847  
               

13. Pro Forma Net Loss per Share (unaudited)

        Pro forma basic and diluted net loss per share of common stock has been computed to give effect to the conversion of the convertible preferred stock into common stock as of the later of January 1, 2011 or the issuance date. As discussed in Note 9, the warrants to purchase preferred stock were exercised on a net settlement basis in August 2011. For purposes of this pro forma presentation of basic and diluted net loss per share of common shares (unaudited), the Company has assumed that the

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

13. Pro Forma Net Loss per Share (unaudited) (Continued)


preferred stock warrants were exercised on a net settlement basis on January 1, 2011. Also, the numerator in the pro forma basic and diluted net loss per share calculation has been adjusted to remove gains and losses resulting from remeasurements of the convertible preferred stock warrant liability.

        The following table sets forth the computation of our pro forma basic and diluted net loss per share of common stock (unaudited) (in thousands, except for share amounts):

 
  Year Ended
December 31,
2011
 

Net loss

  $ (20,141 )

Change in fair value of convertible preferred stock warrant liability

    (66 )
       

Net loss used in computing pro forma net loss per share, basic and diluted

  $ (20,207 )
       

Shares used in computing net loss per share, basic and diluted

    4,005  

Pro forma adjustments to reflect conversion of convertible preferred stock including preferred stock issued upon conversion of preferred stock warrants

    19,567  
       

Pro forma shares used in computing pro forma net loss per share, basic and diluted

    23,572  
       

Pro forma net loss per share, basic and diluted

  $ (0.86 )
       

14. Segment Reporting

        Operating segments are reported in a manner consistent with the internal reporting supported and defined by the components of an enterprise about which separate financial information is available, provided and is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is its chief executive officer. The Company's chief executive officer reviews financial information presented on a consolidated basis and as a result, the Company concluded that there is only one operating and reportable segment.

        The following sets forth total revenue and long-lived assets by geographic area. Revenue by geography is based upon the billing address of the customer.

 
  Year Ended December 31,  
 
  2009   2010   2011  

Total revenue:

                   

United States

  $ 37,172   $ 51,623   $ 65,044  

Rest of World

    11,356     13,167     16,794  
               
 

Total revenue

  $ 48,528   $ 64,790   $ 81,838  
               

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

14. Segment Reporting (Continued)

 

 
  Year Ended
December 31,
 
 
  2010   2011  

Long-lived assets:

             

United States

  $ 3,631   $ 5,198  

Rest of World

    999     2,155  
           
 

Total long-lived assets

  $ 4,630   $ 7,353  
           

15. Income Taxes

        The Company accounts for income taxes in accordance with authoritative guidance, which requires the use of the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on the difference between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be reversed.

        The domestic and foreign components of loss before provision for income taxes were as follows for the years ended December 31, 2009, 2010 and 2011:

 
  Year Ended December 31,  
 
  2009   2010   2011  

Domestic

  $ (16,520 ) $ (18,157 ) $ (17,565 )

Foreign

    (2,985 )   (2,465 )   (2,206 )
               
 

Loss before provision for income taxes

  $ (19,505 ) $ (20,622 ) $ (19,771 )
               

        The expense for income taxes is comprised of:

 

 
  Year Ended
December 31,
 
 
  2009   2010   2011  

Current tax expense:

                   

Federal

  $   $   $  

State

    37     78     52  

Foreign

    196     165     318  
               
 

Total current

    233     243     370  
               

Deferred tax expense:

                   

Federal

             

State

             

Foreign

             
               
 

Total deferred

             
               
 

Total tax expense

  $ 233   $ 243   $ 370  
               

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

15. Income Taxes (Continued)

        The reconciliation of income tax expense at the statutory federal income tax rate of 34% to the income tax provision included in the statement of operations for the years ended December 31, 2009, 2010 and 2011 is as follows:

 
  Year Ended December 31,  
 
  2009   2010   2011  

Tax at federal statutory rate

  $ (6,632 ) $ (7,011 ) $ (6,722 )

Foreign income tax rate differential

    12     132     219  

State, net of federal benefit

    (805 )   (804 )   (821 )

Stock compensation charges

    566     677     1,091  

Other permanent items

    142     171     849  

Provision to return & other

        (2 )   850  

Research and development credits

    (1,026 )   (1,320 )   (1,427 )

Uncertain tax positions

    256     272     1,004  

Valuation allowance

    7,720     8,128     5,327  
               
 

Total tax expense

  $ 233   $ 243   $ 370  
               

        Deferred tax assets and liabilities reflect the net tax effects of net operating loss and tax credit carryovers and the temporary differences between the carrying amount of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows for the years ended December 31, 2010 and 2011:

 
  Year Ended
December 31,
 
 
  2010   2011  

Deferred Tax Assets:

             

Net operating loss carryforwards

  $ 38,973   $ 48,828  

Tax credit carryforwards

    4,566     6,667  

Deferred revenue

    11,453     7,545  

Fixed assets

    1,329     523  

Accruals and other

    2,885     3,276  
           
 

Total deferred tax assets

    59,206     66,839  

Deferred Tax Liabilities:

             

Intangibles

    (2,576 )   (1,857 )
 

             

Valuation allowance

    (56,630 )   (64,982 )
           
 

Net deferred tax assets

  $   $  
           

        The Company records net deferred tax assets to the extent that Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

15. Income Taxes (Continued)

        Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by approximately $5,600, $8,200 and $6,400 during the years ended December 31, 2009, 2010 and 2011, respectively.

        As of December 31, 2010 and 2011, the Company had net operating loss and research and development credit carryforwards for federal income tax purposes of $115,300 and $3,200, respectively. The federal net operating losses will begin to expire in the year 2018 and the federal research and development credits will begin to expire in the year 2022. As of December 31, 2010 and 2011, the Company had net operating loss and research and development credit carryforwards for state income tax purposes of approximately $91,400 and $3,800, respectively. The state net operating losses expire in the year 2031 and the state research and development credits will carryforward indefinitely. In addition, as of December 31, 2011, the Company had net operating losses and research and development credit carryforwards in its non-US locations of approximately $8,300 and $1,700, respectively. The non-US net operating loss carryforwards will begin to expire in the year 2027 and the non-US research and development credit will begin to expire in the year 2025.

        Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions. An analysis was conducted through 2009 to determine whether an ownership change had occurred since inception. The analysis indicated that although an ownership change occurred in a prior year, the net operating losses and research and development credits would not expire before utilization. In the event the Company has subsequent changes in ownership, net operating losses and research and development credit carryovers could be limited and may expire unutilized.

        In July 2006, the FASB issued guidance, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with ASC 740. The guidance provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of the guidance and in subsequent periods. ASC 740 also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company adopted the guidance effective January 1, 2009, and as a result of the implementation, the Company recognized an $820 increase in its unrecognized tax benefits. There was no increase in the January 1, 2009 balance of accumulated deficit since the benefit related to attribute carryovers for which the related deferred tax assets were subject to a full valuation allowance.

        The Company recognizes interest and penalties related to uncertain tax positions within the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheet. As of December 31, 2009 and as of December 31, 2010, the Company had no accrued interest or penalties related to the tax contingencies. As of December 31, 2011, the Company accrued interest and penalties of $5 as a component of income tax expense related to tax contingencies and has $5 of interest and penalties recorded as a long term income tax liability.

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

15. Income Taxes (Continued)

        As of December 31, 2009 and December 31, 2010, the Company had no recorded unrecognized tax benefits that if recognized, would benefit the Company's effective tax rate. As of December 31, 2011, the Company has recorded unrecognized tax benefits of $85 that if recognized, would benefit the Company's effective tax rate.

        The Company does not anticipate that the amount of unrecognized tax benefits relating to tax positions existing at December 31, 2011 will significantly increase or decrease within the next twelve months.

        Because of net operating loss and credit carryforwards, all of the Company's tax years dating to inception in 2002 remain open to tax examination in all major tax jurisdictions.

        The aggregate changes in the balance of gross unrecognized tax benefits were as follows:

Beginning balances as of January 1, 2009

  $ 820  

Increase in balances related to tax positions taken during the current period

    323  
       

Ending balance as of December 31, 2009

    1,143  

Increase in balances related to tax positions taken during the current period

    321  
       

Ending balance as of December 31, 2010

    1,464  
       

Increase in balances related to tax positions taken during the current period

    651  

Increase in balances related to tax positions taken during the prior period

    411  
       

Ending balance as of December 31, 2011

  $ 2,526  
       

        U.S. income and foreign withholding taxes associated with the repatriation of earning of foreign subsidiaries have not been provided on undistributed earnings for certain foreign subsidiaries. The Company intends to reinvest these earnings indefinitely outside the United States. As of December 31, 2011, the Company estimates that no material additional U.S. income taxes would have to be provided if these earnings were repatriated back to the United States as substantially all earnings from its foreign subsidiaries are previously taxed income. As of December 31, 2011, the Company estimates that approximately $155 of foreign withholding tax would have to be provided if these earnings were repatriated back to the United States.

16. Subsequent Events

        The Company accounts for and discloses subsequent events in accordance with ASC 855, Subsequent Events ("ASC 855"). ASC 855 requires a Company to account for and disclose events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In accordance with the guidance, the Company evaluated events through February 29, 2012, the date the consolidated financial statements for the year ended December 31, 2011 were available to be issued. For the reissuance of the consolidated financial statements, such evaluation was performed through April 2, 2012.

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Table of Contents


Proofpoint, Inc.
Notes to Consolidated Financial Statements (Continued)
(dollars and share amounts in thousands, except per share amounts)

16. Subsequent Events (Continued)

Issuance of Stock Options

        On January 23, 2012, the Board of Directors approved the issuance of options to purchase 837 shares of common stock at an exercise price of $7.98.

2002 Stock Option Plan

        On January 23, 2012, the Board of Directors approved an increase to the plan of 1,617 shares of the Company's common stock. Total shares available for issuance under the plan are 16,220.

17. Subsequent Events (Unaudited)

2012 Equity Incentive Plan

        On March 30, 2012, the Board of Directors approved the 2012 Equity Incentive Plan (the "2012 Equity Plan"), which subject to shareholder approval, will become effective on the first day that the Company's common stock is publicly traded. A total of 4,096 shares of the Company's common stock are initially reserved for future issuance under the 2012 Equity Plan. The number of shares available for grant and issuance under the 2012 Equity Plan will be increased automatically on January 1 of each of 2013 through 2016 by an amount equal to 5% of the Company's shares outstanding on the immediately preceding December 31, but not to exceed 3,724 shares, unless the Board of Directors, in its discretion, determines to make a smaller increase.

2012 Employee Stock Purchase Plan

        On March 30, 2012, the Board of Directors approved the 2012 Employee Stock Purchase Plan (the "ESPP"), which subject to shareholder approval, will become effective on the first day that the Company's common stock is publicly traded. A total of 745 shares of the Company's common stock are initially reserved for future issuance under the ESPP. The number of shares reserved for issuance under the ESPP will increase automatically on January 1 of each of the first eight years commencing with 2013 by the number of shares equal to 1% of the Company's shares outstanding on the immediately preceding December 31, but not to exceed 1,490 shares, unless the Board of Directors, in its discretion, determines to make a smaller increase.

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GRAPHIC


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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.    Other Expenses of Issuance and Distribution.

        The following table sets forth the costs and expenses to be paid by the Registrant in connection with the sale of the shares of common stock being registered hereby. All amounts are estimates except for the SEC registration fee, the FINRA filing fee and the NASDAQ Global Market listing fee.

SEC registration fee

  $ 9,805

FINRA filing fee

    9,056

NASDAQ Global Market listing fee

    25,000

Printing and engraving

    200,000

Legal fees and expenses

    950,000

Accounting fees and expenses

    850,000

Blue sky fees and expenses

    5,000

Transfer agent and registrar fees and expenses

    11,000

Miscellaneous

    75,000
     

Total

  $ 2,134,861
     

ITEM 14.    Indemnification of Directors and Officers.

        Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, or Securities Act.

        As permitted by the Delaware General Corporation Law, the Registrant's restated certificate of incorporation contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except for liability:

    for any breach of the director's duty of loyalty to the Registrant or its stockholders;

    for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

    under Section 174 of the Delaware General Corporation Law (regarding unlawful dividends, stock purchases or redemptions); or

    for any transaction from which the director derived an improper personal benefit.

        As permitted by the Delaware General Corporation Law, the Registrant's restated bylaws provide that:

    the Registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions;

    the Registrant may indemnify its other employees and agents as set forth in the Delaware General Corporation Law;

    the Registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and

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    the rights conferred in the bylaws are not exclusive.

        Prior to the closing of the offering that is the subject of this Registration Statement, the Registrant intends to enter into indemnification agreements with each of its current directors and executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the Registrant's restated certificate of incorporation and restated bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, executive officer or employee of the Registrant regarding which indemnification is sought. Reference is also made to Section 8 of the Underwriting Agreement, which provides for the indemnification of executive officers, directors and controlling persons of the Registrant against certain liabilities. The indemnification provisions in the Registrant's restated certificate of incorporation and restated bylaws and the indemnification agreements entered into or to be entered into between the Registrant and each of its directors and executive officers is sufficiently broad to permit indemnification of the Registrant's directors and executive officers for liabilities arising under the Securities Act.

        The Registrant has directors' and officers' liability insurance for securities matters.

        Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:

Exhibit Document
  Number  

Form of Underwriting Agreement

    1.01  

Form of Restated Certificate of Incorporation of the Registrant

    3.02  

Form of Restated Bylaws of the Registrant

    3.04  

Fourth Amended and Restated Investors' Rights Agreement by and among the Registrant and the investors named therein

    4.02  

Form of Indemnity Agreement

    10.01  

ITEM 15.    Recent Sales of Unregistered Securities.

        Since January 1, 2009, the Registrant has issued and sold the following securities:

    1.
    On October 20, 2009, the Registrant sold an aggregate of 939,850 shares of its Series F preferred stock at a purchase price of $5.32 per share for an aggregate purchase price of $5,000,002 to three venture capital funds affiliated with the Registrant that were already shareholders of the Registrant.

    2.
    On October 21, 2009, the Registrant acquired Everyone.net, Inc. In connection with that acquisition the Registrant issued an aggregate of 187,970 shares of its Series F preferred stock to five venture capital or investment funds, one family trust, and one individual who were former shareholders and/or noteholders of Everyone.net, Inc.

    3.
    On May 25, 2010, the Registrant sold an aggregate of 281,955 shares of its Series F preferred stock at a purchase price of $5.32 per share for an aggregate purchase price of $1,500,000 to one venture capital fund.

    4.
    Since January 1, 2009 through March 31, 2012, the Registrant has issued options to its employees, consultants, other service providers and directors to purchase an aggregate of 9,586,925 shares of its common stock under the Registrant's 2002 Stock Option/Stock Issuance Plan.

    5.
    Since January 1, 2009 through March 31, 2012, the Registrant has issued 2,498,101 shares of its common stock to its employees, directors, officers, consultants and/or other service providers upon exercise of options granted by the Registrant under the Registrant's 2002 Stock

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      Option/Stock Issuance Plan, with exercise prices ranging from $0.10 to $7.98 per share, for an aggregate purchase price of $4,205,802.22.

    6.
    On June 23, 2011, the Registrant issued 48,886 shares of its Series B preferred stock upon exercise of warrants issued by the Registrant in connection with a loan and security agreement entered into as of June 23, 2004.

    7.
    On December 23, 2011 the Registrant acquired NextPage, Inc. In connection with that acquisition, the Registrant issued an aggregate of 677,425 shares of its common stock to three venture capital or investment funds, three family trusts or retirement accounts, and four individuals who were former stockholders and/or warrantholders of NextPage. 101,609 of such shares of common stock were held back by the Registrant and will be released to the former stockholders and/or warrantholders on or about the one year anniversary of the acquisition, subject to reduction for such holders' indemnification obligations. In addition, the Registrant assumed RSUs covering 22,561 shares of common stock that were outstanding at the time of the acquisition under the NextPage, Inc. 2007 Stock Plan.

        The sales of the securities described in paragraphs (1) - (3), and paragraph (7) above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act. The recipients of the securities in these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All such recipients represented that they were accredited investors or, together with their purchaser representative, otherwise satisfied applicable requirements. The issuances and sales of the securities described in paragraphs (4) - (5) above were deemed to be exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under Section 3(b) of the Securities Act as transactions pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering.

ITEM 16.    Exhibits and Financial Statement Schedules.

    (a)    Exhibits.

        See Exhibit Index immediately following the Signature Pages.

    (b)    Financial Statement Schedules.

        All financial statement schedules are omitted because they are not applicable or the information is included in the Registrant's consolidated financial statements or related notes.

ITEM 17.    Undertakings.

        The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

        Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant

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will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

        The undersigned Registrant hereby undertakes that:

        (1)   for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

        (2)   for the purpose of determining any liability under the Securities Act, each post effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES

        Pursuant to the requirements of the Securities Act, the Registrant has duly caused this amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale, State of California, on April 9, 2012.

    PROOFPOINT INC.

 

 

By:

 

/s/ GARY STEELE

Gary Steele
Chief Executive Officer

        Pursuant to the requirements of the Securities Act, this amendment to Registration Statement has been signed by the following persons in the capacities and on the date indicated:

Name
 
Title
 
Date

 

 

 

 

 
/s/ GARY STEELE

Gary Steele
  Chief Executive Officer
(principal executive officer)
  April 9, 2012

/s/ PAUL AUVIL

Paul Auvil

 

Chief Financial Officer
(principal financial and accounting officer)

 

April 9, 2012

*

Anthony Bettencourt

 

Director

 

April 9, 2012

*

Dana Evan

 

Director

 

April 9, 2012

*

Jonathan Feiber

 

Director

 

April 9, 2012

*

Eric Hahn

 

Director

 

April 9, 2012

*

Kevin Harvey

 

Director

 

April 9, 2012

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Name
 
Title
 
Date

 

 

 

 

 
*

Philip Koen
  Director   April 9, 2012

*

Rob Ward

 

Director

 

April 9, 2012

 

*By:   /s/ PAUL AUVIL

Paul Auvil
Attorney-in-Fact
   

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EXHIBIT INDEX

Exhibit Number   Exhibit Title
  1.01   Form of Underwriting Agreement.
  3.01   Amended and Restated Certificate of Incorporation of the Registrant, as amended.
  3.02   Form of Restated Certificate of Incorporation of the Registrant, to be effective upon the closing of this offering.
  3.03 Bylaws of the Registrant.
  3.04   Form of Restated Bylaws of the Registrant, to be effective upon closing of this offering.
  4.01   Form of Registrant's common stock certificate.
  4.02 Fourth Amended and Restated Investors' Rights Agreement by and among the Registrant and the investors named therein of the Registrant dated February 19, 2008.
  5.01   Opinion of Fenwick & West LLP regarding the legality of the securities being registered.
  10.01   Form of Indemnity Agreement.
  10.02   2002 Stock Option/Stock Issuance Plan and form of option grant.
  10.03   2012 Equity Incentive Plan and form of grant agreements.
  10.04   2012 Employee Stock Purchase Plan.
  10.05 Lease Agreement between Registrant and Hines VAF No Cal Properties, L.P., dated as of March 28, 2011, as amended July 28, 2011.
  10.06 Loan and Security Agreement, dated as of April 19, 2011, as amended May 19, 2011, between the Registrant and Silicon Valley Bank.
  10.07 Offer Letter to Gary Steele from the Registrant, dated November 17, 2002.
  10.08 Offer letter to Paul Auvil from the Registrant, dated March 9, 2007.
  10.09 Offer Letter to Tom Cooper from the Registrant, dated November 5, 2010.
  10.10 Offer letter to Wade Chambers from the Registrant, dated November 3, 2008.
  10.11 Offer letter to David Knight from the Registrant, dated March 14, 2011.
  10.12 Proofpoint Executive Bonus Plan—FY 2010.
  10.13 Proofpoint Executive Bonus Plan—FY 2011.
  21.01 Subsidiaries of Registrant.
  23.01   Consent of Fenwick & West LLP (included in Exhibit 5.01).
  23.02   Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
  24.01 Power of Attorney.
  24.02   Power of Attorney of Anthony Bettencourt.

Previously filed.

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Exhibit 1.01

[Number of Shares]

 

PROOFPOINT, INC.

 

Common Stock, par value $0.0001 per share

 

UNDERWRITING AGREEMENT

 

[ DATE ]

 

CREDIT SUISSE SECURITIES (USA) LLC

DEUTSCHE BANK SECURITIES INC.

As Representatives of the Several Underwriters,

c/o Credit Suisse Securities (USA) LLC,

Eleven Madison Avenue,

New York, N.Y. 10010-3629

 

Dear Sirs:

 

1.  Introductory .  Proofpoint, Inc., a Delaware corporation (“ Company ”) agrees with the several Underwriters named in Schedule B hereto (“ Underwriters ”) to issue and sell to the several Underwriters [              ] shares of the Company’s common stock, par value $0.0001 per share (“ Securities ”) and the stockholders listed in Schedule A hereto (“ Selling Stockholders ”) agree severally with the Underwriters to sell to the several Underwriters an aggregate of [            ] outstanding shares of the Securities (such [           ]shares of Securities being hereinafter referred to as the “ Firm Securities ”). The Company also agrees to sell to the Underwriters, at the option of the Underwriters, an aggregate of not more than [            ] additional shares of its Securities and certain of the Selling Stockholders also agree to sell to the Underwriters, at the option of the Underwriters, an aggregate of not more than [            ] additional shares of Securities (together, the “ Optional Securities ”) of the Company’s Securities, as set forth below. The Firm Securities and the Optional Securities are herein collectively called the “ Offered Securities ”.

 

2.  Representations and Warranties of the Company and the Selling Stockholders .  (a) The Company represents and warrants to, and agrees with, the several Underwriters that:

 

(i)   Filing and Effectiveness of Registration Statement; Certain Defined Terms .  The Company has filed with the Commission (as defined below) a registration statement on Form S-1 (No. 333-178479) covering the registration of the Offered Securities under the Act (as defined below), including a related preliminary prospectus or prospectuses.  At any particular time, this initial registration statement, in the form then on file with the Commission, including all information contained in the registration statement (if any) pursuant to Rule 462(b) and then deemed to be a part of the initial registration statement, and all 430A Information (as defined below) and all 430C Information, that in any case has not then been superseded or modified, shall be referred to as the “ Initial Registration Statement ”.  The Company may also have filed, or may file with the Commission, a Rule 462(b) registration statement covering the registration of Offered Securities.   At any particular time, this Rule 462(b) registration statement, in the form then on file with the Commission, including the contents of the Initial Registration Statement incorporated by reference therein and including all 430A Information and all 430C Information, that in any case has not then been superseded or modified, shall be referred to as the “ Additional Registration Statement ”.

 

As of the time of execution and delivery of this Agreement, the Initial Registration Statement has been declared effective under the Act and is not proposed to be amended. Any Additional Registration Statement has or will become effective upon filing with the Commission pursuant to Rule 462(b) and is not proposed to be amended.  The Offered Securities all have been or will be

 



 

duly registered under the Act pursuant to the Initial Registration Statement and, if applicable, the Additional Registration Statement.

 

For purposes of this Agreement:

 

430A Information ”, with respect to any registration statement, means information included in a prospectus and retroactively deemed to be a part of such registration statement pursuant to Rule 430A(b).

 

430C Information ”, with respect to any registration statement, means information included in a prospectus then deemed to be a part of such registration statement pursuant to Rule 430C.

 

Act ” means the Securities Act of 1933, as amended.

 

Applicable Time ” means     :00 pm (Eastern time) on the date of this Agreement. “ Closing Date” has the meaning defined in Section 3 hereof.

 

Commission ” means the Securities and Exchange Commission.

 

Effective Time ” with respect to the Initial Registration Statement or, if filed prior to the execution and delivery of this Agreement, the Additional Registration Statement means the date and time as of which such Registration Statement was declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c). If an Additional Registration Statement has not been filed prior to the execution and delivery of this Agreement but the Company has advised the Representatives that it proposes to file one, “ Effective Time ” with respect to such Additional Registration Statement means the date and time as of which such Registration Statement is filed and becomes effective pursuant to Rule 462(b).

 

Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

Final Prospectus ” means the Statutory Prospectus that discloses the public offering price, other 430A Information and other final terms of the Offered Securities and otherwise satisfies Section 10(a) of the Act.

 

General Use Issuer Free Writing Prospectus ” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors, as evidenced by its being so specified in Schedule C to this Agreement.

 

Issuer Free Writing Prospectus ” means any “issuer free writing prospectus,” as defined in Rule 433, relating to the Offered Securities in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).

 

Limited Use Issuer Free Writing Prospectus ” means any Issuer Free Writing Prospectus that is not a General Use Issuer Free Writing Prospectus.

 

 The Initial Registration Statement and the Additional Registration Statement are referred to collectively as the “ Registration Statements ” and individually as a “ Registration Statement ”.  A “ Registration Statement ” with reference to a particular time means the Initial Registration Statement and any Additional Registration Statement as of such time.  A “ Registration Statement ” without reference to a time means such Registration Statement as of its Effective Time.  For purposes of the foregoing definitions, 430A Information with respect to a Registration Statement shall be considered to be included in such Registration Statement as of the time specified in Rule 430A.

 

Representatives ” means Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc.

 

Rules and Regulations ” means the rules and regulations of the Commission.

 

Securities Laws ” means, collectively, the Sarbanes-Oxley Act of 2002, as amended (“ Sarbanes-Oxley ”), the Act, the Exchange Act, the Rules and Regulations, the auditing

 

2



 

principles, rules, standards and practices applicable to auditors of “issuers” (as defined in Sarbanes-Oxley) promulgated or approved by the Public Company Accounting Oversight Board and, as applicable, the rules of the New York Stock Exchange and the NASDAQ Stock Market (“ Exchange Rules ”).

 

Statutory Prospectus ” with reference to a particular time means the prospectus included in a Registration Statement immediately prior to that time, including any 430A Information or 430C Information with respect to such Registration Statement.  For purposes of the foregoing definition, 430A Information shall be considered to be included in the Statutory Prospectus as of the actual time that form of prospectus is filed with the Commission pursuant to Rule 424(b) or Rule 462(c) and not retroactively.

 

Unless otherwise specified, a reference to a “rule” is to the indicated rule under the Act.

 

(ii)   Compliance with Securities Act Requirements .  (i) (A) At their respective Effective Times, and (B) on the date of this Agreement, each of the Initial Registration Statement and the Additional Registration Statement (if any) conformed and will conform in all material respects to the requirements of the Act, (ii) on its date, at the time of filing of the Final Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Time of the Additional Registration Statement in which the Final Prospectus is included, the Final Prospectus will conform in all respects to the requirements of the Act and the Rules and Regulations and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.  The preceding sentence does not apply to statements in or omissions from any such document based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished is that described as such in Section 8(c) hereof.

 

(iii)  Ineligible Issuer Status.   (i) At the time of the initial filing of the Initial Registration Statement and (ii) at the date of this Agreement, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, including (x) the Company or any of its subsidiaries in the preceding three years not having been convicted of a felony or misdemeanor or having been made the subject of a judicial or administrative decree or order as described in Rule 405 and (y) the Company in the preceding three years not having been the subject of a bankruptcy petition or insolvency or similar proceeding, not having had a registration statement be the subject of a proceeding under Section 8 of the Act and not being the subject of a proceeding under Section 8A of the Act in connection with the offering of the Offered Securities, all as described in Rule 405.

 

(iv)  General Disclosure Package .  As of the Applicable Time, neither (i) the General Use Issuer Free Writing Prospectus(es) issued at or prior to the Applicable Time and, the preliminary prospectus, dated [                             ], 2012 (which is the most recent Statutory Prospectus distributed to investors generally) and the other information, if any, stated in Schedule C to this Agreement to be included in the General Disclosure Package, all considered together (collectively, the “ General Disclosure Package ”), nor (ii) any individual Limited Use Issuer Free Writing Prospectus issued at or prior to the date hereof, when considered together with the General Disclosure Package, included any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The preceding sentence does not apply to statements in or omissions from any Statutory Prospectus or any Issuer Free Writing Prospectus in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 8(c) hereof.

 

(v)  Issuer Free Writing Prospectuses .  Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Offered Securities or until any earlier date that the Company notified or notifies the Representatives as

 

3



 

described in the next sentence, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information then contained in the Registration Statement.  If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would reasonably be expected to conflict with the information then contained in the Registration Statement or as a result of which such Issuer Free Writing Prospectus, if republished immediately following such event or development, would reasonably be expected to include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, (i) the Company has promptly notified or will promptly notify the Representatives and (ii) the Company has promptly amended or will promptly amend or supplement such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.

 

(vi) Good Standing of the Company.   The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the General Disclosure Package; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification except where the failure to so qualify would not reasonably be expected to result in a Material Adverse Effect (as defined below).

 

(vii) Subsidiaries.   Each subsidiary of the Company has been duly incorporated and is validly existing and in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the General Disclosure Package; and each subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification except where the failure to so qualify would not reasonably be expected to result in a Material Adverse Effect; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of each subsidiary owned by the Company, directly or through subsidiaries, is owned free from liens, encumbrances and defects. Except as disclosed in the General Disclosure Package, no subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary.

 

(viii) Offered Securities .  The Offered Securities and all other outstanding shares of capital stock of the Company have been duly authorized; the authorized equity capitalization of the Company is as set forth in the General Disclosure Package; all outstanding shares of capital stock of the Company are, and, when the Offered Securities have been delivered and paid for in accordance with this Agreement on each Closing Date, such Offered Securities will have been, validly issued, fully paid and nonassessable, will conform to the information in the General Disclosure Package and to the description of such Offered Securities contained in the Final Prospectus; the stockholders of the Company have no preemptive rights with respect to the Securities that have not been validly waived; and none of the outstanding shares of capital stock of the Company have been issued in violation of any preemptive or similar rights of any security holder.

 

(ix) No Finder’s Fee.   Except as disclosed in the General Disclosure Package, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finder’s fee or other like payment in connection with this offering.

 

(x) Registration Rights.   Except as disclosed in the General Disclosure Package, there are no

 

4



 

contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to a Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act (collectively, “ registration rights ”), and any person to whom the Company has granted registration rights has agreed not to exercise or is otherwise unable to exercise such rights until after the expiration of the Lock-Up Period referred to in Section 5(l) hereof.

 

(xi) Listing.   The Offered Securities have been approved for listing on The NASDAQ Global Market, subject to notice of issuance.

 

(xii) Absence of Further Requirements.   No consent, approval, authorization, or order of, or filing or registration with, any governmental agency or body or any court or the rules and regulations of the Financial Industry Regulatory Authority (“ FINRA ”) is required to be obtained or made by the Company for the consummation of the transactions contemplated by this Agreement in connection with the issuance and sale of the Offered Securities, except such as have been obtained, or made and  such as may be required under state securities laws.

 

(xiii) Title to Property .  Except as disclosed in the General Disclosure Package, the Company and its subsidiaries have good and marketable title to all real properties and all material other properties and assets owned by them, in each case free from liens, encumbrances and defects of title that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them and, except as disclosed in the General Disclosure Package, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no terms or provisions that would reasonably be expected to materially interfere with the use made or to be made thereof by them.

 

(xiv) Absence of Defaults and Conflicts Resulting from the Transaction.   The execution, delivery and performance of this Agreement, and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, or constitute a default or a Debt Repayment Triggering Event (as defined below) under, or result in the imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, (i) the charter or by-laws of the Company or any of its subsidiaries, (ii) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their properties, or (iii) any agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the properties of the Company or any of its subsidiaries is subject except that in the case of clauses (ii) and (iii) as would not reasonably be expected to have a Material Adverse Effect; a “ Debt Repayment Triggering Event ” means any event or condition that gives, or with the giving of notice or lapse of time would give, the holder of any note, debenture, or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.

 

(xv) Absence of Existing Defaults and Conflicts.  Neither the Company nor any of its subsidiaries is (A) in violation of its respective charter or by-laws or (B) in default (or with the giving of notice or lapse of time would be in default) under any existing obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument to which any of them is a party or by which any of them is bound or to which any of the properties of any of them is subject, except, for the purposes of clause (B), such defaults that would not, individually or in the aggregate, result in a material adverse effect on the condition (financial or otherwise), results of operations, business, properties or prospects of the Company and its subsidiaries taken as a whole (“ Material Adverse Effect ”).

 

(xvi) Authorization of Agreement.   The Company has all requisite corporate power and authority

 

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to execute, deliver and perform its obligations under this Agreement.  This Agreement has been duly authorized, executed and delivered by the Company.

 

(xvii) Possession of Licenses and Permits.   The Company and its subsidiaries possess, and are in compliance with the terms of, all adequate certificates, authorizations, franchises, licenses and permits (“ Licenses ”) necessary to the conduct of the business now conducted or proposed in the General Disclosure Package to be conducted by them  except where to the failure to possess or such noncompliance would not reasonably be expected to have a Material Adverse Effect and have not received any notice of proceedings relating to the revocation or modification of any Licenses that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. Except as disclosed in the General Disclosure Package, the development, manufacture, sale and use of the Company’s products and services are not subject to regulation by any federal, state, local or foreign agencies or bodies. Except as would not reasonably be expected to have a Material Adverse Effect, the Company and its subsidiaries are in compliance with the terms of all agreements, licenses and contracts referenced in the General Disclosure Package or pursuant to which the Company or any of its subsidiaries is bound or is a party, and, to the Company’s knowledge, all counterparties to such agreements, licenses and contracts are in compliance in all material respects with such agreements, licenses and contracts.

 

(xviii) Absence of Labor Dispute.   No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

 

(xix) Possession of Intellectual Property. The Company and its subsidiaries own, possess, have the right to use or otherwise can acquire on reasonable terms sufficient trademarks, trade names, patent rights, copyrights, domain names, licenses, approvals, trade secrets, inventions, technology, know-how and other intellectual property and similar rights, including registrations and applications for registration thereof (collectively, “ Intellectual Property Rights ”) necessary or material to the conduct of the business now conducted or proposed in the General Disclosure Package to be conducted by them, and the expected expiration of any such Intellectual Property Rights would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Except as disclosed in the General Disclosure Package (i) there are no rights of third parties to any of the Intellectual Property Rights owned by the Company or its subsidiaries (other than Intellectual Property Rights licensed or granted by the Company to customers or partners in the ordinary course of business); (ii) there is no material infringement, misappropriation, breach, default or other violation, or the occurrence of any event that with notice or the passage of time would constitute any of the foregoing, by the Company, its subsidiaries or third parties of any of the Intellectual Property Rights of the Company or its subsidiaries; (iii) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the Company’s or any subsidiary’s rights in or to, or the violation of any of the terms of, any of their Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (iv)  there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others challenging the validity, enforceability or scope of the Company’s Intellectual Property Rights, and the Company is unaware of any facts which would form a reasonable basis for any such claim; (v) there is no pending or, to the Company’s knowledge, threatened action, suit, proceeding or claim by others that the Company or any subsidiary infringes, misappropriates or otherwise violates or conflicts with any Intellectual Property Rights or other proprietary rights of others and the Company is unaware of any other fact which would form a reasonable basis for any such claim; and (vi) none of the Intellectual Property Rights used by the Company or its subsidiaries in their businesses has been obtained or is being used by the Company or its subsidiaries in violation of any contractual obligation binding on the Company, any of its subsidiaries in violation of the rights of any persons, and (vii) the Company and its subsidiaries are not aware of any prior art that may render any patent application owned by the Company or its subsidiaries unpatentable, which was required to have been disclosed and has not been disclosed to the United States Patent and Trademark Office, except in each case covered by clauses (ii) — (vii) such as would not, if determined

 

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adversely to the Company or any of its subsidiaries, individually or in the aggregate, have a Material Adverse Effect. The Company and its subsidiaries own or have a valid right to access and use all computer systems, networks, hardware, software, databases, websites, and equipment used to process, store, maintain and operate data, information, and functions used in connection with the business of the Company and its subsidiaries (the “ Company IT Systems ”), except as would not reasonably be expected to have a Material Adverse Effect.  The Company IT Systems are adequate for, and operate and perform in all material respects as required in connection with, the operation of the business of the Company and its subsidiaries as currently conducted, except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  The Company and its subsidiaries have implemented commercially reasonable backup, security and disaster systems consistent in all material respects with applicable regulatory standards.

 

(xx) Environmental Laws.   Except as disclosed in the General Disclosure Package, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances  (collectively, “ environmental laws ”), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which would reasonably be expected to lead to such a claim.

 

(xxi)  Accurate Disclosure.  The statements in the General Disclosure Package and the Final Prospectus under the headings “Prospectus Summary,” “Risk Factors—Government regulations affecting the export of certain of our solutions could negatively affect our business,” “Risk Factors—Our solutions collect, filter and archive customer data which may contain personal information, which raises privacy concerns and could result in us having liability or inhibit sales of our solution,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources,” “Business-Legal Proceedings “Business-Intellectual Property,” “Executive Compensation—Offer Letters and Arrangements,” “Executive Compensation—Employee Benefit Plans,” “Executive Compensation—Limitation of Liability and Indemnification of Directors and Officers,” “Certain Relationships and Related Party Transactions,” “Description of Capital Stock,” “Shares Eligible for Future Sale” and “Material United States Federal Income Tax Consequences to Non-U.S. Holders,” insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, are, in all material respects, accurate, complete and fair summaries of such legal matters, agreements, documents or proceedings and present the information required to be shown.

 

(xxii) Absence of Manipulation .  The Company has not taken, directly or indirectly, any action that is designed to or that has constituted or that would reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Offered Securities.

 

(xxiii)  Statistical and Market-Related Data.  Any third-party statistical and market-related data included in a Registration Statement, a Statutory Prospectus or the General Disclosure Package are based on or derived from sources that the Company believes to be reliable and accurate.

 

(xxiv)  Independent Public Accountants . PricewaterhouseCoopers LLP, who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Securities Laws.  Except as preapproved in accordance with the requirements set forth in Section 10A of the Exchange Act, PricewaterhouseCoopers LLP have not been engaged by the Company to perform any “prohibited activities” (as defined in such Section 10A).

 

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(xxv)  Internal Controls and Compliance with the Sarbanes-Oxley Act.  Except as set forth in the General Disclosure Package, the Company, its subsidiaries and the Company’s Board of Directors (the “ Board ”) are in compliance with the applicable provisions of Sarbanes-Oxley and all applicable Exchange Rules.  The Company maintains a system of internal controls, including, but not limited to, disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the exchange Act), internal controls over accounting matters and financial reporting, and legal and regulatory compliance controls (collectively, “ Internal Controls ”) that comply with the applicable Securities Laws and are sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. General Accepted Accounting Principles and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  The Internal Controls are, or upon consummation of the offering of the Offered Securities will be, overseen by the Audit Committee (the “ Audit Committee ”) of the Board in accordance with applicable Exchange Rules. Except as set forth in the General Disclosure Package, there has been no significant deficiency, material weakness, change in Internal Controls since January 1, 2011 or fraud involving management or other employees who have a significant role in Internal Controls (each, an “ Internal Control Event ”). The Company has not publicly disclosed or reported to the Audit Committee or the Board, and within the next 135 days the Company does not reasonably expect to publicly disclose or report to the Audit Committee or the Board, an Internal Control Event (other than as set forth in the General Disclosure Package), any violation of, or failure to comply with, the Securities Laws, or any matter which, if determined adversely, would reasonably be expected to have a Material Adverse Effect.

 

(xxvi)  Absence of Accounting Issues.  A member of the Audit Committee has confirmed to the Chief Financial Officer that, except as set forth in the General Disclosure Package, the Audit Committee is not reviewing or investigating, and neither the Company’s independent auditors nor its internal auditors have recommended that the Audit Committee review or investigate, (i) adding to, deleting, changing the application of, or changing the Company’s disclosure with respect to, any of the Company’s material accounting policies; (ii) any matter which could reasonably be expected to result in a restatement of the Company’s financial statements for any annual or interim period during the current or prior three fiscal years; or (iii) any Internal Control Event.

 

(xxvii)  Audit Committee.  Except as disclosed in the General Disclosure Package, the Company’s Board has validly appointed an Audit Committee whose composition satisfies the requirements of Rule 5605(c)(2) of The NASDAQ Stock Market. The Board and/or the Audit Committee has adopted a charter that satisfies the requirements of Rule 5605(c)(1) of The NASDAQ Stock Market.

 

(xxviii) Litigation .  Except as disclosed in the General Disclosure Package, there are no pending actions, suits or proceedings (including any inquiries or investigations by any court or governmental agency or body, domestic or foreign) against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would reasonably be expected to individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings (including any inquiries or investigations by any court or governmental agency or body, domestic or foreign) are to the Company’s knowledge, threatened or contemplated. Except as disclosed in the General Disclosure Package, there is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate reasonably be expected to have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement.

 

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(xxix) Financial Statements.   The financial statements included in the General Disclosure Package present fairly the financial position of the Company and its consolidated subsidiaries as of the dates shown and their consolidated results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis. No other financial statements or schedules of the Company or any other entity are required to be included in the Registration Statement or the General Disclosure Package pursuant to any requirement of the Act or any Rules and Regulations thereunder, including Rules 3-05 and Article 11 of Regulation S-X.

 

(xxx)  Off-Balance Sheet Arrangements .  There are no off-balance sheet arrangements (as defined in Regulation S-K Item 303(a)(4)(ii)) that would reasonably be expected to  have a material current or future effect on the Company’s consolidated financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

 

(xxxi) No Material Adverse Change in Business.   Except as disclosed in the General Disclosure Package, since the end of the period covered by the latest audited financial statements included in the General Disclosure Package (i) there has been no change, nor any development or event involving a prospective change, in the condition (financial or otherwise), results of operations, business, or properties of the Company and its subsidiaries, taken as a whole, that is material and adverse, to the Company and its subsidiaries taken as a whole, (ii) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock and (iii) there has been no material adverse change in the capital stock, short-term indebtedness, long-term indebtedness, net current assets or net assets of the Company and its subsidiaries, taken as a whole.

 

(xxxii)  Investment Company Act.   The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the General Disclosure Package, will not be an “investment company” as defined in the Investment Company Act of 1940, as amended (the “ Investment Company Act ”).

 

(xxxiii)  Ratings.   No “nationally recognized statistical rating organization” as such term is defined for purposes of Rule 436(g)(2) (i) has imposed (or has informed the Company that it is considering imposing) any condition (financial or otherwise) on the Company’s retaining any rating assigned to the Company or any of its subsidiaries or to any securities of the Company or any of its subsidiaries or (ii) has indicated to the Company that it is considering any of the actions described in Section 7(c)(ii) hereof.

 

(xxxiv)  PFIC Status.   To the Company’s knowledge, the Company was not a “passive foreign investment company” (“ PFIC ”) as defined in Section 1297 of the United States Internal Revenue Code of 1986, as amended (the “ Code ”), for its most recently completed taxable year and, based on the Company’s current projected income, assets and activities, the Company does not currently expect to be classified as a PFIC for any subsequent taxable year.

 

(xxxv)  Foreign Corrupt Practices Act and Money Laundering Laws.  Each of the Company, its subsidiaries, its affiliates and any of their respective officers and directors and, to the Company’s knowledge,  supervisors, managers, agents, or employees, has not violated, and its participation in the offering will not violate (and the Company has instituted and maintains policies and procedures designed to ensure continued compliance with): (a) anti-bribery laws, including but not limited to, any applicable law, rule, or regulation of any locality, including but not limited to any law, rule, or regulation promulgated to implement the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, signed December 17, 1997, including the U.S. Foreign Corrupt Practices Act of 1977 or any other law, rule or regulation of similar purpose and scope, (b) anti-money laundering laws, including but not limited to, applicable federal, state, international, foreign or other laws, regulations or government guidance regarding anti-money laundering, including, without limitation, Title 18 U.S. Code Section 1956 and 1957, the Patriot Act, the Bank Secrecy Act, and international anti-money laundering principals or procedures by an intergovernmental group or organization, such as the

 

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Financial Action Task Force on Money Laundering, of which the United States is a member and with which designation the United States representative to the group or organization continues to concur, all as amended, and any Executive order, directive, or regulation pursuant to the authority of any of the foregoing, or any orders or licenses issued thereunder or (c) except as disclosed in the General Disclosure Package, laws and regulations imposing U.S. economic sanctions measures, including, but not limited to, the International Emergency Economic Powers Act, the Trading with the Enemy Act, the United Nations Participation Act, and the Syria Accountability and Lebanese Sovereignty Act, all as amended, and any Executive Order, directive, or regulation pursuant to the authority of any of the foregoing, including the regulations of the United States Treasury Department set forth under 31 CFR, Subtitle B, Chapter V, as amended, or any orders or licenses issued thereunder.

 

(xxxvi)   OFAC .  Neither the Company nor any director, officer or  affiliate or, to the Company’s knowledge, any employee, agent or person acting on behalf of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“ OFAC ”); and the Company will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.

 

(xxxvii)  Export Controls .  Except as disclosed in the General Disclosure Package, neither the Company nor, to the knowledge of the Company, any officer, director, subsidiary, affiliate, agent, distributor, or representative of the Company has any reason to believe that the Company or any of the foregoing persons or entities have taken any action in violation of, or which may cause the Company or any of its subsidiaries to be in violation of, any applicable U.S. law governing imports into or exports from the United States, including without limitation:  any executive orders or regulations issued with respect to the laws referred to in this Section 2(xxxvii), the Arms Export Control Act (22 U.S.C.A. § 2278), the Export Administration Act (50 U.S.C. App. §§ 2401-2420), the International Traffic in Arms Regulations (22 CFR 120-130), the Export Administration Regulations (15 CFR 730 et seq.), the Customs Laws of the United States (19 U.S.C. § 1 et seq.), the International Emergency Economic Powers Act (50 U.S.C. § 1701-1706), any other export control regulations issued by the agencies listed in Part 730 of the Export Administration Regulations, or any applicable non-U.S. laws of a similar nature.  Except as disclosed in the General Disclosure Package, to the Company’s knowledge,  there has never been a claim or charge made, investigation undertaken, violation found, or settlement of any enforcement action under any of the laws referred to in this Section 2(xxxvii) by any governmental entity with respect to matters arising under such laws against the Company, its subsidiaries, or against the agents, distributors, or representative of any of the foregoing in connection with their relationship with the Company. Except as disclosed in the General Disclosure Package, the Company has maintained a compliance program appropriate to the requirements of the aforementioned laws.

