<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION MARCH 10, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SKYDESK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7373 33-0674004
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3550 GENERAL ATOMICS COURT
SAN DIEGO, CALIFORNIA 92121
(858) 455-3500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GARY E. SUTTON
PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
SKYDESK, INC.
3550 GENERAL ATOMICS COURT
SAN DIEGO, CALIFORNIA 92121
(858) 455-3500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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<S> <C>
MARTIN C. NICHOLS, ESQ. SCOTT M. STANTON, ESQ.
JEFFREY C. THACKER, ESQ. CHRISTIAN WAAGE, ESQ.
EDITH A. BAUER, ESQ. LAURA G. SAND, ESQ.
BROBECK, PHLEGER & HARRISON LLP GRAY CARY WARE FREIDENRICH LLP
550 WEST C STREET, SUITE 1300 4365 EXECUTIVE DRIVE, SUITE 1600
SAN DIEGO, CALIFORNIA 92101 SAN DIEGO, CALIFORNIA 92121
(619) 234-1966 (858) 677-1400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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PROPOSED
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock, $0.001 par value............ $75,000,000 $19,800
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 AS AMENDED OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION
8(a), MAY DETERMINE.
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<PAGE> 2
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE
ARE PERMITTED BY US FEDERAL SECURITIES LAW TO OFFER THESE SECURITIES USING
THIS PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL
THE DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN
DECLARED EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY
JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
SUBJECT TO COMPLETION -- MARCH 10, 2000
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PROSPECTUS
, 2000
[SKYDESK LOGO]
THE B2B INTERNET STORAGE SERVICES PROVIDER
SHARES OF COMMON STOCK
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SKYDESK, INC.:
- We are an application service
provider focused on delivering
reliable, secure, easy-to-use
and cost-effective data
storage and document
management solutions to small
and medium-sized businesses
and individual computer users.
- SkyDesk, Inc.
3550 General Atomics Court
San Diego, California 92121
(858) 455-3500
PROPOSED SYMBOL & MARKET:
- DESK/Nasdaq National Market
THE OFFERING:
- We are offering shares of our common stock.
- The underwriters have an option to purchase an additional shares
from us to cover over-allotments.
- This is our initial public offering, and no public market currently
exists for our shares.
- We anticipate that the initial public offering price will be between $
and $ per share.
- We plan to use the proceeds from this offering for sales and marketing,
research and development, infrastructure and support improvements,
potential acquisitions and general corporate purposes.
- Closing: , 2000.
<TABLE>
<CAPTION>
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Per Share Total
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<S> <C> <C>
Public offering price: $ $
Underwriting fees:
Proceeds to SkyDesk, Inc.:
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</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
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DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
DLJDIRECT INC.
<PAGE> 3
[COLOR ARTWORK AND GRAPHICS TO FOLLOW]
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 6
Forward-Looking Statements........... 19
Use of Proceeds...................... 20
Dividend Policy...................... 20
Capitalization....................... 21
Dilution............................. 23
Selected Consolidated Financial
Data............................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 26
Business............................. 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Management........................... 45
Relationships and Related
Transactions....................... 56
Principal Stockholders............... 58
Description of Capital Stock......... 60
Shares Eligible for Future Sale...... 64
Underwriting......................... 67
Legal Matters........................ 69
Experts.............................. 70
Where You Can Find More Information.. 70
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
------------------------------
We own or have rights to trademarks and trade names that we use in
conjunction with the sale of our services. We have obtained federal registration
of our @Backup trademark, and have trademark applications pending for SkyDesk,
SkyFiler and SmartClone. This prospectus also contains trademarks and trade
names of other companies.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" and the consolidated financial
statements and notes thereto, before making your investment decision.
OUR BUSINESS
We are an application service provider focused on delivering reliable,
secure, easy-to-use and cost-effective data storage and document management
solutions to small and medium-sized businesses and individual computer users.
Our SkyDesk services, which include @Backup and SkyFiler, enable users to
protect, store, access and share their data. @Backup is an online data
protection and storage service available on an annual subscription basis. We
offer @Backup directly through our web site and indirectly through our marketing
relationships with companies such as Advanced Digital Information Corporation,
Dell, Earthlink, Gateway, Hewlett-Packard and Intuit (Quicken, QuickBooks and
TurboTax). SkyFiler is a service we expect to introduce in the first half of
2000 that is being designed to enable workgroups to share and collaborate on
documents stored at our data centers.
OUR MARKET OPPORTUNITY
In today's information-based economy, the protection and management of data
is becoming increasingly important to businesses and individual computer users.
Many businesses seek to use their electronic data to gain a competitive
advantage by enabling their employees and business partners to access their data
from multiple locations. To address this objective, companies with significant
resources generally use network-based solutions that require the implementation
of complex document management software, specialized network servers and
dedicated storage devices. These solutions are not viable consumer solutions and
are not cost-effective for small and medium-sized businesses because they can be
capital intensive and require technical personnel.
Many small and medium-sized businesses and individual computer users rely
on hard-drives, diskettes and removable storage devices to protect and manage
their electronic data. Although relatively inexpensive, these traditional
solutions are often unreliable, difficult to manage, have limited remote access
capabilities and lack the ability to grow to meet future demands. Further,
because most data storage and document management solutions do not address the
need to share and collaborate on files, many businesses are forced to rely on
email. Although email provides an efficient means of communication, it is not
secure and does not offer advanced document management capabilities, such as
version control and change tracking.
Many businesses faced with the shortcomings of traditional solutions to
technology infrastructure challenges are outsourcing technology functions to
application service providers. Application service providers enable businesses
to gain access to the latest technologies without increasing expenditures for
technical personnel and equipment. We believe a significant market opportunity
exists for application service providers offering Internet-based data storage
and management services that allow small and medium-sized businesses and
individual computer users to protect, store, access and share their critical
information at any time and from any location.
1
<PAGE> 6
OUR SOLUTIONS
Our @Backup solution is an Internet-based service that enables users to
securely and efficiently protect their data by storing it at our networked data
centers. Users register at our web site, install the @Backup software on their
computers and select the time of day the backup will occur and the files to be
protected. Once installed, our software automatically initiates the backup
process each day, scans the user's computer for new and changed files and then
compresses, encrypts and transmits the new or changed files via the Internet to
our data centers. Users can retrieve their data at any time over the Internet or
by ordering it from us on a compact disc.
We are currently designing SkyFiler to be an Internet-based document
management system that will enable workgroups to share and collaborate on
documents stored at our data centers. We expect the initial version of SkyFiler
will include features such as version control, change and comment tracking,
revision notification and access control.
We have designed our services to be secure by encrypting data prior to
transmission, maintaining the data in encrypted form at our data centers and
returning it to the user in encrypted form. Our systems are reliable because we
have designed them with multiple redundancies. Our services are easy to use
because they have a simple Windows-based interface and run automatically each
day with minimal user effort. Our services are cost-effective because users can
implement them without any hardware, additional software or technical personnel.
In addition, we have designed our systems to scale to accommodate millions of
simultaneous users.
OUR STRATEGY
Our objective is to become the leading provider of Internet-based data
protection, storage and management services to small and medium-sized businesses
and individual computer users. To achieve this objective, we intend to:
- strengthen our co-marketing programs with existing marketing partners and
develop new relationships with other industry-leading companies;
- increase awareness of the SkyDesk brands to position ourselves as a
leading provider of online data storage and management solutions;
- introduce new services and enhancements based on our proprietary
technology to address the evolving needs of small and medium-sized
businesses and individual computer users;
- continue to invest in developing new technologies and services;
- establish new, state-of-the-art data centers that will enhance the
security and reliability of our solutions; and
- pursue strategic acquisitions to broaden our offerings, expand our
technology platform and capitalize on consolidation opportunities in our
market.
2
<PAGE> 7
OUR MARKETING PARTNERS
We have developed marketing relationships with software publishers,
computer manufacturers, Internet service providers and infrastructure vendors.
We currently have relationships with:
<TABLE>
<S> <C>
Advanced Digital Information Corporation Gateway, Inc.
American Power Conversion Corporation Hewlett-Packard Company
Compaq Computer Corporation Intuit (Quicken, QuickBooks and TurboTax)
Dell Computer Corporation NorthPoint Communications Group, Inc.
Earthlink, Inc. Toshiba Corporation
Excite, Inc.
</TABLE>
------------------------------
We incorporated in California in July 1995, and reincorporated in Delaware
in March 2000. Our principal executive offices are located at 3550 General
Atomics Court, San Diego, California 92121. Our telephone number at that
location is (858) 455-3500. Information contained on our web sites,
www.skydesk.com and www.backup.com, does not constitute part of this prospectus.
3
<PAGE> 8
THE OFFERING
Common stock offered by us.......... shares
Common stock outstanding after this
offering............................ shares
Use of proceeds..................... Sales and marketing, research and
development, infrastructure and support
improvements, potential acquisitions
and general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market
Symbol.............................. DESK
This table is based on shares outstanding as of December 31, 1999, and
excludes the following:
- 3,654,331 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $0.20 per share;
- 2,292,405 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $0.56 per share;
- 1,050,000 shares of common stock which may become issuable upon exercise
of a warrant subject to performance milestones; and
- 156,990 shares of common stock available for future issuance under our
various stock plans.
In addition, our board of directors authorized 1,500,000 shares of common stock
for issuance under our existing stock plan and approximately 2,800,000 shares of
common stock for issuance under our stock plans to become effective upon
completion of this offering.
Except as otherwise indicated, all information in this prospectus is based
on the following assumptions:
- the conversion of each outstanding share of preferred stock into one
share of common stock upon completion of this offering;
- no exercise of the underwriters' overallotment option; and
- amendments to our certificate of incorporation and bylaws to be effective
upon completion of this offering.
4
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table sets forth summary consolidated financial data for our
company. You should read this information together with the consolidated
financial statements and the notes to those statements appearing elsewhere in
this prospectus and the information under "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FROM
INCEPTION
(JULY 1995) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------
1995 1996 1997 1998
(UNAUDITED) 1999
<S> <C> <C> <C> <C> <C>
Net revenues...................................... $ -- $ -- $ 63 $ 333 $ 567
Operating expenses:
Cost of services................................ -- -- 647 641 879
Selling and marketing........................... 13 130 1,862 2,823 5,273
Research and development........................ 4 450 689 1,159 1,352
General and administrative...................... 11 357 503 928 1,561
Amortization of deferred stock-based
compensation.................................. -- 8 44 106 2,448
---- ----- ------- ------- ----------
Total operating expenses...................... 28 945 3,745 5,657 11,513
---- ----- ------- ------- ----------
Loss from operations.............................. (28) (945) (3,682) (5,324) (10,946)
Interest income (expense), net.................... 1 61 60 116 (236)
---- ----- ------- ------- ----------
Net loss.......................................... $(27) $(884) $(3,622) $(5,208) $ (11,182)
==== ===== ======= ======= ==========
Adjustment for accretion of redeemable convertible
preferred stock................................. $ -- $ -- $ -- $ (136) $ (469)
Loss applicable to common stockholders............ $(27) $(884) $(3,622) $(5,344) $ (11,651)
==== ===== ======= ======= ==========
Pro forma net loss per share...................... $ (0.45)
==========
Shares used in computing pro forma net loss per
share(a)........................................ 25,191,405
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $16,095 $
Working capital............................................. 11,242
Total assets................................................ 23,150
Deferred revenue............................................ 442 442
Long-term obligations, net of current portion............... 2,222 2,222
Total stockholders' equity (deficit)........................ (17,672)
</TABLE>
The Pro Forma As Adjusted column in the Consolidated Balance Sheet Data
reflects:
- the conversion of all or our outstanding preferred stock into common
stock upon completion of this offering; and
- our sale of shares of common stock at an assumed initial public
offering price of $ per share, after deducting estimated underwriting
discounts and commissions and estimated offering expenses that we will
pay.
- ------------------------------
(a) See Note 2 of "Notes to Consolidated Financial Statements" for an
explanation of the pro forma per share information.
5
<PAGE> 10
RISK FACTORS
You should carefully consider the following risk factors in addition to
other information in this prospectus before purchasing our common stock. The
risks and uncertainties described below are those that we currently believe to
be material and that we believe are specific to our business, our industry and
this offering. If any of these or other risks actually occur, the trading price
of our common stock could decline, and you may lose all or part of your
investment.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY-STAGE COMPANY WITH A NEW AND UNPROVEN BUSINESS MODEL, WHICH
MAKES IT DIFFICULT TO EVALUATE OUR CURRENT BUSINESS AND FUTURE PROSPECTS
We have a limited operating history on which to base an evaluation of
our current business and future prospects. We began offering our online data
storage service, @Backup, directly to consumers and businesses in June 1997, and
we have not generated significant revenues from this business to date. Although
we continue to offer our services directly to consumers and businesses, we have
recently shifted the focus of our business model to rely on our marketing
relationships to generate the majority of our revenues. We have just recently
entered into most of our marketing relationships, and we are still in the
process of developing and introducing co-marketing programs through these
relationships. To date, we have received only limited revenues from these
relationships, and we have invested a significant amount of management and other
resources to implement the marketing programs under these agreements. As a
result, the revenue and income potential of our new business model is unproven.
In addition, we have limited insight into trends that may emerge and affect our
business because the market for online data storage and management services is
new and rapidly evolving. We may make errors in predicting and reacting to
relevant business trends, which could harm our business. Before investing, you
should consider the risks, uncertainties and difficulties frequently encountered
by early-stage companies with unproven business models that operate in new and
rapidly evolving markets such as ours. We may not be able to successfully
address any or all of these risks. Failure to adequately do so could cause our
business to suffer.
THE MARKET FOR ONLINE DATA STORAGE AND MANAGEMENT SERVICES IS NEW AND
UNPREDICTABLE, AND IF THIS MARKET DOES NOT DEVELOP AND EXPAND AS WE
ANTICIPATE, OUR BUSINESS WILL SUFFER
The market for online data storage and management services has only
recently begun to develop and is rapidly evolving. Because this market is new,
it is difficult to predict its potential size or future growth rate. If this
market does not develop as rapidly as we anticipate, our operating results may
be below the expectations of public market analysts and investors, which would
cause our stock price to decline.
WE HAVE A HISTORY OF LOSSES AND, BECAUSE WE EXPECT OUR OPERATING EXPENSES
TO INCREASE IN THE FUTURE, WE MAY NEVER BECOME PROFITABLE
We have experienced net losses since inception, and as of December 31,
1999, we had an accumulated deficit of $21.5 million. We incurred net losses of
$11.2 million for the year ended December 31, 1999, $5.2 million for the year
ended December 31, 1998 and $3.6 million for the year ended December 31, 1997.
We expect to continue to incur significant net losses for the foreseeable
6
<PAGE> 11
future. While we are unable to predict accurately our future operating expenses,
we currently expect these expenses to increase substantially, as we:
- expand our sales and marketing activities and marketing relationships;
- fund contractual obligations, including marketing agreements and leases;
- increase our research and development efforts to upgrade our existing
services and develop new services and technologies;
- establish new data centers;
- upgrade our operational and financial systems, procedures and controls;
- hire and train additional personnel, including sales, engineering,
technical, financial and accounting personnel; and
- assume the responsibilities of being a public company.
If we fail to significantly increase revenues from subscription fees to our
online data storage service, @Backup, or fail to generate revenues from our new
service offerings, including our SkyFiler service, we will continue to
experience losses indefinitely. We also may fail to accurately estimate and
assess our increased operating expenses as we grow. If our operating expenses
exceed our expectations, our financial performance will be adversely affected,
which could cause the price of our common stock to decline.
OUR RECENT GROWTH HAS STRAINED OUR EXISTING PERSONNEL AND INFRASTRUCTURE
RESOURCES, AND IF WE ARE UNABLE TO IMPLEMENT APPROPRIATE CONTROLS AND
PROCEDURES TO MANAGE OUR GROWTH, WE MAY NOT BE ABLE TO SUCCESSFULLY
IMPLEMENT OUR BUSINESS PLAN
We are currently experiencing a period of rapid growth in our
operations, which has placed, and will continue to place, a significant strain
on our management, administrative, operational and financial infrastructure. Our
future success will depend, in part, upon the ability of our senior management
to manage our growth effectively. Unless we manage our growth, we may make
mistakes in operating our business such as inaccurate forecasting or financial
reporting, which may result in unanticipated fluctuations in our operating
results. Effectively managing our growth will require us to hire and train
additional personnel to manage our expanding operations. In addition, we will be
required to continue to improve our operational, financial and management
controls and our reporting systems and procedures. We may not be able to install
adequate control systems in an efficient and timely manner, and our current or
planned personnel, systems, procedures and controls may not be adequate for
future operations.
WE MUST DEVELOP, IMPLEMENT AND EXPAND OUR CO-MARKETING PROGRAMS TO INCREASE
OUR REVENUES AND IMPROVE OUR OPERATING RESULTS
We intend to rely increasingly on co-marketing programs to increase
revenues from our services. Most of our marketing relationships have only
recently started, and we are still in the process of developing and implementing
the related co-marketing programs. In order for our marketing relationships to
be successful, we must obtain a significant number of subscribers to our
standard @Backup service from upgrades by our marketing partners' customers who
receive complementary access to limited versions of our service. If we do not
obtain a sufficient number of subscribers through upgrades, our revenues may not
increase in accordance with our expectations. We cannot assure you that we have
selected the right partners or that any co-marketing programs we
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<PAGE> 12
develop and implement will be successful. In addition, we have already made
significant investments of management time and financial resources in connection
with our co-marketing programs and have ongoing financial and contractual
obligations under our marketing relationships. If we do not generate sufficient
revenues from these programs, our business will suffer. Further, to increase our
current and future market share we will need to improve and expand our existing
co-marketing programs and develop and implement new co-marketing programs. We
cannot assure you that we will be able to improve or expand our existing
co-marketing programs or develop and implement co-marketing programs with new
marketing partners, or that any new relationships will be available on
commercially reasonable terms. If we are unable to maintain and expand our
existing co-marketing programs or develop and implement new co-marketing
programs, we may lose access to valuable customer bases, which could limit our
growth.
WE DEPEND ON THE SALES AND MARKETING EFFORTS EXPENDED BY OUR MARKETING
PARTNERS FOR THE FUTURE SUCCESS OF OUR BUSINESS
Our ability to generate increased revenues depends significantly upon
the ability and willingness of our marketing partners to market and sell our
services to their customers. Our co-marketing programs rely, in part, on the
voluntary efforts of these third parties. We cannot control the level of effort
these marketing partners expend or the extent to which any of them will be
successful in marketing and selling our services. If they are unsuccessful in
their efforts, our operating results will suffer. Further, our co-marketing
agreements generally do not prohibit our partners from developing, marketing or
selling products and services that compete with our services. We may not be able
to prevent these parties from devoting greater resources to support services
developed by them or other third parties. If our marketing partners fail to
generate new customers for our services, we will be forced to increase our
direct marketing expenses, change our marketing strategy or enter into marketing
relationships with different parties, any of which would adversely affect our
business.
THE FAILURE OF OUR MARKETING PARTNERS TO MAKE TIMELY RELEASES OF PRODUCTS
AND SERVICES THAT ACHIEVE MARKET ACCEPTANCE COULD HARM OUR OPERATING
RESULTS
Our co-marketing programs frequently provide for the initiation of
co-marketing efforts contemporaneous with the launch of our partners' products
or services. Accordingly, any delays by our partners in releasing their products
or services could result in delays in our ability to recognize benefits from our
co-marketing programs. Similarly, if our partners' products and services do not
achieve market acceptance, then the benefits to us of the co-marketing programs
may be substantially reduced, which could harm our business.
BECAUSE WE EXPECT TO DERIVE THE SUBSTANTIAL MAJORITY OF OUR FUTURE REVENUE
FROM SUBSCRIPTION FEES FOR OUR @BACKUP SERVICE, ANY FAILURE OF THIS SERVICE
TO ACHIEVE MARKET ACCEPTANCE AND SATISFY USER DEMANDS WILL SERIOUSLY HARM
OUR BUSINESS
To date, all of our revenues have come from subscriptions for @Backup.
We expect that for the foreseeable future the substantial majority of our
revenues will come from subscriptions for @Backup. As a result, our operating
results and our business will be significantly impaired if for any reason
revenues from @Backup do not grow as rapidly as we anticipate. A significant
barrier to the acceptance of our @Backup service is the concern regarding the
privacy of confidential information transmitted over public networks. If our
target users do not accept the reliability, privacy and cost-effectiveness of
our online data storage and management services, then the market for our
services may not develop or develop more slowly then we expect, which could
adversely affect our operating results. In addition, if @Backup fails to meet
the needs of our target users, or if it does not compare favorably in price and
performance to competing products and services, our growth will be limited.
8
<PAGE> 13
OUR GROWTH WILL BE LIMITED IF WE FAIL TO CREATE AN AWARENESS OF OUR BRANDS
To be successful, we must develop and strengthen awareness of our
SkyDesk, @Backup and SkyFiler brands with small and medium-sized businesses and
individual computer users. Our @Backup service has been available for only a
short time, and we recently changed our corporate name to SkyDesk and have not
yet released our SkyFiler service. As a result, awareness of our brands is
limited. In addition, there may be a limited window of opportunity to establish
brand awareness for our services due in part to the emerging nature of the
online data storage and management market, the increasing number of competitors
entering this market and the substantial resources available to our existing and
potential competitors. Successful promotion of our brands will depend largely on
the effectiveness of our marketing efforts and on our ability to develop
reliable and useful services at competitive prices. Further, because we plan to
sell a majority of our services indirectly through our marketing partners,
successful promotion of our brands also depends in part on the marketing efforts
of our marketing partners. If we or our marketing partners fail to successfully
promote our SkyDesk, @Backup and SkyFiler brands, or if our expenses to promote
and maintain these brands are greater than anticipated, our business could
suffer.
OUR SUCCESS DEPENDS ON @BACKUP USERS RENEWING THEIR SUBSCRIPTIONS
Our future success also depends on our customers renewing their
subscriptions. Due to the relatively short amount of time that we have offered
@Backup, we have very limited subscription renewal data. @Backup subscriptions
typically last 12 months, with no renewal obligation. We cannot assure you that
we will experience acceptable renewal rates. Should we fail to procure a
sufficient amount of subscription renewals, we would be required to increase our
efforts to obtain new subscribers to generate revenue growth, which could
increase our operating expenses and lower our profitability.
OUR PLANNED SPENDING ON NEW DATA CENTERS MAY NOT YIELD RESULTS THAT JUSTIFY
THE COSTS INCURRED
We plan to substantially increase our capital expenditures to establish
and maintain new data centers. Changes in technology may render our data centers
obsolete or may impair the security and reliability we will need to build and
maintain customer confidence. Further, we cannot assure you that our data
centers will be able to successfully handle increases in the volume of data we
store and manage as our business grows. If our estimates of the required
capacity of our data centers are incorrect, then our business may be harmed.
WE MAY NOT BE ABLE TO DEVELOP ACCEPTABLE NEW SERVICES OR ENHANCEMENTS TO
OUR EXISTING SERVICES AT A RATE REQUIRED BY OUR RAPIDLY CHANGING MARKET
Our future success will depend, in part, on our ability to successfully
develop, introduce and gain user acceptance of new services. In particular, we
believe that a significant portion of our future growth will depend on the
commercial success of our SkyFiler service which we plan to introduce in the
first half of 2000. We cannot assure you that SkyFiler will achieve market
acceptance. In addition, we will need to continuously modify and enhance @Backup
and SkyFiler to keep pace with rapid technological developments and the changing
needs of our users. We cannot assure you that we will be successful in
developing new services, enhancing our existing services or introducing them
timely to the market. Any failure or delay in diversifying and enhancing our
existing service offerings could harm our business. In addition, uncertainties
about the timing and nature of new Internet-related technologies, or
modifications to existing technologies, could increase our research and
development expenses. The failure of our services to operate effectively with
the existing and future
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technologies will limit or reduce the market for our services, result in user
dissatisfaction and could seriously harm our business.
IF WE ACQUIRE ANY COMPANIES OR TECHNOLOGIES IN THE FUTURE, THEY COULD PROVE
DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE AND
ADVERSELY AFFECT OUR OPERATING RESULTS
In the future, we may acquire or make investments in complementary
companies, services and technologies. We have not made any acquisitions or
investments to date, and therefore our ability as an organization to make
successful acquisitions or investments is unproven. Acquisitions and investments
involve numerous risks, including:
- difficulties in integrating operations, technologies, services and
personnel;
- diversion of financial and management resources from existing operations;
- risk of entering new markets;
- potential loss of key employees; and
- inability to generate sufficient revenues to offset acquisition or
investment costs.
If we fail to address these risks, we may suffer losses or our management may be
distracted from our day-to-day operations. In addition, if we finance
acquisitions by issuing convertible debt or equity securities, existing
stockholders may be diluted, which could affect the market price of our stock.
WE EXPECT TO FACE INCREASING COMPETITION FROM COMPANIES THAT MAY HAVE
SIGNIFICANTLY GREATER RESOURCES, WHICH COULD PREVENT US FROM INCREASING
REVENUE OR ACHIEVING OR SUSTAINING PROFITABILITY
The market for online data storage and management services is intensely
competitive and is likely to become even more so in the future. Increased
competition could result in pricing pressures, reduced sales or the failure of
our services to achieve or maintain widespread market acceptance, any of which
would have a material adverse effect on our business. Our current principal
competitors include companies offering:
- online data protection products, such as Connected Corporation;
- online storage for consumers, such as Driveway, i-drive.com and X:drive;
- removable storage products, such as Iomega Corporation;
- tape drive storage products, such as Colorado Memory Systems, Quantum and
Seagate; and
- online data collaboration services, such as Critical Path.
In addition, potential competitors include storage vendors, computer
manufacturers, software publishers and Internet service providers. These parties
may enhance their products or develop separate services that include functions
that are provided by our services.
Many of our current and potential competitors enjoy substantial competitive
advantages, such as:
- greater name recognition and larger marketing budgets and resources;
- established marketing relationships and access to larger customer bases;
and
- substantially greater financial, technical and other resources.
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As a result, they may be able to respond more quickly and effectively than we
can to new or changing opportunities, technologies, standards or customer
requirements. For all of the foregoing reasons, we may not be able to compete
successfully against our current and future competitors.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY, AND THESE
FLUCTUATIONS MAY CAUSE OUR STOCK PRICE TO FALL
Our quarterly operating results will likely vary significantly in the
future as the result of fluctuations in our operating expenses and revenues. We
expect that our operating expenses will increase substantially in the future as
we expand our selling and marketing activities, increase our research and
development efforts and hire additional personnel. In addition, our operating
expenses could fluctuate significantly during certain periods, including those
in which we experience:
- high commission expenses under our marketing agreements;
- increased operating expenses in connection with building and maintaining
our data centers;
- a concentration of marketing expenses for marketing activities, such as
trade shows and advertising campaigns; and
- a concentration of general and administrative expenses, such as
recruiting expenses and professional services fees.
Further, we expect that our revenues may fluctuate significantly due to
a combination of factors, including:
- the market acceptance of our online data storage and management services;
- the success of our indirect marketing strategy;
- changes in subscription prices resulting from competition or other
factors;
- technical difficulties or systems downtime affecting the Internet or our
services;
- our ability to develop new and enhanced online data storage and
management services; and
- changes in customer budgets as well as general economic conditions.
Due to these and other factors, we believe that our quarterly operating
results will vary significantly in the future. As a result, quarter-to-quarter
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of our future performance. It is possible that in some
future periods, our results of operations may be below the expectations of
public market analysts and investors. If this occurs, the price of our common
stock may decline.
BECAUSE OUR SERVICES ARE BASED ON COMPLEX TECHNOLOGY, THEY MAY HAVE ERRORS
OR DEFECTS THAT USERS IDENTIFY AFTER DEPLOYMENT, WHICH COULD HARM OUR
REPUTATION AND OUR BUSINESS
Services as complex as ours frequently contain undetected errors when
first introduced or when new versions or enhancements are released. We have from
time to time found errors in versions of @Backup, and we may find such errors in
@Backup in the future. We cannot assure you that initial versions of any new
services we introduce will not contain significant errors. The occurrence of
errors in our services could adversely affect subscriptions, divert the
attention of our engineering personnel from our research and development efforts
and cause significant customer relations problems.
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WE ARE DEPENDENT ON OUR MANAGEMENT TEAM, AND THE LOSS OF ANY KEY MEMBER OF
THIS TEAM MAY PREVENT US FROM IMPLEMENTING OUR BUSINESS PLAN IN A TIMELY
MANNER
Our success depends to a significant degree upon the continued
contributions of our key management, product development, sales and marketing
and finance personal, many of whom would be difficult to replace. In particular,
we rely on Gary E. Sutton, our President and Chief Executive Officer, Dan L.
Dearen, our Executive Vice President and Chief Financial Officer, Fred W.
McClain, our Chief Technology Officer, Stephen P. Mickelsen, our Vice President
of Engineering, and James L. Till, our Senior Vice President of Sales and
Marketing. The loss of one or more of these key personnel may seriously harm our
business and results of operations. We do not have employment contracts with any
of our key personnel, and therefore, they could terminate their employment with
us at any time without penalty. We do not maintain key person life insurance
policies on any of our employees. We cannot assure you that in such an event we
would be able to recruit personnel to replace these individuals in a timely
manner, or at all, on acceptable terms.
BECAUSE COMPETITION FOR OUR TARGET EMPLOYEES IS INTENSE, WE MAY NOT BE ABLE
TO ATTRACT AND RETAIN THE HIGHLY SKILLED EMPLOYEES WE NEED TO SUPPORT OUR
PLANNED GROWTH
To execute our growth plan, we must attract and retain highly qualified
personnel. We need to hire additional personnel in virtually all operational
areas, including sales and marketing, research and development, finance,
accounting, operations and technical support, customer service and
administration. Competition for these personnel is intense, especially for
computer engineers with experience in designing and developing software and
Internet-related services. We cannot assure you that we will be successful in
attracting and retaining qualified personnel. We have from time to time in the
past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications. Many of the companies with which we compete for experienced
personnel have greater resources than we have. If we fail to attract new
personnel or retain and motivate our current personnel, our business and future
growth prospects could be severely harmed.
OUR SYSTEMS MAY BE VULNERABLE TO SECURITY RISKS OR SERVICE DISRUPTIONS THAT
COULD HARM OUR BUSINESS
Our systems may be vulnerable to physical or electronic break-ins and
service disruptions which could lead to interruptions, delays, loss of data or
the inability to process user requests. Additionally, we cannot assure you that
advances in computer and cryptography capabilities or other developments will
not result in a compromise of our software, algorithms or other encryption
technology. If any such compromise of our security were to occur, it could be
very expensive to cure, could damage our reputation and could discourage
existing and potential users and corporate partners from using or promoting our
services. Although we have not experienced attempted break-ins, we may
experience break-ins in the future. Our systems may also be affected by outages,
delays and other difficulties due to system failures of Internet service
providers, online service providers and other web site operators that control
access to the Internet by our users and by us. Our insurance coverage in certain
circumstances may be insufficient to cover losses and liabilities that may
result from such events. Any such events could substantially harm our business.
ANY FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD IMPAIR OUR
ABILITY TO PROTECT OUR PROPRIETARY TECHNOLOGY AND ESTABLISH OUR BRANDS
Intellectual property is critical to our success. We rely upon patent,
trademark, copyright and trade secret laws in the United States and other
jurisdictions as well as confidentiality procedures
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and contractual provisions to protect our proprietary technology and our
SkyDesk, @Backup and SkyFiler brands. Any of our trademarks may be challenged by
others or invalidated through administrative process or litigation. Our pending
patent applications and any new patent applications we file may not result in
issued patents, and our issued patents may not preclude competitors from
independently developing services or technologies that are substantially
equivalent or superior to our products and technology. In addition, any or all
of our patents may be challenged by third parties. Further, legal standards
relating to the validity, enforceability and scope of protection of intellectual
property rights is uncertain. Effective patent, trademark, copyright and trade
secret protection may not be available to us in every country in which our
services are available. The laws of some foreign countries may not be as
protective of intellectual property rights as United States laws, and mechanisms
for enforcement of intellectual property rights may be inadequate. As a result,
we cannot assure you that our means of protecting our proprietary technology and
brands will be adequate. Furthermore, despite our efforts, we may be unable to
prevent third parties from infringing upon or misappropriating our intellectual
property. Any such infringement or misappropriation could have a material
adverse effect on our business.
WE MAY BE SUED BY THIRD PARTIES FOR ALLEGED INFRINGEMENT OF THEIR
PROPRIETARY RIGHTS
As the number of entrants into the online data storage and management
market increases, the possibility of an intellectual property claim against us
grows. We may not be able to withstand any third-party claims or rights against
the use of our technologies and services. In addition, any intellectual property
claims, with or without merit, could be time-consuming and expensive to litigate
or settle, and could divert management attention from executing our business
plan.
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE CONTINUED GROWTH AND ACCEPTANCE
OF THE INTERNET
Expansion in subscriptions for our services depends on the continued
acceptance of the Internet as a communications and commerce platform. The
Internet could also lose its viability as a commercial medium due to delays in
the development or adoption of new standards and protocols to handle increased
demands of Internet activity, security, reliability, cost, ease-of-use,
accessibility and quality-of-service. In addition, federal, state and foreign
agencies have begun to increasingly regulate the Internet and Internet commerce.
Any regulation imposing fees for Internet use could result in a decline in the
use of the Internet and slow the acceptance of the Internet. The demand for our
services could be significantly reduced if the Internet does not continue to
become a widespread communications medium and commercial platform.
BECAUSE WE RECOGNIZE REVENUE FROM SUBSCRIPTIONS FOR OUR SERVICES RATABLY
OVER THE TERM OF THE SUBSCRIPTION, DOWNTURNS IN SALES MAY NOT BE
IMMEDIATELY REFLECTED IN OUR REVENUES
We expect that a majority of our future revenues will come from
subscriptions to @Backup. Upon execution of a subscription agreement, we invoice
our customers for the full term of the subscription agreement. We then recognize
revenue from customers over the terms of their subscription agreements which
generally have a duration of 12 months. Similarly, we recognize payments from
our marketing partners over the 12-month period following the date the payment
becomes due. As a result, a majority of the revenues we report in each quarter
is deferred revenue paid to us during previous quarters. Because of this
deferred revenue, the revenues we report in any quarter or series of quarters
may mask material downturns in sales and the market acceptance of our services.
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OUR SERVICES CREATE RISKS OF POTENTIAL NEGATIVE PUBLICITY AND LEGAL
LIABILITY
Because users rely on our services to protect and store their critical
business and personal information, any significant defects, errors or failures
in our services may result in negative publicity or legal claims. Negative
publicity or legal claims could seriously harm our business. We have not
experienced any liability claims to date, but we cannot assure you that we will
not face this type of claim in the future. We maintain errors and omissions
insurance, but we cannot assure you that this insurance coverage will be
adequate to cover us for any claims.
BECAUSE OUR OPERATING EXPENSES CURRENTLY EXCEED OUR REVENUES, WE MAY NEED
TO RAISE ADDITIONAL FUNDS IN THE FUTURE, AND SUCH FUNDS MAY NOT BE
AVAILABLE OR HAVE ACCEPTABLE TERMS
Our operating expenses currently exceed our revenues, and we expect our
operating expenses to increase substantially in the future. In addition, we may
experience a material decrease in liquidity due to unforeseen capital
requirements or other events and uncertainties. As a result, we may need to
raise additional funds in the future, and such funds may not be available on
favorable terms, if at all. If we cannot raise funds on acceptable terms, we may
not be able to increase our sales and marketing activities, develop or enhance
our services and technologies, fund our contractual obligations, respond to
competitive pressures or otherwise execute our business plan. This may seriously
harm our financial condition.
CHANGES TO FINANCIAL ACCOUNTING STANDARDS MAY AFFECT OUR REPORTED RESULTS
OF OPERATIONS
We prepare our financial statements to conform with generally accepted
accounting principles, or GAAP. GAAP are subject to interpretation by the
American Institute of Public Accountants, the Securities and Exchange Commission
and various bodies formed to interpret and create appropriate accounting
policies. A change in those policies can have a significant effect on our
reported results and may even affect our reporting of transactions completed
before a change is announced. Accounting policies affecting many other aspects
of our business, including rules relating to purchase and pooling-of-interests
accounting for business combinations, employee stock option grants and revenue
recognition have recently been revised or are under review. Changes to those
rules or the questioning of current practices may adversely affect our reported
financial results or the way we conduct our business. In addition, our
preparation of financial statements in accordance with GAAP requires that we
make estimates and assumptions that affect the recorded amounts of assets and
liabilities, disclosure of those assets and liabilities at the date of the
financial statements and the recorded amounts of expenses during the reporting
period. A change in the facts and circumstances surrounding those estimates
could result in a change to our estimates and could impact our future operating
results.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD COSTS TO DOING
BUSINESS OR LIMIT OUR POTENTIAL MARKETS
Laws and regulations directly applicable to communications or commerce
over the Internet are becoming more prevalent. The adoption or modification of
laws or regulations relating to the Internet could adversely affect our
business. The last session of the United States Congress resulted in Internet
laws regarding children's privacy, copyrights, taxation and the transmission of
sexually explicit material. The European Union recently enacted its own privacy
regulations. The law of the Internet, however, remains largely unsettled, even
in areas where there has been some legislative action. It may take years to
determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the Internet. In addition, the
growth and development of the market for online commerce may prompt calls for
more stringent consumer
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protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business online. For example, Germany
and the European Union have enforced laws and regulations on content distributed
over the Internet that are more strict than those currently in place in the
United States. In addition, because our services utilize encryption algorithms,
we are subject to U.S. export regulations. Although we currently hold an export
license, we cannot assure you that we will be able to maintain our right to
export our services. If we were unable to renew or extend our export license if
such renewal or extension became necessary, our ability to service customers
outside the United States would be limited, which could harm our operating
results.
WE, OUR MARKETING PARTNERS OR OUR SOFTWARE AND HARDWARE VENDORS MAY HAVE
BEEN ADVERSELY AFFECTED BY THE TRANSITION TO THE YEAR 2000 IN A MANNER THAT
IS NOT YET APPARENT
Although the date is now past January 1, 2000, and we have not
experienced any adverse impact from the transition to the Year 2000, we cannot
provide assurances that we, our marketing partners or our software and hardware
vendors have not been affected in a manner that is not yet apparent. As a
result, we will continue to monitor our Year 2000 compliance and the Year 2000
compliance of our marketing partners and vendors. Due to the general uncertainty
inherent in the Year 2000 problem, especially the uncertainty regarding the Year
2000 compliance of our marketing partners and vendors, we are unable to
determine at this time whether the Year 2000 problem will have a material
adverse effect on our business.
RISKS RELATED TO THIS OFFERING
OUR SENIOR MANAGEMENT TEAM WILL HAVE BROAD DISCRETION OVER THE USE OF THE
PROCEEDS FROM THIS OFFERING
Our senior management team will have broad discretion over the use of
the proceeds from this offering, and they may use the proceeds for corporate
purposes that do not increase our profitability or our market value, or in ways
with which our stockholders may not agree. Presently, anticipated uses of the
proceeds of this offering and our existing cash resources are to fund our
working capital needs. We have not yet determined with any specificity how we
will use the proceeds from this offering or our existing cash balance. Pending
this determination, we will invest the proceeds from the offering in short term,
investment grade, interest-bearing securities that may lose value.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS OWN A LARGE
PERCENTAGE OF OUR VOTING STOCK AND COULD DELAY OR PREVENT A CHANGE IN OUR
CORPORATE CONTROL OR OTHER MATTERS REQUIRING STOCKHOLDER APPROVAL, EVEN IF
FAVORED BY OUR OTHER STOCKHOLDERS
Immediately after this offering, our executive officers, directors and
principal stockholders, and their respective affiliates, will beneficially own
approximately % of our outstanding common stock, assuming the exercise of
all outstanding options and warrants held by these stockholders. As a result,
these stockholders, if acting together, would be able to control substantially
all matters requiring approval by our stockholders, including the election of
all directors and approval of significant corporate transactions.
WE MAY SEEK TO RAISE ADDITIONAL FUNDS IN THE FUTURE, AND SUCH ADDITIONAL
FUNDING MAY BE DILUTIVE TO OUR STOCKHOLDERS OR IMPOSE OPERATIONAL
RESTRICTIONS
Additional equity financing may be dilutive to our stockholders, and
debt financing, if available, may involve restrictive covenants, which may limit
our operating flexibility. If additional
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funds are raised through the issuance of equity securities, the percentage
ownership of our stockholders will be reduced. These stockholders may experience
additional dilution in net book value per share and any additional equity
securities may have rights, preferences and privileges senior to those of the
holders of our common stock.
NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE
TANGIBLE NET BOOK VALUE OF THEIR SHARES
We expect that the initial public offering price of our common stock
will significantly exceed the net tangible book value of our common stock. The
net tangible book value of one share of our common stock purchased at the
assumed initial public offering price of $ per share will be $ . As a
result, investors purchasing common stock in this offering will incur dilution
of $ per share. In addition, we have issued options for shares of our common
stock with an average exercise price of $ per share and warrants for
shares with an average exercise price of $ per share. Because
the exercise price of these options and warrants are significantly below the
assumed initial public offering price, investors purchasing common stock in this
offering will suffer additional dilution when and if these options and warrants
are exercised.
THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, AND WE EXPECT
THAT ITS PRICE WILL BE VOLATILE
Prior to this offering, there has been no public market for our common
stock, and we cannot assure you that an active public market for our common
stock will develop or be sustained after this offering. The initial public
offering price of our common stock will be determined by negotiation among us
and the representatives of the several underwriters based upon a number of
factors. As a result, the initial public offering price of our common stock may
not be indicative of the market price of our common stock following the
offering. In addition, the market price of our common stock is likely to be
highly volatile and could be subject to wide fluctuations in response to a
number of factors, including:
- announcements of technological innovations or new products or services by
us or our competitors;
- demand for our services, including fluctuations in subscription renewals;
- changes in our pricing policies or the pricing policies of our
competitors;
- quarterly variations in operating results;
- our technological capabilities to accommodate any future growth in our
operations or users;
- changes in government regulations; and
- changes in financial estimates by securities analysts or our failure to
meet or exceed analyst estimates.
The stock market has experienced significant price and volume fluctuations that
have particularly affected the market price of the stock of many
Internet-related companies, and that often have been unrelated or
disproportionate to the operating performance of these companies. A number of
publicly traded Internet-related companies have current market prices below
their initial public offering prices. Market fluctuations such as these may
seriously harm the market price of our common stock. In the past, securities
class action suits have been filed following periods of market volatility in the
price of a company's securities. If such an action was instituted against our
company, we would incur
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substantial costs and a diversion of management attention and resources, which
may seriously harm our business.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE
Sales of a large number of shares of our common stock in the market
after this offering, or the belief that these sales could occur, may cause the
market price of our common stock to decline. Based on the 29,880,682 shares of
common stock we had outstanding as of December 31, 1999 and the shares to
be sold in this offering, we will have outstanding shares of common stock
upon completion of this offering, assuming none of our outstanding options or
warrants are exercised. Of these shares, the shares sold in this offering
will be freely tradable without restriction or further registration under the
Securities Act, unless the shares are purchased by our "affiliates."
The remaining 29,880,682 shares of common stock outstanding upon
completion of this offering will be "restricted securities," as that term is
defined under Rule 144 of the Securities Act. All of our directors, executive
officers and other securityholders are subject to lock-up agreements or market
stand-off provisions that limit their ability to sell their common stock prior
to 180 days after the date of this offering. However, if the average price of
our shares increases by a specified amount following the date of this
prospectus, those holders who are not employees of SkyDesk may be eligible to
sell up to 25% of their shares either 90 days after the date of this prospectus
or on the second business day following the release of our next quarterly
financial statements, whichever day comes later. Such holders may be eligible to
sell an additional 25% of their shares 135 days after the date of this
prospectus if the average price of our shares continues to equal or exceed the
targeted amount. When the lock-up agreements or market stand-off provisions
expire, these shares and the shares underlying outstanding stock options and
warrants will become eligible for sale, in some cases only subject to the
volume, manner of sale and notice requirements of Rule 144.
Subject to the potential early release from the lockup agreements for
non-employee stockholders described above, the shares of our common stock will
become eligible for public sale as follows:
- no shares as of the effective date;
- no shares as of 90 days after the effective date;
- 29,880,682 shares as of 180 days after the effective date; and
- no shares more than 181 days after the effective date.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE US, EVEN IF DOING SO WOULD
BE BENEFICIAL TO OUR STOCKHOLDERS
Some provisions of our certificate of incorporation and bylaws, as well
as some provisions of Delaware law, may discourage, delay or prevent third
parties from acquiring us, even if doing so would be beneficial to our
stockholders. For example, our certificate of incorporation provides for a
classified board, with each board member serving a staggered three-year term. It
also provides that stockholders may not fill board vacancies, call stockholder
meetings or act by written consent. Our bylaws further provide that advance
written notice is required prior to stockholder proposals. Each of these
provisions make it more difficult for stockholders to obtain control of our
board or initiate actions that are opposed by the then current board.
Additionally, we have authorized preferred stock that is undesignated, making it
possible for the board to issue preferred stock with voting or other rights and
preferences that could impede the success of any attempted change of control.
Delaware law also could make it more difficult for a third party to acquire us.
Section 203 of the Delaware
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General Corporation Law may have an anti-takeover effect with respect to
transactions not approved in advance by our board, including discouraging
attempts that might result in a premium over the market price of the shares of
common stock held by our stockholders.
WE DO NOT INTEND TO PAY DIVIDENDS
We have never declared or paid any cash dividends on our common stock.
We currently intend to retain any future earnings to fund growth and, therefore,
do not expect to pay any dividends in the foreseeable future. See "Dividend
Policy" for additional information regarding our dividend policy.
THE RELIABILITY OF MARKET DATA INCLUDED IN THIS PROSPECTUS IS UNCERTAIN
Since we are a new company and operate in a new and rapidly changing
market, we have included market data from industry publications. The reliability
of this data cannot be assured. Market data and information used throughout this
prospectus was obtained from internal company surveys and industry publications.
Industry publications generally state that the information contained in these
publications has been obtained from sources believed to be reliable, but that
its accuracy and completeness is not guaranteed. Although we believe market data
used in this prospectus to be reliable, it has not been independently verified.
Similarly, internal company surveys, while believed by us to be reliable, have
not been verified by any independent sources.
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FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements," which may include
the following:
- our business strategy;
- the timing of and plans for the introduction of new services and
enhancements;
- plans for hiring additional personnel;
- anticipated growth in the market for online data storage and management
solutions;
- entering into additional marketing relationships; and
- the adequacy of anticipated financial resources to fund our operations
for at least the 12 months following the date of this prospectus.
Other statements about our plans, objectives, expectations and intentions
contained in this prospectus that are not historical facts may also be
forward-looking statements. When used in this prospectus, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar
expressions are generally intended to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties, actual
results could differ materially from those expressed or implied by these
forward-looking statements for a number of reasons, including those discussed
under "Risk Factors" and elsewhere in this prospectus. We assume no obligation
to update any forward-looking statements.
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USE OF PROCEEDS
We estimate that the net proceeds of this offering will be approximately
$ million, based on an assumed initial public offering price of $ per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us. If the underwriters exercise the
over-allotment option in full, we estimate that our net proceeds will be
$ , after deducting the estimated discounts, commissions and expenses.
We plan to use the net proceeds of this offering, along with our existing
cash balance, for working capital and general corporate purposes. These will
include, but may not be limited to, expenditures for sales and marketing,
research and development and infrastructure and support improvements. We may
also use a portion of the net proceeds for acquisitions of businesses, products
and technologies or the establishment of strategic alliances that are
complementary to our current and future business. Although we have not
identified any specific businesses, products or technologies that we may
acquire, and there are no current agreements or understandings with respect to
any such transactions, we may from time to time evaluate such opportunities. The
amounts actually used for such working capital purposes may vary significantly
and will depend on a number of factors, including the amount of our future
revenue and the other factors described under "Risk Factors." Accordingly, we
will retain broad discretion in the allocation of the net proceeds of this
offering. Pending the above described uses, we will invest the net proceeds of
this offering in interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have not declared or paid cash dividends on shares of our capital stock.
We currently intend to retain any earnings to develop and expand our business,
and do not anticipate paying cash dividends in the foreseeable future. Any
future determination with respect to the payment of dividends will be at the
discretion of our board of directors and will depend upon, among other things,
our operating results, financial condition and capital requirements, the terms
of then-existing indebtedness, general business conditions and other factors our
board of directors deems relevant.
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CAPITALIZATION
The following table summarizes our capitalization as of December 31, 1999:
- on an actual basis; and
- on a pro forma as adjusted basis to reflect:
- the conversion of all of our outstanding preferred stock into common
stock upon completion of this offering;
- an amendment to our certificate of incorporation to be effective upon
completion of this offering, that will, among other things, increase our
authorized number of shares of common stock to 150,000,000 and authorize
a class of undesignated preferred stock; and
- our sale of shares of common stock at an assumed initial public
offering price of $ per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses
that we will pay.
You should read this table together with our consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 16,095 $
======== ========
Long-term obligations, net of current portion............... $ 2,222 $ 2,222
-------- --------
Redeemable preferred stock, issuable in series, no par
value: no shares authorized, 25,836,298 shares issued and
outstanding, actual; no shares authorized and no shares
issued and outstanding pro forma as adjusted.............. 31,010
Warrants to purchase preferred stock........................ 1,204
Stockholders' equity (deficit):
Series A convertible preferred stock, no par value:
700,000 shares authorized, 640,000 issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma as adjusted..................... 278
Undesignated preferred stock, par value $0.001: no shares
authorized, issued or outstanding, actual; 5,000,000
shares authorized and no shares issued and outstanding,
pro forma as adjusted..................................
Common stock: no par value, 39,000,000 shares authorized,
3,404,384 shares issued and outstanding, actual; $0.001
par value, 150,000,000 shares authorized and
shares issued and outstanding, pro forma as adjusted... 102
Additional paid-in capital............................. 14,130
Deferred stock-based compensation...................... (10,654) (10,654)
Accumulated deficit.................................... (21,528) (21,528)
-------- --------
Total stockholders' equity (deficit).............. (17,672)
-------- --------
Total capitalization.............................. $ 16,764 $
======== ========
</TABLE>
21
<PAGE> 26
This table excludes the following shares as of December 31, 1999:
- 3,654,331 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $0.20 per share;
- 2,292,405 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $0.56 per share;
- 1,050,000 shares of common stock which may become issuable upon exercise
of a warrant subject to performance milestones; and
- a total of 156,990 shares of common stock available for future issuance
under our various stock plans.
In addition, our board of directors authorized 1,500,000 shares of common
stock for issuance under our existing stock plan and approximately 2,800,000
shares of common stock for issuance under our stock plans to become effective
upon completion of this offering.
22
<PAGE> 27
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $ million, or $ per share of common stock. Pro forma
net tangible book value per share is determined by dividing the amount of our
total tangible assets less our total liabilities by the pro forma number of
shares of common stock outstanding, after giving effect to the conversion of our
outstanding preferred stock. After giving effect to our sale of shares of common
stock at an assumed initial public offering price of $ per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses that we will pay, our adjusted pro forma net tangible book
value as of December 31, 1999 would have been $ million, or $ per
share. This amount represents an immediate increase in pro forma net tangible
book value to our existing stockholders of $ per share and an immediate
dilution to new investors of $ per share. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of December
31, 1999............................................... $
Increase per share attributable to new investors..........
----
Adjusted pro forma net tangible book value per share after
this offering.............................................
----
Dilution per share to new investors......................... $
====
</TABLE>
If the underwriters exercise their option in full to purchase additional
shares in this offering, our adjusted pro forma net tangible book value at
December 31, 1999 would have been $ million, or $ per share,
representing an immediate increase in pro forma net tangible book value to our
existing stockholders of $ per share and an immediate dilution to new
investors of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
AMOUNT PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 29,880,682 % $34,235,261 % $ 1.15
New investors...................... $
---------- ----- ----------- ------
Total.............................. 100.0% 100.0%
========== ===== =========== ======
</TABLE>
The preceding discussion and tables assume no exercise of any stock options
or warrants outstanding as of December 31, 1999. As of December 31, 1999, there
were:
- outstanding options to purchase a total of 3,654,331 shares of common
stock at a weighted average exercise price of $0.20 per share;
- outstanding warrants to purchase a total of 2,292,405 shares of common
stock at a weighted average exercise price of $0.56 per share; and
- 1,050,000 shares of common stock which may become issuable upon exercise
of a warrant subject to performance milestones.
As of December 31, 1999, assuming exercise of options to purchase 3,654,331
shares and warrants to purchase 3,342,405 shares that were outstanding at
December 31, 1999, pro forma net tangible book value per share before this
offering was $ . The investment by new investors in this offering
increases the as adjusted pro forma net tangible book value per share by
$ to $ per share after this offering resulting in dilution to
new investors of $ per share.
23
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. We derived the consolidated
statement of operations data for the years ended December 31, 1997, 1998 and
1999 and the consolidated balance sheet data as of December 31, 1998 and 1999
from our consolidated financial statements audited by Arthur Andersen LLP, which
appear elsewhere in this prospectus. We derived the consolidated balance sheet
data as of December 31, 1996 and 1997 and the consolidated statement of
operations data for the year ended December 31, 1996 from our financial
statements audited by Arthur Andersen LLP, which are not included in this
prospectus. We derived the consolidated statement of operations data for the
period from inception (July 26, 1995) to December 31, 1995 and the balance sheet
data as of December 31, 1995 from our unaudited financial statements that are
not included in this prospectus. We have prepared our unaudited financial
statements on the same basis as our audited financial statements. In the opinion
of our management, our unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information in those statements. Our historical results are
not necessarily indicative of operating results to be expected in the future.
<TABLE>
<CAPTION>
FROM INCEPTION
(JULY 1995) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------------
1995 1996 1997 1998
(UNAUDITED) 1999
<S> <C> <C> <C> <C> <C>
Net revenues............................... $ -- $ -- $ 63 $ 333 $ 567
Operating expenses:
Cost of services(a)...................... -- -- 647 641 879
Selling and marketing(b)................. 13 130 1,862 2,823 5,273
Research and development(c).............. 4 450 689 1,159 1,352
General and administrative(d)............ 11 357 503 928 1,561
Amortization of deferred stock-based
compensation .......................... -- 8 44 106 2,448
---------- ---------- ---------- ---------- ----------
Total operating expenses............... 28 945 3,745 5,657 11,513
---------- ---------- ---------- ---------- ----------
Loss from operations....................... (28) (945) (3,682) (5,324) (10,946)
Interest income (expense), net............. 1 61 60 116 (236)
---------- ---------- ---------- ---------- ----------
Net loss................................... $ (27) $ (884) $ (3,622) $ (5,208) $ (11,182)
========== ========== ========== ========== ==========
Adjustment for accretion of redeemable
convertible preferred stock.............. $ -- $ -- $ -- $ (136) $ (469)
Loss applicable to common stockholders..... $ (27) $ (884) $ (3,622) $ (5,344) $ (11,651)
========== ========== ========== ========== ==========
Historical net loss per share:
Basic and diluted(e)..................... $ (0.01) $ (0.27) $ (1.11) $ (1.63) $ (3.50)
========== ========== ========== ========== ==========
Weighted average common shares--basic and
diluted(e)............................. 2,700,000 3,253,365 3,260,677 3,279,750 3,332,093
Pro forma net loss per share(f):
Pro forma basic and diluted.............. $ (0.45)
==========
Pro forma common shares.................. 25,191,405
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------
1995 1996 1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 38 $ 3,063 $ 700 $ 2,107 $ 16,095
Working capital (deficit).................. 35 2,937 (742) 1,643 11,242
Total assets............................... 42 3,360 1,113 2,722 23,150
Deferred revenue........................... -- -- -- 36 442
Long-term obligations, net of current
portion.................................. -- -- -- -- 2,222
Total stockholders' equity (deficit)....... 39 3,228 (349) (9,355) (17,672)
</TABLE>
24
<PAGE> 29
- ------------------------------
(a) Exclusive of $3, $1 and $89 reported as amortization of deferred stock-based
compensation for cost of services personnel, for the years ended December
31, 1997, 1998 and 1999, respectively.
(b) Exclusive of $3, $16, $28 and $572 reported as amortization of deferred
stock-based compensation for sales and marketing personnel, for the years
ended December 31, 1996, 1997, 1998 and 1999, respectively.
(c) Exclusive of $3, $18, $43 and $404 reported as amortization of deferred
stock-based compensation for research and development personnel, for the
years ended December 31, 1996, 1997, 1998 and 1999, respectively.
(d) Exclusive of $1, $6, $35 and $1,383 reported as amortization of deferred
stock-based compensation for general and administrative personnel, for the
years ended December 31, 1996, 1997, 1998 and 1999, respectively.
(e) See Note 9 of "Notes to Consolidated Financial Statements" for a description
of the computation of per share information.
(f) See Note 2 of "Notes to Consolidated Financial Statements" for a description
of the calculation of pro forma share data.
25
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the related notes contained elsewhere in
this prospectus.
We are an application service provider focused on delivering reliable,
secure, easy-to-use and cost-effective data storage and document management
solutions to small and medium-sized businesses and individual computer users. We
incorporated in 1995 and changed our name to SkyDesk in March 2000. In 1997, we
began offering our @Backup data storage service directly to individuals and
businesses through the Internet, and we have derived substantially all of our
historical revenues from subscription fees for this service. Since early 1999,
we have focused on establishing marketing arrangements with leading software
publishers, hardware manufacturers, Internet service providers and
infrastructure vendors, and we anticipate that we will derive the substantial
majority of our future revenues from fees generated through these arrangements.
We have experienced significant net losses and negative cash flows from
operations in each fiscal period since inception, and as of December 31, 1999,
we had an accumulated deficit of $21.5 million.
We derive revenues from annual subscription fees paid by users of our
services. Users who purchase subscriptions for our services directly from us pay
for the service in advance via credit card upon entering into our standard
subscription agreement. We recognize revenue on a straight-line basis over the
term of the subscription agreement. Upon expiration of the subscription,
customers must resubscribe at our then current rates to continue using our
service. We also expect to increasingly derive revenues from contracts with our
marketing partners. Although revenues generated under these contracts to date
have not been significant, these contracts typically provide that payments to us
become due upon shipment of the partner's product or activation of the partner's
service when our service is offered in conjunction with that product or service.
We recognize revenue from these payments on a straight-line basis over the
subscription period beginning when our partner notifies us of shipment of their
product or customer activation of their service. Based upon our historical
experience, we reserve for estimated cancellations at the time the customer
becomes obligated to pay for our services. We record amounts billed to customers
in excess of recognizable revenue as deferred revenue on our balance sheet. As
of December 31, 1999, we had $442,000 of deferred revenue.
Because we derive our revenues from subscription fees, we do not recognize
the entire amount of subscription fees received in the quarter the subscription
agreements are executed. Conversely, we recognize our operating expenses as they
are incurred. Our operating expenses have increased more rapidly than our
revenues in recent periods due to expanded selling and marketing efforts and
investments in administrative infrastructure to support subscription sales that
we will recognize as revenue in subsequent periods. We anticipate that this
trend will continue and that our operating expenses, particularly selling and
marketing and general and administrative expenses, will grow at a faster rate
than our revenues in the near term.
Cost of services consist primarily of salaries, benefits and related
expenses of operations personnel, depreciation allocation and communications
charges associated with the delivery of our services. We intend to make
substantial capital investments in new data centers to support our anticipated
expanded user base, and we anticipate operating four data centers by the end of
2000. As a result, we anticipate that the depreciation allocation associated
with these new data centers will cause our cost of services to increase
substantially beginning in 2000. We also expect the other elements of cost of
services to increase as we continue to expand our operations.