 

(xxxviii) Payment of Taxes . The Company and its subsidiaries have filed all federal, state, local and non-U.S. tax returns that are required to be filed or have requested extensions thereof (except in any case in which the failure so to file would not reasonably be expected to have a Material Adverse Effect); and, except as set forth in the General Disclosure Package, the Company and its subsidiaries have paid all taxes (including any assessments, fines or penalties) required to be paid by them, except for any such taxes, assessments, fines or penalties currently being contested in good faith or as would not, individually or in the aggregate, have a Material Adverse Effect.

 

(xxxix) Insurance . The Company and its subsidiaries are insured by insurers with appropriately rated claims paying abilities against such losses and risks and in such amounts as the Company believes are prudent and customary for the businesses in which they are engaged; all policies of insurance and fidelity or surety bonds insuring the Company or any of its subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect; the Company and its subsidiaries are in compliance with the terms of such policies and

 

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instruments in all material respects; and there are no claims by the Company or any of its subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for; neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect, except as set forth in or contemplated in the General Disclosure Package; and the Company has obtained or will obtain directors’ and officer’s insurance in reasonable and customary coverage amounts.

 

(xl)    Employee Benefit Plans .  (A) The Company has not incurred, nor is it not reasonably expected to incur, any material liability related to a “prohibited transaction” as defined under Section 406 of ERISA or Section 4975 of the Code, and not exempt under ERISA Section 408 and the regulations and published interpretations thereunder with respect to any Employee Benefit Plan.  At no time has the Company or any ERISA Affiliate maintained, sponsored, participated in, contributed to or has or had any liability or obligation in respect of any Employee Benefit Plan subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA, or Section 412 of the Code or any “multiemployer plan” as defined in Section 3(37) of ERISA or any multiple employer plan for which the Company or any ERISA Affiliate has incurred or could incur a liability under Section 4063 or 4064 of ERISA.  Except as disclosed in the General Disclosure Package, no Employee Benefit Plan provides or promises, or at any time provided or promised, retiree health, life insurance, or other retiree welfare benefits except as may be required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, or similar state or foreign law.  Each Employee Benefit Plan is and has been operated in material compliance with its terms and all applicable laws, including but not limited to ERISA and the Code and no event has occurred (including a “reportable event” as such term is defined in Section 4043 of ERISA) and no condition exists that would reasonably be expected to subject the Company or any ERISA Affiliate to any material tax, fine, lien, penalty or liability imposed by ERISA, the Code or other applicable law.  Each Employee Benefit Plan intended to be qualified under Code Section 401(a) has obtained a favorable determination or opinion letter from the U.S. Internal Revenue Service upon which it can rely or has applied (or has time remaining in which to apply) to the U.S. Internal Revenue Service for such a determination or opinion letter prior to the expiration of the requisite period under applicable regulations or pronouncements in which to apply for such determination letter and to make any amendments necessary to obtain a favorable determination or opinion, and any such determination or opinion letter remains in effect and has not been revoked; nothing has occurred since the date of any such determination or opinion letter that is reasonably likely to adversely affect such qualification. (B) With respect to each Foreign Benefit Plan, such Foreign Benefit Plan (1) if intended to qualify for special tax treatment, meets all material requirements for such treatment, and (2) if required by applicable law to be funded is funded to the level required by law (including, without limitation, through the purchase of appropriate insurance coverage), and with respect to all other Foreign Benefit Plans for which applicable accounting standards require the establishment of reserves, adequate reserves as determined under such accounting standards have been established on the accounting statements of the applicable Company or subsidiary.  (C) The Company does not have any obligations under any collective bargaining agreement with any union and no organization efforts are underway or, to the knowledge of the Company, threatened with respect to Company employees.  As used in this Agreement, “ Employee Benefit Plan ” means any “employee benefit plan” within the meaning of Section 3(3) of ERISA, including, without limitation, all stock purchase, stock option, stock-based severance, employment, change-in-control, medical, disability, fringe benefit, bonus, incentive, deferred compensation, employee loan and all other employee benefit plans, agreements, programs, policies or other arrangements, whether or not subject to ERISA, under which (1) any current or former employee, director or independent contractor of the Company or its subsidiaries has any present or future right to benefits and which are contributed to, sponsored by or maintained by the Company or any of its respective subsidiaries or (2) the Company or any of its subsidiaries has had or has any present or future obligation or liability; “ ERISA ” means the Employee Retirement

 

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Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder; “ ERISA Affiliate ” means any member of the company’s controlled group as defined in Code Section 414(b), (c), (m) or (o); and “ Foreign Benefit Plan ” means any Employee Benefit Plan established, maintained or contributed to outside of the United States of America or which covers any employee working or residing outside of the United States.

 

(xxxxi)    Stock Option Awards .  All stock option and other equity or equity-linked awards granted by the Company have been appropriately authorized by the Board or a duly authorized committee thereof, including approval of the exercise or purchase price or the methodology for determining the exercise or purchase price and the substantive terms of the stock option, equity or equity-linked awards, as the case may be; the Company has no material liability pursuant to Section 409A of the Code for stock options granted to employees in the United States; ; there is no action, suit, proceeding, formal inquiry or formal investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company in connection with any stock option, equity or equity-linked awards granted by the Company.

 

(xli)   Material Contracts .  There is no franchise, lease, contract or agreement required by the Act or by the Rules and Regulations to be described in the General Disclosure Package or to be filed as an exhibit to the Registration Statement which is not described or filed therein as required.  Other than as described in the General Disclosure Package, no such franchise, lease, contract or agreement has been suspended or terminated for convenience or default by the Company or any of the other parties thereto, and the Company has not received notice of any such pending or threatened suspension or termination, except for such pending or threatened suspensions or terminations that would not reasonably be expected to, individually or in the aggregate, have a Material Adverse Effect.

 

(xlii)    FINRA Affiliations .  There are no affiliations with the Financial Industry Regulatory Authority, Inc. (the “ FINRA ”) among the Company’s officers, directors or, to the knowledge of the Company, any five percent or greater stockholder of the Company or any beneficial owner of the Company’s unregistered equity securities that were acquired during the 180-day period immediately preceding the initial filing date of the Registration Statement, except as disclosed in writing to the Underwriters.

 

(xliii)    Related Party Transactions .  There are no outstanding loans, advances (except normal advances for business expenses in the ordinary course of business) or guarantees of indebtedness by the Company to or for the benefit of any of the officers or directors of the Company or any of their respective family members.  The Company has not, directly or indirectly, including through its subsidiaries, extended or maintained credit, arranged for the extension of credit, or renewed an extension of credit, in the form of a personal loan to or for any director or executive officer of the Company, other than any extensions of credit that ceased to be outstanding prior to the initial filing of the Registration Statement.  No transaction has occurred between or among the Company and any of its officers or directors, stockholders, customers, suppliers or any affiliate or affiliates of the foregoing that is required to be described in or filed as an exhibit to the Registration Statement, the General Disclosure Package or the Final Prospectus and is not so described or filed.

 

(xliv)  Recent Sale of Securities .  Except as described in the Registration Statement, the Company has not sold, issued or distributed any shares of Common Stock during the six-month period preceding the date hereof, including any sales pursuant to Rule 144A under, or Regulation D or S of, the Act, other than shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans or pursuant to outstanding options, rights or warrants.

 

(b) Each Selling Stockholder severally represents and warrants to, and agrees with, the several Underwriters that:

 

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(i)  Title to Securities.   The Selling Stockholder has and on each Closing Date hereinafter mentioned will have valid and unencumbered title to the Offered Securities to be delivered by such Selling Stockholder on such Closing Date and full right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver the Offered Securities to be delivered by such Selling Stockholder on such Closing Date hereunder; and upon the delivery of and payment for the Offered Securities on each Closing Date hereunder the several Underwriters will acquire valid and unencumbered title to the Offered Securities to be delivered by such Selling Stockholder on such Closing Date.

 

(ii)  Absence of Further Requirements .  No consent, approval, authorization or order of, or filing with, any person (including any governmental agency or body or any court) is required to be obtained or made by any Selling Stockholder for the consummation of the transactions contemplated by the Custody Agreement or this Agreement in connection with the offering and sale of the Offered Securities sold by the Selling Stockholders, except such as have been obtained and made under the Act and such as may be required under state securities laws.

 

(iii)  Absence of Defaults and Conflicts Resulting from Transaction .  The execution, delivery and performance of the Custody Agreement and this Agreement and the consummation of the transactions therein and herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property or assets of any Selling Stockholders pursuant to, any statute, any rule, regulation or order of any governmental agency or body or any court having jurisdiction over—the any Selling Stockholder or any of his, her, or its properties or any agreement or instrument to which any Selling Stockholder is a party or by which any Selling Stockholder is bound or to which any of the properties of any Selling Stockholder is subject, or the charter or by-laws of any Selling Stockholder that is a corporation or the constituent documents of any Selling Stockholder that is not a natural person or a corporation.

 

(iv)  Custody Agreement .  The Power of Attorney and related Custody Agreement with respect to each Selling Stockholder has been duly authorized, executed and delivered by such Selling Stockholder and constitute valid and legally binding obligations of each such Selling Stockholder enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles;

 

(v)  Compliance with Securities Act Requirements .  (i) (A) At their respective Effective Times, and (B) on the date of this Agreement, each of the Initial Registration Statement and the Additional Registration Statement (if any) did not or will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) on its date, at the time of filing of the Final Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Time of the Additional Registration Statement in which the Final Prospectus is included, the Final Prospectus did not or will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they are or were made, not misleading; provided that the representations and warranties given in this subsection (v) by each Selling Stockholder apply only to statements or omissions in the Registration Statement, the Prospectus or any amendment or supplement thereto that are made in reliance upon and in conformity with written information relating to such Selling Stockholder furnished to the Company by such Selling Stockholder expressly for use therein.

 

(vi)   No Undisclosed Material Information .  The sale of the Offered Securities by each Selling Stockholder pursuant to this Agreement is not prompted by any material information concerning the Company or any of its subsidiaries that is not set forth the General Disclosure Package.

 

(vii)   Authorization of Agreement.   This Agreement has been duly authorized, executed and delivered by each Selling Stockholder.

 

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(viii)   No Finder’s Fee.   Except as disclosed in the General Disclosure Package, there are no contracts, agreements or understandings between such Selling Stockholder and any person that would give rise to a valid claim against the such Selling Stockholder or any Underwriter for a brokerage commission, finder’s fee or other like payment in connection with this offering.

 

(ix)   Absence of Manipulation .  Such Selling Stockholder has not taken, directly or indirectly, any action that is designed to or that has constituted or that would reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Offered Securities.

 

3.  Purchase, Sale and Delivery of Offered Securities . On the basis of the representations, warranties and agreements and subject to the terms and conditions set forth herein, the Company and each Selling Stockholder agree, severally and not jointly, to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company and each Selling Stockholder, at a purchase price of $[   ] per share, that number of Firm Securities (rounded up or down, as determined by the Representatives in their discretion, in order to avoid fractions) obtained by multiplying [            ] Firm Securities in the case of the Company and the number of Firm Securities set forth opposite the name of such Selling Stockholder in Schedule A hereto, in the case of a Selling Stockholder, in each case by a fraction the numerator of which is the number of Firm Securities set forth opposite the name of such Underwriter in Schedule B hereto and the denominator of which is the total number of Firm Securities.

 

Certificates in negotiable form for the Offered Securities to be sold by the Selling Stockholders hereunder have been placed in custody, for delivery under this Agreement, under Custody Agreements made with Computershare Inc., as custodian (“ Custodian ”).  Each Selling Stockholder agrees that the shares represented by the certificates held in custody for the Selling Stockholders under such Custody Agreements are subject to the interests of the Underwriters hereunder, that the arrangements made by the Selling Stockholders for such custody are to that extent irrevocable as provided in the Custody Agreement, and that the obligations of the Selling Stockholders hereunder shall not be terminated by operation of law, whether by the death of any individual Selling Stockholder or in the case of a trust, by the death of any trustee or trustees or the termination of such trust.  If any individual Selling Stockholder or any such trustee or trustees should die, or if any of such trusts should terminate, before the delivery of the Offered Securities hereunder, certificates for such Offered Securities shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such death or termination had not occurred, regardless of whether or not the Custodian shall have received notice of such death or other event or termination.

 

The Company and the Custodian will deliver the Firm Securities to or as instructed by the Representatives for the accounts of the several Underwriters in a form reasonably acceptable to the Representatives against payment of the purchase price in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to the Representatives drawn to the order of [           ] in the case of [          ] shares of Firm Securities and [            ]in the case of [         ]shares of Firm Securities, at the office of Wilson Sonsini Goodrich & Rosati, Professional Corporation, at 10:00 A.M., New York time, on  [           ], or at such other time not later than seven full business days thereafter as the Representatives and the Company determine, such time being herein referred to as the “ First Closing Date ”. For purposes of Rule 15c6-1 under the Exchange Act, the First Closing Date (if later than the otherwise applicable settlement date) shall be the settlement date for payment of funds and delivery of securities for all the Offered Securities sold pursuant to the offering. The Firm Securities so to be delivered or evidence of their issuance will be made available for checking at the above office of Wilson Sonsini Goodrich & Rosati, Professional Corporation at least 24 hours prior to the First Closing Date.

 

In addition, upon written notice from the Representatives given to the Company from time to time not more than 30 days subsequent to the date of the Final Prospectus, the Underwriters may purchase all or less than all of the Optional Securities at the purchase price per Security to be paid for the Firm Securities. The Company and the Selling Stockholders agree, severally and not jointly, to sell to the Underwriters the respective numbers of Optional Securities obtained by multiplying the number of shares specified in such notice by a fraction the numerator of which is [            ] in the case of the Company, and the number of Optional Securities set forth opposite the name of such Selling Stockholder in Schedule A hereto, in the case

 

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of each of the Selling Stockholders, and the denominator of which is the total number of Optional Securities (subject to adjustment by the Representatives to eliminate fractions). Such Optional Securities shall be purchased from the Company and the Selling Stockholders for the account of each Underwriter in the same proportion as the number of shares of Firm Securities set forth opposite such Underwriter’s name bears to the total number of Firm Securities (subject to adjustment by the Representatives to eliminate fractions) and may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Securities or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by the Representatives to the Company and the Selling Stockholders.

 

Each time for the delivery of and payment for the Optional Securities, being herein referred to as an “ Optional Closing Date ”, which may be the First Closing Date (the First Closing Date and each Optional Closing Date, if any, being sometimes referred to as a “ Closing Date ”), shall be determined by the Representatives but shall be not later than five full business days after written notice of election to purchase Optional Securities is given. The Company and the Selling Stockholders will deliver the Optional Securities being purchased on each Optional Closing Date to or as instructed by the Representatives for the accounts of the several Underwriters in a form reasonably acceptable to the Representatives, against payment of the purchase price therefore in Federal (same day) funds by official bank check or checks or wire transfer to an account at a bank acceptable to the Representatives drawn to the order of [           ], at the above office of Wilson Sonsini Goodrich & Rosati, Professional Corporation. The Optional Securities being purchased on each Optional Closing Date or evidence of their issuance will be made available for checking at the above office of Wilson Sonsini Goodrich & Rosati, Professional Corporation at a reasonable time in advance of such Optional Closing Date.

 

4.  Offering by Underwriters .  It is understood that the several Underwriters propose to offer the Offered Securities for sale to the public as set forth in the Final Prospectus.

 

5.  Certain Agreements of the Company and the Selling Stockholders . The Company agrees with the several Underwriters and the Selling Stockholders that:

 

(a)   Additional Filings.   Unless filed pursuant to Rule 462(c) as part of the Additional Registration Statement in accordance with the last sentence of this Section 5(a), the Company will file the Final Prospectus, in a form approved by the Representatives, with the Commission pursuant to and in accordance with subparagraph (1) (or, if applicable and if consented to by the Representatives, subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the second business day following the execution and delivery of this Agreement or (B) the fifteenth business day after the Effective Time of the Initial Registration Statement.     The Company will advise the Representatives promptly of any such filing pursuant to Rule 424(b) and provide satisfactory evidence to the Representatives of such timely filing.  If an Additional Registration Statement is necessary to register a portion of the Offered Securities under the Act but the Effective Time thereof has not occurred as of the execution and delivery of this Agreement, the Company will file the Additional Registration Statement or, if filed, will file a post-effective amendment thereto with the Commission pursuant to and in accordance with Rule 462(b) on or prior to the time specified under Rule 462(b) or, if earlier, on or prior to the time the Final Prospectus is finalized and distributed to any Underwriter, or will make such filing at such later date as shall have been consented to by the Representatives.

 

(b)   Filing of Amendments: Response to Commission Requests.   The Company will promptly advise the Representatives of any proposal to amend or supplement at any time the Initial Registration Statement, any Additional Registration Statement or any Statutory Prospectus and will not effect such amendment or supplement without the Representatives’ consent not to be unreasonably withheld or delayed; and the Company will also advise the Representatives promptly of (i) the effectiveness of any Additional Registration Statement (if its Effective Time is subsequent to the execution and delivery of this Agreement), (ii) any amendment or supplement of a Registration

 

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Statement or any Statutory Prospectus, (iii) any request by the Commission or its staff for any amendment to any Registration Statement, for any supplement to any Statutory Prospectus or for any additional information, (iv) the institution by the Commission of any stop order proceedings in respect of a Registration Statement or the threatening of any proceeding for that purpose, and (v) the receipt by the Company of any notification with respect to the suspension of the qualification of the Offered Securities in any jurisdiction or the institution or threatening of any proceedings for such purpose.  The Company will use its best efforts to prevent the issuance of any such stop order or the suspension of any such qualification and, if issued, to obtain as soon as possible the withdrawal thereof.

 

(c)   Continued Compliance with Securities Laws.   If, at any time when a prospectus relating to the Offered Securities is (or but for the exemption in Rule 172 would be) required to be delivered under the Act by any Underwriter or dealer, any event occurs as a result of which the Final Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Registration Statement or supplement the Final Prospectus to comply with the Act, the Company will promptly notify the Representatives of such event and will promptly prepare and file with the Commission and furnish, at its own expense, to the Underwriters and the dealers and any other dealers upon request of the Representatives, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance.  Neither the Representatives’ consent to, nor the Underwriters’ delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 7 hereof.

 

(d)   Rule 158.   As soon as practicable, but not later than the Availability Date (as defined below), the Company will make generally available to its security holders an earnings statement covering a period of at least 12 months beginning after the Effective Time of the Initial Registration Statement (or, if later, the Effective Time of the Additional Registration Statement) which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act. For the purpose of the preceding sentence, “ Availability Date ” means the day after the end of the fourth fiscal quarter following the fiscal quarter that includes such Effective Time on which the Company is required to file its Form 10-Q for such fiscal quarter except that, if such fourth fiscal quarter is the last quarter of the Company’s fiscal year, “ Availability Date ” means the day after the end of such fourth fiscal quarter on which the Company is required to file its Form 10-K.

 

(e)   Furnishing of Prospectuses.   The Company will furnish to the Representatives copies of each Registration Statement (six (6) of which will be signed and will include all exhibits), each related Statutory Prospectus, and, so long as a prospectus relating to the Offered Securities is (or but for the exemption in Rule 172 would be) required to be delivered under the Act, the Final Prospectus and all amendments and supplements to such documents, in each case in such quantities as the Representatives request. The Final Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the business day following the execution and delivery of this Agreement.  All other such documents shall be so furnished as soon as available. The Company and the Selling Stockholders will pay the expenses of printing and distributing to the Underwriters all such documents.

 

(f)   Blue Sky Qualifications.   The Company will arrange for the qualification of the Offered Securities for sale under the laws of such jurisdictions as the Representatives designate and will continue such qualifications in effect so long as required for the distribution except that in no event shall the Company be obligated in connection there with to qualify as a foreign corporation or to execute a general consent to service of process.

 

(g)   Reporting Requirements.   During the period of five (5) years hereafter, the Company will furnish to the Representatives and, upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to the Representatives (i) as soon as available, a copy of each report

 

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and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to stockholders, and (ii) from time to time, such other information concerning the Company as the Representatives may reasonably request.  However, so long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act and is timely filing reports with the Commission on its Electronic Data Gathering, Analysis and Retrieval system (“ EDGAR ”), it is not required to furnish any such reports, statements or other information available on EDGAR to the Underwriters.

 

(h)   Payment of Expenses.   The Company and the Selling Stockholders agree with the several Underwriters that the Company and the Selling Stockholders will pay all expenses incident to the performance of the obligations of the Company and the Selling Stockholders, as the case may be, under this Agreement, including but not limited to any filing fees and other expenses (including fees and disbursements of counsel to the Underwriters) incurred in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions as the Representatives designate and the preparation and printing of memoranda relating thereto, costs and expenses related to the review by the FINRA of the Offered Securities (including filing fees and the fees and expenses of counsel for the Underwriters relating to such review), costs and expenses of Company personnel relating to investor presentations or any “road show” in connection with the offering and sale of the Offered Securities including, without limitation, any travel expenses of the Company’s officers and employees and any other expenses of the Company, fees and expenses incident to listing the Offered Securities on The New York Stock Exchange, American Stock Exchange, NASDAQ Global Market and other national and foreign exchanges, fees and expenses in connection with the registration of the Offered Securities under the Exchange Act, any transfer taxes on the sale by the Selling Stockholders of the Offered Securities to the Underwriters and expenses incurred in distributing preliminary prospectuses and the Final Prospectus (including any amendments and supplements thereto) to the Underwriters and for expenses incurred for preparing, printing and distributing any Issuer Free Writing Prospectuses to investors or prospective investors.  The cost of chartering any aircraft in connection with any “road show” shall be paid 50% by the Company and 50% by the Underwriters.

 

(i)   Use of Proceeds.  The Company will use the net proceeds received by it in connection with this offering in the manner described in the “Use of Proceeds” section of the General Disclosure Package and, except as disclosed in the General Disclosure Package, the Company does not intend to use any of the proceeds from the sale of the Offered Securities hereunder to repay any outstanding debt owed to any affiliate of any Underwriter.

 

(j)   Absence of Manipulation.  The Company and the Selling Stockholders will not take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company to facilitate the sale or resale of the Offered Securities.

 

(k)  (A)  Restriction on Sale of Securities by Company.  For the period specified below (the “ Lock-Up Period ”), the Company will not, directly or indirectly, take any of the following actions with respect to its Securities, or any securities convertible into or exchangeable or exercisable for any of its Securities (“ Lock-Up Securities ”): (i) offer, sell, issue, contract to sell, pledge or otherwise dispose of Lock-Up Securities, (ii) offer, sell, issue, contract to sell, contract to purchase or grant any option, right or warrant to purchase Lock-Up Securities, (iii) enter into any swap, hedge or any other agreement that transfers, in whole or in part, the economic consequences of ownership of Lock-Up Securities, (iv) establish or increase a put equivalent position or liquidate or decrease a call equivalent position in Lock-Up Securities within the meaning of Section 16 of the Exchange Act or (v) file with the Commission a registration statement under the Act relating to Lock-Up Securities other than a Registration Statement on Form S-8 relating to equity awards issued or issuable pursuant to the plans described in the General Disclosure Package, or publicly disclose the intention to take any such action, without the prior written consent of the Representatives, except issuances of Lock-Up Securities pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of warrants or options, in each case

 

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outstanding on the date hereof, grants of employee stock options pursuant to the terms of a plan in effect on the date hereof and issuances of Lock-Up Securities pursuant to the exercise of such options and issuances of Lock-Up Securities in an aggregate amount equal to 5% of the Company’s outstanding capital stock on the date hereof in connection with acquisitions of businesses, assets or technologies. The initial Lock-Up Period will commence on the date hereof and continue for one hundred and eighty (180) days after the date hereof or such earlier date that the Representatives consent to in writing; provided, however, that if (1) during the last 17 days of the initial Lock-Up Period, the Company releases earnings results or material news or a material event relating to the Company occurs or (2) prior to the expiration of the initial Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the initial Lock-Up Period, then in each case the Lock-Up Period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the materials news or material event, as applicable, unless the Representatives waive, in writing, such extension; provided, further that the immediately preceding proviso shall not be applicable upon the passage into federal law of the Jumpstart Our Business Startups Act of 2012 (the “ JOBS Act ”) to the extent that the JOBS Act prohibits the Commission or any national securities associations from adopting or maintaining rules requiring the foregoing proviso and FINRA confirms through its rulemaking process or otherwise that such rules are, in fact, no longer applicable to the Representatives. To the extent applicable, the Company will provide the Representatives with notice of any announcement described in clause (2) of the preceding sentence that gives rise to an extension of the Lock-Up Period.

 

(B)   Agreement to announce lock-up waiver.  If  the Representatives, in their sole discretion, agrees to release or waive the restrictions set forth in a lock-up letter described in Section 7(k) hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit A hereto through a major news service at least two business days before the effective date of the release or waiver.

 

(m)   Restriction on Sale of Securities by Selling Stockholders.   For the period specified below (the “ Lock-Up Period ”), each Selling Stockholder will not, directly or indirectly, take any of the following actions with respect to Securities of the Company or any securities convertible into or exchangeable or exercisable for any Securities (“ Lock-Up Securities ”): (i) offer, sell, contract to sell, pledge or otherwise dispose of Lock-Up Securities, (ii) enter into any transaction which would have the same effect, or enter into any swap, hedge or any other agreement that transfers, in whole or in part, the economic consequences of ownership of Lock-Up Securities, whether any such aforementioned transaction is to be settled by delivery of the Lock-Up Securities or such other securities, in cash or otherwise, or (iii) publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement, without the prior written consent of the Representatives.  The initial Lock-Up Period will commence on the date hereof and continue for one hundred eighty (180) days after the date hereof or such earlier date that the Representatives consent to in writing; provided, however, that if (1) during the last 17 days of the initial Lock-Up Period, the Company releases earnings results or material news or a material event relating to the Company occurs or (2) prior to the expiration of the initial Lock-Up Period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the initial Lock-Up Period, then in each case the Lock-Up Period will be extended until the expiration of the 18-day period beginning on the date of release of the earnings results or the occurrence of the material news or material event, as applicable, unless the Representatives waive, in writing, such extension; provided, further that the immediately preceding proviso shall not be applicable upon the passage into federal law of the JOBS Act to the extent that the JOBS Act prohibits the Commission or any national securities associations from adopting or maintaining rules requiring the foregoing proviso and FINRA confirms through its rulemaking process or otherwise that such rules are, in fact, no longer applicable to the Representatives.

 

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6.  Free Writing Prospectuses . The Company and the Selling Stockholders represent and agree that, unless they obtain the prior consent of the Representatives, and each Underwriter represents and agrees that, unless it obtains the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Offered Securities that would constitute an Issuer Free Writing Prospectus, or that would otherwise constitute a “free writing prospectus,” as defined in Rule 405, required to be filed with the Commission. Any such free writing prospectus consented to by the Company and the Representatives is hereinafter referred to as a “ Permitted Free Writing Prospectus .”  The Company represents that it has treated and agrees that it will treat each Permitted Free Writing Prospectus as an “issuer free writing prospectus,” as defined in Rule 433, and has complied and will comply with the requirements of Rules 164 and 433 applicable to any Permitted Free Writing Prospectus, including timely Commission filing where required, legending and record keeping.  The Company represents that is has satisfied and agrees that it will satisfy the applicable conditions in Rule 433 to avoid a requirement to file with the Commission any electronic road show.

 

7.  Conditions of the Obligations of the Underwriters . The obligations of the several Underwriters to purchase and pay for the Firm Securities on the First Closing Date and the Optional Securities to be purchased on each Optional Closing Date will be subject to the accuracy of the representations and warranties of the Company and the Selling Stockholders herein (as though made on such Closing Date), to the accuracy of the statements of Company officers made pursuant to the provisions hereof, to the performance by the Company and the Selling Stockholders of their obligations hereunder and to the following additional conditions precedent:

 

(a)   Accountants’ Comfort Letter.   (a) The Representatives shall have received letters, dated, respectively, the date hereof and each Closing Date, of PricewaterhouseCoopers LLP confirming that they are a registered public accounting firm and independent public accountants within the meaning of the Securities Laws and substantially in the form of Schedule D hereto (except that, in any letter dated a Closing Date, the specified date referred to in Schedule D hereto shall be a date no more than three days prior to such Closing Date).

 

(b)   Effectiveness of Registration Statement.   If the Effective Time of the Additional Registration Statement (if any) is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or, if earlier, the time the Final Prospectus is finalized and distributed to any Underwriter, or shall have occurred at such later time as shall have been consented to by the Representatives.  The Final Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 5(a) hereof. Prior to such Closing Date, no stop order suspending the effectiveness of a Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of any of the Selling Stockholders, the Company or the Representatives, shall be contemplated by the Commission.

 

(c)   No Material Adverse Change.   Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition (financial or otherwise), results of operations, business, properties or prospects of the Company and its subsidiaries taken as a whole which, in the judgment of the Representatives, is material and adverse and makes it impractical or inadvisable to market the Offered Securities; (ii) any downgrading in the rating of any debt securities or preferred stock of the Company by any “nationally recognized statistical rating organization” (as defined for purposes of Rule 436(g)), or any public announcement that any such organization has under surveillance or review its rating of any debt securities or preferred stock of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iii) any change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls the effect of which is such as to make it, in the judgment of the Representatives, impractical to market or to enforce contracts for the sale of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market; (iv) any suspension or material limitation of trading in securities generally on the NASDAQ

 

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Global Market or the New York Stock Exchange, or any setting of minimum or maximum prices for trading on such exchange; (v) or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (vi) any banking moratorium declared by any U.S. federal or, New York authorities; (vii) any major disruption of settlements of securities, payment or clearance services in the United States or any other country where such securities are listed or (viii) any attack on, outbreak or escalation of hostilities or act of terrorism involving the United States, any declaration of war by Congress or any other national or international calamity or emergency if, in the judgment of the Representatives, the effect of any such attack, outbreak, escalation, act, declaration, calamity or emergency is such as to make it impractical or inadvisable to market the Offered Securities or to enforce contracts for the sale of the Offered Securities.

 

(d)   Opinion of Counsel for the Company.   The Representatives shall have received an opinion, dated such Closing Date, of Fenwick & West LLP, counsel for the Company, to the effect that:

 

(i)   Good Standing of the Company.   The Company has been duly incorporated and is existing as a corporation and in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the General Disclosure Package; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect.

 

(ii)   Subsidiaries.   Each U.S. subsidiary of the Company has been duly incorporated and is existing and in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the General Disclosure Package; and each U.S. subsidiary of the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable;

 

(iii)   Offered Securities: Capitalization.   The Offered Securities delivered on such Closing Date and all other outstanding shares of capital stock of the Company have been duly authorized and are validly issued, fully paid and nonassessable, and conform as to legal matters to the description of such Offered Securities contained in the Final Prospectus; the authorized equity capitalization of the Company is as set forth in the General Disclosure Package under the heading “Description of Capital Stock.” ; and the stockholders of the Company have no preemptive rights contained in the Certificate of Incorporation or Bylaws, and, to the knowledge of such counsel, the stockholders of the Company do not have contractual, written preemptive rights with the Company with respect to the Offered Securities that have not otherwise been waived.

 

(iv)   Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the General Disclosure Package, will not be an “investment company” as defined in the Investment Company Act.

 

(v)  Registration Rights. To the knowledge of such counsel, except as described in each of the Registration Statement and the General Disclosure Package, there are no contracts or agreements between the Company and any person granting such person Registration Rights.

 

(vii)   Absence of Further Requirements.   No consent, approval, authorization or

 

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order of, or filing with, any governmental agency or body or any court is required to be obtained or made by the Company for the consummation of the transactions contemplated by this Agreement in connection with the offering, issuance and sale of the Offered Securities, except such as have been obtained or made and such as may be required under state securities laws;

 

(viii)  Absence of Defaults and Conflicts Resulting from Transaction.   The execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to the certificate or incorporation or by-laws of the Company or of its subsidiaries, any statute, rule, regulation or order of any governmental agency or body or any court having jurisdiction over the Company or any of its U.S. subsidiaries known to such counsel, or any agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the properties of the Company or any such subsidiary is subject and that is filed as an exhibit to the Registration Statement;

 

(ix)  Compliance with Registration Requirements: Effectiveness.   The Initial Registration Statement was declared effective under the Act as of the date and time specified in such opinion, the Additional Registration Statement (if any) was filed and became effective under the Act as of the date and time (if determinable) specified in such opinion, the Final Prospectus was filed with the Commission pursuant to the subparagraph of Rule 424(b) specified in such opinion (or, if stated in such opinion, pursuant to Rule 462(c)) on the date specified therein, and, to the knowledge of such counsel, no stop order suspending the effectiveness of a Registration Statement or any part thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act; the statements in the Registration Statements, the General Disclosure Package and Final Prospectus of legal matters, agreements, documents or proceedings under the headings “Business-Legal Proceedings,” “Executive Compensation—Offer Letters and Arrangements,” “Executive Compensation—Employee Benefit Plans,” “Executive Compensation—Limitation of Liability and Indemnification of Directors and Officers,” “Certain Relationships and Related Party Transactions,” “Description of Capital Stock,” “Shares Eligible for Future Sale,” “Certain Material U.S. Federal Income Tax Consequences to Non-U.S. Holders,” “Underwriting” and Part II of the Registration Statement in each case fairly summarize in all material respects, such matters, agreement, documents or proceedings; and such counsel do not know of any legal or governmental proceedings required to be described in a Registration Statement or the Final Prospectus which are not described as required or any contracts or documents of a character required to be described in a Registration Statement or the Final Prospectus or to be filed as exhibits to a Registration Statement which are not described and filed as required;

 

(x)  Authorization of Agreement.   This Agreement has been duly authorized by all requisite corporate action on the part of the Company, executed and delivered by the Company; and

 

(xi)  Disclosure.  Each Registration Statement and the Final Prospectus (expect for the financial statements and financial schedules and other financial and accounting data included therein), and each amendment or supplement thereto, as of their respective effective times or issue dates, were, on their face, appropriately responsive in all material respects to the requirements the Act and the Rules and Regulations.

 

Nothing has come to such counsel’s attention that causes it to believe that Registration Statement or any amendment thereto (expect for the financial statements and financial schedules and other financial and accounting data included therein), as of its

 

21



 

effective time, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Final Prospectus or any amendment or supplement thereto, as of its issue date, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or that the General Disclosure Package (expect for the financial statements and financial schedules and other financial and accounting data included therein), as of the Applicable Time, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

(e)   Opinion of Counsel for the Canadian Subsidiary.   The Representatives shall have received an opinion, dated such Closing Date, of Osler, Hoskin & Harcourt LLP, counsel for Proofpoint Canada Inc., a corporation formed under the laws of [                 ] (the “ Canadian Subsidiary ”), to the effect that:

 

(i)   Good Standing of the Canadian Subsidiary.   The Canadian Subsidiary has been duly incorporated and is existing as a corporation and in good standing under the Canadian Business Corporations Act, with corporate power and authority to own its properties and conduct its business; and the Canadian Subsidiary is duly qualified to do business and in good standing in the Province of [        ] and as a foreign corporation in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect;

 

(ii)  Capitalization. All of the issued and outstanding capital stock of the Canadian Subsidiary has been duly authorized and validly issued, is fully-paid and non-assessable and is owned by the Company, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; and

 

(iii)  Absence of Defaults and Conflicts Resulting from Transaction.   The execution, delivery and performance of this Agreement by the Company and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property or assets of the Canadian Subsidiary pursuant to the articles or by-laws of the Canadian Subsidiary, any resolution of the directors (or any committee of directors) or shareholders of the Canadian Subsidiary, any statute, rule, regulation, judgment, order or decree of any governmental agency or body or any court having jurisdiction over the Canadian Subsidiary known to such counsel, or any agreement or instrument to which the Canadian Subsidiary is a party or by which the Canadian Subsidiary is bound or to which any of the properties of the Canadian Subsidiary is subject and that is filed as an exhibit to the Registration Statement.

 

(f)  Opinion of Counsel for Selling Stockholders.   The Representatives shall have received an opinion, dated such Closing Date, of Fenwick & West LLP, counsel for the Selling Stockholders, to the effect that:

 

(i)   Title to Securities.   Upon payment for the Shares to be sold by the Selling Stockholders pursuant to the Underwriting Agreement, delivery of such Shares, as directed by the Underwriters, to Cede or such other nominee as may be designated by DTC, registration of such Shares in the name of Cede or such other nominee and the crediting of such Shares on the books of DTC to securities accounts of the Underwriters (assuming that neither DTC nor any such Underwriter has notice of any adverse claim within the meaning of Section 8-105 of the Uniform Commercial Code of the State of New York (the “ UCC ”) to such Shares), (A) DTC shall be a “protected purchaser” of

 

22



 

such Shares within the meaning of Section 8-303 of the UCC, (B) under Section 8-501 of the UCC, the Underwriters will acquire a valid security entitlement in respect of such Shares and (C) no action based on any “adverse claim” (within the meaning of Section 8-102 of the UCC) to such Shares may be asserted against the Underwriters with respect to such security entitlement; in giving this opinion, counsel for the Selling Stockholders may assume that when such payment, delivery and crediting occur, (x) such Shares will have been registered in the name of Cede or another nominee designated by DTC, in each case on the Company’s share registry in accordance with its certificate of incorporation, bylaws and applicable law, (y) DTC will be registered as a “clearing corporation” within the meaning of Section 8 102 of the UCC and (z) appropriate entries to the accounts of the several Underwriters on the records of DTC will have been made pursuant to the UCC ;

 

(ii)   Absence of Further Requirements.   No consent, approval, authorization or order of, or filing with, any governmental agency or body or any court having jurisdiction over such Selling Stockholder is required to be obtained or made by any Selling Stockholders for the consummation of the transactions contemplated by the Custody Agreement or this Agreement in connection with the offering and sale of the Offered Securities sold by the Selling Stockholders, except such as have been obtained and made under the Act and such as may be required under state securities laws;

 

(iii)   Absence of Defaults and Conflicts Resulting from Transaction.   The execution, delivery and performance of the Custody Agreement and this Agreement and the consummation of the transactions therein and herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, pursuant to, any statute, any rule, regulation or order of any governmental agency or body or any court having jurisdiction over any Selling Stockholder or any of his, her or its properties or any agreement or instrument to which any Selling Stockholder is a party or by which any Selling Stockholder is bound or to which any of the properties of any Selling Stockholder is subject, or the charter or by-laws of any Selling Stockholder that is a corporation or the constituent documents of any Selling Stockholder that is not a natural person or a corporation; and

 

(iv)  Custody Agreement.   The Power of Attorney and related Custody Agreement with respect to each Selling Stockholder has been duly authorized, executed and delivered by such Selling Stockholder and constitute valid and legally binding obligations of such Selling Stockholder enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles; and

 

(v)   Authorization of Agreement.   This Agreement has been duly authorized, executed and delivered by each Selling Stockholder.

 

(g)  Opinion of Counsel for Underwriters.   The Representatives shall have received from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Underwriters, such opinion or opinions, dated such Closing Date, with respect to such matters as the Representatives may reasonably require, and the Selling Stockholders and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.

 

(h)  Officer’s Certificate.   The Representatives shall have received a certificate, dated such Closing Date, of an executive officer of the Company and a principal financial or accounting officer of the Company in which such officers in his capacity as an officer of the Company shall state that: the representations and warranties of the Company in this Agreement are true and correct; the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date; no stop order suspending the effectiveness of any Registration Statement has been issued and no proceedings for that purpose have been instituted

 

23



 

or, to their knowledge, are contemplated by the Commission; the Additional Registration Statement (if any) satisfying the applicable requirements of subparagraphs (1) and (3) of Rule 462(b) was timely filed pursuant to Rule 462(b), including payment of the applicable filing fee in accordance with Rule 111(a) or (b) of Regulation S-T of the Commission; and, subsequent to the date of the most recent financial statements in the General Disclosure Package, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or otherwise), results of operations, business, properties or prospects of the Company and its subsidiaries taken as a whole except as set forth in the General Disclosure Package or as described in such certificate.

 

(i)  CFO Certificate. The Representatives shall have received a certificate, dated, respectively, the date hereof and each Closing Date, from the Chief Financial Officer of the Company covering the matters set forth on Exhibit B hereto.

 

(j)   Lock-Up Agreements.   On or prior to the date hereof, the Representatives shall have received lockup letters from each of the executive officers and directors of the Company, and each of the security holders of the Company who are not Selling Stockholders representing at least [   ]% of the Company’s outstanding capital stock as of the date of this Agreement. The Company acknowledges, and agrees to enforce, the existing market standoff provisions that are applicable to the remaining security holders of the Company that have not or do not deliver lockup letters to the Representatives.

 

(k)  Tax Withholding.  The Custodian will to deliver to the Representatives a letter stating that they will deliver to each Selling Stockholder a United States Treasury Department Form 1099 (or other applicable form or statement specified by the United States Treasury Department regulations in lieu thereof) on or before January 31 of the year following the date of this Agreement.

 

(l)  Listing .  The Offered Securities have been approved for listing on The NASDAQ Global Market.

 

The Selling Stockholders and the Company will furnish the Representatives and their counsel with such conformed copies of such opinions, certificates, letters and documents as the Representatives or their counsel reasonably request.  The Representatives may in their sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters hereunder, whether in respect of an Optional Closing Date or otherwise.

 

8.  Indemnification and Contribution .  (a)  Indemnification of Underwriters by Company.   The Company will indemnify and hold harmless each Underwriter, its partners, members, directors, officers, employees, agents, affiliates and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (each an “ Indemnified Party ”), against any and all losses, claims, damages or liabilities, joint or several, to which such Indemnified Party may become subject, under the Act, the Exchange Act, other Federal or state statutory law or regulation or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any part of any Registration Statement at any time, any Statutory Prospectus as of any time, the Final Prospectus or any Issuer Free Writing Prospectus, or arise out of or are based upon the omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Indemnified Party for any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending against any loss, claim, damage, liability, action, litigation, investigation or proceeding whatsoever (whether or not such Indemnified Party is a party thereto), whether threatened or commenced, and in connection with the enforcement of this provision with respect to any of the above as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information

 

24



 

furnished by any Underwriter consists of the information described as such in subsection (c) below.

 

(b)  Indemnification of Underwriters by Selling Stockholders.   The Selling Stockholders, severally and not jointly, will indemnify and hold harmless each Indemnified Party against any and all losses, claims, damages or liabilities, joint or several, to which such Indemnified Party may become subject, under the Act, the Exchange Act, other Federal or state statutory law or regulation or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any part of any Registration Statement at any time, any Statutory Prospectus as of any time, the Final Prospectus or any Issuer Free Writing Prospectus, or arise out of or are based upon the omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Indemnified Party for any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending against any loss, claim, damage, liability, action, litigation, investigation or proceeding whatsoever (whether or not such Indemnified Party is a party thereto), whether threatened or commenced, and in connection with the enforcement of this provision with respect to the above as such expenses are incurred; provided, however, that each Selling Stockholder will only be liable in any such case to the extent, but only to the extent, that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information relating to such Selling Stockholder furnished to the Company or such Underwriter by such Selling Stockholder expressly for use therein; provided , further , that the Selling Stockholders will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (c) below.

 

(c)  Indemnification of Company and Selling Stockholders.   Each Underwriter will severally and not jointly indemnify and hold harmless the Company, each of its directors and each of its officers who signs a Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each Selling Stockholder (each, an “ Underwriter Indemnified Party ”) against any losses, claims, damages or liabilities to which such Underwriter Indemnified Party may become subject, under the Act, the Exchange Act, or other Federal or state statutory law or regulation or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement at any time, any Statutory Prospectus at any time, the Final Prospectus or any Issuer Free Writing Prospectus or arise out of or are based upon the omission or the alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by such Underwriter Indemnified Party in connection with investigating or defending against any such loss, claim, damage, liability, action, litigation, investigation or proceeding whatsoever (whether or not such Underwriter Indemnified Party is a party thereto), whether threatened or commenced, based upon any such untrue statement or omission, or any such alleged untrue statement or omission as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the following information in the Final Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the fourth paragraph and the information relating to stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids contained in the eleventh, and twelfth paragraphs under the caption “Underwriting.”

 

(d)  Actions against Parties; Notification.   Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under subsection (a), (b) or (c) above, notify the indemnifying party of the commencement thereof; but the failure to notify the indemnifying party shall not

 

25



 

relieve it from any liability that it may have under subsection (a), (b) or (c) above except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party otherwise than under subsection (a), (b) or (c) above.  In case any such action is brought against any indemnified party and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of an indemnified party.

 

(e)  Contribution.   If the indemnification provided for in this Section 8 is unavailable or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a), (b) or (c) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other from the offering of the Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Stockholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Stockholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Stockholders or the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (e). Notwithstanding the provisions of this subsection (e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.  No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint.  The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8(e) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 8(e).

 

9.  Default of Underwriters .  If any Underwriter or Underwriters default in their obligations to purchase Offered Securities hereunder on either the First or any Optional Closing Date and the aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters agreed but failed to

 

26



 

purchase does not exceed 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date, the Representatives may make arrangements satisfactory to the Company and the Selling Stockholders for the purchase of such Offered Securities by other persons, including any of the Underwriters, but if no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of shares of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date and arrangements satisfactory to the Representatives, the Company and the Selling Stockholders for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Stockholders, except as provided in Section 10 (provided that if such default occurs with respect to Optional Securities after the First Closing Date, this Agreement will not terminate as to the Firm Securities or any Optional Securities purchased prior to such termination). As used in this Agreement, the term “Underwriter” includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default.

 

10.  Survival of Certain Representations and Obligations .  The respective indemnities, agreements, representations, warranties and other statements of the Selling Stockholders, of the Company or its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, any Selling Stockholder, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If the purchase of the Offered Securities by the Underwriters is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Sections 7(c)(iii)- (viii) and 9 hereof, the Company and the Selling Stockholders will, jointly and severally, reimburse the Underwriters for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities, and the respective obligations of the Company, the Selling Stockholders and the Underwriters pursuant to Section 8 hereof shall remain in effect.  In addition, if any Offered Securities have been purchased hereunder, the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect.

 

11.  Notices . All communications hereunder will be in writing and, if sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed to the Representatives at Credit Suisse Securities (USA) LLC, Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention:  LCD-IBD and Deutsche Bank Securities Inc., 60 Wall Street, 4 th  Floor, New York, New York 10005, Attention: Equity Capital Markets — Syndicate Desk, fax: (212) 797-9344, with a copy to Deutsche Bank Securities Inc., 60 Wall Street, 36th Floor, New York, New York 10005, Attention: General Counsel, fax: (212) 797-4564, or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at 892 Ross Drive, Sunnyvale, CA 94089, Attention: Chief Financial Officer, or, if sent to the Selling Stockholders or any of them, will be mailed, delivered or telegraphed and confirmed to Michael T. Yang, Esq or Paul Auvil at 892 Ross Drive, Sunnyvale, CA 94089; provided, however, that any notice to an Underwriter pursuant to Section 8 will be mailed, delivered or telegraphed and confirmed to such Underwriter.

 

12.  Successors . This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective personal representatives and successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder.

 

13.  Representation .  The Representatives will act for the several Underwriters in connection with the transactions contemplated by this Agreement, and any action under this Agreement taken by the Representatives jointly or by the Representatives will be binding upon all the Underwriters. Michael T. Yang or Paul Auvil will act for the Selling Stockholders in connection with such transactions, and any action under or in respect of this Agreement taken by either Michael T. Yang or Paul Auvil will be binding upon all the Selling Stockholders.

 

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14.  Counterparts .  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.

 

15.   Absence of Fiduciary Relationship.  The Company and the Selling Stockholders acknowledge and agree that:

 

(a)  No Other Relationship.   The Representatives have been retained solely to act as underwriters in connection with the sale of the Offered Securities and that no fiduciary, advisory or agency relationship between the Company or the Selling Stockholders, on the one hand, and the Representatives, on the other,  has been created in respect of any of the transactions contemplated by this Agreement or the Final Prospectus, irrespective of whether the Representatives have advised or is advising the Company or the Selling Stockholders on other matters;

 

(b)  Arms’ Length Negotiations.  The price of the Offered Securities set forth in this Agreement was established by Company and the Selling Stockholders following discussions and arms-length negotiations with the Representatives and the Company and the Selling Stockholders are capable of evaluating and understanding and understand and accept the terms, risks and conditions of the transactions contemplated by this Agreement;

 

(c)  Absence of Obligation to Disclose.  The Company and the Selling Stockholders have been advised that the Representatives and their affiliates are engaged in a broad range of transactions which may involve interests that differ from those of the Company or the Selling Stockholders and that the Representatives have no obligation to disclose such interests and transactions to the Company or the Selling Stockholders by virtue of any fiduciary, advisory or agency relationship; and

 

(d)  Waiver.   The Company and the Selling Stockholders waive, to the fullest extent permitted by law, any claims they may have against the Representatives for breach of fiduciary duty or alleged breach of fiduciary duty and agree that the Representatives shall have no liability (whether direct or indirect) to the Company or the Selling Stockholders in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim on behalf of or in right of the Company, including stockholders, employees or creditors of the Company.

 

16.  Applicable Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

 

The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.  The Company irrevocably and unconditionally waives any objection to the laying of venue of any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in Federal and state courts in the Borough of Manhattan in the City of New York and irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such suit or proceeding in any such court has been brought in an inconvenient forum.

 

[Remainder of the page intentionally left blank.]

 

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If the foregoing is in accordance with the Representatives’ understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement among the Selling Stockholders, the Company and the several Underwriters in accordance with its terms.

 

 

Very truly yours,

 

 

 

 

 

 

PROOFPOINT, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

Title:

 

 

 

 

 

 

SELLING STOCKHOLDERS

 

 

 

 

 

 

 

                           , Attorney in Fact

 

 

The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written..

 

   CREDIT SUISSE SECURITIES (USA) LLC

 

   DEUTSCHE BANK SECURITIES INC.

 

 

Acting on behalf of themselves and as the Representatives of the several Underwriters.

 

 

 

 

 

By CREDIT SUISSE SECURITIES (USA) LLC

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

 

 

By DEUTSCHE BANK SECURITIES INC.

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

29



 

SCHEDULE A

 

 

 

Selling Stockholder

 

Number of
Firm Securities
to be Sold

 

Number of
Optional
Securities to
be Sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

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SCHEDULE B

 

 

 

Number of
Firm Securities

 

Underwriter

 

to be Purchased

 

 

 

 

 

Credit Suisse Securities (USA) LLC

 

 

 

Deutsche Bank Securities

 

 

 

Pacific Crest Securities LLC

 

 

 

RBC Capital Markets Corporation

 

 

 

First Analysis Securities Corporation

 

 

 

 

 

 

 

Total

 

 

 

 

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SCHEDULE C

 

1.               General Use Free Writing Prospectuses (included in the General Disclosure Package)

 

“General Use Issuer Free Writing Prospectus” includes each of the following documents:

 

2.  [                          ]

 

2.               Other Information Included in the General Disclosure Package

 

The following information is also included in the General Disclosure Package:

 

[1. The initial price to the public of the Offered Securities, which is $        .

 

2.  [                         ]]

 

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EXHIBIT A

 

[Form of Press Release]

 

Proofpoint, Inc.

[Date]

 

Proofpoint, Inc. (“Company”) announced today that Credit Suisse Securities (USA) LLC and Deutsche Bank Securities, Inc., the lead book-running managers in the Company’s recent public sale of [          ] shares of common stock, are [waiving] [releasing] a lock-up restriction with respect to [         ] shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the Company.   The [waiver] [release] will take effect on      ,          20    , and the shares may be sold on or after such date.

 

This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.

 

33




Exhibit 3.01

 

SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PROOFPOINT, INC.

 

PROOFPOINT, INC. , a corporation organized and existing under the General Corporation Law of the State of Delaware (the “ Corporation ”) DOES HEREBY CERTIFY :

 

FIRST :  The Corporation’s original Certificate of Incorporation was filed with the Secretary of State of Delaware on June 24, 2002, under the name of Extreme E-Mail, Inc.

 

SECOND :  The Corporation’s Amended and Restated Certification of Incorporation was filed with the Secretary of State of Delaware on December 16, 2002.

 

THIRD :  The Second Amended and Restated Certificate of Incorporation of Proofpoint, Inc. was filed with the Secretary of State of Delaware on October 10, 2003.

 

FOURTH :  A Certificate of Amendment of the Second Amended and Restated Certificate of Incorporation of Proofpoint, Inc. was filed with the Secretary of State of Delaware on June 16, 2004.

 

FIFTH :  The Third Amended and Restated Certificate of Incorporation of Proofpoint, Inc. was filed with the Secretary of State of Delaware on September 2, 2004.

 

SIXTH :  The Fourth Amended and Restated Certificate of Incorporation of Proofpoint, Inc. was filed with the Secretary of State of Delaware on June 6, 2005.

 

SEVENTH :  The Fifth Amended and Restated Certificate of Incorporation of Proofpoint, Inc. was filed with the Secretary of State of Delaware on March 21, 2006.

 

EIGHTH :  The Sixth Amended and Restated Certificate of Incorporation of Proofpoint, Inc. was filed with the Secretary of State of Delaware on June 28, 2006.

 

NINTH :   The Seventh Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A has been duly adopted in accordance with the provisions of Sections 245 and 242 of the General Corporation Law of the State of Delaware by the directors and stockholders of the Corporation.

 

TENTH :  The Seventh Amended and Restated Certificate of Incorporation so adopted reads in full as set forth in Exhibit A attached hereto and is hereby incorporated herein by this reference and amends and restates the Restated Certificate of Incorporation in its entirety.

 

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IN WITNESS WHEREOF , Proofpoint, Inc. has caused this Certificate to be signed by its Chief Executive Officer this 19th day of February 2008.

 

 

PROOFPOINT, INC.

 

 

 

 

 

 

 

By

/s/ Gary Steele

 

 

Gary Steele, Chief Executive Officer

 

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EXHIBIT A

 

SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PROOFPOINT, INC.

a Delaware corporation

 

ARTICLE I

 

The name of the Corporation is Proofpoint, Inc.

 

ARTICLE II

 

The address of the registered office of the Corporation in the State of Delaware is 2711 Centerville Road, Suite 400, in the city of Wilmington and the County of New Castle and the name of the registered agent at that address is the Corporation Service Company.

 

ARTICLE III

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

 

ARTICLE IV

 

A.                                     Classes of Stock .  This Corporation is authorized to issue two classes of shares to be designated Preferred Stock (the “ Preferred Stock ”) and Common Stock (the “ Common Stock ”).  The total number of shares of capital stock that the Corporation shall have the authority to issue is Ninety Million Two Hundred Twenty-Three Thousand Eight Hundred Forty-Four (90,223,844).  The total number of shares of Preferred Stock this Corporation shall have authority to issue is Thirty-Five Million Two Hundred Twenty-Three Thousand Eight Hundred Forty-Four (35,223,844).  The total number of shares of Common Stock this Corporation shall have authority to issue is Fifty-Five Million (55,000,000).  The Preferred Stock shall have a par value of $0.0001 per share, and the Common Stock shall have a par value of $0.0001 per share.

 

B.                                     The Preferred Stock .  Seven Million Four Hundred Thousand (7,400,000) shares of Preferred Stock shall be designated “ Series A Preferred Stock .”  Seven Million One Hundred Nine Thousand Three Hundred Seventy-Five (7,109,375) shares of Preferred Stock shall be designated “ Series B Preferred Stock .”  Eight Million Three Hundred Seven Thousand Twenty-Eight (8,307,028) shares of Preferred Stock shall be designated “ Series C Preferred Stock .”  Six Hundred Sixty-Four Thousand Five Hundred Sixty-Three (664,563) shares of Preferred Stock shall be designated “ Series D Preferred Stock .”  Five Million Seven Hundred Forty-Two Thousand Eight Hundred Seventy-Eight (5,742,878) shares of Preferred Stock shall be designated “ Series E Preferred Stock .”  Six Million (6,000,000) shares of Preferred Stock shall be designated “ Series F Preferred Stock .”  The powers, preferences, rights, restrictions, and other matters relating to the Preferred Stock are as follows:

 

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1.                                        Dividends .

 

(a)                                   The holders of the Series A Preferred Stock shall be entitled to receive cash dividends at the rate of $0.08 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, the holders of the Series B Preferred Stock shall be entitled to receive cash dividends at the rate of $0.1024 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, the holders of the Series C Preferred Stock shall be entitled to receive cash dividends at the rate of $0.1926 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, the holders of the Series D Preferred Stock shall be entitled to receive cash dividends at the rate of $0.2408 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, and the holders of the Series E Preferred Stock shall be entitled to receive cash dividends at the rate of $0.2786 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, and the holders of the Series F Preferred Stock shall be entitled to receive cash dividends at the rate of $0.4256 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, payable out of funds legally available therefor.  Dividends payable on the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock under this Section B.1(a) shall be payable in cash on a pari passu basis, when, as and if declared by the board of directors of the Corporation (the “ Board of Directors ”) and shall be non-cumulative.

 

So long as any shares of Preferred Stock shall be outstanding, no dividends (other than those payable solely in Common Stock) or other distribution of any kind shall be paid on any Common Stock during any fiscal year of the Corporation until cash dividends at the rate of $0.08 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, on the outstanding Series A Preferred Stock, cash dividends at the rate of $0.1024 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, on the outstanding Series B Preferred Stock, cash dividends at the rate of $0.1926 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, on the outstanding Series C Preferred Stock, cash dividends at the rate of $0.2408 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, on the outstanding Series D Preferred Stock, cash dividends at the rate of $0.2786 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, on the outstanding Series E Preferred Stock, and cash dividends at the rate of $0.4256 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) per annum, on the outstanding Series F Preferred Stock, shall have been paid or declared and set apart during that fiscal year and any prior year in which dividends accumulated but remain unpaid.

 

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(b)                                  If, after cash dividends in the full preferential amount specified in Section B.1(a) for the Preferred Stock have been paid in full, the Board of Directors shall declare additional cash dividends out of funds legally available therefor, then such additional cash dividends shall be declared and paid pro rata on the Common Stock and the Preferred Stock on a pari passu basis according to the number of shares of Common Stock held by such holders, where each holder of shares of Preferred Stock is to be treated for this purpose as holding the greatest whole number of shares of Common Stock then issuable upon conversion of all shares of Preferred Stock held by such holder pursuant to Section 4 hereof.

 

(c)                                   If, after cash dividends in the full preferential amount specified in Section B.1(a) for the Preferred Stock have been paid in full, the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidences of indebtedness, then, in each such case the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though the holders of the Preferred Stock were the holders of the number of shares of Common Stock of the Corporation into which their respective shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.

 

2.                                        Liquidation Preference .

 

(a)                                   In the event of any liquidation under applicable bankruptcy or reorganization legislation or the dissolution or winding up of the Corporation (a “ Liquidation ”) the holders of the Preferred Stock shall be entitled to receive, on a pari passu basis and prior and in preference to any distribution of any of the assets or surplus funds of the Corporation legally available for distribution to the stockholders to the holders of the Common Stock by reason of their ownership thereof, the amount of (i) $1.00 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares), plus all accrued or declared but unpaid dividends on such share for each share of Series A Preferred Stock then held by them, (ii) $1.28 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares), plus all accrued or declared but unpaid dividends on such share for each share of Series B Preferred Stock then held by them, (iii) $2.4076 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares), plus all accrued or declared but unpaid dividends on such share for each share of Series C Preferred Stock then held by them, (iv) $3.0095 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares), plus all accrued or declared but unpaid dividends on such share for each share of Series D Preferred Stock then held by them, (v) $3.4826 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares), plus all accrued or declared but unpaid dividends on such share for each share of Series E Preferred Stock then held by them and (vi) $5.32 per share (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares), plus all accrued or declared but unpaid dividends on such share for each share of Series F Preferred Stock then held by them.  If upon the occurrence of such event, the assets and funds

 

3



 

thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution to the stockholders shall be distributed ratably among the holders of the Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.

 

(b)                                  Upon the completion of the distribution required by Section B.2(a), the holders of shares of Preferred Stock shall not be entitled to any further participation in any distribution of assets or surplus funds of the Corporation, and any remaining assets or surplus funds of the Corporation legally available for distribution to the stockholders shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares of Common Stock held by each such holder.

 

(c)                                   For purposes of this Section B.2, unless the holders of greater than sixty-six and two thirds percent (66 2/3%) of the Preferred Stock then outstanding (voting together as a single class and on an as-converted basis) shall otherwise determine by written consent, vote or agreement, (i) any acquisition of the Corporation by means of merger or other form of corporate reorganization in which outstanding shares of the Corporation are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation (or parent thereof) or its subsidiary (other than a mere reincorporation transaction) and pursuant to which the holders of the outstanding voting securities of the Corporation immediately prior to such consolidation, merger or other transaction fail to retain equity securities representing at least fifty percent (50%) of the voting power of the Corporation or surviving entity immediately following such consolidation, merger or other transaction (excluding voting securities of the acquiring corporation held by such holders prior to such transaction), (ii) any voluntary sale, conveyance, exchange or transfer to another person, in a single transaction or a series of related transactions, of securities representing greater than fifty percent (50%) of the voting power of the Corporation or (iii) any voluntary sale, conveyance, exchange or transfer to another person or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934), in a single transaction or a series of related transactions, of all or substantially all of the assets of the Corporation ((i), (ii) and (iii) each, a “ Sale Transaction ”) shall be treated as a Liquidation of the Corporation and shall entitle the holders of Preferred Stock to receive at the closing of a Sale Transaction in cash, securities or other property (valued as provided in Section B.2(d) and (e) below) amounts as specified in Section B.2(a).

 

(d)                                  Whenever the distribution provided for in this Section B.2 shall be payable in securities or property other than cash, the value of such distribution shall be the fair market value of such securities or other property as determined in good faith by the Board of Directors.

 

(e)                                   Notwithstanding Section B.2(d) of this Article IV, any securities shall be valued as follows:

 

(i)                                      Securities not subject to investment letter or other similar restrictions on free marketability covered by (ii) below:

 

4



 

(A)                               If traded on a securities exchange or through the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such quotation system over the thirty (30) day period ending three (3) days prior to the closing of a Sale Transaction;

 

(B)                                 If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing of a Sale Transaction; and

 

(C)                                 If there is no active public market, the value shall be the fair market value thereof, as determined by the Board of Directors.

 

(ii)                                   The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in (i) (A), (B) or (C) to reflect the approximate fair market value thereof, as determined by the Board of Directors.

 

(f)                                     The Corporation shall give each holder of record of Preferred Stock written notice of any Sale Transaction not later than twenty (20) days prior to the stockholders’ meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction.  The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section B.2, and the Corporation shall thereafter give such holders prompt notice of any material changes.  The transaction shall in no event take place sooner than twenty (20) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of material changes provided for herein; provided, however, that such periods may be shortened upon the written consent, vote or agreement of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent a majority of the voting power of all then outstanding shares of Preferred Stock.

 

3.                                        Voting Rights .

 

(a)                                   General Rights .  In addition to the voting rights which the holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock are entitled under or granted by the Delaware General Corporation Law or otherwise expressly provided herein, each holder of shares of the Preferred Stock shall be entitled to cast that number of votes as is equal to the number of votes that such holder would be entitled to cast had such holder converted its shares of Preferred Stock into shares of Common Stock pursuant to Section B.4 below on the record date for the vote or consent of stockholders eligible to vote on any such matters (or, if no record date is established, on the date such vote is taken or consent solicited) and shall have voting rights and powers equal to the voting rights and powers of the Common Stock voting together with the Common Stock on the election of Independent Directors (as defined below) and all other matters submitted to the stockholders of the Corporation for a vote as a single class and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation.  Except as otherwise provided herein or as required by law, the holders of Preferred

 

5



 

Stock and the holders of Common Stock shall vote together and not as separate classes.   Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

 

(b)                                  Election of Directors .  In addition to the voting rights set forth in Section B.3(a) above, (i) the holders of Series A Preferred Stock, voting as a separate class, shall be entitled to elect two (2) members of the Board of Directors, (ii) the holders of Series B Preferred Stock, voting as a separate class, shall be entitled to elect one (1) member of the Board of Directors, (iii) the holders of Series C Preferred Stock, voting as a separate class, shall be entitled to elect one (1) member of the Board of Directors, (iv) the holders of the Common Stock, voting as a separate class, shall be entitled to elect two (2) members of the Board of Directors and (v) the holders of the Preferred Stock and Common Stock, voting together as a single class and on an as-converted basis, shall be entitled to elect all remaining directors (the “ Independent Directors ”).  In the event of a vacancy in the office of any director elected by the holders of any class, a successor shall be elected to hold office for the unexpired term of such director by the holders of shares of such separate class.

 

4.                                        Conversion .  The holders of the Preferred Stock shall have conversion rights as follows (the “ Conversion Rights ”):

 

(a)                                   Right to Convert .  Any holder of shares of Preferred Stock shall have the right, at its option, at any time, and from time to time, to convert, subject to the terms and conditions of this Section B.4, at the office of the Corporation or any transfer agent for such stock, any or all of such holder’s shares of Preferred Stock into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) in the case of the Series A Preferred Stock, $1.00 (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) by the Series A Conversion Price, determined as hereinafter provided, (ii) in the case of the Series B Preferred Stock, $1.28 (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) by the Series B Conversion Price, determined as hereinafter provided, (iii) in the case of the Series C Preferred Stock, $2.4076 (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) by the Series C Conversion Price, determined as hereinafter provided, (iv) in the case of the Series D Preferred Stock, $3.0095 (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) by the Series D Conversion Price, determined as hereinafter provided, (v) in the case of the Series E Preferred Stock, $3.4826 (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) by the Series E Conversion Price, determined as hereinafter provided and (vi) in the case of the Series F Preferred Stock, $5.32 (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) by the Series F Conversion Price, in each case as in effect on the date the certificate is surrendered for conversion.  On the Original Issue Date, the price at which shares of Common Stock shall be deliverable upon conversion of shares of Preferred Stock shall initially be (i) in the case of the Series A Preferred Stock, $1.00

 

6



 

per share (the “ Series A Conversion Price ”), (ii) in the case of the Series B Preferred Stock, $1.28 per share (the “ Series B Conversion Price ”), (iii) in the case of the Series C Preferred Stock, $2.4076 per share (the “ Series C Conversion Price ”), (iv) in the case of the Series D Preferred Stock, $2.4076 per share (the “ Series D Conversion Price ”), (v) in the case of the Series E Preferred Stock, $3.46655 per share (the “ Series E Conversion Price ”), and (vi) in the case of the Series F Preferred Stock, $5.32 per share (the “ Series F Conversion Price ”).  Thereafter, such Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price, Series E Conversion Price and Series F Conversion Price shall be adjusted as hereinafter provided.

 

(b)                                  Automatic Conversion .  Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective applicable Conversion Price for such series of Preferred Stock upon the earlier of (i) the date specified by written consent or agreement of holders of at least sixty-six and two thirds percent (66 2/3%) of the shares of Preferred Stock then outstanding (voting together as a single class and on an as-converted basis) provided, however, that no share of Series F Preferred Stock shall be automatically converted pursuant to the foregoing in connection with, or in anticipation of, a Sale Transaction in which holders of Series F Preferred Stock do not receive the full preference amount set forth in Section B.2(a) of this Article IV, unless such written consent or agreement is endorsed by the holders of a majority of the Series F Preferred Stock then outstanding (voting together as a single class and on an as-converted basis); or (ii) immediately upon the closing of the sale of the Corporation’s Common Stock in an underwritten public offering registered under the Securities Act of 1933, as amended (the “ Securities Act ”), in which the aggregate proceeds to the Corporation (before deduction for underwriters’ discounts and commissions and expenses relating to the issuance) exceed $40,000,000  and in which the public offering price per share (before deduction for underwriters’ discounts and commissions and expenses relating to the issuance) equals or exceeds $10.64 per share  (as appropriately adjusted for any stock dividends, combinations, splits, reverse-splits, recapitalizations and the like with respect to such shares) (a “ Qualified IPO ”).

 

(c)                                   Mechanics of Conversion .

 

(i)                                      Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock (or, if the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed, such holder shall execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates in lieu of providing such certificates), and shall give written notice to the Corporation at such office that he elects to convert the same and shall state therein the name or names in which he wishes the certificate or certificates for shares of Common Stock to be issued; provided, however, that in the event of an automatic conversion pursuant to Section B.4(b) above, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of

 

7



 

Preferred Stock are either delivered to the Corporation or its transfer agent as provided above or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates.  The Corporation shall, as soon as reasonably practicable thereafter (subject to compliance with the applicable provisions of federal and state securities laws), issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which he shall be entitled as aforesaid and shall promptly pay in cash or, to the extent sufficient funds are not then legally available therefor, in Common Stock (at the Common Stock’s fair market value determined in good faith by the Board of Directors as of the date of such conversion) an amount equal to any declared and unpaid dividends on the shares of Preferred Stock being converted.  Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

 

(ii)                                   All certificates representing shares of Preferred Stock surrendered for conversion shall be delivered to the Corporation for cancellation and canceled by it and may not be reissued.

 

(iii)                                If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act, the conversion may, at the option of any holder tendering shares of Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities.

 

(iv)                               On the date of an optional conversion or an automatic conversion, all rights with respect to the shares of Preferred Stock so converted, including the rights, if any, to receive notices and vote, shall terminate, except only the rights of the holders thereof to (i) receive certificates for the number of shares of Common Stock into which such shares of Preferred Stock have been converted and (ii) exercise the rights to which they are entitled as holders of Common Stock.

 

(d)                                  Adjustments to Conversion Price for Certain Dilutive Issuances .

 

(i)                                      Special Definitions .  For purposes of this Section B.4(d), the following definitions apply:

 

(A)                               Options ” shall mean rights, options, or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below).

 

(B)                                 Original Issue Date ” shall mean the date on which a share of Series F Preferred Stock was first issued.

 

8


 

(C)                                 Convertible Securities ” shall mean any evidences of indebtedness, shares (other than Common Stock and Preferred Stock) or other securities convertible into or exchangeable for Common Stock.

 

(D)                                Additional Shares of Common Stock ” shall mean all shares of Common Stock issued (or, pursuant to Section B.4(d)(iii), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable:

 

(1)                                   upon conversion of shares of Preferred Stock;

 

(2)                                   to officers, directors or employees of, or consultants to, the Corporation pursuant to stock option or stock purchase plans or agreements, on terms approved by the Board of Directors (including, with respect to the officers of the Corporation, a majority of directors who are not also employees of the Corporation);

 

(3)                                   as a dividend or distribution on the Preferred Stock;

 

(4)                                   for which adjustment of the applicable Conversion Price is made pursuant to Section B.4(e);

 

(5)                                   any securities offered by the Corporation to the public pursuant to a registration statement filed under the Securities Act in a transaction resulting in the automatic conversion of the Preferred Stock under Section B.4(b) above;

 

(6)                                   any securities issued pursuant to the acquisition of another corporation or entity (that is not affiliated with the Corporation or any of its stockholders) by the Corporation by consolidation, merger, purchase of all or substantially all of the assets or other reorganization in which the Corporation acquires, in a single transaction or series of related transactions, all or substantially all of the assets of such other corporation or entity, 50% or more of the voting power of such other corporation or entity, or 50% or more of the equity ownership of such other entity and which transaction is approved by the Board of Directors; or

 

(7)                                   shares of any capital stock (and/or options or warrants therefor) issued to parties providing the Corporation with equipment leases, real property leases, loans, credit lines, guaranties of indebtedness, cash price reductions or similar financing or other strategic partners approved by the Board of Directors and not primarily for equity financing purposes.

 

(ii)                                   No Adjustment of Conversion Price .  Any provision herein to the contrary notwithstanding, no adjustment in the Conversion Price for any series of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section B.4(d)(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than

 

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the Conversion Price in effect for such series of Preferred Stock on the date of, and immediately prior to, such issue.

 

(iii)                                Deemed Issue of Additional Shares of Common Stock .  In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto, assuming the satisfaction of all conditions to exercise and conversion, including the passage of time, have been satisfied, but without regard to any potential antidilution adjustments) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date for consideration determined in accordance with Section B.4(d)(v), provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued:

 

(A)                               no further adjustments in the applicable Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;

 

(B)                                 if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Corporation, or change in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (including, but not limited to a change resulting from the antidilution provisions thereof), the applicable Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of such Conversion Price shall effect Common Stock previously issued upon conversion of such Preferred Stock);

 

(C)                                 upon the expiration of any such Options, the termination of any such rights to convert or exchange Convertible Securities, the applicable Conversion Price, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (including Common Stock that may be issued upon conversion or exchange of any Convertible Securities which remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such Convertible Securities or upon the exercise of the Options related to such securities (provided, however, that no such adjustment of the Conversion Price for any series of Preferred Stock shall effect Common Stock previously issued upon conversion of such series of Preferred Stock); and

 

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(D)                                no readjustment pursuant to clause (2) or (3) above shall have the effect of increasing the Conversion Price for any series of Preferred Stock to an amount which exceeds the lower of (a) such Conversion Price on the original adjustment date with respect to such issuance, or (b) the Conversion Price for such series of Preferred Stock that would have resulted from any issuance of Additional Shares of Common Stock (or deemed issuance pursuant to section B.4(d)(iii)) between the original adjustment date and such readjustment date.

 

(iv)                               Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock .  In the event this Corporation, at any time after the Original Issue Date, shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section B.4(d)(iii)) without consideration or for a consideration per share less than the Conversion Price with respect to the any series of Preferred Stock in effect on the date of and immediately prior to such issue, then and in such event, the Conversion Price for such series of Preferred Stock shall be reduced concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued.  For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all shares of Preferred Stock and all outstanding Convertible Securities had been fully converted into shares of Common Stock and any outstanding warrants, Options or other rights for the purchase of shares of stock or convertible securities had been fully exercised (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date.

 

(v)                                  Determination of Consideration .  For purposes of this Section B.4(d), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock (or deemed issuance pursuant to Section B.4(d)(iii)) shall be computed as follows:

 

(A)                               Cash and Property .  Such consideration shall:

 

(1)                                   insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;

 

(2)                                   insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

 

(3)                                   in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for

 

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consideration which covers both, be the proportion of such consideration with respect to the Additional Shares of Common Stock so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors.

 

(B)                                 Options and Convertible Securities .  The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section B.4(d)(iii), relating to Options and Convertible Securities shall be determined by dividing:

 

(1)                                   the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against potential dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by

 

(2)                                   the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against potential dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities.

 

(e)                                   Adjustments to Conversion Prices for Stock Dividends and for Combinations or Subdivisions of Common Stock .  If this Corporation, at any time or from time to time after the Original Issue Date shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock dividend, stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock), or if the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the Conversion Price for each series of Preferred Stock in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate, so that the holder of any shares of Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock or other securities of the Corporation that such holder would have owned or would have been entitled to receive upon or by reason of any of the foregoing events had such shares of Preferred Stock been converted immediately prior to the occurrence of such event.  In the event that this Corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration then the Corporation shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock.

 

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(f)                                     Adjustments for Reclassification and Reorganization .  If the Common Stock issuable upon conversion of any series of Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section B.4(e) above or a Sale Transaction that is treated as a Liquidation), the Conversion Price then in effect for such series of Preferred Stock shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that such series of Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock that the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of such series of Preferred Stock immediately before that change.

 

(g)                                  No Impairment .  The Corporation will not, except in accordance with the Delaware General Corporation Law and Section B.5 hereof, by amendment of this Certificate by merger, consolidation or otherwise or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed by the Corporation under any Article of this Certificate, including, without limitation, this Section B.4, and will at all times in good faith assist in the carrying out of all the provisions of this Section B.4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment.

 

(h)                                  Certificates as to Adjustments .  Upon the occurrence of each adjustment or readjustment of any Conversion Price pursuant to this Section B.4, the Corporation at its expense shall within a reasonable period (not to exceed ten (10) business days) compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of such series of Preferred Stock a certificate executed by the Corporation’s President or a Vice President setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price for such series of Preferred Stock at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of such series of Preferred Stock.

 

(i)                                      Notices of Record Date .  If the Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; (iv) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (v) to sell shares of Common Stock in a Qualified IPO; then, in connection with each such event, the Corporation shall send to the holders of the Preferred Stock: (1) at least twenty (20) days

 

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prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii), (iv) and (v) above, at least twenty (20) days prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event).

 

(j)                                      Reservation of Stock Issuable Upon Conversion .  The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock; the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate.

 

(k)                                   Fractional Shares .  No fractional share shall be issued upon the conversion of any share or shares of Preferred Stock.  All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share.  If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors).

 

(l)                                      Notices .  Any notice required by the provisions of this Section B.4 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation.

 

5.                                        Restrictions and Limitations .

 

(a)                                   Series Protective Provisions for Series C Preferred Stock .  So long as at least One Million (1,000,000) shares of Series C Preferred Stock remain outstanding (as appropriately adjusted for any stock dividends, combinations or splits with respect to such shares), notwithstanding anything to the contrary set forth herein, the Bylaws of the Corporation or otherwise, neither the Corporation, the Board of Directors nor the stockholders of the Corporation shall approve, consent to or ratify any of the following actions (whether by amendment or restatement of the Certificate of Incorporation, by agreement of merger, consolidation, business combination, recapitalization, reincorporation or other corporate transaction or series of related transactions) without the affirmative vote or written consent by

 

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the holders of at least sixty-six and two thirds percent (66 2/3%) of the then outstanding shares of the Series C Preferred Stock (voting as a separate series):

 

(i)                                      Amend or waive any provision of the Corporation’s Certificate of Incorporation to alter or change the rights, preferences or privileges so as to adversely affect the Series C Preferred Stock unless such alteration or change so affects the Series A Preferred Stock, Series B Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock;

 

(ii)                                   Amend or waive any provision of the Corporation’s Bylaws relative to the rights, preferences or privileges of the Series C Preferred Stock; or

 

(iii)                                Any increase or decrease in the authorized number of shares of Series C Preferred Stock.

 

(b)                                  Series Protective Provisions for Series D Preferred Stock .  So long as at least Two Hundred Thousand (200,000) shares of Series D Preferred Stock remain outstanding (as appropriately adjusted for any stock dividends, combinations or splits with respect to such shares), notwithstanding anything to the contrary set forth herein, the Bylaws of the Corporation or otherwise, neither the Corporation, the Board of Directors nor the stockholders of the Corporation shall approve, consent to or ratify any of the following actions (whether by amendment or restatement of the Certificate of Incorporation, by agreement of merger, consolidation, business combination, recapitalization, reincorporation or other corporate transaction or series of related transactions) without the affirmative vote or written consent by the holders of at least sixty percent (60%) of the then outstanding shares of the Series D Preferred Stock (voting as a separate series):

 

(i)                                      Amend or waive any provision of the Corporation’s Certificate of Incorporation to alter or change the rights, preferences or privileges so as to adversely affect the Series D Preferred Stock unless such alteration or change so affects the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series E Preferred Stock and Series F Preferred Stock;

 

(ii)                                   Amend or waive any provision of the Corporation’s Bylaws relative to the rights, preferences or privileges of the Series D Preferred Stock; or

 

(iii)                                Any increase or decrease in the authorized number of shares of Series D Preferred Stock.

 

(c)                                   Series Protective Provisions for Series E Preferred Stock .  So long as at least One Million (1,000,000) shares of Series E Preferred Stock remain outstanding (as appropriately adjusted for any stock dividends, combinations or splits with respect to such shares), notwithstanding anything to the contrary set forth herein, the Bylaws of the Corporation or otherwise, neither the Corporation, the Board of Directors nor the stockholders of the Corporation shall approve, consent to or ratify any of the following actions (whether by amendment or restatement of the Certificate of Incorporation, by agreement of merger, consolidation, business combination, recapitalization, reincorporation or other corporate transaction or series of related transactions) without the affirmative vote or written consent by

 

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the holders of at least sixty-six and two thirds percent (66 2/3%) of the then outstanding shares of the Series E Preferred Stock (voting as a separate series):

 

(i)                                      Amend or waive any provision of the Corporation’s Certificate of Incorporation to alter or change the rights, preferences or privileges so as to adversely affect the Series E Preferred Stock unless such alteration or change so affects the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series F Preferred Stock;

 

(ii)                                   Amend or waive any provision of the Corporation’s Bylaws relative to the rights, preferences or privileges of the Series E Preferred Stock; or

 

(iii)                                Any increase or decrease in the authorized number of shares of Series E Preferred Stock.

 

(d)                                  Series Protective Provisions for Series F Preferred Stock .  So long as at least One Million (1,000,000) shares of Series F Preferred Stock remain outstanding (as appropriately adjusted for any stock dividends, combinations or splits with respect to such shares), notwithstanding anything to the contrary set forth herein, the Bylaws of the Corporation or otherwise, neither the Corporation, the Board of Directors nor the stockholders of the Corporation shall approve, consent to or ratify any of the following actions (whether by amendment or restatement of the Certificate of Incorporation, by agreement of merger, consolidation, business combination, recapitalization, reincorporation or other corporate transaction or series of related transactions) without the affirmative vote or written consent by the holders of at least a majority of the then outstanding shares of the Series F Preferred Stock (voting as a separate series):

 

(i)                                      Amend or waive any provision of the Corporation’s Certificate of Incorporation to alter or change the rights, preferences or privileges so as to adversely affect the Series F Preferred Stock unless such alteration or change so affects the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock;

 

(ii)                                   Amend or waive any provision of the Corporation’s Bylaws relative to the rights, preferences or privileges of the Series F Preferred Stock; or

 

(iii)                                Any increase or decrease in the authorized number of shares of Series F Preferred Stock.

 

(e)                                   Class Protective Provisions .  So long as at least One Million (1,000,000) shares of Preferred Stock remain outstanding (as appropriately adjusted for any stock dividends, combinations or splits with respect to such shares), notwithstanding anything to the contrary set forth herein, the Bylaws of the Corporation or otherwise, neither the Corporation, the Board of Directors nor the stockholders of the Corporation shall approve, consent to or ratify any of the following actions (whether by amendment or restatement of the Certificate of Incorporation, by agreement of merger, consolidation, business combination, recapitalization, reincorporation or other corporate transaction or series of related transactions, and whether directly or through action taken by a subsidiary of the Corporation) without the affirmative vote

 

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or written consent by the holders of at least sixty-six and two thirds percent (66 2/3%) of the then outstanding shares of the Preferred Stock (voting together as a single class and on an as-converted basis); provided , that the shares of Preferred Stock held by any stockholder affiliated with any person (other than the Corporation) engaged in any transaction for which approval is being sought under B.5(i) shall be disregarded for purposes of determining whether such approval is obtained:

 

(i)                                      Any act or thing that results in the payment or declaration of any dividend (other than those payable solely in Common Stock) on any shares of Preferred Stock or Common Stock;

 

(ii)                                   Any act or thing that results in the redemption, repurchase or other acquisition of any shares of Preferred Stock or Common Stock, provided, however, that this restriction shall not apply to (i) the repurchase of shares of Common Stock at cost from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to a stock purchase agreement, stock option agreement or restricted stock plan approved by the Board of Directors under which the Corporation has the option to repurchase such shares at cost upon the occurrence of certain events, such as the termination of employment, or (ii) the exercise of the Corporation’s right of first refusal, approved by the Board of Directors, upon a proposed transfer;

 

(iii)                                Authorize, create or issue, or obligate itself to authorize, create or issue, any other equity security (including any security convertible into or exercisable for any equity security) having rights, preferences or privileges senior to or on a parity with the Preferred Stock, including with respect to dividends, voting or upon a liquidation;

 

(iv)                               Amend, alter, waive or otherwise change the rights, preferences or privileges of the Preferred Stock;

 

(v)                                  Amend or alter its Certificate of Incorporation or Bylaws;

 

(vi)                               Enter into any transaction involving the right to purchase or otherwise obtain shares of the Corporation’s capital stock from the Corporation, other than shares of capital stock (and/or options or warrants therefor) issued to employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to a stock option agreement, restricted stock plan or other arrangement approved by the Board of Directors;

 

(vii)                            Issue or incur any indebtedness outside the ordinary course of business, unless such action is approved by the Board of Directors, including the approval of at least two (2) directors elected by the holders of the Preferred Stock;

 

(viii)                         Consummate any Sale Transaction;

 

(ix)                                 Engage in any material transaction outside the ordinary course of business with an affiliate of the Corporation or of any stockholder of the Corporation, other than a transaction subject to the right of first refusal set forth in Section 3.1 of the Corporation’s Fourth Amended and Restated Investors’ Rights Agreement, dated on or around

 

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February 19, 2008, regardless of whether such right of first refusal is waived by the holders thereof;

 

(x)                                    Increase or decrease the number of authorized shares of Common Stock or Preferred Stock; or

 

(xi)                                 Change the authorized number of directors of the Corporation.

 

6.                                        No Reissuance of Preferred Stock .  No share or shares of Preferred Stock acquired by the Corporation by reason of purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares that the Corporation shall be authorized to issue.

 

7.                                        No Redemption of Preferred Stock .  The shares of Preferred Stock shall not be subject to redemption, whether at the option of the Corporation or any holder thereof, or otherwise.

 

C.                                     The Common Stock .

 

1.                                        Dividend Rights .  Subject to the prior rights of the holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets or the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

 

2.                                        Liquidation Rights .  Upon the Liquidation of the Corporation, the assets of the Corporation shall be distributed as provided in Section B.2 of this Article IV.

 

3.                                        Voting Rights .  The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of this Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law.  The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the Delaware General Corporation Law.

 

ARTICLE V

 

A director of the Corporation shall not, to the fullest extent permitted by the Delaware General Corporation Law, be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit.  If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize Corporation action further eliminating or limiting the personal liability of directors then the

 

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liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended.

 

Any repeal or modification of the foregoing provisions of this Article V by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

 

ARTICLE VI

 

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide.  The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.

 

ARTICLE VII

 

Subject to Sections B.4 and B.5 of Article IV above, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.

 

ARTICLE VIII

 

Subject to Section B.5 of Article IV above, the Corporation reserves the right to amend, alter, change or repeal any provision contained in the Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation; provided however, whenever this Certificate of Incorporation requires for action by the Board of Directors, the action by a specific director or for action by the holders of any series of shares of the Corporation, as the case may be, the vote or consent of a greater number of directors greater than required by law, the vote or consent of a specific director, or the vote or consent of more than a majority of holders of such series of shares, as the case may be, the provision of this Certificate of Incorporation requiring such greater or specific vote or consent shall not be altered, amended or repealed without first obtaining such greater or specific vote or consent to such alteration, amendment or repeal.

 

ARTICLE IX

 

To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) agents of the Corporation (and any other persons to which Delaware General Corporation Law permits the Corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware General Corporation Law (statutory or non-statutory), with respect to actions for breach of duty to this corporation, its stockholders, and others.

 

Any amendment, repeal or modification of the foregoing provisions of this Article IX shall not adversely affect any right or protection of a director, officer, agent, or other person

 

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existing at the time of, or increase the liability of any director of this corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such amendment, repeal or modification.

 


 

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CERTIFICATE OF AMENDMENT OF SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PROOFPOINT, INC.

 

Proofpoint, Inc., a Delaware corporation, does hereby certify that the following amendment to the corporation’s Seventh Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, with the approval of such amendment by the corporation’s stockholders having been given by written consent without a meeting in accordance with Sections 228(d) and 242 of the Delaware General Corporation Law:

 

The first two paragraphs of Article IV of the corporation’s Seventh Amended and Restated Certificate of Incorporation, relating to the authorized capital stock of the corporation, are hereby amended and restated to read as follows:

 

A.                                     Classes of Stock .  This Corporation is authorized to issue two classes of shares to be designated Preferred Stock (the “ Preferred Stock ”) and Common Stock (the “ Common Stock ”).  The total number of shares of capital stock that the Corporation shall have the authority to issue is Ninety-Eight Million Three Hundred Twenty-Three Thousand Eight Hundred Forty-Four (98,323,844).  The total number of shares of Preferred Stock this Corporation shall have authority to issue is Thirty-Eight Million Three Hundred Twenty-Three Thousand Eight Hundred Forty-Four (38,323,844).  The total number of shares of Common Stock this Corporation shall have authority to issue is Sixty Million (60,000,000).  The Preferred Stock shall have a par value of $0.0001 per share, and the Common Stock shall have a par value of $0.0001 per share.

 

B.                                     The Preferred Stock .  Seven Million Four Hundred Thousand (7,400,000) shares of Preferred Stock shall be designated “ Series A Preferred Stock .”  Seven Million One Hundred Nine Thousand Three Hundred Seventy-Five (7,109,375) shares of Preferred Stock shall be designated “ Series B Preferred Stock .”  Eight Million Three Hundred Seven Thousand Twenty-Eight (8,307,028) shares of Preferred Stock shall be designated “ Series C Preferred Stock .”  Six Hundred Sixty-Four Thousand Five Hundred Sixty-Three (664,563) shares of Preferred Stock shall be designated “ Series D Preferred Stock .”  Five Million Seven Hundred Forty-Two Thousand Eight Hundred Seventy-Eight (5,742,878) shares of Preferred Stock shall be designated “ Series E Preferred Stock .”  Nine Million One Hundred Thousand (9,100,000) shares of Preferred Stock shall be designated “ Series F Preferred Stock .”  The powers, preferences, rights, restrictions, and other matters relating to the Preferred Stock are as follows:

 

IN WITNESS WHEREOF, said corporation has caused this Certificate of Amendment to be signed by its duly authorized officer this 19th day of June 2008, and the foregoing facts stated herein are true and correct.

 

 

Proofpoint, Inc.

 

 

 

 

 

 

 

By:

/s/ Gary Steele

 

 

Gary Steele

 

 

President and Chief Executive Officer

 


 

SECOND CERTIFICATE OF AMENDMENT OF SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF PROOFPOINT, INC.

 

Proofpoint, Inc., a Delaware corporation, does hereby certify that the following amendment to the corporation’s Seventh Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, with the approval of such amendment by the corporation’s stockholders having been given by written consent without a meeting in accordance with Sections 228(d) and 242 of the Delaware General Corporation Law:

 

The first two paragraphs of Article IV of the corporation’s Seventh Amended and Restated Certificate of Incorporation, relating to the authorized capital stock of the corporation, are hereby amended and restated to read as follows:

 

A.                                     Classes of Stock .  This Corporation is authorized to issue two classes of shares to be designated Preferred Stock (the “ Preferred Stock ”) and Common Stock (the “ Common Stock ”).  The total number of shares of capital stock that the Corporation shall have the authority to issue is One Hundred Nine Million Four Hundred Twenty-Three Thousand Eight Hundred Forty-Four (109,423,844).  The total number of shares of Preferred Stock this Corporation shall have authority to issue is Thirty-Nine Million Four Hundred Twenty-Three Thousand Eight Hundred Forty-Four (39,423,844).  The total number of shares of Common Stock this Corporation shall have authority to issue is Seventy Million (70,000,000).  The Preferred Stock shall have a par value of $0.0001 per share, and the Common Stock shall have a par value of $0.0001 per share.

 

B.                                     The Preferred Stock .  Seven Million Four Hundred Thousand (7,400,000) shares of Preferred Stock shall be designated “ Series A Preferred Stock .”  Seven Million One Hundred Nine Thousand Three Hundred Seventy-Five (7,109,375) shares of Preferred Stock shall be designated “ Series B Preferred Stock .”  Eight Million Three Hundred Seven Thousand Twenty-Eight (8,307,028) shares of Preferred Stock shall be designated “ Series C Preferred Stock .”  Six Hundred Sixty-Four Thousand Five Hundred Sixty-Three (664,563) shares of Preferred Stock shall be designated “ Series D Preferred Stock .”  Five Million Seven Hundred Forty-Two Thousand Eight Hundred Seventy-Eight (5,742,878) shares of Preferred Stock shall be designated “ Series E Preferred Stock .”  Ten Million Two Hundred Thousand (10,200,000) shares of Preferred Stock shall be designated “ Series F Preferred Stock .”  The powers, preferences, rights, restrictions, and other matters relating to the Preferred Stock are as follows:

 

IN WITNESS WHEREOF, said corporation has caused this Certificate of Amendment to be signed by its duly authorized officer this 19th day of October 2009, and the foregoing facts stated herein are true and correct.