Selling and marketing expenses consist primarily of Internet-based
advertising and salaries, bonuses, benefits and related expenses of personnel
engaged in selling, marketing and customer
26
<PAGE> 31
support functions as well as public relations, other advertising and promotional
costs. Because of our recent shift in our selling and marketing strategy, we
anticipate that payments to our marketing partners will account for the most
significant portion of our selling and marketing expenses in the future, and
that these expenses will increase significantly beginning in 2000. Our current
marketing agreements typically require that we pay our partner a commission when
an end-user upgrades or renews, and we anticipate that marketing agreements we
enter into in the future will have similar terms. These commissions are expensed
in the period the customer upgrades or renews and are included in our selling
and marketing expenses.
Some of our existing marketing contracts also require that we make payments
to our marketing partners for advertising, marketing and promotional activities
and for sales generated as a result of these activities. We expect that
marketing contracts we enter into in the future may require similar payments. As
a result, our selling and marketing expenses may increase at a faster rate than
our revenues due to our subscription-based revenue model.
In connection with a marketing agreement entered into in July 1999, we
issued two warrants to purchase shares of our stock to Dell Computer
Corporation. The first warrant entitled Dell to purchase up to 175,000 shares at
an exercise price of $0.25 per share. Under its original terms, this warrant
became exercisable in increments depending upon the passage of time and the
attainment of performance milestones. As a result, we recognized the fair value
of the warrant as it became exercisable as a selling and marketing expense in
1999. In March 2000, we and Dell amended this warrant to eliminate the
conditions to exercisability. As a result, we will record a selling and
marketing expense of $1.2 million in the first quarter of 2000. The second
warrant entitles Dell to purchase up to 1,050,000 shares of our stock subject to
performance milestones. Each fiscal quarter during the four year term of the
agreement, a certain number of shares under the warrant may become exercisable
depending upon satisfaction of the performance milestones in the preceding
quarter. The exercise price of the shares that became exercisable will be the
fair market value of the shares on the date they first become exercisable. We
will record the fair market value of each portion of the warrant that becomes
exercisable as a selling and marketing expense in the relevant period.
Research and development expenses consist primarily of salaries and
benefits and related expenses for engineers and quality assurance personnel, and
depreciation allocation. We expense all research and development costs as
incurred. To date, we have not capitalized any software development costs
because costs incurred between achieving technological feasibility and release
were minimal. We expect to continue to devote substantial resources to research
and development such that these expenses will increase in absolute dollars.
General and administrative expenses consist primarily of salaries, benefits
and related expenses for our executive, accounting, and administrative
personnel, third party professional service fees and allocated facilities and
depreciation expenses. We expect general and administrative expenses to increase
in the future, reflecting growth in our operations and increased expenses
associated with being a public company.
In connection with the grant of stock options from inception through
December 31, 1999, we recorded an aggregate of $13.3 million in deferred
stock-based compensation within stockholders' equity (deficit). These options
were considered compensatory because the deemed fair value, as determined solely
for financial reporting purposes, was greater than the exercise prices
determined by the board of directors on the date of grant. We are amortizing the
deferred stock-based compensation on a straight-line basis over the vesting
period of the related options, which is generally four years. As of December 31,
1999, we had an aggregate of $10.7 million of deferred stock-based compensation
remaining to be amortized. This deferred stock-based compensation balance will
be amortized as follows: $2.9 million during 2000; $2.8 million during 2001;
$2.8 million during 2002; and $2.2 million
27
<PAGE> 32
during 2003. We anticipate that we will record additional deferred stock-based
compensation expense related to options granted in the first quarter of 2000.
The amount of stock-based compensation amortization actually recognized in
future periods could decrease if options for which accrued but unvested
compensation has been recorded are forfeited.
Our financial statements do not reflect any income tax benefit arising from
our historical losses because we have recorded a full valuation allowance
against any deferred tax assets available to us for use in future periods.
Realization of these assets is primarily dependent on generating taxable net
income in the future. Because our numerous financings have resulted in a change
of control, the utilization of net operating loss and tax credit carryforwards
are limited. As of December 31, 1999, we had net operating loss carryforwards of
approximately $17.4 million and $12.2 million for federal and California
reporting purposes, respectively. The federal loss carryforwards will begin
expiring in 2010, unless previously utilized, while the California losses will
begin expiring in 2002.
Since our inception, we have issued and sold shares of mandatorily
redeemable Series B, Series C, Series D and Series E preferred stock in private
financings. The redeemable preferred stock is convertible into shares of common
stock on a one-to-one basis effective upon the closing of this offering. Because
the preferred stock is redeemable at the original issue price of each series, we
have accreted the value of expenses related to the redeemable preferred stock
issuances over the period to the earliest redemption date. Because the
redeemable preferred stock will convert into common stock as a result of this
offering, we will not recognize accretion during fiscal periods commencing after
the closing of this offering.
COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND
1997
Net revenues. Net revenues increased $234,000, or 70%, to $567,000 in 1999
from $333,000 in 1998. Net revenues increased $270,000, or 429%, in 1998 from
$63,000 in 1997. The increases in our net revenues in 1999 and 1998 were due
primarily to subscriptions from new customers.
Cost of services. Cost of services increased $238,000, or 37%, to $879,000
in 1999 from $641,000 in 1998. Cost of services decreased $6,000, or 1%, in 1998
from $647,000 in 1997. Cost of services remained flat from 1997 to 1998
primarily because these costs remained fixed below a certain level of activity.
The increase from 1998 to 1999 was due to increased headcount to support revenue
growth.
Selling and marketing. Selling and marketing expenses increased $2.5
million, or 87%, to $5.3 million in 1999 from $2.8 million in 1998. Selling and
marketing expenses increased $960,000, or 52%, in 1998 from $1.9 million in
1997. The increase in selling and marketing expenses in 1999 and 1998 was
primarily due to increases in advertising expenses and headcount.
Research and development. Research and development expenses increased
$193,000, or 17%, to $1.4 million in 1999 from $1.2 million in 1998. Research
and development expenses increased $470,000, or 68% in 1998 from $689,000 in
1997. The increase in research and development expenses in 1999 and 1998 was
primarily a result of increased development efforts and enhancements to the
@Backup and SkyFiler services.
General and administrative. General and administrative expenses increased
$632,000, or 68%, to $1.6 million in 1999 from $928,000 in 1998. General and
administrative expenses increased $426,000, or 85%, in 1998 from $503,000 in
1997. These increases in general and administrative expenses in 1999 and 1998
were primarily due to investments in increased headcount and facilities.
28
<PAGE> 33
Amortization of deferred stock-based compensation. We recognized $2.4
million, $106,000, and $43,000 in deferred stock-based compensation expense for
1999, 1998, and 1997, respectively, relating to the amortization of deferred
stock-based compensation.
Interest income (expense), net. Net interest expense increased $351,000 to
($236,000) in 1999 from net interest income of $115,000 in 1998. The increase in
interest expense was due primarily to the issuance of warrants in connection
with our bridge financing in 1999. Net interest income increased $55,000 in 1998
from $60,000 in 1997.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly operating information
for each of the four quarters in the period ending December 31, 1999. This data
has been prepared on the same basis as the audited consolidated financial
statements contained elsewhere in this prospectus and, in the opinion of
management, includes all adjustments necessary for the fair presentation of the
information for the periods presented. This information should be read in
conjunction with the consolidated financial statements and notes thereto. The
operating results in any quarter are not necessarily indicative of the results
that may be expected for any future period.
Quarterly revenues steadily increased over the past four quarters due to
the addition of new @Backup subscribers through our direct marketing efforts and
partnership programs. Our cost of services increased substantially in the fourth
quarter of 1999 due to increases in headcount and investments in infrastructure
to support anticipated future growth. Research and development expenses
increased steadily each quarter in 1999 as a result of increased investment in
developing future service offerings such as SkyFiler. We incurred a significant
amortization of deferred stock-based compensation charge in the second half of
1999 due to a one-time grant of fully-vested stock options to executive
officers.
29
<PAGE> 34
We believe the future operating results will be subject to quarterly
fluctuations, and, as a result, we believe that results of operations for
interim periods should not be relied upon as any indication of the results to be
expected in any future period. We have incurred operating losses during 1999,
1998 and 1997, and we cannot be certain that we will achieve profitability on a
quarterly or annual basis in the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues............................ $ 107 $ 125 $ 165 $ 170
Operating expenses:
Cost of services...................... 136 148 166 429
Selling and marketing................. 934 1,185 1,373 1,781
Research and development.............. 288 309 311 444
General and administrative............ 356 427 378 400
Amortization of deferred stock-based
compensation....................... 55 28 1,774 591
------- ------- ------- -------
Total operating expenses........... 1,769 2,097 4,002 3,645
------- ------- ------- -------
Loss from operations.................... (1,662) (1,972) (3,837) (3,475)
Interest income (expense):
Interest income....................... 14 7 94 237
Interest expense...................... (78) (11) (426) (73)
------- ------- ------- -------
Interest income (expense), net..... (64) (4) (332) 164
------- ------- ------- -------
Net loss................................ $(1,726) $(1,976) $(4,169) $(3,311)
======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through private
sales of equity securities and the use of short term debt and capital leases. As
of December 31, 1999, we had cash and cash equivalents of $16.1 million, an
accumulated deficit of $21.5 million and $724,000 of capital lease obligations,
of which $229,000 is current.
Net cash used in operating activities was $6.2 million in 1999 as compared
to $4.7 million in 1998 and $3.4 million in 1997. In 1999, the cash used in
operations reflects our net loss partially offset by depreciation and
amortization, amortization of deferred compensation, an increase in accounts
payable and an increase in deferred revenue. In 1998 and 1997, cash used in
operations was primarily the result of our net losses, partially offset by
increases in accounts payable and deferred revenue.
Net cash provided by investing activities was $14,000 in 1999 and net cash
used in investing activities was $392,000 in 1998 and $190,000 in 1997. Net cash
used in investing activities in 1997 and 1998 consisted primarily of capital
expenditures related to our investments in property and equipment. In 1999 our
capital expenditures were financed by capital leases and accounts payable at
December 31, 1999.
Net cash provided by financing activities was $20.2 million in 1999 as
compared to $6.5 million in 1998 and $1.2 million in 1997. In 1999, cash
provided by financing activities consisted primarily of $20.4 million received
from the sale of Series E convertible redeemable preferred stock. In 1998, cash
provided by financing activities consisted primarily of $6.5 million received
from the sale of Series D convertible redeemable preferred stock. For 1997, cash
provided by financing activities consisted primarily of $1.2 million in proceeds
from convertible bridge notes payable.
30
<PAGE> 35
Our subsidiary has a line of credit with Silicon Valley Bank which is
secured by a certificate of deposit pledged by SkyDesk. The line of credit bears
interest at eight percent per year. The line was originally extended on April 7,
1999 with an initial expiration date of December 31, 1999, and is currently
pending renewal. The line of credit had borrowings of $425,000 outstanding at
December 31, 1999.
In February 2000, we obtained a letter of credit from Silicon Valley Bank
in the amount of $115,000 which is secured by a certificate of deposit. The
letter of credit automatically renews each year on April 30th with a final
expiration date of April 30, 2010. We pay a two percent fee per annum for the
letter of credit.
We believe that our existing cash and cash equivalents will be sufficient
to meet our anticipated cash needs through the next 12 months and that the net
proceeds from this offering will enable us to meet our anticipated cash needs
beyond that time. If cash generated from operations is insufficient to satisfy
our liquidity requirements, we may seek to sell additional equity or debt
securities or to obtain a larger credit facility. The sale of additional equity
or convertible debt securities would result in additional dilution to our
stockholders. Additional debt would result in increased expenses and could
result in covenants that would restrict our operations. We have not made
arrangements to obtain additional financing and there is no assurance that
financing, if required, will be available in amounts or on terms acceptable to
us, if at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 "Accounting for Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). SOP 98-1 requires companies
to capitalize qualifying computer software costs that are incurred during the
application development stage and amortize them over the software's estimated
useful life. SOP 98-1 is effective for fiscal years beginning after December 15,
1998. We adopted SOP 98-1 effective January 1, 1999 with no material effect on
the financial statements. In the future, accounting for transactions under SOP
98-1 could result in significant amounts of computer software costs and web site
development costs being capitalized.
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments and hedging activities. The
Statement will require the recognition of all derivatives on our balance sheet
at fair value. The FASB has subsequently delayed implementation of the standard
for the financial years beginning after June 15, 2000. We expect to adopt the
SFAS No. 133 effective January 1, 2001. The impact on our financial statements
is not expected to be material.
In December 1998, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin No. 101, "Revenue Recognition" (SAB 101), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met to recognize revenue and provides guidance for disclosures
related to revenue recognition policies. Management believes that our revenue
recognition policies comply with the provisions of SAB 101.
INTEREST RATE RISK
We are exposed to changes in interest rates primarily from our short-term
debt arrangements and, secondarily, our investments in cash equivalents. Under
our current policies, we do not use interest rate derivative instruments to
manage exposure to interest rate changes. A hypothetical
31
<PAGE> 36
100 basis point adverse move in interest rates along the entire interest rate
yield curve would not materially affect the fair value of our interest sensitive
financial instruments at December 31, 1999.
YEAR 2000 IMPACT
The Year 2000 issue refers to the potential for disruption of business
activities caused by system failures or miscalculations which are triggered by
advancement of data records past the year 1999. Our business has not been
affected by Year 2000 issues. However, we cannot assure you that we will not
experience any disruption related to Year 2000 issues in the future. We are not
currently aware of any unresolved Year 2000 problems relating to any of our
internal systems, nor do we believe that we have any significant systems that
are not Year 2000 compliant. Based on our assessment to date, we do not expect
the total cost of Year 2000 remediation to be material to our business. To date,
our preparation and remediation costs have been less than $100,000, and future
expenditures are not expected to be significant.
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BUSINESS
COMPANY OVERVIEW
We are an application service provider focused on delivering reliable,
secure, easy-to-use and cost-effective data storage and document management
services to small and medium-sized businesses and individual computer users. Our
services, @Backup and SkyFiler, enable users to protect, store, access and share
their data. @Backup is an Internet-based service that allows users to protect
their data by storing it at our data centers. We are currently designing
SkyFiler, an Internet-based document management system that will enable
workgroups to share and collaborate on documents stored at our data centers. We
have developed marketing relationships with software publishers, computer
manufacturers, Internet service providers and infrastructure vendors, including
Advanced Digital Information Corporation, Dell, Earthlink, Gateway,
Hewlett-Packard and Intuit (Quicken, QuickBooks and TurboTax). Our strategy is
to become the leading provider of Internet-based data protection, storage and
management services to small and medium-sized businesses and individual computer
users.
INDUSTRY BACKGROUND
GROWTH IN DEMAND FOR DATA STORAGE AND MANAGEMENT
In today's information-based economy, the success of a business often
depends on its ability to protect and manage the electronic data that it
generates and stores. Similarly, as consumer reliance on personal computers
grows, individuals are generating and storing an increasing amount of personal
and financial data. The volume of electronic data generated, processed, stored
and manipulated by businesses and consumers has grown dramatically over the last
decade. This dramatic increase in electronically stored data is the result of a
variety of factors, including:
- the rapid growth of Internet-based communications and electronic
commerce;
- the widespread use of applications that create electronic data files such
as word processing software, spreadsheets, accounting software, personal
financial software and email; and
- the increasing use of multimedia applications, such as video and audio,
that create large data files.
Many businesses seek to use their electronic data to gain a competitive
advantage by enabling their employees and business partners to access their data
from multiple locations. With advances in communications technologies and the
increased use of the Internet, employees can telecommute and work from remote
locations and are able to gain access to shared data and applications. In
addition, businesses are increasingly sharing files and collaborating with
partners, suppliers and customers who are often located in different cities,
states and countries. To achieve their business objectives, however, businesses
of all sizes must develop and implement a strategy for protecting their data
while enabling effective and controlled access. As a result, there is a need for
data storage and management solutions that offer:
- the ability to protect data residing on multiple devices in
geographically dispersed locations;
- increased accessibility;
- improved management of shared data;
- greater reliability; and
- reduced costs of ownership.
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DEMAND BY SMALL AND MEDIUM-SIZED BUSINESSES AND CONSUMERS FOR STORAGE AND
MANAGEMENT SOLUTIONS
To address these needs, companies with significant resources generally use
network-based solutions that require the implementation of document management
software and network servers and storage devices, such as disk drives and tape
libraries. After installation, these solutions need to be continuously monitored
and maintained to ensure that data is being properly stored and protected.
Although these solutions work well when users are networked to storage devices,
they are not as effective for protecting data residing on devices not
continuously attached to a network, such as laptop computers of traveling or
telecommuting employees. The Gartner Group, an independent consulting firm,
estimates that by 2003 more than 137 million users worldwide, including
one-third of the U.S. workforce, will be engaging in some form of remote access.
Further, because these solutions can be capital intensive and require trained
technical personnel, they are not viable consumer solutions, and typically are
not cost-effective for resource-constrained organizations like most small and
medium-sized businesses.
Small and medium-sized businesses, which we define as businesses with fewer
than 500 employees, are the most rapidly growing segment of the U.S. business
economy. According to the U.S. Small Business Administration, companies with
less than 500 employees account for 99% of all employers and 52% of all
private-sector employees. Because high-end, network-based data storage and
management solutions are so expensive and complex, small and medium-sized
businesses and individual computer users typically rely on hard-drives,
diskettes and removable storage media or devices to protect and manage their
electronic data. Although relatively inexpensive, these solutions have several
limitations, in that they:
- require manual labor which is often time-consuming and difficult to
monitor and maintain;
- are often unreliable and do not store data in offsite locations, which
makes recovery difficult, if not impossible, if destroyed;
- have limited or no remote access or data sharing capabilities; and
- lack scalability, the ability to grow as businesses' data storage and
management requirements increase.
LIMITATIONS OF CURRENT INTERNET-BASED DATA SHARING AND COLLABORATION
SOLUTIONS
Because most data storage and document management solutions do not address
the needs of businesses to share files with employees and business partners,
such as suppliers and customers, many businesses simply use email to improve
information flow and productivity. Although email provides a fast and efficient
means to communicate with people inside and outside their companies, people
attempting to collaborate on files through email face a number of obstacles,
including:
- maintaining version control of files;
- tracking changes and comments;
- effectively sharing continually changing files; and
- ensuring secure transmittal of files.
Recently, a number of consumer-focused companies have begun offering free
Internet-based data storage services. These services do not provide secure
transmission and storage of data and fail to provide document management
features, such as version control, that allow collaborative work. As a
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result, these solutions are inadequate to address the unique needs of small and
medium-sized businesses.
GROWTH IN OUTSOURCING INFORMATION TECHNOLOGY SOLUTIONS
Small and medium-sized businesses are seeking affordable solutions that
protect, store and manage their data while allowing them to focus on their core
competencies. Many businesses facing similar challenges are outsourcing
technology functions to third parties because this enables them to more
effectively manage resources. In particular, companies are leasing software
applications and obtaining integrated solutions from third parties. The
companies that provide these solutions are known as application service
providers. The Yankee Group reports that the market for application service
providers was $2.0 billion in 1999 and is expected to grow to $7.6 billion by
the year 2002. Application service providers can deliver high levels of service,
allow businesses to gain access to the latest technologies without continual
capital expenditures and reduce the need to employ information technology
personnel. Solutions from application service providers generally require lower
up-front expenses and configuration efforts. As a result, we believe that a
significant market opportunity exists for application service providers offering
Internet-based data storage and management solutions that allow small and
medium-sized businesses and individual computer users to protect, store, access
and share their critical information at any time and from any location.
SOLUTION
We are an application service provider focused on delivering reliable,
secure, easy-to-use and cost-effective data storage and document management
solutions to small and medium-sized businesses and individual computer users.
Our SkyDesk services, which include @Backup and SkyFiler, enable users to
protect, store, access and share their data. @Backup is an online data
protection and storage service available on an annual subscription basis
directly from us. Co-branded versions of @Backup are available through our
marketing relationships with companies such as Advanced Digital Information
Corporation, Dell, Earthlink, Gateway, Hewlett-Packard and Intuit (Quicken,
QuickBooks and TurboTax). SkyFiler is a service we are currently developing that
enables workgroups to share and collaborate on documents stored in our network
of data centers. We designed our services to provide the following key benefits:
Reliability. We designed our systems with multiple redundancies to enable
reliable storage of and access to our users' data. We currently maintain two
data centers, and we anticipate operating four data centers by the end of 2000.
Our solutions automatically store user data in at least two separate locations.
As a result, our systems can tolerate the failure of any one data center without
any loss of user data. We also employ proprietary technologies that monitor and
restart our solutions in the event of any service interruption.
Ease-of-Use. Our services require no special hardware and feature an
easy-to-use, Windows-based interface. After installation, @Backup runs
automatically each day with virtually no effort required by the user and allows
users to backup their data on demand with no additional charges. We are working
with our marketing partners to integrate our service into their products and
services to make data storage and management simple for their customers. Users
can retrieve or access their data directly from our storage system at any time
over the Internet or by ordering their data from us on compact disc. We are
designing the SkyFiler service with a similar Windows-based interface that will
allow users to quickly and easily store, access, share and manage files from any
computer with Internet access.
Security. We designed our solutions so that user data exists in an
encrypted state at all times unless the data is on a user's computer. User data
is encrypted prior to being transmitted to our
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storage system and remains encrypted until it is returned to the user. In
addition, we use a combination of licensed software, internally developed
software and sophisticated third-party hardware to secure our systems. Our
network and data centers are monitored 24 hours a day, seven days a week to
identify and curtail potential security breaches.
Cost-Effectiveness. Because SkyDesk users can implement our services
without any additional hardware, software or technical personnel, our services
are a cost-effective solution for protecting, storing and managing data. Our
SkyDesk services increase our customers' productivity by eliminating their need
to develop, monitor and maintain a data storage and management system. In
addition, @Backup users pay for specified amounts of storage capacity and can
quickly obtain additional capacity as their storage needs increase.
Scalability. We provide a complete and easily outsourced solution that can
scale to accommodate millions of simultaneous users. Because patented algorithms
in our software employ the user's computer to identify new or changed data and
encrypt and compress the data for transmission, our technology reduces user
online time and allows our systems to handle many users simultaneously.
STRATEGY
Our objective is to become the leading provider of Internet-based data
protection, storage and management services to small and medium-sized businesses
and individual computer users. Key components of our strategy include:
Leverage and Expand Marketing Relationships. We believe that working with
leading software vendors, computer manufacturers, Internet service providers and
infrastructure vendors enables us to effectively distribute our services,
anticipate the needs of small and medium-sized businesses, introduce new
services to meet those needs and target new markets. We have existing marketing
relationships with companies such as Advanced Digitial Information Corporation,
American Power Conversion Corporation, Compaq, Dell, Earthlink, Excite, Gateway,
Hewlett-Packard, Intuit (Quicken, QuickBooks and TurboTax), NorthPoint and
Toshiba. We intend to strengthen our co-marketing programs with these partners
to gain access to their extensive marketing and distribution channels and
leverage their brand recognition to increase customer acceptance and credibility
of our services. We also intend to invest significant efforts to develop new
relationships with industry-leading companies that can broaden our market
opportunities. We believe our partners can increase their customer loyalty and
generate additional revenue by offering our data storage and management
solution.
Promote our SkyDesk Brands. Our goal is to create global recognition of our
SkyDesk brands. We plan to build awareness of our SkyDesk brands to position
ourselves as a leading provider of online data storage and management solutions.
To promote our brands, we intend to expand our corporate marketing and
advertising efforts to increase our installed base of SkyDesk subscribers. We
believe establishing trusted brands will become increasingly important as our
market matures.
Expand our Service Offerings. We intend to introduce new services and
enhancements based on our proprietary technology to address the evolving needs
of small and medium-sized businesses and individual computer users. Future
offerings we intend to introduce include:
- SkyFiler. In the first half of 2000, we plan to release our SkyFiler
service which will allow multiple users to store, share and collaborate
on files.
- SmartClone. We are developing an Internet-based service designed to allow
users to easily move computer configuration settings and data from one
computer to another.
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- Mobile and Wireless Devices. We are developing data storage and
management services for mobile and wireless devices.
Continue to Invest in Developing New Technologies. We intend to continue to
invest in developing new technologies and value-added services that will extend
our relationships with current customers, attract new customers and allow us to
differentiate ourselves in the Internet-based data storage and management
market. We currently have two issued patents, two allowed patents and five
patent applications pending on the software algorithms used in our SkyDesk
solutions. We believe that early technological leadership can translate into
market leadership and that our existing proprietary software and technologies
can form the foundation for a wide range of Internet-based data storage and
management services.
Invest in Infrastructure. We currently maintain two data centers, and we
anticipate operating four data centers by the end of 2000. These
state-of-the-art data centers will enable us to maintain control over the data
users transmit and store using our services. These data centers will enhance the
security and reliability of our services, and will provide space for the
additional systems hardware needed to handle millions of customers. Once
completed, we believe that these data centers, in combination with our
proprietary software and technologies, will provide us with a competitive
advantage.
Pursue Strategic Acquisitions. We intend to pursue strategic acquisitions
designed to broaden our offerings, expand our technology platform and capitalize
on consolidation opportunities in the online data storage and management market.
We also intend to use acquisitions to increase our customer base and facilitate
our entry into new domestic and international markets.
SERVICES
@Backup. @Backup is an Internet-based service that allows users to easily
protect their data by storing it at our networked data centers. Users begin by
registering and installing the @Backup software on their computers. Our software
allows users to select the time of day the backup will occur and the files
and/or folders to be backed up. Once installed, our software automatically
performs the following functions:
- initiates the backup process at the pre-selected time each day;
- scans the user's computer for new files and changes to pre-selected
files;
- compresses the data to minimize online transmission time;
- encrypts the data for secure transmission; and
- transmits the data via the Internet to our networked data centers.
Once received at our data centers, the data is stored in a compressed and
encrypted form. Users can retrieve data over the Internet or by ordering their
data on a compact disc. We also offer an add-on user interface, the @Backup
WorkGroup Edition, which allows a system administrator to control the use and
access of the @Backup services for a group of users. We charge our customers an
annual subscription fee for using our @Backup services based on the amount of
storage space they elect to purchase. Because we can identify, transfer and
store incremental changes in each backed up file, our typical user is able to
meet its storage needs with less than 100 megabytes of storage. Our listed
annual fees range from $100 for 100 megabytes of storage to $300 for 500
megabytes of storage.
SkyFiler. We intend to introduce our SkyFiler service during the first half
of 2000. We are designing SkyFiler to be an Internet-based document management
system that will enable storage
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and sharing of files to facilitate collaboration with a defined working group.
We expect that the initial version of our SkyFiler service will include features
such as version control, change and comment tracking, revision notification and
access control.
MARKETING RELATIONSHIPS
We have developed strategic sales, marketing, distribution and co-branding
relationships with software publishers, computer manufacturers, Internet service
providers and infrastructure vendors. These relationships provide us access to
our partners' worldwide sales and marketing organizations for more efficient
distribution and branding of our services.
Software Publishers. We partner with software companies that offer our
service to allow their end-users to protect and manage their data. To date we
have entered into a series of agreements with Intuit for its Quicken, QuickBooks
and TurboTax products.
Under each of these agreements, Intuit has agreed to make our solution
available to its customers to protect the financial data created by Intuit's
software. For example, under the QuickBooks agreement, which expires in February
2002, Intuit has agreed to promote our services through a co-branded web site
and its newsletter in exchange for fixed quarterly fees. In addition, we have
agreed to pay Intuit a commission for each QuickBooks user that subscribes to
@Backup as a result of these promotional activities.
Under the Quicken agreement, which expires in August 2002, Intuit has
agreed to market our services to Quicken users through web links in its product
and on its Quicken web site. In addition, we expect that the next version of
Quicken, which Intuit plans to release in the second half of 2000, will offer
our online backup services as an integrated function. When Quicken reminds users
to back up their data, users can store their Quicken data on our system free of
charge for up to one year. Users may also elect to upgrade to our standard
@Backup service at any time to store and manage all their data. We have agreed
to pay Intuit a commission for each Quicken user that upgrades to our standard
@Backup service. In addition, Intuit has agreed to pay us a fee for each copy of
Quicken that it ships incorporating our service.
Computer Manufacturers. We have established several agreements with leading
computer manufacturers. Some of these manufacturers have agreed to purchase the
@Backup service from us and include it as part of their product offering. Other
manufacturers have agreed to offer our service to their customers for an
additional fee. We currently have contracts with:
- Compaq Computer Corporation;
- Dell Computer Corporation;
- Gateway, Inc.;
- Hewlett-Packard Company; and
- Toshiba Corporation.
Each of our marketing agreements with computer manufacturers require
discounted pricing of our services to the manufacturer's customers in return for
certain sales and marketing assistance. Under these contracts, we are required
to either pay our partner an up-front fee or a commission based upon sales we
make to their customers.
Under our agreements with Dell, Dell has agreed to incorporate a limited
version of our @Backup service on its Dellnet Internet service and on certain
computer models. Dell has agreed to
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pay us a fee for each Dellnet subscriber and for each computer that ships with a
bundled version of our @Backup service. Users may elect to upgrade to our
standard @Backup service at any time, and we have agreed to pay Dell a
commission for each upgrade. These agreements expire in July 2000 but
automatically renew for additional one-year terms unless either party provides
30-day advance written notice of termination.
Under our agreement with Gateway, Gateway has agreed to market our service
as an optional feature to its customers. Gateway has agreed to pay us a fee for
each @Backup subscription sold as part of its product offering. In addition, we
have agreed to pay Gateway a commission for each upgrade or renewal purchased by
a Gateway user.
Internet Service Providers. We have agreements with a number of Internet
service providers including dial-up, digital subscriber line and cable service
providers. Our Internet service provider partners include:
- Earthlink, Inc.;
- Excite, Inc.; and
- NorthPoint Communications Group, Inc.
Each of our marketing agreements with Internet service providers is unique,
but most agreements require our partners to provide advertising links from their
web site to a special co-branded web site, where we can sell our @Backup service
to potential end-users.
Under our agreement with Excite, which expires in December 2002, Excite has
agreed to market our @Backup service to its users through web links. We have
agreed to pay Excite a quarterly fee for advertising our service and a
commission for each of its users that subscribes to our @Backup service as a
result of these promotional activities.
Infrastructure Vendors. We have agreements with infrastructure vendors that
offer our @Backup service as a supplement to their systems.
We are working with Advanced Digital Information Corporation, or ADIC, a
provider of hardware and software data storage solutions, to develop the
enterprise market for data protection and storage for laptop computers. Under
this arrangement, we pay ADIC a fee each month and ADIC's sales professionals
market our @Backup service to protect and manage data stored on their enterprise
customers' laptop computers.
Additionally, we have an agreement with American Power Conversion
Corporation, or APC, which expires in October 2004. Pursuant to this agreement,
APC has agreed to make our solution available to its customers as an additional
means of protecting customer data. APC has agreed to promote our services
through a co-branded web site and, in exchange, we have agreed to pay APC a
commission for each APC customer that subscribes to @Backup as a result of these
promotional activities.
SALES AND MARKETING
Our sales and marketing efforts target small and medium-sized businesses as
well as individual computer users through indirect and direct channels. We have
three distinct sales and marketing teams: a business development team, a
corporate sales team and a direct marketing team.
Our business development team is responsible for indirect sales through our
marketing partners. Each member of this team is assigned to a specific partner
and is responsible for developing and
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maintaining a co-marketing program with that partner. The business development
team is also responsible for seeking new marketing partners. This team is
supported by our product development group which designs and produces web pages
for our co-marketing programs.
Our corporate sales team is responsible for selling our @Backup Work Group
Edition to large enterprises to help protect and manage data stored on laptop
computers. This team works directly with these companies as well as through
marketing partners, such as ADIC, who have relationships with corporate
information technology decision-makers.
Our direct marketing team is responsible for creating custom advertising
programs designed to promote trials and subscriptions to our services. This team
evaluates web sites that sell advertising space and places ads to reach our
target users. We typically pay these web sites only for completed customer
installations of our services. We have developed a proprietary advertising
tracking software system that allows us to match customers with advertisements
made on specific web sites. Through this system, we can determine whether a web
site effectively generates new customers at an acceptable customer acquisition
cost.
TECHNOLOGY
Our technology architecture consists of several server software
applications that operate on independent servers at our data centers. These
server software applications include:
- Redirector. The redirector software application is the first point of
contact for all user connections. Upon contact by a user, the redirector
evaluates the user's request for service and then directs the user's
request to the appropriate server module. The redirector's decision is
based upon the current state of our system, and on information passed to
it from the customer. The redirector helps to balance the workload across
a collection of servers, and allows us to take a server offline for
maintenance.
- Backup Server. Our backup server software application manages
communication between the customer and our system. The backup server
authorizes customer use of our system, collects data to be protected,
verifies the integrity of the data, and passes the data to the archive
server for long-term storage. The backup server also maintains extensive
activity and statistics logs with the SQL database servers.
- Storage Server. Our storage server software application provides backend
storage for current and future SkyDesk services using a hierarchical
storage management system. The in-house dedicated storage server is based
on a large disk cache and tape robotic system. The storage server runs on
the Solaris operating system and uses the UniTree hierarchical storage
management system for automated data management. By regulation of the
disk to tape ratio, we can offer multiple levels of service.
- Restore Server. The restore server software application manages on-demand
restore sessions with customers. Upon receiving customer requests to
restore data, the restore server requests data from the appropriate
storage server, reconstructs the data as requested, and returns the data
to the customer for decryption and final restoration.
- SQL Database Servers. The SQL database server software application
maintains all customer account information, provides billing support and
customer care support and interfaces with our financial accounting
systems.
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In addition, our technology includes proprietary software algorithms
developed to address our users' data storage and management needs. Our
proprietary algorithms include:
- Application Search Software. The application search software algorithm
allows our service to avoid transmitting common computer programs, such
as operating systems, software applications and other off-the-shelf
software programs, to our data centers. This algorithm searches a user's
computer to identify programs contained in a common software library we
maintain at our data centers. When found, the algorithm records the
existence of the program, but does not transmit the actual program to our
data centers. Upon request, a copy of the program will be transmitted to
the user from our common software library.
- Changed File. The changed file algorithm identifies user files that have
been changed or created since the last communication session between the
user and our data centers. This algorithm increases the efficiency of our
services by transmitting only changed or new files to our data centers.
- Subfile Incremental. The subfile incremental algorithm analyzes discrete
data blocks within each changed file to identify those data blocks that
actually contain new or changed information. This algorithm then
transmits only those data blocks with new or changed information to our
data centers, rather than transmitting the entire file. When combined
with our compression software, this algorithm allows our services to
achieve high compression ratios.
- Versioning. The versioning algorithm reassembles the discrete data blocks
stored by the subfile incremental algorithm. This algorithm gives us the
ability to provide a user with any version of a file currently protected
by our service.
- Encryption. All user data is encrypted before transmission, remains
encrypted at our data centers and is returned in encrypted form to the
user. The encryption algorithm provides further security to our users by
encrypting all user information transmitted over the Internet with an
encrypted data file, including the user's identification and the name of
the data file being transmitted.
- Check Point/Restart. The check point/restart algorithm monitors the
transmission of user data to our data centers. This algorithm identifies
the data that has been successfully transmitted to our data centers when
a communication session is interrupted or stopped before completion. The
algorithm then transmits only the data not previously received at our
data centers when communications are restored or restarted, rather than
resending all user data. This algorithm gives users the ability to stop
and start communication sessions at their convenience.
- Data Integrity. The data integrity algorithm allows our system to verify
that user data has been accurately transferred and received at our data
centers. We also use this algorithm to verify that user data has been
accurately transferred and received as it moves to different servers in
our data centers and when it is restored to the user's computer.
- Password Management. The password management algorithm allows a user to
change encryption passwords at any time and on a file by file basis. This
algorithm allows files to be encrypted with multiple passwords while
requiring the user to only remember their current password. This
algorithm also permits users to escrow their passwords at our data
centers to assist their customers in recovering forgotten passwords.
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CUSTOMER SUPPORT
Our customer support group strives to provide dependable and timely
resolution of customer technical inquiries and is available to users by
telephone or email 24 hours a day, seven days a week. We also provide
interactive support through our web site. Additionally, our customer support
group uses email to proactively update users on a variety of topics, including
release dates of new services and updates of existing services. Our customer
support group includes customer care representatives and dedicated specialists.
Customer care representatives are trained to resolve the majority of inquiries,
and our customer service specialists are assigned to advanced problem solving
related to technical problems with specific services. In an effort to further
improve customer satisfaction, we are deploying new software tools designed to
automatically identify and answer frequently asked questions. These software
tools also enable us to track recurring customer issues that will identify
opportunities for service improvements.
Under the terms of most of our strategic partnership agreements, we are
generally responsible for end-user support. In certain circumstances, our
marketing partners can choose to provide the first level of service to end
users. In these cases, our customer support group provides our marketing
partners with training and access to advanced support when necessary.
RESEARCH AND DEVELOPMENT
Our success will depend substantially on our ability to timely develop and
introduce new services and enhancements to our existing services that meet
changing user requirements. We have made and plan to continue to make
substantial investments in research and development. Our research and
development expenses totaled approximately $1.4 million for the year ended
December 31, 1999, $1.2 million for the year ended December 31, 1998 and
$689,000 for the year ended December 31, 1997. As of December 31, 1999, we had
19 employees in research and development.
Our development efforts focus on improving our infrastructure architecture
and underlying technologies. We are currently focusing on improving work group
collaboration features of our services, developing technologies to locate,
translate and transfer computer configuration settings and designing services
for mobile and wireless devices. Our engineers are grouped according to service
offerings and work as part of cross-disciplined teams. Before a new service is
developed, our engineers work with our marketing managers to develop service
specifications. After a service is designed and commercially released, our
engineers continue to work with our marketing managers and our business partners
to understand requirements for future generations and upgrades.
COMPETITION
The market for online data protection and storage services is emerging,
fragmented, highly competitive, quickly evolving and subject to rapid
technological change. We expect that competition will intensify. Increased
competition may result in reduced market acceptance of our services and price
reductions, any of which could seriously harm our business. Competitors vary in
size and in the scope and breadth of the products and services they offer. Our
current and potential competitors include companies offering:
- online data protection products, such as Connected Corporation;
- online storage, such as Driveway, i-drive.com and X:drive;
- removable storage products, such as Iomega Corporation;
- tape drive storage products, such as Colorado Memory Systems, Quantum and
Seagate; and
- online data collaboration services, such as Critical Path.
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Many of our current and potential competitors have longer operating
histories and significantly greater financial, technical or marketing resources
than we do. They may have significantly greater name recognition, established
marketing relationships and access to a larger installed base of customers. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
functionality of their products. Accordingly, new competitors or alliances among
competitors may emerge and rapidly acquire significant market share.
We believe that the principal competitive factors in the market for our
services include:
- reliability;
- ease of use;
- security;
- depth and breadth of functionality offered;
- scalability;
- quality of customer support; and
- cost-effectiveness.
INTELLECTUAL PROPERTY RIGHTS
We rely on a combination of trademark, copyright and trade secret laws in
the United States and other jurisdictions as well as confidentiality procedures
and contractual provisions to protect our proprietary technology. We have
obtained federal registration of our @Backup trademark. We also have applied for
federal trademark registrations for SkyDesk, SkyFiler and SmartClone. Effective
trademark, copyright and trade secret protection may not be available in every
country where our products are distributed or made available through the
Internet.
We currently have two issued patents, two allowed patents and five pending
patent applications in the United States that seek to protect our proprietary
technologies. Our pending patent applications may not result in issued patents
and our issued patents may not preclude competitors from independently
developing products or technologies that are substantially equivalent or
superior to our products and technology. We are pursuing international patent
protection.
Our policy is to enter confidentiality and invention assignment agreements
with all employees and consultants, and nondisclosure agreements with all
potential business partners. These protections, however, may not be adequate to
protect our intellectual property rights. See "Risk Factors--Any failure to
protect our intellectual property rights could impair our ability to protect our
proprietary technology and establish our brands" and "Risk Factors--We may be
sued by third parties for alleged infringement of their proprietary rights."
We also rely on certain software that we license from third parties,
including UniTree, Solaris, NT and Microsoft SQL and other software that is
integrated with internally developed software and used in our software to
perform key functions. There can be no assurance that our third-party technology
licenses will continue to be available to us on commercially reasonable terms,
if at all. The loss of or inability to maintain any of these technology licenses
could result in delays in introduction of our products and services until
equivalent technology, if available, is identified, licensed and integrated,
which could have a material adverse effect on our business.
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<PAGE> 48
EMPLOYEES
As of February 29, 2000, we had 67 employees, including 19 in engineering,
7 in operations, 32 in sales and marketing and 9 in finance and administration.
None of our employees are represented by a labor union, and we have never
experienced a work stoppage. We believe that our relations with our employees
are good.
FACILITIES
Our corporate headquarters and principal offices are located in San Diego,
California, where we lease approximately 14,000 square feet. This lease expires
in August 2000. We have entered into a lease for 39,000 square feet in San
Diego, California where we plan to move our corporate headquarters and principal
offices. This lease expires in March 2007. We also lease approximately 4,500
square feet of space for our data center in San Diego, California. This lease
expires in March 2010, with an option to extend the lease for an additional five
years.
LEGAL PROCEEDINGS
We have no pending legal proceedings. We may, however, become subjects to
lawsuits from time to time in the course of our business.
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<PAGE> 49
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Gary E. Sutton................... 57 President, Chief Executive Officer and Chairman of
the Board
Fred W. McClain.................. 51 Executive Vice President and Chief Technology Officer
Dan L. Dearen.................... 37 Executive Vice President, Chief Financial Officer and
Secretary
Stephen P. Mickelsen............. 40 Vice President of Engineering
James L. Till.................... 38 Senior Vice President of Sales and Marketing
Vincent P. Gordan................ 43 Vice President of Operations
Giles Bateman(b)................. 55 Director
David D'Ottavio.................. 50 Director
Brett Helm(a).................... 37 Director
Duane Nelles(b).................. 56 Director
Peter Schwartz................... 53 Director
M. David Titus(b)................ 42 Director
Peter van Oppen(a)............... 47 Director
</TABLE>
- ------------------------------
(a) Compensation Committee member.
(b) Audit Committee member.
Gary E. Sutton has served as our President, Chief Executive Officer and
Chairman of the Board since January 1996. From 1990 to 1995, Mr. Sutton served
as Chairman of the Board and Chief Executive Officer of Knight Protective
Industries, Inc., a security system provider, which was acquired by Protection
One, Inc. Mr. Sutton is a co-founder of Teledesic, Inc., a low-earth orbit
telecommunications service.
Fred W. McClain, our founder, has served as Executive Vice President and
Chief Technology Officer since January 1996 and has developed the algorithms for
our @Backup service. Prior to founding SkyDesk, Mr. McClain was the chief
architect for data storage and management products at OpenVision Technologies, a
developer of large scale backup systems, from September 1993 to October 1995.
Prior to that time, Mr. McClain established the Distributed Computing Solutions
Division of General Atomics, where he served as General Manager until it was
acquired by OpenVision Technologies. Mr. McClain also co-founded the San Diego
Supercomputer Center, or the SDSC.
Dan L. Dearen has served as our Executive Vice President since August 1999,
our Chief Financial Officer since September 1997 and our Secretary since April
1999. From February 1996 to November 1997, Mr. Dearen served as the Chief
Financial Officer of ESI Software, Inc., a developer of web authoring tools.
From September 1995 to April 1996, Mr. Dearen served as the Chief Financial
Officer of Medication Delivery Devices, a developer of medical infusion systems,
which was acquired by Baxter Healthcare. Prior to that time, Mr. Dearen held the
positions of Director and Senior Associate for Ventana Growth Funds, an
international venture capital partnership investing in emerging technology
companies.
Stephen P. Mickelsen has served as our Vice President of Engineering since
January 1999. Mr. Mickelsen previously served as our Senior Software Engineer
from August 1996 to January 1999.
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<PAGE> 50
From May 1993 to August 1996, Mr. Mickelsen served as Project Engineer at Stac
Electronics, Inc., a developer of enterprise backup software and compression
technology, where he was in charge of driver development for the Stacker disk
compression product.
James L. Till has served as our Senior Vice President of Sales and
Marketing since February 2000. Mr. Till previously served as our Vice President
of Marketing from October 1998 to February 2000. From October 1996 to October
1998, Mr. Till served as Vice President of Sales with Macmillan Publishing USA's
mass markets group. From February 1996 to September 1998, Mr. Till served as
Vice President of Marketing at Paragraph International, a software developer.
From May 1995 to January 1996, he served as Vice President of Sales for
Compton's New Media, a software company.
Vincent P. Gordon has served as our Vice President of Operations since
December 1999. From May 1998 to December 1999, Mr. Gordon served as Vice
President of Corporate Operations at SkyLynx Communications, Inc., a regional
Internet service provider. From August 1997 to May 1998, Mr. Gordon served as an
Executive Vice President at Automaton, a Hong Kong company which provides
information technology consulting. From January 1994 to July 1997, Mr. Gordon
served as President and Chief Executive Officer of HPIS, a Chinese company which
provides travel services in the People's Republic of China.
Giles Bateman has served as a Director since March 2000. Mr. Bateman
currently serves on the boards of directors of several privately and publicly
held companies. His current public directorships include CompUSA Inc., a
superstore computer retailer; Arcoms, Inc., a remote communications company; and
Cheap Tickets Inc., an online discount ticketing company. Mr. Bateman co-founded
The Price Company, which operated The Price Club, a membership warehouse
company. Mr. Bateman also served in various executive positions at The Price
Company, including Chief Financial Officer, Executive Vice President and served
as a Director.
David D'Ottavio has served as a Director since March 2000. Since April
1998, Mr. D'Ottavio has served as Chief Executive Officer and as Director of VIA
Networks, Inc., and from April 1998 to June 1999 he also served as its
President. From January 1995 to August 1997, Mr. D'Ottavio served as senior
managing director of United Philips Communications, B.V., now United Pan-Europe
Communications, where he was responsible for acquisitions, business development,
finance marketing and administration functions and launched their telephone,
Internet services provider and high-speed data services.
Brett Helm has served as a Director since March 2000. Since October 1999,
Mr. Helm has served as General Manager of the Commerce Equipment Operations
group at Intel Corporation, which was formed as a result of the acquisition of
IPivot, a designer and manufacturer of Internet commerce equipment, by Intel.
From November 1996 to October 1999, Mr. Helm served as Chief Executive Officer,
President and a Director of IPivot. From August 1995 to November 1996, Mr. Helm
served as Vice President and General Manager of @Work, a business unit of @Home
Corporation.
Duane Nelles has served as a Director since July 1996. Since May 1987, Mr.
Nelles has served as President of CICA, Inc., a personal investment business.
Prior to that time, Mr. Nelles was a partner in the international public
accounting firm of Coopers & Lybrand, L.L.P., which he originally joined in
1968. Mr. Nelles serves on the board of directors of two publicly held
companies, Qualcomm, Inc., a digital wireless communications company, and WFS
Financial Inc., an automotive finance company.
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<PAGE> 51
Peter Schwartz has served as Director since March 2000. Mr. Schwartz is
Chairman of Global Business Network, a research and consulting organization. Mr.
Schwartz co-founded Global Business Network.
M. David Titus has served as a Director since March 1998. In January 1993,
Mr. Titus co-founded and has served as a General Partner of Windward Ventures, a
venture capital firm focused on early stage companies in southern California.
Prior to that, Mr. Titus was a General Partner and Managing Director of
Corporate Finance for Technology Funding, a venture capital firm. In addition,
Mr. Titus co-founded and served as Senior Vice President of Silicon Valley Bank.
Mr. Titus currently serves on the board of directors of Shaman Pharmaceuticals,
a publicly held company, and on the board of directors of several other
privately held companies.
Peter van Oppen has served as a Director since July 1999. Since February
1994, Mr. van Oppen has served as Chairman of the Board and Chief Executive
Officer of Advanced Digital Information Corporation, or ADIC, a provider of
hardware and software data storage solutions to the open systems marketplace. He
also served as ADIC's President from February 1994 to May 1997. Mr. van Oppen
served as Chairman of the Board of Interpoint from February 1995 until October
1996. Mr. van Oppen serves on the board of directors of Seattle FilmWorks, Inc.,
Spacelabs Medical, Inc. and Key Technology, Inc.
BOARD COMPOSITION
Our bylaws currently provide for a board of directors ranging from 5 to 9
members and is currently set at 8 members. All directors hold office until the
next annual meeting of our stockholders and until their successors have been
elected and qualified. Although our principal stockholders have agreed to be
bound by a voting agreement providing for the election of all of our directors,
this voting agreement will terminate upon completion of this offering.
In accordance with the terms of our amended and restated certificate of
incorporation to be effective upon completion of this offering, the board of
directors will be divided after the completion of this offering into the
following three classes, each serving staggered three-year terms: Class I, whose
initial term will expire at the annual meeting (or special meeting held in lieu
of the annual meeting) of stockholders in 2000; Class II, whose initial term
will expire at the annual meeting (or special meeting held in lieu of the annual
meeting) of stockholders in 2001; and Class III, whose initial term will expire
at the annual meeting (or special meeting held in lieu of the annual meeting) of
stockholders in 2002. As a result, only one class of directors will be elected
at each annual meeting of the stockholders of SkyDesk, Inc., with the other
classes continuing for the remainder of their respective terms. These provisions
in our amended and restated certificate of incorporation may have the effect of
delaying or preventing changes in the control or management of SkyDesk, Inc.
BOARD COMMITTEES
Audit Committee. The audit committee of the board of directors reviews,
acts on and reports to the board of directors with respect to various auditing
and accounting matters, including the recommendation of our auditors, the scope
of the annual audits, fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices. The members of the audit
committee are Mr. Bateman, Mr. Nelles and Mr. Titus.
Compensation Committee. The compensation committee of the board of
directors recommends, reviews and oversees the salaries, benefits and stock
option plans for our employees, consultants, directors and other individuals
compensated by us. The compensation committee also administers
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<PAGE> 52
our compensation plans. The members of the compensation committee are Mr. Helm
and Mr. van Oppen.
BOARD COMPENSATION
Our non-employee, non-stockholder directors receive a fee of $1,000 per
meeting attended and $500 per telephonic meeting, plus reimbursement for
reasonable travel expenses. In addition, in March 2000, the board of directors
granted Mr. Bateman, Mr. D'Ottavio, Mr. Helm and Mr. Schwartz options to
purchase 20,000 shares of our common stock at an exercise price of $2.00 per
share, which options vest 25% after the completion of one year of service and
the remainder of the options vest in equal monthly installments over the next 36
months of service. Employee directors are eligible to participate in our 1998
and 2000 stock plans and, following completion of this offering, will be
eligible to participate in our 2000 employee stock purchase plan. Non-employee
directors are eligible to participate in our 1998 and 2000 stock plans and,
following the completion of this offering, will be eligible to participate in
our 2000 directors' stock option plan. See "Stock Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our compensation committee currently consists of Mr. Helm and Mr. van
Oppen. No member of the compensation committee has been an officer or employee
of us at any time. None of our executive officers serves as a member of the
board of directors or compensation committee of any other company that has one
or more executive officers serving as a member of our board of directors or
compensation committee.
EXECUTIVE COMPENSATION
The following table sets forth all compensation received during fiscal 1999
by our Chief Executive Officer, and four of our other most highly compensated
executive officers whose salary and bonus exceeded $100,000 in such fiscal year.
Perquisites and other personal benefits paid to officers are less than the
minimum reporting thresholds.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION SALARY OPTIONS
<S> <C> <C>
Gary E. Sutton....................................... $112,500 600,000
President, Chief Executive Officer and Chairman of
the Board
Fred W. McClain...................................... 105,000 133,333
Executive Vice President and
Chief Technology Officer
Dan L. Dearen........................................ 115,413 242,125
Executive Vice President,
Chief Financial Officer and Secretary
Stephen P. Mickelsen................................. 105,750 267,083
Vice President of Engineering
James L. Till........................................ 127,500 350,000
Senior Vice President of Sales and Marketing
</TABLE>
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<PAGE> 53
STOCK OPTION INFORMATION
The following table shows information regarding options granted to our
executive officers listed in the Summary Compensation Table during fiscal 1999.
We have not granted any stock appreciation rights.
Each option represents the right to purchase one share of common stock.
Except as set forth in the footnotes below, the options vest on the following
schedule: 25% of the options vest after the completion of one year of service
from the grant date and the remainder of the options vest in equal monthly
installments over the next 36 months of service. Additional options granted
after one year of service vest in equal monthly installments over the next 48
months of service. To the extent not already exercisable, these options may also
accelerate and become exercisable, in the event of a merger in which we are not
the surviving corporation or upon the sale of substantially all of our assets.
Please see "--Benefit Plans" for more details regarding these options. In the
year ended December 31, 1999, we granted options to purchase an aggregate of
2,916,831 shares of common stock.
The potential realizable value at assumed annual rates of stock price
appreciation for the option term represents hypothetical gains that could be
achieved for the respective options if exercised at the end of the option term.
The 5% and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the Securities and Exchange Commission, or SEC, and do not
represent our estimate or projection of our future common stock prices. These
amounts represent assumed rates of appreciation in the value of our common stock
from the fair market value on the date of grant. Actual gains, if any, on stock
option exercises are dependent on the future performance of the common stock and
overall stock market conditions. The amounts in the table may not necessarily be
achieved.
OPTIONS GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------ VALUE AT ASSUMED
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME GRANTED 1999 PRICE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Gary E. Sutton(a)..................... 100,000 3.4% $0.15 09/10/09 $ 9,433 $ 23,906
Gary E. Sutton........................ 500,000 17.1 0.25 10/08/09 78,612 199,218
Fred W. McClain(a).................... 83,333 2.9 0.15 09/10/09 7,861 19,922
Fred W. McClain....................... 50,000 1.7 0.25 10/08/09 7,861 19,922
Dan L. Dearen(a)...................... 92,125 3.2 0.15 09/10/09 8,691 22,024
Dan L. Dearen......................... 150,000 5.1 0.25 10/08/09 23,584 59,765
Stephen P. Mickelsen.................. 100,000 3.4 0.15 04/02/09 9,433 23,906
Stephen P. Mickelsen(a)............... 42,083 1.4 0.15 09/10/09 3,970 10,060
Stephen P. Mickelsen.................. 125,000 4.3 0.25 10/08/09 19,653 49,804
James L. Till......................... 75,000 2.6 0.15 04/02/09 7,075 17,930
James L. Till(a)...................... 100,000 3.4 0.15 09/10/09 9,433 23,906
James L. Till......................... 175,000 6.0 0.25 10/08/09 27,514 69,726
</TABLE>
- ------------------------------
(a) Such options vested immediately upon grant.
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<PAGE> 54
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1999 AND YEAR-END
OPTION VALUES
The following table sets forth information concerning the number and value
of unexercised options held by each of the executive officers listed in the
Summary Compensation Table at December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL 1999 AT FISCAL 1999(B)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Gary E. Sutton............. -- -- 600,000 -- $3,832,000 $ --
Fred W. McClain............ -- -- 133,333 -- 857,665 --
Dan L. Dearen.............. -- -- 542,125 -- 3,492,549 --
Stephen P. Mickelsen....... -- -- 341,083 -- 2,194,307 --
James L. Till.............. -- -- 400,000 -- 2,570,500 --
</TABLE>
- ------------------------------
(a) Amount based on the difference between the fair market value of our common
stock on the date of exercise, as calculated for financial reporting
purposes, and the exercise price of the option.
(b) Amount based on the fair market value of our common stock on December 31,
1999, as determined by our board of directors, less the exercise price of
the option.
BENEFIT PLANS
2000 STOCK INCENTIVE PLAN
Introduction. Our 2000 Stock Incentive Plan (our "New 2000 Plan") is
intended to serve as the successor equity incentive program to our 1998 Stock
Option/Stock Issuance Plan and our 2000 Stock Option/Stock Issuance Plan. Our
New 2000 Plan was adopted by our board of directors on , 2000 and
approved by the stockholders in 2000. Our New 2000 Plan will become effective on
the date the underwriting agreement for this offering is signed. At that time,
all outstanding options under the predecessor 1998 and 2000 plans will be
incorporated into our New 2000 Plan, and no further option grants will be made
under predecessor plans. The incorporated options will continue to be governed
by their existing terms, unless our compensation committee elects to extend one
or more features of our New 2000 Plan to those options. Except as noted below,
the incorporated options have substantially the same terms as in effect for
grants made under the discretionary option grant program of our New 2000 Plan.
Share Reserve. Approximately 8,250,000 shares of common stock have been
authorized for issuance under our New 2000 Plan. Such share reserve consists of
the number of shares we estimate will be carried over from our 1998 plan and
2000 plan, including the shares subject to outstanding options thereunder, plus
an additional increase of approximately 2,800,000 shares. The number of shares
of common stock reserved for issuance under our New 2000 Plan will automatically
increase on the first trading day in January each calendar year, beginning in
calendar year 2001, by an amount equal to 4% of the total number of shares of
common stock outstanding on the last trading day in December of the preceding
calendar year, but in no event will any such annual increase exceed 2,500,000
shares. In addition, no participant in our New 2000 Plan may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 750,000 shares of common stock per calendar year.
Equity Incentive Programs. Our New 2000 Plan is divided into five separate
components:
- the discretionary option grant program, under which eligible individuals
in our employ or service may be granted options to purchase shares of
common stock at an exercise price not less than 100% of the fair market
value of those shares on the grant date;
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<PAGE> 55
- the stock issuance program, under which such individuals may be issued
shares of common stock directly, through the purchase of such shares at a
price not less than 100% of their fair market value at the time of
issuance or as a bonus tied to the attainment of performance milestones
or the completion of a specified period of service;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition of
special below-market stock option grants;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to our non-employee board
members to purchase shares of common stock at an exercise price equal to
100% of the fair market value of those shares on the grant date; and
- the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of the annual
retainer fee otherwise payable to them in cash each year to the
acquisition of special below-market option grants.
Eligibility. The individuals eligible to participate in our New 2000 Plan
include our officers and other employees, our non-employee board members and
consultants we hire.
Administration. The discretionary option grant program and the stock
issuance program will be administered by the compensation committee. This
committee will determine which eligible individuals are to receive option grants
or stock issuances under those programs, the time or times when such option
grants or stock issuances are to be made, the number of shares subject to each
such grant or issuance, the status of any granted option as either an incentive
stock option or a non-statutory stock option in accordance with federal tax
laws, the vesting schedule to be in effect for the option grant or stock
issuance and the maximum term for which any granted option is to remain
outstanding. The compensation committee will also have the exclusive authority
to select the executive officers and other highly compensated employees who may
participate in the salary investment option grant program in the event that
program is activated for one or more calendar years.
Plan Features. Our New 2000 Plan will include the following features:
- The exercise price for the shares of common stock subject to option
grants made under our New 2000 Plan may be paid in cash or in shares of
common stock valued at fair market value on the exercise date. The option
may also be exercised through a same-day sale program without any cash
outlay by the optionee. In addition, the plan administrator may provide
financial assistance to one or more optionees in the exercise of their
outstanding options or the purchase of their unvested shares by allowing
such individuals to deliver a full-recourse, interest-bearing promissory
note in lieu of payment of the exercise price and any associated
withholding taxes incurred in connection with such exercise or purchase.
- The compensation committee will have the authority to cancel outstanding
options under the discretionary option grant program, including options
incorporated from the 1998 and 2000 plans, in return for the grant of new
options for the same or a different number of option shares with an
exercise price per share based upon the fair market value of our common
stock on the new grant date.