 

 

Proofpoint, Inc.

 

 

 

 

 

 

 

By:

/s/ Gary Steele

 

 

Gary Steele

 

 

President and Chief Executive Officer

 


 

THIRD CERTIFICATE OF AMENDMENT OF

 

SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF

 

PROOFPOINT, INC.

 

Proofpoint, Inc., a Delaware corporation, does hereby certify that the following amendment to the corporation’s Seventh Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, with the approval of such amendment by the corporation’s stockholders having been given by written consent without a meeting in accordance with Sections 228(d) and 242 of the Delaware General Corporation Law:

 

The first paragraph of Article IV of the corporation’s Seventh Amended and Restated Certificate of Incorporation, relating to the authorized capital stock of the corporation, is hereby amended and restated to read as follows:

 

“A.             Classes of Stock. This Corporation is authorized to issue two classes of shares to be designated Preferred Stock (the “Preferred Stock” ) and Common Stock (the “Common Stock” ). The total number of shares of capital stock that the Corporation shall have the authority to issue is One Hundred Ten Million Eight Hundred Twenty-Three Thousand Eight Hundred Forty-Four (110,823,844). The total number of shares of Preferred Stock this Corporation shall have authority to issue is Thirty-Nine Million Four Hundred Twenty-Three Thousand Eight Hundred Forty-Four (39,423,844). The total number of shares of Common Stock this Corporation shall have authority to issue is Seventy One Million Four Hundred Thousand (71,400,000). The Preferred Stock shall have a par value of $0.0001 per share, and the Common Stock shall have a par value of $0.0001 per share.”

 

IN WITNESS WHEREOF, said corporation has caused this Certificate of Amendment to be signed by its duly authorized officer this 22nd day of December 2011, and the foregoing facts stated herein are true and correct.

 

 

Proofpoint, Inc.

 

 

 

 

 

 

 

By:

/s/ Gary Steele

 

 

Gary Steele

 

 

Chief Executive Officer

 


 

FOURTH CERTIFICATE OF AMENDMENT

 

OF THE

 

SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

OF

 

PROOFPOINT, INC.
(a Delaware corporation)

 

Proofpoint, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “ General Corporation Law ”), does hereby certify that the following amendment to the corporation’s Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, with the approval of such amendment by the corporation’s stockholders having been given by written consent without a meeting in accordance with Sections 228 and 242 of the General Corporation Law:

 

Article IV(A) of the Amended and Restated Certificate of Incorporation relating to Authorization of Stock is hereby amended to include the following paragraph immediately following the first paragraph:

 

“Effective upon the filing of this Certificate of Amendment, each outstanding share of the Common Stock of the corporation will be combined, changed and reclassified into, without any further action by this corporation or the stockholder thereof, one-half (1/2) of a share of Common Stock.  No fractional shares shall be issued in connection with the foregoing combination; all shares of Common Stock so combined that are held by a stockholder will be aggregated subsequent to the foregoing combination and each fractional share resulting from such aggregation held by a stockholder shall be paid in cash the value of such fractional shares.”

 

IN WITNESS WHEREOF, said corporation has caused this certificate to be signed by its duly authorized officer this 2 nd  day of April 2012 and the foregoing facts stated herein are true and correct.

 

 

PROOFPOINT, INC.

 

 

 

 

 

 

 

By:

/s/ Gary Steele

 

Name:

Gary Steele

 

Title:

Chief Executive Officer

 




Exhibit 3.02

 

PROOFPOINT, INC.

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

Proofpoint, Inc., a Delaware corporation, hereby certifies as follows.

 

1.                                        The name of the Corporation is Proofpoint, Inc.  The date of filing its original Certificate of Incorporation with the Secretary of State was June 24, 2002, under the name Extreme E-Mail, Inc.

 

2.                                        The Amended and Restated Certificate of Incorporation of the Corporation attached hereto as Exhibit “1” , which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of the Corporation as previously amended or supplemented, has been duly adopted by the Corporation’s Board of Directors and by the stockholders in accordance with Sections 242 and 245 of the Delaware General Corporation Law, with the approval of the Corporation’s stockholders having been given by written consent without a meeting in accordance with Section 228 of the Delaware General Corporation Law.

 

IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by its duly authorized officer and the foregoing facts stated herein are true and correct.

 

Dated:

 

 

PROOFPOINT, INC.

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 



 

EXHIBIT “1”

 

PROOFPOINT, INC.

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

ARTICLE I: NAME

 

The name of the corporation is Proofpoint, Inc. (the “ Corporation ”).

 

ARTICLE II: AGENT FOR SERVICE OF PROCESS

 

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, in the city of Wilmington and the County of New Castle.  The name of the registered agent of the Corporation at that address is: Corporation Service Company.

 

ARTICLE III: PURPOSE

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

 

ARTICLE IV: AUTHORIZED STOCK

 

1.                                       Total Authorized . The total number of shares of all classes of stock that the Corporation has authority to issue is Two Hundred Five Million (205,000,000) shares, consisting of two classes:  Two Hundred Million (200,000,000) shares of Common Stock, $0.0001 par value per share, and Five Million 5,000,000) shares of Preferred Stock, $0.0001 par value per share.

 

2.                                       Designation of Additional Shares

 

2.1.                               The Board of Directors is authorized, subject to any limitations prescribed by the law of the State of Delaware, to provide for the issuance of the shares of Preferred Stock in one or more series, and, by filing a Certificate of Designation pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, to fix the designation, powers, preferences and relative, participating, optional or other rights, if any, of the shares of each such series and any qualifications, limitations or restrictions thereof, and to increase (but not above the total number of authorized shares of the class) or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding).  The number of authorized shares of Preferred Stock may also be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of capital stock of the Corporation entitled to vote thereon, without a vote of the holders of the Preferred Stock, unless a vote of any such holders is required pursuant to the terms of any certificate or certificates designating a series of Preferred Stock.

 



 

2.2                                  Except as otherwise expressly provided in any Certificate of Designation designating any series of Preferred Stock pursuant to the foregoing provisions of this Article IV, any new series of Preferred Stock may be designated, fixed and determined as provided herein by the Board of Directors without approval of the holders of Common Stock or the holders of Preferred Stock, or any series thereof, and any such new series may have powers, preferences and rights, including, without limitation, voting rights, dividend rights, liquidation rights, redemption rights and conversion rights, senior to, junior to or pari passu with the rights of the Common Stock, the Preferred Stock, or any future class or series of Preferred Stock or Common Stock.

 

2.3                                  Each outstanding share of Common Stock shall entitle the holder thereof to one vote on each matter properly submitted to the stockholders of the Corporation for their vote; provided , however , that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock) that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation (including any Certificate of Designation relating to any series of Preferred Stock).

 

ARTICLE V: AMENDMENT OF BYLAWS

 

The Board of Directors of the Corporation shall have the power to adopt, amend or repeal the Bylaws of the Corporation.  Any adoption, amendment or repeal of the Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the Whole Board.  For purposes of this Certificate of Incorporation, the term “ Whole Board ” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships.  The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation; provided , however , that in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation (including any Preferred Stock issued pursuant to a Certificate of Designation), the affirmative vote of the holders of at least two-thirds (2/3rds) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the Corporation.

 

ARTICLE VI:  MATTERS RELATING TO THE BOARD OF DIRECTORS

 

1.                                       Director Powers .  The conduct of the affairs of the Corporation shall be managed by or under the direction of the Board of Directors.  In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.

 

2.                                       Number of Directors .  Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, the number of directors shall be fixed from time to time exclusively by resolution adopted by a majority of the Whole Board.

 



 

3.                                       Classified Board .  Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances the directors shall be divided, with respect to the time for which they severally hold office, into three classes designated as Class I, Class II and Class III, respectively (the “ Classified Board ”).  The Board of Directors may assign members of the Board of Directors already in office to such classes of the Classified Board, which assignments shall become effective at the same time the Classified Board becomes effective. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors, with the number of directors in each class to be divided as nearly equal as reasonably possible. The initial term of office of the Class I directors shall expire at the Corporation’s first annual meeting of stockholders following the closing of the Corporation’s initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public (the “ Initial Public Offering ”), the initial term of office of the Class II directors shall expire at the Corporation’s second annual meeting of stockholders following the closing of the Initial Public Offering, and the initial term of office of the Class III directors shall expire at the Corporation’s third annual meeting of stockholders following the closing of the Initial Public Offering.  At each annual meeting of stockholders following the closing of the Initial Public Offering, directors elected to succeed those directors of the class whose terms then expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election.

 

4.                                       Term and Removal . Each director shall hold office until such director’s successor is elected and qualified, or until such director’s earlier death, resignation or removal.  Any director may resign at any time upon notice to the Corporation given in writing or by any electronic transmission permitted in the Corporation’s Bylaws.  Subject to the rights of the holders of any series of Preferred Stock, no director may be removed except for cause and only by the affirmative vote of the holders of at least a majority of the voting power of the then-outstanding shares of capital stock of the Corporation then entitled to vote at an election of directors voting together as a single class.  No decrease in the authorized number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

 

5.                                       Board Vacancies .  Subject to the rights of the holders of any series of Preferred Stock, any vacancy occurring in the Board of Directors for any cause, and any newly created directorship resulting from any increase in the authorized number of directors, shall, unless (a) the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders or (b) as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even if less than a quorum, or by a sole remaining director, and not by the stockholders.  Any director elected in accordance with the preceding sentence shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which the director has been assigned expires or until such director’s successor shall have been duly elected and qualified.  No decrease in the authorized number of directors shall shorten the term of any incumbent director.

 

6.                                       Vote by Ballot .  Election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.

 



 

ARTICLE VII: DIRECTOR LIABILITY

 

1.                                       Limitation of Liability .  To the fullest extent permitted by law, no director of the Corporation shall be personally liable for monetary damages for breach of fiduciary duty as a director.  Without limiting the effect of the preceding sentence, if the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

 

2.                                       Change in Rights .  Neither any amendment nor repeal of this Article VII, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article VII, shall eliminate, reduce or otherwise adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such amendment, repeal or adoption of such an inconsistent provision.

 

ARTICLE VIII: MATTERS RELATING TO STOCKHOLDERS

 

1.                                       No Action by Written Consent of Stockholders .  Subject to the rights of any series of Preferred Stock then outstanding, no action shall be taken by the stockholders of the Corporation except at a duly called annual or special meeting of stockholders and no action shall be taken by the stockholders by written consent.

 

2.                                       Special Meeting of Stockholders Special meetings of the stockholders of the Corporation may be called only by the Chairperson of the Board, the Chief Executive Officer, the President, or the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board.

 

3.                                       Advance Notice of Stockholder Nominations and Business Transacted at Special Meetings . Advance notice of stockholder nominations for the election of directors of the Corporation and of business to be brought by stockholders before any meeting of stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.  Business transacted at special meetings of stockholders shall be confined to the purpose or purposes stated in the notice of meeting.

 

ARTICLE IX:  CHOICE OF FORUM

 

Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation; (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders; (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the Delaware General Corporation Law, the Amended and Restated Certificate or the Bylaws of the Corporation; or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article IX.

 



 

ARTICLE X:  AMENDMENT OF CERTIFICATE OF INCORPORATION

 

The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided , however , that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law that might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds (2/3rds) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article X or Articles V, VI, VII or VIII.

 

* * * * * * * * * * *

 




Exhibit 3.04

 

 

PROOFPOINT, INC.

 

a Delaware Corporation

 

AMENDED AND RESTATED BYLAWS

 

As Adopted                               , 2012

 

 

 



 

PROOFPOINT, INC.

 

a Delaware Corporation

 

AMENDED AND RESTATED BYLAWS

 

TABLE OF CONTENTS

 

Article I - STOCKHOLDERS

 

 

 

 

 

 

Section 1.1:

Annual Meetings

 

 

Section 1.2:

Special Meetings

 

 

Section 1.3:

Notice of Meetings

 

 

Section 1.4:

Adjournments

 

 

Section 1.5:

Quorum

 

 

Section 1.6:

Organization

 

 

Section 1.7:

Voting; Proxies

 

 

Section 1.8:

Fixing Date for Determination of Stockholders of Record

 

 

Section 1.9:

List of Stockholders Entitled to Vote

 

 

Section 1.10:

Inspectors of Elections

 

 

Section 1.11:

Notice of Stockholder Business; Nominations

 

 

 

Article II - BOARD OF DIRECTORS

 

 

 

 

Section 2.1:

Number; Qualifications

 

 

Section 2.2:

Election; Resignation; Removal; Vacancies

 

 

Section 2.3:

Regular Meetings

 

 

Section 2.4:

Special Meetings

 

 

Section 2.5:

Remote Meetings Permitted

 

 

Section 2.6:

Quorum; Vote Required for Action

 

 

Section 2.7:

Organization

 

 

Section 2.8:

Written Action by Directors

 

 

Section 2.9:

Powers

 

 

Section 2.10:

Compensation of Directors

 

 

 

Article III - COMMITTEES

 

 

 

 

Section 3.1:

Committees

 

 

Section 3.2:

Committee Rules

 

 

 

Article IV - OFFICERS

 

 

 

 

Section 4.1:

Generally

 

 

Section 4.2:

Chief Executive Officer

 

 

Section 4.3:

Chairperson of the Board

 

 

Section 4.4:

President

 

 

Section 4.5:

Vice President

 

 



 

 

Section 4.6:

Chief Financial Officer

 

 

Section 4.7:

Treasurer

 

 

Section 4.8:

Chief Technology Officer

 

 

Section 4.9:

Secretary

 

 

Section 4.10:

Delegation of Authority

 

 

Section 4.11:

Removal

 

 

 

Article V - STOCK

 

 

 

 

 

 

Section 5.l:

Character of Shares

 

 

Section 5.2:

Multiple Classes of Stock

 

 

Section 5.3:

Signatures

 

 

Section 5.4:

Consideration and Payment for Shares

 

 

Section 5.5:

Lost, Destroyed or Wrongfully Taken Certificates

 

 

Section 5.6:

Transfer of Stock

 

 

Section 5.7:

Registered Stockholders

 

 

Section 5.8:

Effect of Corporation’s Restriction on Transfer

 

 

Section 5.9:

Regulations

 

 

 

Article VI - INDEMNIFICATION

 

 

 

 

Section 6.1:

Indemnification of Officers and Directors

 

 

Section 6.2:

Advance of Expenses

 

 

Section 6.3:

Non-Exclusivity of Rights

 

 

Section 6.4:

Indemnification Contracts

 

 

Section 6.5:

Right of Indemnitee to Bring Suit

 

 

Section 6.6:

Nature of Rights

 

 

 

Article VII - NOTICES

 

 

 

 

Section 7.l:

Notice

 

 

Section 7.2:

Waiver of Notice

 

 

 

Article VIII - INTERESTED DIRECTORS

 

 

 

 

Section 8.1:

Interested Directors

 

 

Section 8.2:

Quorum

 

 

 

Article IX — MISCELLANEOUS

 

 

 

 

Section 9.1:

Fiscal Year

 

 

Section 9.2:

Seal

 

 

Section 9.3:

Form of Records

 

 

Section 9.4:

Reliance Upon Books and Records

 

 

Section 9.5:

Certificate of Incorporation Governs

 

 

Section 9.6:

Severability

 

 

 

Article X - AMENDMENT

 

 



 

PROOFPOINT, INC.

 

a Delaware Corporation

 

AMENDED AND RESTATED BYLAWS

 

As Adopted                     , 2012

 

ARTICLE I:  STOCKHOLDERS

 

Section 1.1 :          Annual Meetings .   An annual meeting of stockholders shall be held for the election of directors at such date and time as the Board of Directors of the Corporation (the “ Board ”) shall each year fix.  The meeting may be held either at a place, within or without the State of Delaware as permitted by the Delaware General Corporation Law (the “ DGCL ”), or by means of remote communication as the Board in its sole discretion may determine.  Any proper business may be transacted at the annual meeting.

 

Section 1.2 :          Special Meetings .   Special meetings of stockholders for any purpose or purposes may be called at any time by the Chairperson of the Board, the Chief Executive Officer, the President, or the Board acting pursuant to a resolution adopted by a majority of the “ Whole Board ,” which shall mean the total number of authorized directors, whether or not there exist any vacancies in previously authorized directorships.  Special meetings may not be called by any other person or persons.  The special meeting may be held either at a place, within or without the State of Delaware, or by means of remote communication as the Board in its sole discretion may determine.

 

Section 1.3 :          Notice of Meetings .   Notice of all meetings of stockholders shall be given in writing or by electronic transmission in the manner provided by law (including, without limitation, as set forth in Section 7.1.1 of these Bylaws) stating the date, time and place, if any, of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called.  Unless otherwise required by applicable law or the Certificate of Incorporation of the Corporation (the “ Certificate of Incorporation ”), such notice shall be given not less than ten (10), nor more than sixty (60), days before the date of the meeting to each stockholder of record entitled to vote at such meeting.

 

Section 1.4 :          Adjournments .   The chairperson of the meeting shall have the power to adjourn the meeting to another time, date and place (if any).  Any meeting of stockholders may adjourn from time to time, and notice need not be given of any such adjourned meeting if the time, date and place (if any) thereof and the means of remote communications (if any) by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken; provided , however , that if the adjournment is for more than thirty (30) days, or if a new record date is fixed for the adjourned meeting, then a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.  At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. To the fullest extent permitted by law, the Board may postpone or reschedule any previously scheduled special

 



 

or annual meeting of stockholders before it is to be held, in which case notice shall be provided to the stockholders of the new date, time and place, if any, of the meeting as provided in Section 1.3 above.

 

Section 1.5 :          Quorum .   At each meeting of stockholders the holders of a majority of the voting power of the shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business, except to the extent that the presence of the holders of a larger number of the shares of stock entitled to vote at the meeting may be required by applicable law.  Where a separate vote by a class or classes or series is required, a majority of the voting power of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.  If a quorum shall fail to attend any meeting, the chairperson of the meeting or the holders of a majority of the shares entitled to vote who are present, in person or by proxy, at the meeting may adjourn the meeting.  Shares of the Corporation’s stock belonging to the Corporation (or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation are held, directly or indirectly, by the Corporation), shall neither be entitled to vote nor be counted for quorum purposes; provided , however , that the foregoing shall not limit the right of the Corporation or any other corporation to vote any shares of the Corporation’s stock held by it in a fiduciary capacity and to count such shares for purposes of determining a quorum.

 

Section 1.6 :          Organization .   Meetings of stockholders shall be presided over by such person as the Board may designate, or, in the absence of such a person, the Chairperson of the Board, or, in the absence of such person, the President of the Corporation, or, in the absence of such person, such person as may be chosen by the holders of a majority of the voting power of the shares entitled to vote who are present, in person or by proxy, at the meeting.  Such person shall be chairperson of the meeting and, subject to Section 1.10 hereof, shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seems to him or her to be in order.  The Secretary of the Corporation shall act as secretary of the meeting, but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

 

Section 1.7 :          Voting; Proxies .   Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy.  Such a proxy may be prepared, transmitted and delivered in any manner permitted by applicable law.  Except as may be required in the Certificate of Incorporation, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.  Unless otherwise provided by applicable law, the rules of any stock exchange upon which the Corporation’s securities are listed, the Certificate of Incorporation or these Bylaws, every matter other than the election of directors shall be decided by the affirmative vote of the holders of a majority of the voting power of the shares of stock entitled to vote on such matter that are present in person or represented by proxy at the meeting and are voted for or against the matter.

 

Section 1.8 :          Fixing Date for Determination of Stockholders of Record .   In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or entitled to receive payment of any dividend or other distribution or allotment of

 



 

any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, unless otherwise required by law, the Board may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which shall not be more than sixty (60), nor less than ten (10), days before the date of such meeting, nor more than sixty (60) days prior to any other action.  If no record date is fixed by the Board, then the record date shall be as provided by applicable law.  To the fullest extent permitted by law, a determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided , however , that the Board may fix a new record date for the adjourned meeting.

 

Section 1.9 :          List of Stockholders Entitled to Vote .   A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either on a reasonably accessible electronic network as permitted by law (provided that the information required to gain access to the list is provided with the notice of the meeting) or during ordinary business hours at the principal place of business of the Corporation.  If the meeting is held at a location where stockholders may attend in person, the list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present at the meeting.  If the meeting is held solely by means of remote communication, then the list shall be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access the list shall be provided with the notice of the meeting.

 

Section 1.10 :        Inspectors of Elections .

 

1.10.1      Applicability .  Unless otherwise required by the Certificate of Incorporation or by the DGCL, the following provisions of this Section 1.10 shall apply only if and when the Corporation has a class of voting stock that is:  (a) listed on a national securities exchange; (b) authorized for quotation on an interdealer quotation system of a registered national securities association; or (c) held of record by more than two thousand (2,000) stockholders.  In all other cases, observance of the provisions of this Section 1.10 shall be optional, and at the discretion of the Board.

 

1.10.2      Appointment .  The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors of election to act at the meeting and make a written report thereof.  The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act.  If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting.

 

1.10.3      Inspector’s Oath .  Each inspector of election, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability.

 



 

1.10.4      Duties of Inspectors .  At a meeting of stockholders, the inspectors of election shall (a) ascertain the number of shares outstanding and the voting power of each share, (b) determine the shares represented at a meeting and the validity of proxies and ballots, (c) count all votes and ballots, (d) determine and retain for a reasonable period of time a record of the disposition of any challenges made to any determination by the inspectors, and (e) certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots.  The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors.

 

1.10.5      Opening and Closing of Polls .  The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting.  No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.

 

1.10.6      Determinations .  In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in connection with proxies in accordance with any information provided pursuant to Section 211(a)(2)(b)(i) or (iii) of the DGCL, or Sections 211(e) or 212(c)(2) of the DGCL, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record.  If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification of their determinations pursuant to this Section 1.10 shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

 

Section 1.11 :        Notice of Stockholder Business; Nominations .

 

1.11.1      Annual Meeting of Stockholders .

 

(a)           Nominations of persons for election to the Board and the proposal of business to be considered by the stockholders shall be made at an annual meeting of stockholders (i) pursuant to the Corporation’s notice of such meeting, (ii) by or at the direction of the Board or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 1.11, who is entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 1.11.

 

(b)           For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to Section 1.11.1(a):

 

(i)            the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation;

 



 

(ii)           such other business must otherwise be a proper matter for stockholder action;

 

(iii)          if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the Corporation with a Solicitation Notice, as that term is defined in this Section, such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the Corporation’s voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the Corporation’s voting shares reasonably believed by such stockholder or beneficial holder to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice; and

 

(iv)          if no Solicitation Notice relating thereto has been timely provided pursuant to this Section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section.

 

To be timely, a stockholder’s notice must be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the seventy-fifth (75th) day nor earlier than the close of business on the one hundred and fifth (105th) day prior to the first anniversary of the preceding year’s annual meeting (except in the case of the 2013 annual meeting, for which such notice shall be timely if delivered in the same time period as if such meeting were a special meeting governed by Section 1.11.2); provided , however , that in the event that the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder to be timely must be so delivered (A) no earlier than the close of business on the one hundred and fifth (105th) day prior to currently proposed annual meeting and (B) no later than the close of business on the later of the seventy-fifth (75th) day prior to such annual meeting or the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the Corporation.  Such stockholder’s notice shall set forth:

 

(x)            as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that would be required to be disclosed in solicitations of proxies for election of directors, or would be otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected;

 

(y)           as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made;

 



 

(z)            as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (aa) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (bb) the class and number of shares of the Corporation that are owned beneficially and held of record by such stockholder and such beneficial owner, (cc) a description of any agreement, arrangement or understanding with respect to the nomination or proposal between or among such stockholder and such beneficial owner, any of their respective affiliates or associates, and any others acting in concert with any of the foregoing, (dd) a description of any agreement, arrangement or understanding (including any derivative or short positions, profit interests, options, warrants, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder’s notice by, or on behalf of, such stockholder and such beneficial owners, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner, with respect to shares of stock of the Corporation, (ee) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination and (ff) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation’s voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation’s voting shares to elect such nominee or nominees (an affirmative statement of such intent being a “ Solicitation Notice ”).  If requested by the Corporation, the information required under clauses (bb), (cc) and (dd) of this subparagraph (z) shall be supplemented by such stockholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such information as of the record date.

 

(c)           Notwithstanding anything in the second sentence of Section 1.11.1(b) to the contrary, in the event that the number of directors to be elected to the Board is increased and there is no Public Announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board at least seventy five (75) days prior to the first anniversary of the preceding year’s annual meeting (or, if the annual meeting is held more than thirty (30) days before or sixty (60) days after such anniversary date, at least seventy five (75) days prior to such annual meeting), a stockholder’s notice required by this Section 1.11 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation no later than the close of business on the tenth (10th) day following the day on which such Public Announcement is first made by the Corporation.

 

1.11.2      Special Meetings of Stockholders .  Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of such meeting.  Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of such meeting (a) by or at the direction of the Board or (b) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice of the special

 



 

meeting, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 1.11.  In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by Section 1.11.1(b) shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation (i) no earlier than the one hundred fifth (105th) day prior to such special meeting and (ii) no later than the close of business on the later of the seventy fifth (75th) day prior to such special meeting or the tenth (10th) day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting.

 

1.11.3      General .

 

(a)           Only such persons who are nominated in accordance with the procedures set forth in this Section 1.11 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.11.  Except as otherwise provided by law or these Bylaws, the chairperson of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 1.11 and, if any proposed nomination or business is not in compliance herewith, to declare that such defective proposal or nomination shall be disregarded.

 

(b)           For purposes of this Section 1.11, the term “ Public Announcement ” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to section 13, 14 or 15(d) of the Exchange Act.

 

(c)           Notwithstanding the foregoing provisions of this Section 1.11, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein.  Nothing in this Section 1.11 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

 

ARTICLE II:  BOARD OF DIRECTORS

 

Section 2.1 :          The Board shall consist of one or more members.  The initial number of directors shall be eight(8), and thereafter, unless otherwise required by law, shall be fixed from time to time as set forth in the Certificate of Incorporation.  No decrease in the authorized number of directors constituting the Board shall shorten the term of any incumbent director.  Directors need not be stockholders of the Corporation.

 

Section 2.2 :          Election; Resignation; Removal; Vacancies .   The directors shall be divided, with respect to the time for which they severally hold office, into classes as provided in the Certificate of Incorporation, and vacancies occurring in the Board and any newly created

 


 

directorships resulting from any increase in the authorized number of directors shall be filled, as provided in the Certificate of Incorporation.

 

Section 2.3 :          Regular Meetings .   Regular meetings of the Board may be held at such places, within or without the State of Delaware, and at such times as the Board may from time to time determine.  Notice of regular meetings need not be given if the date, times and places thereof are fixed by resolution of the Board.

 

Section 2.4 :          Special Meetings .   Special meetings of the Board may be called by the Chairperson of the Board, the President or a majority of the members of the Board then in office and may be held at any time, date or place, within or without the State of Delaware, as the person or persons calling the meeting shall fix.  Notice of the time, date and place of such meeting shall be given, orally, in writing or by electronic transmission (including electronic mail), by the person or persons calling the meeting to all directors at least four (4) days before the meeting if the notice is mailed, or at least twenty-four (24) hours before the meeting if such notice is given by telephone, hand delivery, telegram, telex, mailgram, facsimile, electronic mail or other means of electronic transmission.  Unless otherwise indicated in the notice, any and all business may be transacted at a special meeting.

 

Section 2.5 :          Remote Meetings Permitted .   Members of the Board, or any committee of the Board, may participate in a meeting of the Board or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to conference telephone or other communications equipment shall constitute presence in person at such meeting.

 

Section 2.6 :          Quorum; Vote Required for Action .   Subject to the Certificate of Incorporation regarding the ability of members of the Board to fill a vacancy occurring in the Board a majority of the Whole Board shall constitute a quorum for the transaction of business.  If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date or time without further notice thereof.  Except as otherwise provided herein or in the Certificate of Incorporation, or required by law, the vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board.

 

Section 2.7 :          Organization .   Meetings of the Board shall be presided over by the Chairperson of the Board, or in such person’s absence by the President, or in such person’s absence by a chairperson chosen at the meeting.  The Secretary shall act as secretary of the meeting, but in such person’s absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

 

Section 2.8 :          Written Action by Directors .   Any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee, respectively, in the minute books of the Corporation.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 



 

Section 2.9:           Powers .   The Board may, except as otherwise required by law or the Certificate of Incorporation, exercise all such powers and manage and direct all such acts and things as may be exercised or done by the Corporation.

 

Section 2.10 :        Compensation of Directors .   Members of the Board, as such, may receive, pursuant to a resolution of the Board, fees and other compensation for their services as directors, including without limitation their services as members of committees of the Board.

 

ARTICLE III:  COMMITTEES

 

Section 3.1 :          Committees .   The Board may designate one or more committees, each committee to consist of one or more of the directors of the Corporation.  The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  In the absence or disqualification of a member of the committee, the member or members thereof present at any meeting of such committee who are not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in place of any such absent or disqualified member.  Any such committee, to the extent provided in a resolution of the Board, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to the following matters:  (a) approving, adopting, or recommending to the stockholders any action or matter (other than the election or removal of members of the Board) expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any bylaw of the Corporation.

 

Section 3.2 :          Committee Rules .   Unless the Board otherwise provides, each committee designated by the Board may make, alter and repeal rules for the conduct of its business.  In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these Bylaws.

 

ARTICLE IV:  OFFICERS

 

Section 4.1 :          Generally .   The officers of the Corporation shall consist of a Chief Executive Officer (who may be the Chairperson of the Board or the President), a Secretary and a Treasurer and may consist of such other officers, including a Chief Financial Officer, Chief Technology Officer and one or more Vice Presidents, as may from time to time be appointed by the Board.  All officers shall be elected by the Board; provided , however , that the Board may empower the Chief Executive Officer of the Corporation to appoint any officer other than the Chairperson of the Board, the Chief Executive Officer, the President, the Chief Financial Officer or the Treasurer.  Each officer shall hold office until such person’s successor is appointed or until such person’s earlier resignation, death or removal.  Any number of offices may be held by the same person.  Any officer may resign at any time upon written notice to the Corporation.  Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board.

 



 

Section 4.2 :          Chief Executive Officer .   Subject to the control of the Board and such supervisory powers, if any, as may be given by the Board, the powers and duties of the Chief Executive Officer of the Corporation are:

 

(a)           To act as the general manager and, subject to the control of the Board, to have general supervision, direction and control of the business and affairs of the Corporation;

 

(b)           Subject to Article I, Section 1.6, to preside at all meetings of the stockholders;

 

(c)           Subject to Article I, Section 1.2, to call special meetings of the stockholders to be held at such times and, subject to the limitations prescribed by law or by these Bylaws, at such places as he or she shall deem proper;

 

(d)           To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board, to have general charge of the property of the Corporation and to supervise and control all officers, agents and employees of the Corporation; and

 

(e)           To vote and otherwise act on, or to authorize any officer to vote or otherwise act on, on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise, or authorize any officer otherwise to exercise, any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

 

The President shall be the Chief Executive Officer of the Corporation unless the Board shall designate another officer to be the Chief Executive Officer.  If there is no President, and the Board has not designated any other officer to be the Chief Executive Officer, then the Chairperson of the Board shall be the Chief Executive Officer.

 

Section 4.3 :          Chairperson of the Board .   The Chairperson of the Board shall have the power to preside at all meetings of the Board and shall have such other powers and duties as provided in these Bylaws and as the Board may from time to time prescribe.

 

Section 4.4 :          President .   The Chief Executive Officer shall be the President of the Corporation unless the Board shall have designated one individual as the President and a different individual as the Chief Executive Officer of the Corporation.  Subject to the provisions of these Bylaws and to the direction of the Board, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), and subject to such supervisory powers and authority as may be given by the Board to the Chairperson of the Board, and/or to any other officer, the President shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision

 



 

and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board.

 

Section 4.5 :          Vice President .   Each Vice President shall have all such powers and duties as are commonly incident to the office of Vice President, or that are delegated to him or her by the Board or the Chief Executive Officer.  A Vice President may be designated by the Board to perform the duties and exercise the powers of the Chief Executive Officer in the event of the Chief Executive Officer’s absence or disability.

 

Section 4.6 :          Chief Financial Officer .   The Chief Financial Officer shall be the Treasurer of the Corporation unless the Board shall have designated another officer as the Treasurer of the Corporation.  Subject to the direction of the Board and the Chief Executive Officer, the Chief Financial Officer shall perform all duties and have all powers that are commonly incident to the office of Chief Financial Officer.

 

Section 4.7 :          Treasurer .   The Treasurer shall have custody of all moneys and securities of the Corporation.  The Treasurer shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions.  The Treasurer shall also perform such other duties and have such other powers as are commonly incident to the office of Treasurer, or as the Board or the Chief Executive Officer may from time to time prescribe.

 

Section 4.8 :          Chief Technology Officer .   The Chief Technology Officer shall have responsibility for the general research and development activities of the Corporation, for supervision of the Corporation’s research and development personnel, for new product development and product improvements, for overseeing the development and direction of the Corporation’s intellectual property development and such other responsibilities as may be given to the Chief Technology Officer by the Board, subject to: (a) the provisions of these Bylaws; (b) the direction of the Board; (c) the supervisory powers of the Chief Executive Officer of the Corporation; and (d) those supervisory powers that may be given by the Board to the Chairperson or Vice Chairperson of the Board.

 

Section 4.9 :          Secretary .   The Secretary shall issue or cause to be issued all authorized notices for, and shall keep, or cause to be kept, minutes of all meetings of the stockholders and the Board.  The Secretary shall have charge of the corporate minute books and similar records and shall perform such other duties and have such other powers as are commonly incident to the office of Secretary, or as the Board or the Chief Executive Officer may from time to time prescribe.

 

Section 4.10 :        Delegation of Authority .   The Board may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.

 

Section 4.11 :        Removal .   Any officer of the Corporation shall serve at the pleasure of the Board and may be removed at any time, with or without cause, by the Board; provided that if the

 



 

Board has empowered the Chief Executive Officer to appoint any Vice Presidents of the Corporation, then such Vice Presidents may be removed by the Chief Executive Officer.  Such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation.

 

ARTICLE V:  STOCK

 

Section 5.1 :          Character of Shares .   The shares of capital stock of the Corporation shall be represented by certificates; provided , however , that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock may be uncertificated shares.  Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation (or the transfer agent or registrar, as the case may be).

 

Section 5.2 :          Multiple Classes of Stock . If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the Corporation shall (a) cause the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences or rights to be set forth in full or summarized on the face or back of any certificate that the Corporation issues to represent shares of such class or series of stock or (b) in the case of uncertificated shares, within a reasonable time after the issuance or transfer of such shares, send to the registered owner thereof a written notice containing the information required to be set forth on certificates as specified in clause (a) above; provided , however , that, except as otherwise provided by applicable law, in lieu of the foregoing requirements, there may be set forth on the face or back of such certificate or, in the case of uncertificated shares, on such written notice a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences or rights.

 

Section 5.3 :          Signatures .   Each holder of stock represented by certificates shall be entitled to a certificate signed by or in the name of the Corporation by (a) the Chairperson or Vice-Chairperson of the Board, or the President or a Vice President and (b) the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation. Any or all of the signatures on the certificate may be a facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue.

 

Section 5.4 :          Consideration and Payment for Shares .

 

5.4.1       Permitted Consideration .  Subject to applicable law and the Certificate of Incorporation, shares of stock may be issued for such consideration, having in the case of shares with par value a value not less than the par value thereof, and to such persons, as determined from time to time by the Board. The consideration may consist of any tangible or intangible property or benefit to the Corporation including, but not limited to, cash, promissory notes, services performed, contracts for services to be performed or other securities.

 



 

5.4.2       Payment for Shares .  Subject to applicable law and the Certificate of Incorporation, shares may not be issued until the full amount of the consideration has been paid, unless upon the face or back of each certificate issued to represent any partly paid shares of capital stock or upon the books and records of the Corporation in the case of partly paid uncertificated shares, there shall have been set forth the total amount of the consideration to be paid therefor and the amount paid thereon up to and including the time said certificate representing certificated shares or said uncertificated shares are issued.

 

Section 5.5 :          Lost, Destroyed or Wrongfully Taken Certificates .

 

5.5.1       Replacement .  If an owner of a certificate representing shares claims that such certificate has been lost, destroyed or wrongfully taken, the Corporation shall issue a new certificate representing such shares or such shares in uncertificated form if the owner: (i) requests such a new certificate before the Corporation has notice that the certificate representing such shares has been acquired by a protected purchaser; (ii) if requested by the Corporation, delivers to the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, wrongful taking or destruction of such certificate or the issuance of such new certificate or uncertificated shares; and (iii) satisfies other reasonable requirements imposed by the Corporation.

 

5.5.2       Failure to Notify .  If a certificate representing shares has been lost, apparently destroyed or wrongfully taken, and the owner fails to notify the Corporation of that fact within a reasonable time after the owner has notice of such loss, apparent destruction or wrongful taking and the Corporation registers a transfer of such shares before receiving notification, the owner shall, to the fullest extent permitted by law, be precluded from asserting against the Corporation any claim for registering such transfer or a claim to a new certificate representing such shares or such shares in uncertificated form.

 

Section 5.6 :          Transfer of Stock .

 

5.6.1       Complete Transfers .  If a certificate representing shares of the Corporation is presented to the Corporation with an endorsement requesting the registration of transfer of such shares or an instruction is presented to the Corporation requesting the registration of transfer of uncertificated shares, the Corporation shall register the transfer as requested if:

 

(a) in the case of certificated shares, the certificate representing such shares has been surrendered;

 

(b) (i) with respect to certificated shares, the endorsement is made by the person specified by the certificate as entitled to such shares; (ii) with respect to uncertificated shares, an instruction is made by the registered owner of such uncertificated shares; or (iii) with respect to certificated shares or uncertificated shares, the endorsement or instruction is made by any other appropriate person or by an agent who has actual authority to act on behalf of the appropriate person;

 

(c) the Corporation has received a guarantee of signature of the person signing such endorsement or instruction or such other reasonable assurance that the endorsement or instruction is genuine and authorized as the Corporation may request;

 



 

(d) the transfer does not violate any restriction on transfer imposed by the Corporation that is enforceable in accordance with Section 5.8.1; and

 

(e) such other conditions for such transfer as shall be provided for under applicable law have been satisfied.

 

5.6.2       Other Transfers .  Whenever any transfer of shares shall be made for collateral security and not absolutely, the Corporation shall so record such fact in the entry of transfer if, when the certificate for such shares is presented to the Corporation for transfer or, if such shares are uncertificated, when the instruction for registration of transfer thereof is presented to the Corporation, both the transferor and transferee request the Corporation to do so.

 

Section 5.7 :          Registered Stockholders . Before due presentment for registration of transfer of a certificate representing shares of the Corporation or of an instruction requesting registration of transfer of uncertificated shares, the Corporation may treat the registered owner as the person exclusively entitled to inspect for any proper purpose the stock ledger and the other books and records of the Corporation, vote such shares, receive dividends or notifications with respect to such shares and otherwise exercise all the rights and powers of the owner of such shares, except that a person who is the beneficial owner of such shares (if held in a voting trust or by a nominee on behalf of such person) may, upon providing documentary evidence of beneficial ownership of such shares and satisfying such other conditions as are provided under applicable law, may also so inspect the books and records of the Corporation.

 

Section 5.8 :          Effect of Corporation’s Restriction on Transfer .

 

5.8.1       Enforceability .  A written restriction on the transfer or registration of transfer of shares of the Corporation or on the amount of shares of the Corporation that may be owned by any person or group of persons, if permitted by the DGCL and noted conspicuously on the certificate representing such shares or, in the case of uncertificated shares, contained in a notice sent by the Corporation to the registered owner of such shares within a reasonable time after the issuance or transfer of such shares, may be enforced against the holder of such shares or any successor or transferee of the holder including an executor, administrator, trustee, guardian or other fiduciary entrusted with like responsibility for the person or estate of the holder.

 

5.8.2       Notification .  A restriction imposed by the Corporation on the transfer or the registration of shares of the Corporation or on the amount of shares of the Corporation that may be owned by any person or group of persons, even if otherwise lawful, is ineffective against a person without actual knowledge of such restriction unless: (i) the shares are certificated and such restriction is noted conspicuously on the certificate; or (ii) the shares are uncertificated and such restriction was contained in a notice sent by the Corporation to the registered owner of such shares within a reasonable time after the issuance or transfer of such shares.

 

Section 5.9 :          Regulations .   The Board shall have power and authority to make such additional rules and regulations, subject to any applicable requirement of law, as the Board may deem necessary and appropriate with respect to the issue, transfer or registration of transfer of shares of stock or certificates representing shares. The Board may appoint one or more transfer

 



 

agents or registrars and may require for the validity thereof that certificates representing shares bear the signature of any transfer agent or registrar so appointed.

 

ARTICLE VI:  INDEMNIFICATION

 

Section 6.1 :          Indemnification of Officers and Directors .   Each person who was or is made a party to, or is threatened to be made a party to, or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”), by reason of the fact that such person (or a person of whom such person is the legal representative), is or was a member of the Board or officer of the Corporation or a Reincorporated Predecessor (as defined below) or is or was serving at the request of the Corporation or a Reincorporated Predecessor as a member of the board of directors, officer or trustee of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans (for purposes of this Article VI, an “ Indemnitee ”), shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the DGCL as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such Indemnitee in connection therewith, provided such Indemnitee acted in good faith and in a manner that the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or Proceeding, had no reasonable cause to believe the Indemnitee’s conduct was unlawful.  Such indemnification shall continue as to an Indemnitee who has ceased to be a director or officer and shall inure to the benefit of such Indemnitees’ heirs, executors and administrators.  Notwithstanding the foregoing, the Corporation shall indemnify any such Indemnitee seeking indemnity in connection with a Proceeding (or part thereof) initiated by such Indemnitee only if such Proceeding (or part thereof) was authorized by the Board or such indemnification is authorized by an agreement approved by the Board.  As used herein, the term the “ Reincorporated Predecessor ” means a corporation that is merged with and into the Corporation in a statutory merger where (a) the Corporation is the surviving corporation of such merger; (b) the primary purpose of such merger is to change the corporate domicile of the Reincorporated Predecessor to Delaware.

 

Section 6.2 :          Advance of Expenses .   The Corporation shall pay all expenses (including attorneys’ fees) incurred by such an Indemnitee in defending any such Proceeding as they are incurred in advance of its final disposition; provided , however , that (a) if the DGCL then so requires, the payment of such expenses incurred by such an Indemnitee in advance of the final disposition of such Proceeding shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such Indemnitee, to repay all amounts so advanced if it should be determined ultimately by final judicial decision from which there is no appeal that such Indemnitee is not entitled to be indemnified under this Article VI or otherwise; and (b) the Corporation shall not be required to advance any expenses to a person against whom the Corporation directly brings a claim, in a Proceeding, alleging that such person has breached such person’s duty of loyalty to the Corporation, committed an act or omission not in good faith or that involves intentional misconduct or a knowing violation of law, or derived an improper personal benefit from a transaction.

 



 

Section 6.3:           Non-Exclusivity of Rights .   The rights conferred on any person in this Article VI shall not be exclusive of any other right that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders or disinterested directors, or otherwise.  Additionally, nothing in this Article VI shall limit the ability of the Corporation, in its discretion, to indemnify or advance expenses to persons whom the Corporation is not obligated to indemnify or advance expenses pursuant to this Article VI.

 

Section 6.4 :          Indemnification Contracts .   The Board is authorized to cause the Corporation to enter into indemnification contracts with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing indemnification or advancement rights to such person.  Such rights may be greater than those provided in this Article VI.

 

Section 6.5:           Right of Indemnitee to Bring Suit The following shall apply to the extent not in conflict with any indemnification contract provided for in Section 6.4 above.

 

6.5.1       Right to Bring Suit .  If a claim under Section 6.1 or 6.2 of this Article VI is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be thirty (30) days, the Indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim.  If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit.  In (a) any suit brought by the Indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the Indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (b) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the Indemnitee has not met any applicable standard for indemnification set forth in applicable law.

 

6.5.2       Effect of Determination .  Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnitee is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth in applicable law, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel or its stockholders) that the Indemnitee has not met such applicable standard of conduct, shall create a presumption that the Indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the Indemnitee, be a defense to such suit.

 

6.5.3       Burden of Proof .  In any suit brought by the Indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of

 



 

proving that the Indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VI, or otherwise, shall be on the Corporation.

 

Section 6.6 :          Nature of Rights .   The rights conferred upon Indemnitees in this Article VI shall be contract rights and such rights shall continue as to an Indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the Indemnitee’s heirs, executors and administrators.  Any amendment, repeal or modification of any provision of this Article VI that adversely affects any right of an Indemnitee or an Indemnitee’s successors shall be prospective only, and shall not adversely affect any right or protection conferred on a person pursuant to this Article VI and existing at the time of such amendment, repeal or modification.

 

ARTICLE VII:  NOTICES

 

Section 7.1 :          Notice .

 

7.1.1       Form and Delivery .  Except as otherwise specifically required in these Bylaws (including, without limitation, Section 7.1.2 below) or by law, all notices required to be given pursuant to these Bylaws shall be in writing and may, (a) in every instance in connection with any delivery to a member of the Board, be effectively given by hand delivery (including use of a delivery service), by depositing such notice in the mail, postage prepaid, or by sending such notice by prepaid telegram, cablegram, overnight express courier, facsimile, electronic mail or other form of electronic transmission and (b) be effectively be delivered to a stockholder when given by hand delivery, by depositing such notice in the mail, postage prepaid or, if specifically consented to by the stockholder as described in Section 7.1.2 of this Article VII by sending such notice by telegram, cablegram, facsimile, electronic mail or other form of electronic transmission.  Any such notice shall be addressed to the person to whom notice is to be given at such person’s address as it appears on the records of the Corporation.  The notice shall be deemed given (a) in the case of hand delivery, when received by the person to whom notice is to be given or by any person accepting such notice on behalf of such person, (b) in the case of delivery by mail, upon deposit in the mail, (c) in the case of delivery by overnight express courier, when dispatched, and (d) in the case of delivery via telegram, cablegram, facsimile, electronic mail or other form of electronic transmission, when dispatched.