Stock appreciation rights are authorized for issuance under the
discretionary option grant program. Such rights will provide the holders with
the election to surrender their outstanding options for an appreciation
distribution from us equal to the fair market value of the vested shares of
common stock subject to the surrendered option, less the aggregate exercise
price payable for those
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<PAGE> 56
shares. Such appreciation distribution may be made in cash or in shares of
common stock. None of the outstanding options under our 1998 and 2000 plans
contain any stock appreciation rights.
- In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation will automatically
accelerate in full, and all unvested shares under the discretionary
option grant and stock issuance programs will immediately vest, except to
the extent our repurchase rights with respect to those shares are to be
assigned to the successor corporation. The compensation committee will
have complete discretion to structure one or more options under the
discretionary option grant program so those options will vest as to all
the option shares in the event those options are assumed in the
acquisition but the optionee's service with us or the acquiring entity is
subsequently terminated. The vesting of outstanding shares under the
stock issuance program may be accelerated upon similar terms and
conditions. The compensation committee will also have the authority to
grant options which will immediately vest in the event we are acquired,
whether or not those options are assumed by the successor corporation.
- The compensation committee may grant options and structure repurchase
rights so that the shares subject to those options or repurchase rights
will immediately vest in connection with a successful tender offer for
more than 50% of our outstanding voting stock or a change in the majority
of our board through one or more contested elections for board
membership. Such accelerated vesting may occur either at the time of such
transaction or upon the subsequent termination of the individual's
service.
- The options currently outstanding under our 1998 plan will immediately
vest in the event we are acquired by merger or sale of substantially all
our assets or more than 50% of our outstanding voting stock, unless those
options are assumed or continued in effect by the acquiring entity or our
repurchase rights with respect to any unvested shares subject to those
options are assigned to such entity. However, those options also contain
a special acceleration provision pursuant to which those options will
immediately vest upon an involuntary termination of the optionee's
employment within 24 months following an acquisition in which those
options are assumed, provided the optionee has been employed by us for at
least one year prior to the acquisition.
Salary Investment Option Grant Program. In the event the compensation
committee elects to activate the salary investment option grant program for one
or more calendar years, each of our executive officers and other highly
compensated employees selected for participation may elect, prior to the start
of the calendar year, to reduce his or her base salary for that calendar year by
a specified dollar amount not less than $10,000 nor more than $50,000. Each
selected individual who files such a timely election will automatically be
granted, on the first trading day in January of the calendar year for which his
or her salary reduction is to be in effect, an option to purchase that number of
shares of common stock determined by dividing the salary reduction amount by
two-thirds of the fair market value per share of our common stock on the grant
date. The option will be exercisable at a price per share equal to one-third of
the fair market value of the option shares on the grant date. As a result, the
option will be structured so that the fair market value of the option shares on
the grant date less the exercise price payable for those shares will be equal to
the amount by which the optionee's salary is reduced under the program. The
option will become exercisable in a series of 12 equal monthly installments over
the calendar year for which the salary reduction is to be in effect.
Automatic Option Grant Program. Under the automatic option grant program,
each individual who first becomes a non-employee board member at any time after
the completion of this offering will automatically receive an option grant for
20,000 shares on the date such individual joins the board, provided such
individual has not been in our prior employ. In addition, on the date of each
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<PAGE> 57
annual stockholders meeting held after the completion of this offering, each
non-employee board member who is to continue to serve as a non-employee board
member, including each of our current non-employee board members, will
automatically be granted an option to purchase 5,000 shares of common stock,
provided such individual has served on our board for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each initial
20,000-share automatic option grant will vest in a series of 4 successive annual
installments upon the optionee's completion of each year of board service over
the 4-year period measured from the grant date. The shares subject to each
annual 5,000-share automatic option grant will vest upon the optionee's
completion of one year of board service measured from the grant date. However,
the shares will immediately vest in full upon certain changes in control or
ownership or upon the optionee's death or disability while a board member.
Director Fee Option Grant Program. Should the director fee option grant
program be activated, each non-employee board member will have the opportunity
to apply all or a portion of any cash retainer fee for the year to the
acquisition of a below-market option grant. The option grant will automatically
be made on the first trading day in January in the year for which the retainer
fee would otherwise be payable in cash. The option will have an exercise price
per share equal to one-third of the fair market value of the option shares on
the grant date, and the number of shares subject to the option will be
determined by dividing the amount of the retainer fee applied to the program by
two-thirds of the fair market value per share of our common stock on the grant
date. As a result, the option will be structured so that the fair market value
of the option shares on the grant date less the exercise price payable for those
shares will be equal to the portion of the retainer fee applied to that option.
The option will become exercisable in a series of 12 equal monthly installments
over the calendar year for which the election is to be in effect. However, the
option will become immediately exercisable for all the option shares upon the
optionee's death or disability while serving as a board member.
Our New 2000 Plan will also have the following features:
- Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us for an amount per surrendered option share
based upon the highest price per share of our common stock paid in that
tender offer.
The board may amend or modify our New 2000 Plan at any time, subject to any
required stockholder approval. Our New 2000 Plan will terminate no later than
, 2010.
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2000 EMPLOYEE STOCK PURCHASE PLAN
Introduction. Our 2000 Employee Stock Purchase Plan was adopted by the
board on , 2000 and approved by the stockholders in
2000. The plan will become effective immediately upon the signing of the
underwriting agreement for this offering. The plan is designed to allow our
eligible employees and the eligible employees of our participating subsidiaries
to purchase shares of common stock, at semi-annual intervals, with their
accumulated payroll deductions.
Share Reserve. 300,000 shares of our common stock will initially be
reserved for issuance. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year 2001, by
an amount equal to 1% of the total number of outstanding shares of our common
stock on the last trading day in December in the prior calendar year. In no
event will any such annual increase exceed 600,000 shares.
Offering Periods. The plan will have a series of successive overlapping
offering periods, with a new offering period beginning on the first business day
of May and November each year. Each offering period will have a maximum duration
of 24 months. However, the initial offering period may have a duration in excess
of 24 months and will start on the date the underwriting agreement for the
offering is signed, and will end on the last business day in April 2002. The
next offering period will start on the first business day in May 2002, and
subsequent offering periods will be set by our compensation committee.
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join during an offering period
on the start date of that period. However, employees may participate in only one
offering period at a time.
Payroll Deductions. A participant may contribute up to 10% of his or her
cash earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on each semi-annual purchase date. The
purchase price per share will be equal to 85% of the fair market value per share
on the participant's entry date during the offering period or, if lower, 85% of
the fair market value per share on the semi-annual purchase date. Semi-annual
purchase dates will occur on the last business day of April and October each
year. However, a participant may not purchase more than 1,000 shares on any
purchase date, and not more than 200,000 shares may be purchased in total by all
participants on any purchase date. Our compensation committee will have the
authority to change these limitations for any subsequent offering period.
Reset Feature. If the fair market value per share of our common stock on
any purchase date is less than the fair market value per share on the start date
of the two-year offering period, then that offering period will automatically
terminate, and a new two-year offering period will begin on the next business
day. All participants in the terminated offering will be transferred to the new
offering period.
Change in Control. Should we be acquired by merger or sale of substantially
all of our assets or more than fifty percent of our voting securities, then all
outstanding purchase rights will automatically be exercised immediately prior to
the effective date of the acquisition. The purchase price will be equal to 85%
of the market value per share on the participant's entry date into the offering
period in which an acquisition occurs or, if lower, 85% of the fair market value
per share immediately prior to the acquisition.
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Plan Provisions. The following provisions will also be in effect under the
plan:
- The plan will terminate no later than the last business day of April
2010.
- The board may at any time amend, suspend or discontinue the plan.
However, certain amendments may require stockholder approval.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by law. We believe that indemnification
under our bylaws covers at least negligence and gross negligence on the part of
the indemnified parties. Our bylaws also permit us to secure insurance on behalf
of any officer, director, employee or other agent for any liability arising out
of his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers in addition to indemnification provided for in our bylaws. These
agreements, among other things, provide for indemnification of our directors and
executive officers for expenses specified in the agreements, including
attorneys' fees, judgments, fines and settlement amounts incurred by any such
person in any action or proceeding arising out of such person's services as a
director or executive officer of SkyDesk, any subsidiary of SkyDesk or any other
entity to which the person provides services at our request. In addition, we
maintain directors' and officers' insurance. We believe that these provisions
and agreements are necessary to attract and retain qualified persons as
directors and executive officers.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
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RELATIONSHIPS AND RELATED TRANSACTIONS
EQUITY FINANCINGS
Since July 1996, we have issued shares of our convertible preferred stock
to investors in private placement transactions as follows:
- 6,215,383 shares of Series B preferred stock at a price of $0.65 per
share in July 1996;
- 2,820,725 shares of Series C preferred stock at a price of $0.96 per
share in February 1998;
- 4,303,086 shares of Series D preferred stock at a price of $1.21 per
share in March 1998; and
- 12,497,104 shares of Series E preferred stock at a price of $1.75 per
share for an aggregate purchase price of $21.9 million from July to
September 1999.
In addition to the shares listed above, we have issued warrants as
described below:
- Warrants to purchase 507,319 shares of Series B preferred stock at an
exercise price of $0.65 per share issued in October 1997 in connection
with convertible promissory notes totaling $1.3 million and bearing an
interest rate of 8.0% per annum. In March 1998, these notes were
converted into Series D preferred stock.
- Warrants to purchase 1,042,193 shares of common stock at an exercise
price of $0.15 per share issued in June 1999 in connection with
convertible promissory notes totaling $1.0 million and bearing an
interest rate of 8.0% per annum. In July 1999, these notes were converted
into Series E preferred stock.
The following table summarizes the shares of preferred stock purchased by,
and warrants to purchase shares issued to, our executive officers, directors, 5%
stockholders and persons and entities associated with them in these private
placement transactions. All shares of our preferred stock will convert into
common stock on a 1-for-1 basis upon completion of this offering. Shares and
warrants held by affiliated persons and entities have been aggregated. See
"Principal Stockholders." In connection with the above transactions, we entered
into an agreement with the investors providing for registration rights with
respect to these shares. See "Description of Capital Stock--Registration
Rights."
<TABLE>
<CAPTION>
WARRANTS
PREFERRED STOCK ------------------
--------------------------------------------- COMMON TOTAL
SERIES B SERIES C SERIES D SERIES E STOCK SERIES B CONSIDERATION
<S> <C> <C> <C> <C> <C> <C> <C>
Entities affiliated with Enterprise
Partners(a)............................. 3,076,923 -- 1,007,168 273,391 472,225 230,770 $3,697,107
Entities affiliated with Alta
Partners(b)............................. 2,307,692 -- 743,802 204,223 352,830 173,077 2,757,390
American Express Travel Related Services
Company, Inc. .......................... -- 2,820,725 -- -- -- -- 2,707,896
Cendant Corporation....................... -- -- 1,652,893 -- -- -- 2,000,001
Advanced Digital Information
Corporation(c).......................... -- -- -- 4,000,000 -- -- 7,000,000
Entities affiliated with Merrill Lynch
KECALP(d)............................... -- -- -- 2,857,143 -- -- 5,000,000
Crest Communication Partners, L.P......... -- -- -- 2,857,143 -- -- 5,000,000
EMC Corporation........................... -- -- -- 1,714,286 -- -- 3,000,001
Windward Ventures, L.P.(e)................ -- -- 495,868 171,428 57,335 -- 899,999
</TABLE>
- ------------------------------
(a) Includes Enterprise Partners III, L.P., a 5% stockholder, and Enterprise
Partners Associates III, L.P.
(b) Includes Alta California Partners, L.P., a 5% stockholder, and Alta
Embarcadero Partners, L.L.C.
(c) Advanced Digital Information Corporation is a 5% stockholder. Mr. Peter van
Oppen is an executive and member of the board of directors of Advanced
Digital Information Corporation and is one of our directors.
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<PAGE> 61
(d) Includes Merrill Lynch KECALP, L.P., a 5% stockholder, and Merrill Lynch
KECALP International L.P. 199
(e) Mr. M. David Titus is general partner of the general partner of Windward
Ventures and is one of our directors.
Some of our stockholders are entitled to have their shares registered by us
for resale. See "Description of Capital Stock--Registration Rights."
ADVANCED DIGITAL INFORMATION CORPORATION
As of September 1999, we entered into an arrangement under which ADIC has
agreed to market our @Backup service to its enterprise customers for specific
use with their laptop computers. As part of this arrangement, we pay ADIC a
marketing fee. Through the year ended December 31, 1999, we have paid $224,000
to ADIC under this arrangement. In July 1999, ADIC also purchased 4,000,000
shares of our Series E preferred stock.
AMERICAN EXPRESS TRAVEL RELATED SERVICES
In February 1998, we entered into a marketing agreement under which
American Express Travel Related Services Company, Inc. has agreed to market our
@Backup services to its customers. To date, we have paid $130,500 in connection
with this agreement. In February 1998, American Express also purchased 2,820,725
shares of our Series C preferred stock.
CENDANT CORPORATION
In March 1998, we entered into a software license agreement and a preferred
alliance agreement with Cendant. Under the software license agreement, Cendant
licensed software from us for a one-time fee of $1.0 million. Under the
preferred alliance agreement, Cendant has agreed to exclusively promote our
@Backup services to its franchisees and other customers. As part of this
agreement, we paid Cendant an initial fee of $1.0 million. In March 1998,
Cendant also purchased 1,652,893 shares of our Series D preferred stock.
EMC CORPORATION
In December 1999, we purchased approximately $2.8 million of computer
equipment from EMC Corporation. In September 1999, EMC Corporation also
purchased 1,714,286 shares of our Series E preferred stock.
OTHER ARRANGEMENTS WITH OFFICERS AND DIRECTORS
Stock option grants to our executives are described under the caption
"Management--Executive Compensation." Stock option grants to directors are
described under the caption "Management--Board Compensation." We have entered
into indemnification agreements with all of our officers and directors. See
"Management--Limitation of Liability and Indemnification Matters."
We believe that our transactions with affiliates were entered into on terms
and conditions no less favorable to us than those that could have been obtained
from unaffiliated third parties. In addition, transactions with our affiliates
are approved by a majority of our board of directors, including a majority of
our independent and disinterested directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us regarding the
beneficial ownership of our common stock as of December 31, 1999, as adjusted to
reflect the sale of common stock offered in this offering, by:
- each person, or group of affiliated persons, known by us to own
beneficially more than 5% of our outstanding common stock;
- each director;
- each executive officer named in the Summary Compensation Table; and
- all of our directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table
is c/o SkyDesk, Inc., 3550 General Atomics Court, San Diego, California 92121.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to shares. To our knowledge, except under applicable community property
laws or as otherwise indicated, the persons named in the table have sole voting
and sole investment control with respect to all shares shown as beneficially
owned. The applicable percentage of ownership for each stockholder is based on
29,880,682 shares of common stock outstanding as of December 31, 1999 and
shares outstanding after the completion of this offering, in each case
together with applicable options for that stockholder. Shares of common stock
issuable upon exercise of options and other rights beneficially owned that are
exercisable on or before February 29, 2000 are deemed outstanding for the
purpose of computing the percentage ownership of the person holding those
options and other rights but are not deemed outstanding for computing the
percentage ownership of any other person. A portion of the shares issued to
officers or issuable upon exercise of options by officers is subject to
repurchase by us at the original exercise price in the event of termination of
that officers' employment, which repurchase right lapses over time.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
OWNED
SHARES -------------------
BENEFICIALLY BEFORE AFTER
OWNED OFFERING OFFERING
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS:
Gary E. Sutton(a)......................................... 1,473,410 4.8% %
Fred W. McClain(b)........................................ 1,805,226 6.0
Dan L. Dearen(c).......................................... 542,125 1.8
Stephen P. Mickelsen(d)................................... 341,083 1.1
James L. Till(e).......................................... 400,000 1.3
Giles Bateman............................................. -- * *
David D'Ovattio........................................... -- * *
Brett Helm................................................ -- * *
Duane Nelles.............................................. -- * *
Peter Schwartz............................................ -- * *
M. David Titus(f)......................................... 724,631 2.4
Peter van Oppen(g)........................................ 4,000,000 13.4
</TABLE>
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<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
OWNED
SHARES -------------------
BENEFICIALLY BEFORE AFTER
OWNED OFFERING OFFERING
<S> <C> <C> <C>
OTHER 5% STOCKHOLDERS:
Advanced Digital Information Corporation(g)............... 4,000,000 13.4% %
Entities affiliated with Alta Embarcadero Partners,
LLC(h)................................................. 3,781,624 12.4
American Express Travel Related Services Company, Inc. ... 2,820,725 9.4
Cendant Corporation....................................... 1,652,893 5.5
Crest Communications Partners, L.P........................ 2,857,143 9.6
EMC Corporation........................................... 1,714,286 5.7
Entities affiliated with Enterprise Partners(i)........... 5,060,477 16.5
Merrill Lynch KECALP, L.P.(j)............................. 2,857,143 9.6
All of our officers and directors as a group (12
persons)(k)............................................ 9,286,475 29.0
</TABLE>
- -------------------------
* Represents beneficial ownership of less than one percent of the outstanding
shares of our common stock.
(a) Includes 807,107 shares held in trust for the benefit of Mr. Sutton or his
family, options for the purchase of 600,000 shares exercisable within 60
days of December 31, 1999 and assumes the exercise of warrants for a total
of 42,193 shares.
(b) Includes 1,671,893 shares held in trust for the benefit of Mr. McClain or
his family and options for the purchase of 133,333 shares exercisable within
60 days of December 31, 1999.
(c) Includes options for the purchase of 542,125 shares exercisable within 60
days of December 31, 1999.
(d) Includes options for the purchase of 341,083 shares exercisable within 60
days of December 31, 1999.
(e) Includes options for the purchase of 400,000 shares exercisable within 60
days of December 31, 1999.
(f) Includes 667,296 shares held of record by Windward Ventures L.P. and assumes
the exercise of warrants for a total of 57,335 shares. Mr. Titus is a
general partner of Windward Ventures L.P.
(g) Includes 4,000,000 shares held of record by Advanced Digital Information
Corporation. Mr. van Oppen is the Chairman of the Board of Directors and
Chief Executive Officer of Advanced Digital Information Corporation.
(h) Includes 3,167,979 shares held of record by Alta California Partners, L.P.
and 87,738 shares held of record by Alta Embarcadero Partners, LLC and
assumes the exercise of warrants for a total of 525,907 shares held by both
entities. The principals of Alta Partners are general partners of Alta
California Management Partners, L.P., which is a general partner of Alta
California Partners, L.P. and are members of Alta Embarcadero Partners, LLC.
As general partners of these funds, they may be deemed to share voting and
investment powers for these shares. The principals of Alta Partners disclaim
beneficial ownership of all these shares, except to the extent of their
proportionate pecuniary interests. The address of Alta Partners is One
Embarcadero Center, Suite 4050, San Francisco, CA.
(i) Includes 348,598 shares held of record by Enterprise Partners III
Associates, L.P. and 4,008,884 shares held of record by Enterprise Partners
III, L.P. and assumes the exercise of warrants for a total of 702,995 shares
held by both entities. The address of Enterprise Partners is 7979 Ivanhoe
Ave., Suite 550, La Jolla, CA.
(j) Includes 2,571,429 shares held of record by Merrill Lynch KECALP, L.P. and
285,714 shares held of record by Merrill Lynch KECALP International L.P.
1999. The address of Merrill Lynch KECALP, L.P. is World Financial Center,
So. Tower, 225 Liberty St., 23rd Floor, New York, NY.
(k) Includes 1,996,066 shares issuable upon exercise of stock options and
warrants exercisable within 60 days of December 31, 1999.
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DESCRIPTION OF CAPITAL STOCK
The following information describes our common stock and preferred stock
and certain provisions of our certificate of incorporation and our bylaws as in
effect upon the closing of this offering. This description is only a summary.
You should also refer to the certificate of incorporation and bylaws which have
been filed with the Securities and Exchange Commission, or SEC, as exhibits to
our registration statement, of which this prospectus forms a part. The
descriptions of the common stock and preferred stock reflect changes to our
capital structure that will occur upon the receipt of the requisite board and
stockholder approvals and upon the closing of this offering in accordance with
the terms of the certificate of incorporation.
Upon the completion of the offering our authorized capital stock will
consist of 150 million shares of common stock, par value $0.001 per share, and 5
million shares of preferred stock, par value $0.001 per share.
COMMON STOCK
Assuming conversion of the convertible preferred stock as described below,
as of December 31, 1999, there were 29,880,682 shares of common stock
outstanding and held of record by 52 stockholders. Based upon the number of
shares outstanding and giving effect to (1) the automatic conversion of each
share of our preferred stock into one share of our common stock upon the closing
of this offering, (2) exercise of warrants to purchase 2,058,326 shares which
would otherwise terminate upon this offering and (3) the issuance of the
shares of common stock offered hereby, there will be shares of common
stock outstanding upon the closing of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the board of directors out of
funds legally available for that purpose, subject to any preferential dividend
rights of any outstanding preferred stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are, and the shares offered by us in this offering will
be, when issued in consideration for payment thereof, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock which we may designate and issue in the
future. Upon the closing of this offering, there will be no shares of preferred
stock outstanding.
PREFERRED STOCK
As of December 31, 1999, there were 26,476,298 shares of convertible
preferred stock outstanding. All outstanding shares of convertible preferred
stock will be converted into an aggregate of 26,476,298 shares of common stock
upon the closing of this offering and such shares of convertible preferred stock
will no longer be authorized, issued or outstanding.
Upon the closing of this offering, the board of directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 5 million shares of preferred stock in one or more series and
to fix or alter the designations, powers, preferences, rights and any
qualifications, limitations or restrictions of the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. We have no present plans
to issue any shares of
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preferred stock. Please see "--Anti-Takeover Effects of Certain Provisions of
Delaware Law and Our Certificate of Incorporation and Bylaws."
OPTIONS
As of December 31, 1999, options to purchase a total of 3,654,331 shares of
common stock were outstanding, all of which are subject to lock-up agreements
under the terms of the option agreements governing such options, or by other
means. Options to purchase a total of 156,990 shares of common stock remain
available for grant under the 2000 Stock Incentive Plan. Please see
"Management--Benefit Plans" and "Shares Eligible for Future Sale."
COMMON STOCK WARRANTS
We have outstanding warrants to purchase up to a total of 3,342,405 shares
of our capital stock. Of this amount, 2,058,326 shares issuable upon exercise of
warrants that would otherwise terminate upon the completion of this offering.
The warrants contain anti-dilution provisions providing for adjustments of the
exercise price and the number of shares underlying the warrants upon the
occurrence of certain events, including any recapitalization, reclassification,
stock dividend, stock split, stock combination or similar transaction. In
addition, outstanding warrants to purchase a total of 935,212 shares of our
capital stock entitle the holder to registration rights, as described below,
with respect to the common stock issuable upon their exercise.
REGISTRATION RIGHTS
Under the terms of an investors' rights agreement, six months after the
effective date of this offering the holders of 26,476,298 shares of common stock
and up to 935,212 shares of common stock issuable upon the exercise of warrants
will be entitled to demand registration rights with respect to the registration
of their shares under the Securities Act of 1933. The holders of 50% of shares
issued on conversion of the Series A, Series B, Series C, Series D, and Series E
preferred stock have the right to demand that we register their shares under the
Securities Act subject to limitations described in the agreement. We are not
required to effect more than 2 registrations pursuant to such demand
registration rights. In addition, after the closing of this offering these
holders will be entitled to certain piggyback registration rights with respect
to the registration of such shares of common stock under the Securities Act. In
the event that we propose to register any shares of common stock under the
Securities Act either for our account or for the account of other security
holders, the holders of shares having piggyback registration rights are entitled
to receive notice of such registration and to include their shares in any such
registration, subject to certain limitations as described in the agreement.
Further, at any time after we become eligible to file a registration statement
on Form S-3, the holders of 26,476,298 shares of common stock and up to 935,212
shares of common stock issuable upon the exercise of warrants may require us to
file registration statements under the Securities Act on Form S-3 with respect
to their shares of common stock. These registration rights are subject to
certain conditions and limitations, among them the right of the underwriters of
an offering to limit the number of shares of common stock held by such security
holders to be included in such registration. We are generally required to bear
all of the expenses of all such registrations, including the reasonable fees of
a single counsel acting on behalf of all selling holders, except underwriting
discounts and selling commissions. Registration of any of the shares of common
stock held by security holders with registration rights would result in such
shares becoming freely tradable without restriction under the Securities Act
immediately upon effectiveness of such registration.
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ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE
OF INCORPORATION AND BYLAWS
General. Certain provisions of Delaware law and our certificate of
incorporation and bylaws could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, control
of us. Such provisions could limit the price that certain investors might be
willing to pay in the future for shares of our common stock. These provisions of
Delaware law and the certificate of incorporation and bylaws may also have the
effect of discouraging or preventing certain types of transactions involving an
actual or threatened change of control of us, including unsolicited takeover
attempts, even though such a transaction may offer our stockholders the
opportunity to sell their stock at a price above the prevailing market price.
Delaware Takeover Statute. We are subject to the "business combination"
provisions of Section 203 of the Delaware General Corporation Law. Subject to
certain exceptions, Section 203 prohibits a publicly-held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder obtained interested stockholder status;
- upon consummation of the transaction that resulted in the stockholders
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer; or
- on or subsequent to the date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an "interested stockholder" is a person who,
together with affiliates and associates, owns, or within three years did own,
15% or more of the corporation's voting stock. This statute could prohibit or
delay the accomplishment of mergers or other takeover or change in control
attempts with respect to us and, accordingly, may discourage attempts to acquire
us.
Charter and Bylaw Provisions. In addition, certain provisions of our
certificate of incorporation and bylaws summarized in the following paragraphs
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
Classified Board of Directors; Removal; Filling Vacancies and
Amendment. The certificate of incorporation and bylaws provide that the board of
directors shall be divided into three classes of directors serving staggered,
three-year terms. The classification of the board of directors has the effect of
requiring at least two annual stockholder meetings, instead of one, to replace a
majority of members of the board of directors. Subject to the rights of the
holders of any outstanding series of preferred stock, the certificate of
incorporation authorizes only the board of directors to fill vacancies,
including newly created directorships. Accordingly, this provision could prevent
a stockholder from
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obtaining majority representation on the board of directors by enlarging the
board of directors and filling the new directorships with its own nominees. The
certificate of incorporation also provides that directors may be removed by
stockholders only for cause and only by the affirmative vote of holders of
two-thirds of the outstanding shares of voting stock.
Stockholder Action; Special Meeting of Stockholders. The certificate of
incorporation provides that stockholders may not take action by written consent,
but may only take action at duly called annual or special meetings of
stockholders. The certificate of incorporation further provides that special
meetings of our stockholders may be called only by the chairman of the board of
directors or a majority of the board of directors. This limitation on the right
of stockholders to call a special meeting could make it more difficult for
stockholders to initiate actions that are opposed by the board of directors.
These actions could include the removal of an incumbent director or the election
of a stockholder nominee as a director. They could also include the
implementation of a rule requiring stockholder ratification of specific
defensive strategies that have been adopted by the board of directors with
respect to unsolicited takeover bids. In addition, the limited ability of the
stockholders to call a special meeting of stockholders may make it more
difficult to change the existing board and management.
Advance Notice Requirements for Stockholder Proposals and Director
Nomination. The bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at our principal executive offices not less than 120 days
prior to the date of our annual meeting. The bylaws also specify certain
requirements as to the form and content of a stockholder's notice. These
provisions may preclude stockholders from bringing matters before an annual
meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders.
Authorized but Unissued Shares. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock and preferred stock could render
more difficult or discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
Supermajority Vote to Amend Charter and Bylaws. The Delaware General
Corporation Law provides generally that the affirmative vote of a majority of
the shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
Following the completion of this offering, our present directors, and executive
officers and principal stockholders will beneficially own approximately of our
common stock. This gives them veto power with respect to any stockholder action
or approval requiring either a two-thirds vote or a simple majority.
NASDAQ NATIONAL MARKET
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "DESK."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock
Transfer Corporation.
63
<PAGE> 68
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market after
the offering could adversely affect the market price of our common stock and our
ability to raise equity capital in the future on terms favorable to us.
After the offering, shares of our common stock will be
outstanding, assuming that the underwriters do not exercise the over-allotment
option. Of these shares, all of the shares sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act, unless these shares are purchased by "affiliates" as that term
is defined in Rule 144 under the Securities Act. The remaining 29,880,682 shares
of common stock held by existing stockholders are "restricted securities" as
that term is defined in Rule 144 under the Securities Act. Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 under the Securities Act,
which rules are summarized below.
The following table shows approximately when the 29,880,682 shares of our
common stock that are not being sold in this offering but which will be
outstanding when this offering is complete will be eligible for sale in the
public market:
ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET
<TABLE>
<CAPTION>
NUMBER OF SHARES
DATE ELIGIBLE FOR FUTURE SALE COMMENT
<S> <C> <C>
On the effective date............ -- Shares eligible for sale under
Rule 144(k)
90 days after the effective date
or second trading day following
first public release of
quarterly earnings(a).......... 6,844,393 Additional shares eligible for
sale under Rules 144 and 701
135 days after the effective
date(a)........................ 13,688,786 Additional shares eligible for
sale under Rules 144 and 701
180 days after effective date
(expiration of lock-up)........ 29,880,682 All shares subject to lock-up
agreements released; additional
shares eligible for sale under
Rules 144 and 701.
More than 181 days after
effective date................. -- Additional shares becoming
eligible for sale under Rule 144
more than 180 days after the
effective date.
</TABLE>
- -------------------------
(a) Pursuant to the terms of the lock-up agreements described below, the number
of shares listed may be offered, sold or traded provided that the last
recorded sale price per share for 20 of the 30 trading days ending on such
date is at least twice the initial offering price per share.
Resale of most of the restricted shares that will become available for sale
in the public market starting 180 days after the effective date will be limited
by volume and other resale restrictions under Rule 144 because the holders are
our affiliates.
64
<PAGE> 69
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year is entitled to sell, within any three-month
period, a number of shares that is not more than the greater of:
- 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks before a notice of the
sale on Form 144 is filed.
Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements and are subject to the availability of current public
information about us.
RULE 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days before a sale, and who has beneficially owned the
restricted shares for at least two years, is entitled to sell the shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchase shares from us under
a stock option plan or other written agreement can resell those shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
complying with some of the restrictions, including the holding period, contained
in Rule 144.
LOCK-UP AGREEMENTS
Executive officers, directors and certain security holders will sign
lock-up agreements under which they will agree not to transfer or dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for shares of common stock, for a period of
180 days after the date of this prospectus. In addition, employees who acquired
common stock upon exercise of stock options issued under our 1998 and 2000 Stock
Option/Stock Issuance Plans have accepted substantially identical lock-up terms
with us. However, 25% of the shares of common stock subject to lock-up
agreements with Donaldson, Lufkin & Jenrette (other than shares owned by or
issuable to employees) will be released from these restrictions if the reported
last sale price of the common stock on the Nasdaq National Market is at least
twice the initial public offering price for 20 of the 30 consecutive trading
days ending on the last trading day of the 90-day period after the date of this
prospectus. These shares will be released on the latest to occur of the 90-day
period after the date of this prospectus and the second trading day after the
first public release of our quarterly results. An additional 25% of the shares
subject to the restrictions described above will be released from these
restrictions if the reported last sale price of the common stock on the Nasdaq
National Market is at least twice the initial public offering price for 20 of
the 30 consecutive trading days ending on the last trading day of the 135-day
period after the date of this prospectus. The release of shares described above
is further conditioned upon the delivery to Donaldson, Lufkin & Jenrette of
written notice three days prior to the execution of any transactions
transferring such shares. The execution of any such action must be made through
Donaldson, Lufkin & Jenrette or any of its affiliates acting as a broker, unless
otherwise agreed in writing by Donaldson, Lufkin & Jenrette.
65
<PAGE> 70
STOCK PLANS
Following 90 days after the date of this prospectus, shares issued upon
exercise of options that we granted prior to the date of this offering will also
be available for sale in the public market pursuant to Rule 701 under the
Securities Act of 1933. Rule 701 permits resales of such shares in reliance upon
Rule 144 under the Securities Act of 1933 but without compliance with the
restrictions, including the holding-period requirement, imposed under Rule 144.
As of December 31, 1999, options to purchase a total of 3,654,331 shares of
common stock were outstanding. Each option grant is subject to a market
stand-off provision, which allows the Company to restrict the sale of shares
obtained through the exercise of options for up to 180 days from the date of
this offering. Thereafter, shares will have vested and be eligible for
sale in the public market upon exercise.
We plan to file a registration statement to register for resale
approximately 8,250,000 shares of common stock reserved for issuance under our
stock option plans and other compensatory option grants. This registration
statement became effective immediately upon filing. Shares issued upon the
exercise of stock options granted under our stock option plans will be eligible
for resale in the public market from time to time subject to vesting and, in the
case of certain options, the expiration of the market stand-off provisions
referred to above.
REGISTRATION RIGHTS
Under the terms of an investors' rights agreement, six months after the
effective date of this offering, the holders of 26,476,298 shares of common
stock and up to 935,212 shares of common stock issuable upon the exercise of
warrants have the right, subject to various conditions and limitations, to
include their shares in registration statements relating to our securities. By
exercising their registration rights and causing a large number of shares to be
registered and sold in the public market, these holders may cause the price of
the common stock to fall. In addition, any demand to include such shares in our
registration statements could have a material adverse effect on our ability to
raise needed capital. Please see "Management--Benefit Plans," "Principal
Stockholders," "Description of Capital Stock--Registration Rights," "Shares
Eligible For Future Sale" and "Underwriting."
66
<PAGE> 71
UNDERWRITING
Subject to the terms and conditions in the underwriting agreement, dated
, 2000, the underwriters named below, for whom Donaldson, Lufkin &
Jenrette Securities Corporation, or DLJ, Salomon Smith Barney Inc., Bear,
Stearns & Co. Inc. and DLJdirect Inc. are acting as representatives, have
severally agreed to purchase from us the respective number of shares of common
stock indicated opposite their names below.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
<S> <C>
UNDERWRITERS:
Donaldson, Lufkin & Jenrette Securities Corporation.........
Salomon Smith Barney Inc. ..................................
Bear, Stearns & Co., Inc. ..................................
DLJdirect Inc. .............................................
--------
Total.....................................................
========
</TABLE>
The underwriting agreement provides that the obligations of each of the
underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus are subject to approval by their counsel of legal
matters and to other customary conditions, including the effectiveness of the
registration statement, the continuing correctness of our representations, the
receipt of a "comfort letter" from our accountants, the listing of the common
stock for quotation on the Nasdaq National Market and no occurrence of an event
that would have a material adverse effect on SkyDesk. The underwriters are
obligated to purchase and accept delivery of all the shares of common stock
offered by this prospectus, other than those shares covered by the
over-allotment option described below, if they purchase any of the shares of
common stock.
The underwriters propose to initially offer the shares of common stock in
part directly to the public at the initial public offering price indicated on
the cover page of this prospectus and in part to dealers, including the
underwriters, at that price less a concession not in excess of $ per share.
The underwriters may allow, and the dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of the
common stock, the public offering price and other selling terms may be changed
by the representatives at any time without notice. The underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
We have granted to the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of additional shares of common stock at the initial
public offering price less underwriting discounts and commissions. The
underwriters may exercise this option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise this option, each underwriter will become obligated, subject to
specified conditions, to purchase its pro rata portion of the additional shares
based on the underwriter's percentage underwriting commitment as indicated in
the preceding table.
The following table shows the underwriting fees to be paid to the
underwriters by us in this offering. These amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares of our common stock to cover over-allotments.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
<S> <C> <C>
Per Share.................................................. $ $
Total...................................................... $ $
</TABLE>
We will pay the offering expenses, estimated to be $ million.
67
<PAGE> 72
An electronic prospectus is available on the Internet site maintained by
DLJdirect Inc., an affiliate of DLJ. Other than the prospectus in electronic
format, the information on the Internet site relating to our offering is not a
part of this prospectus, has not been approved or endorsed by us or any
underwriter and should not be relied on by prospective purchasers.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the underwriters may be required to make in connection with these
liabilities.
Our executive officers and directors and all of our existing stockholders
have agreed, for a period of 180 days after the date of this prospectus, with
some exceptions, that without the prior written consent of DLJ, they will not:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into
or exercisable or exchangeable for common stock; or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock.
Either of the foregoing transfer restrictions will apply regardless of
whether a covered transaction is to be settled by the delivery of common stock
or other securities, in cash or otherwise. However, 25% of the shares of common
stock subject to the restriction described above (other than shares owned by or
issuable to employees) will be released from these restrictions if the reported
last sale price of the common stock on the Nasdaq National Market is at least
twice the initial public offering price for 20 of the 30 consecutive trading
days ending on the last trading day of the 90-day period after the date of this
prospectus. These shares will be released on the latest to occur of the 90-day
period after the date of this prospectus and the second trading day after the
first public release of our quarterly results. An additional 25% of the shares
subject to the restrictions described above will be released from these
restrictions if the reported last sale price of the common stock on the Nasdaq
National Market is at least twice the initial public offering price for 20 of
the 30 consecutive trading days ending on the last trading day of the 135-day
period after the date of this prospectus. The release of shares described above
is further conditioned upon the delivery to DLJ of written notice three days
prior to the execution of any transactions transferring such shares. The
execution of any such action must be made through DLJ or any of its affiliates
acting as a broker, unless otherwise agreed in writing by DLJ. In addition,
during this 180-day period, we have also agreed not to file any registration
statement for the registration of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock without the
prior written consent of DLJ. Likewise, each of our executive officers,
directors and stockholders has agreed not to make any demand for, or exercise
any right for, registration of any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock without DLJ's
written consent.
Before this offering, there has been no established trading market for our
common stock. The initial public offering price for the shares of common stock
offered by this prospectus will be determined by negotiation among us and the
representatives. The factors to be considered in determining the initial public
offering price includes:
- the history of and the prospects for the industry in which we compete;
- our past and present operations;
- our historical results of operations;
68
<PAGE> 73
- our prospects for future earnings;
- the recent market prices of securities of generally comparable companies;
and
- the general condition of the securities markets at the time of this
offering.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol, "DESK."
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
offered by this prospectus in any jurisdiction where action for that purpose is
required. The shares of common stock offered by this prospectus may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements in connection with the offer and sale of any
of the shares of common stock be distributed or published in any jurisdiction,
except under circumstances that will result in compliance with the applicable
rules and regulations of the jurisdiction. Persons into whose possession this
prospectus comes are advised to inform themselves about and to observe any
restrictions relating to this offering and the distribution of this prospectus.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of common stock offered by this prospectus in any
jurisdiction in which an offer or a solicitation is unlawful.
STABILIZATION
In connection with this offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of our
common stock. Specifically, the underwriters may over-allot this offering,
meaning syndicate sales may be in excess of the offering size which creates a
syndicate short position. The underwriters may bid for and purchase shares of
common stock in the open market to cover the syndicate short position or to
stabilize the price of our common stock. In addition, the underwriting syndicate
may reclaim selling concessions from syndicate members if the syndicate
repurchases previously distributed common stock in syndicate covering
transactions, in stabilization transactions or if DLJ receives a report that
indicates that the clients of syndicate members have "flipped" the common stock.
Any of these activities may stabilize or maintain the market price of our common
stock above independent market levels. The underwriters are not required to
engage in these activities, and may end any of these activities at any time.
The underwriters, at our request, have reserved for sale at the initial
public offering price up to 8% of the shares of common stock to be sold in this
offering for sale to our employees, directors and other persons we designate.
The number of shares available for sale to the general public will be reduced to
the extent that any reserved shares are purchased. Any reserved shares not
purchased will be offered by the underwriters on the same basis as the other
shares offered by this prospectus.
LEGAL MATTERS
The validity of the common stock offered in this offering will be passed
upon for us by Brobeck, Phleger & Harrison LLP, San Diego, California. As of the
date of this prospectus, members of that firm own 43,431 shares of our common
stock. Legal matters will be passed upon for the underwriters by Gray Cary Ware
& Freidenrich LLP, San Diego, California.
69
<PAGE> 74
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for our
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for the copies of the actual
contract, agreement or other document. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the SEC.
You can read our SEC filings, including the registration statement, over
the Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549;
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade
Center, Thirteenth Floor, New York, New York 10048. You may also obtain copies
of the documents at prescribed rates by writing to the Public Reference Section
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference facilities.
70
<PAGE> 75
SKYDESK, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.......................... F-4
Consolidated Statements of Stockholders' Deficit for the
years ended December 31, 1997, 1998 and 1999.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 76
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SkyDesk, Inc.:
We have audited the accompanying consolidated balance sheets of SKYDESK,
INC. (a Delaware corporation) and subsidiary as of December 31, 1998 and 1999,
and the related consolidated statements of operations, stockholders' deficit and
cash flows for each of the three years in the period ended December 31, 1999.
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 in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
our audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SkyDesk, Inc. and subsidiary as of December 31, 1998 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles in the United States.
ARTHUR ANDERSEN LLP
San Diego, California
March 10, 2000
F-2
<PAGE> 77
SKYDESK, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
AS OF DECEMBER 31, STOCKHOLDERS'
-------------------------- EQUITY
1998 1999 (NOTE 2)
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 2,106,661 $ 16,094,555 $
Restricted cash.......................................... -- 446,250
Accounts receivable...................................... 5,277 107,979
Prepaid advertising costs................................ -- 863,600
Prepaid expenses and other current assets................ -- 115,082
----------- ------------
Total current assets................................... 2,111,938 17,627,466
Property and equipment, net................................ 495,103 3,656,232
Prepaid advertising costs, net............................. -- 1,759,249
Other assets, net.......................................... 114,573 106,620
----------- ------------
Total assets........................................... $ 2,721,614 $ 23,149,567
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable......................................... $ 392,550 $ 4,807,118
Accrued liabilities and other............................ 40,425 482,037
Line of credit........................................... -- 425,000
Current portion of capital lease obligations............. -- 228,917
Deferred revenue......................................... 35,957 442,053
----------- ------------
Total current liabilities.............................. 468,932 6,385,125
----------- ------------
LONG-TERM LIABILITIES:
Capital lease obligations, net of current portion........ -- 495,193
Long-term obligation, net of current portion............. -- 1,727,199
----------- ------------
Total long-term liabilities............................ -- 2,222,392
----------- ------------
Total liabilities...................................... $ 469,932 $ 8,607,517
----------- ------------
COMMITMENTS AND CONTINGENCIES:
REDEEMABLE PREFERRED STOCK, NO PAR VALUE:
Series B convertible, 7,000,000 shares authorized,
6,215,383 shares issued and outstanding in 1998 and
1999, liquidation preference of $4,040,000 at 1998 and
1999................................................... 3,859,393 3,929,306 --
Series C convertible, 3,000,000 shares authorized,
2,820,725 shares issued and outstanding in 1998 and
1999, liquidation preference of $2,707,896 at 1998 and
1999................................................... 2,576,974 2,624,597 --
Series D convertible, 5,600,000 shares authorized,
4,303,086 shares issued and outstanding in 1998 and
1999, liquidation preference of $5,206,734 at 1998 and
1999................................................... 5,171,002 5,179,577 --
Series E convertible, 13,500,000 shares authorized,
12,497,104 shares issued and outstanding in 1999,
liquidation preference of $21,869,932 at 1999.......... -- 19,276,910 --
Warrants to purchase preferred stock..................... -- 1,203,775 --
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock, 700,000 shares
authorized, 640,000 issued and outstanding in 1998 and
1999, liquidation preference of $320,000............... 278,083 278,083 --
Common stock, no par value, 21,000,000 and 39,000,000
shares authorized, 3,303,552 and 3,404,384 shares
issued and outstanding in 1998 and 1999, respectively,
and 29,880,682, $.001 par value shares pro forma....... 86,604 101,729 29,881
Additional paid-in capital............................... 800,899 14,129,835 46,693,931
Deferred stock-based compensation........................ (644,119) (10,654,210) (10,654,210)
Accumulated deficit...................................... (9,876,154) (21,527,552) (21,527,552)
----------- ------------ ------------
Total stockholders' equity (deficit)................... (9,354,687) (17,672,115) $ 14,542,050
----------- ------------ ============
Total liabilities and stockholders' equity (deficit)... $ 2,721,614 $ 23,149,567
=========== ============
</TABLE>
The accompanying notes should be read in conjunction with these consolidated
balance sheets.
F-3
<PAGE> 78
SKYDESK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
Net revenues.................................. $ 63,082 $ 333,439 $ 566,804
OPERATING EXPENSES:
Cost of services (excluding stock-based
compensation expense of $2,728, $659, and
$89,142, respectively)................... 647,013 641,191 878,756
Selling and marketing (excluding stock-based
compensation expense of $16,377, $27,520,
and $571,809, respectively).............. 1,862,401 2,822,517 5,273,487
Research and development (excluding
stock-based compensation expense of
$17,789, $42,912, and $404,076,
respectively)............................ 689,475 1,159,027 1,351,664
General and administrative (excluding
stock-based compensation expense of
$6,197, $35,000, and $1,383,144,
respectively)............................ 502,815 928,375 1,560,811
Amortization of deferred stock-based
compensation............................. 43,091 106,091 2,448,171
----------- ----------- ------------
Total operating expenses................. 3,744,795 5,657,201 11,512,889
----------- ----------- ------------
Loss from operations.......................... (3,681,713) (5,323,762) (10,946,085)
INTEREST INCOME (EXPENSE):
Interest income............................. 59,945 156,198 351,899
Interest expense............................ -- (40,749) (587,613)
----------- ----------- ------------
Interest income (expense), net........... 59,945 115,449 (235,714)
----------- ----------- ------------
Net loss...................................... (3,621,768) (5,208,313) (11,181,799)
=========== =========== ============
Adjustment for accretion of redeemable
convertible preferred stock................. -- (135,278) (469,599)
----------- ----------- ------------
Loss applicable to common stockholders........ $(3,621,768) $(5,343,591) $(11,651,398)
=========== =========== ============
Basic and diluted loss per share.............. $ (1.11) $ (1.63) $ (3.50)
=========== =========== ============
Weighted average common shares outstanding.... 3,260,677 3,279,750 3,332,093
=========== =========== ============
</TABLE>
The accompanying notes should be read in conjunction with these consolidated
financial statements.
F-4
<PAGE> 79
SKYDESK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
------------------ -------------------- PAID-IN STOCK-BASED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1996..................... 640,000 $278,083 3,260,094 $ 78,354 $ 134,200 $ (126,602) $ (910,795) $ (546,760)
Exercise of stock
options................ -- -- 7,000 1,050 -- -- -- 1,050
Deferred stock-based
compensation related to
options granted........ -- -- -- -- 208,957 (208,957) -- --
Amortization of deferred
stock-based
compensation........... -- -- -- -- -- 43,091 -- 43,091
Net loss................. -- -- -- -- -- -- (3,621,768) (3,621,768)
------- -------- --------- -------- ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31,
1997..................... 640,000 278,083 3,267,094 79,404 343,157 (292,468) (4,532,563) (4,124,387)
Exercise of stock
options................ -- -- 36,458 7,200 -- -- -- 7,200
Accretion of redeemable
preferred stock........ -- -- -- -- -- -- (135,278) (135,278)
Deferred stock-based
compensation related to
options granted........ -- -- -- -- 457,742 (457,742) -- --
Amortization of deferred
stock-based
compensation........... -- -- -- -- -- 106,091 -- 106,091
Net loss................. -- -- -- -- -- -- (5,208,313) (5,208,313)
------- -------- --------- -------- ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31,
1998..................... 640,000 278,083 3,303,552 86,604 800,899 (644,119) (9,876,154) (9,354,687)
Exercise of stock
options................ -- -- 100,832 15,125 -- -- -- 15,125
Issuance of warrants to
purchase common
stock.................. -- -- -- -- 869,937 -- -- 869,937
Accretion of redeemable
preferred stock........ -- -- -- -- -- -- (469,599) (469,599)
Deferred stock-based
compensation related to
options granted........ -- -- -- -- 12,458,262 (12,458,262) -- --
Amortization of deferred
stock-based
compensation........... -- -- -- -- -- 2,448,171 -- 2,448,171
Exercise of warrants..... -- -- -- -- 737 -- -- 737
Net loss................. -- -- -- -- -- -- (11,181,799) (11,181,799)
------- -------- --------- -------- ----------- ------------ ------------ ------------
BALANCE, DECEMBER 31,
1999..................... 640,000 $278,083 3,404,384 $101,729 $14,129,835 $(10,654,210) $(21,527,552) $(17,672,115)
======= ======== ========= ======== =========== ============ ============ ============
</TABLE>
The accompanying notes should be read in conjunction with these consolidated
financial statements.
F-5
<PAGE> 80
SKYDESK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(3,621,768) $(5,208,313) $(11,181,799)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization........................... 126,608 209,863 399,979
Non-cash interest and operating charges................. -- -- 514,060
Amortization of deferred stock-based compensation....... 43,091 106,091 2,448,171
Loss (gain) on sale of fixed assets..................... -- 2,044 (2,637)
Changes in assets and liabilities:
Accounts receivable................................... (21,743) 16,466 (102,702)
Prepaid expenses and other assets..................... (30,923) (37,593) (816,661)
Accounts payable...................................... 123,517 159,902 1,664,568
Accrued liabilities and other......................... 2,666 14,581 441,612
Deferred revenue...................................... 2,523 33,434 406,096
----------- ----------- ------------
Cash used in operating activities.................. (3,376,029) (4,703,525) (6,229,313)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (190,091) (415,367) --
Proceeds from sale of property and equipment.............. -- 22,998 14,000
----------- ----------- ------------
Cash (used in) provided by investing activities......... (190,091) (392,369) 14,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred stock transactions................ -- 6,495,445 19,330,441
Proceeds from common stock transactions................... 1,050 7,200 15,862
Issuance of convertible promissory notes.................. 1,201,731 -- 1,042,193
Borrowings under line of credit........................... -- -- 425,000
Payments on capital lease obligations..................... -- -- (164,039)
Increase in restricted cash............................... -- -- (446,250)
----------- ----------- ------------
Cash provided by financing activities................... 1,202,781 6,502,645 20,203,207
----------- ----------- ------------
Increase (decrease) in cash and cash equivalents........ (2,363,339) 1,406,751 13,987,894
Cash and cash equivalents, beginning of period.............. 3,063,249 699,910 2,106,661
----------- ----------- ------------
Cash and cash equivalents, end of period.................... $ 699,610 $ 2,106,661 $ 16,094,555
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 29 $ 40,749 $ 50,233
=========== =========== ============
NON-CASH FINANCING ACTIVITIES RELATED TO PREPAID MARKETING:
Non-refundable execution fee.............................. $ -- $ -- $ 500,000
Net present value of obligation........................... -- -- 2,090,799
----------- ----------- ------------
Non-cash financing activities related to prepaid
marketing............................................. $ -- $ -- $ 2,590,799
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations entered into for equipment...... $ -- $ -- $ 842,360
=========== =========== ============
Equipment purchases included in accounts payable.......... $ -- $ -- $ 2,750,000
=========== =========== ============
Conversion of debt to preferred stock..................... $ -- $ 1,201,731 $ 1,042,193
=========== =========== ============
Accretion of redeemable preferred stock................... $ -- $ 135,278 $ 469,599
=========== =========== ============
Value of warrants issued in connection with operating and
financing activities.................................... $ -- $ -- $ 1,953,272
=========== =========== ============
</TABLE>
The accompanying notes should be read in conjunction with these consolidated
financial statements.
F-6
<PAGE> 81
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
ORGANIZATION AND NATURE OF BUSINESS
SkyDesk, Inc. (the "Company") (formerly Fairbanks Systems Group dba
@Backup, Inc.) was incorporated in California on July 21, 1995. The Company was
organized to provide Internet-based data storage and document management
solutions for small and medium-sized businesses and individual computer users.
The Company's principal business activities consist of internet data storage and
access and protection services.
In 1998, the Company formed StraightUp! Software, Inc. (the "Subsidiary")
which was incorporated in California in September 1998. The Company owns 80% of
the Subsidiary. As part of this formation, the Company granted the Subsidiary an
exclusive license to a company-developed web advertising tracking software
program in exchange for 1,000,000 shares of the common stock of the Subsidiary.
The Subsidiary is currently seeking venture capital financing to support its
sales, marketing and product development activities. Since its formation, the
Company loaned the Subsidiary $425,000 pursuant to convertible demand promissory
notes which bore interest at 8% per annum. During 1999, the Subsidiary repaid
the $425,000 convertible demand promissory notes upon receiving a line-of-credit
from a bank (see Note 4).
On March 1, 2000, the Company reincorporated under the laws of the State of
Delaware and established a par value of its common stock from no par value to
$.001 par value. The Company was incorporated under the laws of the State of
California in 1995 under the name Fairbanks Systems Group dba @Backup, Inc. Upon
reincorporation, the Company operates under the name SkyDesk, Inc.
RISKS AND UNCERTAINTIES
The Company is subject to a number of risks and uncertainties associated
with companies at a similar stage of maturity, has only a limited operating
history and the revenue and income potential of the Company's business and
market are unproven. Further, the market for internet-based data storage and
protection services is relatively new and rapidly evolving technologically and
competitively.
The Company has experienced net losses in each year since its inception,
and, as of December 31, 1999, has had an accumulated deficit of $21,527,552. The
Company incurred losses of $3,621,768, $5,208,313 and $11,181,799 in 1997, 1998
and 1999, respectively. The Company expects to continue to incur losses for the
foreseeable future. The Company expects their operating expenses to increase
substantially, as it, among other things, expands its selling and marketing
activities, increases its research and development efforts to upgrade its
existing services and develops new services and technologies, builds additional
data centers, upgrades its operational and financial systems, procedures and
controls, and hires and trains additional personnel.
The Company will need to significantly increase its revenues to achieve and
maintain profitability. The Company has recently focused on establishing
relationships with various marketing partners and anticipates it will derive the
substantial majority of future revenues from fees generated as a result of
customers acquired through these arrangements. Management believes that the
existing cash and cash equivalents will be sufficient to meet the anticipated
cash needs through the next twelve months.
F-7
<PAGE> 82
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and the Subsidiary, and are collectively referred to as the "Company". All
significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets, liabilities, revenues, expenses and disclosures of contingent assets and
liabilities. Actual results could differ from these estimates.
UNAUDITED PRO FORMA CONSOLIDATED STOCKHOLDERS' EQUITY PRESENTATION
The unaudited pro forma consolidated stockholders' equity is presented to
show the effects on the December 31, 1999 consolidated balance sheet of the
conversion of all outstanding shares of preferred stock into 26,476,298 shares
of common stock, the conversion of common stock from no par value to $0.001 par
value and the conversion of the warrants to purchase 403,099 shares of preferred
stock into warrants to purchase 403,099 shares of common stock, all of which
will occur upon closing of the Company's proposed initial public offering, as if
the conversion took place on December 31, 1999.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less. Cash equivalents consist of money market and
mutual funds and are carried at market, which approximates cost.
RESTRICTED CASH
Restricted cash supports letters of credit issued by the Company to a bank
on behalf of the Subsidiary in connection with a $425,000 line of credit to a
bank (see Note 4).
ADVERTISING EXPENSES
Internet advertising expenses are recognized based on specifics of the
individual agreements. Under impression-based agreements, advertising expense is
recognized using the ratio of the number of impressions delivered over the total
number of contracted impressions. For agreements based on a period of time the
Company recognizes advertising expense on the straight-line basis over the term
of the contract (see Note 3).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company provides for
depreciation and amortization using the straight-line method over the estimated
useful lives of the assets. The estimated useful lives for computer equipment
and furniture and property and equipment under
F-8
<PAGE> 83
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
capital leases is three years, and for leasehold improvements is the shorter of
the estimated useful life of the leaseholds or the life of the lease.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
<S> <C> <C>
Computer equipment and furniture.................... $ 791,094 $3,420,273
Leasehold improvements.............................. 38,790 56,082
Property and equipment under capital lease.......... -- 842,360
--------- ----------
829,884 4,318,715
Accumulated depreciation and amortization........... (334,781) (662,483)
--------- ----------
Property and equipment, net......................... $ 495,103 $3,656,232
========= ==========
</TABLE>
Maintenance and repair expenses are charged to operations as incurred. When
assets are sold or otherwise disposed of, the cost and accumulated depreciation
are removed from the accounts and any resulting gain or loss is included in
operations.
CAPITALIZED COMPUTER SOFTWARE
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," software development costs are capitalized from the time the
product's technological feasibility has been established until the product is
released for sale to the general public. As of December 31, 1999, no software
development costs were capitalized as the costs incurred between achieving
technological feasibility and product release were minimal. Research and
development costs, including the design of product enhancements, are expensed as
incurred.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Accordingly, the Company accounts for its
stock-based compensation plans in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
under which compensation cost is measured by the excess, if any, of the fair
market value of the Company's common stock at the date of grant over the
exercise price of the option. The Company accounts for equity instruments issued
to non-employees in accordance with the provisions of SFAS No. 123 and related
interpretations.
PATENT COSTS
The Company capitalizes certain legal fees related to the development of
patents and amortizes these costs over the estimated useful lives of 5 years.
Patents are stated at $19,412 and $32,050, net of accumulated amortization, as
of December 31, 1998 and 1999, respectively, and are included in other assets in
the accompanying December 31, 1998 and 1999 consolidated balance sheets.
F-9
<PAGE> 84
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LONG-LIVED ASSETS
The Company periodically evaluates the recoverability of its long-lived
assets based on expected undiscounted cash flows and recognizes impairments, if
any.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Under SFAS No. 109, deferred income tax assets and liabilities reflect
the future tax consequences of the temporary differences between the financial
reporting and tax bases of assets and liabilities and are measured using current
enacted tax rates and laws. A valuation allowance is provided against deferred
income tax assets when realization is uncertain.
REVENUE RECOGNITION
The Company generates revenues from the sale of subscriptions to use its
backup services. Revenues are recognized on a straight-line basis over the term
of the subscription agreement, generally 12 months. Accordingly, subscriptions
received in advance of performing services are deferred and recognized over the
subscription term. Revenues are shown net of customer refunds on the
consolidated statements of operations.
CONCENTRATION OF REVENUE SOURCE
Substantially all of the Company's revenues are generated from backup
service subscriptions. Any decline in market acceptance of the Company's backup
service may impair the Company's ability to operate effectively. Also, accounts
receivable are typically unsecured. The Company believes the accounts receivable
as of December 31, 1999 to be fully collectible.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, restricted cash,
accounts receivable, other current assets and accounts payable and accrued and
other current liabilities approximate fair value because of the short-term
nature of those instruments. Based on borrowing rates currently available to the
Company for credit arrangements with similar terms, the carrying amounts of
balances under notes payable and capital lease obligations approximate fair
value. The prepaid marketing costs and related obligation are discounted using a
12% implicit interest rate, which approximates the Company's market rate (see
Note 3, Sponsor and Promotion Agreement).
COMPUTATION OF NET LOSS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 requires
companies to compute basic and diluted per share data for all periods for which
a statement of operations is presented. Basic loss per share is computed by
dividing the net loss applicable to common stockholders by the weighted average
number of common shares that were outstanding during the period. Diluted
earnings per share is computed by giving effect to all potentially dilutive
securities that were outstanding for the periods presented. Potentially dilutive
securities, consisting of options, warrants,
F-10
<PAGE> 85
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
convertible preferred stock and redeemable convertible preferred stock, were not
considered in the calculation of diluted loss per share, as their impact would
be antidilutive.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1999 of
$(0.45) is computed by dividing the net loss by the weighted average common
shares outstanding after giving effect to the conversion of the Series A, B, C
and D preferred stock as though the conversion had occurred on January 1, 1999,
and the Series E preferred stock from the respective dates of issuance of the
related shares in 1999. The weighted average common shares outstanding used in
the pro forma calculation were 25,191,405 shares.
COMPREHENSIVE INCOME
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No.
130 establishes standards for reporting comprehensive income and its components
in financial statements. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from non-owner sources. Net loss and
other comprehensive loss, including foreign currency translation adjustments,
and unrealized gains and losses on investments shall be reported, net of their
current tax effect, to arrive at comprehensive income. To date, there have been
no differences between the Company's net loss and its total comprehensive loss
for the three years in the period ended December 31, 1999.
SEGMENT INFORMATION
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 requires public companies to report
financial and descriptive information about their reportable operating segments.
The Company identifies its operating segments based on how management internally
evaluates separate financial information, business activities and management
responsibility. The Company believes it operates in a single business segment
and adoption of this standard did not have a material impact on the Company's
financial statements. Through December 31, 1999, there have been no foreign
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards for derivative instruments and for hedging activities.
SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The
Company does not believe the adoption of SFAS No. 133 will have a material
effect on the Company's consolidated results of operations or financial
condition.
In December 1998, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"), which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
F-11
<PAGE> 86
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
recognition policies. Management believes that their revenue recognition
policies comply with the applicable provisions of SAB 101.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is subject to various claims as a result of its ongoing
business activities. Management believes that the outcome of any such claims
will not have a material adverse effect on its financial position or results of
operations.
SOFTWARE VENDOR AGREEMENT
In February 1996, the Company entered into an agreement with the San Diego
Supercomputer Center, Inc. ("SDSC"), whereby the Company can use SDSC's
infrastructure and user base to test, validate and improve its backup service.
The Company has commitments to pay approximately $60,000 semi-annually to SDSC
for use of the infrastructure and user base. The agreement terminates on October
31, 2000. The agreement does not convey any product or licensing rights to SDSC.
SPONSOR AND PROMOTION AGREEMENT
In December 1999, the Company entered into a three-year sponsorship and
promotion agreement with a third-party. Under the agreement, the Company will be
provided with a specific number of advertising impressions across several of the
provider's brands featuring it as the exclusive provider of internet backup
services.
The Company has committed to pay $3,000,000 over the three-year term of the
agreement. Of the $3,000,000 total commitment, $500,000 became due upon the
execution of the agreement and the remaining $2,500,000 will be paid in equal
monthly installments over the three-year term. A liability in the amount of
$2,590,799, of which $500,000 and $363,600 are included in accounts payable and
accrued liabilities and other, respectively, related to the Company's obligation
is included in the accompanying December 31, 1999 consolidated balance sheet.
The liability will be reduced upon payment under the obligation. A corresponding
asset in the amount of $2,590,799 is included under prepaid advertising costs,
net in the accompanying December 31, 1999 consolidated balance sheet. The
Company is amortizing the asset to selling and marketing expense over the
three-year term of the contract which also approximates the ratio of the number
of impressions.
The value of the sponsor and promotion agreement has been discounted using
a 12% implicit interest rate. No amounts have been charged to the accompanying
December 31, 1999 consolidated statement of operations, as the agreement was
entered into by the Company in December 1999.
F-12
<PAGE> 87
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EQUIPMENT LEASE LINE OF CREDIT
On January 28, 1999, the Company entered into an equipment lease line of
credit ("lease line"), which provided for borrowings of up to $1,000,000. The
lease line bore interest at 8.5% per annum and expired on October 15, 1999. In
connection therewith, the lender was granted warrants to purchase 24,794 shares
of Series D convertible redeemable preferred stock for $1.21 per share as an
inducement for the lease line. On October 12, 1999, the Company and the lender
extended the lease line through September 15, 2000. In addition, the amended
agreement increased the maximum borrowing amount under the lease line to
$3,000,000. In connection therewith, the lender was granted additional warrants
to purchase 34,285 shares of Series E convertible redeemable preferred stock for
$1.75 per share. The lease line is collateralized by the assets under the lease
line. The Company has recorded the fair value of these warrants, $120,440, as
deferred financing costs.
LEASES
The Company has both operating and capital lease commitments for facilities
and certain equipment which expire through December 2002. The future lease
commitments as of December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDED DECEMBER 31, LEASES LEASES
<S> <C> <C>
2000.................................................. $285,959 $ 316,795
2001.................................................. -- 316,795
2002.................................................. -- 240,585
2003.................................................. -- --
2004.................................................. -- --
Thereafter............................................ -- --
-------- ---------
Total minimum lease payments.......................... $285,959 874,175
========
Less amount representing interest..................... (150,065)
---------
Present value of remaining minimum capital lease
payments............................................ 724,110
Less amount due in one year........................... (228,917)
---------
Long-term portion of obligations under capital
leases.............................................. $ 495,193
=========
</TABLE>
The Company incurred rent expense of approximately $52,000, $92,000 and
$114,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
4. LINE OF CREDIT AND CONVERTIBLE PROMISSORY NOTES
LINE OF CREDIT
In 1999, the Subsidiary received a $425,000 line of credit from a bank. The
line of credit bears interest at 8% per annum and is collateralized by a
certificate of deposit from the Company. The line of credit was extended on
April 7, 1999 to an expiration date of December 31, 1999, and is pending
renewal. The line of credit has borrowings of $425,000 outstanding as of
December 31, 1999.
F-13
<PAGE> 88
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONVERTIBLE PROMISSORY NOTES PAYABLE
JUNE 1999
In June 1999, the Company entered into Convertible Promissory Note and
Warrant Agreements. The Convertible Promissory Notes totaled $1,042,193,
1,042,193 warrant shares and bore interest at 8% per annum. The Convertible
Promissory Notes plus accrued interest were scheduled to mature on June 30,
2000. The Convertible Promissory Notes included an automatic conversion feature
and were converted to Series E convertible redeemable preferred stock. The
warrants are to purchase shares of the Company's common stock, have an exercise
price of $.15 per share and may be exercised in no event later than the earlier
of (a) the close of business on June 30, 2004, (b) change in ownership or (c)
initial public offering of the Company's common stock (see Note 9).
OCTOBER 1997
In October 1997, the Company issued approximately $1,300,000 in convertible
promissory notes to various investors. The promissory notes bore interest at 8%
per annum and contained 507,319 warrants. The promissory notes contained an
automatic conversion and were converted into Series D convertible redeemable
preferred stock as a result of the financing in March 1998. The warrants are to
purchase shares of the Company's Series D convertible redeemable preferred stock
at an exercise price of $.65 per share and may be exercised in no event later
than the earlier of (a) the close of business on October 15, 2002, (b) change in
ownership or (c) initial public offering of the Company's common stock. At the
agreement date, the fair value of the warrants was equal to the exercise price.
Therefore, no value was assigned to these warrants.
5. INCOME TAXES
The net deferred tax assets as of December 31, 1998 and 1999 result from
the following temporary differences:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
<S> <C> <C>
Net operating loss carryforwards.................. $ 3,410,000 $ 6,960,000
Deferred stock-based compensation................. -- 893,249
Subscription revenue.............................. 294,444 132,782
Compensation and other accruals................... 12,443 16,515
Depreciation and amortization..................... (8,361) (11,948)
----------- -----------
Total................................... 3,708,526 7,990,598
Less valuation allowance................ (3,708,526) (7,990,598)
----------- -----------
Total............................................. $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1999, the Company had net operating loss carryforwards
of approximately $17,400,000 and $12,200,000 for federal and California
reporting purposes, respectively. The federal loss carryforwards will begin
expiring in 2010, unless previously utilized, while the California losses will
begin expiring in 2002.
The Tax Reform Act of 1986 limits a company's ability to utilize certain
net operating loss carryforwards in the event of cumulative change in ownership
in excess of 50%, as defined under Internal Revenue Code Section 382. The
Company has completed numerous financings that have
F-14
<PAGE> 89
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
resulted in a change of ownership in excess of 50%. The utilization of net
operating loss and tax credit carryforwards will be limited due to these
ownership changes.
Due to the uncertainty regarding realization of the deferred tax asset,
management has provided a full valuation allowance against the net deferred tax
asset.
6. RELATED PARTY TRANSACTIONS
During 1996, the Company entered into a marketing agreement with Travel
Related Services ("TRS") whereby the Company is obligated to remit 50% of
revenues collected from customers signed up through the TRS marketing program.
The marketing agreement does not convey any product or licensing rights to TRS.
No amounts were payable during the years 1997 and 1998, and $130,500 was paid to
date pursuant to the TRS marketing program. Under the marketing agreement, TRS
had the option to purchase 2,820,725 shares of Series C convertible redeemable
preferred stock for $0.96 per share. During 1998, TRS exercised their option to
purchase 2,820,725 shares of Series C convertible redeemable preferred stock.
On March 12, 1998, Cendant Corporation ("Cendant") purchased 1,652,893
shares of Series D convertible redeemable preferred stock for total
consideration of $2,000,000. On March 13, 1998, the Company licensed a copy of
its Web Management Software ("Software") to Cendant for $1,000,000.
Concurrently, the Company entered into a 3-year agreement with Cendant whereby
the Company paid $1,000,000 in exchange for exclusive rights to provide backup
services to Cendant's franchises, subsidiaries or members. This transaction has
been recorded at historical cost. Accordingly, the $1,000,000 of proceeds
received from the license of the software has reduced the basis of the exclusive
licenses. The Company is obligated to pay Cendant commissions on the gross
amount of all charges for services due or payable to the Company from Cendant's
franchises, subsidiaries or members, in the amount of 12% of gross charges plus
unit commissions pursuant to the agreement. The Company did not incur any
commission expense related to this agreement in 1998 or 1999.
On July 30, 1999, Advanced Digital Information Corporation ("ADIC")
purchased 4,000,000 shares of Series E convertible redeemable preferred stock
for total consideration of $7,000,000. In a separate transaction during 1999,
the Company purchased approximately $150,000 of computer equipment from ADIC. As
of December 31, 1999, the Company had no further obligation to purchase
additional equipment from ADIC. Beginning in September 1999, the Company and
ADIC began a joint marketing commitment, subject to cancellation, for which the
Company paid ADIC $224,000 in 1999.
On September 21, 1999, EMC Corporation ("EMC") purchased 1,714,286 shares
of Series E convertible redeemable preferred stock for total consideration of
$3,000,000. In December 1999, the Company purchased approximately $2,750,000 of
computer equipment from EMC. This amount is included in accounts payable at
December 31, 1999. As of December 31, 1999, the Company had no further
obligation to purchase additional equipment from EMC.
7. PREFERRED STOCK
As of December 31, 1999, the Board of Directors and stockholders had voted
to authorize 29,800,000 shares of preferred stock, no par value. The Board of
Directors has the right to establish any right and preferences of any series of
preferred stock it so authorizes. Of the preferred stock authorized, 700,000
shares were classified as Series A convertible, 7,000,000 shares were classified
as
F-15
<PAGE> 90
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Series B convertible redeemable, 3,000,000 shares were classified as Series C
convertible redeemable, 5,600,000 shares were classified as Series D convertible
redeemable, and 13,500,000 shares were classified as Series E convertible
redeemable.
SERIES A
Holders of Series A convertible preferred stock are eligible for
non-cumulative dividends of $0.03 per share, payable when, and if, declared by
the Board of Directors. The Series A convertible preferred stock has a
liquidation preference, which is secondary to the Series B, Series C, Series D
and Series E liquidation preference, of $0.50 per share plus declared and unpaid
dividends. The Series A convertible preferred stock is convertible at the
holder's option into shares of the Company's common stock without consideration
or for a consideration per share less than the conversion price for such series
in effect immediately prior to the issuance of such additional stock, as
defined. Holders of the Series A convertible preferred stock are entitled to one
vote for each share of the Company's common stock into which such Series A
convertible preferred stock could then be converted exclusive of dividends.
8. REDEEMABLE PREFERRED STOCK
SERIES B
Holders of Series B convertible redeemable preferred stock are eligible for
non-cumulative dividends of $0.05 per share, payable when, and if, declared by
the Board of Directors. The Series B convertible redeemable preferred stock has
a liquidation preference of $0.65 per share plus declared and unpaid dividends,
on a pro rata basis with the Series C, Series D and Series E preferred stock.
The Series B convertible redeemable preferred stock is convertible at the
holder's option into shares of the Company's common stock without consideration
or for a consideration per share less than the conversion price for such series
in effect immediately prior to the issuance of such additional stock, as
defined.
The Series B convertible redeemable preferred stock is redeemable at the
original issue price plus declared and unpaid dividends on or at any time after
March 6, 2003 upon the receipt by the Company of the written request of the
holders of not less than sixty-six and two-thirds percent of the then
outstanding Series B, Series C, Series D and Series E preferred stock, voting
together as a single class. Holders of the Series B convertible redeemable
preferred stock are entitled to one vote for each share of the Company's common
stock into which such Series B convertible redeemable preferred stock could then
be converted exclusive of dividends.
SERIES C
Holders of the Series C convertible redeemable preferred stock are eligible
for non-cumulative dividends of $0.05 per share, payable when, and if, declared
by the Board of Directors. The Series C convertible redeemable preferred stock
has a liquidation preference of $0.96 per share plus declared and unpaid
dividends, on a pro rata basis with the Series B, Series D and Series E
preferred stock. The Series C convertible redeemable preferred stock is
convertible into one share of common stock, subject to change based on certain
events. In addition, the Series C convertible redeemable preferred stock is
redeemable at the holder's option at the original issue price plus declared and
unpaid dividends on or at any time after March 6, 2003 upon the receipt by the
Company of the written
F-16
<PAGE> 91
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
request of the holders of not less than sixty-six and two-thirds percent of the
then outstanding Series B, Series C, Series D and Series E convertible
redeemable preferred stock. Holders of Series C convertible redeemable preferred
stock are entitled to one vote for each share of the Company's common stock into
which such Series C convertible redeemable preferred stock could then be
converted exclusive of dividends.
SERIES D
Holders of Series D convertible redeemable preferred stock are eligible for
non-cumulative dividends of $0.06 per share, payable when, and if, declared by
the Board of Directors. The Series D convertible redeemable preferred stock has
a liquidation preference of $1.21 per share plus declared and unpaid dividends,
on a pro rata basis with the Series B, Series C and Series D preferred stock.
The Series D convertible redeemable preferred stock is convertible at the
holder's option into shares of the Company's common stock without consideration
or for a consideration per share less than the conversion price for such series
in effect immediately prior to the issuance of such additional stock. The Series
D convertible redeemable preferred stock is redeemable at the holder's option at
the original issue price plus declared and unpaid dividends on or at any time
after March 6, 2003 upon the receipt by the Company of the written request of
the holders of not less than sixty-six and two-thirds percent of the then
outstanding Series B, Series C, Series D and Series E preferred stock. Holders
of Series D convertible redeemable preferred stock are entitled to one vote for
each share of the Company's common stock into which such Series D convertible
redeemable preferred stock could then be converted exclusive of dividends.
SERIES E
Holders of Series E convertible redeemable preferred stock are eligible for
non-cumulative dividends of $0.105 per share, payable when, and if, declared by
the Board of Directors. The Series E convertible redeemable preferred stock has
a liquidation preference of $1.75 per share plus declared and unpaid dividends,
on a pro rata basis with the Series B, Series C, and Series D preferred stock.
The Series E convertible redeemable preferred stock is convertible at the
holder's option into shares of the Company's common stock without consideration
or for a consideration per share less than the conversion price for such series
in effect immediately prior to the issuance of such additional stock. The Series
E convertible redeemable preferred stock is redeemable at the holder's option at
the original issue price plus declared and unpaid dividends on or at any time
after June 1, 2004 upon the receipt by the Company of the written request of the
holders of not less than sixty-six and two-thirds percent of the then
outstanding Series B, Series C, Series D, and Series E preferred stock. Holders
of Series E convertible redeemable preferred stock are entitled to one vote for
each share of the Company's common stock into which such Series E convertible
redeemable preferred stock could then be converted exclusive of dividends.
No dividends have been declared on any of the preferred stock by the Board
of Directors since inception of the Company, as no resources have been legally
available for dividend distribution.
During 1998, the Company issued 2,820,725 shares of Series C convertible
redeemable preferred stock for cash of $2,700,000, the carrying values of which
are net of issuance costs of $166,681, and issued 4,303,086 shares of Series D
convertible redeemable preferred stock for $5,206,734 cash, the carrying values
of which are net of issuance costs of $42,877.
F-17
<PAGE> 92
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1999, the Company issued 12,497,104 shares of Series E convertible
redeemable preferred stock for cash of $21,869,932, the carrying value of which
is net of issuance costs of $1,497,298.
In order to state all series of convertible redeemable preferred stock at
redemption value, through December 31, 1999, the Company has accreted to
preferred stock approximately $605,000 in the aggregate.
The Company has reserved 29,800,000 common shares for conversion of the
preferred shares to common stock.
9. STOCK OPTION PLANS
The Company has granted options to its employees and consultants pursuant
to its 1998 Stock Option/Stock Issuance Plan ("the Plan"). The Company adopted
the 1998 Stock Option/Stock Issuance Plan in October 1998.
Under the Plan, the Board of Directors may grant incentive stock options
and nonstatutory options to employees, directors, consultants or advisors of the
Company. Options issued under the Plan generally vest over four years. No
options granted under the Plan have a term in excess of ten years from the date
of grant. The exercise price of an incentive stock option may not be less than
100% of the fair market value of the common stock on the date of grant as
determined by the Board of Directors. The exercise price of a nonstatutory
option may not be less than 85% of the fair market value of the common stock on
the date of grant as determined by the Board of Directors. As of December 31,
1999, 3,811,321 common shares have been reserved for issuance under the Plan. As
of December 31, 1999, 156,990 options are available for issuance under the Plan.
The following table summarizes stock option plan activity for the years
ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........ 191,000 $0.15 629,000 $0.15 1,092,500 $0.15
Granted............................. 468,000 0.15 759,000 0.15 2,916,831 0.21
Exercised........................... (7,000) 0.15 (36,458) 0.15 (100,832) 0.15
Terminated.......................... (23,000) 0.15 (259,042) 0.15 (254,168) 0.15
------- --------- ---------
Outstanding, end of year.............. 629,000 0.15 1,092,500 0.15 3,654,331 0.20
======= ========= =========
Exercisable, end of period............ 46,250 0.15 187,000 0.15 731,381 0.15
Weighted average fair value of options
granted............................. -- $0.59 -- $1.01 -- $4.57
</TABLE>
During the period ended December 31, 1999, the Company granted options at
exercise prices ranging from $0.15 to $0.25. The outstanding options expire at
various dates through 2009.
F-18
<PAGE> 93
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with certain stock option grants made since 1996, the Company
has recognized deferred stock-based compensation, which is being amortized on a
straight-line basis over the vesting periods of the related options, generally
four years. The fair value per share used to calculate deferred stock-based
compensation was derived by reference to the convertible preferred stock values,
reduced by an appropriate discount factor, and, in 1999, the expected price
range of the Company's proposed initial public offering. Future stock-based
compensation charges are subject to reduction for any employee who terminates
employment prior to expiration of such employees' option vesting period.
The following table summarizes deferred stock-based compensation and
amortization of deferred stock-based compensation for each of the three years in
the period ended December 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1998 1999
<S> <C> <C> <C>
Deferred stock-based compensation................ $208,957 $457,742 $12,458,262
Amortization of deferred stock-based
compensation................................... $ 43,091 $106,091 $ 2,448,171(1)
</TABLE>
- ------------------------------
(1) Includes approximately $1,690,000 which was expensed in 1999 as a result of
the immediate vesting of certain options.
As required by SFAS No. 123, the Company has determined the pro forma
information as if the Company had accounted for stock options under the minimum
value method of SFAS No. 123. The following weighted average assumptions were
used: risk-free interest rate of 5.4%; dividend yield of zero; expected market
price volatility factor of zero; and a weighted average expected life of the
options of four years. Had compensation cost for stock options granted during
the years ended December 31, 1997, 1998 and 1999 been determined consistent with
SFAS No. 123, the Company's net loss and related per share amounts on a pro
forma basis would be as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------------------
1997 1998 1999
------------------------- ------------------------- ---------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Loss applicable to
common stockholders.. $(3,621,768) $(3,672,123) $(5,343,591) $(5,487,975) $(11,651,398) $(13,697,526)
Basic and diluted net
loss per share....... $ (1.11) $ (1.13) $ (1.63) $ (1.67) $ (3.50) $ (4.11)
</TABLE>
Because additional stock options are expected to be granted each year, the
above pro forma disclosures are not representative of pro forma disclosures of
future years.
WARRANTS TO PURCHASE COMMON AND PREFERRED STOCK
Since inception, the Company has issued warrants to various investors and
lenders as approved by the Board of Directors.
F-19
<PAGE> 94
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of warrant activity is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------
1997 1998 1999
-------------------- --------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year..... 2,960,725 $0.92 3,468,044 $0.88 647,319 $ 0.54
Granted.......................... 507,319 0.65 -- -- 1,645,086 0.57
Exercised........................ -- -- (2,820,725) 0.96 -- --
--------- ---------- ---------
Outstanding, end of year........... 3,468,044 $0.88 647,319 $0.54 2,292,405 $ 0.56
========= ========== =========
Exercisable, end of period......... 3,468,044 $0.88 647,319 $0.54 2,139,280 $ 0.58
========= ========== =========
Weighted average fair value of
warrants granted................. $0.59 $ -- $ 3.02
</TABLE>
During 1999, the Company leased computer equipment with a leasing company.
In connection with the lease transactions, the Company granted the leasing
company 24,794 warrants to purchase its Series D convertible redeemable
preferred stock for $1.21 per share and 34,285 warrants to purchase its Series E
convertible redeemable preferred stock for $1.75 per share. The value of these
warrants, $120,440, has been recorded as a deferred financing cost and is being
amortized to interest expense over the life of the related leases. The Company
amortized $40,147 of deferred financing costs during the year ended December 31,
1999.
At December 31, 1996, 140,000 warrants were outstanding to purchase common
shares and 2,820,725 warrants were outstanding to purchase Series C convertible
redeemable preferred stock. During 1997, 507,319 warrants were granted to
purchase Series B convertible redeemable preferred stock. During 1998, a related
party exercised their option to purchase 2,820,725 of Series C convertible
redeemable preferred stock (see Note 6). During 1999, 1,217,193 warrants were
issued to purchase common stock, 24,794 warrants were issued to purchase Series
D convertible redeemable preferred stock and 403,099 warrants were issued to
purchase Series E convertible redeemable preferred stock. In addition, the
Company committed to issue up to 1,050,000 contingent warrants to one of its
marketing partners in July 1999. The number of warrants which could be issued is
contingent upon the Company achieving certain new subscriber and new
subscription revenue thresholds. The maximum amount of contingent warrants is
350,000 and 700,000 for the new subscriber and new subscription revenue
thresholds, respectively. As of December 31, 1999 the Company had not achieved
either of the thresholds.
The Company calculates warrant values using the Black Scholes Model. The
values of the warrants issued as part of the lease line of credit (see Note 6)
were recorded as deferred financing costs, and are being amortized over the term
of the lease line. The values of the warrants issued in connection with the
issuance of the Series E convertible redeemable preferred stock, $1,083,335,
represent offering costs which reduce net proceeds of the Series E preferred
offering. The value of these warrants is being accreted over the period to the
earliest redemption date. The value of 1,042,193 warrants issued in connection
with the June 30, 1999 bridge financing (see Note 4), $729,535, was originally
recorded as additional paid-in capital, and a corresponding debt discount was
recorded that was being recognized as additional interest expense over the term
of the related debt. Upon conversion of the bridge note to Series E preferred
convertible redeemable stock, the
F-20
<PAGE> 95
SKYDESK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
outstanding balance was used to reduce the net proceeds of the Series E
preferred offering. The value of these warrants is being accreted over the
period of the earliest redemption date.
On July 1, 1999, in connection with entering a marketing agreement with a
marketing partner, the company issued 175,000 warrants to purchase common stock
with an exercise price of $.25 per share. In accordance with Emerging Issue's
Task Force Issue 96-18, "Accounting for Equity Instruments that are issued to
Other Than Employees for Acquiring, or in conjunction with Selling Goods or
Services" the Company recognizes the fair value of these warrants as marketing
expense over the four year vesting period. As of December 31, 1999 the Company
has recognized 140,402 as expense related to the grant of this warrant. In March
2000 this warrant was amended to provide for immediate vesting. As a result, the
fair value of the unvested warrants of $1,224,145 will be recognized as an
expense in March 2000.
10. SUBSEQUENT EVENTS
REINCORPORATION
In February 2000, the Company's Board of Directors adopted and its
stockholders approved a plan to reincorporate the Company under the laws of the
State of Delaware. Upon reincorporation, the Company operates under the name
SkyDesk, Inc.
LETTER OF CREDIT
In February 2000, the Company obtained a letter of credit from a bank in
the amount of $115,000 which is secured by a certificate of deposit. The letter
of credit automatically renews each year on April 30 with a final expiration
date of April 30, 2010. The Company pays a 2% fee per annum for the letter of
credit.
FACILITY LEASE
The Company entered into a new facility lease agreement on February 29,
2000 with a commencement date of May 2000. The lease agreement requires
escalating lease payments over the seven year lease term ranging from
approximately $68,000 to $110,000 per month. In accordance with the lease
agreement terms, the Company is to deliver an irrevocable letter of credit and
security deposit to the landlord in the amount of approximately $780,000 and
$87,000, respectively. The total lease obligation over the lease term is
approximately $9,017,000.
F-21
<PAGE> 96
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 2000
[SKYDESK LOGO]
THE B2B INTERNET STORAGE SERVICES PROVIDER
Shares of Common Stock
---------------------------
PROSPECTUS
---------------------------
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
BEAR, STEARNS & CO. INC.
DLJDIRECT INC.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell those securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor any
sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of SkyDesk have
not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 2000 (25 days after the date of this prospectus),
all dealers that effect transactions in these shares of common stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, payable by the Registrant in connection with the offer
and sale of the common stock being registered. All amounts are estimates except
the registration fee, the NASD filing fee and the Nasdaq National Market entry
fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $19,800
NASD filing fee............................................. 8,000
Blue Sky fees and expenses (including legal fees)........... 5,000
Nasdaq National Market entry fee............................ 95,000
*Accounting fees and expenses...............................
*Director and officer insurance.............................
*Other legal fees and expenses..............................
*Transfer agent and registrar fee...........................
*Printing and engraving.....................................
*Miscellaneous..............................................
-------
*Total.................................................... $
=======
</TABLE>
- ------------------------------
* to be completed by amendment
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 in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). As permitted by the Delaware General Corporation Law, the Registrant's
Amended and Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors 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 Registrant or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) under section 174 of the Delaware General
Corporation Law (regarding unlawful dividends and stock purchases) or (iv) for
any transaction from which the director derived an improper personal benefit. As
permitted by the Delaware General Corporation Law, the Bylaws of the Registrant
provide that (i) the Registrant is required to indemnify its directors and
officers to the fullest extent permitted by the Delaware General Corporation
Law, subject to certain very limited exceptions, (ii) the Registrant may
indemnify its other employees and agents as set forth in the Delaware General
Corporation Law, (iii) the Registrant is required to advance expenses, as
incurred, to its directors and executive officers in connection with a legal
proceeding to the fullest extent permitted by the Delaware General Corporation
Law, subject to certain very limited exceptions and (iv) the rights conferred in
the Bylaws are not exclusive. At present, there is no pending litigation or
proceeding involving a director, officer or employee of the Registrant regarding
which indemnification is sought, nor is the Registrant aware of any threatened
litigation that may result in claims for indemnification. Reference is also made
to Section 7 of the Underwriting Agreement, which provides for the
indemnification of officers, directors and controlling persons of the Registrant
against certain liabilities. In addition, certain of the intercompany agreements
provide for the indemnification of officers, directors and controlling persons
II-1
<PAGE> 98
of the Registrant against certain liabilities. The indemnification provisions in
the Registrant's Restated Certificate of Incorporation and in its Bylaws may be
sufficiently broad to permit indemnification of the Registrant's directors and
executive officers for liabilities arising under the Securities Act. The
Registrant, with approval by the Registrant's Board of Directors, expects to
obtain directors' and officers' liability insurance. Reference is made to the
following documents filed as exhibits to this registration statement regarding
relevant indemnification provisions described above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
<S> <C>
Form of Underwriting Agreement.............................. 1.1
Form of Amended and Restated Certificate of Incorporation of
Registrant................................................ 3.2
Form of Bylaws of Registrant................................ 3.14
Form of Director Indemnification Agreement.................. 10.17
Form of Officer Indemnification Agreement................... 10.18
</TABLE>
The Company has entered into indemnification agreements with each of the
Company's directors, a form of which is attached as an exhibit hereto and is
incorporated herein by reference.
The Registrant may obtain insurance for the protection of its directors and
officers against any liability asserted against them in their official
capacities. The rights of indemnification described above are not exclusive of
any other rights of indemnification to which the persons indemnified may be
entitled under any bylaw, agreement, vote of stockholders or directors or
otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since July 1996, we have issued unregistered securities to a limited number
of persons as described below:
(a) In July 1996, we sold 6,215,383 shares of our Series B preferred
stock at a price of $0.65 per share to a group of private investors for an
aggregate purchase price of $4,040,000.
(b) In October 1997, we issued warrants to purchase 507,319 shares of
Series B preferred stock at a purchase price of $0.65 per share to a group
of private investors in connection with a bridge financing totaling
$1,319,025.71.
(c) Between November 1998 and December 1999, we granted options to
purchase an aggregate of 4,362,831 shares of our common stock at exercise
prices ranging from $0.15 to $0.25 per share to employees, consultants,
directors and other service providers pursuant to our 1998 Stock
Option/Stock Issuance Plan. As of December 31, 1999, 154,384 of these
options to purchase our common stock have been exercised and there remain
outstanding options to purchase an aggregate of 3,011,831 shares of our
common stock pursuant to the plan.
(d) In February 1998, we sold 2,820,725 shares of Series C preferred
stock at a price of $0.96 per share to American Express Travel Related
Services Company, Inc. for an aggregate purchase price of $2,700,000.
II-2
<PAGE> 99
(e) In March 1998, we sold 4,303,086 shares of Series D preferred
stock at a price of $1.21 per share to a group of private investors for an
aggregate purchase price of $5,206,734.
(f) In January 1998, we issued a warrant to purchase 24,794 shares of
Series D preferred stock, and in October 1999, we issued a warrant to
purchase 34,285 shares of Series E preferred stock, to Dominion Capital
Management L.L.C. in connection with equipment lease arrangements.
(g) In June 1999, we issued warrants to purchase 1,042,193 shares of
common stock at a purchase price of $0.15 per share to a group of private
investors in connection with a bridge financing totaling $1,042,193.
(h) In July 1999, we issued warrants to purchase up to an aggregate of
1,225,000 million shares of common stock to Dell USA L.P. in connection
with various strategic partnering relationships. The number of shares
issuable upon exercise, and the exercise price, of each warrant is based on
milestones and conditions not yet ascertainable.
(i) In July, August, and September 1999, we sold an aggregate of
12,497,104 shares of our Series E preferred stock at a price of $1.75 per
share to a group of private investors for an aggregate purchase price of
$21,869,932.
(j) In September 1999, we issued a warrant to purchase 368,814 shares
of Series E preferred stock to Volpe Brown Whelan & Company, LLC in
connection with that Company's successful effort in securing additional
financing for us.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Relationships
and Related Transactions" in the form of prospectus included herein. The sales
of securities described in subsection (c) and (d) above were deemed to be exempt
from registration in reliance on Rule 701 promulgated under Section 3(b) under
the Securities Act as transactions pursuant to a compensatory benefit plan or a
written contract relating to compensation. The sales of securities described in
subsections (a), (b), and (d) through (j) above were deemed to be exempt from
registration in reliance on Section 4(2) of the Securities Act or Regulation D
promulgated thereunder as transactions by an issuer not involving any public
offering. The recipients of securities in each such transaction represented
their intention 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 affixed to the share certificates and other instruments issued in
such transactions. All recipients either received adequate information about
SkyDesk, Inc. or had access, through employment or other relationships, to such
information.
II-3
<PAGE> 100
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.
*3.2 Form of Amended and Restated Certificate of Incorporation to
be filed and become effective upon the closing of this
offering.
3.3 Bylaws.
*3.4 Form of Bylaws to become effective prior to effectiveness of
this Registration Statement.
*4.1 Specimen Stock Certificate of Fairbanks Systems Group, Inc.
dba @Backup, Inc. (now SkyDesk, Inc.).
*5.1 Opinion of Brobeck Phleger & Harrison, LLP.
10.1 Warrant issued to Dominion Capital Management, L.L.C. to
purchase shares of Series D preferred stock, dated January
28, 1999, and to purchase shares of Series E preferred
stock, dated October 12, 1999.
10.2 Form of warrant issued to the entities and persons listed on
Schedule A, attached thereto, to purchase common stock,
dated June 30, 1999.
*10.3 Warrant issued to Dell USA, L.P. to purchase common stock,
dated July 20, 1999.
*10.4 Warrant issued to Dell USA, L.P. to purchase common stock,
dated July 20, 1999.
*10.5 Warrant issued to Dell USA, L.P. to purchase common stock,
dated July 20, 1999.
*10.6 Warrant issued to Volpe Brown Whelan & Company, LLC to
purchase shares of Series E preferred stock, dated September
17, 1999.
10.7 Amended and Restated Investors' Rights Agreement, dated July
30, 1999, and Amendment No. 1 thereto, dated August 23,
1999, and Amendment No. 2 thereto, dated September 17, 1999.
10.8 Amended and Restated Shareholders' Agreement, dated July 30,
1999, and Amendment No. 1 thereto, dated August 23, 1999,
and Amendment No. 2 thereto, dated September 17, 1999.
10.9 Master Lease Agreement between Fairbanks Systems Group, Inc.
dba @Backup, Inc. (now SkyDesk, Inc.) and Dominion Ventures,
Inc., dated January 28, 1999.
*10.10 Amendment No. 1 to Master Lease between Fairbanks Systems
Group, Inc. dba @Backup, Inc. (now SkyDesk, Inc.) and
Dominion Ventures, Inc., dated October 12, 1999.
10.11 1998 Stock Option/Stock Issuance Plan.
10.12 2000 Stock Option/Stock Issuance Plan.
*10.13 2000 Stock Incentive Plan.
*10.14 2000 Stock Incentive Plan, Notice of Grant of Stock Option.
*10.15 2000 Stock Incentive Plan, Form of Incentive Stock Option
Agreement.
*10.16 2000 Employee Stock Purchase Plan.
*10.17 Form of Indemnification Agreement between SkyDesk, Inc. and
its directors.
*10.18 Form of Indemnification Agreement between SkyDesk, Inc. and
its officers.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
*23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
II-4
<PAGE> 101
b. FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 14, 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 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 of 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 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.
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.
II-5
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on March 10, 2000.
SKYDESK, INC.
By: /s/ GARY E. SUTTON
---------------------------------------
Gary E. Sutton,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below hereby constitutes and appoints Gary E. Sutton, President and Chief
Executive Officer, and Dan L. Dearen, Executive Vice President, Chief Financial
Officer and Secretary, and each of them individually, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him/her in his/her name, place and stead, in any and all
capacities, in connection with this Registration Statement, including to sign
and file in the name and on behalf of the undersigned as director or officer of
the Registrant (i) any and all amendments or supplements (including any and all
stickers and post-effective amendments) to this Registration Statement, with all
exhibits thereto, and other documents in connection therewith, and (ii) any and
all additional registration statements, and any and all amendments thereto,
relating to the same offering of securities as those that are covered by this
Registration Statement that are filed pursuant to Rule 462(b) promulgated under
the Securities Act of 1933, as amended, with the Securities and Exchange
Commission and any applicable securities exchange or securities self-regulatory
body, granting unto said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he/she might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GARY E. SUTTON Chairman of the Board, President March 10, 2000
- --------------------------------------------------- and Chief Executive Officer
Gary E. Sutton (principal executive officer)
/s/ DAN L. DEAREN Executive Vice President, Chief March 10, 2000
- --------------------------------------------------- Financial Officer and Secretary
Dan L. Dearen (principal financial and
accounting officer)
/s/ GILES BATEMAN Director March 10, 2000
- ---------------------------------------------------
Giles Bateman
</TABLE>
II-6
<PAGE> 103
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID D'OTTAVIO Director March 10, 2000
- ---------------------------------------------------
David D'Ottavio
/s/ BRETT HELM Director March 10, 2000
- ---------------------------------------------------
Brett Helm
/s/ DUANE NELLES Director March 10, 2000
- ---------------------------------------------------
Duane Nelles
/s/ PETER SCHWARTZ Director March 10, 2000
- ---------------------------------------------------
Peter Schwartz
/s/ M. DAVID TITUS Director March 10, 2000
- ---------------------------------------------------
M. David Titus
/s/ PETER VAN OPPEN Director March 10, 2000
- ---------------------------------------------------
Peter van Oppen
</TABLE>
II-7
<PAGE> 104
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended.
*3.2 Form of Amended and Restated Certificate of Incorporation to
be filed and become effective upon the closing of this
offering.
3.3 Bylaws.
*3.4 Form of Bylaws to become effective prior to effectiveness of
this Registration Statement.
*4.1 Specimen Stock Certificate of Fairbanks Systems Group, Inc.
dba @Backup, Inc. (now SkyDesk, Inc.).
*5.1 Opinion of Brobeck Phleger & Harrison, LLP.
10.1 Warrant issued to Dominion Capital Management, L.L.C. to
purchase shares of Series D preferred stock, dated January
28, 1999, and to purchase shares of Series E preferred
stock, dated October 12, 1999.
10.2 Form of warrant issued to the entities and persons listed on
Schedule A, attached thereto, to purchase common stock,
dated June 30, 1999.
*10.3 Warrant issued to Dell USA, L.P. to purchase common stock,
dated July 20, 1999.
*10.4 Warrant issued to Dell USA, L.P. to purchase common stock,
dated July 20, 1999.
*10.5 Warrant issued to Dell USA, L.P. to purchase common stock,
dated July 20, 1999.
*10.6 Warrant issued to Volpe Brown Whelan & Company, LLC to
purchase shares of Series E preferred stock, dated September
17, 1999.
10.7 Amended and Restated Investors' Rights Agreement, dated July
30, 1999, and Amendment No. 1 thereto, dated August 23,
1999, and Amendment No. 2 thereto, dated September 17, 1999.
10.8 Amended and Restated Shareholders' Agreement, dated July 30,
1999, and Amendment No. 1 thereto, dated August 23, 1999,
and Amendment No. 2 thereto, dated September 17, 1999.
10.9 Master Lease Agreement between Fairbanks Systems Group, Inc.
dba @Backup, Inc. (now SkyDesk, Inc.) and Dominion Ventures,
Inc., dated January 28, 1999.
*10.10 Amendment No. 1 to Master Lease between Fairbanks Systems
Group, Inc. dba @Backup, Inc. (now SkyDesk, Inc.) and
Dominion Ventures, Inc., dated October 12, 1999.
10.11 1998 Stock Option/Stock Issuance Plan.
10.12 2000 Stock Option/Stock Issuance Plan.
*10.13 2000 Stock Incentive Plan.
*10.14 2000 Stock Incentive Plan, Notice of Grant of Stock Option.
*10.15 2000 Stock Incentive Plan, Form of Incentive Stock Option
Agreement.
*10.16 2000 Employee Stock Purchase Plan.
*10.17 Form of Indemnification Agreement between SkyDesk, Inc. and
its directors.
*10.18 Form of Indemnification Agreement between SkyDesk, Inc. and
its officers.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
*23.2 Consent of Brobeck, Phleger & Harrison LLP (included in
Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
SKYDESK, INC.
ARTICLE I.
The name of this Corporation is Skydesk, Inc.
ARTICLE II.
The address of the registered office of the Corporation in the State of
Delaware and the County of Kent is 30 Old Rudnick Lane, Dover, Delaware 19901
and the name of the registered agent at that address is CorpAmerica, Inc.
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 the State of Delaware.
ARTICLE IV.
The name of the Corporation's incorporator is Susan M. Reynholds and the
incorporator's mailing address is 550 West C Street, Suite 1200, San Diego,
California 92101.
ARTICLE V.
A. Classes of Stock. This corporation is authorized to issue two classes
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the corporation is authorized to issue is
Sixty-Eight Million Eight Hundred Thousand (68,800,000) shares. Thirty-Nine
Million (39,000,000) shares shall be Common Stock. Twenty-Nine Million Eight
Hundred Thousand (29,800,000) shares shall be Preferred Stock, of which Seven
Hundred Thousand (700,000) shares shall be Series A Preferred Stock, Seven
Million (7,000,000) shares shall be Series B Preferred Stock, Three Million
(3,000,000) shares shall be Series C Preferred Stock, Five Million Six Hundred
Thousand (5,600,000) shares shall be Series D Preferred Stock and Thirteen
Million Five Hundred Thousand (13,500,000) shares shall be Series E Preferred
Stock. The Preferred Stock shall have a par value of $.001 per share and the
Common Stock shall have a par value of $.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The rights,
preferences, restrictions and other matters relating to the Preferred Stock are
as follows:
<PAGE> 2
1. Dividend Provisions.
(a) The holders of shares of Series B, Series C, Series
D and Series E Preferred Stock shall be entitled to receive dividends, out of
any assets legally available therefor, prior and in preference to any
declaration or payment of any dividend (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
corporation) on the Series A Preferred Stock or Common Stock of this
corporation, at the rate of $0.052 per share of Series B Preferred Stock per
annum, $0.0479 per share of Series C Preferred Stock per annum, $0.0605 per
share of Series D Preferred Stock and $0.0875 per share of Series E Preferred
Stock per annum (all subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations) payable when, as and if
declared by the Board of Directors. Such dividends shall not be cumulative. If
such dividends are not sufficient to enable the holders of shares of Series B,
Series C, Series D and Series E Preferred Stock to receive their full
preferential dividend, the dividend shall be distributed ratably among the
holders of the Series B, Series C, Series D and Series E Preferred Stock in
proportion to the aggregate dividend preferences of the outstanding shares of
the respective series, and ratably among the holders of that series in
proportion to the amount of such stock owned by each such holder. Such dividends
shall not be cumulative.
(b) Subject to the rights of the holders of Series B,
Series C, Series D and Series E Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock shall be entitled to receive
dividends, out of any assets legally available therefor, prior and in preference
to any declaration or payment of any dividend (payable other than in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock of
this corporation) on the Common Stock of this corporation, at the rate of $0.03
per share of Series A Preferred Stock per annum (subject to appropriate
adjustments for stock splits, stock dividends, combinations or other
recapitalizations) payable when, as and if declared by the Board of Directors.
Such dividends shall not be cumulative.
(c) Any dividends declared and paid after full
compliance, during the year, with subsections 1(a) and 1(b) above shall be
declared and paid equally on the Common Stock and each series of Preferred Stock
(on an as-converted to Common Stock basis).
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or
winding up of this corporation, either voluntary or involuntary, the holders of
Series B, Series C, Series D and Series E Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of
this corporation to the holders of Series A Preferred Stock or Common Stock by
reason of their ownership thereof, an amount per share equal to the sum of (i)
for Series B Preferred Stock (A) $0.65 for each outstanding share of Series B
Preferred Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations and hereafter referred to as
the "Original Series B Issue Price") and (B) an amount equal to declared but
unpaid dividends on such shares, (ii) for Series C Preferred Stock (A) $0.9572
for each outstanding share of Series C Preferred Stock (subject to appropriate
adjustments for stock splits, stock dividends, combinations or other
recapitalizations and hereafter referred to as the
2
<PAGE> 3
"Original Series C Issue Price") and (B) an amount equal to declared but unpaid
dividends on such shares, (iii) for Series D Preferred Stock (A) $1.21 for each
outstanding share of Series D Preferred Stock (subject to appropriate
adjustments for stock splits, stock dividends, combinations or other
recapitalizations and hereafter referred to as the "Original Series D Issue
Price") and (B) an amount equal to declared but unpaid dividends on such shares
and (iv) for Series E Preferred Stock (A) $1.75 for each outstanding share of
Series E Preferred Stock (subject to appropriate adjustments for stock splits,
stock dividends, combinations or other recapitalizations and hereafter referred
to as the "Original Series E Issue Price") and (B) an amount equal to the
declared but unpaid dividends on such shares. If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series B,
Series C, Series D and Series E Preferred Stock shall be insufficient to permit
the payment to such holders of the full aforesaid preferential amounts, then,
the entire assets and funds of the corporation legally available for
distribution shall be distributed ratably among the holders of the Series B,
Series C, Series D and Series E Preferred Stock in proportion to the aggregate
liquidation preferences of the outstanding shares of the respective series, and
ratably among the holders of that series in proportion to the amount of such
stock owned by each such holder.
(b) Upon completion of the distribution required by
subparagraph (a) of this Section 2, if assets remain in this corporation, the
holders of Series A Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of this corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to the sum of (A) $0.50 for each outstanding share of Series A
Preferred Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations or other recapitalizations and hereafter referred to as
the "Original Series A Issue Price") and (B) an amount equal to declared but
unpaid dividends on such shares. If upon the occurrence of such event, the
assets and funds thus distributed among the holders of Series A Preferred Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, the entire assets and funds of the
corporation legally available for distribution (after giving effect to the
distributions referred to in Section 2(a) hereof) shall be distributed ratably
among the holders of Series A Preferred Stock in proportion to the amount of
such stock owned by each such holder.
(c) Upon the completion of the distribution required by
Sections 2(a) and 2(b), if assets remain in this corporation, the remaining
assets of the corporation available for distribution to stockholders shall be
distributed equally among the holders of Common Stock and each series of
Preferred Stock (on an as-converted to Common Stock basis).
(d) The merger or consolidation of the corporation into
or with another entity which results in the exchange of outstanding shares of
the corporation for securities or other consideration issued or paid or caused
to be issued or paid by such other corporation or an affiliate thereof, or the
sale of all or substantially all the assets of the corporation, or the
effectuation by this corporation of a transaction or series of related
transactions in which 50% or more of the voting power of this corporation is
disposed of, shall be deemed a liquidation, dissolution or winding up of the
corporation for purposes of this Section 2, but only if, in the case of a
merger, after giving effect to such merger, the securities of the surviving
corporation received by former holders of the corporation's securities as a
result of their ownership of the corporation's securities represent fifty
percent (50%) or less of any surviving entity's voting securities.
3
<PAGE> 4
3. Redemption.
(a) On or at any time after July 1, 2004, upon the
receipt by this corporation of the written request of the holders of not less
than sixty-six and two-thirds percent (66-2/3%) of the then outstanding Series
B, Series C, Series D and Series E Preferred Stock, voting together as a single
class (the "Redemption Request"), this corporation shall, to the extent it may
lawfully do so, redeem (i) the shares of the Series B Preferred Stock specified
in the Redemption Request by paying in cash a sum per share equal to the
Original Series B Issue Price (subject to appropriate adjustments for stock
splits, stock dividends, combinations or other recapitalizations) plus an amount
equal to declared but unpaid dividends on such share (such total amount is
hereinafter referred to as the "Series B Redemption Price") for the shares to be
redeemed in such installment, (ii) the shares of the Series C Preferred Stock
specified in the Redemption Request by paying in cash a sum per share equal to
the Original Series C Issue Price (subject to appropriate adjustments for stock
splits, stock dividends, combinations or other recapitalizations) plus an amount
equal to declared but unpaid dividends on such share (such total amount is
hereinafter referred to as the "Series C Redemption Price") for the shares to be
redeemed in such installment, (iii) the shares of the Series D Preferred Stock
specified in the Redemption Request by paying in cash a sum per share equal to
the Original Series D Issue Price (subject to appropriate adjustments for stock
splits, stock dividends, combinations or other recapitalizations) plus an amount
equal to declared but unpaid dividends on such share (such total amount is
hereinafter referred to as the "Series D Redemption Price") for the shares to be
redeemed in such installment and (iv) the shares of Series E Preferred Stock
specified in the Redemption Request by paying in cash a sum per share equal to
the Original Series E Issue Price (subject to appropriate adjustments for stock
splits, stock dividends, combinations or other recapitalizations) plus an amount
equal to declared but unpaid dividends on such share (such total amount is
hereinafter referred to as the "Series E Redemption Price") for the shares to be
redeemed in such installment. Upon receipt of a Redemption Request, this
corporation shall redeem the shares of Series B, Series C, Series D and Series E
Preferred Stock included in such Redemption Request in three (3) equal annual
installments beginning on the date which is sixty (60) days after the
corporation's receipt of the Redemption Request and on the anniversary of such
date in the two (2) years immediately following the receipt of the Redemption
Request. Upon receipt of a Redemption Request, the corporation shall also within
ten (10) days deliver written notice of such event to each other holder of
Series B, Series C, Series D and Series E Preferred Stock in the manner
specified in Section 3(c) below, and such other holders shall be permitted to
request that their shares be included in the redemption of shares initiated by
the Redemption Request, and any holders doing so within fifteen (15) days shall
be deemed to have specified their shares in the Redemption Request.
(b) In the event of any redemption of only a part of the
then outstanding Series B, Series C, Series D and Series E Preferred Stock, this
corporation shall effect such redemption pro rata among the holders of Series B,
Series C, Series D and Series E Preferred Stock in proportion to the respective
liquidation preferences of the shares of the respective series which were
specified in the Redemption Request, and pro rata within each such series in
proportion to the number of shares held by each holder thereof who has requested
to be included in the redemption.
(c) At least twenty (20) days prior to the date fixed
for any redemption of Series B, Series C, Series D and Series E Preferred Stock
(the "Redemption Date"), written
4
<PAGE> 5
notice shall be mailed, first class postage prepaid, to each holder of record
(at the close of business on the business day next preceding the day on which
notice is given) of the Series B, Series C, Series D and Series E Preferred
Stock to be redeemed, at the address last shown on the records of this
corporation for such holder or given by the holder to this corporation for the
purpose of notice or if no such address appears or is given at the place where
the principal executive office of this corporation is located, notifying such
holder of the redemption to be effected, specifying the number of shares to be
redeemed from such holder, the Redemption Date, the Series B Redemption Price,
Series C Redemption Price, Series D Redemption Price or Series E Redemption
Price, as applicable, the place at which payment may be obtained and the date on
which such holder's Conversion Rights (as hereinafter defined) as to such shares
terminate and calling upon such holder to surrender to this corporation, in the
manner and at the place designated, his certificate or certificates representing
the shares to be redeemed (the "Redemption Notice"). Except as provided in
Section 3(d) and except as prohibited by applicable California corporate law, on
or after the Redemption Date, each holder of Series B, Series C, Series D and
Series E Preferred Stock to be redeemed shall surrender to this corporation the
certificate or certificates representing such shares, in the manner and at the
place designated in the Redemption Notice, and thereupon the Series B Redemption
Price, Series C Redemption Price, Series D Redemption Price or Series E
Redemption Price, as applicable, of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be cancelled. In the event less
than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(d) From and after the Redemption Date, unless there
shall have been a default in payment of the Series B Redemption Price, Series C
Redemption Price, Series D Redemption Price or Series E Redemption Price, all
rights of the holders of such shares as holders of Preferred Stock (except the
right to receive the Series B Redemption Price, Series C Redemption Price,
Series D Redemption Price or Series E Redemption Price, as applicable, without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of this corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the corporation legally available for redemption of
shares of Preferred Stock on any Redemption Date are insufficient to redeem the
total number of shares of Series B, Series C, Series D and Series E Preferred
Stock to be redeemed on such date, those funds which are legally available will
be used to redeem the maximum possible number of such shares pro rata among the
Series B, Series C, Series D and Series E Preferred Stock in proportion to the
respective liquidation preferences, and pro rata within each such series in
proportion to the number of such shares to be redeemed. The shares of Series B,
Series C, Series D and Series E Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. At
any time thereafter when additional funds of the corporation are legally
available for the redemption of shares of Series B, Series C, Series D and
Series E Preferred Stock, such funds will immediately be used to redeem the
balance of the shares which the corporation has become obligated to redeem on
any Redemption Date but which it has not redeemed.
(e) The Series A Preferred Stock is not redeemable.
5
<PAGE> 6
4. Conversion. The holders of each series of Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Subject to Section 4(c), each
share of Series A, Series B, Series C, Series D and Series E Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share and on or prior to the third day prior to the
Redemption Date as may have been fixed in any Redemption Notice with respect to
the particular series of Preferred Stock, at the office of the corporation or
any transfer agent for the particular series of Preferred Stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
by (A) in the case of Series A Preferred Stock, dividing the Original Series A
Issue Price and all declared but unpaid dividends on such share by the
applicable Conversion Price at the time in effect for such share, (B) in the
case of Series B Preferred Stock, dividing the Original Series B Issue Price and
all declared but unpaid dividends on such share by the applicable Conversion
Price at the time in effect for such share, (C) in the case of Series C
Preferred Stock, dividing the Original Series C Issue Price and all declared but
unpaid dividends on such share by the applicable Conversion Price at the time in
effect for such share, (D) in the case of Series D Preferred Stock, dividing the
Original Series D Issue Price and all declared but unpaid dividends on such
share by the applicable Conversion Price at the time in effect for such share
and (E) in the case of Series E Preferred Stock, dividing the original Series E
Issue Price and all declared and unpaid dividends on such share by the
applicable Conversion Price at the time in effect for such share. The initial
Conversion Price per share for shares of Series A Preferred Stock shall be the
Original Series A Issue Price, the initial Conversion Price per share for shares
of Series B Preferred Stock shall be the Original Series B Issue Price, the
initial Conversion Price per share for shares of Series C Preferred Stock shall
be the Original Series C Issue Price, the Initial Conversion Price per share for
shares of Series D Preferred Stock shall be the Original Series D Issue Price
and the Initial Conversion Price per share for shares of Series E Preferred
shall be the Original Series E Issue Price; provided, however, that the
Conversion Price for each series of Preferred Stock shall be subject to
adjustment as set forth in Section 4(d).
(b) Automatic Conversion. Each share of Series A, Series
B, Series C, Series D and Series E Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such shares immediately upon the earlier of (A) the consummation of
the corporation's sale of its Common Stock in a bona fide, firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), the public offering
price of which was not less than $5.00 per share (adjusted to reflect subsequent
stock dividends, stock split, contributions or recapitalizations) and
$15,000,000 in the aggregate or (B) the date specified by written consent or
agreement of the holders of sixty-six and two-thirds percent (66-2/3%) of the
then outstanding shares of Preferred Stock.
(c) Mechanics of Conversion. Before any holder of
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he, she or it shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the corporation or of any transfer agent for the
particular series of Preferred Stock and shall give written notice by mail,
postage prepaid, to the corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued. The
corporation shall, as soon as practicable thereafter, issue
6
<PAGE> 7
and deliver at such office to such holder of Preferred Stock or to the nominee
or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such 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 as of such date. If the
conversion is in connection with an underwritten offer of securities registered
pursuant to the Securities Act, the conversion may, at the option of any holder
tendering Preferred Stock for conversion, be conditioned upon the closing with
the underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable upon such
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.
(d) Conversion Price Adjustments of Preferred Stock. The
Conversion Price of the Series A, Series B, Series C, Series D and Series E
Preferred Stock shall be subject to adjustment from time to time as follows:
(i) (A) Upon each issuance by the corporation of any
Additional Stock (as defined below), after the date upon which any shares of
Series A, Series B, Series C, Series D or Series E Preferred Stock were first
issued (the "Purchase Date" with respect to such series), without consideration
or for a consideration per share less than the Conversion Price for such series
in effect immediately prior to the issuance of such Additional Stock, the
Conversion Price for the Series A, Series B, Series C, Series D or Series E
Preferred Stock, as the case may be, in effect immediately prior to each such
issuance shall forthwith (except as otherwise provided in this clause (i)) be
adjusted to a price 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 issuance (including, without limitation,
the number of shares of Common Stock issuable upon the conversion of all
outstanding Preferred Stock) plus the number of shares of Common Stock which the
aggregate consideration received by the corporation for such issuance would
purchase at such Conversion Price; and the denominator of which shall be the
number of shares of Common Stock outstanding immediately prior to such issuance
(including, without limitation, the number of shares of Common Stock issuable
upon the conversion of all outstanding Preferred Stock) plus the number of
shares of such Additional Stock.
(B) No adjustment of the Conversion Price for
any series of Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to three (3) years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three (3) years from the date of the event giving rise to the
adjustment being carried forward. Except to the limited extent provided for in
Sections (E)(3) and (E)(4), no adjustment of such Conversion Price pursuant to
this Section 4(d)(i) shall have the effect of increasing the Conversion Price
above the Conversion Price in effect immediately prior to such adjustment.
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(C) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by this corporation for any underwriting or
otherwise in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock
for consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors irrespective of any accounting treatment.
(E) In the case of the issuance (whether before,
on or after the applicable Purchase Date) of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions shall
apply for all purposes of this Section 4(d)(i) and Section 4(d)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including, without limitation, the passage of
time, but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Sections 4(d)(i)(C) and (d)(i)(D)), if any, received by the corporation upon the
issuance of such options or rights plus the exercise price provided in such
options or rights (without taking into account potential antidilution
adjustments) for the Common Stock covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange (assuming
the satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the corporation (without
taking into account potential antidilution adjustments) upon the conversion or
exchange of such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner provided in
Sections 4(d)(i)(C) and (d)(i)(D)).
(3) In the event of any change in the
number of shares of Common Stock deliverable or in the consideration payable to
this corporation upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities, including
without limitation, a change resulting from the antidilution provisions thereof,
the applicable Conversion Price of the Series A, Series B, Series C, Series D
and Series E Preferred Stock to the extent in any way affected by or computed
using such options, rights or securities, shall be recomputed to reflect such
change, but no further
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<PAGE> 9
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the applicable Conversion Price of the Series A, Series
B, Series C, Series D and Series E Preferred Stock 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 (and convertible or exchangeable
securities which remain in effect) actually issued upon the exercise of such
options or rights, upon the conversion or exchange of such securities or upon
the exercise of the options or rights related to such securities.
(5) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to Section
4(d)(i)(E)(1) and (E)(2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either Section 4(d)(i)(E)(3)
or (4).
(ii) "Additional Stock" shall mean any shares of
Common Stock issued (or deemed to have been issued pursuant to Section
4(d)(i)(E)) by this corporation after the applicable Purchase Date other than:
(A) shares of Common Stock issued pursuant to a
transaction described in Subsection 4(d)(iii) hereof,
(B) shares of Common Stock issued upon
conversion of the Preferred Stock,
(C) shares of Common Stock issuable or issued to
employees, consultants or directors of this corporation, directly or pursuant to
a stock option plan or agreement or restricted stock plan or agreement approved
by the Board of Directors of this corporation at any time when the total number
of shares of Common Stock so issuable or issued (and not repurchased at cost by
the corporation in connection with the termination of employment or service)
does not exceed 2,011,321 (subject to appropriate adjustment for stock splits,
stock dividends, combinations or other recapitalizations),
(D) up to 2,407,193 shares of Common Stock
issuable pursuant to certain Common Stock Purchase Warrants (subject to
adjustment as provided therein),
(E) up to 6,000 shares of Common Stock issuable
or issued pursuant to certain Stock Option Agreements (subject to adjustment as
provided therein),
(F) up to 507,319 shares of Series B Preferred
Stock issuable or issued pursuant to certain Series B Preferred Stock Purchase
Warrants (subject to adjustment as provided therein),
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(G) up to 377,143 shares of Series E Preferred
Stock issuable or issued pursuant to a certain Series E Preferred Stock Purchase
Warrant (subject to adjustment as provided therein),
(H) up to 24,794 shares of Series D Preferred
Stock issuable or issued pursuant to certain Series D Preferred Stock Purchase
Warrant (subject to adjustment as provided therein), and
(I) shares of Common Stock issued or issuable
(I) in a public offering in connection with which all outstanding shares of
Preferred Stock will be converted to Common Stock or (II) upon exercise of
warrants or rights granted to underwriters in connection with a public offering
in which all outstanding shares of Preferred Stock will be converted to Common
Stock.