 

7.1.2       Electronic Transmission .  Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under any provision of the DGCL, the Certificate of Incorporation, or these Bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given in accordance with Section 232 of the DGCL.  Any such consent shall be revocable by the stockholder by written notice to the Corporation.  Any such consent shall be deemed revoked if (a) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with such consent and (b) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided , however , the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.  Notice given pursuant to this Section 7.1.2 shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has

 


 

consented to receive notice; (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of such posting and the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder.

 

7.1.3       Affidavit of Giving Notice .  An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Corporation that the notice has been given in writing or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

Section 7.2 :          Waiver of Notice .   Whenever notice is required to be given under any provision of the DGCL, the Certificate of Incorporation or these Bylaws, a written waiver of notice, signed by the person entitled to notice, or waiver by electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice.  Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any waiver of notice.

 

ARTICLE VIII:  INTERESTED DIRECTORS

 

Section 8.1 :          Interested Directors .   No contract or transaction between the Corporation and one or more of its members of the Board or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are members of the board of directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board or committee thereof that authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (a) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (b) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board, a committee thereof, or the stockholders.

 

Section 8.2 :          Quorum .   Interested directors may be counted in determining the presence of a quorum at a meeting of the Board or of a committee which authorizes the contract or transaction.

 



 

ARTICLE IX:  MISCELLANEOUS

 

Section 9.1 :          Fiscal Year .   The fiscal year of the Corporation shall be determined by resolution of the Board.

 

Section 9.2 :          Seal .   The Board may provide for a corporate seal, which may have the name of the Corporation inscribed thereon and shall otherwise be in such form as may be approved from time to time by the Board.

 

Section 9.3 :          Form of Records .   Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on or by means of, or be in the form of, diskettes, CDs, or any other information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time.  The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to any provision of the DGCL.

 

Section 9.4 :          Reliance upon Books and Records .   A member of the Board, or a member of any committee designated by the Board shall, in the performance of such person’s duties, be fully protected in relying in good faith upon records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees of the Board, or by any other person as to matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

 

Section 9.5 :          Certificate of Incorporation Governs .   In the event of any conflict between the provisions of the Certificate of Incorporation and Bylaws, the provisions of the Certificate of Incorporation shall govern.

 

Section 9.6 :          Severability .   If any provision of these Bylaws shall be held to be invalid, illegal, unenforceable or in conflict with the provisions of the Certificate of Incorporation, then such provision shall nonetheless be enforced to the maximum extent possible consistent with such holding and the remaining provisions of these Bylaws (including without limitation, all portions of any section of these Bylaws containing any such provision held to be invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation, that are not themselves invalid, illegal, unenforceable or in conflict with the Certificate of Incorporation) shall remain in full force and effect.

 

ARTICLE X:  AMENDMENT

 

Notwithstanding any other provision of these Bylaws, any amendment or repeal of these Bylaws, or adoption of Bylaws, shall require the approval of the Board or the stockholders of the Corporation as provided in the Certificate of Incorporation.

 


 



 

CERTIFICATION OF AMENDED AND RESTATED BYLAWS

OF

PROOFPOINT, INC.

 

a Delaware Corporation

 

I, Michael Yang, certify that I am Secretary of Proofpoint, Inc., a Delaware corporation (the “ Corporation ”), that I am duly authorized to make and deliver this certification, that the attached Bylaws are a true and complete copy of the Amended and Restated Bylaws of the Corporation in effect as of the date of this certificate.

 

 

Dated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael Yang, Secretary

 




Exhibit 4.01

 

THIS CERTIFIES THAT is the owner of CUSIP DATED COUNTERSIGNED AND REGISTERED: COMPUTERSHARE TRUST COMPANY, N.A. TRANSFER AGENT AND REGISTRAR, FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF Proofpoint, Inc. (hereinafter called the “Company”), transferable on the books of the Company in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate and the shares represented hereby, are issued and shall be held subject to all of the provisions of the Certificate of Incorporation, as amended, and the By-Laws, as amended, of the Company (copies of which are on file with the Company and with the Transfer Agent), to all of which each holder, by acceptance hereof, assents. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile seal of the Company and the facsimile signatures of its duly authorized officers. COMMON STOCK PAR VALUE $0.0001 COMMON STOCK THIS CERTIFICATE IS TRANSFERABLE IN CANTON, MA AND NEW YORK, NY SEE REVERSE FOR CERTAIN DEFINITIONS Certificate Number Shares PROOFPOINT, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CEO Secretary By AUTHORIZED SIGNATURE 016570| 003590|127C|RESTRICTED||4|057-423 743424 10 3 <<Month Day, Year>> * * 000000* * * * * * * * * 000000* * * * * * * * * 000000* * * * * * * * * 000000* * * * * * * * * 000000* * * * Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Alexander David Sample **** Mr. Sample **** Mr. Sample **000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares*** *000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares**** 000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****0 00000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****00 0000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000 000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****0000 00**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****00000 0**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000 **Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000* *Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000** Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**Shares****000000**S ***ZERO HUNDRED THOUSAND ZERO HUNDRED AND ZERO*** MR. SAMPLE & MRS. SAMPLE & MR. SAMPLE & MRS. SAMPLE NNNNN ZQ 000000 Certificate Numbers 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 1234567890/1234567890 Total Transaction Num/No. 123456 Denom. 123456 Total 1234567 MR A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4 PO BOX 43004, Providence, RI 02940-3004 CUSIP XXXXXX XX X Holder ID XXXXXXXXXX Insurance Value 1,000,000.00 Number of Shares 123456 DTC 12345678 123456789012345 1234567

 

 

The IRS requires that we report the cost basis of certain shares acquired after January 1, 2011. If your shares were covered by the legislation and you have sold or transferred the shares and requested a specific cost basis calculation method, we have processed as requested. If you did not specify a cost basis calculation method, we have defaulted to the first in, first out (FIFO) method. Please visit our website or consult your tax advisor if you need additional information about cost basis. If you do not keep in contact with us or do not have any activity in your account for the time periods specified by state law, your property could become subject to state unclaimed property laws and transferred to the appropriate state. For value received, hereby sell, assign and transfer unto Shares Attorney Dated: 20 Signature: Signature: Notice: The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration or enlargement, or any change whatever. PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint to transfer the said stock on the books of the within-named Company with full power of substitution in the premises. . PROOFPOINT, INC. THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS, A SUMMARY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF THE COMPANY AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND RIGHTS, AND THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES, WHICH ARE FIXED BY THE ARTICLES OF INCORPORATION OF THE COMPANY, AS AMENDED, AND THE RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE COMPANY, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE SECRETARY OF THE COMPANY OR TO THE TRANSFER AGENT. THE BOARD OF DIRECTORS MAY REQUIRE THE OWNER OF A LOST OR DESTROYED STOCK CERTIFICATE, OR HIS LEGAL REPRESENTATIVES, TO GIVE THE COMPANY A BOND TO INDEMNIFY IT AND ITS TRANSFER AGENTS AND REGISTRARS AGAINST ANY CLAIM THAT MAY BE MADE AGAINST THEM ON ACCOUNT OF THE ALLEGED LOSS OR DESTRUCTION OF ANY SUCH CERTIFICATE. Signature(s) Guaranteed: Medallion Guarantee Stamp THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian (Cust) (Minor) TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act (State) JT TEN - as joint tenants with right of survivorship UNIF TRF MIN ACT - Custodian (until age ) and not as tenants in common (Cust) under Uniform Transfers to Minors Act (Minor) (State) Additional abbreviations may also be used though not in the above list. SECURITY INSTRUCTIONS THIS IS WATERMARKED PAPER DO NOT ACCEPT WITHOUT NOTING WATERMARK HOLD TO LIGHT TO VERITY WATERMARK

 

 



Exhibit 5.01

GRAPHIC

April 9, 2012

Proofpoint, Inc.
892 Ross Drive
Sunnyvale, California 94089

Gentlemen/Ladies:

        At your request, we have examined the Registration Statement on Form S-1 (File Number 333-178479) (the " Registration Statement ") filed by Proofpoint, Inc., a Delaware corporation (the " Company "), with the Securities and Exchange Commission (the " Commission ") on December 14, 2011, as subsequently amended on January 25, 2012, February 29, 2012, March 26, 2012 and April 9, 2012, in connection with the registration under the Securities Act of 1933, as amended, of an aggregate of 7,129,335 shares of the Company's Common Stock (the " Stock "), 1,379,335 of which are presently issued and outstanding and will be sold by certain selling stockholders (the " Selling Stockholders ").

        In rendering this opinion, we have examined such matters of fact as we have deemed necessary in order to render the opinion set forth herein, which included examination of the following.


        In our examination of documents for purposes of this opinion, we have assumed, and express no opinion as to, the authenticity and completeness of all documents submitted to us as originals, the conformity to originals and completeness of all documents submitted to us as copies, the legal capacity of all persons or entities executing the same, the lack of any undisclosed termination, modification, waiver or amendment to any document reviewed by us and the due authorization, execution and delivery of all such documents by the selling stockholders where due authorization, execution and delivery are prerequisites to the effectiveness thereof.

        The Company's capital stock is uncertificated. We assume that the issued Stock will not be reissued by the Company in uncertificated form until any previously issued stock certificate representing such issued Stock have been surrendered to the Company in accordance with DGCL Section 158 and that the Company will properly register the transfer of the Stock to the purchasers of such Stock on the Company's record of uncertificated securities.

        We render this opinion only with respect to, and express no opinion herein concerning the application or effect of the laws of any jurisdiction other than, the existing laws of the United States of America and of the Delaware General Corporation Law and reported judicial decisions relating thereto.

        With respect to our opinion expressed in paragraph (1) below as to the valid existence and good standing of the Company under the laws of the State of Delaware, we have relied solely upon the Certificate of Good Standing and representations made to us by the Company.

        In connection with our opinion expressed in paragraphs (2) and (3) below, we have assumed that, at or prior to the time of the delivery of any shares of Stock, the Registration Statement will have been declared effective under the Securities Act of 1933, as amended, that the registration will apply to such shares of Stock and will not have been modified or rescinded and that there will not have occurred any change in law affecting the validity of the issuance of such shares of Stock.

        In accordance with Section 95 of the American Law Institute's Restatement (Third) of the Law Governing Lawyers (2000), this opinion letter is to be interpreted in accordance with customary practices of lawyers rendering opinions in connection with the filing of a registration statement of the type described herein.

        Based upon the foregoing, we are of the following opinion:

2


        We consent to the use of this opinion as an exhibit to the Registration Statement and further consent to all references to us, if any, in the Registration Statement, the Prospectus constituting a part thereof and any amendments thereto.

        This opinion is intended solely for use in connection with issuance and sale of shares subject to the Registration Statement and is not to be relied upon for any other purpose. This opinion is rendered as of the date first written above and based solely on our understanding of facts in existence as of such date after the aforementioned examination. We assume no obligation to advise you of any fact, circumstance, event or change in the law or the facts that may hereafter be brought to our attention whether or not such occurrence would affect or modify the opinions expressed herein.

    Very truly yours,    

 

 

FENWICK & WEST LLP

 

 

By: /s/ Fenwick & West LLP

3




Exhibit 10.01

 

INDEMNITY AGREEMENT

 

This Indemnity Agreement, dated as of                         ,            is made by and between Proofpoint, Inc., a Delaware corporation (the “ Company ”), and                                 , a director and/or officer of the Company or one of the Company’s subsidiaries or key employee or other service provider who satisfies the definition of Indemnifiable Person set forth below (“ Indemnitee ”).

 

RECITALS

 

A.             The Company is aware that competent and experienced persons are increasingly reluctant to serve as representatives of corporations unless they are protected by comprehensive liability insurance and indemnification, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such representatives;

 

B.             The members of the Board of Directors of the Company (the “ Board ”) have concluded that to retain and attract talented and experienced individuals to serve as representatives of the Company and its Subsidiaries and Affiliates and to encourage such individuals to take the business risks necessary for the success of the Company and its Subsidiaries and Affiliates, it is necessary for the Company to contractually indemnify certain of its representatives and the representatives of its Subsidiaries and Affiliates, and to assume for itself maximum liability for Expenses and Other Liabilities in connection with claims against such representatives in connection with their service to the Company and its Subsidiaries and Affiliates;

 

C.             Section 145 of the Delaware General Corporation Law (“ Section 145 ”), empowers the Company to indemnify by agreement its officers, directors, employees and agents, and persons who serve, at the request of the Company, as directors, officers, employees or agents of other corporations, partnerships, joint ventures, trusts or other enterprises, and expressly provides that the indemnification provided thereby is not exclusive; and

 

D.             The Company desires and has requested Indemnitee to serve or continue to serve as a representative of the Company and/or the Subsidiaries or Affiliates of the Company free from undue concern about unreasonable claims for damages arising out of or related to such services to the Company and/or the Subsidiaries or Affiliates of the Company.

 



 

AGREEMENT

 

NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows:

 

1.              Definitions .

 

(a)            Affiliate .  For purposes of this Agreement, “Affiliate” of the Company means any corporation, partnership, limited liability company, joint venture, trust or other enterprise in respect of which Indemnitee is or was or will be serving as a director, officer, trustee, manager, member, partner, employee, agent, attorney, consultant, member of the entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise), fiduciary, or in any other similar capacity at the request, election or direction of the Company, and including, but not limited to, any employee benefit plan of the Company or a Subsidiary or Affiliate of the Company.

 

(b)            Change in Control .  For purposes of this Agreement, “Change in Control” means (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a Subsidiary or a trustee or other fiduciary holding securities under an employee benefit plan of the Company or Subsidiary, is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding capital stock, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the outstanding capital stock of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into capital stock of the surviving entity) at least 80% of the total voting power represented by the capital stock of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

 

(c)            Expenses .  For purposes of this Agreement, “Expenses” means all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys’ fees and related disbursements, and other out-of-pocket costs), paid or incurred by Indemnitee in connection with either the investigation, defense or appeal of, or being a witness in, a Proceeding (as defined below), or establishing or enforcing a right to indemnification under this Agreement, Section 145 or otherwise; provided, however, that Expenses shall not include any judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement of a Proceeding.

 



 

(d)            Indemnifiable Event .   For purposes of this Agreement, “Indemnifiable Event” means any event or occurrence related to Indemnitee’s service for the Company or any Subsidiary or Affiliate as an Indemnifiable Person (as defined below), or by reason of anything done or not done, or any act or omission, by Indemnitee in any such capacity.

 

(e)            Indemnifiable Person .  For the purposes of this Agreement, “Indemnifiable Person” means any person who is or was a director, officer, trustee, manager, member, partner, employee, attorney, consultant, member of an entity’s governing body (whether constituted as a board of directors, board of managers, general partner or otherwise) or other agent or fiduciary of the Company or a Subsidiary or Affiliate of the Company.

 

(f)             Independent Counsel .  For purposes of this Agreement, “Independent Counsel” means legal counsel that has not performed services for the Company or Indemnitee in the five years preceding the time in question and that would not, under applicable standards of professional conduct, have a conflict of interest in representing either the Company or Indemnitee.

 

(g)            Other Liabilities .  For purposes of this Agreement, “Other Liabilities” means any and all liabilities of any type whatsoever (including, but not limited to, judgments, fines, penalties, ERISA (or other benefit plan related) excise taxes or penalties, and amounts paid in settlement and all interest, taxes, assessments and other charges paid or payable in connection with or in respect of any such judgments, fines, ERISA (or other benefit plan related) excise taxes or penalties, or amounts paid in settlement).

 

(h)            Proceeding .  For the purposes of this Agreement, “Proceeding” means any threatened, pending, or completed action, suit or other proceeding, whether civil, criminal, administrative, investigative, legislative or any other type whatsoever, preliminary, informal or formal, including any arbitration or other alternative dispute resolution and including any appeal of any of the foregoing.

 

(i)             Subsidiary .  For purposes of this Agreement, “Subsidiary” means any entity of which more than 50% of the outstanding voting securities is owned directly or indirectly by the Company.

 

2.              Agreement to Serve .  The Indemnitee agrees to serve and/or continue to serve as an Indemnifiable Person in the capacity or capacities in which Indemnitee currently serves the Company as an Indemnifiable Person, and any additional capacity in which Indemnitee may agree to serve, until such time as Indemnitee’s service in a particular capacity shall end according to the terms of an agreement, the Company’s Certificate of Incorporation or Bylaws, governing law, or otherwise.  Nothing contained in this Agreement is intended to create any right to continued employment or other form of service for the Company or a Subsidiary or Affiliate of the Company by Indemnitee.

 

3.              Mandatory Indemnification .

 

(a)            Agreement to Indemnify .  In the event Indemnitee is a person who was or is a party to or witness in or is threatened to be made a party to or witness in any Proceeding by reason of an Indemnifiable Event, the Company shall indemnify Indemnitee from and against

 



 

any and all Expenses and Other Liabilities incurred by Indemnitee in connection with (including in preparation for) such Proceeding to the fullest extent not prohibited by the provisions of the Company’s Bylaws and the Delaware General Corporation Law (“ GCL ”), as the same may be amended from time to time (but only to the extent that such amendment permits the Company to provide broader indemnification rights than the Bylaws or the GCL permitted prior to the adoption of such amendment).

 

(b)            Exception for Amounts Covered by Insurance and Other Sources .  Notwithstanding the foregoing, except as provided in Section 3(c), the Company shall not be obligated to indemnify Indemnitee for Expenses or Other Liabilities of any type whatsoever (including, but not limited to judgments, fines, penalties, ERISA excise taxes or penalties and amounts paid in settlement) to the extent such have been paid directly to Indemnitee (or paid directly to a third party on Indemnitee’s behalf) by any directors and officers, or other type, of insurance maintained by the Company.

 

(c)            Company Obligations Primary .  The Company hereby acknowledges that Indemnitee may have rights to indemnification for Expenses and Other Liabilities provided by another sponsoring organization (“ Other Indemnitor ”).  The Company agrees with Indemnitee that the Company is the indemnitor of first resort of Indemnitee with respect to matters for which indemnification is provided under this Agreement and that the Company will be obligated to make all payments due to or for the benefit of Indemnitee under this Agreement without regard to any rights that Indemnitee may have against the Other Indemnitor.  The Company hereby waives any equitable rights to contribution or indemnification from the Other Indemnitor in respect of any amounts paid to Indemnitee hereunder.  The Company further agrees that no reimbursement of Other Liabilities or payment of Expenses by the Other Indemnitor to or for the benefit of Indemnitee shall affect the obligations of the Company hereunder, and that the Company shall be obligated to repay the Other Indemnitor for all amounts so paid or reimbursed to the extent that the Company has an obligation to indemnify Indemnitee for such Expenses or Other Liabilities hereunder.

 

4.              Partial Indemnification .  If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Expenses or Other Liabilities but not entitled, however, to indemnification for the total amount of such Expenses or Other Liabilities, the Company shall nevertheless indemnify Indemnitee for such total amount except as to the portion thereof for which indemnification is prohibited by the provisions of the Company’s Bylaws or the GCL.  In any review or Proceeding to determine the extent of indemnification, the Company shall bear the burden to establish, by clear and convincing evidence, the lack of a successful resolution of a particular claim, issue or matter and which amounts sought in indemnity are allocable to claims, issues or matters which were not successfully resolved.

 

5.              Liability Insurance .  So long as Indemnitee shall continue to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed Proceeding as a result of an Indemnifiable Event, the Company shall use reasonable efforts to maintain in full force and effect for the benefit of Indemnitee as an insured (i) liability insurance issued by one or more reputable insurers and having the policy amount and deductible deemed appropriate by the Board and providing in all respects coverage at least comparable to and in the

 



 

same amount as that provided to the Chairman of the Board or the Chief Executive Officer of the Company and (ii) any replacement or substitute policies issued by one or more reputable insurers providing in all respects coverage at least comparable to and in the same amount as that being provided to the Chairman of the Board or the Chief Executive Officer of the Company.  The purchase, establishment and maintenance of any such insurance or other arrangements shall not in any way limit or affect the rights and obligations of the Company or of Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and Indemnitee shall not in any way limit or affect the rights and obligations of the Company or the other party or parties thereto under any such insurance or other arrangement.

 

6.              Mandatory Advancement of Expenses .

 

(a)            Advancement .  If requested by Indemnitee, the Company shall advance prior to the final disposition of the Proceeding all Expenses reasonably incurred by Indemnitee in connection with (including in preparation for) a Proceeding related to an Indemnifiable Event.  Indemnitee hereby undertakes to repay such amounts advanced if, and only if and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company under the provisions of this Agreement, the Company’s Bylaws or the GCL.  The advances to be made hereunder shall be paid by the Company to Indemnitee or directly to a third party designated by Indemnitee within thirty (30) days following delivery of a written request therefor by Indemnitee to the Company.  Indemnitee’s undertaking to repay any Expenses advanced to Indemnitee hereunder shall be unsecured and shall not be subject to the accrual or payment of any interest thereon.

 

(b)          Exception .  Notwithstanding the provisions of Section 6(a), the Company shall not be obligated to make any further advance of Expenses to Indemnitee if any one of the following determines in good faith that the facts known to them at the time such determination is made demonstrate clearly and convincingly that Indemnitee acted in bad faith: (i) those members of the Board consisting of directors who were not parties to the Proceeding for which a claim is made under this Agreement (“ Independent Directors ”), even though less than a quorum, (ii) by a committee of Independent Directors designated by a majority vote of Independent Directors, even though less than a quorum, (iii) Independent Counsel, by written legal opinion, or (iv) a panel of arbitrators (one of whom is selected by the Company, another of whom is selected by Indemnitee and the last of whom is selected by the first two arbitrators so selected).  The Company shall have the option to submit the question of whether Indemnitee has acted in bad faith to one of the four alternative decision makers set forth in the preceding sentence and to select the decision maker, but following a favorable determination to Indemnitee rendered by the first decision maker selected, the Company may not submit the matter to another of the named decision makers.  If the Company elects to submit the matter to Independent Counsel, such counsel shall be selected by Indemnitee and approved by the Independent Directors or a committee of Independent Directors (which approval may not be unreasonably withheld).  Any decision maker so selected shall render a decision within thirty (30) days of such decision maker’s selection (which shall include in the case of Independent Counsel or a panel of arbitrators, when the person or persons acting as such counsel or such panel has or have been selected as provided above).

 



 

If a decision is made by the decision maker that Indemnitee acted in bad faith, Indemnitee shall have the right to apply to the Delaware Court of Chancery for the purpose of determining whether Indemnitee has acted in bad faith.

 

7.              Notice and Other Indemnification Procedures .

 

(a)            Notification .  Promptly after receipt by Indemnitee of notice of the commencement of or the threat of commencement of any Proceeding, Indemnitee shall, if Indemnitee believes that indemnification or advancement of Expenses with respect thereto may be sought from the Company under this Agreement, notify the Company of the commencement or threat of commencement thereof.  However, a failure so to notify the Company promptly following Indemnitee’s receipt of such notice shall not relieve the Company from any liability that it may have to Indemnitee except to the extent that the Company is materially prejudiced in its defense of such Proceeding as a result of such failure.

 

(b)            Insurance and Other Matters .  If, at the time of the receipt of a notice of the commencement of a Proceeding pursuant to Section 7(a) above, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the issuers in accordance with the procedures set forth in the respective policies.  The Company shall thereafter take all reasonable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such insurance policies.

 

(c)            Assumption of Defense .  In the event the Company shall be obligated to advance the Expenses for any Proceeding against Indemnitee, the Company, if deemed appropriate by the Company, shall be entitled to assume the defense of such Proceeding as provided herein.  Such defense by the Company may include the representation of two or more parties by one attorney or law firm as permitted under the ethical rules and legal requirements related to joint representations.  Following delivery of written notice to Indemnitee of the Company’s election to assume the defense of such Proceeding, the approval by Indemnitee (which approval shall not be unreasonably withheld) of counsel designated by the Company and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees and expenses of counsel subsequently incurred by Indemnitee with respect to the same Proceeding.  If (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have notified the Board in writing that Indemnitee has reasonably concluded that there is likely to be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company fails to employ counsel to assume the defense of such Proceeding, the fees and expenses of Indemnitee’s counsel shall be subject to indemnification and/or advancement pursuant to the terms of this Agreement.  Nothing herein shall prevent Indemnitee from employing counsel for any such Proceeding at Indemnitee’s expense.

 

(d)            Settlement .  The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company’s written consent; provided, however, that if a Change in Control has occurred, the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement..  Neither the Company nor any Subsidiary or Affiliate shall enter into a settlement of any Proceeding that might result

 


 

in the imposition of any Expense, Other Liability, penalty, limitation or detriment on Indemnitee, whether indemnifiable under this Agreement or otherwise, without Indemnitee’s written consent.  Neither the Company nor Indemnitee shall unreasonably withhold consent from any settlement of any Proceeding.

 

8.              Determination of Right to Indemnification .

 

(a)            Success on the Merits or Otherwise .  To the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding referred to in Section 3(a) above or in the defense of any claim, issue or matter described therein, the Company shall indemnify Indemnitee against Expenses actually and reasonably incurred in connection therewith.

 

(b)            Indemnification in Other Situations .  In the event that Section 8(a) is inapplicable, the Company shall also indemnify Indemnitee if Indemnitee has not failed to meet the applicable standard of conduct for indemnification.

 

(c)            Forum .  Indemnitee shall be entitled to select the forum in which determination of whether or not Indemnitee has met the applicable standard of conduct shall be decided, and such election will be made from among the following:

 

(1)            Those members of the Board who are Independent Directors even though less than a quorum;

 

(2)            A committee of Independent Directors designated by a majority vote of Independent Directors, even though less than a quorum; or

 

(3)            Independent Counsel selected by Indemnitee and approved by the Board, which approval may not be unreasonably withheld, which counsel shall make such determination in a written opinion.

 

If Indemnitee is an officer or a director of the Company at the time that Indemnitee is selecting the forum, then Indemnitee shall not select Independent Counsel as such forum unless there are no Independent Directors or unless the Independent Directors agree to the selection of independent counsel as the forum.

 

The selected forum shall be referred to herein as the “Reviewing Party”.  Notwithstanding the foregoing, following any Change in Control, the Reviewing Party shall be Independent Counsel selected in the manner provided in (3) above.

 

(d)            As soon as practicable, and in no event later than thirty (30) days after receipt by the Company of written notice of Indemnitee’s choice of forum pursuant to Section 8(c) above, the Company and Indemnitee shall each submit to the Reviewing Party such information as they believe is appropriate for the Reviewing Party to consider.  The Reviewing Party shall arrive at its decision within a reasonable period of time following the receipt of all such information from the Company and Indemnitee, but in no event later than thirty (30) days following the receipt of all such information, provided that the time by which the Reviewing Party must reach a decision may be extended by mutual agreement of the Company and

 



 

Indemnitee.  All Expenses associated with the process set forth in this Section 8(d), including but not limited to the Expenses of the Reviewing Party, shall be paid by the Company.

 

(e)            Delaware Court of Chancery .  Notwithstanding a final determination by any Reviewing Party that Indemnitee is not entitled to indemnification with respect to a specific Proceeding, Indemnitee shall have the right to apply to the Court of Chancery, for the purpose of enforcing Indemnitee’s right to indemnification pursuant to this Agreement.

 

(f)             Expenses .  The Company shall indemnify Indemnitee against all Expenses incurred by Indemnitee in connection with any hearing or Proceeding under this Section 8 or under Section 6(b) involving Indemnitee and against all Expenses and Other Liabilities incurred by Indemnitee in connection with any other Proceeding between the Company and Indemnitee involving the interpretation or enforcement of the rights of Indemnitee under this Agreement unless a court of competent jurisdiction finds that each of the material claims of Indemnitee in any such Proceeding was frivolous or made in bad faith.

 

(g)            Determination of “Good Faith” .  For purposes of any determination of whether Indemnitee acted in “good faith” or acted in “bad faith,” Indemnitee shall be deemed to have acted in good faith or not acted in bad faith if in taking or failing to take the action in question Indemnitee relied on the records or books of account of the Company or a Subsidiary or Affiliate of the Company, including financial statements, or on information, opinions, reports or statements provided to Indemnitee by the officers or other employees of the Company or a Subsidiary or Affiliate of the Company in the course of their duties, or on the advice of legal counsel for the Company or a Subsidiary or Affiliate of the Company, or on information or records given or reports made to the Company or a Subsidiary or Affiliate of the Company by an independent certified public accountant or by an appraiser or other expert selected by the Company or a Subsidiary or Affiliate of the Company, or by any other person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company or a Subsidiary or Affiliate.  In connection with any determination as to whether Indemnitee is entitled to be indemnified hereunder, or to advancement of expenses, the Reviewing Party, decision maker pursuant to Section 6(b) or court shall presume that Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification or advancement of Expenses, as the case may be, and the burden of proof shall be on the Company to establish, by clear and convincing evidence, that Indemnitee is not so entitled.  The provisions of this Section 8(g) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.  In addition, the knowledge and/or actions, or failures to act, of any other person serving the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person shall not be imputed to Indemnitee for purposes of determining the right to indemnification hereunder.

 

9.              Exceptions .  Any other provision herein to the contrary notwithstanding,

 

(a)            Claims Initiated by Indemnitee .  The Company shall not be obligated pursuant to the terms of this Agreement to indemnify or advance Expenses to Indemnitee with respect to Proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except (1) with respect to Proceedings brought to establish or enforce a right to

 



 

indemnification under this Agreement, any other statute or law, as permitted under Section 145, or otherwise, (2) where the Board has consented to the initiation of such Proceeding, or (3) with respect to Proceedings brought to discharge Indemnitee’s fiduciary responsibilities, whether under ERISA or otherwise, but such indemnification or advancement of Expenses may be provided by the Company in specific cases if the Board finds it to be appropriate; or

 

(b)            Actions Based on Federal Statutes Regarding Profit Recovery and Return of Bonus Payments .  The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee on account of (i) any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of l934 and amendments thereto or similar provisions of any federal, state or local statutory law, or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); or

 

(c)            Unlawful Indemnification .  The Company shall not be obligated pursuant to the terms of this Agreement to indemnify Indemnitee for Other Liabilities if such indemnification is prohibited by law.

 

10.           Non-exclusivity .  The provisions for indemnification and advancement of Expenses set forth in this Agreement shall not be deemed exclusive of any other rights which Indemnitee may have under any provision of law, the Company’s Certificate of Incorporation or Bylaws, the vote of the Company’s stockholders or disinterested directors, other agreements, or otherwise, both as to acts or omissions in his or her official capacity and to acts or omissions in another capacity while serving the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and Indemnitee’s rights hereunder shall continue after Indemnitee has ceased serving the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and shall inure to the benefit of the heirs, executors and administrators of Indemnitee.

 

11.           Severability .  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (i) the validity, legality and enforceability of the remaining provisions of the Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraphs of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

 

12.           Modification and Waiver .  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any

 



 

other provision hereof (whether or not similar) and except as expressly provided herein, no such waiver shall constitute a continuing waiver.

 

13.           Successors and Assigns .  The terms of this Agreement shall bind, and shall inure to the benefit of, the successors and assigns of the parties hereto.

 

14.           Notice .  All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and a receipt is provided by the party to whom such communication is delivered, (ii) if mailed by certified or registered mail with postage prepaid, return receipt requested, on the signing by the recipient of an acknowledgement of receipt form accompanying delivery through the U.S. mail, (iii) personal service by a process server, or (iv) delivery to the recipient’s address by overnight delivery (e.g., FedEx, UPS or DHL) or other commercial delivery service.  Addresses for notice to either party are as shown on the signature page of this Agreement, or as subsequently modified by written notice complying with the provisions of this Section 14.  Delivery of communications to the Company with respect to this Agreement shall be sent to the attention of the Company’s General Counsel.

 

15.           No Presumptions .  For purposes of this Agreement, the termination of any Proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law or otherwise.  In addition, neither the failure of the Company or a Reviewing Party or one of the decision makers described in Section 6(b) to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Company including a determination pursuant to Section 6(b), or a Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of Proceedings by Indemnitee to secure a judicial determination by exercising Indemnitee’s rights under Section 6(b) or 8(e) of this Agreement shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has failed to meet any particular standard of conduct or did not have any particular belief or is not entitled to indemnification under applicable law or otherwise.

 

16.           Survival of Rights .  The rights conferred on Indemnitee by this Agreement shall continue after Indemnitee has ceased to serve the Company or a Subsidiary or Affiliate of the Company as an Indemnifiable Person and shall inure to the benefit of Indemnitee’s heirs, executors and administrators.

 

17.           Subrogation and Contribution .  (a) In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

 

(b)            To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by or on behalf of Indemnitee, whether for judgments, fines, penalties, excise taxes,

 



 

amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

 

18.           Specific Performance, Etc.   The parties recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law.  Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute Proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.

 

19.           Counterparts .  This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

 

20.           Headings .  The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.

 

21.           Governing Law .  This Agreement shall be governed exclusively by and construed according to the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely with Delaware.

 

22.           Consent to Jurisdiction .  The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any Proceeding which arises out of or relates to this Agreement.

 



 

The parties hereto have entered into this Indemnity Agreement effective as of the date first above written.

 

 

 

By:

 

 

 

 

 

Its:

 

 

 

 

 

 

INDEMNITEE:

 

 

 

 

 

 

 

 

 

 

Address:

 

 

 

 

 

 

 




Exhibit 10.02

 

PROOFPOINT, INC.

 

AMENDED AND RESTATED 2002 STOCK OPTION/STOCK ISSUANCE PLAN

 

As adopted December 13, 2002 and amended through January 23, 2012

 

ARTICLE ONE

 

GENERAL PROVISIONS

 

I.              PURPOSE OF THE PLAN

 

This 2002 Stock Option/Stock Issuance Plan is intended to promote the interests of Proofpoint, Inc., a Delaware corporation, by providing eligible persons in the Corporation’s employ or service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to continue in such employ or service.

 

Capitalized terms herein shall have the meanings assigned to such terms in the attached Appendix.

 

II.             STRUCTURE OF THE PLAN

 

A.             The Plan shall be divided into two (2) separate equity programs:

 

(i)             the Option Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock, and

 

(ii)            the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary).

 

B.             The provisions of Articles One and Four shall apply to both equity programs under the Plan and shall accordingly govern the interests of all persons under the Plan.

 

III.           ADMINISTRATION OF THE PLAN

 

A.             The Plan shall be administered by the Board. However, any or all administrative functions otherwise exercisable by the Board may be delegated to the Committee. Members of the Committee shall serve for such period of time as the Board may determine and shall be subject to removal by the Board at any time. The Board may also at any time terminate

 

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the functions of the Committee and reassume all powers and authority previously delegated to the Committee.

 

B.             The Plan Administrator shall have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Plan and to make such determinations under, and issue such interpretations of, the Plan and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any option grant or stock issuance thereunder.

 

IV.           ELIGIBILITY

 

A.             The persons eligible to participate in the Plan are as follows:

 

(i)             e mployees of the Corporation, its Parent or majority-owned Subsidiaries, or majority-owned subsidiaries of the Corporation’s Parent,

 

(ii)            non-employee members of the Board or the non-employee members of the board of directors of the Corporation’s Parent or majority-owned Subsidiaries, or majority-owned subsidiaries of the Corporation’s Parent, and

 

(iii)           consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).

 

B.             The Plan Administrator shall have full authority to determine, (i) with respect to the grants made under the Option Grant Program, which eligible persons are to receive such grants, the time or times when those grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, the time or times when each option is to become exercisable, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding, and (ii) with respect to stock issuances made under the Stock Issuance Program, which eligible persons are to receive such issuances, the time or times when those issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration to be paid by the Participant for such shares.

 

C.             The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Option Grant Program or to effect stock issuances in accordance with the Stock Issuance Program.

 

V.             STOCK SUBJECT TO THE PLAN

 

A.             The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock. The maximum number of shares of Common Stock which may be issued over the term of the Plan shall not exceed thirty-two million four hundred and forty thousand four hundred and twenty one (32,440,421) shares.

 

B.             Shares of Common Stock subject to outstanding options shall be available for subsequent issuance under the Plan to the extent (i) the options expire or terminate for any reason prior to exercise in full or (ii) the options are cancelled in accordance with the

 

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cancellation-regrant provisions of Article Two. Unvested shares issued under the Plan and subsequently repurchased by the Corporation, at a price per share not greater than the option exercise or direct issue price paid per share, pursuant to the Corporation’s repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan and shall accordingly be available for reissuance through one or more subsequent option grants or direct stock issuances under the Plan.

 

C.             Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made to (i) the maximum number and/or class of securities issuable under the Plan and (ii) the number and/or class of securities and the exercise price per share in effect under each outstanding option in order to prevent the dilution or enlargement of benefits thereunder. The adjustments determined by the Plan Administrator shall be final, binding and conclusive. In no event shall any such adjustments be made in connection with the conversion of one or more outstanding shares of the Corporation’s preferred stock into shares of Common Stock.

 

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ARTICLE TWO

 

OPTION GRANT PROGRAM

 

I.              OPTION TERMS

 

Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options.

 

A.             Exercise Price .

 

1.              The exercise price per share shall be fixed by the Plan Administrator in accordance with the following provisions:

 

(i)             If the person to whom the option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.

 

2.              The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of Section I of Article Four and the documents evidencing the option, be payable in cash or check made payable to the Corporation. Should the Common Stock be registered under Section 12 of the 1934 Act at the time the option is exercised, then the exercise price may also be paid as follows:

 

(i)             in shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or

 

(ii)            to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable instructions (A) to a brokerage firm (reasonably satisfactory to the Corporation for purposes of administering such procedure in compliance with any applicable pre-clearance or pre-notification requirements) to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable income and employment taxes required to be withheld by the Corporation by reason of such exercise and (B) to the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale.

 

Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.

 

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B.             Exercise and Term of Options . Each option shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option grant. However, no option shall have a term in excess of ten (10) years measured from the option grant date.

 

C.             Effect of Termination of Service .

 

1.              The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death:

 

(i)             Should the Optionee cease to remain in Service for any reason other than death, Disability or Misconduct, then the Optionee shall have a period of three (3) months following the date of such cessation of Service during which to exercise each outstanding option held by such Optionee.

 

(ii)            Should Optionee’s Service terminate by reason of Disability, then the Optionee shall have a period of twelve (12) months following the date of such cessation of Service during which to exercise each outstanding option held by such Optionee.

 

(iii)           If the Optionee dies while holding an outstanding option, then the personal representative of his or her estate or the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws of inheritance or the Optionee’s designated beneficiary or beneficiaries of that option shall have a twelve (12)-month period following the date of the Optionee’s death to exercise such option.

 

(iv)           Under no circumstances, however, shall any such option be exercisable after the specified expiration of the option term.

 

(v)            During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee’s cessation of Service. No additional shares shall vest under the option following the Optionee’s cessation of Service, except to the extent (if any) specifically authorized by the Plan Administrator in its sole discretion pursuant to an express written agreement with Optionee. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised.

 

(vi)           Should Optionee’s Service be terminated for Misconduct or should Optionee otherwise engage in Misconduct while holding one or more outstanding options under the Plan, then all those options shall terminate immediately and cease to remain outstanding.

 

2.              The Plan Administrator shall have the discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to:

 

(i)             extend the period of time for which the option is to remain exercisable following Optionee’s cessation of Service or death from the limited period otherwise

 

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in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term, and/or

 

(ii)            permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested under the option had the Optionee continued in Service.

 

D.             Stockholder Rights . The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become the recordholder of the purchased shares.

 

E.             Unvested Shares . The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock. Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right to repurchase any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per share or (ii) the Fair Market Value per share of Common Stock at the time of Optionee’s cessation of Service. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.

 

F.              First Refusal Rights . Until such time as the Common Stock is first registered under Section 12 of the 1934 Act, the Corporation shall have the right of first refusal with respect to any proposed disposition by the Optionee (or any successor in interest) of any shares of Common Stock issued under the Plan. Such right of first refusal shall be exercisable in accordance with the terms established by the Plan Administrator and set forth in the document evidencing such right.

 

G.             Limited Transferability of Options . An Incentive Stock Option shall be exercisable only by the Optionee during his or her lifetime and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Optionee’s death, to a revocable trust, or as permitted by Rule 701 of the Securities Act of 1933, as amended. A Non-Statutory Option may be assigned in whole or in part during the Optionee’s lifetime to one or more members of the Optionee’s family or to a trust established exclusively for one or more such family members or to Optionee’s former spouse, to the extent such assignment is in connection with the Optionee’s estate plan or pursuant to a domestic relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the Non-Statutory Option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. Notwithstanding the foregoing, the Optionee may also

 

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designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under the Plan, and those options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s death.

 

II.             INCENTIVE OPTIONS

 

The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Four shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options shall not be subject to the terms of this Section II.

 

A.             Eligibility . Incentive Options may only be granted to Employees.

 

B.             Exercise Price . The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.

 

C.             Dollar Limitation . The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.

 

D.             10% Stockholder . If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the option term shall not exceed five (5) years measured from the option grant date.

 

III.           CHANGE IN CONTROL

 

A.             None of the outstanding options under the Plan shall vest in whole or in part on an accelerated basis upon the occurrence of a Change in Control, and those options shall be assumable by any successor corporation in the Change in Control. However, the Plan Administrator shall have the discretionary authority to structure one or more options grants under the Plan so that each of those particular options shall automatically accelerate in whole or in part, immediately prior to the effective date of that Change in Control, and become exercisable for all the shares of Common Stock at the time subject to the accelerated portion of such option and may be exercised for any or all of those accelerated shares as fully vested shares of Common Stock.

 

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B.             None of the outstanding repurchase rights under the Plan shall terminate on an accelerated basis upon the occurrence of a Change in Control, and those rights shall be assignable to any successor corporation in the Change in Control. However, the Plan Administrator shall have the discretionary authority to structure one or more repurchase rights under the Plan so that those particular rights shall automatically terminate in whole or in part, and the shares of Common Stock subject to those terminated rights shall immediately vest, in the event of a Change in Control.

 

C.             Each option which is assumed in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments to reflect such Change in Control shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same. To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption of the outstanding options under the Plan, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction.

 

D.             The Plan Administrator shall have full power and authority to structure one or more outstanding options under the Plan so that those options shall vest and become exercisable on an accelerated basis for all or a portion of the shares of Common Stock at the time subject to those options, should the Optionee’s Service subsequently terminate by reason of an Involuntary Termination in connection with, or within a designated period of the effective date of, a Change in Control transaction.  If the successor corporation (or parent thereof) does not assume one or more of those particular options in connection with the Change of Control, then notwithstanding any other provisions in this Plan to the contrary, for each of those particular options that is not assumed in the Change in Control the vesting thereunder shall automatically accelerate immediately prior to the effective date of the Change in Control as to the portion of the shares that would have vested under such option as if an Involuntary Termination had occurred on the day following the effective date of the Change in Control, and each of those particular options will also become exercisable for all of the shares of Common Stock subject to the accelerated portion of such option and may be exercised for any or all of those accelerated shares as fully vested shares of Common Stock prior to the consummation of the Change in Control.  In addition, the Plan Administrator may structure one or more of the Corporation’s repurchase rights so that those rights shall immediately terminate on an accelerated basis with respect to all or a portion of the shares held by the Optionee at the time of such Involuntary Termination, and the shares subject to those terminated repurchase rights shall accordingly vest at that time.

 

E.             The portion of any Incentive Option accelerated in connection with a Change in Control or subsequent Involuntary Termination of the Optionee’s Service shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the accelerated portion of such option shall be exercisable as a Nonstatutory Option under the Federal tax laws.

 

F.             Immediately following the consummation of the Change in Control, all outstanding options under the Plan shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction.

 

G.             The outstanding options shall in no way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

 

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IV.           CANCELLATION AND REGRANT OF OPTIONS

 

The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Plan and to grant in substitution therefor new options covering the same or different number of shares of Common Stock but with an exercise price per share based on the Fair Market Value per share of Common Stock on the new option grant date.

 

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ARTICLE THREE

 

STOCK ISSUANCE PROGRAM

 

I.               STOCK ISSUANCE TERMS

 

Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below.

 

A.             Purchase Price .

 

1.              The purchase price per share shall be fixed by the Plan Administrator on the date of the stock issuance or at the time the purchase is consummated.

 

2.              Subject to the provisions of Section I of Article Four, shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance:

 

(i)             cash or check made payable to the Corporation, or

 

(ii)            past services rendered to the Corporation (or any Parent or Subsidiary).

 

B.             Vesting Provisions .

 

1.              Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant’s period of Service or upon attainment of specified performance objectives.

 

2.              Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.

 

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3.              The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.

 

4.              Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares. To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant’s purchase-money indebtedness), the Corporation shall repay to the Participant the lower of (i) the cash consideration paid for the surrendered shares or (ii) the Fair Market Value of those shares at the time of Participant’s cessation of Service and shall cancel the unpaid principal balance of any outstanding purchase-money note of the Participant attributable to such surrendered shares by the applicable clause (i) or (ii) amount.

 

5.              The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock (or other assets attributable thereto) which would otherwise occur upon the non-completion of the vesting schedule applicable to those shares. Such waiver shall result in the immediate vesting of the Participant’s interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s cessation of Service or the attainment or non-attainment of the applicable performance objectives.

 

C.             First Refusal Rights . Until such time as the Common Stock is first registered under Section 12 of the 1934 Act, the Corporation shall have the right of first refusal with respect to any proposed disposition by the Participant (or any successor in interest) of any shares of Common Stock issued under the Stock Issuance Program. Such right of first refusal shall be exercisable in accordance with the terms established by the Plan Administrator and set forth in the document evidencing such right.