(iii) In the event the corporation should at any
time or from time to time after the applicable Purchase Date fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the applicable Conversion Price of the Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such increase of
the aggregate number of shares of Common Stock outstanding and those issuable
with respect to such Common Stock Equivalents.
(iv) If the number of shares of Common Stock
outstanding at any time after the applicable Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the applicable Conversion Price for the
Preferred Stock shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of each share of such series shall be
decreased in proportion to such decrease in the aggregate number of shares of
Common Stock outstanding.
(e) Other Distributions. In the event this corporation
shall declare a distribution payable in securities of other persons, evidences
of indebtedness issued by this corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in Section 4(d)(iii), then,
in each such case for the purpose of this Section 4(e), the holders of the
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the corporation into which their 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.
(f) Recapitalizations. If at any time or from time to
time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2) provision shall be
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made so that the holders of the Preferred Stock shall thereafter be entitled to
receive upon conversion of the Preferred Stock the number of shares of stock or
other securities or property of the corporation or otherwise, to which a holder
of Common Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights of
the holders of the Preferred Stock after the recapitalization to the end that
the provisions of this Section 4 (including adjustment of the Conversion Price
then in effect for each series and the number of shares purchasable upon
conversion of the Preferred Stock) shall be applicable after that event as
nearly equivalent as may be practicable.
(g) No Impairment. This corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
recapitalization, 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
hereunder by this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 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) No Fractional Shares and Certificate as to
Adjustments.
(i) No fractional shares shall be issued upon the
conversion of any share or shares of Preferred Stock, and the number of shares
of Common Stock to be issued shall be rounded to the nearest whole share.
Whether or not fractional shares are issuable upon such conversion shall be
determined on the basis of the total number of shares of Preferred Stock the
holder is at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Preferred Stock pursuant to this Section
4, this corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This 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 (A) such adjustment and readjustment,
(B) the Conversion Price at the time in effect and (C) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Preferred Stock.
(i) Notices of Record Date. In the event of any taking
by this corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, this corporation shall mail to each
holder of Preferred Stock, at least 20 days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
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(j) Reservation of Stock Issuable Upon Conversion.
(i) This corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock,
2,011,321 shares of Common Stock (net of repurchases and cancellations and
expirations of options) solely for the purpose of effecting the issuance of
Common Stock to officers, directors, employees, consultants and advisors
pursuant to stock option plans or restricted stock purchase agreements (the
"Employee Reserve").
(ii) In addition to the Employee Reserve, this
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 the 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 the Preferred Stock, in
addition to such other remedies as shall be available to the holders of such
Preferred Stock, this 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
purposes.
(k) Notices. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Preferred Stock shall be
in writing and shall be deemed given three (3) days after deposited in the
United States mail, postage prepaid, and addressed to each holder of record at
his address appearing on the books of this corporation.
5. Voting Rights.
(a) General Voting Rights. The holder of each share of
Preferred Stock shall have the right to one vote for each share of Common Stock
into which such Preferred Stock could then be converted exclusive of dividends
(with any fractional share determined on an aggregate conversion basis being
rounded to the nearest whole share), and with respect to such vote, such holder
shall have full voting rights and powers equal to the voting rights and powers
of the holders of Common Stock, and shall be entitled, notwithstanding any
provision hereof, to notice of any stockholders' meeting in accordance with the
Bylaws of this corporation, and shall be entitled to vote, together with holders
of Common Stock, with respect to any question upon which holders of Common Stock
have the right to vote.
(b) Election of Directors. The authorized number of
directors of this Corporation shall be nine (9). Notwithstanding 5(a) above, the
holders of Series E Preferred Stock, voting as a separate class shall be
entitled to elect two (2) directors of the Corporation; the holders of Series D
Preferred Stock, voting as a separate class, shall be entitled to elect two (2)
directors of the Corporation; the holders of Series C Preferred Stock, voting as
a separate class, shall be entitled to elect one (1) director of the
Corporation; the holders of Series B Preferred Stock, voting as a separate
class, shall be entitled to elect two (2) directors of the Corporation; the
holders of the Common Stock, voting as a separate class, shall be entitled to
elect one (1) director of the Corporation; and, for so long as the exact number
of authorized directors exceeds four (4), the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Common Stock, voting together
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on an as-converted basis, shall be entitled to elect one (1) director of the
Corporation. At any meeting held for the purpose of electing directors, the
presence in person or by proxy of the holders of a majority of the Series E
Preferred Stock then outstanding shall constitute a quorum of the Series E
Preferred Stock for the election of directors to be elected solely by the
holders of Series E Preferred Stock. At any meeting held for the purpose of
electing directors, the presence in person or by proxy of the holders of a
majority of the Series D Preferred Stock then outstanding shall constitute a
quorum of the Series D Preferred Stock for the election of directors to be
elected solely by the holders of Series D Preferred Stock. At any meeting held
for the purpose of electing directors, the presence in person or by proxy of the
holders of a majority of the Series C Preferred Stock then outstanding shall
constitute a quorum of the Series C Preferred Stock for the election of
directors to be elected solely by the holders of Series C Preferred Stock. At
any meeting held for the purpose of electing directors, the presence in person
or by proxy of the holders of a majority of the Series B Preferred Stock then
outstanding shall constitute a quorum of the Series B Preferred Stock for the
election of directors to be elected solely by the holders of Series B Preferred
Stock. At any meeting held for the purpose of electing directors, the presence
in person or by proxy of the holders of a majority of the Common Stock then
outstanding shall constitute a quorum of the Common Stock for the election of
directors to be elected solely by the holders of Common Stock. At any meeting
held for the purpose of electing directors, the presence in person or by proxy
of the holders of a majority of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Common Stock then outstanding, on an as-converted basis, shall
constitute a quorum of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Common Stock for the election of directors to be elected solely by the holders
of Series A Preferred, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Common Stock, voting
together on an as-converted basis. A vacancy in any directorship elected by the
holders of Series E Preferred Stock shall be filled only by vote of the holders
of Series E Preferred Stock; a vacancy in any directorship elected by the
holders of Series D Preferred Stock shall be filled only by vote of the holders
of Series D Preferred Stock; a vacancy in any directorship elected by the
holders of Series C Preferred Stock shall be filled only by vote of the holders
of Series C Preferred Stock; a vacancy in any directorship elected by the
holders of Series B Preferred Stock shall be filled only by vote of the holders
of Series B Preferred Stock; a vacancy in any directorship elected by the
holders of Common Stock shall be filled only by vote of the holders of Common
Stock; and a vacancy in any directorship elected by the holders of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Common Stock voting together shall
be filled only by the vote of the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Common Stock voting together as provided above.
6. Protective Provisions.
(a) So long as any shares of Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
are outstanding, this Corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power (on an
as-converted to Common Stock basis) of the then outstanding shares of
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Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock, voting together as a single class:
(i) increase (other than by conversion) the
authorized number of shares of Preferred Stock or Common Stock; or
(ii) create any new class or series of stock or any
other securities convertible into equity securities of the corporation having a
preference over, or being on a parity with, the Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock with
respect to voting, redemption, dividends or upon liquidation or having rights
equal or superior to the Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock under this Section 6; or
(iii) sell, convey or otherwise dispose of all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is disposed of or
transferred.
(b) So long as any shares of Series B Preferred Stock
are outstanding, this corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of the then
outstanding shares of Series B Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the shares of Series B Preferred Stock so as to affect adversely
the shares; or
(ii) increase the authorized number of shares of
Series B Preferred Stock.
(c) So long as any shares of Series C Preferred Stock
are outstanding, this corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of the then
outstanding shares of Series C Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the shares of Series C Preferred Stock so as to affect adversely
the shares; or
(ii) increase the authorized number of shares of
Series C Preferred Stock or issue additional shares of Series C Preferred Stock.
(d) So long as any shares of Series D Preferred Stock
are outstanding, this corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of the then
outstanding shares of Series D Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the shares of Series D Preferred Stock so as to affect adversely
the shares; or
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(ii) increase the authorized number of shares of
Series D Preferred Stock or issue additional shares of Series D Preferred Stock.
(e) So long as shares of Series E Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of the then
outstanding shares of Series E Preferred Stock:
(i) alter or change the rights, preferences or
privileges of the shares of Series E Preferred Stock so as to affect adversely
the shares; or
(ii) increase the authorized number of shares of
Series E Preferred Stock or issue additional shares of Series E Preferred Stock.
7. Status of Converted or Redeemed Stock. In the event any
shares of Preferred Stock shall be redeemed or converted pursuant to Section 3
or Section 4 hereof, the shares so redeemed or converted shall be cancelled and
shall not be issuable by the corporation. The Articles of Incorporation of this
corporation shall be appropriately amended to effect the corresponding reduction
in the corporation's authorized capital stock.
C. Common Stock.
1. Dividend Rights. Subject to the prior and participating
rights of holders of all classes of stock at the time outstanding having prior
and participating 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 of 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, dissolution or
winding up of the corporation, the assets of the corporation shall be
distributed as provided in Section 2 of Division (B) of this Article III.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. Subject to Section 5 of Division B of this
Article III, the holder of each share of Common Stock shall have the right to
one vote, 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.
ARTICLE VI.
A director of the Corporation shall not 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 General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
any improper personal benefit. If the General Corporation Law of the State of
Delaware is amended after approval by
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the stockholders of this Article to authorize corporate action further
eliminating or limiting the personal liability of directors then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware as so
amended.
Any repeal or modification of the foregoing provisions of this Article
VI 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 VII.
Each person who is or was a director or officer of the corporation
(including the heirs, executors, administrators or estate of such person) shall
be indemnified by the corporation as of right to the fullest extent permitted or
authorized by the General Corporation Law of Delaware against any liability,
cost or expense asserted against such director or officer and incurred by such
director or officer in any such person's capacity as a director or officer, or
arising out of any such person's status as a director or officer. The
corporation may, but shall not be obligated to, maintain insurance, at its
expense, to protect itself and any such person against any such liability, cost
or expense.
ARTICLE VIII.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation.
ARTICLE IX.
Election of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE X.
The number of directors which shall constitute the whole Board of
Directors of the Corporation shall be fixed from time to time by, or in the
manner provided in, the Bylaws of the Corporation or in an amendment thereof
duly adopted by the Board of Directors of the Corporation or by the stockholders
of the Corporation.
ARTICLE XI.
Meetings of stockholders of the Corporation may be held within or
without the State of Delaware, as the Bylaws of the Corporation 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 of the Corporation or in
the Bylaws of the Corporation.
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ARTICLE XII.
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors of the Corporation is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE XIII.
The Corporation expressly elects not to be governed by Section 203 of
the General Corporation Law of the State of Delaware.
ARTICLE XIV.
The corporation shall have perpetual existence.
The undersigned incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is her act and deed and that the facts stated
therein are true.
Dated: February 29, 2000 /s/ Susan M. Reynholds
-----------------------------------------
Susan M. Reynholds, Incorporator
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<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
SKYDESK, INC.,
A DELAWARE CORPORATION
ARTICLE I.
OFFICES
Section 1. Registered Office. The registered office shall be at the
office of CorpAmerica, Inc., 30 Old Rudnick Lane in the City of Dover, County of
Kent, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as shall be designated on an annual basis by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof. Any other proper business may be transacted
at the annual meeting.
Section 2. Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 3. Voting List. The officer who has charge of the stock ledger
of the corporation shall prepare and make, or cause a third party to prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. 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.
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Section 4. Special Meetings. Special meetings of the stockholders of
this corporation, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, shall be called by the President
or Secretary at the request in writing of a majority of the members of the Board
of Directors or holders of 10% of the total voting power of all outstanding
shares of stock of this corporation then entitled to vote, and may not be called
absent such a request. Such request shall state the purpose or purposes of the
proposed meeting.
Section 5. Notice of Special Meetings. As soon as reasonably practicable
after receipt of a request as provided in Section 4 of this Article II, written
notice of a special meeting, stating the place, date (which shall be not less
than ten nor more than sixty days from the date of the notice) and hour of the
special meeting and the purpose or purposes for which the special meeting is
called, shall be given to each stockholder entitled to vote at such special
meeting.
Section 6. Scope of Business at Special Meeting. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 7. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the chairman of the meeting or
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting as provided in Section 5 of this Article
II.
Section 8. Qualifications to Vote. The stockholders of record on the
books of the corporation at the close of business on the record date as
determined by the Board of Directors and only such stockholders shall be
entitled to vote at any meeting of stockholders or any adjournment thereof.
Section 9. Record Date. The Board of Directors may fix a record date for
the determination of the stockholders entitled to notice of or to vote at any
stockholders' meeting and at any adjournment thereof, or to express consent to
corporate action in writing without a meeting, or 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. The record date shall not be more
than sixty nor less than ten days before the date of such meeting, and not more
than sixty days prior to any other action. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to
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any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Section 10. Action at Meetings. When a quorum is present at any meeting,
the vote of the holders of a majority of the shares of stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of applicable law or of the Certificate of Incorporation, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
Section 11. Voting and Proxies. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period. Each proxy shall be revocable unless expressly provided therein
to be irrevocable and unless it is coupled with an interest sufficient in law to
support an irrevocable power.
Section 12. Action by Stockholders Without a Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required to be taken at
any annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in the State
of Delaware (by hand or by certified or registered mail, return receipt
requested), to its principal place of business, or to an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded; provided, however, that action by written consent to
elect directors, if less than unanimous, shall be in lieu of holding an annual
meeting only if all the directorships to which directors could be elected at an
annual meeting held at the effective time of such action are vacant and are
filled by such action. Prompt notice of the taking of corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by a
sufficient number of stockholders to take the action were delivered to the
corporation by delivery to its registered office in the State of Delaware (by
hand or by certified or registered mail, return receipt requested), to its
principal place of business, or to an officer or agent of the corporation having
custody of the book in which proceedings or meetings of stockholders are
recorded.
ARTICLE III.
DIRECTORS
Section 1. Powers. The business of the corporation shall be managed by
or under the direction of its Board of Directors, which may exercise all such
powers of the corporation and do
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all such lawful acts and things as are not by applicable law or by the
Certificate of Incorporation or by these Bylaws directed or required to be
exercised or done by the stockholders.
Section 2. Number; Election; Tenure and Qualification. The number of
directors which shall constitute the whole board shall be fixed from time to
time by resolution of the Board of Directors or by the Stockholders at an annual
meeting of the Stockholders (unless the directors are elected by written consent
in lieu of an annual meeting as provided in Article II, Section 12); provided
that the number of directors shall be not less than 5 nor more than 9. With the
exception of the first Board of Directors, which shall be elected by the
incorporator, and except as provided in the corporation's Certificate of
Incorporation or in Section 3 of this Article III, the directors shall be
elected at the annual meeting of the stockholders by a plurality vote of the
shares represented in person or by proxy and each director elected shall hold
office until his successor is elected and qualified unless he shall resign,
become disqualified, disabled, or otherwise removed. Directors need not be
stockholders.
Section 3. Vacancies and Newly Created Directorships. Unless otherwise
provided in the Certificate of Incorporation, vacancies and newly-created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director. The directors so chosen shall serve
until the next annual election and until their successors are duly elected and
shall qualify, unless sooner displaced. If there are no directors in office,
then an election of directors may be held in the manner provided by applicable
law. If, at the time of filling any vacancy or any newly created directorship,
the directors then in office shall constitute less than a majority of the whole
board (as constituted immediately prior to any such increase), the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent of the total number of shares at the time outstanding having
the right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office.
Section 4. Location of Meetings. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of Delaware.
Section 5. Meeting of Newly Elected Board of Directors. The first
meeting of each newly elected Board of Directors shall be held immediately
following the annual meeting of stockholders and no notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held at such time, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a written waiver signed by all
of the directors.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors; provided that any director who is
absent when such a determination is made shall be given notice of such location.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the President on two days' notice to each director by mail,
overnight courier service or facsimile; special meetings shall be called by the
President or Secretary in a like manner and on
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like notice on the written request of two directors unless the Board of
Directors consists of only one director, in which case special meetings shall be
called by the President or Secretary in a like manner and on like notice on the
written request of the sole director. Notice may be waived in accordance with
Section 229 of the General Corporation Law of the State of Delaware.
Section 8. Quorum and Action at Meetings. At all meetings of the Board
of Directors, a majority of the directors then in office shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 9. Action Without a Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 10. Telephonic Meeting. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 11. Committees. The Board of Directors may, by resolution passed
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
Section 12. Committee Authority. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to (a) approving,
adopting or recommending to the stockholders, any action or matter expressly
required by the General Corporation Law of the State of Delaware to be submitted
to stockholders for approval, or (b) adopting, amending or repealing any Bylaw
of the corporation. Such committee or committees shall have such name or names
as may be determined from time to time by resolution adopted by the Board of
Directors.
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Section 13. Committee Minutes. Each committee shall keep regular minutes
of its meetings and report the same to the Board of Directors when required to
do so by the Board of Directors.
Section 14. Directors Compensation. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, the Board of Directors shall have
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 15. Resignation. Any director or officer of the corporation may
resign at any time. Each such resignation shall be made in writing and shall
take effect at the time specified therein, or, if no time is specified, at the
time of its receipt by either the Board of Directors, the President or the
Secretary. The acceptance of a resignation shall not be necessary to make it
effective unless expressly so provided in the resignation.
Section 16. Removal. Unless otherwise restricted by the Certificate of
Incorporation, these Bylaws or applicable law, any director or the entire Board
of Directors may be removed, with or without cause, by the holders of a majority
of shares entitled to vote at an election of directors.
ARTICLE IV.
NOTICES
Section 1. Notice to Directors and Stockholders. Whenever, under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, notice is required to be given to any director or stockholder, it shall
not be construed to mean personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. An affidavit of the Secretary or an
Assistant Secretary or of the transfer agent of the corporation that the notice
has been given shall in the absence of fraud, be prima facie evidence of the
facts stated therein. Notice to directors may also be given by telephone,
facsimile or telegram (with confirmation of receipt).
Section 2. Waiver. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. The written waiver need not specify 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. 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. Attendance at the
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meeting is not a waiver of any right to object to the consideration of matters
required by the General Corporation Law of the State of Delaware to be included
in the notice of the meeting but not so included, if such objection is expressly
made at the meeting.
ARTICLE V.
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen
by the Board of Directors and shall include a President, a Secretary, a
Treasurer or Chief Financial Officer and such other officers with such other
titles as the Board of Directors shall determine. The Board of Directors may
elect from among its members a Chairman or Chairmen of the Board and a Vice
Chairman of the Board. The Board of Directors may also choose one or more
Vice-Presidents, Assistant Secretaries and Assistant Treasurers. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these Bylaws otherwise provide.
Section 2. Election. The Board of Directors at its first meeting after
each annual meeting of stockholders shall elect a President, a Secretary, a
Chief Financial Officer and such other officers with such other titles as the
Board of Directors shall determine.
Section 3. Appointment of Other Agents. The Board of Directors may
appoint such other officers and agents as it shall deem necessary, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors.
Section 4. Compensation. The salaries of all officers of the corporation
shall be fixed by the Board of Directors or a committee thereof. The salaries of
agents of the corporation shall be fixed by the Board of Directors.
Section 5. Tenure. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the directors of the Board of Directors. Any vacancy occurring in
any office of the corporation shall be filled by the Board of Directors.
Section 6. Chairman of the Board and Vice-Chairman of the Board. The
Chairman of the Board, if any, shall preside at all meetings of the Board of
Directors and of the stockholders at which the Chairman shall be present. The
Chairman shall have and may exercise such powers as are, from time to time,
assigned to the Chairman by the Board of Directors and as may be provided by
law. In the absence of the Chairman of the Board, the Vice Chairman of the
Board, if any, shall preside at all meetings of the Board of Directors and of
the stockholders at which the Vice Chairman shall be present. The Vice Chairman
shall have and may exercise such powers as are, from time to time, assigned to
such person by the Board of Directors and as may be provided by law.
Section 7. President. The President shall be the Chief Executive Officer
of the corporation unless such title is assigned to another officer of the
corporation; in the absence of a Chairman and Vice Chairman of the Board, the
President shall preside as the chairman of
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meetings of the stockholders and the Board of Directors; and the President shall
have general and active management of the business of the corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. The President shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the corporation.
Section 8. Vice-President. In the absence of the President or in the
event of the President's inability or refusal to act, the Vice-President, if any
(or in the event there be more than one Vice-President, the Vice-Presidents in
the order designated by the Board of Directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting shall have all the powers of and be subject to
all the restrictions upon the President. The Vice-President shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
Section 9. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or President, under whose supervision the Secretary shall
be subject. The Secretary shall have custody of the corporate seal of the
corporation and the Secretary, or an Assistant Secretary, shall have authority
to affix the same to any instrument requiring it and when so affixed, it may be
attested by the Secretary's signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by such
officer's signature.
Section 10. Assistant Secretary. The Assistant Secretary, or if there be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 11. Treasurer. The Treasurer, who may also be designated by the
alternative title of "Chief Financial Officer," shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, President or Chief Executive Officer, taking
proper vouchers for such disbursements, and shall render to the President, Chief
Executive Officer and the Board of Directors, at its regular meetings, or when
the Board of Directors so requires, an account of all such transactions as
Treasurer and of the financial condition of the corporation. If required by the
Board of Directors, the Treasurer shall give the corporation a bond (which shall
be renewed every six years) in such sum and with such surety or sureties as
shall be satisfactory to the Board of
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Directors for the faithful performance of the duties of the Treasurer's office
and for the restoration to the corporation, in case of the Treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the possession or under the control
of the Treasurer that belongs to the corporation.
Section 12. Assistant Treasurer. The Assistant Treasurer, or if there be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE VI.
CAPITAL STOCK
Section 1. Certificates. The shares of the corporation shall be
represented by a certificate, unless and until the Board of Directors adopts a
resolution permitting shares to be uncertificated. Certificates shall be signed
by, or in the name of the corporation by, (a) the Chairman of the Board, the
Vice-Chairman of the Board, the President or a Vice-President, and (b) the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary,
certifying the number of shares owned by such stockholder in the corporation.
Certificates may be issued for partly paid shares and in such case upon the face
or back of the certificates issued to represent any such partly paid shares, the
total amount of the consideration to be paid therefor and the amount paid
thereon shall be specified.
Section 2. Class or Series. If the corporation shall be authorized to
issue more than one class of stock or more than one series of any class, the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in Section 202 of the General Corporation Law
of the State of Delaware, in lieu of the foregoing requirements, there may be
set forth on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Within a
reasonable time after the issuance or transfer of uncertificated stock, the
corporation shall send to the registered owner thereof a written notice
containing the information required to be set forth or stated on certificates
pursuant to Sections 151, 156, 202(a) or 218(a) of the Delaware Corporation Law
or a statement that the corporation will furnish without charge, to each
stockholder who so requests, the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 3. Signature. Any of or all of the signatures on a certificate
may be facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile
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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 such
officer, transfer agent or registrar at the date of issue.
Section 4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as it shall require and/or to give the corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 5. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Upon receipt of proper transfer instructions from
the registered owner of uncertificated shares such uncertificated shares shall
be canceled and issuance of new equivalent uncertificated shares or certificated
shares shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the corporation.
Section 6. Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, 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, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 7. Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
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ARTICLE VII.
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the applicable provisions, if any, of the Certificate of
Incorporation, may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property or
in shares of capital stock, subject to the provisions of the Certificate of
Incorporation. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the Board
of Directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the Board of Directors shall think conducive to the interest of the
corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
Section 2. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Seal. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
Section 5. Loans. The Board of Directors of this corporation may,
without stockholder approval, authorize loans to, or guaranty obligations of, or
otherwise assist, including, without limitation, the adoption of employee
benefit plans under which loans and guarantees may be made, any officer or other
employee of the corporation or of its subsidiary, including any officer or
employee who is a director of the corporation or its subsidiary, whenever, in
the judgment of the Board of Directors, such loan, guaranty or assistance may
reasonably be expected to benefit the corporation. The loan, guaranty or other
assistance may be with or without interest, and may be unsecured, or secured in
such manner as the Board of Directors shall approve, including, without
limitation, a pledge of shares of stock of the corporation.
ARTICLE VIII.
INDEMNIFICATION
Section 1. Scope. The corporation shall, to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware, as that
Section may be amended and supplemented from time to time, indemnify any
director, officer, employee or agent of the corporation, against expenses
(including attorneys' fees), judgments, fines, amounts paid in settlement and/or
other matters referred to in or covered by that Section, by reason of the fact
that such person is or was a director, officer, employee or agent of the
corporation, or is or
-11-
<PAGE> 12
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
Section 2. Advancing Expenses. Expenses (including attorneys' fees)
incurred by a present or former director or officer of the corporation in
defending a civil, criminal, administrative or investigative action, suit or
proceeding by reason of the fact that such person is or was a director, officer,
employee or agent of the corporation (or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized by
relevant provisions of the General Corporation Law of the State of Delaware;
provided, however, the corporation shall not be required to advance such
expenses to a director (i) who commences any action, suit or proceeding as a
plaintiff unless such advance is specifically approved by a majority of the
Board of Directors, or (ii) who is a party to an action, suit or proceeding
brought by the corporation and approved by a majority of the Board of Directors
which alleges willful misappropriation of corporate assets by such director,
disclosure of confidential information in violation of such director's fiduciary
or contractual obligations to the corporation, or any other willful and
deliberate breach in bad faith of such director's duty to the corporation or its
stockholders.
Section 3. Liability Offset. The corporation's obligation to provide
indemnification under this Article VIII shall be offset to the extent the
indemnified party is indemnified by any other source including, but not limited
to, any applicable insurance coverage under a policy maintained by the
corporation, the indemnified party or any other person.
Section 4. Continuing Obligation. The provisions of this Article VIII
shall be deemed to be a contract between the corporation and each director of
the corporation who serves in such capacity at any time while this bylaw is in
effect, and any repeal or modification thereof shall not affect any rights or
obligations then existing with respect to any state of facts then or theretofore
existing or any action, suit or proceeding theretofore or thereafter brought
based in whole or in part upon any such state of facts.
Section 5. Nonexclusive. The indemnification and advancement of expenses
provided for in this Article VIII shall (i) not be deemed exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement or
vote of stockholders or disinterested directors or otherwise, both as to action
in their official capacities and as to action in another capacity while holding
such office, (ii) continue as to a person who has ceased to be a director and
(iii) inure to the benefit of the heirs, executors and administrators of such a
person.
Section 6. Other Persons. In addition to the indemnification rights of
directors, officers, employees, or agents of the corporation, the Board of
Directors in its discretion shall have the power on behalf of the corporation to
indemnify any other person made a party to any action, suit or proceeding who
the corporation may indemnify under Section 145 of the General Corporation Law
of the State of Delaware.
-12-
<PAGE> 13
Section 7. Definitions. The phrases and terms set forth in this Article
VIII shall be given the same meaning as the identical terms and phrases are
given in Section 145 of the General Corporation Law of the State of Delaware, as
that Section may be amended and supplemented from time to time.
ARTICLE IX.
AMENDMENTS
Except as otherwise provided in the Certificate of Incorporation, these
Bylaws may be altered, amended or repealed, or new Bylaws may be adopted, by the
holders of a majority of the outstanding voting shares or by the Board of
Directors, when such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new Bylaws be contained in the notice of such special meeting. If the power
to adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the
Certificate of Incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal Bylaws.
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<PAGE> 14
CERTIFICATE OF SECRETARY OF
SKYDESK, INC.
The undersigned certifies:
1. That the undersigned is the duly elected and acting Secretary of
Skydesk, Inc., a Delaware corporation (the "Corporation"); and
2. That the foregoing Bylaws constitute the Bylaws of the Corporation as
duly adopted by the Unanimous Written Consent of the Board of Directors of
Skydesk, Inc., dated the 29th day of February, 2000.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the Corporation as of this 29th day of February, 2000.
/s/ Dan Dearen
---------------------------------
Dan Dearen,
Secretary
<PAGE> 1
EXHIBIT 10.1
NEITHER THIS WARRANT NOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND HAVE BEEN TAKEN FOR
INVESTMENT PURPOSES ONLY. NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS
WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR
THE HOLDER REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER
THE ACT IS NOT REQUIRED.
Number of Shares Issuable Upon Exercise: 24,794
WARRANT TO PURCHASE
SHARES OF SERIES D PREFERRED STOCK
OF
FAIRBANKS SYSTEMS GROUP D/B/A BACKUP, INC.
Expires: January 28, 2007
THIS CERTIFIES THAT, for value received, DOMINION CAPITAL MANAGEMENT
L.L.C., a Delaware limited liability company, is entitled to subscribe for and
purchase 24,794 shares (as adjusted pursuant to the provisions hereof, the
"Shares") of the Series D Preferred Stock of FAIRBANKS SYSTEMS GROUP d/b/a
@BACKUP, INC., a California corporation (the "Company"), at a price per share of
$1.21 (as adjusted pursuant to the provisions hereof, the "Exercise Price"),
subject to the provisions and upon the terms and conditions hereinafter set
forth. As used herein, the term "Preferred Stock" shall mean the Company's
presently authorized Series D Preferred Stock, and any stock into or for which
such Series D Preferred Stock may hereafter be converted or exchanged, and the
term "Grant Date" shall mean January 28, 1999.
1. Term. This Warrant is exercisable, in whole or in part, at any time
and from time to time from and after the Grant Date and prior to the earlier of
(a) the ninth anniversary of the Grant Date or (b) the fourth anniversary of the
consummation of the Company's initial public offering of its Common Stock
pursuant to a registration statement filed under the Securities Act of 1933, as
amended (the "Securities Act"), the aggregate gross proceeds from which exceed
$10,000,000.
2. Method of Exercise; Net Issue Exercise.
2.1 Method of Exercise; Payment; Issuance of New Warrant. This Warrant
may be exercised by the holder hereof, in whole or in part and from time to
time, by either of the
<PAGE> 2
following, at the election of the holder hereof: (a) the surrender of this
Warrant (with the Notice of Exercise form attached hereto as Exhibit A-1 duly
executed) at the principal office of the Company and by the payment to the
Company, by cash, check or cancellation of indebtedness, of an amount equal to
the Exercise Price per share multiplied by the number of Shares than being
purchased; or (b) if in connection with a sale of Shares pursuant to a
registered public offering of the Company's securities, the surrender of this
Warrant (with the Notice of Exercise form attached hereto as Exhibit A-2 duly
executed), which surrender may be made contingent upon the closing of such
offering, at the principal office of the Company together with notice of
arrangements reasonably satisfactory to the Company for payment to the Company
from the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the Exercise Price per share multiplied by the
number of Shares then being purchased. The person or persons in whose name(s)
any certificate(s) representing Shares shall be issuable upon exercise of this
Warrant shall be deemed to have become the holder(s) of record of, and shall be
treated for all purposes as the record holder(s) of, the Shares represented
thereby (and such Shares shall be deemed to have been issued) immediately prior
to the close of business on the date or dates upon which this Warrant is
exercised. In the event of any exercise of this Warrant, certificates for the
Shares so purchased shall be delivered to the holder hereof as soon as possible
and in any event within fifteen (15) days of receipt of such notice) and, unless
this Warrant has been fully exercised or expired, a new Warrant representing the
portion of the Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the holder hereof as soon as
possible thereafter.
2.2 Automatic Exercise. To the extent this Warrant is not previously
exercised, and if the fair market value of one share of the Company's Preferred
Stock is greater than the Exercise Price then in effect, this Warrant shall be
deemed automatically exercised pursuant to Section 2.3 below (even if not
surrendered) immediately before its expiration. For purposes of such automatic
exercise, the fair market value of one share of the Company's Preferred Stock
upon such expiration shall be determined pursuant to Section 2.3 (b) below. To
the extent this Warrant or any portion thereof is deemed automatically exercised
pursuant to this Section 2.2, the Company agrees to promptly notify the holder
hereof of the number of Shares, if any, the holder hereof is to receive by
reason of such automatic exercise.
2.3 Right to Convert Warrant into Stock: Net Issuance.
(a) In addition to and without limiting the rights of the holder
under the terms of this Warrant, the holder may elect to convert this Warrant or
any portion thereof (the "Conversion Right") into shares of Preferred Stock, the
aggregate value of which shares shall be equal to the value of this Warrant or
the portion thereof being converted. The Conversion Right may be exercised by
the holder by surrender of this Warrant at the principal office of the Company
together with notice of the holder's intention to exercise the Conversion Right,
in which event the Company shall issue to the holder a number of shares of the
Company's Preferred Stock computed using the following formula:
2
<PAGE> 3
Y(A-B)
------
X = A
Where: X = The number of shares of Preferred Stock to be issued to the holder.
Y = The number of shares of Preferred Stock purchasable under this
Warrant subject to the exercise election.
A = The fair market value of one share of the Company's Preferred
Stock.
B = Exercise Price (as adjusted to the date of such calculations).
(b) For purposes of this Section 2.3, the "fair market value"
per share of the Company's Preferred Stock shall mean:
(i) If the Conversion Right is exercised in connection
with and contingent upon the Company's initial public offering, and if the
Company's registration statement relating to such offering has been declared
effectively by the Securities and Exchange Commission, then the initial "Price
to Public" specified in the final prospectus with respect to such offering; or
(ii) If the Conversion Right is not exercised in
connection with and contingent upon the Company's initial public offering, then
as follows:
(A) If the Preferred Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange,
or is listed on the Nasdaq National Market (the "National Market
System"), the fair market value shall be the average of the last
reported sale prices of the Preferred Stock on such exchange or on the
Nasdaq National Market on the last ten (10) trading days (or all such
trading days such Preferred Stock has been traded if fewer than 10
trading days) before the effective date of exercise of the Conversion
Right or if no such sale is made on any such day, the mean of the
closing bid and asked prices for such day on such exchange or on the
Nasdaq National Market;
(B) If the Preferred Stock is not so listed or admitted to
unlisted trading privileges, the fair market value shall be the average
of the means of the last bid and asked prices reported on the last ten
(10) trading days (or all such trading days such Preferred Stock has
been traded if fewer than 10 trading days) before the date of the
election (1) by the Nasdaq Stock Market or (2) if reports are
unavailable under clause (1) above, by the National Quotation Bureau
Incorporated; and
(C) If the Preferred Stock is not so listed or admitted to
unlisted trading privileges and bid and ask prices are not reported, the
fair market value shall be the price per share which the Company could
obtain from a willing buyer for shares sold by the
3
<PAGE> 4
Company from authorized but unissued shares, as such price shall be
determined by mutual agreement of the Company and the holder of this
Warrant.
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
issued upon the exercise of this Warrant, and all Common Stock issuable upon
conversion of the Shares shall, upon issuance, be validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which this Warrant may be exercised, the
Company will at all times have been duly authorized and reserved, for the
purpose of issuance upon exercise of this Warrant, a sufficient number of shares
of Preferred Stock (and Common Stock issuable upon conversion thereof).
4. Adjustments to Exercise Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as set forth in
Appendix I hereto upon the occurrence of certain events described therein. The
provisions of Appendix I are incorporated by reference herein with the same
effect as if set forth in full herein.
5. Notices of Record Date. In the event of any taking by the Company of
a record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed merger or consolidation of the Company with or into any other
corporation, or any proposed sale, lease or conveyance of all or substantially
all of the assets of the Company, or any proposed liquidation, dissolution or
winding up of the Company, then, in connection with each such event, the Company
shall mail to the holder of this Warrant at least twenty (20) days prior written
notice of the date on which any such record is to be taken for the purpose of
such dividend, distribution, right(s) or vote of the shareholders. Each such
written notice shall specify the amount and character of any such dividend,
distribution or right(s), and shall set forth, in reasonable detail, the matter
requiring any such vote of the shareholders.
6. Fractional Shares. No fractional shares of Preferred Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based upon the per share
fair market value of the Preferred Stock on the date of exercise.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Preferred Stock.
(a) Compliance with Securities Act. The holder of this Warrant,
by acceptance hereof, agrees that this Warrant, the Shares to be issued upon
exercise hereof and the Common Stock to be issued upon conversion of such Shares
are being acquired for investment purposes only and that such holder will not
offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon
exercise hereof (or Common Stock issued upon conversion of such Shares) except
under circumstances which will not result in a violation of the Securities Act.
4
<PAGE> 5
This Warrant and all Shares issued upon exercise of this Warrant (unless
registered under the Securities Act) shall be stamped or imprinted with a legend
in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND HAVE BEEN TAKEN FOR
INVESTMENT PURPOSES ONLY. NO SALE, TRANSFER OR DISPOSITION MAY BE
EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
(iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT
REQUIRED.
(b) Disposition of Warrant and Shares. With respect to any
offer, transfer, sale or other disposition of this Warrant or any Shares
acquired pursuant to the exercise of this Warrant (or Common Stock issued upon
conversion of such Shares) prior to registration thereof, the holder hereof and
each subsequent holder of this Warrant agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of such holder's counsel reasonably satisfactory to the Company,
if reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Securities Act as then in effect or any federal or state law then in effect)
of this Warrant or such Shares or Common Stock and indicating whether or not
under the Securities Act certificates for this Warrant or such Shares or Common
Stock to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to insure compliance with
the Securities Act. Each certificate representing this Warrant or the Shares or
Common Stock thus transferred (except a transfer pursuant to Rule 144) shall
bear a legend as to the applicable restrictions on transferability in order to
insure compliance with the Securities Act. Each certificate representing this
Warrant or the Shares or Common Stock thus transferred (except a transfer
pursuant to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Securities Act unless, in
the aforesaid opinion of counsel for the holder, such legend is not required in
order to insure compliance with the Securities Act. Nothing herein shall
restrict the transfer of this Warrant or any portion hereof by the initial
holder hereof to any partnership affiliated with the initial holder, or to any
partner of any such partnership provided such transfer may be made in compliance
with applicable federal and state securities laws. The Company may issue stop
transfer instructions to its transfer agent in connection with the foregoing
restrictions.
8. Rights as Shareholders; Information.
8.1 Shareholder Rights. Except as set forth herein, no holder of
this Warrant, as such, shall be entitled to vote upon any matter submitted to
shareholders at any meeting thereof, or to receive notice of meetings, or be
deemed the holder of Preferred Stock until this
5
<PAGE> 6
Warrant shall have been exercised and the Shares purchasable upon such exercise
shall have become deliverable, as provided herein.
8.2 [Intentionally deleted]
9. Registration Rights. The rights of the holder of this Warrant and the
obligations of the Company with respect to registration under the Securities Act
and the applicable rules and regulations thereunder shall be as set forth in
that certain Amended and Restated Investors' Rights Agreement, dated as of March
12, 1998, among the Company and certain investors in the Company's capital stock
party thereto, as amended by Amendment No. 1 to Amended and Restated Investors'
Rights Agreement, dated as of January 28, 1999 (the "Rights Agreement").
10. Additional Rights.
10.l Right of First Refusal. The rights of the holder of this
Warrant and the obligations of the Company with respect to the sale and issuance
by the Company of any shares of, or securities convertible into or exercisable
for any shares of, any class of the Company's capital stock shall be as set
forth in the Rights Agreement.
10.2 Secondary Sales. The Company agrees to assist the holder of
this Warrant in obtaining liquidity if opportunities to make secondary sales of
the Company's securities become available. To this end, the Company will
promptly provide the holder of this Warrant with notice of any offer to acquire
from the Company's securities holders more than five percent (5%) of the total
voting power of the Company and will cooperate with the holder in arranging the
sale of this Warrant, on a pro-rata basis, to the person or persons making such
offer.
10.3 Mergers. The Company agrees to provide the holder of this
Warrant with at least twenty (20) days' prior written notice of the terms and
conditions of any proposed transaction, in which the Company would (i) sell,
lease, exchange, convey or otherwise dispose of all or substantially all of its
property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than fifty percent (50%) of the voting power of the
Company is disposed of. The Company will cooperate with the holder in arranging
the sale of this Warrant in connection with any such transaction.
11. Representations and Warranties. This Warrant is issued and delivered
on the basis of the following:
(a) This Warrant has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms;
6
<PAGE> 7
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
(c) The rights, preferences, privileges and restrictions granted
to or imposed upon the Shares and the holders thereof are as set forth in the
Company's Articles of Incorporation, as amended (the "Charter"), a true and
complete copy of which has been delivered to the original holder of this
Warrant;
(d) The shares of Common Stock issuable upon conversion of the
Shares have been duly authorized and reserved and, when issued in accordance
with the terms of the Company's Charter, will be validly issued, fully paid and
nonassessable;
(e) As of the Grant Date, the capitalization of the Company
shall be as set forth in the Capitalization Schedule attached hereto as Appendix
II, which indicates the following: (i) the authorized capital stock of the
Company (including the authorized number of shares of Common Stock and each
series of Preferred Stock); (ii) the number of shares of Common Stock and each
series of Preferred Stock issued and outstanding; (iii) the number of shares of
Common Stock reserved for issuance upon conversion of any Preferred Stock; (iv)
the number of shares for which options have been granted under the Company's
Stock Option Plan; and (v) any other securities that are convertible into or
exchangeable for Common Stock or options to purchase or rights to subscribe for
Common Stock or such convertible or exchangeable securities, and the number of
shares of Common Stock issuable upon any conversion, exchange or exercise of
such securities, options or rights. All issued and outstanding shares of the
Company's Common Stock and Preferred Stock have been duly authorized and validly
issued, and are fully paid and nonassessable. Except as set forth in Appendix
II, there are no outstanding rights, options, warrants, conversion rights,
preemptive rights, rights of first refusal or similar rights for or
understandings relating to the purchase or acquisition form the Company of any
securities of the Company.
(f) The execution and delivery of this Warrant, the issuance of
the Shares upon exercise of this Warrant in accordance with the terms hereof and
the compliance by the Company with the provisions hereof (i) are not and will
not be inconsistent with the Company's Charter or Bylaws, (ii) do not and will
not contravene any law, governmental rule or regulation, judgment or order
applicable to the Company, and (iii) do not and will not contravene any
provision of, or constitute a default under, any indenture, mortgage, contract
or other instrument of which the Company is a party or by which it is bound or
require the consent or approval of, the giving of notice to, the registration
with or the taking of any action in respect of or by, any Federal, state or
local government authority or agency or other person.
12. Amendment of Conversion Rights. During the term of this Warrant, the
Company agrees that it shall not amend its Charter, as amended through the Grant
Date, without delivering prior written notice describing such amendment to the
holder or holders entitled to purchase a majority of the Shares upon exercise of
this Warrant. The Company shall promptly
7
<PAGE> 8
provide the holder of this Warrant with any restatement, amendment, modification
or waiver of the Charter promptly after the same has been made.
13. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
14. Notices. Any notice, payment request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or sent to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefor on the signature
page of this Warrant and shall be deemed received by the holder upon the earlier
of actual receipt or, if sent by certified mail (postage pre-paid), two (2) days
after deposit in the U.S. mail.
15. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Shares, or the Company's Common Stock issuable upon
conversion thereof, shall survive the exercise and termination of this Warrant.
All of the covenants and agreements of the Company shall inure to the benefit of
the successors and assigns of the holder hereof. The Company will, at the time
of the exercise of this Warrant, in whole or in part, upon request of the holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the holder hereof in respect of any rights (including, without
limitation, any right to registration of the Shares in accordance with Section
9) to which the holder hereof shall continue to be entitled after such exercise
in accordance with this Warrant; provided, that the failure of the holder hereof
to make any such request shall not affect the continuing obligation of the
Company to the holder hereof in respect of such rights.
16. Lost Warrants or Stock Certificates. The Company covenants to the
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate issued upon exercise thereof and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company shall make and
deliver a new Warrant or stock certificate, or like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
17. No Impairment. The Company will not, by amendment of its Charter or
through any reorganization, recapitalization, 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 hereunder by the company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of this Warrant against impairment.
8
<PAGE> 9
18. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
19. Recovery of Litigation Costs. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Warrant, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
20. Severability. If one or more provisions of this Warrant are held to
be unenforceable under applicable law, such provision shall be excluded from
this Warrant and the balance of this Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE> 10
20. Governing Law. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF CALIFORNIA.
Date: January 29, 1998 FAIRBANKS SYSTEMS GROUP d/b/a
@BACKUP, Inc.,
a California corporation
By: /s/ Gary Sutton
------------------------------------
Name: Gary Sutton
Title: Chief Executive Office
Address: 3550 General Atomics Court
San Diego, California 92121-1194
10
<PAGE> 11
EXHIBIT A-1
NOTICE OF EXERCISE
To: FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, INC.
(COMPANY NAME)
1. The undersigned hereby:
[ ] elects to purchase ________ shares of Series D Preferred
Stock of the Company pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price
of such shares in full; or
[ ] elects to exercise its net issuance rights pursuant to
Section 2.3 of the attached Warrant with respect to
___________ shares of Series D Preferred Stock.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below:
------------------------------------
(NAME)
------------------------------------
(ADDRESS)
------------------------------------
(ADDRESS)
3. The undersigned represents that the aforesaid shares being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares.
- ------------
(DATE)
------------------------------------
(SIGNATURE)
11
<PAGE> 12
EXHIBIT A-2
NOTICE OF EXERCISE
To: FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, INC.
(COMPANY NAME)
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S-____, filed on _____________, 19______, the undersigned
hereby:
[ ] elects to purchase ________ shares of Series D Preferred
Stock of the Company (or such lesser number of shares as may
be sold on behalf of the undersigned at the Closing) pursuant
to the terms of the attached Warrant, or
[ ] elects to exercise its net issuance rights pursuant to
Section 2.3 of the attached Warrant with respect to
___________ shares of Series D Preferred Stock.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such _________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $________ or, if less, the net proceeds
due the undersigned from the sale of shares in the aforesaid public offering. If
such net proceeds are less than the purchase price for such shares, the
undersigned agrees to deliver the difference to the Company prior to the
Closing.
- ------------
(DATE)
------------------------------------
(SIGNATURE)
12
<PAGE> 13
APPENDIX I
ADJUSTMENT PROVISIONS
1. Capitalized Terms. Capitalized terms used in this Appendix I that are
not otherwise defined herein shall have the respective meanings assigned to them
in the Warrant, dated as of January 28, 1999, to which this Appendix I is
attached, if therein defined.
2. [Intentionally Deleted]
3. Reclassification or Merger. In case of any reclassification, change
or conversion of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), or in
case of any merger of the Company with or into another corporation or entity
(other than a merger with another corporation in which the Company is a
continuing corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation or entity, as the case may
be, shall execute a new Warrant (in form and substance satisfactory to the
holder of this Warrant) providing that the holder of this Warrant shall have the
right to exercise such new Warrant and upon such exercise to receive, in lieu of
each share of Preferred Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or merger by a holder of
one share of Preferred Stock. Such new Warrant shall provide for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Appendix I. The provisions of this Section 3 shall
similarly apply to successive reclassifications, changes, mergers and transfers.
4. Subdivision or Combination of Shares. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Preferred Stock, the Exercise Price and the number of Shares issuable upon
exercise hereof shall be proportionately adjusted.
5. Stock Dividends. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend payable in shares of Preferred
Stock, then the Exercise Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Exercise Price in effect immediately
prior to such date of determination by a fraction (a) the numerator of which
shall be the total number of shares of Preferred Stock outstanding immediately
prior to such dividend or distribution, and (b) the denominator of which shall
be the total number of shares of Preferred Stock outstanding immediately after
such dividend or distribution and the number of Shares subject to this Warrant
shall be proportionately adjusted.
6. Other Distributions. In the event the Company shall declare a
dividend or distribution payable in cash, securities of other persons, evidences
of indebtedness issued by the
13
<PAGE> 14
Company or other persons, assets or options or rights not referred to in
Sections 3,4 or 5 of this Appendix I, then, in each such case, provision shall
be made by the Company such that the holder of this Warrant shall receive upon
exercise of this Warrant a proportionate share of any such dividend or
distribution as though it were the holder of the Shares (or Common Stock
issuable upon conversion thereof) as of the record date fixed for the
determination of the shareholders of the Company entitled to receive such
dividend or distribution.
7. Notice of Adjustments. Whenever the Exercise Price shall be adjusted
pursuant to the provisions hereof, the Company shall within thirty (30) days of
such adjustment deliver a certificate signed by its chief financial officer to
the registered holder(s) hereof setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price after giving effect to such
adjustment.
14
<PAGE> 15
APPENDIX II
CAPITALIZATION SCHEDULE
15
<PAGE> 16
NEITHER THIS WARRANT FOR THE SHARES OF STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND HAVE BEEN TAKEN FOR
INVESTMENT PURPOSES ONLY. NO SALE, TRANSFER OR OTHER DISPOSITION OF THIS
WARRANT OR SAID SHARES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR
THE HOLDER REASONABLE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER
THE ACT IS NOT REQUIRED.
Number of Shares Issuable Upon Exercise: 34,285
WARRANT TO PURCHASE
SHARES OF SERIES E PREFERRED STOCK
OF
FAIRBANKS SYSTEMS GROUP D/B/A @BACKUP, INC.
Expires: October 12, 2008
THIS CERTIFIES THAT, for value received, DOMINION CAPITAL MANAGEMENT
L.L.C., a Delaware limited liability company, is entitled to subscribe for and
purchase 34,285 shares (as adjusted pursuant to the provisions hereof, the
"Shares") of the Series E Preferred Stock of FAIRBANKS SYSTEMS GROUP d/b/a
@BACKUP, INC., a California corporation (the "Company"), at a price per share of
$1.75 (as adjusted pursuant to the provisions hereof, the "Exercise Price"),
subject to the provisions and upon the terms and conditions hereinafter set
forth. As used herein, the term "Preferred Stock" shall mean the Company's
presently authorized Series E Preferred Stock, and any stock into or for which
such Series E Preferred Stock may hereafter be converted or exchanged, and the
term "Grant Date" shall mean October 12, 1999.
1. Term. This Warrant is exercisable, in whole or in part, at any time
and from time to time from and after the Grant Date and prior to the earlier of
(a) the ninth (9th) anniversary of the Grant Date or (b) the (4th) anniversary
of the consummation of the Company's initial public offering of its Common Stock
pursuant to a registration statement filed under the Securities Act of 1933, as
amended (the "Securities Act"), the aggregate gross proceeds from which exceed
$10,000,000.
2. Method of Exercise; Net Issue Exercise.
2.1 Method of Exercise; Payment; Issuance of New Warrant. This
Warrant may be exercised by the holder hereof, in whole or in part and from time
to time, by either of the following, at the election of the holder hereof: (a)
the surrender of this Warrant (with the Notice
<PAGE> 17
of Exercise form attached hereto as Exhibit A-1 duly executed) at the principal
office of the Company and by the payment to the Company, by cash, check or
cancellation of indebtedness, of an amount equal to the Exercise Price per share
multiplied by the number of Shares then being purchased; or (b) if in connection
with a sale of Shares pursuant to a registered public offering of the Company's
securities, the surrender of this Warrant (with the Notice of Exercise form
attached hereto as Exhibit A-2 duly executed), which surrender may be made
contingent upon the close of such offering, at the principal office of the
Company together with notice of arrangements reasonably satisfactory to the
Company for payment to the Company from the proceeds of the sale of shares to be
sold by the holder in such public offering of an amount equal to the Exercise
Price per share multiplied by the number of Shares then being purchased. The
person or persons in whose name(s) any certificates representing Shares shall be
issuable upon exercise of this Warrant shall be deemed to have become the
holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the Shares represented thereby (and such Shares shall be deemed to
have been issued immediately prior to the close of business on the date or dates
upon which this Warrant is exercised. In the event of any exercise of this
Warrant, certificates for the Shares so purchased shall be delivered to the
holder hereof as soon as possible and in any event within fifteen (15) days of
receipt of such notice (or, following, the Company's initial public offering,
within five (5) days of receipt of such notice) and, unless this Warrant has
been fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible
thereafter.
2.2 Automatic Exercise. To the extent this Warrant is not
previously exercised, and if the fair market value of one share of the Company's
Preferred Stock is greater than the Exercise Price then in effect, this Warrant
shall be deemed automatically exercised pursuant to Section 2.3 below (even if
not surrendered) immediately before its expiration. For purposes of such
automatic exercise, the fair market value of one share of the Company's
Preferred Stock upon such expiration shall be determined pursuant to Section
2.3(b) below. To the extent this Warrant or any portion thereof is deemed
automatically exercised pursuant to this Section 2.2, the Company agrees to
promptly notify the holder hereof of the number of Shares, if any, the holder
hereof is to receive by reason of such automatic exercise.
2.3 Right to Convert Warrant into Stock: Net Issuance.
(a) In addition to and without limiting the rights of
the holder under the terms of this Warrant, the holder may elect to convert this
Warrant or any portion thereof (the "Conversion Right") into shares of Preferred
Stock, the aggregate value of which shares shall be equal to the value of this
Warrant or the portion thereof being converted. The Conversion Right may be
exercised by the holder by surrender of this Warrant at the principal office of
the Company together with notice of the holder's intention to exercise the
Conversion Right, in which event the Company shall issue to the holder a number
of shares of the Company's Preferred Stock computed using the following formula:
2
<PAGE> 18
Y(A-B)
------
X = A
Where: X = The number of shares of Preferred Stock to be issued to the holder.
Y = The number of shares of Preferred Stock purchasable under this
Warrant subject to the exercise election.
A = The fair market value of one share of the Company's Preferred
Stock.
B = Exercise Price (as adjusted to the date of such calculations).
(b) For the purposes of this Section 2.3, the "fair market
value" per share of the Company's Preferred Stock shall mean:
(i) If the Conversion Right is exercised in connection
with and contingent upon the Company's initial public offering, and if the
Company's registration statement relating to such offering has been declared
effective by the Securities and Exchange Commission, then the initial "Price to
Public" specified in the final prospectus with respect to such offering; or
(ii) If the Conversion Right is not exercised in
connection with and contingent upon the Company's initial public offering, then
as follows:
(A) If the Preferred Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange, or is
listed on the Nasdaq National Market (the "National Market System"), the fair
market value shall be the average of the last reported sale prices of the
Preferred Stock on such exchange or on the Nasdaq National Market on the last
ten (10) trading day (or all such trading days such Preferred Stock has been
traded if fewer than 10 trading days) before the effective date of exercise of
the Conversion Right or if no such sale is made on any such day, the mean of the
closing bid and asked prices for such day on such exchange or on the Nasdaq
National Market;
(B) If the Preferred Stock is not so listed or admitted to
unlisted trading privileges, the fair market value shall be the average of the
means of the last bid and asked prices reported on the last ten (10) trading
days (or all such trading days such Preferred Stock has been traded if fewer
than 10 trading days) before the date of the election (1) by the Nasdaq Stock
Market or (2) if reports are unavailable under clause (1) above, by the National
Quotation Bureau Incorporated; and
(C) If the Preferred Stock is not so listed or admitted to
unlisted trading privileges and bid and ask prices are not reported, the fair
market value shall be the price per share which the Company could obtain from a
willing buyer for shares sold by the Company from authorized but unissued
shares, as such price shall be determined by mutual agreement of the Company and
the holder of this Warrant.
3
<PAGE> 19
3. Stock Fully Paid; Reservation of Shares. All Shares that may be
issued upon the exercise of this Warrant, and all Common Stock issuable upon
conversion of the Shares shall, upon issuance, be validly issued, fully paid and
nonassessable, and free from all taxes, liens and charges with respect to the
issue thereof. During the period within which this Warrant may be exercised, the
Company will at all times have duly authorized and reserved, for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Preferred Stock (and Common Stock issuable upon conversion thereof).
4. Adjustments to Exercise Price and Number of Shares. The number and
kind of securities purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as set forth in
Appendix I hereto upon the occurrence of certain events described therein. The
provisions of Appendix I are incorporated by reference herein with the same
effect as if set forth in full herein.
5. Notices of Record Date. In the event of any taking by the Company of
a record of its shareholders for the purpose of determining shareholders who are
entitled to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed merger or consolidation of the Company with or into any other
corporation, or any proposed sale, lease or conveyance of all or substantially
all of the assets of the Company, or any proposed liquidation, dissolution or
winding up of the Company, then, in connection with each such event, the Company
shall mail to the holder of this Warrant at least twenty (20) days prior written
notice of the date on which any such record is to be taken for the purpose of
such dividend, distribution, right(s) or vote of the shareholders. Each such
written notice shall specify the amount and character of any such dividend,
distribution or right(s), and shall set forth, in reasonable detail, the matter
requiring any such vote of the shareholders.
6. Fractional Shares. No fractional shares of Preferred Stock will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor based upon the per share
fair market value of the Preferred Stock on the date of exercise.
7. Compliance with Securities Act; Disposition of Warrant or Shares of
Preferred Stock.
(a) Compliance with Securities Act. The holder of this Warrant,
by acceptance hereof, agrees that this Warrant, the Shares to be issued upon
exercise hereof and the Common Stock to be issued upon conversion of such Shares
are being acquired for investment purposes only and that such holder will not
offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon
exercise hereof (or Common Stock issued upon conversion of such Shares) except
under circumstances which will not result in a violation of the Securities Act.
This Warrant and all Shares issued upon exercise of this Warrant (unless
registered under the Securities Act) shall be stamped or imprinted with a legend
in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED OR UNDER ANY STATE
4
<PAGE> 20
SECURITIES LAWS, AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES ONLY. NO
SALE, TRANSFER OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION OF COUNSEL FOR
THE HOLDER REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED OR (iii) RECEIPT OF A NO-ACTION LETTER FROM THE
SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT REGISTRATION UNDER
THE ACT IS NOT REQUIRED.
(b) Disposition of Warrant and Shares. With respect to any
offer, transfer, sale or other disposition of this Warrant or any Shares
acquired pursuant to the exercise of this Warrant (or Common Stock issued upon
conversion of such Shares) prior to registration thereof, the holder hereof and
each subsequent holder of this Warrant agrees to give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of such holder's counsel reasonably satisfactory to the Company,
if reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Securities Act as then in effect or any federal or state law then in effect)
of this Warrant or such Shares or Common Stock and indicating whether or not
under the Securities Act certificates for this Warrant or such Shares or Common
Stock to be sold or otherwise disposed of require any restrictive legend as to
applicable restrictions on transferability in order to insure compliance with
the Securities Act. Each certificate representing this Warrant or the Shares or
Common Stock thus transferred (except a transfer pursuant to Rule 144) shall
bear a legend as to the applicable restrictions on transferability in order to
insure compliance with the Securities Act unless, in the aforesaid opinion of
counsel for the holder, such legend is not required in order to insure
compliance with the Securities Act. Nothing herein shall restrict the transfer
of this Warrant or any portion hereof by the initial holder hereof to any
partnership affiliated with the initial holder, or to any partner of any such
partnership provided such transfer may be made in compliance with applicable
federal and state securities laws. The Company may issue stop transfer
instructions to its transfer agent in connection with the foregoing
restrictions.
8. Rights as Shareholders; Information.
8.1 Shareholder Rights. Except as set forth herein, no holder of
this Warrant, as such, shall be entitled to vote upon any matter submitted to
shareholders at any meeting thereof, or to receive notice of meetings, or be
deemed the holder of Preferred Stock until this Warrant shall have been
exercised and the Shares purchasable upon such exercise shall have become
deliverable, as provided herein.
8.2 [Intentionally Deleted]
9. Registration Rights. The rights of the holder of this Warrant and the
obligations of the Company with respect to registration under the Securities Act
and the applicable rules and regulations thereunder shall be as set forth in
that certain Amended and Restated Investors' Rights Agreement, dated as of July
30, 1999, among the Company and certain investors in the Company's capital stock
party thereto, as amended by Amendment No. 1 to Amended and
5
<PAGE> 21
Restated Investors' Rights Agreement, dated as of August 23, 1999, as amended by
Amendment No. 2 to Amended and Restated Investor's Rights Agreement, dated as of
September 17, 1999 (the "Rights Agreement").
10. Additional Rights.
10.1 Right of First Refusal. The rights of the holder of this
Warrant and the obligations of the Company with respect to the sale and issuance
by the Company of any shares of, or securities convertible into or exercisable
for any shares of, any class of the Company's capital stock shall be as set
forth in the Rights Agreement.
10.2 Secondary Sales. The Company agrees to assist the holder of
this Warrant in obtaining liquidity if opportunities to make secondary sales of
the Company's securities become available. To this end, the Company will
promptly provide the holder of this Warrant with notice of any offer to acquire
from the Company's security holders more than five percent (5%) of the total
voting power of the Company and will cooperate with the holder in arranging the
sale of this Warrant, on a pro-rata basis, to the person or persons making such
offer.
10.3 Mergers. The Company agrees to provide the holder of this
Warrant with at least twenty (20) days' prior written notice of the terms and
conditions of any proposed transaction, in which the Company would (i) sell,
lease, exchange, convey or otherwise dispose of all or substantially all of its
property or business, or (ii) merge into or consolidate with any other
corporation (other than a wholly-owned subsidiary of the Company), or effect a
transaction (including a merger or other reorganization) or series of related
transactions, in which more than fifty percent (50%) of the voting power of the
Company is disposed of. The Company will cooperate with the holder in arranging
the sale of this Warrant in connection with any such transaction.
11. Representations and Warranties. This Warrant is issued and delivered
on the basis of the following:
(a) This Warrant has been duly authorized, executed and
delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable,
(c) The rights, preferences, privileges and restrictions granted
to or imposed upon the Shares and the holders thereof are as set forth
in the Company's Articles of Incorporation, as amended (the "Charter"),
a true and complete copy of which has been delivered to the original
holder of this Warrant;
(d) The shares of Common Stock issuable upon conversion of the
Shares have been duly authorized and reserved and, when issued in
accordance with the terms of the Company's Charter, will be validly
issued, fully paid and nonassessable;
6
<PAGE> 22
(e) As of the Grant Date, the capitalization of the Company
shall be as set forth in the Capitalization Schedule attached hereto as
Appendix II which indicates the following: (i) the authorized capital
stock of the Company (including the authorized number of shares of
Common Stock and each series of Preferred Stock); (ii) the number of
shares of Common Stock and each series of Preferred Stock issued and
outstanding, (iii) the number of shares of Common Stock reserved for
issuance upon conversion of any Preferred Stock; (iv) the number of
shares for which options have been granted under the Company's Stock
Option Plan; and (v) any other securities that are convertible into or
exchangeable for Common Stock or options to purchase or rights to
subscribe for Common Stock or such convertible or exchangeable
securities, and the number of shares of Common Stock issuable upon any
conversion, exchange or exercise of such securities, options or rights.
All issued and outstanding shares of the Company's Common Stock and
Preferred Stock have been duly authorized and validly issued, and are
fully paid and non-assessable. Except as set forth in Appendix II, there
are no outstanding rights, options, warrants, conversion rights,
preemptive rights, rights of first refusal or similar rights for or
understandings relating to the purchase or acquisition from the Company
of any securities of the Company.
(f) The execution and delivery of this Warrant, the issuance of
the Shares upon exercise of this Warrant in accordance with the terms
hereof and the compliance by the Company with the provisions hereof (i)
are not and will not be inconsistent with the Company's Charter or
Bylaws, (ii) do not and will not contravene any law, governmental rule
or regulation, judgment or order applicable to the Company, and (iii) do
not and will not contravene any provision of, or constitute a default
under, any indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound or require the consent or
approval of, the giving of notice to, the registration with or the
taking of any action in respect of or by, any Federal, state or local
government authority or agency or other person.
12. Amendment of Conversion Rights. During the term of this Warrant, the
Company agrees that it shall not amend its Charter, as amended through the Grant
Date, without delivering prior written notice describing such amendment to the
holder or holders entitled to purchase a majority of the Shares upon exercise of
this Warrant. The Company shall promptly provide the holder of this Warrant with
any restatement, amendment, modification or waiver of the Charter promptly after
the same has been made.
13. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
14. Notices. Any notice, payment request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or sent to each such holder at its address as shown on the books of
the Company or to the Company at the address indicated therefor on the signature
page of this Warrant and shall be deemed received by the holder upon the earlier
of actual receipt or, if sent by certified mail (postage pre-paid), two (2) days
after deposit in the U.S. mail.
7
<PAGE> 23
15. Binding Effect on Successors. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets. All of the obligations of the
Company relating to the Shares, or the Company's Common Stock issuable upon
conversion thereof, shall survive the exercise and termination of this Warrant
All of the covenants and agreements of the Company shall inure to the benefit of
the successors and assigns of the holder hereof. The Company will at the time of
the exercise of this Warrant in whole or in part upon request of the holder
hereof but at the Company's expense, acknowledge in writing its continuing
obligation to the holder hereof in respect of any rights (including, without
limitation, any right to registration of the Shares in accordance with Section
9) to which the holder hereof shall continue to be entitled after such exercise
in accordance with this Warrant provided; that the failure of the holder hereof
to make any such request shall not affect the continuing obligation of the
Company to the holder hereof in respect of such rights.
16. Lost Warrants or Stock Certificates. The Company covenants to the
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate issued upon exercise thereof and, in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory
to the Company, or in the case of any such mutilation upon surrender and
cancellation of such Warrant or stock certificate, the Company shall make and
deliver a new Warrant or stock certificate, or like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant or stock certificate.
17. No Impairment. The Company will not by amendment of its Charter or
through any reorganization, recapitalization, 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 hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of this Warrant against impairment.
18. Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
19. Recovery of Litigation Costs. If any legal action or other
proceeding is brought for the enforcement of this Warrant, or because of an
alleged dispute, breach, default or misrepresentation in connection with any of
the provisions of this Warrant, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
20. Severability. If one or more provisions of this Warrant are held to
be unenforceable under applicable law, such provisions shall be excluded from
this Warrant and the balance of this Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
8
<PAGE> 24
20. Governing Law. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF CALIFORNIA.
Date: October 12, 1999 FAIRBANKS SYSTEMS GROUP d/b/a
@BACKUP, INC.
a California Corporation
By: /s/ Gary Sutton
------------------------------------
Name: Gary Sutton
Title: Chief Executive Officer
Address: 3550 General Atomics Court
San Diego, CA 92121-1194
9
<PAGE> 25
EXHIBIT A-1
NOTICE OF EXERCISE
To: FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, INC.
(Company Name)
1. The undersigned hereby:
[ ] elects to purchase shares of Series E Preferred Stock of the
Company pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in
full; or
[ ] elects to exercise its net issuance rights pursuant to Section
2.3 of the attached Warrant with respect to shares of Series E
Preferred Stock.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below:
-------------------------------------
(Name)
-------------------------------------
(Address)
-------------------------------------
(Address)
3. The undersigned represents that the aforesaid shares being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares.
- ---------------
(Date)
------------------------------------
(Signature)
10
<PAGE> 26
EXHIBIT A-2
NOTICE OF EXERCISE
To: FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, INC.
(COMPANY NAME)
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S-______, filed on _______________, 19___, the undersigned
hereby:
[ ] elects to purchase _______ shares of Series E Preferred Stock of
the Company (or such lesser number of shares as may be sold on
behalf of the undersigned at the Closing) pursuant to the terms
of the attached Warrant; or
[ ] elects to exercise its net issuance rights pursuant to Section 23
of the attached Warrant respect to _______ shares of Series E
Preferred Stock.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such _________________ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $_____________, or, if less, the net
proceeds due the undersigned from the sale of shares in the aforesaid public
offering. If such net proceeds are less than the purchase price for such shares,
the undersigned agrees to deliver the difference to the Company prior to the
Closing.
- ----------------
(Date)
------------------------------------
(Signature)
11
<PAGE> 27
APPENDIX I
ADJUSTMENT PROVISIONS
1. Capitalized Terms. Capitalized used in this Appendix I that are not
otherwise defined herein shall have the respective meanings assigned to them in
the Warrant, dated as of October 12, 1999, to which this Appendix I is attached,
if therein defined.
2. (Intentionally Deleted).
3. Reclassification or Merger. In case of any reclassification, change
or conversion of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), or in
case of any merger of the Company with or into another corporation or entity
(other than a merger with another corporation in which the Company is a
continuing corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or in
case of any sale of all or substantially all of the assets of the Company, the
Company, or such successor or purchasing corporation or entity, as the case may
be, shall execute a new Warrant (in form and substance satisfactory to the
holder of this Warrant) providing that the holder of this Warrant shall have the
right to exercise such new Warrant and upon such exercise to receive, in lieu of
each share of Preferred Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such reclassification, change or merger by a holder of
one share of Preferred Stock. Such new Warrant shall provide for adjustments
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Appendix I. The provisions of this Section 3 shall
similarly apply to successive reclassifications, changes, mergers and transfers.
4. Subdivision or Combination of Shares. If the Company at any time
while this Warrant is outstanding and unexpired shall subdivide or combine its
Preferred Stock, the Exercise Price and the number of Shares issuable upon
exercise hereof shall be proportionately adjusted.
5. Stock Dividends. If the Company at any time while this Warrant is
outstanding and unexpired shall pay a dividend payable in shares of Preferred
Stock, then the Exercise Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Exercise Price in effect immediately
prior to such determination by a fraction (a) the numerator of which shall be
the total number of shares of Preferred Stock outstanding immediately prior to
such dividend or distribution, and (b) the denominator of which shall be the
total number of shares of Preferred Stock outstanding immediately after such
dividend or distribution and the number of Shares subject to this Warrant shall
be proportionately adjusted.
6. Other Distribution. In the event the Company shall declare a dividend
or distribution payable in cash, securities of other persons, evidences of
indebtedness issued by the Company or other persons assets or options or rights
not referred to in Sections 3, 4 or 5 of this Appendix I, then, in each such
case, provision shall be made by the Company such that the
12
<PAGE> 28
holder of this Warrant shall receive upon exercise of this Warrant a
proportionate share of any such dividend or distribution as though it were the
holder of the Shares (or Common Stock issuable upon conversion thereof) as of
the record date fixed for the determination of the shareholders of the Company
entitled to receive such dividend or distribution.
7. Notice of Adjustments. Whenever the Exercise Price shall be adjusted
pursuant to the provisions hereof, the Company shall within thirty (30) days of
such adjustment deliver a certificate signed by its chief financial officer to
the registered holder(s) hereof setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price after giving effect to such
adjustment.
13
<PAGE> 29
APPENDIX II
CAPITALIZATION SCHEDULE
14
<PAGE> 1
EXHIBIT 10.2
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE SECURITIES LAWS, AND HAVE BEEN TAKEN FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY
DISTRIBUTION THEREOF. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO AN EXEMPTION TO
SUCH ACT.
PS-_______ Void after
June 30, 2004
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
of
FAIRBANKS SYSTEMS GROUP, d/b/a @BACKUP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
THIS CERTIFIES THAT, for value received, _____________________________,
together with its successors and assigns (the "Holder"), is entitled to
subscribe for and purchase shares of Common Stock issued by Fairbanks Systems
Group, a California corporation doing business as @Backup, Inc. (the "Company"),
subject to the following terms and conditions:
1. Convertible Promissory Note and Warrant Purchase Agreement. This
Warrant to Purchase Shares of Common Stock (the "Warrant") is one of a series of
warrants issued pursuant to that certain Convertible Promissory Note and Warrant
Purchase Agreement dated June ___, 1999 (the "Purchase Agreement") by and among
the Company, the Holder and the other holders of warrants and convertible
promissory notes listed on Exhibit A to the Purchase Agreement. Pursuant to the
Purchase Agreement, the Company also issued the Holder that certain Convertible
Promissory Note dated June ___, 1999 (the "Note").
<PAGE> 2
2. Exercise of Warrant. The terms and conditions upon which this Warrant
may be exercised, and the Common Stock covered hereby may be purchased, are as
follows:
2.1 Term. Subject to the terms hereof, this Warrant may be
exercised (the "Exercise Date"), in whole or in part, at any time after the date
hereof and in no event later than the earlier of (a) the close of business on
June 30, 2004, (b)(i) the closing of the acquisition of the Company by another
entity by means of a transaction or series of related transactions or (ii) the
closing of the sale of all or substantially all of the assets of the Company,
unless the Company's shareholders of record prior to such acquisition or sale
shall hold at least fifty percent (50%) of the voting power of the acquiring or
surviving entity immediately after such acquisition or sale, or (c) the initial
underwritten public offering of the Company's common stock (the "Common Stock")
(the "Exercise Period"). At least ten (10) days prior to the occurrence of an
event specified in (b) or (c) of this Section 2.1, the Company shall send to the
Holder notice of such event and that the Holder's rights under this Warrant
shall terminate upon the occurrence of such event; provided, that if the Company
sends such notice less than ten (10) days prior to the occurrence of such event,
the Holder's right to exercise this Warrant shall be extended for a period of
ten (10) days after the date of the notice, after which time the Holder's rights
under this Warrant shall terminate.
2.2 Number of Shares. This Warrant may be exercised for that
number of shares of Common Stock equal to the following:
X = A x 15%
-------
B
Where: X = the shares of Common Stock to be delivered to the Holder.
A = the principal amount of the loan the Holder advances to
the Company pursuant to the Purchase Agreement.
B = the Purchase Price (as defined below) for the Common Stock.
2.3 Purchase Price. The per share purchase price of the Common
Stock to be issued upon exercise of this Warrant shall be $0.15. The Purchase
Price and the number of shares of Common Stock for which the Warrant is
exercisable shall be subject to adjustment as provided herein.
2.4 Method of Exercise. The exercise of the purchase rights
evidenced by this Warrant shall be effected by (a) the surrender of the Warrant,
together with a duly executed copy of the form of a subscription attached
hereto, to the Company at its principal offices and (b) the delivery of the
Purchase Price by check or bank draft payable to the Company or by wire transfer
to the Company's account for the number of shares for which the purchase rights
hereunder are being exercised or any other form of consideration approved by the
Company's Board of Directors. Each exercise of this Warrant shall be deemed to
have been effected immediately prior to the close of business on the day on
which this Warrant shall have been surrendered to the Company as provided herein
or at such later date as may be specified in the executed form of subscription,
and at such time the person or persons in whose name or names any certificate or
2
<PAGE> 3
certificates for shares of the Common Stock shall be issuable upon such exercise
as provided herein shall be deemed to have become the holder or holders of
record thereof.
3. Net Issuance.
3.1 Right to Convert. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, if the fair market value
of a share of Common Stock is greater than the Warrant Price, in lieu of
exercising this Warrant for cash the Holder shall have the right to convert this
Warrant or any portion thereof (the "Conversion Right") into shares of Common
Stock equal to the value of this Warrant or the portion thereof being canceled
as provided in this Section 2 at any time or from time to time during the
Exercise Period. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to the Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the Holder (without payment by the Holder
of any exercise price or any cash or other consideration) that number of shares
of fully paid and nonassessable Common Stock computed using the following
formula:
X = Y (A - B)
---------
A
Where X = the number of shares of Common Stock to be delivered to the
holder
Y = the number of Converted Warrant Shares
A = the fair market value of one share of the Company's Common
Stock on the Conversion Date (as defined below)
B = the per share Purchase Price of the Warrant (as adjusted to
the Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Holder an amount in cash equal to the fair
market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
3.2 Method of Exercise. The Conversion Right may be exercised by
the Holder by the surrender of the Warrant at the principal office of the
Company together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right and indicating the total number of
shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Company of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to
3
<PAGE> 4
the Warrant, shall be issued as of the Conversion Date and shall be delivered to
the Holder promptly following the Conversion Date.
3.3 Determination of Fair Market Value. For purposes of this
Section 2, fair market value of a share of Common Stock on the Conversion Date
shall mean:
(i) If traded on a stock exchange, the fair market
value of the Common Stock shall be deemed to be
the average of the closing selling prices of the
Common Stock on the stock exchange determined by
the Board to be the primary market for the
Common Stock over the ten (10) trading day
period (or such shorter period immediately
following the closing of an initial public
offering) ending on the date prior to the
Conversion Date, as such prices are officially
quoted in the composite tape of transactions on
such exchange;
(ii) If traded over-the-counter, the fair market
value of the Common Stock shall be deemed to be
the average of the closing bid prices (or, if
such information is available, the closing
selling prices) of the Common Stock over the ten
(10) trading day period (or such shorter period
immediately following the closing of an initial
public offering) ending on the date prior to the
Conversion Date, as such prices are reported by
the National Association of Securities Dealers
through its NASDAQ system, any successor system
or any exchange on which it is listed, whichever
is applicable; or
(iii) If there is no public market for the Common
Stock, then the fair market value shall be
determined by mutual agreement of the holder of
the Warrant and the Company, and if the holder
and the Company are unable to so agree, by an
investment banker of national reputation
selected by the Company and reasonably
acceptable to the holder of the Warrant.
4. Limit on Rights of the Holder upon Exercise. The Holder acknowledges
and agrees that upon the exercise of this Warrant in full or in part, the
following provisions shall apply to the rights of the Holder as a holder of
Common Stock.
4.1 Market Stand-Off Agreement. During the period of duration
(not to exceed 180 days) specified by the Company and an underwriter of Common
Stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Act, the Holder shall not,
to the extent requested by the Company and such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale), grant any option to purchase or otherwise transfer or dispose
of (other than to transferees or donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that (a) this
Section 4.1 shall be applicable only to the first such registration statement of
the Company pursuant to which Common Stock (or other securities) of the
4
<PAGE> 5
Company are to be sold on its behalf to the public in an underwritten offering,
and (b) all officers and directors of the Company and all other persons with
registration rights holding at least one percent of the Company's capital stock
(on a fully diluted basis) enter into similar agreements. In order to enforce
the foregoing covenant, the Company may impose stop-transfer instructions with
respect to the Common Stock of the Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such period.
5. Adjustments to Conversion Price. The number of shares of Common Stock
(or any shares of stock or other securities which may be) issuable upon the
exercise of this Warrant and the Purchase Price hereunder shall be subject to
adjustment from time to time upon the happening of certain events, as follows:
5.1 Dividends, Distributions, Stock Splits or Combinations. If
the Company shall at any time or from time to time after the date hereof make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of common or preferred stock (as the case may be), then and in each such
event the Purchase Price hereunder then in effect shall be decreased as of the
time of such issuance or, in the event such a record date shall have been fixed,
as of the close of business on such record date, by multiplying the Purchase
Price hereunder then in effect by a fraction: (a) the numerator of which shall
be the total number of shares of Common Stock (assuming the conversion of all
outstanding securities of the Company that are convertible into Common Stock and
the exercise of all options to purchase Common Stock or securities that are
convertible into Common Stock) issued and outstanding immediately prior to the
time of issuance or the close of business on such record date; and (b) the
denominator of which shall be the total number of shares of Common Stock
(assuming the conversion of all outstanding securities of the Company that are
convertible into Common Stock and the exercise of all options to purchase Common
Stock or securities that are convertible into Common Stock) issued and
outstanding immediately after the time of issuance or the close of business on
such record date. If the Company shall at any time subdivide the outstanding
shares of Common Stock, or if the Company shall at any time combine the
outstanding shares of Common Stock, then the exercise price hereunder
immediately shall be decreased proportionally (in the case of a subdivision) or
increased proportionally (in the case of a combination). Any such adjustment
shall become effective at the close of business on the date the subdivision or
combination becomes effective.
5.2 Reclassification or Reorganization. If the Common Stock (or
any shares of stock or other securities which may be) issuable upon the exercise
of this Warrant shall be changed into the same or different number of shares of
any class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for in Section 5.1 above, or a reorganization,
merger, consolidation or sale of assets provided for in Section 5.3 below), then
and in each such event the Holder shall be entitled to receive upon the exercise
of this Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change,
to which a holder of the number of shares of Common Stock (or any shares of
stock or other securities which may be) issuable upon the exercise of this
Warrant would have received if this Warrant had been exercised immediately prior
to such reorganization, reclassification or other change, all subject to further
adjustment as provided herein.
5
<PAGE> 6
5.3 Merger, Consolidation or Sale of Assets. If at any time or
from time to time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 5) or a merger or consolidation of the
Company with or into another corporation, or the sale of all or substantially
all of the Company's assets and properties to any other person or entity, then
as a part of such reorganization, merger, consolidation or sale, provision shall
be made so that the Holder shall thereafter be entitled to receive upon the
exercise of this Warrant, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from such
reorganization, merger, consolidation or sale, to which a holder of the number
of shares of Common Stock (or any shares of stock or other securities which may
be) issuable upon the exercise of this Warrant would have received if this
Warrant had been exercised immediately prior to such reorganization, merger,
consolidation or sale.
5.4 Notice of Adjustments and Record Dates. The Company shall
promptly notify the Holder in writing of each adjustment or readjustment of the
exercise price hereunder and the number of shares of Common Stock (or any shares
of stock or other securities which may be) issuable upon the exercise of this
Warrant. Such notice shall state the adjustment or readjustment and show in
reasonable detail the facts on which that adjustment or readjustment is based.
In the event of any taking by the Company of a record of the holders of Common
Stock for the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution, the Company shall notify the Holder
in writing of such record date at least twenty (20) days prior to the date
specified therein.
5.5 No Impairment. The Company shall not avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in the
carrying out of all the provisions of this Warrant. Without limiting the
generality of the foregoing, the Company (a) shall at all times reserve and keep
available a number of its authorized shares of Common Stock, free from all
preemptive rights therein, which shall be sufficient to permit the exercise of
this Warrant and (b) shall take all such action as may be necessary or
appropriate in order that all shares of Common Stock as may be issued pursuant
to the exercise of this Warrant shall, upon issuance, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
6. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense shall execute and deliver to the Holder, in lieu thereof, a new Warrant
of like tenor.
7. Investment Intent. Unless a current registration statement under the
Securities Act of 1933, as amended, shall be in effect with respect to the
securities to be issued upon exercise of this Warrant, the Holder, by accepting
this Warrant, covenants and agrees that, at the time of exercise hereof, and at
the time of any proposed transfer of any securities acquired upon exercise
hereof, the Holder shall deliver to the Company a written statement that the
securities acquired by the Holder upon exercise hereof are for the own account
of the Holder for
6
<PAGE> 7
investment and are not acquired with a view to, or for sale in connection with,
any distribution thereof (or any portion thereof) and with no present intention
(at any such time) of offering or distributing such securities (or any portion
thereof).
8. No Rights or Liability as a Shareholder. This Warrant does not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Company. No provisions hereof, in the absence of affirmative action by
the Holder to purchase Common Stock, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder as a
shareholder of the Company.
9. Miscellaneous.
9.1 Transfer of Warrant. This Warrant shall not be transferable
or assignable in any manner and no interest shall be pledged or otherwise
encumbered by Holder without the express written consent of the Company, and any
such attempted disposition of this Warrant or any portion hereof shall be of no
force or effect.
9.2 Titles and Subtitles. The titles and subtitles used in this
Warrant are for convenience only and are not to be considered in construing or
interpreting this Warrant.
9.3 Notices. Any notice required or permitted under this Warrant
shall be given in writing and in accordance with Section 6.3 of the Purchase
Agreement (for purposes of which, the term "Investor" shall mean Holder
hereunder), except as otherwise expressly provided in this Warrant.
9.4 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Warrant, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and disbursements
in addition to any other relief to which such party may be entitled.
9.5 Amendments and Waivers. Any term of this Warrant may be
amended and the observance of any term of this Warrant may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of
Warrants representing together the right to purchase at least fifty-one percent
(51%) of all of the Common Stock of the Company subject to purchase pursuant to
all of the Warrants and in accordance with the Purchase Agreement. Any amendment
or waiver effected in accordance with this Section 8.5 shall be binding upon the
Holder of this Warrant (and of any securities into which this Warrant is
convertible), each future holder of all such securities, and the Company.
9.6 Severability. If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7
<PAGE> 8
9.7 Governing Law. This Warrant shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without giving effect to its conflicts of laws principles.
9.8 Counterparts. This Warrant may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Date: June ___, 1999 FAIRBANKS SYSTEMS GROUP, a California
corporation doing business as @Backup, Inc.
By:
------------------------------------
Gary Sutton, Chief Executive Officer
ACKNOWLEDGED AND AGREED:
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
[SIGNATURE PAGE TO COMMON STOCK WARRANT]
8
<PAGE> 9
SCHEDULE a
<TABLE>
<CAPTION>
WARRANT
INVESTOR NAME SHARES
---------------------------------------- ---------
<S> <C>
Enterprise Partners III, L.P. 434,447
Enterprise Partners III Associates, L.P. 37,778
Alta California Partners, L. P. 343,213
Alta Embarcadero Partners, L.L.C. 9,617
Security Pacific Finance, Ltd. 70,566
Morgan Investment Holdings, Ltd. 47,044
Windward Ventures, L.P. 57,335
Gary Sutton 42,193
Total: 1,042,193
=========
</TABLE>
Schedule A
<PAGE> 10
SCHEDULE 2
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
To: FAIRBANKS SYSTEMS GROUP, d/b/a @BACKUP, INC.
The undersigned, the holder of the Warrant attached hereto, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, ___________* shares of Common Stock of
FAIRBANKS SYSTEMS GROUP, d/b/a @BACKUP, INC., and herewith makes payment of
$___________ therefore, and requests that the certificates for such shares be
issued in the name of, and delivered to __________________ whose address is
________________________________________.
-----------------------------------------------
(Signature must conform in all respects to name
of the Holder as specified on the face of the
Warrant)
-----------------------------------------------
(Print Name)
-----------------------------------------------
(Address)
Dated:
---------------------
- ----------------
*Insert here the number of shares as to which the Warrant is being exercised.
Schedule 2
<PAGE> 1
EXHIBIT 10.7
FAIRBANKS SYSTEMS GROUP
d/b/a/
@BACKUP, INC
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
July 30, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Registration Rights................................................................. 1
1.1 Definitions.................................................................. 1
1.2 Request for Registration..................................................... 2
1.3 Company Registration......................................................... 4
1.4 Obligations of the Company................................................... 4
1.5 Furnish Information.......................................................... 5
1.6 Expenses of Demand Registration.............................................. 5
1.7 Expenses of Company Registration............................................. 6
1.8 Underwriting Requirements.................................................... 6
1.9 Delay of Registration........................................................ 6
1.10 Indemnification.............................................................. 6
1.11 Reports Under Securities Exchange Act of 1934................................ 9
1.12 Form S-3 Registration........................................................ 9
1.13 Assignment of Registration Rights............................................ 10
1.14 Limitations on Subsequent Registration Rights................................ 11
1.15 "Market Stand-Off" Agreement................................................. 11
1.16 Termination of Registration Rights........................................... 11
2. Covenants of the Company............................................................ 12
2.1 Delivery of Financial Statements............................................. 12
2.2 Inspection................................................................... 12
2.3 Termination of Covenants..................................................... 13
2.4 Right of First Offer......................................................... 13
2.5 Indemnification.............................................................. 14
2.6 Board Expenses............................................................... 14
2.7 Management and Employee Stock................................................ 14
2.8 Payment of Dividends......................................................... 15
3. Miscellaneous....................................................................... 15
3.1 Successors and Assigns....................................................... 15
3.2 Governing Law................................................................ 15
3.3 Counterparts................................................................. 15
3.4 Titles and Subtitles......................................................... 15
3.5 Notices...................................................................... 15
3.6 Expenses..................................................................... 16
3.7 Amendments and Waivers....................................................... 16
3.8 Severability................................................................. 16
3.9 Aggregation of Stock......................................................... 16
3.10 Entire Agreement; Amendment; Waiver.......................................... 16
3.11 Representation............................................................... 16
Schedule A - Schedule of Investors
</TABLE>
(i)
<PAGE> 3
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (the "Agreement")
is made this 30th day of June 1999 by and between Fairbanks Systems Group, a
California corporation doing business as @Backup, Inc. (the "Company"), and the
investors listed on Schedule A hereto (each of whom is herein referred to
individually as an "Investor" and all of whom are herein referred to
collectively as the "Investors").
RECITALS
WHEREAS, certain of the Investors hold shares of the Company's Series A,
Series B, Series C and Series D Preferred Stock, and possess information rights,
rights of first offer and other rights pursuant to that certain Amended and
Restated Investors' Rights Agreement, dated March 12, 1998, as amended by
Amendment No. 1 to the Amended and Restated Investors' Rights Agreement, dated
January 28, 1999, between the Company and such Investors (the "Prior
Agreement");
WHEREAS, those undersigned Investors who hold Series A, Series B, Series
C and Series D Preferred Stock desire to terminate the Prior Agreement and to
accept the rights created pursuant hereto in lieu of the rights granted to them
under the Prior Agreement;
WHEREAS, certain Investors and the Company are parties to the Series E
Preferred Stock Purchase Agreement of even date herewith (the "Series E Purchase
Agreement") providing for the sale and issuance of Series E Preferred Stock (the
"Series E Preferred Stock") to such Investors; and
WHEREAS, in order to induce the Company to enter into the Series E
Purchase Agreement and to induce certain of the Investors to purchase the Series
E Preferred Stock pursuant to the Series E Purchase Agreement, the Investors and
the Company hereby agree that this Agreement shall govern the rights of the
Investors as to the matters set forth herein and the Investors who are parties
to the Prior Agreement hereby agree that the Prior Agreement shall be superseded
and replaced in its entirety by this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "1934 Act" means the Securities Exchange
Act of 1934, as amended.
<PAGE> 4
(c) The term "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(d) The term "Registrable Securities" means (i) the
Common Stock issuable or issued upon conversion of the Series A, Series B,
Series C, Series D and Series E Preferred Stock and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, such Series A, Series
B, Series C, Series D or Series E Preferred Stock (or Common Stock issued upon
conversion thereof) excluding in all cases, however, any Registrable Securities
sold by a person in a transaction in which his, her or its rights under this
Section 1 are not assigned.
(e) The number of shares of "Registrable Securities then
outstanding" means the number of shares of Common Stock outstanding which are,
and the number of shares of Common Stock issuable pursuant to then exercisable
or convertible securities which are, Registrable Securities.
(f) The term "Holder" means any person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 1.13 hereof.
(g) The term "Form S-3" means such form under the Act as
in effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the
earlier of (i) June 30, 2004 or (ii) six (6) months after the effective date of
the first registration statement for a public offering of securities of the
Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction), a written request from
the Holders of a majority of the Registrable Securities then outstanding that
the Company file a registration statement under the Act covering the
registration of at least twenty percent (20%) of the Registrable Securities then
outstanding (or a lesser percent if the anticipated aggregate offering price,
net of underwriting discounts and commissions, would exceed $5,000,000), then
the Company shall, within ten (10) days of the receipt thereof, give written
notice of such request to all Holders and shall, subject to the limitations of
subsection 1.2(b), effect as soon as practicable, and in any event shall use its
best efforts to effect within sixty (60) days of the receipt of such request,
the registration under the Act of all Registrable Securities which the Holders
request to be registered within twenty (20) days of the mailing of such notice
by the Company in accordance with Section 3.5.
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<PAGE> 5
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as part of their request made pursuant to this Section 1.2 and the
Company shall include such information in the written notice referred to in
Section 1.2(a). The underwriter will be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
approved for such underwriting by a majority in interest of the Initiating
Holders. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder; provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting.
(c) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
1.2 a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company and its shareholders for the registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request of the Initiating Holders; provided, however, the Company shall
not obtain such deferral more than once in any 12-month period.
(d) In addition, the Company shall not be obligated to
effect, or to take any action to effect, any registration pursuant to this
Section 1.2:
(i) After the Company has effected two
registrations pursuant to this Section 1.2 and such registrations have been
declared or ordered effective;
(ii) During the period starting with the date
sixty (60) days prior to the Company's good faith estimate of the date of filing
of, and ending on a date one hundred eighty (180) days after the effective date
of, a registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
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<PAGE> 6
(iii) If the Initiating Holders propose to
dispose of shares of Registrable Securities that may be immediately registered
on Form S-3 pursuant to a request made pursuant to Section 1.12 below.
1.3 Company Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating to
employee benefit plans on Form S-8 or similar forms which may be promulgated in
the future or a registration on Form S-4 or similar forms which may be
promulgated in the future relating solely to a Securities and Exchange
Commission Rule 145 transaction or similar transaction, or a registration form
that does not permit secondary sales), the Company shall, at such time, promptly
give each Holder written notice of such registration. Upon the written request
of each Holder given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 3.5, the Company shall, subject to the
provisions of Section 1.8, cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
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<PAGE> 7
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations
of the Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself and the Registrable Securities
held by it, and the intended method of disposition of such securities as shall
be required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to
any registration requested pursuant to Section 1.2 or Section 1.12 if, due to
the operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 1.2(a) or Section
1.12(b)(2), whichever is applicable.
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities agree to forfeit
their right to one demand registration pursuant to Section 1.2; provided
further, however, that if at the time of such withdrawal, the Holders have
learned of a material adverse change in the condition, business or prospects of
the Company from that known to the Holders at the time of their request and have
withdrawn the request with reasonable promptness following disclosure by the
Company of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section
1.2.
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<PAGE> 8
1.7 Expenses of Company Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder, including (without limitation) all
registration, filing and qualification fees, printers', legal and accounting
fees relating or apportionable thereto and the reasonable fees and disbursements
of one counsel for the selling Holders but excluding underwriting discounts and
commissions relating to the Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by Holders to be
included in such offering exceeds the amount of securities that the underwriters
determine in their sole discretion is compatible with the success of the
offering, then the Company shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (the securities so included to be apportioned among the selling
Holders in proportion (as nearly as practicable) to the amount of Registrable
Securities of the Company owned by each Holder), but in no event shall (i) the
amount of securities of the selling Holders included in the offering be reduced
below twenty-five percent (25%) of the total amount of securities included in
such offering, unless such offering is the initial public offering of the
Company's securities or (ii) notwithstanding (i) above, any shares being sold by
a shareholder exercising a demand registration right similar to that granted in
Section 1.2 be excluded from such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder which is a
Holder and which is a partnership or corporation, the partners, retired partners
and shareholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling shareholder," and any
pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder," as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, each of its officers, directors and
partners, and any underwriter (as defined in the Act) for such Holder and each
person, if any, who controls such Holder or underwriter
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<PAGE> 9
within the meaning of the Act or the 1934 Act, against any losses, claims,
damages or liabilities (joint or several) to which they may become subject under
the Act, or the 1934 Act, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act the 1934 Act,
or any rule or regulation promulgated under the Act, or the 1934 Act; and the
Company will pay to each such Holder, each of its officers, directors and
partners, each underwriter or each controlling person any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 1.10(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder (including its
officers, directors and partners), underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act or the 1934 Act, any
underwriter, any other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other Holder against any
losses, claims, damages or liabilities (joint or several) to which any of the
foregoing persons may become subject under the Act or the 1934 Act insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will pay any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this Section 1.10(b), in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 1.10(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld); provided further, that in no event shall any
indemnity under this Section 1.10(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement
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<PAGE> 10
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the reasonable fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action, if prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.10, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.10. No indemnifying party,
in the defense of any such claim or litigation, shall, except with the consent
of each indemnified party, consent to entry of any judgment or entry into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party a release from all liability
in respect to such claim or litigation.
(d) If the indemnification provided for in this Section
1.10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. In no event shall any contribution by any Holder under
this Section 1.10(d) exceed the gross proceeds from the offering received by
such Holder.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under
this Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
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<PAGE> 11
1.11 Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary
registration of its Common Stock under Section 12 of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive
from the Holders of at least twenty percent (20%) of the Registrable Securities
then outstanding a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holders,
the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder joining in
such request as are specified in a written request given within fifteen (15)
days after receipt of such written notice from the Company; provided, however,
that the Company shall not
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<PAGE> 12
be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 1.12: (i) if Form S-3 is not available for such
offering by the Holders; (ii) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $250,000; (iii) if the Company shall furnish to the
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than sixty (60) days after receipt of the request of the
Holder under this Section 1.12; provided, however, that the Company shall not
utilize this right more than once in any twelve (12)-month period; (iv) if the
Company has, within the twelve (12)-month period preceding the date of such
request, already effected two (2) registrations on Form S-3 for the Holders
pursuant to this Section 1.12; or (v) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of one counsel for the selling Holders and
counsel for the Company, shall be borne by the Company for up to the first four
(4) Form S-3 Registrations, and thereafter, the expenses of such S-3
Registrations shall be borne pro rata by the participating Holders.
Registrations effected pursuant to this Section 1.12 shall not be counted as
demands for registration or registrations effected pursuant to Sections 1.2 or
1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 20,000 shares of Registrable Securities or the right to acquire at least
20,000 shares of Registrable Securities (subject to appropriate adjustment for
stock splits, stock dividends, combinations and other recapitalizations),
provided: (a) the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; (b) such transferee or assignee agrees in writing to be bound by
and subject to the terms and conditions of this Agreement, including without
limitation the provisions of Section 1.15 below; and (c) that such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted under
the Act. For the purposes of determining the number of shares of Registrable
Securities held by a transferee or assignee, the holdings of transferees and
assignees of a partnership who are partners or retired partners of such
partnership (including spouses and ancestors, lineal descendants and siblings of
such partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the
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<PAGE> 13
partnership; provided that all assignees and transferees who would not qualify
individually for assignment of registration rights shall have a single
attorney-in-fact for the purpose of exercising any rights, receiving notices or
taking any action under this Section 1."
1.14 Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the outstanding Registrable
Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2, 1.3 or 1.12 hereof, unless under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration only
to the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (b) to make a
demand registration which could result in such registration statement being
declared effective prior to the earlier of either of the dates set forth in
subsection 1.2(a) or within one hundred twenty (120) days of the effective date
of any registration effected pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Holder hereby agrees
that, during the period of duration specified by the Company and an underwriter
of Common Stock or other securities of the Company, following the effective date
of a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that:
(a) such agreement shall not exceed 180 days for the
first such registration statement of the Company which covers Common Stock (or
other securities) to be sold on its behalf to the public in an underwritten
offering;
(b) such agreement shall not exceed ninety (90) days for
any subsequent registration statement of the Company which covers Common Stock
(or other securities) to be sold on its behalf to the public in an underwritten
offering; and
(c) all officers and directors of the Company and all
shareholders of the Company holding over one percent (1%) of the Company's
Common Stock then outstanding enter into similar agreements.
In order to enforce the foregoing covenant, the Company
may impose stop-transfer instructions with respect to the Registrable Securities
of each Holder (and the shares or securities of every other person subject to
the foregoing restriction) until the end of such period.
1.16 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after the earlier
of (i) five (5) years following the
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<PAGE> 14
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act at an equivalent price per share of at least
$5.00 and with gross proceeds to the Company (net of underwriting discounts and
commissions) of not less than $15,000,000 or (ii) such time as the Holder can
sell all of such stock under Rule 144(k) (or successor rule) promulgated by the
SEC.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver
to each Investor who holds a minimum of 20,000 shares of Series A Preferred
Stock, 500,000 shares of Series B Preferred Stock, 500,000 shares of Series C
Preferred Stock, 20,000 shares of Series D Preferred Stock, or the right to
acquire 20,000 shares of Series D Preferred Stock or 20,000 shares of Series E
Preferred Stock (subject to appropriate adjustment for stock splits, stock
dividends, combinations and other recapitalizations):
(a) as soon as practicable, but in any event within
ninety (90) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company and statement of
shareholder's equity as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial reports
to be in reasonable detail, prepared in accordance with generally accepted
accounting principles, and if requested by the holders of a majority of the
shares of Series B, Series C, Series D and Series E Preferred Stock, audited and
certified by independent public accountants of nationally recognized standing
selected by the Company;
(b) as soon as practicable, but in any event within
forty-five (45) days after the end of each of the first three (3) quarters of
each fiscal year of the Company, an unaudited profit or loss statement, a
schedule showing the sources and application of funds for such fiscal quarter
and an unaudited balance sheet as of the end of such fiscal quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement, schedule showing the sources and application of
funds and a balance sheet for and as of the end of such month, in reasonable
detail; and
(d) as soon as practicable, but in any event sixty (60)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company.
2.2 Inspection. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 2.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
- 12 -
<PAGE> 15
2.3 Termination of Covenants. Subject to their earlier
termination pursuant to the specific terms of each Section, the covenants set
forth in this Section 2 shall terminate as to Investors and be of no further
force or effect when the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the firm commitment
underwritten offering of its securities to the general public is consummated or
when the Company first becomes subject to the periodic reporting requirements of
Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.4, an Investor includes
any general partners and affiliates of an Investor. An Investor shall be
entitled to apportion the right of first offer hereby granted it among itself
and its partners and affiliates in such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of,
or securities convertible into or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investor stating (i) its bona fide intention to offer such
Shares, (ii) the number of such Shares to be offered and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) Within twenty (20) calendar days after receipt of
the Notice, the Investor may elect to purchase or obtain, at the price and on
the terms specified in the Notice, up to that portion of such Shares which
equals the proportion that the number of shares of Common Stock issued and held
(assuming full conversion and exercise of all convertible and/or exercisable
securities) by such Investor bears to the total number of shares of Common Stock
of the Company then outstanding (assuming full conversion and exercise of all
convertible and/or exercisable securities). The Company shall promptly, in
writing, inform each Investor that purchases all the shares available to it
("Fully-Exercising Investor") of any other Investor's failure to do likewise.
During the ten-day period commencing after receipt of such information, each
Fully-Exercising Investor shall be entitled to obtain that portion of the Shares
for which Investors were entitled to subscribe but which were not subscribed for
by the Investors which is equal to the proportion that the number of shares of
Common Stock then held (assuming full conversion and exercise of all convertible
and/or exercisable securities) by such Fully-Exercising Investor bears to the
total number of shares of Common Stock then held (assuming full conversion and
exercise of all convertible and/or exercisable securities) by all
Fully-Exercising Investors who wish to purchase some of the unsubscribed
shares."
(c) If all Shares which Investors are entitled to obtain
pursuant to Section 2.4(b) are not elected to be obtained as provided in Section
2.4(b) hereof, the Company may, during the 60-day period following the
expiration of the period provided in Section 2.4(b) hereof, offer the remaining
unsubscribed portion of such Shares to any person or persons at a price not
- 13 -
<PAGE> 16
less than, and upon terms no more favorable than, those specified in the Notice.
If the Company does not enter into an agreement for the sale of the Shares
within such period, or if such agreement is not consummated within 30 days of
the execution thereof, the right provided hereunder shall be deemed to be
revived and such Shares shall not be offered unless first reoffered to the
Investors in accordance herewith.
(d) The right of first offer in this Section 2.4 shall
not be applicable (i) to the issuance or sale of shares of Common Stock (or
options therefor) to Company employees, directors, officers or consultants for
the primary purpose of soliciting or retaining their employment or services;
(ii) to or after consummation of a bona fide, firmly underwritten public
offering of shares of Common Stock, registered under the Act pursuant to a
registration statement on Form S-1; (iii) the issuance of Common Stock pursuant
to the conversion of the Series A, Series B, Series C, Series D or Series E
Preferred Stock; (iv) the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise; provided, however, that
in each such case, such issuance is approved by the Company's Board of
Directors; (v) any borrowings, direct or indirect, from financial institutions
or other persons by the Company, whether or not presently authorized, including
any type of loan or payment evidenced by any type of debt instrument; (vi)
securities issued to vendors or customers or to other persons in similar
commercial situations with the Company if such issuance is approved by the Board
of Directors; (vii) securities issued in connection with obtaining lease
financing, whether issued to a lessor, guarantor or other person; (viii)
securities issued in connection with any stock split, stock dividend or
recapitalization of the Company; and (ix) any right, option or warrant to
acquire any security convertible into the securities listed in subsections (i)
through (viii) above."
2.5 Indemnification. The Company shall take all actions
necessary to indemnify its directors to the maximum extent permitted by
applicable law, including without limitation, amending the Company's Articles of
Incorporation and Bylaws and entering into contracts with the directors to
provide such indemnification; provided, however, that the Company shall not be
required to obtain directors insurance unless directed by the Board of
Directors.
2.6 Board Expenses. The Company will pay reasonable
out-of-pocket expenses (including reasonable air fare and hotel expenses), of
any representative of the Investors that is a member of the Board of Directors
in connection with attendance at meetings of the Board of Directors, upon
presentation to the Company of an itemized accounting of such expenses with
reasonable supporting data.
2.7 Management and Employee Stock.
(a) An initial pool of 3,193,321 shares of the Company's
Common Stock shall be reserved for purchase or incentive grants to employees,
consultants, directors or officers under incentive and non-qualified stock
purchase or stock option plans or agreements ("Employee Reserve").
- 14 -
<PAGE> 17
(b) The shares or options issued from the Employee
Reserve provided for in this Section 2.7 shall vest following the grant or
issuance of such shares or options, as follows: twenty percent (20%) shall vest
after an initial twelve (12)-month cliff period and the remainder shall vest in
equal monthly installments over the next forty-eight (48) months following the
cliff period, as approved by the Company's Board of Directors. The Company shall
have a repurchase option at optionee's cost with respect to unvested shares.
Unvested shares may not be transferred.
2.8 Payment of Dividends. The Company shall declare dividends on
the Series B, Series C, Series D and Series E Preferred Stock in the full
preferential amount each year in which the Company makes a profit sharing
payment to its management or employees. The compensation committee of the Board
of Directors may approve bonuses for management or employees which are outside
any existing or future profit shares plan, and such bonus payments shall not
constitute a profit sharing payment which triggers a dividend on the Series B,
Series C, Series D and Series E Preferred Stock. Notwithstanding the foregoing,
the Company's Board of Directors may in its discretion declare and pay dividends
on the Series B, Series C, Series D and Series E Preferred Stock in accordance
with applicable law.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, upon
delivery by confirmed facsimile (with duplicate original sent by United States
mail) or three (3) days after deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
- 15 -
<PAGE> 18
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Series B, Series C, Series D and Series E Preferred Stock (and
Common Stock issued upon conversion thereof) then outstanding voting together as
a single class. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Series A, Series B, Series C,
Series D and Series E Preferred Stock (and Common Stock issued upon conversion
thereof) then outstanding, each future holder of all such shares and the
Company, whether or not such holder in fact consented to such amendment or
waiver.
3.8 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 Aggregation of Stock. All shares of Series A, Series B,
Series C, Series D and Series E Preferred Stock and Common Stock issued upon
conversion thereof held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
3.10 Entire Agreement; Amendment; Waiver. This Agreement
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof. The Investors who are parties to the Prior Agreement and the
Company hereby agree that the Prior Agreement shall be superseded and replaced
in its entirety by this Agreement.
3.11 Representation. By executing this Agreement, Investor
acknowledges and agrees that Brobeck, Phleger & Harrison LLP represents the
Company solely and that Investor has had an opportunity to consult with its own
attorney in connection with this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
- 16 -
<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY: FAIRBANKS SYSTEMS GROUP, a California
corporation
By: /s/ GARY SUTTON
------------------------------------
Gary Sutton, Chief Executive Officer
Address: 3550 General Atomics Court
San Diego, CA 92121-1194
INVESTORS:
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ James Berglund
-------------------------------
James Berglund, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ James Berglund
-------------------------------
James Berglund, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 20
ALTA CALIFORNIA PARTNERS, L.P.,
a Delaware limited partnership
By: Alta California Management Partners, L.P.
Its: General Partner
By: /s/ GARRETT GRUENER
------------------------------------
Garrett Gruener, General Partner
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ALTA EMBARCADERO PARTNERS, L.L.C.,
a California limited liability company
By: /s/ GARRETT GRUENER
------------------------------------
Garrett Gruener, Member
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
CG&H INVESTMENTS
By: /s/ John L. Cardoza
-----------------------------------------
John L. Cardoza, Executive Partner
Address: c/o Jim Kindler
One Maritime Plaza, Suite 2000
San Francisco, CA 94111
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 21
CENDANT CORPORATION,
a Delaware corporation
By: /s/ ANWAR ZAKKOUR
---------------------------------
Anwar Zakkour, Senior Vice President,
Strategic Development
Address: 9 West 57th Street, 37th Floor
New York, NY 10019
WINDWARD VENTURES, L.P.
Windward Ventures Management, L.P.
By: Dave Titus
---------------------------------
Dave Titus, General Partner
Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130
AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.,
a New York corporation
By: /s/ Lawrence Kutscher
---------------------------------
Print Name: Lawrence Kutscher
-------------------------
Title: Senior Vice President
------------------------------
Address: American Express Tower
3 World Financial Center
New York, NY 10285
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 22
SECURITY PACIFIC FINANCE, LTD.
By: /s/ Ian Ernest Kelley
---------------------------------
Print: Ian Ernest Kelley
------------------------------
Title: Director
------------------------------
Address: P.O. Box 48
Canada Court
St. Peter Port
Guernsey, Channel Islands GY13BQ
MORGAN INVESTMENT HOLDINGS, LTD.
By: /s/ J. ADIE /s/ D. LARKIN
---------------------------------
Print: J. Adie D. Larkin
------------------------------
Title: Authorised Signatories
------------------------------
Address: P.O. Box 253
Bordage House, Le Bordage
St. Peter Port
Guernsey, Channel Islands GY13QJ
/s/ Sidney Karin
------------------------------------
Sidney Karin
Address: 748 Avocado Court
Del Mar, CA 92014
------------------------------------
Peter Preuss
Address: 2223 Avenida de la Playa, Suite 220
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 23
THE RIBLE LIVING TRUST DATED
JANUARY 15, 1988
By:
------------------------------------
Address: 5691 La Sencilla
Rancho Santa Fe, CA 92067
JOHN S. HUISKAMP FAMILY TRUST
By:
------------------------------------
John S. Huiskamp, Trustee
Address: 167 13th Street
Del Mar, CA 92014
MARGALAUR LLC
By: /s/ ANTHONY SORGE
------------------------------------
Anthony Sorge, President
Address: 10190 Telesis Court
San Diego, CA 92121
------------------------------------
William E. Norgren
Address: 5260 La Glorieta
Rancho Santa Fe, CA 92067
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 24
DENNIS P. RILEY, DDS, A PROFESSIONAL
CORPORATION
By: /s/ DENNIS P. RILEY
------------------------------------
Dennis P. Riley, President
Address: 1038 Muirlands Vista Way
La Jolla, CA 92037
CREIGHTON AND CHARLOTTE
GALLAWAY FAMILY TRUST, UTD
DATED: AUGUST 28, 1995
By: /s/ Creighton Gallaway
------------------------------------
Creighton Gallaway, Trustee
Address: 2838 Inverness Drive
La Jolla, CA 92037
------------------------------------
Barry Rosenbaum
------------------------------------
Barbara J. Rosenbaum
Address: 490 Oceanview Avenue
Del Mar, CA 92014
------------------------------------
Jim Goode
Address: 9590 Chesapeake Drive, Suite 121
San Diego, CA 92123
[SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 25
SCHEDULE A
Schedule of Investors
Cendant Corporation
Windward Ventures
American Express Travel Related Services Company, Inc.
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Alta California Partners, L.P.
Alta Embarcadero Partners LLC
Security Pacific Finance, Ltd.
Morgan Investment Holdings, Ltd.
CG&H Investments
Sidney Karin
Peter Preuss
The Rible Living Trust dated January 15, 1988
John S. Huiskamp Family Trust
Margalaur LLC
William Norgren
Dennis P. Riley, DDS, a Professional corporation
Creighton and Charlotte Gallaway Family Trust, UTD dated August 28, 1995
Barry and Barbara J. Rosenbaum
Jim Goode
Thomas P. Murphy
Michael Jones
FBO Barry Rosenbaum IRA
A-1
<PAGE> 26
AMENDMENT NO. 1 TO THE
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amendment No. 1 to the Amended and Restated Investors' Rights
Agreement (the "Amendment") is made this 23rd day of August 1999 by and between
Fairbanks Systems Group, a California corporation doing business as @ Backup,
Inc. (the "Company"), and the investors listed on Schedule A hereto (each of
whom is herein referred to individually as an "Investor" and all of whom are
herein referred to collectively as the "Investors"). Capitalized terms used
herein which are not defined herein shall have the definition ascribed to them
in the Amended and Restated Investors' Rights Agreement, dated July 30, 1999
(the "Agreement"), between the Company and certain of the Investors (the
"Existing Investors").
RECITALS
WHEREAS, the Existing Investors possess information rights, rights of
first offer and other rights pursuant to the Agreement;
WHEREAS, the Company desires to complete the second sale of its Series E
Preferred Stock to certain of the Investors (the "New Series E Investors"), and
these New Series E Investors desire to purchase the Series E Preferred Stock
from the Company;
WHEREAS, the Company and the Existing Investors acknowledge that they
are entering into this Amendment as an inducement to and in consideration of the
New Series E Investors' purchase of the Series E Preferred Stock; and
WHEREAS, Section 3.7 of the Agreement provides that the Agreement may be
amended with the written consent of the Company and the holders of a majority in
interest of the Series A, Series B, Series C, Series D and Series E Preferred
Stock.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the promises and
covenants contained herein and in the Agreement, and for other good and valuable
consideration the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Amendment to Schedule A. Schedule A to the Agreement is amended and
replaced in its entirety by Schedule A attached hereto.
2. Amendment to Section 1.10(a) of the Agreement. Section 1.10(a) of the
Agreement is amended and replaced in its entirety by the following:
"(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, each of its officers, directors and partners, and any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the 1934
Act, against any losses, claims, damages or liabilities (joint or several) to
which they may become subject under the Act, or the 1934 Act, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any
<PAGE> 27
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Act the 1934 Act,
or any rule or regulation promulgated under the Act, or the 1934 Act; and the
Company will pay to each such Holder, each of its officers, directors and
partners, each underwriter or each controlling person any legal or other
expenses reasonably incurred by them, on an as-incurred basis, in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 1.10(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is based upon a
Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
any such Holder (including its officers, directors and partners), underwriter or
controlling person."
3. Amendment to Section 1.10(b) of the Agreement. Section 1.10(b) of the
Agreement is amended and replaced in its entirety by the following:
"(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act or the 1934 Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder against any losses,
claims, damages or liabilities (joint or several) to which any of the foregoing
persons may become subject under the Act or the 1934 Act insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this Section 1.10(b), on an as-incurred basis, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder (which consent shall not be unreasonably withheld); provided
further, that in no event shall any indemnity under this Section 1.10(b) exceed
the gross proceeds from the offering received by such Holder."
4. Amendment to Section 1.10(c) of the Agreement. Section 1.10(c) of the
Agreement is amended and replaced in its entirety by the following:
"(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
-2-
<PAGE> 28
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel and
one local counsel if the action is commenced outside the State of New York with
the reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10. No indemnifying party, in the defense of
any such claim or litigation, shall, except with the consent of each indemnified
party, consent to entry of any judgment or entry into any settlement (I) which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party a release from all liability in respect to
such claim or litigation or (II) which includes a statement as to, or an
admission as to, fault or culpability or a failure to act by or on behalf of any
indemnified party."
5. Effect of Amendment. Except as expressly modified by this Amendment,
the Agreement shall remain unmodified and in full force and effect.
6. Entire Agreement. This Amendment together with the Agreement and all
documents referred to herein and therein constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
7. Successors and Assigns. Except as otherwise provided herein, the terms
and conditions of this Amendment shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties. Nothing in this
Amendment, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Amendment,
except as expressly provided in this Amendment.
8. Governing Law. This Amendment shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
9. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10. Amendments and Waivers. Any term of this Amendment may be amended and
the observance of any term of this Amendment may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the Series
B, Series C, Series D and Series E Preferred Stock
-3-
<PAGE> 29
(and Common Stock issued upon conversion thereof) then outstanding voting
together as a single class. Any amendment or waiver effected in accordance with
this paragraph shall be binding upon each holder of any Series A, Series B,
Series C, Series D and Series E Preferred Stock (and Common Stock issued upon
conversion thereof) then outstanding, each future holder of all such shares and
the Company, whether or not such holder in fact consented to such amendment or
waiver.
11. Severability. If one or more provisions of this Amendment are held
to be unenforceable under applicable law, such provision shall be excluded from
this Amendment and the balance of the Amendment shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
12. Representation. By executing this Amendment, each Investor
acknowledges and agrees that Brobeck, Phleger & Harrison LLP represents the
Company solely and that Investor has had an opportunity to consult with its own
attorney in connection with this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE> 30
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
COMPANY: FAIRBANKS SYSTEMS GROUP,
a California corporation doing business as
@BACKUP, INC.
By: /s/ GARY SUTTON
---------------------------------------------
Gary Sutton, Chief Executive Officer
Address: 3550 General Atomics Court
San Diego, CA 92121-1194
INVESTORS: ADVANCED DIGITAL INFORMATION CORPORATION, a
Washington corporation
By: /s/ Peter van Oppen
---------------------------------------------
Address: P.O. Box 97057
11431 Willows Road, N.E.
Redmond, WA 98073-9757
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE AMENDED
AND RESTATED INVESTOR'S RIGHTS AGREEMENT]
<PAGE> 31
MERRILL LYNCH KECALP L.P. 1999
By: KECALP Inc.
Its: General Partner
By: /s/ Edward J. Higgins
------------------------------------
Edward J. Higgins, Vice President
Address: World Financial Center South Tower
225 Liberty Street
23rd Floor
New York, New York 10080-6123
KECALP INC., as Nominee for Merrill Lynch
KECALP International L.P. 1999
By: /s/ Edward J. Higgins
------------------------------------
Edward J. Higgins, Vice President
Address: World Financial Center South Tower
225 Liberty Street
23rd Floor
New York, New York 10080-6123
CREST COMMUNICATIONS PARTNERS
L.P.
By: Crest Communications Holding L.L.C.
Its: Authorized Representative
By: /s/ Gregg A. Mockenhaupt
--------------------------------
Its: Gregg A. Mockenhaupt
--------------------------------
Title: Managing Director
--------------------------------
Address: 2862 Jackson Street
San Francisco, California 94115
[SIGNATURE PAGE TO AMENDMENT NO.1 TO THE AMENDED
AND RESTATED INVESTOR'S RIGHTS AGREEMENT]
<PAGE> 32
CENDANT CORPORATION,
a Delaware corporation
By: /s/ Anwar Zakkour
-----------------------------------------
Anwar Zakkour, Senior Vice President,
Strategic Development
Address: 9 West 57th Street, 37th Floor
New York, NY 10019
WINDWARD VENTURES, L.P.
Windward Ventures Management, L.P.
By: /s/ Dave Titus
-------------------------------
Dave Titus, General Partner
Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130
AMERICAN EXPRESS TRAVEL RELATED SERVICES
COMPANY, INC., a New York corporation
By: /s/ Lawrence Kutscher
----------------------------------
Print Name: Lawrence Kutscher
---------------------------------
Title: Senior Vice President
---------------------------------
Address: American Express Tower
3 World Financial Center
New York, NY 10285
[SIGNATURE PAGE TO AMENDMENT NO.1 TO THE AMENDED
AND RESTATED INVESTOR'S RIGHTS AGREEMENT]
<PAGE> 33
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III,
L.P. Its: General Partner
By: /s/ James Berglund
----------------------------------
James Berglund, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ James Berglund
----------------------------------
James Berglund, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDMENT NO.1 TO THE AMENDED
AND RESTATED INVESTOR'S RIGHTS AGREEMENT]
<PAGE> 34
ALTA CALIFORNIA PARTNERS, L.P., a Delaware
limited partnership
By: Alta California Management Partners, L.P.