 

II.             CHANGE IN CONTROL

 

Upon the occurrence of a Change in Control, all outstanding repurchase rights under the Stock Issuance Program shall continue in full force and effect and shall be assigned to the successor corporation (or parent thereof), and none of the shares subject to those repurchase rights shall vest on an accelerated basis. However, the Plan Administrator shall have the discretionary authority, exercisable either at the time the unvested shares are issued or any time while the Corporation’s repurchase rights with respect to those shares remain outstanding, to provide that those repurchase rights shall automatically terminate in whole or in part on an accelerated basis, and the shares of Common Stock subject to those terminated rights shall immediately vest, in the event the Participant’s Service should subsequently terminate by reason of an Involuntary Termination within a designated period following the effective date of the Change in Control transaction.

 

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III.            SHARE ESCROW/LEGENDS

 

Unvested shares may, in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.

 

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ARTICLE FOUR

 

MISCELLANEOUS

 

I.               FINANCING

 

The Plan Administrator may permit any Optionee or Participant to pay the option exercise price under the Option Grant Program or the purchase price for shares issued under the Stock Issuance Program by delivering a full-recourse promissory note payable in one or more installments which bears interest at a market rate and is secured by the purchased shares. In no event, however, may the maximum credit available to the Optionee or Participant exceed the sum of (i) the aggregate option exercise price or purchase price payable for the purchased shares (less the par value of those shares) plus (ii) any applicable income and employment tax liability incurred by the Optionee or the Participant in connection with the option exercise or share purchase.

 

II.             EFFECTIVE DATE AND TERM OF PLAN

 

A.             The Plan shall become effective when adopted by the Board, but no option granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation’s stockholders. If such stockholder approval is not obtained within twelve (12) months after the date of the Board’s adoption of the Plan, then all options previously granted under the Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan. Subject to such limitation, the Plan Administrator may grant options and issue shares under the Plan at any time after the effective date of the Plan and before the date fixed herein for termination of the Plan.

 

B.             The Plan shall terminate upon the earliest of (i) the expiration of the ten (10)-year period measured from the date the Plan is adopted by the Board, (ii) the date on which all shares available for issuance under the Plan shall have been issued as vested shares or (iii) the termination of all outstanding options in connection with a Change in Control. All options and unvested stock issuances outstanding at the time of a clause (i) termination event shall continue to have full force and effect in accordance with the provisions of the documents evidencing those options or issuances.

 

III.            AMENDMENT OF THE PLAN

 

A.             The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to options or unvested stock issuances at the time outstanding under the Plan unless the Optionee or the Participant consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws and regulations.

 

B.             Options may be granted under the Option Grant Program and shares may be issued under the Stock Issuance Program which are in each instance in excess of the number of shares of Common Stock then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held in escrow until there is obtained

 

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stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess grants or issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the applicable Short Term Federal Rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding.

 

IV.            USE OF PROCEEDS

 

Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.

 

V.             WITHHOLDING

 

The Corporation’s obligation to deliver shares of Common Stock upon the exercise of any options granted under the Plan or upon the issuance or vesting of any shares issued under the Plan shall be subject to the satisfaction of all applicable income and employment tax withholding requirements.

 

VI.            REGULATORY APPROVALS

 

The implementation of the Plan, the granting of any options under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any option or (ii) under the Stock Issuance Program shall be subject to the Corporation’s procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the options granted under it and the shares of Common Stock issued pursuant to it.

 

VII.          NO EMPLOYMENT OR SERVICE RIGHTS

 

Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause.

 

14



 

APPENDIX

 

The following definitions shall be in effect under the Plan:

 

A.             Board shall mean the Corporation’s Board of Directors.

 

B.             Change in Control shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

 

(i)             a merger, consolidation or other reorganization approved by the Corporation’s stockholders, unless securities representing more than fifty percent (50%) of the total combined voting power of the voting securities of the successor corporation are immediately thereafter beneficially owned, directly or indirectly and in substantially the same proportion, by the persons who beneficially owned the Corporation’s outstanding voting securities immediately prior to such transaction, or

 

(ii)            a stockholder-approved sale, transfer or other disposition of all or substantially all of the Corporation’s assets in complete liquidation or dissolution of the Corporation, or

 

(iii)           the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders.

 

In no event shall any public offering of the Corporation’s securities be deemed to constitute a Change in Control.

 

C.             Code shall mean the Internal Revenue Code of 1986, as amended.

 

D.             Committee shall mean a committee of one (1) or more Board members appointed by the Board to exercise one or more administrative functions under the Plan.

 

E.              Common Stock shall mean the Corporation’s common stock.

 

F.              Corporation shall mean Proofpoint, Inc., a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of Proofpoint, Inc. which shall by appropriate action adopt the Plan.

 

G.             Disability shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances.

 

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H.             Employee shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

 

I.               Exercise Date shall mean the date on which the Corporation shall have received written notice of the option exercise.

 

J.              Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

 

(i)             If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market and published in The Wall Street Journal. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

 

(ii)            If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange and published in The Wall Street Journal . If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

 

(iii)           If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate.

 

K.             Incentive Option shall mean an option which satisfies the requirements of Code Section 422.

 

L.              Involuntary Termination shall mean the termination of the Service of any individual which occurs by reason of:

 

(i)             such individual’s involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or

 

(ii)            such individual’s voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual’s place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected without the individual’s consent.

 

A-2



 

M.            Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (or any Parent or Subsidiary) in a material manner. The foregoing definition shall not in any way preclude or restrict the right of the Corporation (or any Parent or Subsidiary) to discharge or dismiss any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary) for any other acts or omissions, but such other acts or omissions shall not be deemed, for purposes of the Plan, to constitute grounds for termination for Misconduct.

 

N.             1934 Act shall mean the Securities Exchange Act of 1934, as amended.

 

O.             Non-Statutory Option shall mean an option not intended to satisfy the requirements of Code Section 422.

 

P.              Option Grant Program shall mean the option grant program in effect under the Plan.

 

Q.             Optionee shall mean any person to whom an option is granted under the Plan.

 

R.             Parent shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

S.              Participant shall mean any person who is issued shares of Common Stock under the Stock Issuance Program.

 

T.             Plan shall mean the Corporation’s 2002 Stock Option/Stock Issuance Plan, as set forth in this document.

 

U.             Plan Administrator shall mean either the Board or the Committee acting in its capacity as administrator of the Plan.

 

V.             Service shall mean the provision of services to the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant.

 

W.            Stock Exchange shall mean either the American Stock Exchange or the New York Stock Exchange.

 

X.             Stock Issuance Agreement shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program.

 

A-3



 

Y.             Stock Issuance Program shall mean the stock issuance program in effect under the Plan.

 

Z.             Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

AA.         10% Stockholder shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).

 

A-4


 

PROOFPOINT, INC.

 

2002 STOCK OPTION/STOCK ISSUANCE PLAN

 

NOTICE OF GRANT OF STOCK OPTION

 

Notice is hereby given of the following option grant (the “ Option ”) to purchase shares of the Common Stock of Proofpoint, Inc. (the “ Corporation ”):

 

Optionee :

 

 

Grant Date :

 

 

Vesting Commencement Date :

 

 

Exercise Price :  $                                                     per share

 

Number of Option Shares                                       shares of Common Stock

 

Expiration Date :

 

 

Type of Option :

¨

Incentive Stock Option

 

 

 

 

¨

Nonqualified Stock Option

 

 

 

Date Exercisable :

 

Immediately Exercisable

 

Vesting Schedule :       The Option Shares shall initially be unvested and any unvested Option Shares acquired upon the exercise of this Option shall be subject to repurchase by the Corporation at the lower of (i) the Exercise Price paid per share or (ii) the Fair Market Value per share at the time of Optionee’s cessation of Service.  Optionee shall acquire a vested interest in, and the Corporation’s repurchase right shall accordingly lapse with respect to, (i) twenty-five percent (25%) of the Option Shares upon Optionee’s completion of one (1) year of Service measured from the Vesting Commencement Date and (ii) the balance of the Option Shares in a series of thirty-six (36) successive equal monthly installments upon Optionee’s completion of each additional month of Service over the thirty-six (36)-month period measured from the first anniversary of the Vesting Commencement Date. The Option shall not become exercisable for any additional Option Shares following the Optionee’s cessation of Service, except to the extent (if any) specifically authorized by the Plan Administrator in its sole discretion pursuant to an express written agreement with Optionee.

 

Additional Terms :        ¨        If this box is checked, the additional terms and conditions set forth on Attachment 1 hereto (which must be executed by the Corporation and the Optionee) are applicable and are incorporated herein by reference.  No document need be attached as Attachment 1 if the box is not checked.

 

Optionee understands and agrees that the Option is granted subject to and in accordance with the terms of the Proofpoint, Inc. 2002 Stock Option/Stock Issuance Plan, amended (the “ Plan ”).  Optionee further agrees to be bound by the terms of the Plan, the Stock

 



 

Option Agreement relating to the Option, and the Stock Purchase Agreement upon exercise of the Option. Optionee acknowledges receipt of a copy of the Plan, the Stock Option Agreement and the Stock Purchase Agreement made available to Optionee on the Corporation’s website at http://intranet.us.proofpoint.com/stockadministration .   Optionee represents that the Optionee has carefully read and is familiar with their provisions, and accepts the Option subject to all of its terms and conditions.  The Optionee acknowledges that there may be adverse tax consequences upon exercise of the Option or disposition of the Option Shares and the Optionee should consult a tax adviser prior to such exercise or disposition.

 

REPURCHASE RIGHTS .  OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS.  THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE STOCK PURCHASE AGREEMENT.

 

Termination of Option .  Upon certain events, the exercisability of this Option may terminate earlier than the Expiration Date as set forth in Sections 5 and 6 of the Stock Option Agreement.

 

At Will Employment .   Nothing in this Notice or in the Stock Option Agreement, the Stock Purchase Agreement or Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee’s Service at any time for any reason, with or without cause.

 

Definitions .   All capitalized terms in this Notice shall have the meaning assigned to them in this Notice or in the Stock Option Agreement.

 

DATED:                                    ,                        

 

PROOFPOINT, INC.

 

 

 

 

 

, OPTIONEE

 

 

 

 

 

 

By:

By:

 

Address:

 

 

 

 

 

 

Title:

 

 

 

 

 

 

 

Address:

 

 



 

Attachment 1 to Notice of Grant of Stock Option

 

PROOFPOINT, INC.

 

2002 STOCK OPTION/STOCK ISSUANCE PLAN

 

Additional Terms and Conditions to Option

 

Optionee:

 

 

 

Number of Shares:

 

 

 

Date of Grant:

 

 

 

The following terms and conditions apply to the Option described above and granted pursuant to the Notice of Stock Option Grant to which this Attachment 1 is attached:

 

Involuntary Termination following a Change in Control

 

1.             If (A) the Option is assumed by the successor corporation (or the parent thereof) in connection with a Change in Control or is otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction and (B) an Involuntary Termination of Optionee’s Service occurs within eighteen (18) months following the effective date of that Change in Control, then twenty-five percent (25%) of the total number of unvested Option Shares at the time subject to the Option shall automatically vest on an accelerated basis, and the Option may be exercised for any or all of those accelerated Option Shares as fully-vested shares.  The Option shall remain exercisable for those Option Shares, together with any other Option Shares in which the Optionee is at the time vested pursuant to the normal Vesting Schedule set forth in the Notice of Grant, until the earlier of (i) the Expiration Date or (ii) the sooner termination of the Option pursuant to the provisions of Paragraph 5 of the Option Agreement.

 

2.             An Involuntary Termination shall mean the termination of Optionee’s Service by reason of:

 

(i)                Optionee’s involuntary dismissal or discharge by the Corporation for reasons other than for Misconduct, or

 

(ii)               Optionee’s voluntary resignation following (A) a change in Optionee’s position with the Corporation (or Parent or Subsidiary employing Optionee) which materially reduces Optionee’s duties and responsibilities or the level of management to which he or she reports, (B) a reduction in Optionee’s level of compensation (including base salary, fringe benefits and target bonus under any corporate-

 



 

performance based incentive programs) by more than fifteen percent (15%) or (C) a relocation of Optionee’s place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without Optionee’s consent.

 

3.             The foregoing provisions shall supersede any provisions to the contrary in Paragraphs 6 and 18 of the Stock Option Agreement, to the extent those provisions might otherwise affect the accelerated vesting and exercisability of the Option.

 

By their signatures below, the Corporation and the Optionee agree that the Notice of Stock Option Grant and the Stock Option Agreement are only modified or supplemented hereby to the extent expressly provided for above.

 

PROOFPOINT, INC.

 

OPTIONEE

 

 

 

 

 

 

By:

 

 

 

 

 

 

Signature

 

 

 

 

Its:

 

 

 

 




Exhibit 10.03

 

PROOFPOINT, INC.

 

2012 EQUITY INCENTIVE PLAN

 

As adopted March 30, 2012 (share numbers adjusted for reverse stock split effected April 2, 2012)

 

1.            PURPOSE .  The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to the success of the Company, and any Parents and Subsidiaries that exist now or in the future, by offering them an opportunity to participate in the Company’s future performance through the grant of Awards.  Capitalized terms not defined elsewhere in the text are defined in Section 27.

 

2.            SHARES SUBJECT TO THE PLAN .

 

2.1          Number of Shares Available .  Subject to Sections 2.6 and 21 and any other applicable provisions hereof, the total number of Shares reserved and available for grant and issuance pursuant to this Plan as of the date of adoption of the Plan by the Board, is 4,096,280 Shares plus (i) any reserved shares not issued or subject to outstanding grants under the Company’s 2002 Stock Option/Stock Issuance Plan (the “ Prior Plan ”) on the Effective Date (as defined below), (ii) shares that are subject to stock options granted under the Prior Plan that cease to be subject to such stock options after the Effective Date, (iii) shares issued under the Prior Plan before or after the Effective Date pursuant to the exercise of stock options that are, after the Effective Date, forfeited and (iv) shares issued under the Prior Plan that are repurchased by the Company at or below the original issue price.

 

2.2          Lapsed, Returned Awards .  Shares subject to Awards, and Shares issued under the Plan or the Prior Plan under any Award, will again be available for grant and issuance in connection with subsequent Awards under this Plan to the extent such Shares:  (a) are subject to issuance upon exercise of an Option or SAR granted under this Plan or the Prior Plan but which cease to be subject to the Option or SAR for any reason other than exercise of the Option or SAR; (b) are subject to Awards granted under this Plan or the Prior Plan that are forfeited or are repurchased by the Company at the original issue price; (c) are subject to Awards granted under this Plan or the Prior Plan that otherwise terminate without such Shares being issued; or (d) are surrendered pursuant to an Exchange Program.  To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan.  Shares used to pay the exercise price of an Award or to satisfy the tax withholding obligations related to an Award will become available for future grant or sale under the Plan. For the avoidance of doubt, Shares that otherwise become available for grant and issuance because of the provisions of this Section 2.2 shall not include Shares subject to Awards that initially became available because of the substitution clause in Section 21.2 hereof.

 

2.3          Minimum Share Reserve .  At all times the Company shall reserve and keep available a sufficient number of Shares as shall be required to satisfy the requirements of all outstanding Awards granted under this Plan.

 

2.4          Automatic Share Reserve Increase .  The number of Shares available for grant and issuance under the Plan shall be increased on January 1, of each of 2013 through 2016, by the lesser of (i) five percent (5%) of the number of Shares issued and outstanding on each December 31 immediately prior to the date of increase not to exceed 3,723,891 or (ii) such number of Shares determined by the Board.

 



 

2.5          Limitations .  No more than 25,000,000 (twenty-five million) Shares shall be issued pursuant to the exercise of ISOs.

 

2.6          Adjustment of Shares .  If the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company, without consideration, then (a) the number of Shares reserved for issuance and future grant under the Plan set forth in Section 2.1, (b) the Exercise Prices of and number of Shares subject to outstanding Options and SARs, (c) the number of Shares subject to other outstanding Awards, (d) the maximum number of shares that may be issued as ISOs set forth in Section 2.5, and (e) the maximum number of Shares that may be issued to an individual or to a new Employee in any one calendar year set forth in Section 3, shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with applicable securities laws; provided that fractions of a Share will not be issued.

 

3.            ELIGIBILITY .  ISOs may be granted only to Employees.  All other Awards may be granted to Employees, Consultants, Directors and Non-Employee Directors of the Company or any Parent or Subsidiary of the Company; provided such Consultants, Directors and Non-Employee Directors render bona fide Services not in connection with the offer and sale of securities in a capital-raising transaction.  No Participant will be eligible to receive more than 875,000 (eight hundred seventy-five thousand) Shares in any calendar year under this Plan pursuant to the grant of Awards except that new Employees of the Company or of a Parent or Subsidiary of the Company (including new Employees who are also officers and directors of the Company or any Parent or Subsidiary of the Company) are eligible to receive up to a maximum of 1,750,000 (one million seven hundred and fifty thousand) Shares in the calendar year in which they commence their employment.

 

4.            ADMINISTRATION .

 

4.1          Committee Composition; Authority .  This Plan will be administered by the Committee or by the Board acting as the Committee.  Subject to the general purposes, terms and conditions of this Plan, and to the direction of the Board, the Committee will have full power to implement and carry out this Plan, except, however, the Board shall establish the terms for the grant of an Award to Non-Employee Directors.  The Committee will have the authority to:

 

(a)           construe and interpret this Plan, any Award Agreement and any other agreement or document executed pursuant to this Plan;

 

(b)           prescribe, amend and rescind rules and regulations relating to this Plan or any Award;

 

(c)           select persons to receive Awards;

 

(d)           determine the form and terms and conditions, not inconsistent with the terms of the Plan, of any Award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Awards may vest and be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Shares relating thereto, based in each case on such factors as the Committee will determine;

 

(e)           determine the number of Shares subject to an Award or other consideration subject to Awards;

 

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(f)            determine the Fair Market Value in good faith, if necessary;

 

(g)           grant waivers of Plan or Award conditions;

 

(h)           correct any defect, supply any omission or reconcile any inconsistency in this Plan, any Award or any Award Agreement;

 

(i)            determine whether an Award has been earned;

 

(j)            determine the terms and conditions of any, and to institute any, Exchange Program;

 

(k)           reduce or waive any criteria with respect to Performance Factors;

 

(l)            adjust Performance Factors to take into account changes in law and accounting or tax rules as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events or circumstances to avoid windfalls or hardships provided that such adjustments are consistent with the regulations promulgated under Section 162(m) of the Code with respect to persons whose compensation is subject to Section 162(m) of the Code; and

 

(m)          make all other determinations necessary or advisable for the administration of this Plan.

 

4.2          Committee Interpretation and Discretion .  Any determination made by the Committee with respect to any Award shall be made in its sole discretion at the time of grant of the Award or, unless in contravention of any express term of the Plan or Award, at any later time, and such determination shall be final and binding on the Company and all persons having an interest in any Award under the Plan.  Any dispute regarding the interpretation of the Plan or any Award Agreement shall be submitted by the Participant or Company to the Committee for review.  The resolution of such a dispute by the Committee shall be final and binding on the Company and the Participant.  The Committee may delegate to one or more executive officers the authority to review and resolve disputes with respect to Awards held by Participants who are not Insiders, and such resolution shall be final and binding on the Company and the Participant.

 

4.3          Section 162(m) of the Code and Section 16 of the Exchange Act .  When necessary or desirable for an Award to qualify as “performance-based compensation” under Section 162(m) of the Code the Committee shall include at least two persons who are “outside directors” (as defined under Section 162(m) of the Code) and at least two (or a majority if more than two then serve on the Committee) such “outside directors” shall approve the grant of such Award and timely determine (as applicable) the Performance Period and any Performance Factors upon which vesting or settlement of any portion of such Award is to be subject. When required by Section 162(m) of the Code, prior to settlement of any such Award at least two (or a majority if more than two then serve on the Committee) such “outside directors” then serving on the Committee shall determine and certify in writing the extent to which such Performance Factors have been timely achieved and the extent to which the Shares subject to such Award have thereby been earned. Awards granted to Participants who are subject to Section 16 of the Exchange Act must be approved by two or more “non-employee directors” (as defined in the regulations promulgated under Section 16 of the Exchange Act).  With respect to Participants whose compensation is subject to Section 162(m) of the Code, and provided that such adjustments are consistent with the regulations promulgated under Section 162(m) of the Code, the Committee may adjust the performance goals to account for changes in law and accounting and to make such adjustments as the Committee deems necessary or appropriate to reflect the impact of extraordinary or unusual items, events

 

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or circumstances to avoid windfalls or hardships, including without limitation (i) restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring charges, (ii) an event either not directly related to the operations of the Company or not within the reasonable control of the Company’s management, or (iii) a change in accounting standards required by generally accepted accounting principles.

 

4.4          Documentation .  The Award Agreement for a given Award, the Plan and any other documents may be delivered to, and accepted by, a Participant or any other person in any manner (including electronic distribution or posting) that meets applicable legal requirements.

 

4.5          Foreign Award Recipients .  Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Subsidiaries operate or have employees or other individuals eligible for Awards, the Committee, in its sole discretion, shall have the power and authority to:  (i) determine which Subsidiaries shall be covered by the Plan; (ii) determine which individuals outside the United States are eligible to participate in the Plan; (iii) modify the terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv) establish subplans and modify exercise procedures and other terms and procedures, to the extent the Committee determines such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices); provided, however, that no such subplans and/or modifications shall increase the share limitations contained in Section 2.1 hereof; and (v) take any action, before or after an Award is made, that the Committee determines to be necessary or advisable to obtain approval or comply with any local governmental regulatory exemptions or approvals.  Notwithstanding the foregoing, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States securities law, the Code, or any other applicable United States governing statute or law.

 

5.            OPTIONS .  The Committee may grant Options to eligible Employees, Consultants, Directors of the Company or any Parent or Subsidiary of the Company and will determine whether such Options will be Incentive Stock Options within the meaning of the Code (“ ISOs ”) or Nonqualified Stock Options (“ NSOs ”), the number of Shares subject to the Option, the Exercise Price of the Option, the period during which the Option may vest and be exercised, and all other terms and conditions of the Option, subject to the following:

 

5.1          Option Grant .  Each Option granted under this Plan will identify the Option as an ISO or an NSO.  An Option may be, but need not be, awarded upon satisfaction of such Performance Factors during any Performance Period as are set out in advance in the Participant’s individual Award Agreement.  If the Option is being earned upon the satisfaction of Performance Factors, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for each Option; and (y) select from among the Performance Factors to be used to measure the performance, if any.  Performance Periods may overlap and Participants may participate simultaneously with respect to Options that are subject to different performance goals and other criteria.

 

5.2          Date of Grant .  The date of grant of an Option will be the date on which the Committee makes the determination to grant such Option, or a specified future date.  The Award Agreement and a copy of this Plan will be delivered to the Participant within a reasonable time after the granting of the Option.

 

5.3          Exercise Period .  Options may be vested and exercisable within the times or upon the conditions as set forth in the Award Agreement governing such Option; provided , however , that no Option will be exercisable after the expiration of ten (10) years from the date the Option is granted; and provided further that no ISO granted to a person who, at the time the ISO is granted, directly or by

 

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attribution owns more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company (“ Ten Percent Stockholder ”) will be exercisable after the expiration of five (5) years from the date the ISO is granted.  The Committee also may provide for Options to become exercisable at one time or from time to time, periodically or otherwise, in such number of Shares or percentage of Shares as the Committee determines.

 

5.4          Exercise Price .  The Exercise Price of an Option will be determined by the Committee when the Option is granted; provided that: (i) the Exercise Price of an ISO will be not less than one hundred percent (100%) of the Fair Market Value of the Shares on the date of grant and (ii) the Exercise Price of any ISO granted to a Ten Percent Stockholder will not be less than one hundred ten percent (110%) of the Fair Market Value of the Shares on the date of grant.  Payment for the Shares purchased must be made in accordance with Section 11 and the Award Agreement and in accordance with any procedures established by the Company.  The Exercise Price of a NSO may not be less than one hundred percent (100%) of the Fair Market Value per Share on the date of grant.

 

5.5          Method of Exercise .  Any Option granted hereunder will be vested and exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. An Option may not be exercised for a fraction of a Share.  An Option will be deemed exercised when the Company receives: (i) notice of exercise (in such form as the Committee may specify from time to time) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised (together with applicable withholding taxes). Full payment may consist of any consideration and method of payment authorized by the Committee and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option will be issued in the name of the Participant. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder will exist with respect to the Shares, notwithstanding the exercise of the Option. The Company will issue (or cause to be issued) such Shares promptly after the Option is exercised.  No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 2.6 of the Plan. Exercising an Option in any manner will decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

 

5.6          Termination of Service .  The exercise of an Option will be subject to the following (except as may be otherwise provided in an Award Agreement):

 

(a)           If the Participant’s Service terminates for any reason except for Cause or the Participant’s death or Disability, then the Participant may exercise such Participant’s Options only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates no later than three (3) months after the date Participant’s Service terminates (or such shorter or longer time period as may be determined by the Committee, with any exercise beyond three (3) months after the date Participant’s Service terminates deemed to be the exercise of an NSO), but in any event no later than the expiration date of the Options.

 

(b)           If the Participant’s Service terminates because of the Participant’s death (or the Participant dies within three (3) months after Participant’s Service terminates other than for Cause or because of the Participant’s Disability), then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates and must be exercised by the Participant’s legal representative, or authorized assignee, no later than twelve (12) months after the date Participant’s Service terminates (or such shorter time period not

 

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less than six (6) months or longer time period as may be determined by the Committee), but in any event no later than the expiration date of the Options.

 

(c)           If the Participant’s Service terminates because of the Participant’s Disability, then the Participant’s Options may be exercised only to the extent that such Options would have been exercisable by the Participant on the date Participant’s Service terminates and must be exercised by the Participant (or the Participant’s legal representative or authorized assignee) no later than twelve (12) months after the date Participant’s Service terminates (with any exercise beyond (a) three (3) months after the date Participant’s Service terminates when the termination of Service is for a Disability that is not a “permanent and total disability” as defined in Section 22(e)(3) of the Code, or (b) twelve (12) months after the date Participant’s Service terminates when the termination of Service is for a Disability that is a “permanent and total disability” as defined in Section 22(e)(3) of the Code, deemed to be exercise of an NSO), but in any event no later than the expiration date of the Options.

 

(d)           Unless determined otherwise by the Committee or as may otherwise be set forth in a Participant’s Award Agreement, if the Participant’s Service terminates for Cause, then Participant’s Options (whether vested or unvested) shall expire on the date Participant’s Service terminates for Cause, or at such later time and on such conditions as are determined by the Committee, but in any no event later than the expiration date of the Options.  Unless otherwise provided in the Award Agreement, Cause will have the meaning as set forth in the Plan.

 

5.7          Limitations on Exercise .  The Committee may specify a minimum number of Shares that may be purchased on any exercise of an Option, provided that such minimum number will not prevent any Participant from exercising the Option for the full number of Shares for which it is then exercisable.

 

5.8          Limitations on ISOs .  With respect to Awards granted as ISOs, to the extent that the aggregate Fair Market Value of the Shares with respect to which such ISOs are exercisable for the first time by the Participant during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000), such Options will be treated as NSOs. For purposes of this Section 5.8, ISOs will be taken into account in the order in which they were granted. The Fair Market Value of the Shares will be determined as of the time the Option with respect to such Shares is granted.  In the event that the Code or the regulations promulgated thereunder are amended after the Effective Date to provide for a different limit on the Fair Market Value of Shares permitted to be subject to ISOs, such different limit will be automatically incorporated herein and will apply to any Options granted after the effective date of such amendment.

 

5.9          Modification, Extension or Renewal .  The Committee may modify, extend or renew outstanding Options and authorize the grant of new Options in substitution therefor, provided that any such action may not, without the written consent of a Participant, impair any of such Participant’s rights under any Option previously granted.  Any outstanding ISO that is modified, extended, renewed or otherwise altered will be treated in accordance with Section 424(h) of the Code.  Subject to Section 18 of this Plan, by written notice to affected Participants, the Committee may reduce the Exercise Price of outstanding Options without the consent of such Participants; provided , however , that the Exercise Price may not be reduced below the Fair Market Value on the date the action is taken to reduce the Exercise Price.

 

5.10        No Disqualification .  Notwithstanding any other provision in this Plan, no term of this Plan relating to ISOs will be interpreted, amended or altered, nor will any discretion or authority granted under this Plan be exercised, so as to disqualify this Plan under Section 422 of the Code or, without the consent of the Participant affected, to disqualify any ISO under Section 422 of the Code.

 

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6.            RESTRICTED STOCK AWARDS .

 

6.1          Awards of Restricted Stock .  A Restricted Stock Award is an offer by the Company to sell to an eligible Employee, Consultant, or Director of the Company or any Parent or Subsidiary of the Company Shares that are subject to restrictions (“ Restricted Stock ”).  The Committee will determine to whom an offer will be made, the number of Shares the Participant may purchase, the Purchase Price, the restrictions under which the Shares will be subject and all other terms and conditions of the Restricted Stock Award, subject to the Plan.

 

6.2          Restricted Stock Purchase Agreement .  All purchases under a Restricted Stock Award will be evidenced by an Award Agreement.  Except as may otherwise be provided in an Award Agreement, a Participant accepts a Restricted Stock Award by signing and delivering to the Company an Award Agreement with full payment of the Purchase Price, within thirty (30) days from the date the Award Agreement was delivered to the Participant.  If the Participant does not accept such Award within thirty (30) days, then the offer of such Restricted Stock Award will terminate, unless the Committee determines otherwise.

 

6.3          Purchase Price .  The Purchase Price for a Restricted Stock Award will be determined by the Committee and may be less than Fair Market Value on the date the Restricted Stock Award is granted.  Payment of the Purchase Price must be made in accordance with Section 11 of the Plan, and the Award Agreement and in accordance with any procedures established by the Company.

 

6.4          Terms of Restricted Stock Awards .  Restricted Stock Awards will be subject to such restrictions as the Committee may impose or are required by law.   These restrictions may be based on completion of a specified number of years of Service with the Company or upon completion of Performance Factors, if any, during any Performance Period as set out in advance in the Participant’s Award Agreement.  Prior to the grant of a Restricted Stock Award, the Committee shall: (a) determine the nature, length and starting date of any Performance Period for the Restricted Stock Award; (b) select from among the Performance Factors to be used to measure performance goals, if any; and (c) determine the number of Shares that may be awarded to the Participant.  Performance Periods may overlap and a Participant may participate simultaneously with respect to Restricted Stock Awards that are subject to different Performance Periods and having different performance goals and other criteria.

 

6.5          Termination of Service .  Except as may be set forth in the Participant’s Award Agreement, vesting ceases on the date Participant’s Service terminates (unless determined otherwise by the Committee).

 

7.            STOCK BONUS AWARDS .

 

7.1          Awards of Stock Bonuses .  A Stock Bonus Award is an award to an Employee, Consultant, or Director of the Company or any Parent or Subsidiary of the Company of Shares for Services to be rendered or for past Services already rendered to the Company or any Parent or Subsidiary.  All Stock Bonus Awards shall be made pursuant to an Award Agreement.  No payment from the Participant will be required for Shares awarded pursuant to a Stock Bonus Award.

 

7.2          Terms of Stock Bonus Awards .  The Committee will determine the number of Shares to be awarded to the Participant under a Stock Bonus Award and any restrictions thereon.  These restrictions may be based upon completion of a specified number of years of Service with the Company or upon satisfaction of performance goals based on Performance Factors during any Performance Period as set out in advance in the Participant’s Stock Bonus Agreement.  Prior to the grant of any Stock Bonus Award the Committee shall: (a) determine the nature, length and starting date of any Performance Period

 

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for the Stock Bonus Award; (b) select from among the Performance Factors to be used to measure performance goals; and (c) determine the number of Shares that may be awarded to the Participant.  Performance Periods may overlap and a Participant may participate simultaneously with respect to Stock Bonus Awards that are subject to different Performance Periods and different performance goals and other criteria.

 

7.3          Form of Payment to Participant .  Payment may be made in the form of cash, whole Shares, or a combination thereof, based on the Fair Market Value of the Shares earned under a Stock Bonus Award on the date of payment, as determined in the sole discretion of the Committee.

 

7.4          Termination of Service .  Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

 

8.            STOCK APPRECIATION RIGHTS .

 

8.1          Awards of SARs .  A Stock Appreciation Right (“ SAR ”) is an award to an eligible Employee, Consultant, Director of the Company or any Parent or Subsidiary of the Company that may be settled in cash, or Shares (which may consist of Restricted Stock), having a value equal to (a) the difference between the Fair Market Value on the date of exercise over the Exercise Price multiplied by (b) the number of Shares with respect to which the SAR is being settled (subject to any maximum number of Shares that may be issuable as specified in an Award Agreement).  All SARs shall be made pursuant to an Award Agreement.

 

8.2          Terms of SARs .  The Committee will determine the terms of each SAR including, without limitation: (a) the number of Shares subject to the SAR; (b) the Exercise Price and the time or times during which the SAR may be settled; (c) the consideration to be distributed on settlement of the SAR; and (d) the effect of the Participant’s termination of Service on each SAR.  The Exercise Price of the SAR will be determined by the Committee when the SAR is granted, and may not be less than Fair Market Value.  A SAR may be awarded upon satisfaction of Performance Factors, if any, during any Performance Period as are set out in advance in the Participant’s individual Award Agreement.  If the SAR is being earned upon the satisfaction of Performance Factors, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for each SAR; and (y) select from among the Performance Factors to be used to measure the performance, if any.  Performance Periods may overlap and Participants may participate simultaneously with respect to SARs that are subject to different Performance Factors and other criteria.

 

8.3          Exercise Period and Expiration Date .  A SAR will be exercisable within the times or upon the occurrence of events determined by the Committee and set forth in the Award Agreement governing such SAR.  The SAR Agreement shall set forth the expiration date; provided that no SAR will be exercisable after the expiration of ten (10) years from the date the SAR is granted.  The Committee may also provide for SARs to become exercisable at one time or from time to time, periodically or otherwise (including, without limitation, upon the attainment during a Performance Period of performance goals based on Performance Factors), in such number of Shares or percentage of the Shares subject to the SAR as the Committee determines.  Except as may be set forth in the Participant’s Award Agreement, vesting ceases on the date Participant’s Service terminates (unless determined otherwise by the Committee).  Notwithstanding the foregoing, the rules of Section 5.6 also will apply to SARs.

 

8.4          Form of Settlement .  Upon exercise of a SAR, a Participant will be entitled to receive payment from the Company in an amount determined by multiplying (i) the difference between the Fair Market Value of a Share on the date of exercise over the Exercise Price; times (ii) the number of

 

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Shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment from the Company for the SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof.  The portion of a SAR being settled may be paid currently or on a deferred basis with such interest or dividend equivalent, if any, as the Committee determines, provided that the terms of the SAR and any deferral satisfy the requirements of Section 409A of the Code.

 

8.5          Termination of Service .  Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

 

9.            RESTRICTED STOCK UNITS .

 

9.1          Awards of Restricted Stock Units .  A Restricted Stock Unit (“ RSU ”) is an award to an eligible Employee, Consultant, or Director of the Company or any Parent or Subsidiary of the Company covering a number of Shares that may be settled in cash, or by issuance of those Shares (which may consist of Restricted Stock).  All RSUs shall be made pursuant to an Award Agreement.

 

9.2          Terms of RSUs .  The Committee will determine the terms of an RSU including, without limitation: (a) the number of Shares subject to the RSU; (b) the time or times during which the RSU may be settled; and (c) the consideration to be distributed on settlement, and the effect of the Participant’s termination of Service on each RSU.  An RSU may be awarded upon satisfaction of such performance goals based on Performance Factors during any Performance Period as are set out in advance in the Participant’s Award Agreement.  If the RSU is being earned upon satisfaction of Performance Factors, then the Committee will: (x) determine the nature, length and starting date of any Performance Period for the RSU; (y) select from among the Performance Factors to be used to measure the performance, if any; and (z) determine the number of Shares deemed subject to the RSU.  Performance Periods may overlap and participants may participate simultaneously with respect to RSUs that are subject to different Performance Periods and different performance goals and other criteria.

 

9.3          Form and Timing of Settlement .  Payment of earned RSUs shall be made as soon as practicable after the date(s) determined by the Committee and set forth in the Award Agreement. The Committee, in its sole discretion, may settle earned RSUs in cash, Shares, or a combination of both.  The Committee may also permit a Participant to defer payment under a RSU to a date or dates after the RSU is earned provided that the terms of the RSU and any deferral satisfy the requirements of Section 409A of the Code.

 

9.4          Termination of Service .  Except as may be set forth in the Participant’s Award Agreement, vesting ceases on such date Participant’s Service terminates (unless determined otherwise by the Committee).

 

10.         PERFORMANCE AWARDS .

 

10.1        Performance Awards .  A Performance Award is an award to an eligible Employee, Consultant, or Director of the Company or any Parent or Subsidiary of the Company of a cash bonus or an award of Performance Shares denominated in Shares that may be settled in cash, or by issuance of those Shares (which may consist of Restricted Stock).  Grants of Performance Awards shall be made pursuant to an Award Agreement.

 

10.2        Terms of Performance Shares .  The Committee will determine, and each Award Agreement shall set forth, the terms of each Performance Award including, without limitation: (a) the amount of any cash bonus, (b) the number of Shares deemed subject to an award of Performance Shares;

 

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(c) the Performance Factors and Performance Period that shall determine the time and extent to which each award of Performance Shares shall be settled; (d) the consideration to be distributed on settlement, and (e) the effect of the Participant’s termination of Service on each Performance Award.  In establishing Performance Factors and the Performance Period the Committee will: (x) determine the nature, length and starting date of any Performance Period; (y) select from among the Performance Factors to be used; and (z) determine the number of Shares deemed subject to the award of Performance Shares.  Prior to settlement the Committee shall determine the extent to which Performance Awards have been earned.  Performance Periods may overlap and Participants may participate simultaneously with respect to Performance Awards that are subject to different Performance Periods and different performance goals and other criteria.  No Participant will be eligible to receive more than $10,000,000 in Performance Awards in any calendar year under this Plan.

 

10.3        Value, Earning and Timing of Performance Shares .  Each Performance Share will have an initial value equal to the Fair Market Value of a Share on the date of grant.  After the applicable Performance Period has ended, the holder of Performance Shares will be entitled to receive a payout of the number of Performance Shares earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding Performance Factors or other vesting provisions have been achieved. The Committee, in its sole discretion, may pay earned Performance Shares in the form of cash, in Shares (which have an aggregate Fair Market Value equal to the value of the earned Performance Shares at the close of the applicable Performance Period) or in a combination thereof.

 

10.4        Termination of Service .  Except as may be set forth in the Participant’s Award Agreement, vesting ceases on the date Participant’s Service terminates (unless determined otherwise by the Committee).

 

11.         PAYMENT FOR SHARE PURCHASES .

 

Payment from a Participant for Shares purchased pursuant to this Plan may be made in cash or by check or, where expressly approved for the Participant by the Committee and where permitted by law (and to the extent not otherwise set forth in the applicable Award Agreement):

 

(a)           by cancellation of indebtedness of the Company to the Participant;

 

(b)           by surrender of shares of the Company held by the Participant that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Award will be exercised or settled;

 

(c)           by waiver of compensation due or accrued to the Participant for Services rendered or to be rendered to the Company or a Parent or Subsidiary of the Company;

 

(d)           by consideration received by the Company pursuant to a broker-assisted or other form of cashless exercise program implemented by the Company in connection with the Plan;

 

(e)           by any combination of the foregoing; or

 

(f)            by any other method of payment as is permitted by applicable law.

 

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12.         GRANTS TO NON-EMPLOYEE DIRECTORS .

 

12.1        Types of Awards .  Non-Employee Directors are eligible to receive any type of Award offered under this Plan except ISOs.  Awards pursuant to this Section 12 may be automatically made pursuant to policy adopted by the Board, or made from time to time as determined in the discretion of the Board.

 

12.2        Eligibility .  Awards pursuant to this Section 12 shall be granted only to Non-Employee Directors.  A Non-Employee Director who is elected or re-elected as a member of the Board will be eligible to receive an Award under this Section 12.

 

12.3        Vesting, Exercisability and Settlement .  Except as set forth in Section 21, Awards shall vest, become exercisable and be settled as determined by the Board.  With respect to Options and SARs, the exercise price granted to Non-Employee Directors shall not be less than the Fair Market Value of the Shares at the time that such Option or SAR is granted.

 

13.         WITHHOLDING TAXES .

 

13.1        Withholding Generally .  Whenever Shares are to be issued in satisfaction of Awards granted under this Plan, the Company may require the Participant to remit to the Company an amount sufficient to satisfy applicable federal, state, local and international withholding tax requirements prior to the delivery of Shares pursuant to exercise or settlement of any Award.  Whenever payments in satisfaction of Awards granted under this Plan are to be made in cash, such payment will be net of an amount sufficient to satisfy applicable federal, state, local and international withholding tax requirements.

 

13.2        Stock Withholding .  The Committee, in its sole discretion and pursuant to such procedures as it may specify from time to time, may require or permit a Participant to satisfy such tax withholding obligation, in whole or in part by (without limitation) (i) paying cash, (ii) electing to have the Company withhold otherwise deliverable cash or Shares having a Fair Market Value equal to the minimum statutory amount required to be withheld, or (iii) delivering to the Company already-owned Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld or delivered will be determined as of the date that the taxes are required to be withheld.

 

14.         TRANSFERABILITY .

 

14.1        Transfer Generally .  Unless determined otherwise by the Committee, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution.  If the Committee makes an Award transferable, such Award will contain such additional terms and conditions as the Committee deems appropriate.  All Awards shall be exercisable: (i) during the Participant’s lifetime only by (A) the Participant, or (B) the Participant’s guardian or legal representative; and (ii) after the Participant’s death, by the legal representative of the Participant’s heirs or legatees.

 

14.2        Award Transfer Program .  Notwithstanding any contrary provision of the Plan, the Committee shall have all discretion and authority to determine and implement the terms and conditions of any Award Transfer Program instituted pursuant to this Section 14.2 and shall have the authority to amend the terms of any Award participating, or otherwise eligible to participate in, the Award Transfer Program, including (but not limited to) the authority to (i) amend (including to extend) the expiration date, post-termination exercise period and/or forfeiture conditions of any such Award, (ii) amend or remove any provisions of the Award relating to the Award holder’s continued Service to the

 

11


 

Company or its Parent or Subsidiary, (iii) amend the permissible payment methods with respect to the exercise or purchase of any such Award, (iv) amend the adjustments to be implemented in the event of changes in the capitalization and other similar events with respect to such Award, and (v) make such other changes to the terms of such Award as the Committee deems necessary or appropriate in its sole discretion.

 

15.          PRIVILEGES OF STOCK OWNERSHIP; RESTRICTIONS ON SHARES .

 

15.1        Voting and Dividends .  No Participant will have any of the rights of a stockholder with respect to any Shares until the Shares are issued to the Participant.  After Shares are issued to the Participant, the Participant will be a stockholder and have all the rights of a stockholder with respect to such Shares, including the right to vote and receive all dividends or other distributions made or paid with respect to such Shares; provided , that if such Shares are Restricted Stock, then any new, additional or different securities the Participant may become entitled to receive with respect to such Shares by virtue of a stock dividend, stock split or any other change in the corporate or capital structure of the Company will be subject to the same restrictions as the Restricted Stock; provided , further , that the Participant will have no right to retain such stock dividends or stock distributions with respect to Shares that are repurchased at the Participant’s Purchase Price or Exercise Price, as the case may be, pursuant to Section 15.2.

 

15.2        Restrictions on Shares .  At the discretion of the Committee, the Company may reserve to itself and/or its assignee(s) a right to repurchase (a “ Right of Repurchase ”) a portion of any or all Unvested Shares held by a Participant following such Participant’s termination of Service at any time within ninety (90) days (or such longer or shorter time determined by the Committee) after the later of the date Participant’s Service terminates and the date the Participant purchases Shares under this Plan, for cash and/or cancellation of purchase money indebtedness, at the Participant’s Purchase Price or Exercise Price, as the case may be.

 

16.          CERTIFICATES .  All certificates for Shares or other securities delivered under this Plan will be subject to such stock transfer orders, legends and other restrictions as the Committee may deem necessary or advisable, including restrictions under any applicable federal, state or foreign securities law, or any rules, regulations and other requirements of the SEC or any stock exchange or automated quotation system upon which the Shares may be listed or quoted.

 

17.          ESCROW; PLEDGE OF SHARES .  To enforce any restrictions on a Participant’s Shares, the Committee may require the Participant to deposit all certificates representing Shares, together with stock powers or other instruments of transfer approved by the Committee, appropriately endorsed in blank, with the Company or an agent designated by the Company to hold in escrow until such restrictions have lapsed or terminated, and the Committee may cause a legend or legends referencing such restrictions to be placed on the certificates.  Any Participant who is permitted to execute a promissory note as partial or full consideration for the purchase of Shares under this Plan will be required to pledge and deposit with the Company all or part of the Shares so purchased as collateral to secure the payment of the Participant’s obligation to the Company under the promissory note; provided , however , that the Committee may require or accept other or additional forms of collateral to secure the payment of such obligation and, in any event, the Company will have full recourse against the Participant under the promissory note notwithstanding any pledge of the Participant’s Shares or other collateral.  In connection with any pledge of the Shares, the Participant will be required to execute and deliver a written pledge agreement in such form as the Committee will from time to time approve.  The Shares purchased with the promissory note may be released from the pledge on a pro rata basis as the promissory note is paid.

 

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18.          REPRICING; EXCHANGE AND BUYOUT OF AWARDS .  Without prior stockholder approval the Committee may (i) reprice Options or SARS (and where such repricing is a reduction in the Exercise Price of outstanding Options or SARS, the consent of the affected Participants is not required provided written notice is provided to them), and (ii) with the consent of the respective Participants (unless not required pursuant to Section 5.9 of the Plan), pay cash or issue new Awards in exchange for the surrender and cancellation of any, or all, outstanding Awards.