Its: General Partner
By: /s/ Garrett Gruener
---------------------------------
Garrett Gruener, General Partner
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ALTA EMBARCADERO PARTNERS, L.L.C., a
California limited liability company
By: /s/ Garrett Gruener
---------------------------------
Garrett Gruener, Member
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
CG&H INVESTMENTS
By: /s/ John L. Cardoza
-------------------------------------
John L. Cardoza, Executive Partner
Address: c/o Jim Kindler
One Maritime Plaza, Suite 2000
San Francisco, CA 94111
[SIGNATURE PAGE TO AMENDMENT NO.1 TO THE AMENDED
AND RESTATED INVESTOR'S RIGHTS AGREEMENT]
<PAGE> 35
SECURITY PACIFIC FINANCE, LTD.
By:
---------------------------------
Print:
---------------------------------
Title:
---------------------------------
Address: P.O. Box 48
Canada Court
St. Peter Port
Guernsey, Channel Islands GY13BQ
MORGAN INVESTMENT HOLDINGS, LTD.
By: /s/ J. Adie D. Larkin
-------------------------------
Print: J. Adie D. Larkin
----------------------------
Title: Authorized Signatories
---------------------------
Address: P.O. Box 253
Bordage House, Le Bordage
St. Peter Port
Guernsey, Channel Islands GY13QJ
/s/ Sidney Karin
---------------------------------
Sidney Karin
Address: 748 Avocado Court
Del Mar, CA 92014
---------------------------------
Peter Preuss
Address: 2223 Avenida de la Playa, Suite 220
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDMENT NO.1 TO THE AMENDED
AND RESTATED INVESTOR'S RIGHTS AGREEMENT]
<PAGE> 36
THE RIBLE LIVING TRUST DATED JANUARY 15, 1988
By:
----------------------------------
Address: 5691 La Sencilla
Rancho Santa Fe, CA 92067
JOHN S. HUISKAMP FAMILY TRUST
By:
----------------------------------
John s. Huiskamp, Trustee
Address: 167 13th Street
Del Mar, CA 92014
MARGALAUR LLC
By: /s/ Anthony Sorge
----------------------------------
Anthony Sorge, President
Address: 10190 Telesis Court
San Diego, CA 92121
----------------------------------
William E. Norgren
Address: 5260 La Glorieta
Rancho Santa Fe, CA 92067
[SIGNATURE PAGE TO AMENDMENT NO.1 TO THE AMENDED
AND RESTATED INVESTOR'S RIGHTS AGREEMENT]
<PAGE> 37
DENNIS P. RILEY, DDS, A PROFESSIONAL
CORPORATION
By: /s/ Dennis P. Riley
----------------------------------
Dennis P. Riley, President
Address: 1038 Muirlands Vista Way
La Jolla, CA 92037
CREIGHTON AND CHARLOTTE GALLAWAY FAMILY TRUST,
UTD DATED: AUGUST 28, 1995
By: /s/ Creighton Gallaway
----------------------------------
Creighton Gallaway, Trustee
Address: 2838 Inverness Drive
La Jolla, CA 92037
----------------------------------
Barry Rosenbaum
----------------------------------
Barbara J. Rosenbaum
Address: 490 Oceanview Avenue
Del Mar, CA 92014
----------------------------------
Jim Goode
Address: 9590 Chesapeake Drive, Suite 121
San Diego, CA 92123
[SIGNATURE PAGE TO AMENDMENT NO.1 TO THE AMENDED
AND RESTATED INVESTOR'S RIGHTS AGREEMENT]
<PAGE> 38
THOMAS P. MURPHY TTEE
UTA DTA DATED 10/20/86
By:
------------------------------------
Thomas P. Murphy, Trustee
Address: 6849 Country Club Drive
La Jolla, CA 92037
MICHAEL B. JONES AND VALENTINA JONES-WAGNER,
TRUSTEES UNDER TRUST AGREEMENT DATED 12/4/1984
----------------------------------------
Michael Jones, Trustee
Address: 114 Kettle Creek Road
Weston, CT 06883
FBO BARRY ROSENBAUM IRA
A/C #247-81400-11
By: Delaware Charter Guarantee & Trust
Co.TTEE, its Trustee
By:
-------------------------------------
Print Name:
-----------------------------
Title:
----------------------------------
Address: P.O. Box 8963
Wilmington, DE 19899-8963
DOMINION CAPITAL MANAGEMENT L.L.C., a Delaware
limited liability company
By:
-------------------------------------
Print Name:
-----------------------------
Title:
----------------------------------
Address: 44 Montgomery Street, Suite 4200
San Francisco, CA 94104
[SIGNATURE PAGE TO AMENDMENT NO.1 TO THE AMENDED
AND RESTATED INVESTOR'S RIGHTS AGREEMENT]
<PAGE> 39
SCHEDULE A
Schedule of Investors
Cendant Corporation
Windward Ventures
American Express Travel Related Services Company, Inc.
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Alta California Partners, L.P.
Alta Embarcadero Partners LLC
Security Pacific Finance, Ltd.
Morgan Investment Holdings, Ltd.
CG&H Investments
Sidney Karin
Peter Preuss
The Rible Living Trust dated January 15, 1988
John S. Huiskamp Family Trust
Margalaur LLC
William Norgren
Dennis P. Riley, DDS, a Professional corporation
Creighton and Charlotte Gallaway Family Trust, UTD dated August 28, 1995
Barry and Barbara J. Rosenbaum
Jim Goode
Thomas P. Murphy
Michael Jones
FBO Barry Rosenbaum IRA
Dominion Capital Management L.L.C.
Advanced Digital Information Corporation
Crest Communications Partners L.P.
Merrill Lynch KECALP L.P. 1999
Merrill Lynch KECALP International L.P. 1999
A-1
<PAGE> 40
AMENDMENT NO. 2 TO THE
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amendment No. 2 to the Amended and Restated Investors' Rights
Agreement ("Amendment No. 2") is made this 17th day of September 1999 by and
among Fairbanks Systems Group, a California corporation doing business as
@Backup, Inc. (the "Company"), and the investors listed on Schedule A hereto
(each of whom is herein referred to individually as an "Investor" and all of
whom are herein referred to collectively as the "Investors"). Capitalized terms
used herein which are not defined herein shall have the definitions ascribed to
them in the Amended and Restated Investors' Rights Agreement, dated July 30,
1999 (the "Agreement"), as amended by Amendment No. 1 to the Amended and
Restated Investors' Rights Agreement, dated August 23, 1999 ("Amendment No. 1"),
between the Company and certain of the Investors (the "Existing Investors").
RECITALS
WHEREAS, the Existing Investors possess information rights, rights of
first offer and other rights pursuant to the Agreement and Amendment No. 1;
WHEREAS, the Company desires to complete the third sale of its Series E
Preferred Stock to certain of the Investors (the "New Investors"), and these New
Investors desire to purchase the Series E Preferred Stock from the Company;
WHEREAS, the Company and the Existing Investors acknowledge that they are
entering into this Amendment No. 2 as an inducement to and in consideration of
the New Investors' purchase of the Series E Preferred Stock; and
WHEREAS, Section 3.7 of the Agreement provides that the Agreement may be
amended with the written consent of the Company and the holders of a majority in
interest of the Series A, Series B, Series C, Series D and Series E Preferred
Stock.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the promises and
covenants contained herein and in the Agreement and in Amendment No. 1, and for
other good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Additional Party to the Agreement and Amendment No. 1. By
executing this Amendment No. 2, each New Investor becomes a party to and agrees
to be bound by the terms and conditions of the Agreement and Amendment No. 1.
2. Amendment to Schedule A. Schedule A to the Agreement, as
amended by Amendment No. 1, is amended and replaced in its entirety by Schedule
A attached hereto.
3. Waiver and Consent. The Company and the Existing Investors
hereby (a) consent to adding the New Investors as parties to the Agreement and
Amendment No. 1 and
<PAGE> 41
(b) consent to the amendments to the Agreement and Amendment No. 1 set forth in
this Amendment No. 2.
4. Effect of Amendment. Except as expressly modified by this
Amendment No. 2, the Agreement and Amendment No. 1 shall remain unmodified and
in full force and effect.
5. Entire Agreement. This Amendment No. 2 together with the
Agreement and Amendment No. 1 and all documents referred to herein and therein
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
6. Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Amendment No. 2 shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties.
Nothing in this Amendment No. 2, express or implied, is intended to confer upon
any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Amendment No. 2, except as expressly provided in this Amendment No. 2.
7. Governing Law. This Amendment No. 2 shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
8. Counterparts. This Amendment No. 2 may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9. Amendments and Waivers. Any term of this Amendment No. 2 may
be amended and the observance of any term of this Amendment No. 2 may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Series B, Series C, Series D and Series E Preferred Stock (and
Common Stock issued upon conversion thereof) then outstanding voting together as
a single class. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Series A, Series B, Series C,
Series D and Series E Preferred Stock (and Common Stock issued upon conversion
thereof) then outstanding, each future holder of all such shares and the
Company, whether or not such holder in fact consented to such amendment or
waiver.
10. Severability. If one or more provisions of this Amendment No.
2 are held to be unenforceable under applicable law, such provision shall be
excluded from this Amendment No. 2 and the balance of this Amendment No. 2 shall
be interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
11. Representation. By executing this Amendment No. 2, each
Investor acknowledges and agrees that Brobeck, Phleger & Harrison LLP represents
the Company solely, and that the Investor has had an opportunity and has been
encouraged to consult with its own attorney in connection with this Amendment
No. 2, the Agreement and Amendment No. 1.
-2-
<PAGE> 42
IN WITNESS WHEREOF, the parties have executed this Amendment No. 2 as of
the date first above written.
COMPANY: FAIRBANKS SYSTEMS GROUP,
a California corporation doing business as
@BACKUP, INC.
By: /s/ Gary Sutton
----------------------------------------
Gary Sutton, Chief Executive Officer
Address: 3550 General Atomics Court
San Diego, CA 92121-1194
INVESTORS: ADVANCED DIGITAL INFORMATION
CORPORATION, a Washington corporation
By: /s/ [Signature Illegible]
----------------------------------------
Address: P.O. Box 97057
11431 Willows Road, N.E.
Redmond, WA 98073-9757
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
-3-
<PAGE> 43
ALTA CALIFORNIA PARTNERS, L.P., a
Delaware limited partnership
By: Alta California Management Partners, L.P.
Its: General Partner
By: /s/ [Signature Illegible]
-------------------------------------
, General Partner
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ALTA EMBARCADERO PARTNERS,
L.L.C., a California limited liability company
By: /s/ Garrett Gruener
----------------------------------------
Member
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
CG&H INVESTMENTS
By: /s/ John L. Cardoza
---------------------------------------
John L. Cardoza, Executive Partner
Address: c/o Jim Kindler
One Maritime Plaza, Suite 2000
San Francisco, CA 94111
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 44
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III,
L.P. Its: General Partner
By: /s/ James Berglund
---------------------------------
James Berglund, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
ENTERPRISE PARTNERS III
ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ James Berglund
-----------------------------------
James Berglund, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 45
SECURITY PACIFIC FINANCE, LTD.
By:
----------------------------------------
Print:
-------------------------------------
Title:
-------------------------------------
Address: P.O. Box 48
Canada Court
St. Peter Port
Guernsey, Channel Islands GY1 3BQ
MORGAN INVESTMENT HOLDINGS, LTD.
By: /s/ Sharon French & /s/ Karen Hillion
----------------------------------------
Print Name: Sharon French & Karen Hillion
--------------------------------
Title: Authorised Signatories
-------------------------------------
Address: P.O. Box 253
Bordage House, Le Bordage
St. Peter Port
Guernsey, Channel Islands GY1 3QJ
/s/ Sidney Karin
------------------------------------------
Sidney Karin
Address: 748 Avocado Court
Del Mar, CA 92014
/s/ Peter Preuss
------------------------------------------
Peter Preuss
Address: 2223 Avenida de la Playa, Suite 220
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 46
MERRILL LYNCH KECALP L.P. 1999
By: KECALP, Inc.
Its: General Partner
By: /s/ Edward J. Higgins
-----------------------------------
Edward J. Higgins, Vice President
Address: World Financial Center South Tower
225 Liberty Street
23rd Floor
New York, NY 10080-6123
KECALP INC., AS NOMINEE FOR MERRILL
LYNCH KECALP INTERNATIONAL L.P. 1999
By: /s/ Edward J. Higgins
---------------------------------------
Edward J. Higgins, Vice President
Address: World Financial Center South Tower
225 Liberty Street
23rd Floor
New York, NY 10080-6123
CREST COMMUNICATION PARTNERS L.P.
By: Crest Communications Holding L.L.C.
Its: Authorized Representative
By: /s/ Gregg A. Mockenhaupt
----------------------------------------
Print Name: Gregg A. Mockenhaupt
--------------------------------
Title: Managing Director
-------------------------------------
Address: 2852 Jackson Street
San Francisco, CA 94115
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 47
DENNIS P. RILEY, DDS, A PROFESSIONAL
CORPORATION
By: /s/ Dennis P. Riley
-------------------------------------------
Dennis P. Riley, President
Address: 1038 Muirlands Vista Way
La Jolla, CA 92037
CREIGHTON AND CHARLOTTE
GALLAWAY FAMILY TRUST, UTD
DATED: AUGUST 28, 1995
By: /s/ Creighton Gallaway
-------------------------------------------
Creighton Gallaway, Trustee
Address: 2838 Inverness Drive
La Jolla, CA 92037
-------------------------------------------
Barry Rosenbaum
-------------------------------------------
Barbara J. Rosenbaum
Address: 490 Oceanview Avenue
Del Mar, CA 92014
-------------------------------------------
Jim Goode
Address: 9590 Chesapeake Drive, Suite 121
San Diego, CA 92123
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 48
DENNIS P. RILEY, DDS, A PROFESSIONAL
CORPORATION
By:
-------------------------------------------
Dennis P. Riley, President
Address: 1038 Muirlands Vista Way
La Jolla, CA 92037
CREIGHTON AND CHARLOTTE GALLAWAY
FAMILY TRUST, UTD DATED: AUGUST 28, 1995
By:
-------------------------------------------
Creighton Gallaway, Trustee
NEW INVESTORS:
SIDNEY KARIN, individually
By:
-------------------------------------------
Sidney Karin
Address: 748 Avocado Court
Del Mar, CA 92014
EMC CORPORATION
By: /s/ Michael J. Cody
-------------------------------------------
Print Name: Michael J. Cody
-----------------------------------
Title: Vice President New Business Development
----------------------------------------
Address: 35 Parkwood Drive
Hopkinton, MA 01748
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 49
WINDWARD VENTURES, L.P.
By: Windward Ventures Management, L.P.
By: /s/ Dave Titus
---------------------------------------
Dave Titus, General Partner
Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130
SENVEST INTERNATIONAL LLC
By: /s/ Richard Mashaal
---------------------------------------
Print Name: Richard Mashaal
-------------------------------
Title: President
------------------------------------
Address: 645 Madison Avenue, Suite 1500
New York, New York 10022
ROBERT MASHAAL, individually
/s/ Robert Mashaal
------------------------------------------
Robert Mashaal
Address: 6256 Greenwich Dr., Suite 230
San Diego, CA 92122
NIR LIVNAT, individually
/s/ Nir Livnat
------------------------------------------
Nir Livnat
Address: 16 Jacob Street
69015 Tel Aviv, Israel
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 50
PAUL S. NELLES, individually
/s/ Paul S. Nelles
------------------------------------------
Paul S. Nelles
Address: 7979 Ivanhoe Avenue, Suite 530
La Jolla, CA 92037
DUANE A. NELLES III, individually
/s/ Duane A. Nelles III
------------------------------------------
Duane A. Nelles III
Address: 7979 Ivanhoe Avenue, Suite 530
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 51
PETER PREUSS
/s/ Peter Preuss
----------------------------------------------
Peter Preuss
Address: 222 Avenida de la Playa, Suite 220
La Jolla, CA 92037
WILLIAM E. NORGREN, an individual
/s/ William Norgren
----------------------------------------------
William E. Norgren
Address: 5260 La Glorieta
Rancho Santa Fe, CA 92067
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 52
THOMAS P. MURPHY TTEE UTA DTA Dated 10/20/86
By: /s/ Thomas P. Murphy, Trustee
--------------------------------------------
Thomas P. Murphy, Trustee
Address: 6849 Country Club Drive
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 53
MICHAEL B. JONES AND VALENTINA JONES-WAGNER,
TRUSTEES UNDER TRUST AGREEMENT DATED 12/4/1984
/s/ Michael B. Jones
-----------------------------------------------
Michael Jones, Trustee
Address: 1604 El Paso Road
La Jolla, CA 92037
FBO BARRY ROSENBAUM IRA A/C #247-81400-11
By: Delaware Charter Guarantee & Trust Co.
Its: Trustee
By: /s/ Barry Rosenbaum
--------------------------------------------
Print Name: Barry Rosenbaum
------------------------------------
Title:
-----------------------------------------
Address: P.O. Box 8963
Wilmington, DE 19899-8963
VBW RAPTOR FUND, LLC
By: /s/ David A. Duval
--------------------------------------------
Print Name: David A. Duval
------------------------------------
Title: Member of Management Committee
-----------------------------------------
Address: 1 Boston Place, Suite 3310
Boston, MA 02108
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 54
CENDANT CORPORATION
a Delaware corporation
By: /s/ Anwar Zakkour
--------------------------------------------
Anwar Zakkour, Senior Vice President
Strategic Development
Address: 9 West 57th Street, 37th Floor
New York, NY 10019
WINDWARD VENTURES, L.P.
Windward Ventures Management, L.P.
By:
--------------------------------------------
Dave Titus, General Partner
Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130
AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY,
INC., a New York corporation
By: /s/ Pierre Beckert
----------------------------------------------
Print Name: Pierre Beckert
--------------------------------------
Title: Vice President
-------------------------------------------
Address: American Express Tower
3 World Financial Center
New York, NY 10285
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 55
THE RIBLE LIVING TRUST DATED
JANUARY 15, 1988
By:
-----------------------------------------------
Address: 5691 La Sencilla
Rancho Santa Fe, CA 92067
JOHN S. HUISKAMP FAMILY TRUST
By:
-----------------------------------------------
John S. Huiskamp, Trustee
Address: 167 13th Street
Del Mar, CA 92014
MARGALAUR LLC
By: /s/ Anthony Sorge
----------------------------------------------
Anthony Sorge, President
Address: 4370 La Jolla Village Drive, #960
San Diego, CA 92122
--------------------------------------------------
William E. Norgren
Address: 5260 La Glorieta
Rancho Santa Fe, CA 92067
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 56
BROBECK, PHLEGER &
HARRISON LLP
By: /s/ Craig S. Andrews
-----------------------------------------------
Craig S. Andrews, Partner
Address: 550 W. C Street, Ste. 1200
San Diego, CA 92101
MARTIN C. NICHOLS, an Individual
/s/ Martin C. Nichols
--------------------------------------------------
Martin C. Nichols
Address: 550 W. C Street, Ste. 1200
San Diego, CA 92101
JEFFREY C. THACKER, an Individual
/s/ Jeffrey C. Thacker
--------------------------------------------------
Jeffrey C. Thacker
Address: 550 W. C Street, Ste. 1200
San Diego, CA 92101
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 57
ALLAN SHAW TRUST
By: /s/ Allan P. Shaw
-----------------------------------------------
Its: Trustee
Address: c/o Allan Shaw
5804 Caminito Empresa
La Jolla, CA 92037
LINDA SHAW, an Individual
/s/ Linda Shaw
--------------------------------------------------
Linda Shaw
Address: 5804 Caminito Empresa
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT]
<PAGE> 58
SCHEDULE A
Schedule of Investors
Cendant Corporation
Windward Ventures
American Express Travel Related Services Company, Inc.
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Alta California Partners, L.P.
Alta Embarcadero Partners LLC
Security Pacific Finance, Ltd.
Morgan Investment Holdings, Ltd.
CG&H Investments
Sidney Karin
Peter Preuss
The Rible Living Trust dated January 15, 1988
John S. Huiskamp Family Trust
Margalaur LLC
William Norgren
Dennis P. Riley, DDS, a Professional corporation
Creighton and Charlotte Gallaway Family Trust, UTD dated August 28, 1995
Barry and Barbara J. Rosenbaum
Jim Goode
Thomas P. Murphy
Michael Jones
FBO Barry Rosenbaum IRA
Dominion Capital Management L.L.C.
Advanced Digital Information Corporation
Crest Communications Partners L.P.
Merrill Lynch KECALP L.P. 1999
Merrill Lynch KECALP International L.P. 1999
EMC Corporation
Senvest International LLC
Robert Mashaal
Nir Livnat
Paul S. Nelles
Duane A. Nelles III
VBW Raptor Fund, LLC
A-1
<PAGE> 1
EXHIBIT 10.8
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
This Amended and Restated Shareholders' Agreement (the "Agreement") is
made this 30th day of July 1999, by and among Fairbanks Systems Group, a
California corporation doing business as @Backup, Inc. (the "Company"), the
holders of shares of the Company's Common Stock listed on Exhibit A hereto (the
"Shareholders," which term includes each Shareholder's heirs, executors,
guardians, successors and assigns), and the investors listed on Exhibit B hereto
(the "Investors").
RECITALS
WHEREAS, each of the Shareholders is the beneficial owner of the number
of shares of the Company's Common Stock listed on Exhibit A hereto (the "Stock,"
which term for purposes of this Agreement also includes any additional shares of
Common Stock of the Company now owned or hereafter acquired by any Shareholder).
WHEREAS, the Company, the Shareholders and certain Investors acknowledge
that they entered into that certain Amended and Restated Shareholders'
Agreement, dated March 12, 1999, (the "Prior Agreement"), as an inducement to
and in consideration of the purchase of shares of the Company's Series B, Series
C and Series D Preferred Stock (the "Existing Investors").
WHEREAS, the Shareholders, the Company and the Existing Investors
acknowledge that they are entering into this Agreement, which amends and
restates the Prior Agreement, as an inducement to and in consideration of the
purchase of shares of the Company's Series E Preferred Stock pursuant to the
Series E Preferred Stock Purchase Agreement, dated as of the date hereof
("Purchase Agreement"), by and among the Company and the investors listed on
Schedule A to the Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties hereby agree as follows:
1. Restrictions on Transfer. Except as permitted by the terms of this
Agreement, a Shareholder may not make any sale, exchange, transfer, assignment,
gift, pledge, encumbrance, hypothecation or alienation of any shares of the
Stock, or any interest in such shares, now held by or hereafter acquired by such
Shareholder, whether voluntarily or involuntarily or by operation of law
(hereinafter collectively referred to as a "transfer").
2. Purchase Option.
(a) Company Purchase Option.
(i) The Company is hereby granted the right (the "Unvested
Purchase Option") from each of the Shareholders, exercisable at any time during
the sixty (60) day period following the date such Shareholder ceases to be a
Service Provider to the Company for any
<PAGE> 2
reason other than: (A) "for cause" (as defined below), or (B) as a result of
"voluntary resignation" (as defined below), to repurchase any or all of the
Stock in which the Shareholder has not acquired a vested interest in accordance
with the vesting provisions of Section 2(f) (such shares to be hereinafter
called the "Unvested Stock"). The purchase price for the Unvested Stock that the
Company repurchases from the Shareholder shall be the portion of the purchase
price originally paid by the Shareholder for such Unvested Stock (the "Unvested
Option Price").
(ii) The Company is hereby granted the right (the "Alternate
Purchase Option", and together with the Unvested Purchase Option, the "Purchase
Option") from each of the Shareholders, exercisable at any time during the sixty
(60) day period following the date such Shareholder ceases to be a Service
Provider (as defined below) "for cause" or through "voluntary resignation" from
the Company, to repurchase any or all of the Stock owned by such Shareholder.
The purchase price for the Unvested Stock that the Company repurchases from the
Shareholder shall be the Unvested Option Price. The purchase price for the
remaining Stock that the Company repurchases from the Shareholder shall be the
fair market value of such remaining Stock as determined in good faith by the
Company's Board of Directors (the "Vested Option Price", and together with the
Unvested Option Price, the "Option Price"). For purposes of this Agreement, the
Shareholder shall be deemed to be a Service Provider to the Company for so long
as the Shareholder renders regular and ongoing services to the Company or one or
more of its parent or subsidiary corporations, whether as an employee, a
non-employee member of the board of directors, or an independent non-employee
consultant.
(b) For purposes of this Agreement, the term "for cause" shall mean:
(i) conviction of a Shareholder by a trial court of competent
jurisdiction of a felony, or a guilty plea of a felony; or
(ii) Shareholder's willful, deliberate, continued and material
failure or refusal to substantially perform his duties as a Service Provider to
the Company which will result in material harm to the Company (other than any
such failure resulting from Shareholder's incapacity due to physical or mental
illness), where such failure is not cured by Shareholder within forty-five (45)
days of written demand for substantial performance is delivered to Shareholder
by the Board of Directors of the Company (the "Board") which specifically
identifies the manner in which the Board believes that Shareholder has not
substantially performed his duties; or
(iii) Shareholder's commission of any fraud against, or
misappropriation of any funds or properties of, the Company in a material amount
not authorized by the Board to be so used or appropriated; or
(iv) Shareholder's unlawful appropriation of a corporate
opportunity involving a business of the Company.
For purposes of this Section (b), no act, or failure to act, on
Shareholder's part shall be considered "willful" unless done, or omitted to be
done, by Shareholder, not in good faith and without reasonable doubt that
Shareholder's action or omission was in the best interest of the Company.
Notwithstanding the foregoing, Shareholder shall not be deemed to have been
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<PAGE> 3
terminated "for cause" for the purposes of this Agreement unless and until there
shall have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board at a meeting of the Board called and held for the purpose (after
reasonable notice to Shareholder and an opportunity for Shareholder to be heard
before the Board), finding that in the good faith opinion of the Board,
Shareholder was guilty of conduct set forth in (b)(ii), (iii), or (iv) above and
specifying the particulars thereof in detail.
(c) For purposes of this Agreement, the term "voluntary resignation"
shall mean Shareholder voluntarily leaving his status as a Service Provider
other than as a result of any of the following: (i) the relocation of
Shareholder's responsibilities to the Company, or moving the Company, outside of
San Diego, California, (ii) a change in Shareholder's status, title, position or
responsibilities that, in the Board's reasonable judgment, represent an adverse
change in status, title, position or responsibilities, or (iii) a reduction in
Shareholder's then base salary or other compensation and benefits that apply
only to the Shareholders but not to other comparable Service Providers.
(d) Exercise of Purchase Option. The applicable Purchase Option, if
exercised by the Company, shall be exercised by written notice signed by an
officer of the Company and delivered or mailed to the Shareholder, which notice
shall specify the time, place and date for settlement of such purchase. The
Company may pay for the shares of Stock and/or Unvested Stock, as applicable,
which it has elected to repurchase by (i) delivery to the Shareholder or his or
her executor of a check in the amount of the applicable Option Price, (ii)
cancellation by the Company of indebtedness of the Shareholder to the Company or
(iii) a combination of (i) and (ii) so that the combined payment and
cancellation of indebtedness equals the applicable Option Price.
(e) Investor Purchase Option. In the event the Company for any reason
elects not to exercise the applicable Purchase Option with respect to any
portion of the Stock and/or Unvested Stock, as applicable, the Company shall
notify the Investors of such election not to fully exercise such Purchase Option
before the end of the sixty (60) day period set forth in Section 2(a), and,
whether or not such notice is given, each Investor shall have the right, subject
to the limitations set forth in Section 2(a), at any time within thirty (30)
days following the expiration of the applicable Company Purchase Option to
purchase from the Shareholder up to its Pro Rata Share (as defined in Section
4(g) below) of any or all of the balance of the Stock and/or Unvested Stock, as
applicable, not repurchased by the Company at the applicable Option Price. The
Investors shall exercise the applicable Purchase Option in the same manner and
subject to the same rights and conditions as the Company set forth in Section
2(d). The applicable Purchase Option shall be exercised by written notice signed
by the exercising Investors and delivered or mailed to the Shareholder. The
Company shall, within three (3) days after the end of such thirty (30) day
period, inform each Investor purchasing all the shares available to it (a
"Fully-Exercising Investor") of any other Investor's failure to do likewise.
During the ten (10) day period commencing after receipt of such information,
each Fully-Exercising Investor shall be entitled to purchase that portion of the
shares of Common Stock for which Investors were entitled to subscribe but which
were not subscribed for by the Investors equal to the proportion that the Pro
Rata Share of such Fully-Exercising Investor bears to the Pro Rata Shares of all
of the Fully-Exercising Investors who wish to purchase some of the unsubscribed
shares, or such other proportions as the Investors shall determine. Such
Investors
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<PAGE> 4
shall pay for the shares of Stock and/or Unvested Stock, as applicable, which
they have elected to repurchase by delivery to the Shareholder or his or her
executor of a check in the amount of the applicable Option Price.
(f) Termination of the Purchase Option.
(i) The applicable Purchase Option shall terminate with respect
to any Stock and/or Unvested Stock, as applicable, for which it is not timely
exercised under Sections 2(d) or 2(e). In addition, the Unvested Purchase Option
with respect to the Stock shall terminate, and cease to be exercisable, with
respect to any and all Stock in which the Shareholder vests in accordance with
the schedule below. Accordingly, provided that the Shareholder continues to be a
Service Provider to the Company, the Shareholder shall acquire a vested interest
in, and the Unvested Purchase Option shall lapse with respect to, the Stock in
accordance with the following provision:
Fifty percent (50%) of the Stock shall be vested upon the
execution of this Agreement and shall not be subject to the
Unvested Purchase Option. The remaining fifty percent (50%)
of the Stock shall vest in equal monthly installments at
the end of each month over the forty-eight (48) months
commencing on August 1, 1996, and such vested shares shall
not be subject to the Unvested Purchase Option.
Notwithstanding the foregoing, the Unvested Purchase Option and the
Alternate Purchase Option shall terminate upon the earlier of (i) five (5) years
following the consummation of the sale of securities pursuant to a registration
statement filed by the Company under the Securities Act of 1933, as amended, in
which the gross proceeds to the Company (net of underwriting discounts and
commissions) are not less than $15,000,000 or (ii) the written consent of the
Investors holding fifty percent (50%) or more of the then outstanding Series B,
Series C, Series D and Series E Preferred Stock.
All Stock as to which the Unvested Purchase Option lapses shall,
however, continue to be subject to all the terms of this Agreement, including
the right of first offer contained in Section 4, the co-sale rights contained in
Section 5 and the market stand-off provisions of Section 8.
(g) Fractional Shares. No fractional shares shall be repurchased by
the Company. Accordingly, should the applicable Purchase Option extend to a
fractional share (in accordance with the vesting computation provisions of
Section 2(f)) at the time the Shareholder ceases to be a Service Provider, then
such fractional share shall be added to any fractional share in which the
Shareholder is at such time vested in order to make one whole vested share no
longer subject to the applicable Purchase Option.
(h) No Employment or Service Contract. Nothing in this Section 2
shall confer upon any Shareholder any right to continue in the service of the
Company (or any parent or subsidiary of the Company) for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Company (or any parent or subsidiary of the Company) or
4
<PAGE> 5
any Shareholder, which rights are hereby expressly reserved, to terminate
employment at any time for any reason whatsoever, with or without cause.
3. Escrow.
(a) Deposit. The certificates for Stock issued to Shareholders shall
be deposited in escrow with the Company to be held in accordance with the
provisions of this Section 3. Each deposited certificate shall be accompanied by
a duly executed Assignment Separate from Certificate in the form of Exhibit C
attached hereto. The deposited certificates, together with any other assets or
securities from time to time deposited with the Company pursuant to the
requirements of this Agreement, shall remain in escrow until such time or times
as the certificates (or other assets and securities) are to be released or
otherwise surrendered for cancellation in accordance with Section 3(c) below.
Upon delivery of the certificates (or other assets and securities) to the
Company, the Shareholders shall be issued an instrument of deposit acknowledging
the number of shares of Stock (or other assets and securities) delivered in
escrow to the Company.
(b) Recapitalization. All regular cash dividends on the Stock (or
other securities at the time held in escrow) shall be paid directly to the
Shareholder and shall not be held in escrow. However, in the event of any stock
dividend, stock split, recapitalization or other change affecting the Company's
outstanding Common Stock as a class effected without receipt of consideration or
in the event of a Corporate Transaction (as defined in Section 9 below), any
new, substituted or additional securities or other property which is by reason
of such Corporate Transaction distributed with respect to the Stock shall be
immediately delivered to the Company to be held in escrow under this Section 3,
but only to the extent the shares of Stock are at the time subject to the escrow
requirements of Section 3(a).
(c) Release/Surrender. The Stock, together with any other assets or
securities held in escrow hereunder, shall be subject to the following terms and
conditions relating to their release from escrow or their surrender to the
Company for repurchase and cancellation:
(i) Should the Company or the Investors elect to exercise the
applicable Purchase Option under Section 2 with respect to any Stock, then the
escrowed certificates for such Stock (together with any other assets or
securities issued with respect thereto) shall be delivered to the Company for
cancellation, concurrently with the payment to the Shareholder, in cash or cash
equivalent (including, solely in the case of the exercise of the applicable
Purchase Option by the Company, the cancellation of any purchase-money
indebtedness), of an amount equal to the applicable Option Price, and the
Shareholder shall cease to have any further rights or claims with respect to
such Stock (or other assets or securities).
(ii) Upon the termination of the applicable Purchase Option in
accordance with Section 2, any Stock (or other assets or securities) not
purchased by the Company or the Investors shall be promptly released from escrow
to the Shareholders.
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<PAGE> 6
4. Right of First Offer.
(a) Notice to the Company and the Investors.
(i) In the event any Shareholder (the "Transferring Shareholder")
desires to transfer any Stock other than as specifically provided in Section 6
below, such Shareholder must deliver a notice in writing by certified mail
("Notice") to the Company stating (A) his bona fide intention to sell or
transfer such shares, (B) the number of such shares to be sold or transferred,
(C) the price, if any, for which he proposes to sell or transfer such shares,
and (D) the name of the proposed purchaser or transferee.
(ii) In the event the proposed transfer is partially or
completely in exchange for assets other than cash, then such assets shall be
deemed to have a cash value in the amount determined by the Company's Board of
Directors in its sole good faith opinion, in which case such cash value
ascertained by the Board, when added to any cash to be exchanged and then
divided by the number of shares of Stock to be transferred, shall be deemed the
price per share set forth in the Notice. In the event of a gift, property
settlement or other transfer in which the proposed purchaser or transferee is
not paying the full price for the Stock, which transfer is not otherwise
exempted from the terms of Section 4 and 5 hereof, the price shall be deemed to
be the fair market value of the Stock as determined in good faith by the Board
of Directors.
(b) Company Right of First Offer. The Company shall have an
exclusive, irrevocable option (the "Company Option"), at any time within thirty
(30) days of receipt of the Notice, to purchase some or all of the Stock to
which the Notice refers at the price per share specified in the Notice (as
determined in Section 2(a)). The Company shall exercise the Company Option by
written notice signed by an officer of the Company and delivered or mailed to
the Transferring Shareholder (the "Company Settlement Notice"), which notice
shall specify the time, place and date for settlement of such purchase.
(c) Company Settlement. Within ten (10) days of receipt of the
Company Settlement Notice, the Transferring Shareholder must deliver to the
Company all certificates for the Stock being acquired by the Company which are
not already in the Company's custody, together with proper assignments in blank
of the Stock with signatures properly guaranteed and with such other documents
as may be required by the Company to provide reasonable assurance that each
necessary endorsement is genuine and effective, and the Company must thereupon
deliver to the Transferring Shareholder full cash payment for the Stock being
acquired, provided that if the terms of payment set forth in the Notice were
other than cash against delivery, the Company shall pay for said shares in
accordance with Section 4(a)(ii).
(d) Investor Right of First Offer. In the event that the Company does
not exercise the Company Option as to all the shares to be sold or transferred
in accordance with Section 4 hereof, the Company shall not later than thirty
(30) days from the date of receipt of the Notice hereof give written notice to
the Investors of the Company's non-exercise (or partial exercise) of the Company
Option, which notice shall enclose the Notice and the details of the Company's
partial exercises (if any), and shall specify the procedures by which each
Investor may exercise the option to purchase not more than its Pro Rata Share
(as defined in Section 4(g) below) of the remaining shares of Stock (the
"Investor Option"). For thirty (30) calendar days
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<PAGE> 7
following the expiration of the Company Option, each Investor may exercise its
Investor Option at the same price and upon the same terms as set forth in the
Notice. Any Investor desiring to exercise its Investor Option shall deliver to
the Company and to the Transferring Shareholder a written notice of election to
purchase the shares with respect to which the Investor option is to be
exercised. The Company shall, within three (3) days after the end of such thirty
(30) day period, inform each Fully-Exercising Investor of any other Investor's
failure to do likewise. During the ten (10) day period commencing after receipt
of such information, each Fully-Exercising Investor shall be entitled to give
written notice to the Company and the Transferring Shareholder of its election
(the "Investor Over-Allotment Option") to purchase that portion of the shares
for which Investors were entitled to subscribe but which were not subscribed for
by the Investors equal to the proportion that the Pro Rata Share of such
Fully-Exercising Investor bears to the Pro Rata Shares of all of the
Fully-Exercising Investors who wish to purchase some of the unsubscribed shares,
or such other proportions as the Investors shall determine.
(e) Assignment of Investor Option. Each Investor may assign its
rights under this Section 4 to (i) any of its limited partners or shareholders,
(ii) any entity related to or affiliated with such Investor or (iii) another
Investor.
(f) Investor Settlement. Promptly upon expiration of the Investor
Option and the Investor Over-Allotment Option, the Company shall deliver a
notice in writing to the Transferring Shareholder and each Investor and/or
assignee who elected to acquire a portion of the Stock subject to the Investor
Option (the "Investor Settlement Notice") setting forth the number of shares of
Stock to be sold to each Investor and/or assignee and the price thereof. Within
ten (10) days of receipt of the Investor Settlement Notice, the Transferring
Shareholder must deliver to the Company any certificates for the Stock being
acquired by the Investors and/or assignees which are not already in the
Company's custody, together with proper assignments in blank of the Stock with
signatures properly guaranteed and with such other documents as may be required
by the Company to provide reasonable assurance that each necessary endorsement
is genuine and effective. Within ten (10) days of receipt of the Investor
Settlement Notice, each Investor and/or assignee acquiring a portion of the
Stock must deliver to the Company (a) full cash payment for the portion of the
subject Stock being so acquired, provided that if the terms of payment set forth
in the Notice were other than cash against delivery, the Investors electing to
acquire a portion of the subject Stock and/or their assignees shall pay for said
shares in accordance with Section 4(a)(ii); and, if applicable, (b) evidence
satisfactory to the Company that such assignee has become a party to this
Agreement. The Company shall thereafter promptly remit full payment for the
Stock acquired hereby to the Transferring Shareholder and deliver the new or
assigned certificates to the Investors and/or assignees, as appropriate.
(g) Determination of Pro Rata Share. For purposes of Section 2 above
and this Section 4, each Investor's "Pro Rata Share" is the ratio of (i) the
total number of shares of Common Stock, Series B, Series C, Series D and Series
E Preferred Stock of the Company held by such Investor as of the date of the
Notice (on an as-converted to Common Stock basis) to (ii) the total aggregate
shares of Common Stock, Series B, Series C, Series D and Series E Preferred
Stock of the Company held by all Investors as of such date (on an as-converted
to Common Stock basis) that have elected to exercise the applicable Purchase
Option or the Investor Option, as the case may be, that is exercisable at the
time such "Pro Rata Share" is determined.
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<PAGE> 8
5. Co-Sale Rights in Sales by a Shareholder.
(a) Co-Sale Notice. In the event that less than all of the shares of
Stock proposed to be transferred by a Transferring Shareholder are acquired by
the Company and/or Investors (or assignees) pursuant to the Company Option and
Investor Option set forth in Section 4 (collectively, the "Options"), the
Company shall deliver, promptly upon expiration of the Options, a notice in
writing to each Investor (the "Co-Sale Notice") reiterating the names of the
prospective transferee or transferees, the number of shares of Stock proposed to
be transferred and not acquired pursuant to the Options, and the price per share
at which such shares are proposed to be transferred.
(b) Grant of Co-Sale Rights. Each Investor shall have the right,
exercisable upon written notice to such Transferring Shareholder within fifteen
(15) business days after receipt of the Transferring Shareholder's Co-Sale
Notice, to participate in the sale of the shares on the same terms and
conditions as those set forth in the Co-Sale Notice. To the extent one or more
of the Investors exercise such right of participation, the number of shares that
the Transferring Shareholder may sell in the transaction shall be
correspondingly reduced. The right of participation of each of the Investors
shall be subject to the terms and conditions set forth in this Section:
(i) Each Investor shall be deemed to own the number of shares of
Common Stock which such Investor actually holds plus the number of shares of
Common Stock which are issuable upon conversion of any shares of Series B,
Series C, Series D and Series E Preferred Stock then held by such Investor.
(ii) Each Investor may sell all or any part of a number of shares
equal to the product obtained by multiplying (A) the aggregate number of shares
of Common Stock covered by the Co-Sale Notice by (B) a fraction the numerator of
which is the number of shares of Common Stock, Series B, Series C, Series D and
Series E Preferred Stock of the Company at the time owned by the Investor and
the denominator of which is the combined number of shares of Common Stock,
Series B, Series C, Series D and Series E Preferred Stock of the Company at the
time owned by the Transferring Shareholder and Investors.
(iii) To the extent an Investor elects not to sell the full
number of shares it is entitled to sell pursuant to Section 5(b)(ii) above, the
other Investors' rights to participate in the sale shall be increased pro rata
by a corresponding number of shares.
(iv) Each Investor may effect its participation in the sale by
delivering to the Transferring Shareholder for transfer to the purchase offeror
one or more certificates, properly endorsed for transfer, which represent:
(A) the number of shares of Common Stock which the party
elects to sell pursuant to this Section 5(b); or
(B) that number of shares of Series B, Series C, Series D or
Series E Preferred Stock which is at such time convertible into the number of
shares of Common Stock which the party has elected to sell pursuant to this
Section 5(b); provided, however, that if the purchase offeror objects to the
delivery of Series B, Series C, Series D or Series E Preferred
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<PAGE> 9
Stock in lieu of Common Stock, the party may convert and deliver Common Stock as
provided in Section 5(b)(i) above.
(c) Payment of Proceeds. The stock certificates which the Investors
deliver to such Transferring Shareholder pursuant to Section 5(b) shall be
transferred by the Transferring Shareholder to the purchase offeror in
consummation of the sale of the Stock pursuant to the terms and conditions
specified in the Co-Sale Notice, and such Transferring Shareholder shall
promptly thereafter remit to each Investor that portion of the sale proceeds to
which the Investor is entitled by reason of its participation in such sale. To
the extent that the purchase offeror refuses to purchase shares from an Investor
exercising its right of co-sale hereunder, the Transferring Shareholder shall
not sell to such purchase offeror unless or until, simultaneous with such sale,
the Transferring Shareholder shall purchase such shares from Investor on the
same terms and conditions specified in the Co-Sale Notice.
(d) Non-exercise. The exercise or non-exercise of the rights of the
Investors hereunder to participate in one or more sales of Stock made by the
Shareholders shall not adversely affect their rights to participate in
subsequent Stock sales by the Shareholders.
(e) Transfer of Common Shares Upon Failure to Exercise Right of
Co-Sale. If none of the Investors elects to participate in the sale of the Stock
subject to the Co-Sale Notice, the Transferring Shareholder may, not later than
sixty (60) days following the Investors' receipt of the Co-Sale Notice, conclude
a transfer of not less than all of the Stock covered by the Co-Sale Notice on
terms and conditions not more favorable to the transferor than those described
in the Co-Sale Notice. Any proposed transfer on terms and conditions more
favorable than those described in the Co-Sale Notice, as well as any subsequent
proposed transfer of any Stock by the Transferring Shareholder, shall again be
subject to, and require compliance with, the provisions of Sections 4 and 5
hereof.
6. Exempt Transfers.
(a) Permitted Transactions. Notwithstanding the foregoing, the rights
of first offer and co-sale rights of the Company and the Investors shall not
apply to any transfer by gift to the ancestors, descendants, siblings or spouse
of a Shareholder or to trusts for the benefit of such persons or to any or all
of the partners of a Shareholder that is a general or limited partnership;
provided that the transferee shall furnish the Company and the Investors with a
written agreement to be bound by and comply with all provisions of this
Agreement. Such transferred Stock shall remain "Stock" hereunder, and such
transferee shall be treated as a "Shareholder" for the purposes of this
Agreement.
(b) Company Repurchase. The provisions of Sections 4 and 5 of this
Agreement shall not apply to the sale of any Stock to the Company pursuant to
the applicable Purchase Option.
7. Prohibited Transfers.
(a) Grant. In the event a Shareholder should sell any Stock of the
Company in contravention of the participation rights of the Investors under this
Agreement as described in Section 5 above (a "Prohibited Transfer"), the
Investors shall have, in addition to such other
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<PAGE> 10
remedies as may be available at law, in equity or hereunder, the put option
provided in Section 7(b).
(b) Put Option. In the event of a Prohibited Transfer by a
Shareholder, each Investor shall have the option to sell to such Shareholder a
number of shares of Common Stock of the Company (either directly or through
delivery of Preferred Stock) equal to the number of shares which such Investor
would have been entitled to sell had such Prohibited Transfer been effected in
accordance with Section 5 hereof, on the following terms and conditions:
(i) The price per share at which the shares are to be sold to the
Shareholder shall be equal to the price per share paid to the Shareholder by the
third-party purchaser or purchasers of the Shareholder's Stock in the Prohibited
Transfer. The Shareholder shall also reimburse each Investor for any and all
reasonable fees and expenses, including legal fees and expenses, incurred
pursuant to the exercise or the attempted exercise of the Investor's rights
under Section 5(b) hereof.
(ii) The Investors shall deliver to the Shareholder, within
ninety (90) days after the later of the dates on which the Investors received
notice from the Shareholder or otherwise become aware of the Prohibited
Transfer, the certificate or certificates representing shares to be sold, each
certificate to be properly endorsed for transfer.
(iii) The Shareholder shall, upon receipt of the certificates for
the repurchased shares, pay the aggregate Section 7(b) purchase price therefor,
by certified check or bank draft made payable to the order of the Investors
exercising such option, and shall reimburse such parties for any additional
expenses, including legal fees and expenses, incurred in effecting such purchase
and resale.
(c) Notwithstanding the foregoing, any attempt by a Shareholder to
transfer Stock in violation of Sections 4 or 5 hereof, whether voluntary or
involuntary, shall be void and the Company agrees it will not effect such a
transfer nor will it treat any alleged transferee as the Shareholder of such
shares without the written consent of the holders of a majority of the shares
held by the Investors.
8. Special Provisions.
(a) Shareholder Rights. Until such time as the Company actually
exercises the applicable Purchase Option or the Company Option and/or the
Investors actually exercise their rights under Section 2(a) or the Investor
Option or the Investor Over-Allotment Option under this Agreement, each
Shareholder (or any successors in interest) shall have all the rights of a
shareholder (including voting and dividend rights) with respect to the Stock
subject, however, to the transfer restrictions of Section 1.
(b) Market Stand-Off Agreement. Each Shareholder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Securities Act of 1933,
as amended (the "Securities Act"), it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase
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or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any securities of the Company held by it at any time during
such period except common stock included in such registration; provided,
however, that:
(i) such agreement shall not exceed 180 days for the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(ii) such agreement shall not exceed 90 days for any subsequent
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Stock of each Shareholder (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
9. Termination. Subject to Section 7(c), the right of first offer and
the co-sale rights of an Investor under Sections 4 and 5 of this Agreement and
the correlative obligations of each Shareholder to such Investor with respect to
its Stock shall terminate at such time as such Investor shall no longer be the
owner of any shares of capital stock of the Company. Unless sooner terminated in
accordance with the preceding sentence, the rights and obligations under
Sections 4 and 5 of this Agreement shall terminate upon the occurrence of any
one of the following events (each, a "Corporate Transaction"):
(a) the liquidation, dissolution or indefinite cessation of the
business operations of the Company;
(b) the execution by the Company of a general assignment for the
benefit of creditors or the appointment of a receiver or trustee to take
possession of the property and assets of the Company;
(c) immediately prior to the closing of a bona fide firm commitment
underwritten public offering of the Company's Common Stock registered under the
Securities Act of 1933 on Form S-1 (or any successor form designated by the
Securities and Exchange Commission).
10. Miscellaneous Provisions.
(a) Notice. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given to the party so notified in
writing and shall be deemed effectively given upon personal delivery to the
party to be notified, upon delivery by confirmed facsimile or electronic
transmission (with duplicate original sent by United States mail, or three (3)
days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
11
<PAGE> 12
(b) Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed and interpreted in such manner as to be effective and valid
under applicable law.
(c) Waiver or Modification. Any amendment or modification of this
Agreement shall be effective only if evidenced by a written instrument executed
by (i) Shareholders holding a majority of the Stock subject to this Agreement,
(ii) the Company and (iii) Investors, or their assignees, holding not less than
a majority of the Common Stock issued or issuable upon conversion of the Series
B, Series C, Series D and Series E Preferred Stock then held by the Investors.
(d) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California as applied in contracts
among California residents entered into and performed entirely within
California.
(e) Attorneys' Fees. In the event of any dispute involving the terms
hereof, the prevailing parties shall be entitled to collect legal fees and
expenses from the other party to the dispute.
(f) Further Assurances. Each party agrees to act in accordance
herewith and not to take any action which is designed to avoid the intention
hereof.
(g) Ownership. Each Shareholder represents and warrants that he or
she is the sole legal and beneficial owner of the shares of Common Stock subject
to this Agreement and that no other person has any interest (other than a
community property interest) in such shares.
(h) Successors and Assigns. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
(i) Aggregation of Stock. For the purposes of determining the
availability of any rights under this Agreement, the holdings of transferees and
assignees of an individual or a partnership who are spouses, ancestors, lineal
descendants or siblings of such individual or partners or retired partners of
such partnership (including spouses and ancestors, lineal descendants and
siblings of such partners or spouses who acquire Common Stock by gift, will or
intestate succession) shall be aggregated together with the individual or
partnership, as the case may be, for the purpose of exercising any rights or
taking any action under this Agreement.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(k) Separate Counsel. Each Shareholder acknowledges and agrees that
such Shareholders have been provided the opportunity and encouraged to consult
with counsel of such Shareholders' own choosing with respect to this Agreement
and that Brobeck, Phleger & Harrison LLP solely represents the interests of the
Company.
12
<PAGE> 13
(l) Legend. Each certificate representing shares of Stock now or
hereafter owned by each Shareholder shall be endorsed with the following legend:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A
CERTAIN AGREEMENT AMONG THE SHAREHOLDER, THE CORPORATION
AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF THE CORPORATION.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY:
FAIRBANKS SYSTEMS GROUP,
a California Corporation doing
business as @Backup, Inc.
By: /s/ GARY SUTTON
-------------------------------------------
Gary Sutton,
Chief Executive Officer
Address: 3550 General Atomics Court
San Diego, CA 92121-1194
SHAREHOLDERS:
THE MCCLAIN FAMILY TRUST DATED
MAY 6, 1996
/s/ Fred McClain, Trustee
-----------------------------------------------
Fred McClain, Trustee
/s/ Carolyn L. McClain, Trustee
-----------------------------------------------
Carolyn L. McClain, Trustee
Address: 3550 General Atomic Court
San Diego, CA 92121-1194
/s/ Thomas Bolt
-----------------------------------------------
Thomas Bolt
Address: 3550 General Atomic Court
San Diego, CA 92121-1194
THE SUTTON FAMILY TRUST DATED
JUNE 6, 1995
By: /s/ GARY SUTTON
-------------------------------------------
Gary Sutton, Trustee
By: /s/ NANCY SUTTON
-------------------------------------------
Nancy Sutton, Trustee
Address: 3550 General Atomic Court
San Diego, CA 92121-1194
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 15
INVESTORS:
CENDANT CORPORATION,
a Delaware corporation
By: /s/ ERIC J. BOCK
-------------------------------------------
Eric J. Bock,
Vice President - Legal
Address: 9 West 57th St., 37th Flr.
New York, NY 10019
WINDWARD VENTURES, L.P.
By: Windward Ventures Management, L.P.
By: /s/ Dave Titus
--------------------------------------
Dave Titus, General Partner
Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ Andrew Senyei
--------------------------------------
Andrew Senyei, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ Andrew Senyei
---------------------------------------
Andrew Senyei, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 16
ALTA CALIFORNIA PARTNERS, L.P.,
a Delaware limited partnership
By: Alta California Management Partners, L.P.
Its: General Partner
By: /s/ MARINO POLESTRA
--------------------------------------
Marino Polestra, General Partner
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ALTA EMBARCADERO PARTNERS, L.L.C.,
a California limited liability company
By: /s/ JEAN DELEAGE
-------------------------------------------
Jean Deleage, Member
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
SECURITY PACIFIC FINANCE, LTD.
By: /s/ Ian Ernest Kelley
-------------------------------------------
Print Name: Ian Ernest Kelley
-----------------------------------
Title: Director
----------------------------------------
Address: P.O. Box 48
Canada Court
St. Peter Port
Guernsey, Channel Islands GY13BQ
MORGAN INVESTMENT HOLDINGS, LTD.
By:
-------------------------------------------
Print Name:
-----------------------------------
Title:
----------------------------------------
Address: P.O. Box 253
Bordage House, Le Bordage
St. Peter Port
Guernsey, Channel Islands GY13QJ
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 17
CG&H INVESTMENTS
By: /s/ JOHN L. CARDOZA
-------------------------------------------
John L. Cardoza, Executive Partner
Address: c/o Jim Kindler
One Maritime Plaza, Suite 2000
San Francisco, CA 94111
AMERICAN EXPRESS TRAVEL RELATED
SERVICES COMPANY, INC.,
a New York corporation
By: /s/ Pierre Beckert
-------------------------------------------
Print Name: Pierre Beckert
-----------------------------------
Title: Vice President
----------------------------------------
Address: American Express Tower
3 World Financial Center
New York, NY 10285
CREIGHTON AND CHARLOTTE GALLAWAY
FAMILY TRUST, UTD
DATED: AUGUST 28, 1995
By: /s/ Creighton Gallaway
-------------------------------------------
Creighton Gallaway, Trustee
Address: 2838 Inverness Drive
La Jolla, CA 92037
THE RIBLE LIVING TRUST DATED JANUARY 15, 1988
By: /s/ Ann M. Rible, Trustee
-------------------------------------------
Address: 5691 La Sencilla
Rancho Santa Fe, CA 92067
/s/ Sidney Karin
-----------------------------------------------
Sidney Karin
Address: 748 Avocado Court
Del Mar, CA 92014
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 18
/s/ Peter Preuss
-----------------------------------------------
Peter Preuss
Address: 2223 Avenida de la Playa, Suite 220
La Jolla, CA 92037
-----------------------------------------------
Barry Rosenbaum
-----------------------------------------------
Barbara J. Rosenbaum
Address: 490 Oceanview Avenue
Del Mar, CA 92014
-----------------------------------------------
William E. Norgren
Address: 5268 La Glorieta
Rancho Santa Fe, CA 92067
THOMAS P. MURPHY TTEE
UTA DTA DATED 10/20/86
By: /s/ Thomas P. Murphy, Trustee
------------------------------------------
Thomas P. Murphy, Trustee
Address: 6849 Country Club Drive
La Jolla, CA 92037
MICHAEL B. JONES AND VALENTINA JONES-WAGNER,
TRUSTEES UNDER TRUST AGREEMENT DATED 12/4/1984
-----------------------------------------------
Michael Jones, Trustee
Address: 114 Kettle Creek Road
Weston, CT 06883
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 19
DENNIS P. RILEY, DDS,
A PROFESSIONAL CORPORATION
By: /s/ DENNIS P. RILEY
-------------------------------------------
Address: 1038 Muirlands Vista Way
La Jolla, CA 92037
FBO BARRY ROSENBAUM IRA
A/C #247-81400-11
By: Delaware Charter Guarantee & Trust Co. TTEE
Its: Trustee
By:
-------------------------------------------
Print Name:
-----------------------------------
Title:
----------------------------------------
Address: P.O. Box 8963
Wilmington, Delaware 19899-8963
ADVANCED DIGITAL INFORMATION CORPORATION,
a Washington corporation
By: /s/ Peter van Oppen
-------------------------------------------
Address: P.O. Box 97057
11431 Willows Road, N.E.
Redmond, WA 98073-9757
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 20
CREST COMMUNICATION PARTNERS L.P.
By: Crest Communications Holding L.L.C.
Its: Authorized Representative
By: /s/ GREGG A. MOCKENHAUPT
-------------------------------------------
Print Name: Gregg A. Mockenhaupt
-----------------------------------
Title: Managing Director
----------------------------------------
Address: 2852 Jackson Street
San Francisco, CA 94115
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 21
EXHIBIT A
Shareholders
<TABLE>
<CAPTION>
Number of Common
Shareholder Name Shares Owned
- ---------------- ----------------
<S> <C>
The McClain Family Trust dated May 6, 1996 ............ 1,671,893
Thomas Bolt ........................................... 771,000
The Sutton Family Trust dated June 5, 1995 ............ 807,107
---------
TOTAL: ........................................ 3,250,000
=========
</TABLE>
Exhibit A-1
<PAGE> 22
EXHIBIT B
List of Investors
Cendant Corporation
Windward Ventures
American Express Travel Related Services Company, Inc.
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Alta California Partners, L.P.
Alta Embarcadero Partners, LLC
Security Pacific Finance
Morgan Investment
GC&H Investments
Creighton and Charlotte Gallaway
Family Trust
The Rible Living Trust
Sidney Karin
Peter Preuss
Barry and Barbara Rosenbaum
William Norgren
Tom Murphy
John S. Huiskamp Family Trust
Margalaur LLC
Jim Goode
Dennis Riley
FBO Barry Rosenbaum IRA
Advanced Digital Information Corporation
Exhibit B-1
<PAGE> 23
EXHIBIT C
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, __________________________, hereby sell, assign
and transfer unto _____________________________ (_________) shares of the Common
Stock of Fairbanks Systems Group standing in my name on the books of said
corporation represented by Certificate No. ___________ herewith and do hereby
irrevocably constitute and appoint _________________ attorney to transfer said
stock on the books of the within-named corporation with full power of
substitution in the premises.
Dated: _________________, 19__
Signature:
---------------------------------
Print Name:
--------------------------------
This Assignment Separate from Certificate was executed in conjunction
with the terms of that certain Amended and Restated Shareholders' Agreement
between the above assignor and Fairbanks Systems Group doing business as
@Backup, Inc. dated February 5, 1998.
Exhibit C-1
<PAGE> 24
EXHIBIT D
CONSENT OF SPOUSE
I, _______________________, the spouse of ______________
_____________________, one of the shareholders referred to as a "Shareholder" in
the foregoing Amended and Restated Shareholders' Agreement ("Agreement"), dated
March 6, 1998, of Fairbanks Systems Group, a California corporation doing
business as @Backup, Inc. (the "Company"), acknowledge that I have reviewed the
Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to the
exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in the Agreement or
any shares of the Company under the community property laws of the state of our
residence or similar laws relating to marital property in effect in the state of
our residence as of the date of the signing of the Agreement or thereafter.
Effective: March __, 1998
Signature:
---------------------------------
Print Name:
--------------------------------
Exhibit D-1
<PAGE> 25
AMENDMENT NO. 1 TO THE
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
This Amendment No. 1 to the Amended and Restated Shareholders' Agreement
(the "Amendment") is made this 23rd day of August 1999, by and among Fairbanks
Systems Group, a California corporation doing business as @Backup, Inc. (the
"Company"), the holders of shares of the Company's Common Stock listed on
Exhibit A hereto (the "Shareholders," which term includes each Shareholder's
heirs, executors, guardians, successors and assigns), and the investors listed
on Exhibit B hereto (the "Investors"). Capitalized terms used herein which are
not defined herein shall have the definition ascribed to them in the Amended and
Restated Shareholders' Agreement, dated July 30, 1999 (the "Agreement").