 

19.          SECURITIES LAW AND OTHER REGULATORY COMPLIANCE .  An Award will not be effective unless such Award is in compliance with all applicable federal and state securities laws, rules and regulations of any governmental body, and the requirements of any stock exchange or automated quotation system upon which the Shares may then be listed or quoted, as they are in effect on the date of grant of the Award and also on the date of exercise or other issuance.  Notwithstanding any other provision in this Plan, the Company will have no obligation to issue or deliver certificates for Shares under this Plan prior to: (a) obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and/or (b) completion of any registration or other qualification of such Shares under any state or federal law or ruling of any governmental body that the Company determines to be necessary or advisable.  The Company will be under no obligation to register the Shares with the SEC or to effect compliance with the registration, qualification or listing requirements of any state securities laws, stock exchange or automated quotation system, and the Company will have no liability for any inability or failure to do so.

 

20.          NO OBLIGATION TO EMPLOY .  Nothing in this Plan or any Award granted under this Plan will confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Parent or Subsidiary of the Company or limit in any way the right of the Company or any Parent or Subsidiary of the Company to terminate Participant’s employment or other relationship at any time.

 

21.          CORPORATE TRANSACTIONS .

 

21.1        Assumption or Replacement of Awards by Successor .  In the event of a Corporate Transaction any or all outstanding Awards may be assumed or replaced by the successor corporation, which assumption or replacement shall be binding on all Participants.  In the alternative, the successor corporation may substitute equivalent Awards or provide substantially similar consideration to Participants as was provided to stockholders (after taking into account the existing provisions of the Awards).  The successor corporation may also issue, in place of outstanding Shares of the Company held by the Participant, substantially similar shares or other property subject to repurchase restrictions no less favorable to the Participant.  The Board shall have full power and authority to structure one or more outstanding Awards under the Plan so that those Awards shall vest and become exercisable on an accelerated basis for all or a portion of the shares of Common Stock at the time subject to those Awards, should the Participant’s Service subsequently terminate by reason of an Involuntary Termination in connection with, or within a designated period of the effective date of, a Corporate Transaction.  In the event such successor or acquiring corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a Corporate Transaction, then notwithstanding any other provision in this Plan to the contrary, each Award that has not already terminated in accordance with the Plan or the applicable Award Agreement shall have the vesting thereunder automatically accelerate immediately prior to the effective date of the Corporate Transaction as to the portion of the shares that would have vested under such Award as if an Involuntary Termination had occurred on the day following the effective date of the Corporate Transaction, and each of those particular Awards will also become exercisable for all of the shares of Common Stock subject to the accelerated portion of such Award and may be exercised for any or all of those accelerated shares as fully vested shares of Common Stock prior to the consummation of the Corporate Transaction.  In addition, in the event such successor or acquiring

 

13



 

corporation (if any) refuses to assume, convert, replace or substitute Awards, as provided above, pursuant to a Corporate Transaction, the Committee will notify the Participant in writing or electronically that such Award will be exercisable for a period of time determined by the Committee in its sole discretion, and such Award will terminate upon the expiration of such period.  Awards need not be treated similarly in a Corporate Transaction.

 

21.2        Assumption of Awards by the Company .  The Company, from time to time, also may substitute or assume outstanding awards granted by another company, whether in connection with an acquisition of such other company or otherwise, by either; (a) granting an Award under this Plan in substitution of such other company’s award; or (b) assuming such award as if it had been granted under this Plan if the terms of such assumed award could be applied to an Award granted under this Plan.  Such substitution or assumption will be permissible if the holder of the substituted or assumed award would have been eligible to be granted an Award under this Plan if the other company had applied the rules of this Plan to such grant.  In the event the Company assumes an award granted by another company, the terms and conditions of such award will remain unchanged ( except that the Purchase Price or the Exercise Price, as the case may be, and the number and nature of Shares issuable upon exercise or settlement of any such Award will be adjusted appropriately pursuant to Section 424(a) of the Code).  In the event the Company elects to grant a new Option in substitution rather than assuming an existing option, such new Option may be granted with a similarly adjusted Exercise Price. Substitute Awards shall not reduce the number of Shares authorized for grant under the Plan or authorized for grant to a Participant in any calendar year.

 

21.3        Non-Employee Directors’ Awards .  Notwithstanding any provision to the contrary herein, in the event of a Corporate Transaction, the vesting of all Awards granted to Non-Employee Directors shall accelerate and such Awards shall become exercisable (as applicable) in full prior to the consummation of such event at such times and on such conditions as the Committee determines.

 

22.          ADOPTION AND STOCKHOLDER APPROVAL .  This Plan shall be submitted for the approval of the Company’s stockholders, consistent with applicable laws, within twelve (12) months before or after the date this Plan is adopted by the Board.

 

23.          TERM OF PLAN/GOVERNING LAW .  Unless earlier terminated as provided herein, this Plan will become effective on the Effective Date and will terminate ten (10) years from the later of (a) the Effective Date or (b) the date the Board adopted the most recent increase in the number of shares of Common Stock available under Section 2 which was approved by the Company’s stockholders. This Plan and all Awards granted hereunder shall be governed by and construed in accordance with the laws of the State of Delaware.

 

24.          AMENDMENT OR TERMINATION OF PLAN .  The Board may at any time terminate or amend this Plan in any respect, including, without limitation, amendment of any form of Award Agreement or instrument to be executed pursuant to this Plan; provided , however , that the Board will not, without the approval of the stockholders of the Company, amend this Plan in any manner that requires such stockholder approval; provided further , that a Participant’s Award shall be governed by the version of this Plan then in effect at the time such Award was granted.

 

25.          NONEXCLUSIVITY OF THE PLAN .   Neither the adoption of this Plan by the Board, the submission of this Plan to the stockholders of the Company for approval, nor any provision of this Plan will be construed as creating any limitations on the power of the Board to adopt such additional compensation arrangements as it may deem desirable, including, without limitation, the granting of stock

 

14



 

awards and bonuses otherwise than under this Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

 

26.          INSIDER TRADING POLICY .  Each Participant who receives an Award shall comply with any policy adopted by the Company from time to time covering transactions in the Company’s securities by Employees, officers and/or directors of the Company.

 

27.          DEFINITIONS As used in this Plan, and except as elsewhere defined herein, the following terms will have the following meanings:

 

Award ” means any award under the Plan, including any Option, Restricted Stock, Stock Bonus, Stock Appreciation Right, Restricted Stock Unit or award of Performance Shares.

 

Award Agreement ” means, with respect to each Award, the written or electronic agreement between the Company and the Participant setting forth the terms and conditions of the Award, which shall be in substantially a form (which need not be the same for each Participant) that the Committee has from time to time approved, and will comply with and be subject to the terms and conditions of this Plan.

 

Award Transfer Program ” means any program instituted by the Committee which would permit Participants the opportunity to transfer any outstanding Awards to a financial institution or other person or entity approved by the Committee.

 

Board ” means the Board of Directors of the Company.

 

Cause ” means, except as otherwise provided in a Participant’s employment agreement or award Agreement, the Participant’s termination of Service because of (a) any willful, material violation by the Participant of any law or regulation applicable to the business of the Company or a Parent or Subsidiary of the Company, the Participant’s conviction for, or guilty plea to, a felony or a crime involving moral turpitude, or any willful perpetration by the Participant of a common law fraud, (b) the Participant’s commission of an act of personal dishonesty which involves personal profit in connection with the Company or any other entity having a business relationship with the Company, (c) any material breach by the Participant of any provision of any agreement or understanding between the Company or any Parent or Subsidiary of the Company and the Participant regarding the terms of the Participant’s Service as an employee, officer, director or consultant to the Company or a Parent or Subsidiary of the Company, including without limitation, the willful and continued failure or refusal of the Participant to perform the material duties required of such Participant as an employee, officer, director or consultant of the Company or a Parent or Subsidiary of the Company, other than as a result of having a Disability, or a breach of any applicable invention assignment and confidentiality agreement or similar agreement between the Company or a Parent or Subsidiary of the Company and the Participant, (d) Participant’s disregard of the policies of the Company or any Parent or Subsidiary of the Company so as to cause loss, damage or injury to the property, reputation or employees of the Company or a Parent or Subsidiary of the Company, (e) any other misconduct by the Participant which is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company or a Parent or Subsidiary of the Company; or (f) Participant’s failure to cooperate in good faith with a governmental or internal investigation of the Company or its directors, officers or employees, if the Company has requested his/her cooperation.

 

Code ” means the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.

 

Common Stock ” means the common stock of the Company.

 

15



 

Committee ” means the Compensation Committee of the Board or those persons to whom administration of the Plan, or part of the Plan, has been delegated as permitted by law.

 

Company ” means Proofpoint, Inc. or any successor corporation.

 

Consultant ” means any person, including an advisor or independent contractor, engaged by the Company or a Parent or Subsidiary to render Services to such entity.

 

Corporate Transaction ” means the occurrence of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then-outstanding voting securities; (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation; or (iv) any other transaction which qualifies as a “corporate transaction” under Section 424(a) of the Code wherein the stockholders of the Company give up all of their equity interest in the Company (except for the acquisition, sale or transfer of all or substantially all of the outstanding shares of the Company).

 

Director ” means a member of the Board.

 

Disability ” means total and permanent disability as defined in Section 22(e)(3) of the Code, provided, however, that except with respect to Awards granted as ISOs, the Committee in its discretion may determine whether a total and permanent disability exists in accordance with non-discriminatory and uniform standards adopted by the Committee from time to time, whether temporary or permanent, partial or total, as determined by the Committee.

 

Effective Date ” means the day immediately prior to the date of the underwritten initial public offering of the Company’s Common Stock pursuant to a registration statement that is declared effective by the SEC.

 

Employee ” means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither Service as a Director nor payment of a director’s fee by the Company will be sufficient to constitute “employment” by the Company.

 

Exchange Act ” means the United States Securities Exchange Act of 1934, as amended.

 

Exchange Program ” means a program pursuant to which outstanding Awards are surrendered, cancelled or exchanged for cash, the same type of Award or a different Award (or combination thereof).

 

Exercise Price ” means, with respect to an Option, the price at which a holder may purchase the Shares issuable upon exercise of an Option and with respect to a SAR, the price at which the SAR is granted to the holder thereof.

 

Fair Market Value ” means, as of any date, the value of a share of the Company’s Common Stock determined as follows:

 

16



 

(a)           if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable;

 

(b)           if such Common Stock is publicly traded but is neither listed nor admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable;

 

(c)           in the case of an Option or SAR grant made on the Effective Date, the price per share at which shares of the Company’s Common Stock are initially offered for sale to the public by the Company’s underwriters in the initial public offering of the Company’s Common Stock pursuant to a registration statement filed with the SEC under the Securities Act; or

 

(d)           if none of the foregoing is applicable, by the Board or the Committee in good faith.

 

Insider ” means an officer or director of the Company or any other person whose transactions in the Company’s Common Stock are subject to Section 16 of the Exchange Act.

 

Involuntary Termination ” means the termination of the Service of any Participant which occurs by reason of: (a) such Participant’s involuntary dismissal or discharge by the Company for reasons other than Cause, or (b) such Participant’s voluntary resignation following (i) a change in Participant’s position with the Company which materially reduces the Participant’s duties and responsibilities or the level of management to which Participant reports, (ii) a reduction in Participant’s level of compensation (including base salary, fringe benefits and target bonus under any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (ii) a relocation of such Participant’s place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected without the Participant’s consent.

 

Non-Employee Director ” means a Director who is not an Employee of the Company or any Parent or Subsidiary.

 

Option ” means an award of an option to purchase Shares pursuant to Section 5.

 

Parent ” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if each of such corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

Participant ” means a person who holds an Award under this Plan.

 

Performance Award ” means cash or “ Performance Shares ” granted pursuant to Section 10 or Section 12 of the Plan.

 

Performance Factors ” means any of the factors selected by the Committee and specified in an Award Agreement, from among the following objective measures (whether or not in comparison to other peer companies), either individually, alternatively or in any combination, applied to the Company as a whole or any business unit or Subsidiary, either individually, alternatively, or in any combination, on a GAAP or non-GAAP basis, and measured, to the extent applicable on an absolute basis or relative to a

 

17



 

pre-established target, to determine whether the performance goals established by the Committee with respect to applicable Awards have been satisfied:

 

(a)           Profit Before Tax;

 

(b)           Billings;

 

(c)           Revenue;

 

(d)           Net revenue and/or net revenue growth;

 

(e)           Earnings (which may include earnings before interest and taxes, earnings before taxes, and net earnings);

 

(f)            Operating income and/or operating income growth;

 

(g)           Operating cash flow return on income;

 

(h)           Adjusted operating cash flow return on income;

 

(i)            Operating margin;

 

(j)            Operating profit;

 

(k)           Controllable operating profit, or net operating profit;

 

(l)            Net Profit;

 

(m)          Gross margin;

 

(n)           Operating expenses or operating expenses as a percentage of revenue;

 

(o)           Net income and/or net income growth;

 

(p)           Earnings per share and/or earnings per share growth;

 

(q)           Total stockholder return and/or total stockholder return growth;

 

(r)            Market share;

 

(s)            Return on assets or net assets;

 

(t)            The Company’s stock price;

 

(u)           Growth in stockholder value relative to a pre-determined index;

 

(v)           Return on equity;

 

(w)          Return on invested capital;

 

(x)           Cash Flow (including free cash flow or operating cash flows)

 

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(y)           Cash conversion cycle;

 

(z)           Economic value added;

 

(aa)         Individual confidential business objectives;

 

(bb)         Contract awards or backlog;

 

(cc)         Overhead or other expense reduction;

 

(dd)         Credit rating;

 

(ee)         Strategic plan development and implementation;

 

(ff)          Succession plan development and implementation;

 

(gg)         Improvement in workforce diversity;

 

(hh)         Customer indicators;

 

(ii)           New product invention or innovation;

 

(jj)           Attainment of research and development milestones;

 

(kk)         Improvements in productivity;

 

(ll)           Bookings;

 

(mm)      Attainment of objective operating goals and employee metrics;

 

(nn)         Debt or debt-to-equity;

 

(oo)         Liquidity;

 

(pp)         Intellectual property (e.g., patents)/product development;

 

(qq)         Profit margin;

 

(rr)           Control of expenses;

 

(ss)          Cost of goods sold; and

 

(tt)           Any other factor the Committee so designates.

 

The Committee may, in recognition of unusual or non-recurring items such as acquisition-related activities or changes in applicable accounting rules, provide for one or more equitable adjustments (based on objective standards) to the Performance Factors to preserve the Committee’s original intent regarding the Performance Factors at the time of the initial award grant. It is within the sole discretion of the Committee to make or not make any such equitable adjustments.

 

Performance Period ” means the period of Service determined by the Committee, not to exceed five (5) years, during which years of Service or performance is to be measured for the Award.

 

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Plan ” means this Proofpoint, Inc. 2012 Equity Incentive Plan.

 

Purchase Price ” means the price to be paid for Shares acquired under the Plan, other than Shares acquired upon exercise of an Option or SAR.

 

Restricted Stock Award ” means an award of Shares pursuant to Section 6 or Section 12 of the Plan, or issued pursuant to the early exercise of an Option.

 

Restricted Stock Unit ” means an Award granted pursuant to Section 9 or Section 12 of the Plan.

 

SEC ” means the United States Securities and Exchange Commission.

 

Securities Act ” means the United States Securities Act of 1933, as amended.

 

Service” shall mean Service as an Employee, Consultant, Director or Non-Employee Director, to the Company or a Parent or Subsidiary of the Company, subject to such further limitations as may be set forth in the Plan or the applicable Award Agreement.  An Employee will not be deemed to have ceased to provide Service in the case of (i) sick leave, (ii) military leave, or (iii) any other leave of absence approved by the Committee; provided , that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute or unless provided otherwise pursuant to formal policy adopted from time to time by the Company and issued and promulgated to employees in writing.  In the case of any Employee on an approved leave of absence, the Committee may make such provisions respecting suspension of vesting of the Award while on leave from the employ of the Company or a Parent or Subsidiary of the Company as it may deem appropriate, except that in no event may an Award be exercised after the expiration of the term set forth in the applicable Award Agreement.  The Committee will have sole discretion to determine whether a Participant has ceased to provide Services and the effective date on which the Participant ceased to provide Services.

 

Shares ” means shares of the Company’s Common Stock and any successor security.

 

Stock Appreciation Right ” means an Award granted pursuant to Section 8 or Section 12 of the Plan.

 

Stock Bonus ” means an Award granted pursuant to Section 7 or Section 12 of the Plan.

 

Subsidiary ” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

Unvested Shares ” means Shares that have not yet vested or are subject to a right of repurchase in favor of the Company (or any successor thereto).

 

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PROOFPOINT, INC.

2012 EQUITY INCENTIVE PLAN
NOTICE OF RESTRICTED STOCK AWARD

GRANT NUMBER:

 

Unless otherwise defined herein, the terms defined in the Proofpoint, Inc. 2012 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Restricted Stock Award (the “ Notice ”).

 

Name:

 

Address:

 

You (“ you ”) have been granted the opportunity to purchase Shares of Common Stock of Proofpoint, Inc. (the “ Company ”) that are subject to restrictions (the “ Restricted Shares ”) and the terms and conditions of the Plan, this Notice and the attached Restricted Stock Agreement (the “ Restricted Stock Agreement ”).

 

Total Number of Restricted Shares Awarded :

 

 

 

 

 

Fair Market Value per Restricted Share :

 

$

 

 

 

Total Fair Market Value of Award :

 

$

 

 

 

Purchase Price per Restricted Share :

 

$

 

 

 

Total Purchase Price for all Restricted Shares :

 

$

 

 

 

Date of Grant :

 

 

 

 

 

Vesting Commencement Date :

 

 

 

 

 

Vesting Schedule :

 

Subject to the limitations set forth in this Notice, the Plan and the Restricted Stock Agreement, the Restricted Shares will vest and the right of repurchase shall lapse, in whole or in part, in accordance with the following schedule: [INSERT VESTING SCHEDULE]

 

You understand that your employment or consulting relationship with the Company is for an unspecified duration, can be terminated at any time (i.e., is “at-will”), and that nothing in this Notice, the Restricted Stock Agreement or the Plan changes the at-will nature of that relationship.  You acknowledge that the vesting of the Restricted Shares pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant of the Company.  If the Restricted Stock Agreement is not executed by you within thirty (30) days of the Date of Grant above, then this grant shall be void.

 

PROOFPOINT, INC.

 

RECIPIENT:

 

 

 

 

 

 

 

By:

 

 

Signature

 

 

 

 

 

Its:

 

 

Please Print Name

 

 



 

PROOFPOINT, INC.
2012 EQUITY INCENTIVE PLAN

RESTRICTED STOCK AGREEMENT

 

THIS RESTRICTED STOCK AGREEMENT (this “ Agreement ”) is made as of                                     , 20     by and between Proofpoint, Inc., a Delaware corporation (the “ Company ”), and                                                                        (“ Participant ”) pursuant to the Company’s 2012 Equity Incentive Plan (the “ Plan ”).  Unless otherwise defined herein, the terms defined in the Plan shall have the same meanings in this Agreement.

 

1.                                       Sale of Stock .  Subject to the terms and conditions of this Agreement, on the Purchase Date (as defined below) the Company will issue and sell to Participant, and Participant agrees to purchase from the Company the number of Shares shown on the Notice of Restricted Stock Award (the “ Notice ”) at a purchase price of $                 per Share. The per Share purchase price of the Shares shall be not less than the par value of the Shares as of the date of the offer of such Shares to the Participant. The term “Shares” refers to the purchased Shares and all securities received in replacement of or in connection with the Shares pursuant to stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Participant is entitled by reason of Participant’s ownership of the Shares.

 

2.                                       Time and Place of Purchase .  The purchase and sale of the Shares under this Agreement shall occur at the principal office of the Company simultaneously with the execution of this Agreement by the parties, or on such other date as the Company and Participant shall agree (the “ Purchase Date ”). On the Purchase Date, the Company will issue a stock certificate registered in Participant’s name, or uncertificated shares designated for the Participant in book entry form on the records of the Company’s transfer agent, representing the Shares to be purchased by Participant against payment of the purchase price therefor by Participant by (a) check made payable to the Company, (b) cancellation of indebtedness of the Company to Participant, (c) Participant’s personal Services that the Committee has determined have already been rendered to the Company and have a value not less than aggregate par value of the Shares to be issued Participant, or (d) a combination of the foregoing.

 

3.                                       Restrictions on Resale .  By signing this Agreement, Participant agrees not to sell any Shares acquired pursuant to the Plan and this Agreement at a time when applicable laws, regulations or Company or underwriter trading policies prohibit exercise or sale. This restriction will apply as long as Participant is providing Service to the Company or a Subsidiary of the Company.

 

3.1                                Repurchase Right on Termination Other Than for Cause .  For the purposes of this Agreement, a “ Repurchase Event ” shall mean an occurrence of one of the following:

 

(i)                                     termination of Participant’s Service, whether voluntary or involuntary and with or without cause;

 

(ii)                                 resignation, retirement or death of Participant; or

 

(iii)                             any attempted transfer by Participant of the Shares, or any interest therein, in violation of this Agreement.

 

Upon the occurrence of a Repurchase Event, the Company shall have the right (but not an obligation) to purchase the Shares of Participant at a price equal to the Purchase Price per Share (the “ Repurchase Right ”).  The Repurchase Right shall lapse in accordance with the vesting schedule set forth in the Notice

 

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of Restricted Stock Award.  For purposes of this Agreement, “ Unvested Shares ” means Stock pursuant to which the Company’s Repurchase Right has not lapsed.

 

3.2                                Exercise of Repurchase Right .  Unless the Company provides written notice to Participant within 90 days from the date of termination of Participant’s Service to the Company that the Company does not intend to exercise its Repurchase Right with respect to some or all of the Unvested Shares, the Repurchase Right shall be deemed automatically exercised by the Company as of the 90th day following such termination, provided that the Company may notify Participant that it is exercising its Repurchase Right as of a date prior to such 90th day.  Unless Participant is otherwise notified by the Company pursuant to the preceding sentence that the Company does not intend to exercise its Repurchase Right as to some or all of the Unvested Shares, execution of this Agreement by Participant constitutes written notice to Participant of the Company’s intention to exercise its Repurchase Right with respect to all Unvested Shares to which such Repurchase Right applies at the time of Participant’s termination of Service.  The Company, at its choice, may satisfy its payment obligation to Participant with respect to exercise of the Repurchase Right by either (A) delivering a check to Participant in the amount of the purchase price for the Unvested Shares being repurchased, or (B) in the event Participant is indebted to the Company, canceling an amount of such indebtedness equal to the purchase price for the Unvested Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined payment and cancellation of indebtedness equals such purchase price.  In the event of any deemed automatic exercise of the Repurchase Right by canceling an amount of such indebtedness equal to the purchase price for the Unvested Shares being repurchased, such cancellation of indebtedness shall be deemed automatically to occur as of the 90th day following termination of Participant’s Service unless the Company otherwise satisfies its payment obligations.  As a result of any repurchase of Unvested Shares pursuant to the Repurchase Right, the Company shall become the legal and beneficial owner of the Unvested Shares being repurchased and shall have all rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of Unvested Shares being repurchased by the Company, without further action by Participant.

 

3.3                                Acceptance of Restrictions .  Acceptance of the Shares shall constitute Participant’s agreement to such restrictions and the legending of his or her certificates or the notation in the Company’s direct registration system for stock issuance and transfer of such restrictions and accompanying legends set forth in Section 4.1 with respect thereto.  Notwithstanding such restrictions, however, so long as Participant is the holder of the Shares, or any portion thereof, he or she shall be entitled to receive all dividends declared on and to vote the Shares and to all other rights of a stockholder with respect thereto.

 

3.4                                Non-Transferability of Unvested Shares .  In addition to any other limitation on transfer created by applicable securities laws or any other agreement between the Company and Participant, Participant may not transfer any Unvested Shares, or any interest therein, unless consented to in writing by a duly authorized representative of the Company.  Any purported transfer is void and of no effect, and no purported transferee thereof will be recognized as a holder of the Unvested Shares for any purpose whatsoever.  Should such a transfer purport to occur, the Company may refuse to carry out the transfer on its books, set aside the transfer, or exercise any other legal or equitable remedy.  In the event the Company consents to a transfer of Unvested Shares, all transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement, including, insofar as applicable, the Repurchase Right.  In the event of any purchase by the Company hereunder where the Shares or interest are held by a transferee, the transferee shall be obligated, if requested by the Company, to transfer the Shares or interest to the Participant for consideration equal to the amount to be paid by the Company hereunder.  In the event the Repurchase Right is deemed exercised by the Company, the Company may deem any transferee to have transferred the Shares or interest to Participant prior to their purchase by the Company, and payment of the purchase price by the Company to such

 

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transferee shall be deemed to satisfy Participant’s obligation to pay such transferee for such Shares or interest, and also to satisfy the Company’s obligation to pay Participant for such Shares or interest.

 

3.5                                Assignment .  The Repurchase Right may be assigned by the Company in whole or in part to any persons or organization.

 

4.                                       Restrictive Legends and Stop Transfer Orders .

 

4.1                                Legends .  The certificate or certificates or book entry or book entries representing the Shares shall bear or be noted by the Company’s transfer agent with the following legend (as well as any legends required by applicable state and federal corporate and securities laws):

 

THE SHARES REPRESENTED HEREBY MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.

 

4.2                                Stop-Transfer Notices .  Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.

 

4.3                                Refusal to Transfer .  The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as the owner or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

 

5.                                       No Rights as Employee, Director or Consultant .  Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Participant’s Service, for any reason, with or without cause.

 

6.                                       Miscellaneous .

 

6.1                                Acknowledgement .  The Company and Participant agree that the Restricted Shares are granted under and governed by the Notice, this Agreement and by the provisions of the Plan (incorporated herein by reference).  Participant: (i) acknowledges receipt of a copy of the Plan and the Plan prospectus, (ii) represents that Participant has carefully read and is familiar with their provisions, and (iii) hereby accepts the Restricted Shares subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.

 

6.2                                Entire Agreement; Enforcement of Rights .  This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

 

6.3                                Compliance with Laws and Regulations .  The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant with all applicable state and federal

 

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laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

 

6.4                                Governing Law; Severability .  If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms.  This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

 

6.5                                Construction .  This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto.

 

6.6                                Notices .  Any notice to be given under the terms of the Plan shall be addressed to the Company in care of its principal office, and any notice to be given to the Participant shall be addressed to such Participant at the address maintained by the Company for such person or at such other address as the Participant may specify in writing to the Company.

 

6.7                                Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall he deemed an original and all of which together shall constitute one instrument.

 

6.8                                U.S. Tax Consequences .  Upon vesting of Shares, Participant will include in taxable income the difference between the fair market value of the vesting Shares, as determined on the date of their vesting, and the price paid for the Shares.  This will be treated as ordinary income by Participant and will be subject to withholding by the Company when required by applicable law.  In the absence of an Election (defined below), the Company shall withhold a number of vesting Shares with a fair market value (determined on the date of their vesting) equal to the minimum amount the Company is required to withhold for income and employment taxes. If Participant makes an Election, then Participant must, prior to making the Election, pay in cash (or check) to the Company an amount equal to the amount the Company is required to withhold for income and employment taxes.

 

7.                                       Withholding Taxes .  Regardless of any action the Company or your employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or your Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the shares received under this award, including the award or vesting of such shares, the subsequent sale of shares under this award and the receipt of any dividends; and (2) do not commit to structure the terms of the award to reduce or eliminate your liability for Tax-Related Items.

 

No stock certificates will be released to you, unless you have paid or made adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or your Employer.  In this regard, you authorize the Company and/or your Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or

 

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other cash compensation paid to you by the Company and/or your Employer.  With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding shares that otherwise would be delivered to you when they vest having a Fair Market Value equal to the amount necessary to satisfy the minimum statutory withholding amount, or (b) any other arrangement approved by the Company.  The fair market value of these shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. Finally, you shall pay to the Company or your Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your acquisition of shares that cannot be satisfied by the means previously described.  The Company may refuse to deliver the shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section.

 

8.                                       Section 83(b) Election .  Participant hereby acknowledges that he or she has been informed that, with respect to the purchase of the Shares, an election may be filed by the Participant with the Internal Revenue Service, within 30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the Code to be taxed currently on any difference between the purchase price of the Shares and their Fair Market Value on the date of purchase (the “ Election ”).  Making the Election will result in recognition of taxable income to the Participant on the date of purchase, measured by the excess, if any, of the Fair Market Value of the Shares over the purchase price for the Shares.  Absent such an Election, taxable income will be measured and recognized by Participant at the time or times on which the Company’s Repurchase Right lapses.  Participant is strongly encouraged to seek the advice of his or her own tax consultants in connection with the purchase of the Shares and the advisability of filing of the Election.  PARTICIPANT ACKNOWLEDGES THAT IT IS SOLELY PARTICIPANT’S RESPONSIBILITY, AND NOT THE COMPANY’S RESPONSIBILITY, TO TIMELY FILE THE ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF PARTICIPANT REQUESTS THE COMPANY, OR ITS REPRESENTATIVE, TO MAKE THIS FILING ON PARTICIPANT’S BEHALF.

 

The parties have executed this Agreement as of the date first set forth above.

 

 

 

PROOFPOINT, INC.

 

 

 

 

 

By:

 

 

 

 

 

Its:

 

 

 

 

RECIPIENT:

 

 

 

 

Signature

 

 

 

 

Please Print Name

 

 

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RECEIPT

 

Proofpoint, Inc. hereby acknowledges receipt of (check as applicable):

 

o A check in the amount of $     

 

o The cancellation of indebtedness in the amount of $            

 

given by                                            as consideration for the book entry in the Participant’s name or Certificate No. -     for                          shares of Common Stock of Proofpoint, Inc.

 

Dated:

 

 

 

 

 

 

 

 

 

 

 

PROOFPOINT, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

Its:

 

 

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RECEIPT AND CONSENT

 

The undersigned Participant hereby acknowledges the book entry in the Participant’s name or receipt of a photocopy of Certificate No. -                 for                                  shares of Common Stock of Proofpoint, Inc. (the “ Company ”).

 

The undersigned further acknowledges that the Secretary of the Company, or his or her designee, is acting as escrow holder pursuant to the Restricted Stock Agreement that Participant has previously entered into with the Company. As escrow holder, the Secretary of the Company, or his or her designee, holds the original of the aforementioned certificate issued in the undersigned’s name.  To facilitate any transfer of Shares to the Company pursuant to the Restricted Stock Agreement, Participant has executed the attached Assignment Separate from Certificate.

 

Dated:                                           , 20

 

Signature

 

 

 

 

Please Print Name

 

 

 

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STOCK POWER AND ASSIGNMENT

SEPARATE FROM STOCK CERTIFICATE

 

FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Agreement dated as of                                     ,         , [ COMPLETE AT THE TIME OF PURCHASE ] (the “ Agreement ”), the undersigned Participant hereby sells, assigns and transfers unto                                                       ,                      shares of the Common Stock $0.0001, par value per share, of Proofpoint, Inc., a Delaware   corporation (the “ Company ”), standing in the undersigned’s name on the books of the Company represented hereby by book entry or by Certificate No(s).               [ COMPLETE AT THE TIME OF PURCHASE ] delivered herewith, and does hereby irrevocably constitute and appoint the Secretary of the Company as the undersigned’s attorney-in-fact, with full power of substitution, to transfer said stock on the books of the Company.  THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND ANY EXHIBITS THERETO.

 

 

Dated:                                   ,

 

 

PARTICIPANT

 

 

 

 

 

(Signature)

 

 

 

 

 

(Please Print Name)

 

 

Instructions to Participant :   Please do not fill in any blanks other than the signature line.  The purpose of this document is to enable the Company and/or its assignee(s) to acquire the shares upon exercise of its “Repurchase Right” set forth in the Agreement without requiring additional action by the Participant.

 

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PROOFPOINT, INC.
2012 EQUITY INCENTIVE PLAN
NOTICE OF STOCK OPTION GRANT

 

Unless otherwise defined herein, the terms defined in the Proofpoint, Inc. (the “ Company ”) 2012 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Stock Option Grant (the “ Notice ”) and the Stock Option Agreement (the “ Option Agreement ”).

 

Name:

 

 

 

Address:

 

 

You ( “ you ”) have been granted an Option to purchase shares of Common Stock of the Company under the Plan subject to the terms and conditions of the Plan, this Notice and the Option Agreement.

 

Grant Number :

 

 

 

Date of Grant :

 

 

 

Vesting Commencement Date :

 

 

Exercise price per Share :

 

 

 

Total Number of Shares :

 

 

 

Type of Option :

o       Non-Qualified Stock Option

 

 

 

o       Incentive Stock Option

 

 

Expiration Date :

                 , 20    ; This Option expires earlier if your Service terminates earlier, as described in the Stock Option Agreement.

 

 

Vesting Schedule :

This Option becomes exercisable with respect to the first     % of the shares subject to this Option when you complete        months of continuous Service from the Vesting Commencement Date. Thereafter, this Option becomes exercisable with respect to an additional     % of the shares subject to this Option when you complete each month of Service.

 

By accepting this Option, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan, the Notice and the Option Agreement.  By accepting this Option, you consent to electronic delivery as set forth in the Option Agreement.

 

 

OPTIONEE:

 

PROOFPOINT, INC.

 

 

 

Signature:

 

 

By:

 

 

 

 

 

 

Print Name:

 

 

Its:

 

 

 

 

 

 

Date:

 

 

Date:

 

 



 

PROOFPOINT, INC.

2012 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

 

You have been granted an Option by Proofpoint, Inc. (the “ Company ”) under the 2012 Equity Incentive Plan (the “ Plan ”) to purchase Shares (the “ Option ”), subject to the terms and conditions of the Plan, the Notice of Stock Option Grant (the “ Notice ”) and this Stock Option Agreement (the “ Agreement ”).

 

1.                                       Grant of Option .  You have been granted an Option for the number of Shares set forth in the Notice at the exercise price per Share set forth in the Notice (the “ exercise price ”).  In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail.  If designated in the Notice as an Incentive Stock Option (“ ISO ”), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code.  However, if this Option is intended to be an ISO, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonqualified Stock Option (“ NSO ”).

 

2.                                       Termination Period .

 

(a)                                  General Rule .  If your Service terminates for any reason except death or Disability, then this Option will expire at the close of business at Company headquarters on the date three months after your termination date.  The Company determines when your Service terminates for this purpose.

 

(b)                                  Death; Disability .  If you die before your Service terminates, then this Option will expire at the close of business at Company headquarters on the date 12 months after the date of death.  If your Service terminates because of your Disability, then this Option will expire at the close of business at Company headquarters on the date 12 months after your termination date.

 

(c)                                   Cause .  Upon termination of your Service for Cause, this Option shall expire on your termination date.  For purposes of this Agreement, “Cause” shall be defined in the Plan unless expressly provided otherwise in an employment agreement between you and the Company.

 

(d)                                  You are responsible for keeping track of these exercise periods following your termination of Service for any reason.  The Company will not provide further notice of such periods.  In no event shall this Option be exercised later than the Expiration Date set forth in the Notice.

 

3.                                       Exercise of Option .

 

(a)                                  Right to Exercise .  This Option is exercisable during its term in accordance with the Vesting Schedule set forth in the Notice and the applicable provisions of the Plan and this Agreement.  In the event of your death, Disability, or other cessation of Service, the exercisability of the Option is governed by the applicable provisions of the Plan, the Notice and this Agreement.  This Option may not be exercised for a fraction of a Share.

 

(b)                                  Method of Exercise .  This Option is exercisable by delivery of an exercise notice in a form specified by the Company (the “ Exercise Notice ”), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the “ Exercised Shares ”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan.  The Exercise Notice shall be delivered in person, by mail, via electronic mail or facsimile or by other authorized method to the Secretary of the Company or other person designated by the Company.  The Exercise Notice shall be accompanied by payment of the aggregate exercise price as to all Exercised Shares.  This Option shall be deemed to be exercised upon receipt by the Company of a fully executed Exercise Notice accompanied by the aggregate exercise price and any applicable tax withholding due upon exercise of the Option.

 

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(c)                                   Exercise by Another .  If another person wants to exercise this Option after it has been transferred to him or her, that person must prove to the Company’s satisfaction that he or she is entitled to exercise this Option.  That person must also complete the proper Notice of Exercise form (as described above) and pay the exercise price (as described below) and any applicable tax withholding due upon exercise of the Option (as described below).

 

4.                                       Method of Payment .  Payment of the aggregate exercise price shall be by any of the following, or a combination thereof, at the election of you:

 

(a)                                  your personal check, a cashier’s check or a money order;

 

(b)                                  certificates for shares of Company stock that you own, along with any forms needed to effect a transfer of those shares to the Company; the value of the shares, determined as of the effective date of the Option exercise, will be applied to the Option exercise price.  Instead of surrendering shares of Company stock, you may attest to the ownership of those shares on a form provided by the Company and have the same number of shares subtracted from the Option shares issued to you.  However, you may not surrender, or attest to the ownership of, shares of Company stock in payment of the exercise price of your Option if your action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to this Option for financial reporting purposes;

 

(c)                                   irrevocable directions to a securities broker approved by the Company to sell all or part of your Option Shares and to deliver to the Company from the sale proceeds an amount sufficient to pay the Option exercise price and any withholding taxes.  The balance of the sale proceeds, if any, will be delivered to you.  The directions must be given by signing a special notice of exercise form provided by the Company; or

 

(d)                                  other method authorized by the Company.

 

5.                                       Non-Transferability of Option .  In general, only you may exercise this Option prior to your death.  You may not transfer or assign this Option, except as provided below.  For instance, you may not sell this Option or use it as security for a loan.  If you attempt to do any of these things, this Option will immediately become invalid.  You may, however, dispose of this Option in your will or in a beneficiary designation.  However, if this Option is designated as a NSO in the Notice, then the Committee (as defined in the Plan) may, in its sole discretion, allow you to transfer this Option as a gift to one or more family members.  For purposes of this Agreement, “family member” means a child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in- law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law (including adoptive relationships), any individual sharing your household (other than a tenant or employee), a trust in which one or more of these individuals have more than 50% of the beneficial interest, a foundation in which you or one or more of these persons control the management of assets, and any entity in which you or one or more of these persons own more than 50% of the voting interest.  In addition, if this Option is designated as a NSO in the Notice, then the Committee may, in its sole discretion, allow you to transfer this Option to your spouse or former spouse pursuant to a domestic relations order in settlement of marital property rights.  The Committee will allow you to transfer this Option only if both you and the transferee(s) execute the forms prescribed by the Committee, which include the consent of the transferee(s) to be bound by this Agreement.  This Option may not be transferred in any manner other than by will or by the laws of descent or distribution or court order and may be exercised during the lifetime of you only by you unless otherwise permitted by the Committee on a case-by-case basis.  The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of you.

 

6.                                       Term of Option .  This Option shall in any event expire on the expiration date set forth in the Notice, which date is 10 years after the grant date (five years after the grant date if this Option is designated as an ISO in the Notice and Section 5.3 of the Plan applies).

 

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7.                                       Tax Consequences .  You should consult a tax advisor for tax consequences relating to this Option in the jurisdiction in which you are subject to tax.  YOU SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

 

(a)                                  Exercising the Option .  You will not be allowed to exercise this Option unless you make arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the Option exercise.

 

(b)                                  Notice of Disqualifying Disposition of ISO Shares .  If you sell or otherwise dispose of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, you shall immediately notify the Company in writing of such disposition.  You agree that you may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current compensation paid to you.

 

8.                                       Withholding Taxes and Stock Withholding .  Regardless of any action the Company or your actual employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option grant, including the grant, vesting or exercise of the Option, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate your liability for Tax-Related Items.

 

Prior to exercise of the Option, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer.  In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer.  With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when you exercise this Option, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company.  The Fair Market Value of these Shares, determined as of the effective date of the Option exercise, will be applied as a credit against the withholding taxes. Finally, you shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described.  The Company may refuse to honor the exercise and refuse to deliver the Shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this Section.

 

9.                                       Acknowledgement .  The Company and you agree that the Option is granted under and governed by the Notice, this Agreement and by the provisions of the Plan (incorporated herein by reference).  you: (i) acknowledge receipt of a copy of the Plan and the Plan prospectus, (ii) represents that you have carefully read and is familiar with their provisions, and (iii) hereby accept the Option subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.  You hereby agree to accept as binding, conclusive and final all decisions or interpretations of the Committee upon any questions relating to the Plan, the Notice and the Agreement.

 

10.                                Consent to Electronic Delivery of All Plan Documents and Disclosures By your acceptance of this Option, you consent to the electronic delivery of the Notice, this Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its

 

3



 

security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the Option. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion.  You acknowledge that you may receive from the Company a paper copy of any documents delivered electronically at no cost if you contact the Company by telephone, through a postal service or electronic mail at equity@proofpoint.com.  You further acknowledge that you will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, you understand that you must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, you understand that your consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if you have provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at equity@proofpoint.com. Finally, you understand that you are not required to consent to electronic delivery.

 

11.                                Compliance with Laws and Regulations .  The Company will not permit anyone to exercise this Option if the issuance of shares at that time would violate any law or regulation, including without limitation all applicable state, federal and foreign laws and regulations and all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance.

 

12.                                Governing Law; Severability .  If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms.  This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.

 

13.                                No Rights as Employee, Director or Consultant .  Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate your Service, for any reason, with or without cause.

 

14.                                Adjustment .  In the event of a stock split, a stock dividend or a similar change in Company stock, the number of Shares covered by this Option and the exercise price per Share may be adjusted pursuant to the Plan.

 

15.                                Lock-Up Agreement .  In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, you hereby agree not to sell, make any short sale of, loan, grant any Option for the purchase of, or otherwise dispose of any securities of the Company however and whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the public offering; provided however that, if during the last seventeen (17) days of the restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs, or prior to the expiration of the restricted period the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the restricted period, then, upon the request of the managing underwriter, to the extent required by any FINRA rules, the restrictions imposed by this Section shall continue to apply until the end of the third trading day following the expiration of the fifteen (15)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.  In no event will the restricted

 

4



 

period extend beyond two hundred sixteen (216) days after the effective date of the registration statement.

 

This Agreement and the Plan constitute the entire understanding between you and the Company regarding this Option.  Any prior agreements, commitments or negotiations concerning this Option are superseded.  This Agreement may be amended only by another written agreement between the parties.

 

BY ACCEPTING THIS OPTION, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

5


 

PROOFPOINT, INC.

2012 EQUITY INCENTIVE PLAN

NOTICE OF PERFORMANCE SHARES AWARD

 

Unless otherwise defined herein, the terms defined in the Proofpoint, Inc. (the “ Company ”) 2012 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Performance Shares Award (the “ Notice ”) and the attached Performance Shares Award Agreement (hereinafter “Performance Shares Agreement ) .

 

Name:

 

Address:

 

You (“ you ”) have been granted an award of Performance Shares under the Plan subject to the terms and conditions of the Plan, this Notice and the attached Performance Shares Agreement.

 

Number of Shares:

 

Grant Number :

 

Date of Grant:

 

Vesting Commencement Date:

 

Vesting Schedule:

Subject to the limitations set forth in this Notice, the Plan and the Performance Shares Agreement, the Shares will vest in accordance with the following schedule: [INSERT VESTING SCHEDULE]

 

You understand that your employment or consulting relationship or Service with the Company is for an unspecified duration, can be terminated at any time (i.e., is “at-will”), and that nothing in this Notice, the Performance Shares Agreement or the Plan changes the at-will nature of that relationship.  You acknowledge that the vesting pursuant to this Notice is earned only upon the applicable certification of attainment of the requisite Performance Factors enumerated above while still in Service as an Employee, Director or Consultant of the Company. You also understand that this Notice is subject to the terms and conditions of both the Performance Shares Award Agreement and the Plan, both of which are incorporated herein by reference.  Participant has read both the Performance Shares Agreement and the Plan.  By accepting this Performance Share Award, you consent to electronic delivery as set forth in the Performance Shares Agreement.

 

 

PARTICIPANT

 

PROOFPOINT, INC.

 

 

 

Print Name:

 

 

Its:

 

 

 

 

 

 

Signature:

 

 

By:

 

 



 

PROOFPOINT, INC.

2012 EQUITY INCENTIVE PLAN

PERFORMANCE SHARES AGREEMENT

 

Participant has been granted a Performance Shares Award (“ Performance Shares Award ”) by Proofpoint, Inc. (the “ Company ”) under the 2012 Equity Incentive Plan (the “ Plan ”) subject to the terms, restrictions and conditions of the Plan, the Notice of Performance Shares Award (“ Notice ”) and this Agreement.

 

1.             Settlement .   Performance Shares shall be settled in Shares and the Company’s transfer agent shall record ownership of such Shares in Participant’s name as soon as reasonably practicable after achievement of the Performance Factors enumerated in the Notice.

 

2.             Stockholder Rights .   Participant shall have no right to dividends or to vote Shares until Participant is recorded as the holder of such Shares on the stock records of the Company and its transfer agent.

 

3.             No-Transfer .   Participant’s interest in this Performance Shares Award shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of.

 

4.             Termination .   Upon Participant’s termination of Service for any reason, all of Participant’s rights under the Plan, this Agreement and the Notice in respect of this Award shall immediately terminate.  In case of any dispute as to whether a termination of Service has occurred, the Committee shall have sole discretion to determine whether such termination has occurred and the effective date of such termination.

 

5.             Tax Consequences .   Participant acknowledges that there will be tax consequences upon issuance of the Shares, and Participant should consult a tax adviser regarding Participant’s tax obligations prior to such settlement or disposition in the jurisdiction in which he or she is subject to tax.  Shares shall not be issued under this Agreement unless Participant makes arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the acquisition or vesting of Shares.  With the Company’s consent, these arrangements may include withholding shares of Company stock that otherwise would be issued to Participant in connection with this Agreement.  The value of these shares, determined as of the effective date of issuance or vesting, will be applied to the withholding taxes.

 

6.             Withholding Taxes .  Regardless of any action the Company or your employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or your Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the shares received under this award, including the award or vesting of such shares, the subsequent sale of shares under this award and the receipt of any dividends; and (2) do not commit to structure the terms of the award to reduce or eliminate your liability for Tax-Related Items.

 

No stock certificates will be released to you, unless you have paid or made adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or your Employer.  In this regard, you authorize the Company and/or your Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or your Employer.  With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding shares that otherwise would be delivered to you when they vest having a Fair Market Value equal to the amount necessary to satisfy the minimum statutory withholding amount , (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company.  The fair market value of these shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied as a credit

 



 

against the withholding taxes. Finally, you shall pay to the Company or your Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your acquisition of shares that cannot be satisfied by the means previously described.  The Company may refuse to deliver the shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section.

 

7.             Acknowledgement .   The Company and Participant agree that the Performance Shares Award is granted under and governed by the Notice, this Agreement and by the provisions of the Plan (incorporated herein by reference).  Participant: (i) acknowledges receipt of a copy of the Plan and the Plan prospectus, (ii) represents that Participant has carefully read and is familiar with their provisions, and (iii) hereby accepts the Performance Shares Award subject to all of the terms and conditions set forth herein and those set forth in the Plan, this Agreement and the Notice.

 

8.             Entire Agreement; Enforcement of Rights .   This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

 

9.             Compliance with Laws and Regulations .   The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

 

10.          Governing Law; Severability .   If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms.  This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

 

11.          No Rights as Employee, Director or Consultant .   Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Purchaser’s Service, for any reason, with or without cause.

 

12 .          Consent to Electronic Delivery of All Plan Documents and Disclosures .  By Participant’s acceptance of this Performance Shares Award, Participant consents to the electronic delivery of the Notice, this Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to this Performance Shares Award. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service or electronic mail at equity@proofpoint.com. Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, Participant understands that Participant’s

 



 

consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at equity@proofpoint.com. Finally, Participant understands that Participant is not required to consent to electronic delivery.

 

BY ACCEPTING THIS PERFORMANCE SHARE AWARD, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 


 

PROOFPOINT, INC.

2012 EQUITY INCENTIVE PLAN

NOTICE OF STOCK APPRECIATION RIGHT AWARD

 

Unless otherwise defined herein, the terms defined in the Proofpoint, Inc. (the “ Company ”) 2012 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Stock Appreciation Right Award (the “ Notice ”).

 

Name:

 

Address:

 

You (the “ Participant ”) have been granted an award of Stock Appreciation Rights (“ SARs ”) of the Company under the Plan subject to the terms and conditions of the Plan, this Notice and the Stock Appreciation Right Agreement (the “ SAR Agreement ”).

 

Grant Number:

 

Date of Grant:

 

Vesting Commencement Date:

 

Fair Market Value on Date of Grant:

 

Total Number of Shares:

 

Expiration Date:

 

Vesting Schedule:

 

Subject to the limitations set forth in this Notice, the Plan and the SAR Agreement, the SAR will vest and may be exercised, in whole or in part, in accordance with the following schedule: [INSERT VESTING SCHEDULE]

 

You understand that your employment or consulting relationship or Service with the Company is for an unspecified duration, can be terminated at any time (i.e., is “at-will”), and that nothing in this Notice, the SAR Agreement or the Plan changes the at-will nature of that relationship.  You acknowledge that the vesting of the SARs pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant of the Company.  By accepting this SAR, you consent to electronic delivery as set forth in the SAR Agreement.

 

PARTICIPANT:

 

PROOFPOINT, INC.

 

 

 

 

 

Signature:

 

 

By:

 

 

 

 

 

 

Print Name:

 

 

Its:

 

 

 

 

 

 

Date:

 

 

Date:

 

 



 

PROOFPOINT, INC.

2012 EQUITY INCENTIVE PLAN

STOCK APPRECIATION RIGHT AWARD AGREEMENT

 

Participant has been granted Stock Appreciation Rights (“ SARs ”) by Proofpoint, Inc. (the “ Company ”) under the 2012 Equity Incentive Plan (the “ Plan ”), subject to the terms and conditions of the Plan, the Notice of Stock Appreciation Right Award (the “ Notice ”) and this Stock Appreciation Right Agreement (the “ Agreement ”).

 

1.              Grant of SAR .  The Participant named in the Notice has been granted a SAR for the number of Shares set forth in the Notice at the fair market value set forth in the Notice.  In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Agreement, the terms and conditions of the Plan shall prevail.

 

2.             Termination Period .

 

(a)           General Rule .  Except as provided below, and subject to the Plan, this SAR may be exercised for 3 months after termination of Participant’s Service.  In no event shall this SAR be exercised later than the Expiration Date set forth in the Notice.

 

(b)           Death; Disability .  Unless provided otherwise in the Notice, upon the termination of Participant’s Service to the Company by reason of his or her Disability or death, or if a Participant dies within three months of the date of termination of Service, this SAR may be exercised for twelve months following the date Participant terminate’s Service, provided that in no event shall this SAR be exercised later than the Expiration Date set forth in the Notice.

 

(c)           Cause .  Upon Participant’s termination of Service for Cause, the SAR shall expire on Participant’s termination date.  For purposes of this Agreement, “Cause” shall be defined in the Plan.

 

3.             Vesting Rights .  Subject to the applicable provisions of the Plan and this Agreement, this SAR may be exercised, in whole or in part, in accordance with the schedule set forth in the Notice.

 

4.             Exercise of SAR .

 

(a)           Right to Exercise .  This SAR is exercisable during its term in accordance with the Vesting Schedule set forth in the Notice and the applicable provisions of the Plan and this Agreement.  In the event of Participant’s death, Disability, termination for Cause or other termination, the exercisability of the SAR is governed by the applicable provisions of the Plan, the Notice and this Agreement.

 

(b)           Method of Exercise .  This SAR is exercisable by delivery of an exercise notice (the “ Exercise Notice ”), which shall state the election to exercise the SAR, the number of SARS to be exercised (the “ Exercised SARs ”), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan.  The Exercise Notice shall be delivered in person, by mail, via electronic mail or facsimile or by other authorized method to the Secretary of the Company or other person designated by the Company.  This SAR shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice and any applicable tax withholding due upon exercise of the SAR.

 

(c)           No Shares shall be issued pursuant to the exercise of this SAR unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed.  Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Participant on the date the SAR is exercised with respect to such Exercised Shares.

 



 

5.             Non-Transferability of SAR .  This SAR may not be transferred in any manner other than by will or by the laws of descent or distribution or court order and may be exercised during the lifetime of Participant only by the Participant unless otherwise permitted by the Committee on a case-by-case basis.  The terms of the Plan and this Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Participant.

 

6.             Term of SAR .  This SAR shall in any event expire on the expiration date set forth in the Notice, which date is 10 years after the Date of Grant.

 

7.             Tax Consequences .  Participants should consult a tax adviser for tax consequences relating to this SAR in their respective jurisdiction.  THE PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS SAR.  If the Participant is an Employee or a former Employee, the Company may be required to withhold from his or her compensation an amount equal to the minimum amount the Company is required to withhold for income and employment taxes or collect from Participant and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise.

 

8.             Withholding Taxes and Stock Withholding Regardless of any action the Company or your actual employer (the “Employer”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the SAR grant, including the grant, vesting or exercise of the SAR, the subsequent sale of Shares acquired pursuant to such exercise and the receipt of any dividends; and (2) do not commit to structure the terms of the grant or any aspect of the SAR to reduce or eliminate your liability for Tax-Related Items.

 

Prior to exercise of the SAR, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer.  In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer.  With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when you exercise this SAR, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company.  The Fair Market Value of these Shares, determined as of the effective date of the SAR exercise, will be applied as a credit against the withholding taxes. Finally, you shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in the Plan or your purchase of Shares that cannot be satisfied by the means previously described.  The Company may refuse to honor the exercise and refuse to deliver the Shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section.

 

9.             Acknowledgement .  The Company and Participant agree that the SAR is granted under and governed by the Notice, this Agreement and by the provisions of the Plan (incorporated herein by reference).  Participant: (i) acknowledges receipt of a copy of the Plan and the Plan prospectus, (ii) represents that Participant has carefully read and is familiar with their provisions, and (iii) hereby accepts the SAR subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.

 

10.          Entire Agreement; Enforcement of Rights .  This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning

 



 

the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

 

11.          Compliance with Laws and Regulations .  The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

 

12.          Governing Law; Severability .  If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms.  This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

 

13.          No Rights as Employee, Director or Consultant .  Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Participant’s Service, for any reason, with or without cause.

 

14.          Consent to Electronic Delivery of All Plan Documents and Disclosures By acceptance of this SAR, Participant consents to the electronic delivery of the Notice, this Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the SAR. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service or electronic mail at equity@proofpoint.com. Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, Participant understands that Participant’s consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at equity@proofpoint.com. Finally, Participant understands that Participant is not required to consent to electronic delivery.

 

BY ACCEPTING THIS SAR, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 


 

PROOFPOINT, INC.

2012 EQUITY INCENTIVE PLAN

NOTICE OF RESTRICTED STOCK UNIT AWARD

GRANT NUMBER:       

 

Unless otherwise defined herein, the terms defined in the Proofpoint, Inc. (the “ Company ”) 2012 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Restricted Stock Unit Award (the “ Notice ”) and the attached Award Agreement (Restricted Stock Unit Agreement) (hereinafter “RSU Agreement” ).

 

Name:

 

 

 

Address:

 

 

You (“ you ”) have been granted an award of Restricted Stock Units (“ RSUs ”) under the Plan subject to the terms and conditions of the Plan, this Notice and the attached RSU Agreement.

 

Number of RSUs:

 

 

 

Date of Grant:

 

 

 

Vesting Commencement Date:

 

 

 

Expiration Date:

The date on which settlement of all RSUs granted hereunder occurs.  This RSU expires earlier if your Service terminates earlier, as described in the RSU Agreement.

 

 

Vesting Schedule:

Subject to the limitations set forth in this Notice, the Plan and the RSU Agreement, the RSUs will vest in accordance with the following schedule:  [INSERT VESTING SCHEDULE]

 

You understand that your employment or consulting relationship or Service with the Company is for an unspecified duration, can be terminated at any time (i.e., is “at-will”), and that nothing in this Notice, the RSU Agreement or the Plan changes the at-will nature of that relationship.  You acknowledge that the vesting of the RSUs pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant of the Company.  By accepting this RSU, you consent to electronic delivery as set forth in the RSU Agreement.

 

PARTICIPANT

 

PROOFPOINT, INC.

 

 

 

 

 

Signature:

 

 

By:

 

 

 

 

 

 

Print Name:

 

 

Its:

 

 



 

PROOFPOINT, INC.

2012 EQUITY INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

 

Participant has been granted Restricted Stock Units (“ RSUs ”) subject to the terms, restrictions and conditions of the Plan, the Notice of Restricted Stock Unit Award (the “ Notice ”) and this Agreement.

 

1.             Settlement .   Settlement of RSUs shall be made within 30 days following the applicable date of vesting under the vesting schedule set forth in the Notice.  Settlement of RSUs shall be in Shares.

 

2.             No Stockholder Rights .   Unless and until such time as Shares are issued in settlement of vested RSUs, Participant shall have no ownership of the Shares allocated to the RSUs and shall have no right dividends or to vote such Shares.

 

3.             Dividend Equivalents .   Dividends, if any (whether in cash or Shares), shall not be credited to Participant.

 

4.             No Transfer .   The RSUs and any interest therein shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of.

 

5.             Termination .   If Participant’s Service terminates  for any reason, all unvested RSUs shall be forfeited to the Company forthwith, and all rights of Participant to such RSUs shall immediately terminate.  In case of any dispute as to whether Participant’s termination of Service has occurred, the Committee shall have sole discretion to determine whether such termination  has occurred and the effective date of such termination.

 

6.             Tax Consequences .   Participant acknowledges that there will be tax consequences upon settlement of the RSUs or disposition of the Shares, if any, received in connection therewith, and Participant should consult a tax adviser regarding Participant’s tax obligations prior to such settlement or disposition in the jurisdiction where he or she is subject to tax.

 

7.             Withholding Taxes and Stock Withholding .  Regardless of any action the Company or your actual employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or the Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the settlement of the RSUs, the subsequent sale of Shares acquired pursuant to such settlement and the receipt of any dividends; and (2) do not commit to structure the terms of the award or any aspect of the RSUs to reduce or eliminate your liability for Tax-Related Items.

 

Prior to the settlement of your RSUs, you shall pay or make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or the Employer.  In this regard, you authorize the Company and/or the Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or the Employer.  With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding Shares that otherwise would be issued to you when your RSUs are settled, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum statutory withholding amount, (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company.  The Fair Market Value of these Shares, determined as of the effective date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. Finally, you shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in

 

1



 

the Plan or your purchase of Shares that cannot be satisfied by the means previously described.  The Company may refuse to deliver the Shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section.

 

8.             Acknowledgement .   The Company and Participant agree that the RSUs are granted under and governed by the Notice, this Agreement and the provisions of the Plan.  Participant: (i) acknowledges receipt of a copy of the Plan and the Plan prospectus, (ii) represents that Participant has carefully read and is familiar with their provisions, and (iii) hereby accepts the RSUs subject to all of the terms and conditions set forth herein and those set forth in the Plan and the Notice.

 

9.             Entire Agreement; Enforcement of Rights .   This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and signed by the parties to this Agreement.  The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

 

10.          Compliance with Laws and Regulations .   The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant with all applicable state, federal and foreign laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

 

11.          Governing Law; Severability .   If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms.  This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

 

12.          No Rights as Employee, Director or Consultant .  Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Participant’s Service, for any reason, with or without cause.

 

13.          Consent to Electronic Delivery of All Plan Documents and Disclosures By acceptance of this RSU, Participant consents to the electronic delivery of the Notice, this RSU Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the RSU. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service or electronic mail at equity@proofpoint.com.   Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, Participant understands that Participant’s consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at equity@proofpoint.com. Finally, Participant understands that Participant is not required to

 

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consent to electronic delivery.

 

BY ACCEPTING THIS RSU, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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PROOFPOINT, INC.

2012 EQUITY INCENTIVE PLAN

NOTICE OF STOCK BONUS AWARD

GRANT NUMBER:    

 

Unless otherwise defined herein, the terms defined in the Proofpoint, Inc. (the “ Company ”) 2012 Equity Incentive Plan (the “ Plan ”) shall have the same meanings in this Notice of Stock Bonus Award (the “ Notice ”) and the attached Stock Bonus Award Agreement (the “Stock Bonus Agreement”).

 

Name:

 

 

 

Address:

 

 

You (“ you ”) have been granted an award of Shares under the Plan subject to the terms and conditions of the Plan, this Notice, and the attached Stock Bonus Agreement.

 

Number of Shares:

 

 

 

Date of Grant:

 

 

 

Vesting Commencement Date:

 

 

 

Vesting Schedule:

Subject to the limitations set forth in this Notice, the Plan and the Stock Bonus Agreement, the Shares will vest in accordance with the following schedule: [INSERT VESTING SCHEDULE ]

 

You understand that your employment or consulting relationship or Service with the Company is for an unspecified duration, can be terminated at any time (i.e., is “at-will”), and that nothing in this Notice, the Stock Bonus Agreement or the Plan changes the at-will nature of that relationship.  You acknowledge that the vesting of the Shares pursuant to this Notice is earned only by continuing Service as an Employee, Director or Consultant of the Company.  By accepting this Stock Bonus Award, you consent to electronic delivery as set forth in the RSU Agreement.

 

PARTICIPANT

 

PROOFPOINT, INC.

 

 

 

 

 

Signature:

 

 

By:

 

 

 

 

 

 

Print Name:

 

 

Its:

 

 



 

PROOFPOINT, INC.

2012 EQUITY INCENTIVE PLAN

STOCK BONUS AWARD AGREEMENT

 

Participant has been granted a Stock Bonus Award (“ Stock Bonus Award ”) by Proofpoint, Inc. (the “ Company ”) under the 2012 Equity Incentive Plan (the “ Plan ”), subject to the terms, restrictions and conditions of the Plan, the Notice of Stock Bonus Award (the “ Notice ”) and this Agreement.

 

1.             Issuance .   Stock Bonus Awards shall be issued in Shares, and the Company’s transfer agent shall record ownership of such Shares in Participant’s name as soon as reasonably practicable.

 

2.             Stockholder Rights .   Participant shall have no right to dividends or to vote Shares until Participant is recorded as the holder of such Shares on the stock records of the Company and its transfer agent.

 

3.             No-Transfer .   Unvested Shares, and unvested Stock Bonus Awards, and any interest in either shall not be sold, assigned, transferred, pledged, hypothecated, or otherwise disposed of by Participant or any person whose interest derives from Participant’s interest.  “ Unvested Shares ” are Shares that have not yet vested pursuant to the terms of the vesting schedule set forth in the Notice.

 

4.             Termination .   Upon Participant’s cessation of Service for any reason, all Unvested Shares shall immediately be forfeited to the Company, and all rights of Participant to such Unvested Shares shall immediately terminate as of Participant’s termination date.  In case of any dispute as to whether a termination of Service has occurred, the Committee shall have sole discretion to determine whether such termination has occurred and the effective date of such termination.

 

5.             Tax Consequences .   PARTICIPANT SHOULD CONSULT A TAX ADVISER BEFORE ACQUIRING THE SHARES IN THE JURISDICTION IN WHICH HE OR SHE IS SUBJECT TO TAX.  Shares shall not be issued under this Agreement unless Participant makes arrangements acceptable to the Company to pay any withholding taxes that may be due as a result of the acquisition or vesting of Shares.

 

6.             Withholding Taxes .  Regardless of any action the Company or your employer (the “ Employer ”) takes with respect to any or all income tax, social insurance, payroll tax, payment on account or other tax-related withholding (“ Tax-Related Items ”), you acknowledge that the ultimate liability for all Tax-Related Items legally due by you is and remains your responsibility and that the Company and/or your Employer (1) make no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the shares received under this award, including the award or vesting of such shares, the subsequent sale of shares under this award and the receipt of any dividends; and (2) do not commit to structure the terms of the award to reduce or eliminate your liability for Tax-Related Items.

 

No stock certificates will be released to you, unless you have paid or made adequate arrangements satisfactory to the Company and/or the Employer to satisfy all withholding and payment on account obligations of the Company and/or your Employer.  In this regard, you authorize the Company and/or your Employer to withhold all applicable Tax-Related Items legally payable by you from your wages or other cash compensation paid to you by the Company and/or your Employer.  With the Company’s consent, these arrangements may also include, if permissible under local law, (a) withholding shares that otherwise would be delivered to you when they vest having a Fair Market Value equal to the amount necessary to satisfy the minimum statutory withholding amount , (b) having the Company withhold taxes from the proceeds of the sale of the Shares, either through a voluntary sale or through a mandatory sale arranged by the Company (on your behalf pursuant to this authorization), or (c) any other arrangement approved by the Company.  The fair market value of these shares, determined as of the date when taxes otherwise would have been withheld in cash, will be applied as a credit against the withholding taxes. Finally, you shall pay to the Company or your Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold as a result of your participation in

 

1



 

the Plan or your acquisition of shares that cannot be satisfied by the means previously described.  The Company may refuse to deliver the shares if you fail to comply with your obligations in connection with the Tax-Related Items as described in this section.

 

7.             Acknowledgement .   The Company and Participant agree that the Stock Bonus Award is granted under and governed by the Notice, this Agreement and by the provisions of the Plan (incorporated herein by reference).  Participant: (i) acknowledges receipt of a copy of the Plan and the Plan prospectus, (ii) represents that Participant has carefully read and is familiar with their provisions, and (iii) hereby accepts the Stock Bonus Award subject to all of the terms and conditions set forth herein and those set forth in the Plan, this Agreement and the Notice.

 

8.             Entire Agreement; Enforcement of Rights .   This Agreement, the Plan and the Notice constitute the entire agreement and understanding of the parties relating to the subject matter herein and supersede all prior discussions between them. Any prior agreements, commitments or negotiations concerning the purchase of the Shares hereunder are superseded. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing and signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.

 

9.             Compliance with Laws and Regulations .   The issuance of Shares will be subject to and conditioned upon compliance by the Company and Participant with all applicable state and federal laws and regulations and with all applicable requirements of any stock exchange or automated quotation system on which the Company’s Common Stock may be listed or quoted at the time of such issuance or transfer.

 

10.          Governing Law; Severability .  If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of this Agreement shall be enforceable in accordance with its terms.  This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.

 

11.          No Rights as Employee, Director or Consultant .   Nothing in this Agreement shall affect in any manner whatsoever the right or power of the Company, or a Parent or Subsidiary of the Company, to terminate Purchaser’s Service, for any reason, with or without cause.

 

12.          Consent to Electronic Delivery of All Plan Documents and Disclosures By acceptance of this Stock Bonus Award, Participant consents to the electronic delivery of the Notice, this Agreement, the Plan, account statements, Plan prospectuses required by the Securities and Exchange Commission, U.S. financial reports of the Company, and all other documents that the Company is required to deliver to its security holders (including, without limitation, annual reports and proxy statements) or other communications or information related to the RSU. Electronic delivery may include the delivery of a link to a Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery

 

2



 

determined at the Company’s discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service or electronic mail at equity@proofpoint.com. Participant further acknowledges that Participant will be provided with a paper copy of any documents delivered electronically if electronic delivery fails; similarly, Participant understands that Participant must provide on request to the Company or any designated third party a paper copy of any documents delivered electronically if electronic delivery fails. Also, Participant understands that Participant’s consent may be revoked or changed, including any change in the electronic mail address to which documents are delivered (if Participant has provided an electronic mail address), at any time by notifying the Company of such revised or revoked consent by telephone, postal service or electronic mail at equity@proofpoint.com. Finally, Participant understands that Participant is not required to consent to electronic delivery.

 

BY ACCEPTING THIS STOCK BONUS AWARD, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.

 

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Exhibit 10.04

 

PROOFPOINT, INC.

2012 EMPLOYEE STOCK PURCHASE PLAN

 

1.             PURPOSE .  Proofpoint, Inc. adopted the Plan effective as of the date of the IPO.  The purpose of this Plan is to provide eligible employees of the Company and the Participating Corporations with a means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees’ sense of participation in the affairs of the Company and the Participating Corporations, and to provide an incentive for continued employment.  Capitalized terms not defined elsewhere in the text are defined in Section 27.

 

2.             ESTABLISHMENT OF PLAN .  The Company proposes to grant rights to purchase shares of Common Stock to eligible employees of the Company and its Participating Corporations pursuant to this Employee Stock Purchase Plan.  The Company intends this Plan to qualify as an “employee stock purchase plan” under Section 423 of the Code (including any amendments to or replacements of such Section), and this Plan shall be so construed.  Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition herein.  However, with regard to offers of options to purchase shares of the Common Stock under the Plan to employees outside the United States working for a Subsidiary or an affiliate of the Company that is not a Subsidiary, the Board may offer a subplan or an option that is not intended to meet the Code Section 423 requirements, provided, if necessary under Section 423 of the Code, the other terms and conditions of the Plan are met.  Subject to Section 14, a total of 744,778 shares of Common Stock is reserved for issuance under this Plan.  In addition, on each January 1 for the first eight calendar years after the first Offering Date, the aggregate number of shares of Common Stock reserved for issuance under the Plan shall be increased automatically by the number of shares equal to one (1%) of the total number of outstanding shares of the Common Stock on the immediately preceding December 31 ( rounded down to the nearest whole share ), but not to exceed 1,489,556 shares; provided, that the Board or the Committee may in its sole discretion reduce the amount of the increase in any particular year.  The number of shares reserved for issuance under this Plan and the maximum number of shares that may be issued under this Plan shall be subject to adjustments effected in accordance with Section 14.

 

3.             ADMINISTRATION .  The Plan will be administered by the Committee.  Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of this Plan shall be determined by the Committee and its decisions shall be final and binding upon all Participants.  The Committee will have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and decide upon any and all claims filed under the Plan.  Every finding, decision and determination made by the Committee will, to the full extent permitted by law, be final and binding upon all parties.  Notwithstanding any provision to the contrary in this Plan, the Committee may adopt rules and/or procedures relating to the operation and administration of the Plan to accommodate requirements of local law and procedures outside of the United States. The Committee will have the authority to determine the Fair Market Value of the Common Stock (which determination shall be final, binding and conclusive for all purposes) in accordance with Section 8 below and to interpret Section 8 of the Plan in connection with circumstances that impact the Fair Market Value.  Members of the Committee shall receive no compensation for their services in connection with the administration of this Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees.  Unless the Committee determines otherwise, all expenses incurred in connection with the administration of this Plan shall be paid by the Company.  For purposes of this Plan, the Committee may designate separate offerings under the Plan (the terms of which need not be identical) in which eligible

 



 

employees of one or more Participating Corporations will participate, even if the dates of the applicable Offering Periods of each such offering are identical.

 

4.             ELIGIBILITY .

 

(a)           Any employee of the Company or the Participating Corporations is eligible to participate in an Offering Period under this Plan, except that one or more of the following categories of employees may be excluded from coverage under the Plan by the Committee (other than where prohibited by applicable law):

 

(i)            employees who are customarily employed for twenty (20) hours or less per week;

 

(ii)           employees who are customarily employed for five (5) months or less in a calendar year; and

 

(iii)          employees who do not meet any other eligibility requirements that the Committee may choose to impose (within the limits permitted by the Code).

 

The foregoing notwithstanding, an individual shall not be eligible if his or her participation in the Plan is prohibited by the law of any country that has jurisdiction over him or her or if he or she is subject to a collective bargaining agreement that does not provide for participation in the Plan.

 

(b)           No employee who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, owns stock or holds options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its Parent or Subsidiary or who, as a result of being granted an option under this Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or its Parent or Subsidiary shall be granted an option to purchase Common Stock under the Plan.

 

5.             OFFERING DATES .

 

(a)           Each Offering Period of this Plan may be of up to twenty-seven (27) months duration and shall commence and end at the times designated by the Committee.  Each Offering Period may consist of one or more Purchase Periods during which payroll deductions of Participants are accumulated under this Plan.

 

(b)           The initial Offering Period shall run coterminous with the initial Purchase Period and shall commence on the Effective Date, and shall end with the Purchase Date that occurs on or prior to the October 31, or April 30 that first occurs six (6) months or more after the Effective Date.  The initial Offering Period shall consist of a single Purchase Period.  Thereafter, a six-month Offering Period shall commence on each May 1 and November 1, with each such Offering Period also consisting of a single six-month Purchase Period.  The Committee may at any time establish a different duration for an Offering Period or Purchase Period to be effective after the next scheduled Purchase Date.

 

6.             PARTICIPATION IN THIS PLAN .

 

(a)           Any employee who is an eligible employee determined in accordance with Section 4 immediately prior to the initial Offering Period will be automatically enrolled in the initial Offering Period under this Plan.  With respect to subsequent Offering Periods, any eligible employee

 

2



 

determined in accordance with Section 4 will be eligible to participate in this Plan, subject to the requirement of Section 6(b) hereof and the other terms and provisions of this Plan.

 

(b)           Notwithstanding the foregoing, an eligible employee may elect to decrease the number of shares of Common Stock that such employee would otherwise be permitted to purchase for the initial Offering Period under the Plan and/or purchase shares of Common Stock for the initial Offering Period through payroll deductions by delivering a subscription agreement to the Company within thirty (30) days after the filing of an effective registration statement pursuant to Form S-8.  With respect to Offering Periods after the initial Offering Period, a Participant may elect to participate in this Plan by submitting a subscription agreement prior to the commencement of the Offering Period (or such earlier date as the Committee may determine) to which such agreement relates.

 

(c)           Once an employee becomes a Participant in an Offering Period, then such Participant will automatically participate in each subsequent Offering Period commencing immediately following the last day of the prior Offering Period unless the Participant withdraws or is deemed to withdraw from this Plan or terminates further participation in an Offering Period as set forth in Section 11 below.  Such Participant is not required to file any additional subscription agreement in order to continue participation in this Plan.

 

7.             GRANT OF OPTION ON ENROLLMENT .  Becoming a Participant with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such Participant of an option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company determined by a fraction, the numerator of which is the amount accumulated in such Participant’s payroll deduction account during such Purchase Period and the denominator of which is the lower of (i) eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Offering Date (but in no event less than the par value of a share of the Common Stock), or (ii) eighty-five percent (85%) of the Fair Market Value of a share of the Common Stock on the Purchase Date (but in no event less than the par value of a share of the Common Stock) provided, however , that for the Purchase Period within the initial Offering Period the numerator shall be fifteen percent (15%) of the Participant’s compensation for such Purchase Period, or such lower percentage determined by the Committee prior to the start of the Offering Period, and provided , further , that the number of shares of Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (x) the maximum number of shares set by the Committee pursuant to Section 10(b) below with respect to the applicable Purchase Date, or (y) the maximum number of shares which may be purchased pursuant to Section 10(a) below with respect to the applicable Purchase Date.

 

8.             PURCHASE PRICE .  The Purchase Price per share at which a share of Common Stock will be sold in any Offering Period shall be eighty-five percent (85%) of the lesser of:

 

(a)           The Fair Market Value on the Offering Date; or

 

(b)           The Fair Market Value on the Purchase Date.

 

9.             PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTION CHANGES; SHARE ISSUANCES .

 

(a)           The Purchase Price shall be accumulated by regular payroll deductions made during each Offering Period, unless the Committee determines with respect to categories of Participants outside the United States that contributions may be made in another form due to local legal requirements.  The deductions are made as a percentage of the Participant’s compensation in one percent (1%) increments not less than one percent (1%), nor greater than fifteen percent (15%) or such lower limit set

 

3



 

by the Committee.  Compensation shall mean base salary (or in foreign jurisdictions, equivalent cash compensation); however, the Committee may at any time prior to the beginning of an Offering Period determine that for that and future Offering Periods, Compensation shall mean all W-2 cash compensation, including without limitation base salary or regular hourly wages, bonuses, incentive compensation, commissions, overtime, shift premiums, plus draws against commissions (or in foreign jurisdictions, equivalent cash compensation).  For purposes of determining a Participant’s Compensation, any election by such Participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code (or in foreign jurisdictions, equivalent salary deductions) shall be treated as if the Participant did not make such election.  Payroll deductions shall commence on the first payday following the last Purchase Date (with respect to the initial Offering Period, first payday following the effective date of filing with the U.S. Securities and Exchange Commission a securities registration statement for the Plan) and shall continue to the end of the Offering Period unless sooner altered or terminated as provided in this Plan.

 

(b)           A Participant may decrease the rate of payroll deductions during an Offering Period by filing with the Company a new authorization for payroll deductions, with the new rate to become effective no later than the second payroll period commencing after the Company’s receipt of the authorization and continuing for the remainder of the Offering Period unless changed as described below.  A decrease in the rate of payroll deductions may be made once during an Offering Period or more frequently under rules determined by the Committee.  A Participant may increase or decrease the rate of payroll deductions for any subsequent Offering Period by filing with the Company a new authorization for payroll deductions prior to the beginning of such Offering Period, or such other time period as specified by the Committee.

 

(c)           A Participant may reduce his or her payroll deduction percentage to zero during an Offering Period by filing with the Company a request for cessation of payroll deductions.  Such reduction shall be effective beginning no later than the second payroll period after the Company’s receipt of the request and no further payroll deductions will be made for the duration of the Offering Period.  Payroll deductions credited to the Participant’s account prior to the effective date of the request shall be used to purchase shares of Common Stock in accordance with Section (e) below.  A reduction of the payroll deduction percentage to zero shall be treated as such Participant’s withdrawal from such Offering Period, and the Plan, effective as of the day after the next Purchase Date following the filing date of such request with the Company.

 

(d)           All payroll deductions made for a Participant are credited to his or her account under this Plan and are deposited with the general funds of the Company, except to the extent required to be segregated due to local legal restrictions outside the United States.  No interest accrues on the payroll deductions.  All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions, except to the extent necessary to comply with local legal requirements outside the United States.

 

(e)           On each Purchase Date, so long as this Plan remains in effect and provided that the Participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the Participant wishes to withdraw from that Offering Period under this Plan and have all payroll deductions accumulated in the account maintained on behalf of the Participant as of that date returned to the Participant, the Company shall apply the funds then in the Participant’s account to the purchase of whole shares of Common Stock reserved under the option granted to such Participant with respect to the Offering Period to the extent that such option is exercisable on the Purchase Date.  The Purchase Price per share shall be as specified in Section 8 of this Plan.  The Committee may determine with respect to all Participants that any fractional share, as calculated under this Subsection (c) shall be (i) rounded down to the next lower whole share or (ii) credited as a fractional share.  Any amount remaining in a Participant’s account on a Purchase Date which is less than the amount necessary to purchase a full

 

4



 

share of Common Stock shall be returned to the Participant, without interest (except to the extent required due to local legal requirements outside the United States).  In the event that this Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the Participant, without interest (except to the extent required due to local legal requirements outside the United States).  No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in this Plan has terminated prior to such Purchase Date.

 

(f)            As promptly as practicable after the Purchase Date, the Company shall issue shares for the Participant’s benefit representing the shares purchased upon exercise of his or her option.

 

(g)           During a Participant’s lifetime, his or her option to purchase shares hereunder is exercisable only by him or her.  The Participant will have no interest or voting right in shares covered by his or her option until such option has been exercised.

 

(h)           To the extent required by applicable federal, state, local or foreign law, a Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any shares of Common Stock under the Plan until such obligations are satisfied.

 

10.          LIMITATIONS ON SHARES TO BE PURCHASED .

 

(a)           Any other provision of the Plan notwithstanding, no Participant shall purchase Common Stock with a Fair Market Value in excess of the following limit:

 

(i) In the case of Common Stock purchased during an Offering Period that commenced in the current calendar year, the limit shall be equal to (A) $25,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased in the current calendar year (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company).

 

(ii) In the case of Common Stock purchased during an Offering Period that commenced in the immediately preceding calendar year, the limit shall be equal to (A) $50,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company) in the current calendar year and in the immediately preceding calendar year.

 

(iii) In the case of Common Stock purchased during an Offering Period that commenced in the second preceding calendar year, the limit shall be equal to (A) $75,000 minus (B) the Fair Market Value of the Common Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company) in the current calendar year and in the two preceding calendar years.

 

For purposes of this Subsection (a), the Fair Market Value of Common Stock shall be determined in each case as of the beginning of the Offering Period in which such Common Stock is purchased. Employee stock purchase plans not described in section 423 of the Code shall be disregarded. If a Participant is precluded by this Subsection (a) from purchasing additional Common Stock under the Plan, then his or her employee contributions shall automatically be discontinued and shall automatically resume at the beginning of the earliest Purchase Period that will end in the next calendar year (if he or she then is an eligible employee), provided that when the Company automatically resumes such payroll deductions, the Company must apply the rate in effect immediately prior to such suspension.

 

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(b)           In no event shall a Participant be permitted to purchase more than 1,750 Shares on any one Purchase Date or such lesser number as the Committee shall determine.  If a lower limit is set under this Subsection (b), then all Participants will be notified of such limit prior to the commencement of the next Offering Period for which it is to be effective.

 

(c)           If the number of shares to be purchased on a Purchase Date by all Participants exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable.  In such event, the Company will give notice of such reduction of the number of shares to be purchased under a Participant’s option to each Participant affected.

 

(d)           Any payroll deductions accumulated in a Participant’s account which are not used to purchase stock due to the limitations in this Section 10, and not covered by Section 9(e), shall be returned to the Participant as soon as practicable after the end of the applicable Purchase Period, without interest (except to the extent required due to local legal requirements outside the United States).

 

11.          WITHDRAWAL .

 

(a)           Each Participant may withdraw from an Offering Period under this Plan pursuant to a method specified for such purpose by the Company.  Such withdrawal may be elected at any time prior to the end of an Offering Period, or such other time period as specified by the Committee.

 

(b)           Upon withdrawal from this Plan, the accumulated payroll deductions shall be returned to the withdrawn Participant, without interest, and his or her interest in this Plan shall terminate.  In the event a Participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any Offering Period under this Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth in Section 6 above for initial participation in this Plan.

 

12.          TERMINATION OF EMPLOYMENT .  Termination of a Participant’s employment for any reason, including retirement, death, disability, or the failure of a Participant to remain an eligible employee of the Company or of a Participating Corporation, immediately terminates his or her participation in this Plan.  In such event, accumulated payroll deductions credited to the Participant’s account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest (except to the extent required due to local legal requirements outside the United States).  For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company or of a Participating Corporation in the case of sick leave, military leave, or any other leave of absence approved by the Company; provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute.  The Company will have sole discretion to determine whether a Participant has terminated employment and the effective date on which the Participant terminated employment, regardless of any notice period or garden leave required under local law.

 

13.          RETURN OF PAYROLL DEDUCTIONS .  In the event a Participant’s interest in this Plan is terminated by withdrawal, termination of employment or otherwise, or in the event this Plan is terminated by the Board, the Company shall deliver to the Participant all accumulated payroll deductions credited to such Participant’s account.  No interest shall accrue on the payroll deductions of a Participant in this Plan (except to the extent required due to local legal requirements outside the United States).

 

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14.          CAPITAL CHANGES .  If the number of outstanding Shares is changed by a stock dividend, recapitalization, stock split, reverse stock split, subdivision, combination, reclassification or similar change in the capital structure of the Company, without consideration, then the Committee shall adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised, and the numerical limits of Sections 1 and 10 shall be proportionately adjusted, subject to any required action by the Board or the stockholders of the Company and in compliance with applicable securities laws; provided that fractions of a Share will not be issued.

 

15.          NONASSIGNABILITY .  Neither payroll deductions credited to a Participant’s account nor any rights with regard to the exercise of an option or to receive shares under this Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 below) by the Participant.  Any such attempt at assignment, transfer, pledge or other disposition shall be void and without effect.

 

16.          USE OF PARTICIPANT FUNDS AND REPORTS .  The Company may use all payroll deductions received or held by it under the Plan for any corporate purpose, and the Company will not be required to segregate Participant payroll deductions (except to the extent required due to local legal requirements outside the United States).  Until Shares are issued, Participants will only have the rights of an unsecured creditor.  Each Participant shall receive promptly after the end of each Purchase Period a report of his or her account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period or Offering Period, as the case may be.

 

17.          NOTICE OF DISPOSITION .  Each U.S. taxpayer Participant shall notify the Company in writing if the Participant disposes of any of the shares purchased in any Offering Period pursuant to this Plan if such disposition occurs within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased (the “Notice Period”).  The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to this Plan requesting the Company’s transfer agent to notify the Company of any transfer of the shares.  The obligation of the Participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates.

 

18.          NO RIGHTS TO CONTINUED EMPLOYMENT .  Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Participating Corporation, or restrict the right of the Company or any Participating Corporation to terminate such employee’s employment.

 

19.          EQUAL RIGHTS AND PRIVILEGES .  All eligible employees granted an option under this Plan that is intended to meet the Code Section 423 requirements shall have equal rights and privileges with respect to this Plan or within any separate offering under the Plan so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 or any successor provision of the Code and the related regulations.  Any provision of this Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the Company, the Committee or the Board, be reformed to comply with the requirements of Section 423.  This Section 19 shall take precedence over all other provisions in this Plan.

 

20.          NOTICES .  All notices or other communications by a Participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

 

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21.          TERM; STOCKHOLDER APPROVAL .  This Plan will become effective on the Effective Date.  This Plan shall be approved by the stockholders of the Company, in any manner permitted by applicable corporate law, within twelve (12) months before or after the date this Plan is adopted by the Board.  No purchase of shares that are subject to such stockholder approval before becoming available under this Plan shall occur prior to stockholder approval of such shares and the Board or Committee may delay any Purchase Date and postpone the commencement of any Offering Period subsequent to such Purchase Date as deemed necessary or desirable to obtain such approval (provided that if a Purchase Date would occur more than twenty-four (24) months after commencement of the Offering Period to which it relates, then such Purchase Date shall not occur and instead such Offering Period shall terminate without the purchase of such shares and Participants in such Offering Period shall be refunded their contributions without interest).  This Plan shall continue until the earlier to occur of (a) termination of this Plan by the Board (which termination may be effected by the Board at any time pursuant to Section 25 below), (b) issuance of all of the shares of Common Stock reserved for issuance under this Plan, or (c) the tenth anniversary of the first Purchase Date under the Plan.

 

22.          DESIGNATION OF BENEFICIARY .

 

(a)           A Participant may file a written designation of a beneficiary who is to receive any cash from the Participant’s account under this Plan in the event of such Participant’s death prior to a Purchase Date.  Such form shall be valid only if it was filed with the Company at the prescribed location before the Participant’s death.

 

(b)           Such designation of beneficiary may be changed by the Participant at any time by written notice filed with the Company at the prescribed location before the Participant’s death.  In the event of the death of a Participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such Participant’s death, the Company shall deliver such cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or, if no spouse is known to the Company, then to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

 

23.          CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES .  Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, exchange control restrictions and/or securities law restrictions outside the United States, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

 

24.          APPLICABLE LAW .  The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of Delaware.

 

25.          AMENDMENT OR TERMINATION .  The Committee, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the Committee, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Purchase Date (which may be sooner than originally scheduled, if determined by the Committee in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 14). If an Offering Period is terminated prior to its previously-scheduled expiration,

 

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all amounts then credited to Participants’ accounts for such Offering Period, which have not been used to purchase shares of Common Stock, shall be returned to those Participants (without interest thereon, except as otherwise required under local laws) as soon as administratively practicable. Further, the Committee will be entitled to change the Purchase Periods and Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the administration of the Plan, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with amounts withheld from the Participant’s base salary or regular hourly wages, and establish such other limitations or procedures as the Committee determines in its sole discretion advisable which are consistent with the Plan. Such actions will not require stockholder approval or the consent of any Participants.  However, no amendment shall be made without approval of the stockholders of the Company (obtained in accordance with Section 21 above) within twelve (12) months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under this Plan; or (b) change the designation of the employees (or class of employees) eligible for participation in this Plan.

 

26.          CORPORATE TRANSACTIONS .  In the event of a Corporate Transaction, each outstanding right to purchase Common Stock will be assumed or an equivalent option substituted by the successor corporation or a parent or a subsidiary of the successor corporation.  In the event that the successor corporation refuses to assume or substitute for the purchase right, the Offering Period with respect to which such purchase right relates will be shortened by setting a new Purchase Date and will end on the new Purchase Date.  The new Purchase Date shall occur on or prior to the consummation of the Corporate Transaction, and the Plan shall terminate on the consummation of the Corporate Transaction.

 

27.          DEFINITIONS .

 

(a)           “ Board ” shall mean the Board of Directors of the Company.

 

(b)           “ Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

(c)           “ Committee ” shall mean a committee of the Board that consists exclusively or one or more members of the Board appointed by the Board.

 

(d)           “ Common Stock ” shall mean the common stock of the Company.

 

(e)           “ Company ” shall mean Proofpoint, Inc.

 

(f)            “ Corporate Transaction ” means the occurrence of any of the following events: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation.

 

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(g)           “ Effective Date ” shall mean the date on which the Registration Statement covering the initial public offering of the shares of Common Stock is declared effective by the U.S. Securities and Exchange Commission.

 

(h)           “ Fair Market Value ” shall mean, as of any date, the value of a share of Common Stock determined as follows:

 

(1)           if such Common Stock is then quoted on the Nasdaq Global Select Market, the Nasdaq Global Market or the Nasdaq Capital Market (collectively, the “ Nasdaq Market ”), its closing price on the Nasdaq Market on the date of determination, or if there are no sales for such date, then the last preceding business day on which there were sales, as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable; or

 

(2)           if such Common Stock is publicly traded and is then listed on a national securities exchange, its closing price on the date of determination on the principal national securities exchange on which the Common Stock is listed or admitted to trading as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable; or

 

(3)           if such Common Stock is publicly traded but is neither quoted on the Nasdaq Market nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices on the date of determination as reported in The Wall Street Journal or such other source as the Board or the Committee deems reliable; or

 

(4)           with respect to the initial Offering Period, Fair Market Value on the Offering Date shall be the price at which shares of Common Stock are offered to the public pursuant to the Registration Statement covering the initial public offering of shares of Common Stock; and

 

(5)           if none of the foregoing is applicable, by the Board or the Committee in good faith.

 

(i)            “ IPO ” shall mean the initial public offering of Common Stock.

 

(j)            “ Notice Period ” shall mean within two (2) years from the Offering Date or within one (1) year from the Purchase Date on which such shares were purchased.

 

(k)           “ Offering Date ” shall mean the first business day of each Offering Period.  However, for the initial Offering Period the Offering Date shall be the Effective Date.

 

(l)            “ Offering Period ” shall mean a period with respect to which the right to purchase Common Stock may be granted under the Plan, as determined by the Committee pursuant to Section 5(a).

 

(m)          “ Parent ” shall have the same meaning as “parent corporation” in Sections 424(e) and 424(f) of the Code.

 

(n)           “ Participant ” shall mean an eligible employee who meets the eligibility requirements set forth in Section 4 and who is either automatically enrolled in the initial Offering Period or who elects to participate in this Plan pursuant to Section 6(b).

 

(o)           “ Participating Corporation ” shall mean any Parents or Subsidiary that the Board designates from time to time as a corporation that shall participate in this Plan.

 

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(p)           “ Purchase Date ” shall mean the last business day of each Purchase Period.

 

(q)           “ Purchase Period ” shall mean a period during which contributions may be made toward the purchase of Common Stock under the Plan, as determined by the Committee pursuant to Section 5(b).

 

(r)            “ Purchase Price ” shall mean the price at which Participants may purchase shares of Common Stock under the Plan, as determined pursuant to Section 8.

 

(s)            “ Subsidiary ” shall have the same meaning as “subsidiary corporation” in Sections 424(e) and 424(f) of the Code.

 

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Exhibit 23.02

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We hereby consent to the use in this Amendment No. 4 to the Registration Statement on Form S-1 of Proofpoint, Inc. of our report dated February 29, 2012, except for the section titled "Reverse Stock Split" of Note 1, as to which the date is April 2, 2012, relating to the consolidated financial statements of Proofpoint, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

San Jose, California
April 9, 2012




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Exhibit 24.02

POWER OF ATTORNEY

        I, Anthony Bettencourt, in respect of my position as a director of Proofpoint, Inc., hereby constitute and appoint Gary Steele and Paul Auvil, and each of them, my true and lawful attorney-in-fact and agent with full power of substitution, for me, in any and all capacities (including my capacity as a director) to sign any or all amendments (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought) to the Registration Statement on Form S-1 of Proofpoint, Inc. (Registration No. 333-178479), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as I might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Date: April 3, 2011


/s/ ANTHONY BETTENCOURT

Anthony Bettencourt

 

 



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