RECITALS
WHEREAS, the Company, the Shareholders and certain of the Investors are
parties to the Agreement;
WHEREAS, the Company desires to complete the second sale of its Series E
Preferred Stock to certain of the Investors (the "New Series E Investors"), and
these New Series E Investors desire to purchase the Series E Preferred Stock
from the Company; and
WHEREAS, the Company, the Shareholders and the Investors acknowledge
that they entered into this Amendment as an inducement to and in consideration
of the New Series E Investors' purchase of the Company's Series E Preferred
Stock.
WHEREAS, Section 10(c) of the Agreement provides that the Agreement may
be amended by the written consent of the Company and the holders of a majority
(on an as-converted to Common Stock basis) of the Series A, Series B, Series C,
Series D and Series E Preferred Stock.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Amendment and the Agreement, the parties hereby agree as follows:
1. Amendment to Exhibit B of the Agreement. Exhibit B to the Agreement
is amended and replaced in its entirety by Exhibit B attached hereto.
2. Amendment to Section 10(i) of the Agreement. Section 10(i) of the
Agreement is amended and replaced in its entirety by the following:
"For the purposes of determining the availability of any rights under
this Agreement, the holdings of transferees and assignees of an individual,
partnership or other entity who are spouses, ancestors, lineal descendants or
siblings of such individual or partners, retired partners of such partnership
(including spouses and ancestors, lineal descendants and siblings of such
partners or spouses who acquire Common Stock by gift, will or intestate
succession) or affiliates
<PAGE> 26
of the partnership or other entity shall be aggregated together with the
individual, partnership or other entity, as the case may be, for the purpose of
exercising any rights or taking any action under this Agreement."
3. Effect of Amendment. Except as expressly modified by this Amendment,
the Agreement shall remain unmodified and in full force and effect.
4. Miscellaneous Provisions.
(a) Severability. In the event one or more of the provisions of
this Amendment should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Amendment or the Agreement, and
this Amendment and the Agreement shall be construed and interpreted in such
manner as to be effective and valid under applicable law.
(b) Waiver or Modification. Any amendment or modification of
this Amendment shall be effective only if evidenced by a written instrument
executed by (i) Shareholders holding a majority of the Stock subject to this
Amendment, (ii) the Company and (iii) Investors, or their assignees, holding not
less than a majority of the Common Stock issued or issuable upon conversion of
the Series B, Series C, Series D and Series E Preferred Stock then held by the
Investors.
(c) Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of California as applied in
contracts among California residents entered into and performed entirely within
California.
(d) Entire Agreement. This Amendment together with the Agreement
and all documents referred to herein and therein constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
(e) Successors and Assigns. This Agreement and the rights and
obligations of the parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) Separate Counsel. Each Shareholder and each Investor
acknowledges and agrees that such Shareholder or Investor has been provided the
opportunity and encouraged to consult with counsel of such Shareholder's or
Investor's own choosing with respect to this Amendment and that Brobeck, Phleger
& Harrison LLP solely represents the interests of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
COMPANY:
FAIRBANKS SYSTEMS GROUP, a
California Corporation doing
business as @Backup, Inc.
By: /s/ Gary Sutton
---------------------------------
Gary Sutton, Chief Executive
Officer
Address: 3550 General Atomics Court
San Diego, CA 92121-1194
SHAREHOLDERS:
THE MCCLAIN FAMILY TRUST DATED
MAY 6, 1996
/s/ Fred McClain, Trustee
------------------------------------
Fred McClain, Trustee
/s/ Carolyn L. McClain, Trustee
------------------------------------
Carolyn L. McClain, Trustee
Address: 3550 General Atomic Court
San Diego, CA 92121-1194
------------------------------------
Thomas Bolt
Address: 3550 General Atomic Court
San Diego, CA 92121-1194
THE SUTTON FAMILY TRUST DATED
JUNE 6, 1995
By: /s/ Gary Sutton
---------------------------------
Gary Sutton, Trustee
By: /s/ Nancy Sutton
---------------------------------
Nancy Sutton, Trustee
Address: 3550 General Atomic Court
San Diego, CA 92121-1194
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 28
<TABLE>
<S> <C>
INVESTORS:
CENDANT CORPORATION, a Delaware corporation
By: /s/ Anwar Zakkour
---------------------------------
Anwar Zakkour, Senior Vice President
Strategic Development
Address: 9 West 57th Street, 37th Floor
New York, NY 10019
WINDWARD VENTURES, L.P.
By: Windward Ventures Management, L.P.
By: /s/ Dave Titus
----------------------------
Dave Titus, General Partner
Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ James Berglund
----------------------------
James Berglund, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ James Berglund
----------------------------
James Berglund, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
</TABLE>
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 29
<TABLE>
<S> <C>
ALTA CALIFORNIA PARTNERS, L.P., a Delaware
limited partnership
By: Alta California Management Partners, L.P.
Its: General Partner
By: /s/ Garrett Gruener
---------------------------------
Garrett Gruener, General Partner
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ALTA EMBARCADERO PARTNERS, L.L.C., a California
limited liability company
By: /s/ Garrett Gruener
----------------------------------------
Garrett Gruener, Member
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
SECURITY PACIFIC FINANCE, LTD.
By:
--------------------------------------------
Print Name:
------------------------------------
Title:
-----------------------------------------
Address: P.O. Box 48
Canada Court
St. Peter Port
Guernsey, Channel Islands GY13BQ
MORGAN INVESTMENT HOLDINGS, LTD.
By: /s/ J. Adie /s/ D. Larkin
--------------------------------------------
Print Name: J. Adie D. Larkin
------------------------------------
Title: Authorized Signatories
-----------------------------------------
Address: P.O. Box 253
Bordage House, Le Bordage
St. Peter Port
Guernsey, Channel Islands GY13QJ
</TABLE>
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 30
<TABLE>
<S> <C>
CG&H INVESTMENTS
By: /s/ John L. Cardoza
----------------------------------------
John L. Cardoza, Executive Partner
Address: c/o Jim Kindler
One Maritime Plaza, Suite 2000
San Francisco, CA 94111
AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY,
INC., a New York corporation
By: /s/ Lawrence Kutscher
--------------------------------------------
Print Name: Lawrence Kutscher
------------------------------------
Title: Senior Vice President
-----------------------------------------
Address: American Express Tower
3 World Financial Center
New York, NY 10285
CREIGHTON AND CHARLOTTE GALLAWAY FAMILY TRUST,
UTD DATED: AUGUST 28, 1995
By: /s/ Creighton Gallaway
----------------------------------------
Creighton Gallaway, Trustee
Address: 2838 Inverness Drive
La Jolla, CA 92037
THE RIBLE LIVING TRUST DATED JANUARY 15, 1988
By:
----------------------------------------
Address: 5691 La Sencilla
Rancho Santa Fe, CA 92067
-----------------------------------------------
Sidney Karin
Address: 748 Avocado Court
Del Mar, CA 92014
</TABLE>
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 31
<TABLE>
<S> <C>
DENNIS P. RILEY, DDS, A PROFESSIONAL CORPORATION
By: /s/ Dennis P. Riley
----------------------------------------
Address: 1038 Muirlands Vista Way
La Jolla, CA 92037
FBO BARRY ROSENBAUM IRA
A/C #247-81400-11
By: Delaware Charter Guarantee & Trust Co. TTEE
Its: Trustee
By:
--------------------------------------------
Print Name:
------------------------------------
Title:
-----------------------------------------
Address: P.O. Box 8963
Wilmington, Delaware 19899-8963
ADVANCED DIGITAL INFORMATION CORPORATION, a
Washington corporation
By: /s/ Peter van Oppen
----------------------------------------
Address: P.O. Box 97057
11431 Willows Road, N.E.
Redmond, WA 98073-9757
MERRILL LYNCH KECALP L.P. 1999
By: KECALP, Inc.
Its: General Partner
By: /s/ Edward J. Higgins
----------------------------------------
Edward J. Higgins, Vice President
Address: World Financial Center South Tower
225 Liberty Street
23rd Floor
New York, NY 10080-6123
</TABLE>
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 32
<TABLE>
<S> <C>
KECALP INC., AS NOMINEE FOR MERRILL LYNCH KECALP
INTERNATIONAL L.P. 1999
Address: World Financial Center South Tower
225 Liberty Street
23rd Floor
New York, NY 10080-6123
By: /s/ Edward J. Higgins
----------------------------------------
Edward J. Higgins, Vice President
CREST COMMUNICATION PARTNERS L.P.
By: Crest Communications Holding L.L.C.
Its: Authorized Representative
By: /s/ Gregg A. Mockenhaupt
--------------------------------------------
Print Name: Gregg A. Mockenhaupt
------------------------------------
Title: Managing Director
-----------------------------------------
Address: 2852 Jackson Street
San Francisco, CA 94115
</TABLE>
[SIGNATURE PAGE TO AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT]
<PAGE> 33
EXHIBIT A
Shareholders
<TABLE>
<CAPTION>
Number of Common
Shareholder Name Shares Owned
- ---------------- ------------
<S> <C>
The McClain Family Trust dated May 6, 1996.............. 1,671,893
Thomas Bolt............................................. 771,000
The Sutton Family Trust dated June 5, 1995.............. 807,107
---------
TOTAL: 3,250,000
=========
</TABLE>
Exhibit A-1
<PAGE> 34
EXHIBIT B
List of Investors
Cendant Corporation
Windward Ventures
American Express Travel Related Services Company, Inc.
Enterprise Partners III, L.P.
Enterprise Partners III Associates, L.P.
Alta California Partners, L.P.
Alta Embarcadero Partners, LLC
Security Pacific Finance
Morgan Investment
GC&H Investments
Creighton and Charlotte Gallaway
Family Trust
The Rible Living Trust
Sidney Karin
Peter Preuss
Barry and Barbara Rosenbaum
William Norgren
Tom Murphy
John S. Huiskamp Family Trust
Margalaur LLC
Jim Goode
Dennis Riley
FBO Barry Rosenbaum IRA
Advanced Digital Information Corporation
Merrill Lynch KECALP L.P. 1999
Merrill Lynch KECALP International L.P. 1999
Crest Communications Partners L.P.
Exhibit D-1
<PAGE> 35
AMENDMENT NO. 2 TO THE
AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT
This Amendment No. 2 to the Amended and Restated Shareholders' Agreement
("Amendment No. 2") is made this 17th day of September 1999, by and among
Fairbanks Systems Group, a California corporation doing business as @Backup,
Inc. (the "Company"), the holders of shares of the Company's Common Stock listed
on Exhibit A hereto (the "Shareholders," which term includes each Shareholder's
heirs, executors, guardians, successors and assigns), and the investors listed
on Exhibit B hereto (the "Investors"). Capitalized terms used herein which are
not defined herein shall have the definitions ascribed to them in the Amended
and Restated Shareholders' Agreement, dated July 30, 1999 (the "Agreement"), as
amended by Amendment No. 1 to the Amended and Restated Shareholders' Agreement,
dated August 23, 1999 ("Amendment No. 1"), by and among the Company, the
Shareholders, and certain of the Investors (the "Existing Investors").
RECITALS
WHEREAS, the Company, the Shareholders and the Existing Investors are
parties to the Agreement and Amendment No. 1;
WHEREAS, the Company desires to complete the third sale of its Series E
Preferred Stock to certain of the Investors (the "New Investors"), and these New
Investors desire to purchase the Series E Preferred Stock from the Company;
WHEREAS, the Company, the Shareholders and the Existing Investors
acknowledge that they are entering into this Amendment No. 2 as an inducement to
and in consideration of the New Investors' purchase of the Company's Series E
Preferred Stock; and
WHEREAS, Section 10(c) of the Agreement provides that the Agreement may
be amended by the written consent of the Company and the holders of a majority
(on an as-converted to Common Stock basis) of the Series A, Series B, Series C,
Series D and Series E Preferred Stock.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions contained herein and in
the Agreement and in Amendment No. 1, and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
1. Additional Party to the Agreement and Amendment No. 1. By
executing this Amendment No. 2, each New Investor becomes a party to and agrees
to be bound by the terms and conditions of the Agreement and Amendment No. 1.
2. Amendment to Exhibit B of the Agreement. Exhibit B to the
Agreement, as amended by Amendment No. 1, is amended and restated in its
entirety by Exhibit B attached hereto.
<PAGE> 36
3. Waiver and Consent. The Company, the Shareholders and the
Existing Investors hereby (a) consent to adding the New Investors as parties to
the Agreement and Amendment No. 1 and (b) consent to the amendments to the
Agreement and Amendment No. 1 set forth in this Amendment No. 2.
4. Effect of Amendment. Except as expressly modified by this
Amendment No. 2, the Agreement and Amendment No. 1 shall remain unmodified and
in full force and effect.
5. Miscellaneous Provisions.
(a) Severability. In the event one or more of the
provisions of this Amendment No. 2 should, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Amendment No. 2,
or the Agreement or Amendment No. 1, and this Amendment No. 2 and the Agreement
and Amendment No. 1 shall be construed and interpreted in such manner as to be
effective and valid under applicable law.
(b) Waiver or Modification. Any amendment or
modification of this Amendment No. 2 shall be effective only if evidenced by a
written instrument executed by (i) Shareholders holding a majority of the Stock
subject to this Amendment, (ii) the Company and (iii) Investors, or their
assignees, holding not less than a majority of the Common Stock issued or
issuable upon conversion of the Series B, Series C, Series D and Series E
Preferred Stock then held by the Investors.
(c) Governing Law. This Amendment No. 2 shall be
governed by and construed in accordance with the laws of the State of California
as applied in contracts among California residents entered into and performed
entirely within California.
(d) Entire Agreement. This Amendment No. 2 together with
the Agreement and Amendment No. 1 and all documents referred to herein and
therein constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof.
(e) Successors and Assigns. This Amendment No. 2 and the
rights and obligations of the parties hereunder shall inure to the benefit of,
and be binding upon, their respective successors, assigns and legal
representatives.
(f) Counterparts. This Amendment No. 2 may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(g) Separate Counsel. Each Shareholder and each Investor
acknowledges and agrees that such Shareholder or Investor has been provided the
opportunity and encouraged to consult with counsel of such Shareholder's or
Investor's own choosing with respect to this Amendment No. 2, and that Brobeck,
Phleger & Harrison LLP solely represents the interests of the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
2 as of the day and year first above written.
<TABLE>
<S> <C>
COMPANY:
FAIRBANKS SYSTEMS GROUP, a
California Corporation doing
business as @Backup, Inc.
By: /s/ Gary Sutton
------------------------------------
Gary Sutton, Chief Executive Officer
Address: 3550 General Atomics Court
San Diego, CA 92121-1194
SHAREHOLDERS:
THE MCCLAIN FAMILY TRUST DATED MAY 6, 1996
/s/ Fred McClain, Trustee
-------------------------------------------
Fred McClain, Trustee
/s/ Carolyn L. McClain, Trustee
-------------------------------------------
Carolyn L. McClain, Trustee
Address: 3550 General Atomic Court
San Diego, CA 92121-1194
-------------------------------------------
Thomas Bolt
Address: 3550 General Atomic Court
San Diego, CA 92121-1194
THE SUTTON FAMILY TRUST DATED JUNE 6, 1995
By: /s/ Gary Sutton
------------------------------------
Gary Sutton, Trustee
By: /s/ Nancy Sutton
------------------------------------
Nancy Sutton, Trustee
Address: 3550 General Atomic Court
San Diego, CA 92121-1194
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 38
<TABLE>
<S> <C>
EXISTING INVESTORS:
CENDANT CORPORATION,
a Delaware corporation
By: /s/ Anwar Zakkour
--------------------------------------
Anwar Zakkour, Senior Vice President
Strategic Development
Address: 9 West 57th Street, 37th Floor
New York, NY 10019
WINDWARD VENTURES, L.P.
By: Windward Ventures Management, L.P.
By: /s/ Dave Titus
-----------------------------
Dave Titus, General Partner
Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130
ENTERPRISE PARTNERS III, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ James Berglund
-----------------------------
James Berglund, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
ENTERPRISE PARTNERS III ASSOCIATES, L.P.
By: Enterprise Management Partners III, L.P.
Its: General Partner
By: /s/ James Berglund
-----------------------------
James Berglund, General Partner
Address: 7979 Ivanhoe Avenue, Suite 550
La Jolla, CA 92037
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 39
<TABLE>
<S> <C>
ALTA CALIFORNIA PARTNERS, L.P., a Delaware
limited partnership
By: Alta California Management Partners, L.P.
Its: General Partner
By: /s/ Illegible
-----------------------------
General Partner
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ALTA EMBARCADERO PARTNERS, L.L.C., a California
limited liability company
By: /s/ Illegible
------------------------------------
Member
Address: One Embarcadero Center, Suite 4050
San Francisco, CA 94111
SECURITY PACIFIC FINANCE, LTD.
By:
------------------------------------
Print Name:
--------------------------------
Title:
-------------------------------------
Address: P.O. Box 48
Canada Court
St. Peter Port
Guernsey, Channel Islands GY13BQ
MORGAN INVESTMENT HOLDINGS, LTD.
By: /s/ Sharon French /s/ Karen Hillian
------------------------------------
Print Name: Sharon French & Karen Hillian
--------------------------------
Title: Authorized Signataries
-------------------------------------
Address: P.O. Box 253
Bordage House, Le Bordage
St. Peter Port
Guernsey, Channel Islands GY13QJ
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 40
<TABLE>
<S> <C>
CG&H INVESTMENTS
By: /s/ John L. Cardoza
------------------------------------
John L. Cardoza, Executive Partner
Address: c/o Jim Kindler
One Maritime Plaza, Suite 2000
San Francisco, CA 94111
AMERICAN EXPRESS TRAVEL RELATED SERVICES COMPANY,
INC., a New York corporation
By: /s/ Pierre Beckert
------------------------------------
Print Name: Pierre Beckert
--------------------------------
Title: Vice President
------------------------------------
Address: American Express Tower
3 World Financial Center
New York, NY 10285
CREIGHTON AND CHARLOTTE GALLAWAY FAMILY TRUST,
UTD DATED: AUGUST 28, 1995
By: /s/ Creighton Gallaway
------------------------------------
Creighton Gallaway, Trustee
Address: 2838 Inverness Drive
La Jolla, CA 92037
THE RIBLE LIVING TRUST DATED JANUARY 15, 1988
By:
------------------------------------
Address: 5691 La Sencilla
Rancho Santa Fe, CA 92067
/s/ Sidney Karin
-------------------------------------------
Sidney Karin
Address: 748 Avocado Court
Del Mar, CA 92014
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 41
<TABLE>
<S> <C>
/s/ Peter Preuss
-------------------------------------------
Peter Preuss
Address: 2223 Avenida de la Playa, Suite 220
La Jolla, CA 92037
/s/ Barry Rosenbaum
-------------------------------------------
Barry Rosenbaum
/s/ Barbara J. Rosenbaum
-------------------------------------------
Barbara J. Rosenbaum
Address: 490 Oceanview Avenue
Del Mar, CA 92014
/s/ William Norgren
-------------------------------------------
William E. Norgren
Address: 5268 La Glorieta
Rancho Santa Fe, CA 92067
THOMAS P. MURPHY TTEE
UTA DTA DATED 10/20/86
By: /s/ Thomas P. Murphy, Trustee
------------------------------------
Thomas P. Murphy, Trustee
Address: 6849 Country Club Drive
La Jolla, CA 92037
MICHAEL B. JONES AND VALENTINA JONES-WAGNER,
TRUSTEES UNDER TRUST AGREEMENT DATED 12/4/1984
-------------------------------------------
Michael Jones, Trustee
Address: 114 Kettle Creek Road
Weston, CT 06883
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 42
<TABLE>
<S> <C>
DENNIS P. RILEY, DDS, A PROFESSIONAL CORPORATION
By: /s/ Dennis P. Riley
------------------------------------
Address: 1038 Muirlands Vista Way
La Jolla, CA 92037
FBO BARRY ROSENBAUM IRA
A/C #247-81400-11
By: Delaware Charter Guarantee & Trust Co. TTEE
Its: Trustee
By: /s/ Barry Rosenbaum
-----------------------------------------
Print Name: Barry Rosenbaum
---------------------------------
Title:
--------------------------------------
Address: P.O. Box 8963
Wilmington, Delaware 19899-8963
ADVANCED DIGITAL INFORMATION CORPORATION, a
Washington corporation
By: /s/ Signature Illegible
------------------------------------
Address: P.O. Box 97057
11431 Willows Road, N.E.
Redmond, WA 98073-9757
MERRILL LYNCH KECALP L.P. 1999
By: KECALP, Inc.
Its: General Partner
By:
------------------------------------
Edward J. Higgins, Vice President
Address: World Financial Center South Tower
225 Liberty Street
23rd Floor
New York, NY 10080-6123
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 43
<TABLE>
<S> <C>
MERRILL LYNCH KECALP L.P. 1999
By: KECALP, Inc.
Its: General Partner
By: /s/ Edward J. Higgins
------------------------------------
Edward J. Higgins, Vice President
Address: World Financial Center South Tower
225 Liberty Street
23rd Floor
New York, NY 10080-6123
KECALP INC., AS NOMINEE FOR MERRILL LYNCH KECALP
INTERNATIONAL L.P. 1999
By: /s/ Edward J. Higgins
------------------------------------
Edward J. Higgins, Vice President
Address: World Financial Center South Tower
225 Liberty Street
23rd Floor
New York, NY 10080-6123
CREST COMMUNICATION PARTNERS L.P.
By: Crest Communications Holding L.L.C.
Its: Authorized Representative
By: /s/ Gregg A. Mockenhaupt
------------------------------------
Print Name: Gregg A. Mockenhaupt
--------------------------------
Title: Managing Director
------------------------------------
Address: 2852 Jackson Street
San Francisco, CA 94115
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 44
<TABLE>
<S> <C>
NEW INVESTORS:
SIDNEY KARIN, individually
By: /s/ Sidney Karin
------------------------------------
Sidney Karin
Address: 748 Avocado Court
Del Mar, CA 92014
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 45
<TABLE>
<S> <C>
DENNIS P. RILEY, DDS, A PROFESSIONAL
CORPORATION
By:
------------------------------------
Dennis P. Riley, President
Address: 1038 Muirlands Vista Way
La Jolla, CA 92037
CREIGHTON AND CHARLOTTE GALLAWAY
FAMILY TRUST, UTD DATED: AUGUST 28,
1995
By:
------------------------------------
Creighton Gallaway, Trustee
NEW INVESTORS:
SIDNEY KARIN, individually
By:
------------------------------------
Sidney Karin
Address: 748 Avocado Court
Del Mar, CA 92014
EMC CORPORATION
By: /s/ Michael J. Cody
------------------------------------
Print Name: Michael J. Cody
--------------------------------
Title: Vice President New Business Development
------------------------------------
Address: 35 Parkwood Drive
Hopkinton, MA 01748
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 46
<TABLE>
<S> <C>
WINDWARD VENTURES, L.P.
By: Windward Ventures Management, L.P.
By: /s/ Dave Titus
------------------------------------
Dave Titus, General Partner
Address: 12680 High Bluff Drive, Suite 200
San Diego, CA 92130
SENVEST INTERNATIONAL LLC
By: /s/ Robert Mashaal
------------------------------------
Print Name: Robert Mashaal
--------------------------------
Title: President
------------------------------------
Address: 645 Madison Avenue, Suite 1500
New York, New York 10022
ROBERT MASHAAL, individually
/s/ Robert Mashaal
-------------------------------------------
Robert Mashaal
Address: 6256 Greenwich Dr., Suite 230
San Diego, CA 92122
NIR LIVNAT, individually
/s/ Nir Livnat
-------------------------------------------
Nir Livnat
Address: 16 Jacob Street
69015 Tel Aviv,
Israel
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 47
<TABLE>
<S> <C>
PAUL S. NELLES, individually
/s/ Paul S. Nelles
-------------------------------------------
Paul S. Nelles
Address: 7979 Ivanhoe Avenue, Suite 530
La Jolla, CA 92037
DUANE A. NELLES III, individually
/s/ Duane A. Nelles III
-------------------------------------------
Duane A. Nelles III
Address: 7979 Ivanhoe Avenue, Suite 530
La Jolla, CA 92037
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 48
<TABLE>
<S> <C>
PETER PREUSS
/s/ Peter Preuss
-------------------------------------------
Peter Preuss
Address: 222 Avenida de la Playa, Suite 220
La Jolla, CA 92037
WILLIAM E. NORGREN, an individual
/s/ William E. Norgren
-------------------------------------------
William E. Norgren
Address: 5260 La Glorieta
Rancho Santa Fe, CA 92067
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 49
<TABLE>
<S> <C>
THOMAS P. MURPHY TTEE UTA DTA Dated 10/20/86
By: /s/ Thomas P. Murphy, Trustee
------------------------------------
Thomas P. Murphy, Trustee
Address: 6849 Country Club Drive
La Jolla, CA 92037
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 50
<TABLE>
<S> <C>
MICHAEL B. JONES AND VALENTINA JONES-WAGNER,
TRUSTEES UNDER TRUST AGREEMENT DATED 12/4/1984
/s/ Michael B. Jones
-------------------------------------------
Michael Jones, Trustee
Address: 1604 El Paso Road
La Jolla, CA 92037
FBO BARRY ROSENBAUM IRA A/C #247-81400-11
By: Delaware Charter Guarantee & Trust Co.
Its: Trustee
By:
------------------------------------
Print Name:
------------------------------------
Title:
------------------------------------
Address: P.O. Box 8963
Wilmington, DE 19899-8963
VBW RAPTOR FUND, LLC
By: /s/ David J. Dival
------------------------------------
Print Name: David J. Dival
--------------------------------
Title: Member of Management Committee
------------------------------------
Address: 1 Boston Place, Suite 3310
Boston, MA 02108
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 51
<TABLE>
<S> <C>
BROBECK, PHLEGER &
HARRISON LLP
By: /s/ Craig S. Andrews
------------------------------------
Craig S. Andrews, Partner
Address: 550 W. C Street, Ste. 1200
San Diego, CA 92101
MARTIN C. NICHOLS, an Individual
/s/ Martin C. Nichols
-------------------------------------------
Martin C. Nichols
Address: 550 W. C Street, Ste. 1200
San Diego, CA 92101
JEFFREY C. THACKER, an Individual
/s/ Jeffrey C. Thacker
-------------------------------------------
Jeffrey C. Thacker
Address: 550 W. C Street, Ste. 1200
San Diego, CA 92101
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 52
<TABLE>
<S> <C>
ALLAN SHAW TRUST
By: /s/ Allan P. Shaw
------------------------------------
Its: Trustee
Address: c/o Allan Shaw
5804 Caminito Empresa
La Jolla, CA 92037
LINDA SHAW, an Individual
/s/ Linda Shaw
-------------------------------------------
Linda Shaw
Address: 5804 Caminito Empresa
La Jolla, CA 92037
</TABLE>
[SIGNATURE PAGE TO AMENDMENT NO. 2 TO THE AMENDED AND RESTATED
SHAREHOLDERS' AGREEMENT]
<PAGE> 53
EXHIBIT A
Shareholders
<TABLE>
<CAPTION>
Number of Common
Shareholder Name Shares Owned
- ---------------- ------------
<S> <C>
The McClain Family Trust dated May 6, 1996.............. 1,671,893
Thomas Bolt............................................. 771,000
The Sutton Family Trust dated June 5, 1995.............. 807,107
---------
TOTAL: 3,250,000
</TABLE>
Exhibit A-1
<PAGE> 54
EXHIBIT B
List of Investors
Cendant Corporation
Windward Ventures
American Express Travel Related Services Company, Inc.Enterprise
Partners III, L.P.
Enterprise Partners III Associates, L.P.
Alta California Partners, L.P.
Alta Embarcadero Partners, LLC
Security Pacific Finance
Morgan Investment
GC&H Investments
Creighton and Charlotte Gallaway
Family Trust
The Rible Living Trust
Sidney Karin
Peter Preuss
Barry and Barbara Rosenbaum
William Norgren
Tom Murphy
John S. Huiskamp Family Trust
Margalaur LLC
Jim Goode
Dennis Riley
FBO Barry Rosenbaum IRA
Advanced Digital Information Corporation
Merrill Lynch KECALP L.P. 1999
Merrill Lynch KECALP International L.P. 1999
Crest Communications Partners L.P.
EMC Corporation
Senvest International LLC
Robert Mashaal
Nir Livnat
Paul S. Nelles
Duane A. Nelles III
VBW Raptor Fund, LLC
Brobeck, Phleger & Harrison LLP
Martin C. Nichols
Jeffrey C. Thacker
Allan Shaw Trust
Linda Shaw
Exhibit B-1
<PAGE> 1
EXHIBIT 10.9
MASTER LEASE AGREEMENT
Agreement No. 10910 Dated as of January 28, 1999
between
DOMINION VENTURES, INC.
44 Montgomery Street, Suite 4200
San Francisco, California 94101
as Lessor
and
FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, INC.
a California corporation
3550 General Atomics Court
San Diego, CA 92121-1194
as Lessee
Master Lease Line: $1,000,000.00
<TABLE>
<S> <C> <C> <C>
Initial Rent Factor: 3.134% Initial Lease Term 36 months
Treasury Base Rate: Treasury Note Maturity
Initial Implicit Rate
$31,340.00
Advance Rental: [PLUS APPLICABLE TAXES) Security Deposit: $0
Minimum Funding Amount: $75,000.00 Maximum Funding Frequency: monthly
</TABLE>
Funding Expiration Date: October 15, 1999
Eligible Equipment: New and/or used furniture, communications equipment,
computers, software, leasehold improvements and office equipment. Softcosts (for
purposes of this Lease "softcosts" shall include only software and leasehold
improvements, but shall not include taxes, labor, shipping and other similar
costs) not to exceed 15% of the Master Lease Line. All Equipment to be purchased
must be approved by Lessor.
ORIGINAL COUNTERPART NO.
The terms and information set forth on this cover page are a part of the
MASTER LEASE AGREEMENT, dated as of the date first written above (this "Lease"),
entered into by and between DOMINION VENTURES, INC. ("Lessor") and the Lessee
set forth above, the terms and conditions of which are as follows:
-1-
<PAGE> 2
LESSOR'S OBLIGATIONS UNDER THIS LEASE AND EACH SCHEDULE ARE SUBJECT TO
THE PRIOR SATISFACTION OF THE CONDITIONS SET FORTH ON ADDENDUM I HERETO.
1. DEFINITIONS: Unless otherwise defined in this Lease (which term shall
include the cover page, any Addendum, any Exhibit and any Schedule hereto),
capitalized terms shall have the following meanings:
(a) "Acceptance Certificate" means the Certificate of Inspection and
Acceptance in the form attached hereto as Exhibit D.
(b) "Acceptance Date" means, with respect to each Schedule, the date
of the Acceptance Certificate executed in connection with such
Schedule.
(c) "Advance Rental" has the meaning set forth in Paragraph 5(a) and
is in the amount as set forth on the cover page.
(d) "Assignee" has the meaning set forth in Paragraph 11(b).
(e) "Bill of Sale" means a bill of sale in the form attached hereto
as Exhibit C.
(f) "Commencement Date" has the meaning set forth in Paragraph 4.
(g) "Cost" means the cost to Lessor of purchasing one or more Units
of Equipment including any sales taxes and other charges paid by
Lessor and net of any discounts and rebates.
(h) "Discount Rate" means, as of any date of determination, the
lessor of (i) the then current per annum interest rate for
one-year United States treasury bills as set forth in the Wall
Street Journal on such date and (ii) six percent (6%).
(i) "Eligible Equipment" means Equipment of the types listed
following such term on the cover page of this Lease to the
extent acceptable to Lessor.
(j) "Environmental Law" means the Resource Conservation and Recovery
Act of 1987, the Comprehensive Environmental Response,
Compensation and Liability Act, and any other Federal, state or
local statute, law, ordinance, code, rule, regulation, order or
decree (in each case having the force of law) regulating or
imposing liability or standards of conduct concerning any
Hazardous Materials or other hazardous, toxic or dangerous
waste, constituent, or other substance, whether solid, liquid or
gas, as now or at any time hereafter in effect.
(k) "Equipment" means all Units listed in any Schedule together with
all replacement parts, additions, accessions and accessories to
such Units.
(l) "Event of Default" shall have the meaning set forth in Paragraph
24 hereof.
(m) "Financial Statements" has the meaning set forth in Paragraph
19(a).
(n) "Funding Expiration Date" means the date set forth opposite such
term on the cover page of this Lease or such earlier date on
which Lessor terminates its commitment to fund Schedules
pursuant to the terms of this Lease.
(o) "Hazardous Material" means any hazardous or toxic substance,
material, pollutant or waste, whether solid, liquid or gaseous,
which is regulated by any Federal, state or local governmental
authority.
(p) "Holdover Period" has the meaning set forth in Paragraph 18.
(q) "Implicit Rate" means, with respect to a Schedule, an implicit
interest rate used in calculating the Rent Factor applicable to
such Schedule, calculated as set forth in Section 5(c) of this
Lease.
(r) "Initial Rent Factor" means the rent factor set forth following
such term on the cover page of this Lease.
(s) "Initial Implicit Rate" means the implicit interest rate set
forth following such term on the cover page of this Lease.
(t) "Initial Lease Term" means, with respect to each Schedule, the
period beginning on the first day of the calendar month
following the Acceptance Date for such Schedule and continuing
for the number of months set forth following such term on the
cover page of this Lease.
(u) "Interim Rent" shall have the meaning set forth in Paragraph
5(b) of this Lease.
(v) "Lease Term" means, with respect to each Schedule, the
Noncancellable Term and any Holdover Period.
(w) "Lessor Affiliate" has the meaning set forth in Paragraph 11(c)
hereof.
(x) "Master Lease Line" means the amount set forth following such
term on the cover page of this Lease.
-2-
<PAGE> 3
(y) "Maximum Funding Frequency" means the time interval specified
opposite such term on the cover page hereof.
(z) "Minimum Funding Amount" means the amount set forth following
such term on the cover page of this Lease.
(aa) "Noncancellable Term" means, with respect to each Schedule, the
period from the Acceptance Date for such Schedule through the
end of the Initial Lease Term for such Schedule.
(bb) "Purchase Order Assignment" means a purchase order assignment in
the form of Exhibit B hereto.
(cc) "Rent Factor" means, with respect to a Schedule, the rent factor
calculated using the Implicit Rate applicable on the date of
preparation of such Schedule.
(dd) "Rental Payment" means, for any Schedule, the monthly rent
payment for the Units identified in such Schedule.
(ee) "Residual Value" has the meaning set forth in Paragraph 22(b) of
this Lease.
(ff) "Schedule" means a schedule in the form of Exhibit F to this
Lease identifying this Lease and incorporating this Lease by
reference, which is executed by both parties hereto.
(gg) "Treasury Base Rate" means the interest rate set forth following
such term on the cover page of this Lease.
(hh) "Treasury Note Maturity" means the period of time set forth
following such term on the cover page of this Lease.
(ii) "UCC" means the Uniform Commercial Code as in effect in the
State of California from time to time.
(jj) "Unit" means an item of Equipment.
2. LEASE. Lessor leases to Lessee, and Lessee hires and takes from
Lessor, subject to the terms and conditions set forth in this Lease, the Units
described in the Schedules executed hereunder. Each Schedule shall constitute a
separate and independent lease and contractual obligation of Lessee
incorporating the terms of this Lease. Lessor's commitment to fund Schedules
under this Lease continues through the Funding Expiration Date and is limited to
the amount of the Master Lease Line; provided, however, that Lessor, acting in
its sole discretion, may terminate or modify its funding commitment at any time
if: (a) there is any material adverse change to the general affairs, management,
results of operations, condition (financial or otherwise) or prospects of
Lessee, whether or not arising from transactions in the ordinary course of
business, (b) there is any material adverse deviation by Lessee from the
business plan (as it may have been supplemented in writing) of Lessee presented
to Lessor, since the date first written on the cover page of this Lease, (c) any
Event of Default or event which with the passage of time or notice or both would
constitute an Event of Default exists, or (d) if any term or condition in any
Schedule is not satisfied prior to the Acceptance Date with respect to such
Schedule. Each Schedule shall be funded in an amount not less than the Minimum
Funding Amount and not more frequently than the Maximum Funding Frequency. No
Unit of Equipment shall have a unit cost of less than $1,000 or be subject to a
single invoice of less than $5,000.
3. EQUIPMENT SUBJECT TO LEASE. Lessee shall select the type and quantity
of Equipment (which Equipment shall in each case be Eligible Equipment
acceptable to Lessor) to be subject to each Schedule. Subject to the terms and
conditions of this Lease: (i) if such Equipment is not previously owned by
Lessee and is not subject to a purchase order issued by Lessee, Lessor shall at
Lessee's direction order each Unit from the respective suppliers, and upon
delivery and acceptance by Lessee each such Unit shall be leased to Lessee
hereunder; (ii) if Lessee has previously issued its purchase order to a
supplier, Lessee shall execute a Purchase Order Assignment assigning such
purchase order to Lessor and the Units subject to such purchase order, upon
delivery and acceptance by Lessee, shall be leased to Lessee hereunder; or (iii)
if Lessee owns the Equipment which it intends to make subject to this Lease,
Lessee shall execute a Bill of Sale transferring title to such Equipment to
Lessor at the purchase price agreed to between Lessor and Lessee according to an
appraisal undertaken at the expense of Lessee (except in the case of Equipment
placed in service by Lessee not more than sixty (60) days prior to the date of
any Schedule for which the purchase price shall be the original cost to Lessee
thereof (net of freight, taxes, installation and similar costs). Lessee
acknowledges that Lessor may have the ability to obtain discounts or rebates not
available to Lessee from suppliers from which Lessor buys in volume. Any
discounts or rebates remitted to Lessee shall be turned over to Lessor and Cost
of the Equipment set forth on any Schedule shall be deemed to be the Cost net of
such discount or rebate. Any request by Lessee to Lessor to purchase Equipment
directly or by assignment of a purchase order shall be irrevocable.
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4. TERM. This Lease is effective upon execution hereof by Lessor and
shall continue until full performance of every provision of this Lease; provided
that Lessor's obligations to fund any Schedule are subject to the prior
satisfaction by Lessee of the conditions set forth in Part 1 of Addendum 1 to
this Lease. All obligations under each Schedule shall commence upon Lessee's
execution of an Acceptance Certificate and Schedule for the Units to be subject
to such Schedule and Lessor's countersignature on such Schedule; provided that
Lessor's obligation to fund such Schedule is subject to the prior satisfaction
by Lessee of the conditions set forth in Part 2 of Addendum I to this Lease. The
Initial Lease Term with respect to each Schedule shall begin on the first day of
the calendar month following the Acceptance Date (the "Commencement Date").
5. RENTAL PAYMENTS.
(a) Advance Rental. Upon execution of this Lease, Lessee shall pay to
Lessor an advance payment in an amount equal to the Rent Factor multiplied by
the Master Lease Line (plus applicable taxes) (the "Advance Rental"). A pro-rata
portion of the Advance Rental shall be deemed to prepay as of the date of this
Lease the last Rental Payment for each Schedule. If the Master Lease Line has
not been fully expended by the Funding Expiration Date, Lessor shall retain the
unutilized portion of the Advance Rental as compensation for expenses.
(b) Interim Rent. If the Acceptance Date with respect to any Schedule
shall be other than the first day of the calendar month, Lessee shall make
interim rental payments ("Interim Rent") for each day from and including the
Acceptance Date, through and including the last day of the calendar month prior
to the beginning of the Initial Lease Term in an amount equal to one-thirtieth
of the monthly Rental Payment set forth on the Schedule. Such Interim Rent shall
be due and payable on the first day of the calendar month following the month
for which such payment is assessed.
(c) Rental Payments. Lessee shall pay to Lessor, as rental for Equipment
during each month of the Initial Lease Term of any Schedule and during any
Holdover Period, an amount equal to the Rent Factor set forth on the cover page
of this Lease multiplied by the total Cost of the Equipment to Lessor, which
amount shall be due and payable in advance on the first day of each calendar
month during the Initial Lease Term and during any Holdover Period. The Rent
Factor will be calculated for each Schedule based on a basis point for basis
point adjustment (if any) to the Initial Implicit Rate equal to the change from
the Treasury Base Rate in the U.S. Treasury note rate for notes of a term equal
to the Treasury Note Maturity as quoted in The Wall Street Journal three days
prior to the date such Schedule is funded. It is not the intent of the parties
to create rent or other payment obligations of Lessee which will be considered
usurious under applicable law. However, if any such payment shall be found to be
usurious by a court of competent jurisdiction, then Rental Payments or such
other amounts shall automatically be reduced to the highest rate or amounts
permitted by applicable law and the usurious portion of the Rental Payments or
such other amounts shall be applied to the Lessee's remaining obligations under
the Lease in a manner reasonably determined by Lessor. In addition to any other
remedies that Lessor may have under this Lease, if Lessee fails to pay any
Rental Payment or Interim Rent or other amount herein provided within five (5)
business days after the same is due, Lessee shall pay to Lessor a late charge
calculated daily from the due date until the date of payment, at the rate of two
percent (2%) of such amount per month, or at the highest rate permitted by
applicable law, whichever is less, to compensate Lessor for additional
bookkeeping and collection expense. All Rental Payments, Advance Rental, Interim
Rent, late charges and other amounts for which Lessee is liable shall be paid to
Lessor at its address as set forth above or as otherwise directed by Lessor.
(d) Automatic Transfers. If Lessee so agrees, Lessor will initiate
monthly debit entries to Lessee's bank account for payment of Rental Payments on
the fifth business day of each month. If Lessee agrees to automatic transfers,
Lessee will provide depository and account information to Lessor and shall
execute or cause to be executed such supplemental agreements as Lessor deems
necessary in order to instate and maintain automatic transfer payments by Lessee
to Lessor. Other amounts due hereunder will be invoiced to Lessee by Lessor and
shall be due and payable within five (5) business days of receipt of invoice.
6. CHARACTERIZATION OF LEASE; WARRANTIES; WAIVER; LIABILITY.
(a) Characterization of Lease. It is the intent of Lessor and Lessee
that this Lease be a true lease and not a lease intended as security or a
conditional sales agreement. Lessor and Lessee agree to treat this Lease as a
true lease for
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income tax purposes. Lessor and Lessee agree that this Lease is a "finance
lease" as that term is defined by Section 10103(a)(7) of the UCC. With respect
to the Equipment subject to each Schedule, Lessee acknowledges and warrants as
of the date of such Schedule that (i) Lessee has received a copy of the
contract(s) pursuant to which Lessor acquired the Equipment (the "Supply
Contract"), or (ii) Lessee has reviewed and approved the Supply Contract, or
(iii) Lessor has informed Lessee in writing that Lessee may have rights under
the Supply Contract and that Lessee should contact the supplier for a
description of any such rights. LESSOR AND LESSEE AGREE THAT THIS LEASE IS A
"NET" LEASE, AND LESSEE'S OBLIGATION TO MAKE RENTAL PAYMENTS AND PAY OTHER SUMS
WHEN DUE AND OTHERWISE PERFORM ITS OBLIGATIONS UNDER THIS LEASE SHALL BE
ABSOLUTE AND UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO OR AFFECTED BY OR
REDUCED BY ANY ABATEMENT, REDUCTION, SET-OFF, DEFENSE, COUNTERCLAIM,
INTERRUPTION, DEFERMENT, RECOUPMENT OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST
LESSOR, THE MANUFACTURER OR SUPPLIER OF THE EQUIPMENT OR ANY OTHER PERSON.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NO DEFECT OR UNFITNESS OF ANY
ITEM OF EQUIPMENT NOR OTHER CLAIM REGARDING CONDITION OR USE OF THE EQUIPMENT
SHALL RELIEVE LESSEE OF THE OBLIGATION TO MAKE RENTAL PAYMENTS, PAY ANY OTHER
SUM WHEN DUE OR OTHERWISE PERFORM ANY OTHER OBLIGATION DUE TO LESSOR AND ITS
SUCCESSORS AND ASSIGNS UNDER THIS LEASE.
(b) Warranties. Lessor warrants that, so long as no Event of Default has
occurred and is continuing, neither Lessor nor its successors or Assignees or
anyone acting or claiming through Lessor will interfere with Lessee's quiet
enjoyment and use of the Equipment. EXCEPT FOR LESSOR'S WARRANTY OF QUIET
ENJOYMENT, LESSEE HAS NOT RELIED UPON LESSOR IN SELECTING THE EQUIPMENT AND
ACKNOWLEDGES THAT LESSOR HAS MADE NO REPRESENTATION OR WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT, INCLUDING WITHOUT LIMITATION
ITS CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. Until the
Lease is terminated, Lessor hereby assigns to Lessee and Lessee shall have the
benefit of, any and all manufacturer's warranties, service agreements and
intellectual property indemnities, if any, with respect to each Unit. Lessee's
sole remedy for the breach of any such warranty, indemnification or service
agreement shall be against the manufacturer or supplier of such Equipment and
not against Lessor, nor shall any such breach have any effect whatsoever on the
rights and obligations of Lessor or Lessee hereunder.
(c) Waivers. Lessee hereby specifically waives any and all rights and
remedies conferred upon Lessee by UCC Sections 10508 through 10522, including
(without limitation) Lessee's rights to (i) cancel or repudiate this Lease, (ii)
reject or revoke acceptance of any Unit, (iii) recover damages from Lessor for
breach of warranty or for any other reason, (iv) claim a security interest in
any rejected property in Lessee's possession or control, (v) deduct from Rental
Payments all or any part of any claimed damages resulting from Lessor's default
under this Lease, (vi) accept partial delivery of the Equipment, (vii) "cover"
by making any purchase or lease of other property in substitution for property
due from Lessor, (viii) recover from the Lessor any general, special, incidental
or consequential damages, for any reason whatsoever, and (ix) seek specific
performance, replevin or the like for any of the Units. To the extent permitted
by applicable law, Lessee also hereby waives any rights now or hereafter
conferred by statute or otherwise which may require Lessor to sell, lease or
otherwise use any Equipment in mitigation of Lessor's damages except as set
forth in Paragraph 26 of this Lease or which may otherwise limit or modify any
of Lessor's rights or remedies under Paragraph 25. Notwithstanding the
foregoing, nothing in this Lease shall be construed as a waiver of Lessee's
right to seek a separate recovery of any Rental Payment that is not due and
payable under this Lease, and Lessee retains the right to seek damages or other
remedies on account of Lessor's failure to perform its obligations under this
Lease.
(d) Liability. LESSEE ACKNOWLEDGES THAT LESSOR IS NOT THE MANUFACTURER,
SUPPLIER OR DISTRIBUTOR OF THE EQUIPMENT, THAT SAID ENTITIES ARE NOT AGENTS OF
LESSOR, THAT LESSEE RENTS THE EQUIPMENT "AS IS", AND THAT LESSOR HAS ACCEPTED NO
RESPONSIBILITY FOR THE TRANSPORTATION, INSTALLATION OR REQUIRED LICENSING
NECESSARY FOR THE TRANSFER, INSTALLATION OR USE OF THE EQUIPMENT. LESSEE HEREBY
WAIVES ANY CLAIM (INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN
TORT) WHICH IT MIGHT HAVE AGAINST LESSOR FOR ANY LOSS, DAMAGE (INCLUDING
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INCIDENTAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED DIRECTLY OR INDIRECTLY BY
THE EQUIPMENT, ITS USE OR MAINTENANCE, OR ANY DELAY OR FAILURE TO PROVIDE ANY
UNIT OF EQUIPMENT, OR ANY INTERRUPTION OF SERVICE OR LOSS OF USE OF THE
EQUIPMENT. If any Unit is unsatisfactory for any reason, Lessee shall make any
claim solely against the manufacturer or supplier of the Unit. Lessor shall not
be liable for specific performance of this Lease or for damages if for any
reason a supplier declines, delays or fails to fill any order.
7. ADJUSTMENTS FOR ACTUAL COST. Upon Lessee's request, Lessor may, but
shall have no obligation to, fund a Schedule which would cause the aggregate
Cost of Equipment on all Schedules funded under this Lease to exceed the Master
Lease Line. If at any time the actual aggregate Cost of all Equipment exceeds
the Master Lease Line, the Advance Rental shall be increased proportionately.
Lessee shall pay any additional sums for Advance Rental due under this Lease
within five (5) business days after receiving notice from Lessor. Lessee may not
request funding for a Schedule which would cause the aggregate Cost of Equipment
under all Schedules funded under this Lease to exceed the Master Lease Line by
more than ten percent (10%).
8. TITLE. All Equipment shall remain personal property, and the title
thereto shall remain exclusively in Lessor, notwithstanding the manner in which
any Unit may be attached to realty. Lessee agrees, upon the request of Lessor at
any time during the Lease Term, to affix or permit Lessor to affix, in a
permanent place on any Unit, labels supplied by Lessor identifying the Equipment
as property of Lessor, and shall not alter or remove any such label from any
Unit. Lessee shall keep the Equipment free from any and all liens and
encumbrances except those created by Lessor. Lessee shall give Lessor immediate
notice of any judicial process or encumbrance affecting the Equipment and shall
indemnify and save Lessor harmless from any loss or damage caused thereby,
including without limitation court costs, reasonable attorney fees and expenses.
9. FILING. Lessee shall execute or cause to be executed, at Lessee's
sole expense, such supplemental instruments, financing statements and landlord's
waivers as Lessor deems necessary or advisable to protect Lessor's interest and
shall cooperate to defend the title of Lessor in the Equipment by filing or
otherwise. Lessee authorizes Lessor to record in any state, this Lease and any
financing statements, security agreements and landlord's waivers with respect to
the Equipment or any collateral provided by Lessee to Lessor. Lessee agrees to
give Lessor thirty (30) days written notice of any change in Lessee's name or
place of business. Lessee agrees to give written notice to Lessor as soon as
Lessee has knowledge of any change of ownership of the real property upon which
or within which the Equipment is located.
10. TAXES. Lessee shall pay in a timely fashion, and shall indemnify and
hold Lessor harmless against all federal, state and local taxes, assessments,
license and registration fees, and other governmental charges of any kind,
including, without limitation, those levied on motor vehicles or trailers, and
any interest or penalties thereon, which may be levied, directly or indirectly,
against the Equipment or with respect to its ordering, purchasing, delivery,
ownership, possession, use, leasing, documentation, and return or other
disposition thereof, regardless of whether such taxes and fees are levied
against Lessor or Lessee. Such taxes and fees to be paid by Lessee shall
include, without limitation, personal property, sales, rent, franchise, gross
receipts, lease, and use taxes, and any other tax measured by gross Rental
Payments, but shall not include income or franchise taxes based on Lessor's net
income and payable by Lessor on its receipt of Rental Payments hereunder.
Personal property taxes shall be reasonably estimated by Lessor and billed to
Lessee as of the date of assessment each year. Upon receipt by Lessor of the
final personal property tax assessment and invoice, Lessor shall invoice or
credit Lessee, as applicable, for any differences of such final assessment and
Lessor's original estimate. Lessor shall have the right, but not the obligation,
to pay any such taxes or fees regardless of whether levied against Lessor or
Lessee. Any and all sales or use taxes levied against Lessor's purchase of
Equipment shall be added to the total Cost of such Equipment as specified on the
Schedule under which such Equipment is added to this Lease. With the exception
of taxes and fees which are added to the total Cost of Equipment hereunder,
Lessee shall reimburse Lessor within five (5) business days after receipt of
invoice from Lessor specifying the amount of, and reason for, any payment by
Lessor of amounts for which Lessee is liable under this Paragraph 10. Lessee
shall timely prepare and file all reports and returns which are required to be
made with respect to such taxes and/or fees, and all such reports shall show
Lessor as owner of the Equipment.
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11. ASSIGNMENTS AND SUBLEASES.
(a) WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR, LESSEE SHALL NOT
ASSIGN, PLEDGE, GRANT A SECURITY INTEREST IN, OTHERWISE ENCUMBER, SUBLEASE OR
TRANSFER, OR IN ANY WAY DISPOSE OF OR OTHERWISE RELINQUISH POSSESSION OR CONTROL
OVER (COLLECTIVELY, A "TRANSFER") ITS RIGHTS WITH RESPECT TO ANY UNIT OF
EQUIPMENT OR ALL OR ANY PART OF ITS RIGHTS AND OBLIGATIONS UNDER THIS LEASE. If
notwithstanding the foregoing, a Transfer by Lessee takes place, the rights of
the sublessee or other transferee will be subject and subordinate to all of the
terms of this Lease, including Lessor's right of repossession on the occurrence
of an Event of Default. Lessee will remain primarily liable for the performance
of all of the terms of this Lease to the same extent as if the sublease or
transfer of possession had not occurred. Lessor and Lessee agree that any
purchase of all or substantially all of Lessee's assets, any merger or
consolidation into or with Lessee regardless of whether Lessee is the surviving
entity or any entity acquiring more than forty percent (40%) of Lessee's voting
securities shall be deemed to be a Transfer under this Lease.
(b) Lessor shall have the right, in its sole discretion, to assign,
sell, pledge, grant a security interest in or otherwise encumber its rights
under this Lease or one or more Schedules and/or with respect to the Equipment
subject to this Lease or such Schedule(s) to one or more persons or entities
(each, an "Assignee"). Lessee acknowledges that an assignment, sale or other
encumbrance by Lessor would not materially change Lessee's duties under the
Lease or materially increase its burdens or risks. Even if such an assignment,
sale or other encumbrance could be deemed to have that effect, Lessee agrees
that the assignment, sale or other encumbrance will nevertheless be permitted.
Without prejudice to any rights that Lessee may have against Lessor, Lessee
agrees that it will not assert against an Assignee any claim or defense that it
may have against Lessor.
(c) Subject to the foregoing, this Lease inures to the benefit of, and
is binding upon, the heirs, legatees, representatives, successors and assigns of
Lessee and Lessor.
12. REPRESENTATIONS AND WARRANTIES.
(a) Lessee warrants and represents the following as of the date hereof:
(i) Lessee is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and is duly qualified
and authorized to do business in the state(s) where the Equipment will be
located; (ii) Lessee has the full corporate power, authority and legal right and
has obtained all approvals and consents and has given all notices necessary to
execute and deliver this Lease and perform the terms hereof and of each
Schedule; (iii) there is no action, proceeding or claim pending or, insofar as
Lessee knows, threatened against Lessee or any of its subsidiaries before any
court or administrative agency which might have a material adverse effect on the
business, condition or operations of Lessee or any subsidiary; and (iv) this
Lease has been and each Schedule will be duly executed and delivered by Lessee
and constitute or will constitute the valid, binding and enforceable obligations
of Lessee.
(b) Lessee agrees that by its signature on each Schedule it shall be
deemed to have warranted and represented the following as of the Acceptance Date
of such Schedule: (i) all of the Units subject to such Schedule are accurately
described in Annex A attached to such Schedule, have been fully assembled and
conform to all applicable performance criteria; (ii) the requirements of this
Lease and of Lessor with respect to the identification of the Units have been
met; and (iii) each of the representations and warranties set forth in clause
(a) of this Section 12 remains true and correct.
13. USE AND INDEMNITY. Lessee shall use the Equipment only in Lessee's
business. Lessee agrees not to allow the Equipment to be used by other than its
employees, consultants and agents. Lessee acknowledges that the Equipment is
leased for commercial purposes and not for personal, family or household use.
Lessee agrees to indemnify and hold Lessor, and Lessor's officers, directors,
shareholders, partners, affiliates, agents, servants, successors and Assignees,
harmless against any and all liabilities, losses, damages, actions, claims and
expenses of any kind and nature, including, without limitation, court costs and
reasonable attorneys' fees and expenses (each, a "Claim"), directly or
indirectly related to or arising in connection with the breach of any
representation or warranty of Lessee under this
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Lease or the manufacture, purchase, licensing, lease or sublease, delivery,
installation, operation, use, ownership, maintenance, storage, relocation,
return or condition of any Unit of the Equipment (regardless of whether such
Unit is at the time in the possession or control of Lessee), except to the
extent any such claims, actions, liabilities and expenses result from the
willful misconduct of Lessor. The foregoing indemnity shall cover, without
limitation, (i) any Claim in connection with a design or other defect (latent or
patent) in any Unit, (ii) any Claim for infringement of any patent, copyright,
trademark or other intellectual property right, (iii) any Claim resulting from
the presence on or under or the escape, seepage, leakage, spillage, discharge,
emission or release from any Unit of any Hazardous Materials, including, without
limitation, any Claims asserted or arising under any Environmental Law, or (iv)
any Claim for negligence or strict or absolute liability in tort. Upon Lessor's
written demand, Lessee shall assume and diligently conduct, at its sole cost and
expense, the entire defense of Lessor and its agents, employees, successors and
assigns against any indemnified Claim described in this Paragraph 13. Lessee
shall not settle or compromise any Claim against or involving Lessor without
first obtaining Lessor's written consent thereto, which consent shall not be
unreasonably withheld. The foregoing indemnity shall continue in full force and
effect notwithstanding the termination or cancellation of this Lease, whether by
expiration of time, operation of law or otherwise.
14. LOCATION. Lessee shall keep the Equipment at its place of business
as specified above or on the Schedules. Lessee shall not permit any Equipment to
be moved to a new location without the prior written consent of Lessor.
15. RIGHT OF INSPECTION. Lessor and its agents shall have the right, at
any time during normal business hours, to inspect and photograph the Equipment,
to review all maintenance records related to the Equipment and, during the last
ninety (90) days of the Noncancellable Term of each respective Schedule, to
demonstrate the Equipment specified thereon to prospective purchasers; provided,
however, Lessor shall give five (5) business days' notice to Lessee of any such
demonstration.
16. MAINTENANCE. Lessee shall exercise due and proper care in the use,
repair and servicing of the Equipment. Lessee shall, at its own expense, make
all repairs and replacements required to maintain the Equipment in good working
condition in accordance with manufacturers' specifications and Lessor's
requirements, and shall pay all other operating expenses relating to the
Equipment. Lessee shall have the right, upon ten (10) days' prior written notice
to Lessor, to make any alterations, additions or improvements to any Unit,
provided that such alterations, additions or improvements (i) do not reduce the
Fair Market Value of such Unit, (ii) do not impair the originally intended
function or use of such Unit, (iii) do not render such Unit in such a condition
that it cannot, prior to the expiration, cancellation or other termination of
the Lease for such Unit, be restored to its original condition, reasonable wear
and tear alone excepted, and (iv) do not result in the cancellation or
termination of any warranties made by the supplier of such Unit. If Lessee does
not exercise its option to purchase the Equipment, as specified in Paragraph 17,
or if this Lease shall be earlier terminated or cancelled for any reason, Lessee
shall restore each Unit to its original condition, reasonable wear and tear
alone excepted, prior to the expiration, cancellation or other termination of
each respective Schedule. All replacement parts and additions incorporated into
a Unit shall become the property of Lessor immediately upon incorporation;
provided, however, that Lessor shall transfer to Lessee title to any
alterations, additions and improvements which were made by Lessee at its own
expense to each item of Equipment purchased by Lessee pursuant to the provisions
of Paragraph 17. Lessee agrees to maintain and provide upon request of Lessor
all internal maintenance reports relating to the Equipment.
17. PURCHASE OPTION. Upon written notice to Lessor not less than ninety
(90) days nor more than one hundred eighty (180) days prior to the last day of
the Noncancellable Term of any Schedule executed pursuant to this Lease, if
Lessee has fulfilled all of its obligations hereunder with respect to such
Schedule, Lessee shall have the right to purchase all, but not less than all, of
the Equipment under such Schedule, for the aggregate Fair Market Value of such
Equipment, provided that such purchase price shall not exceed thirteen percent
(13%) of the aggregate Cost of such Equipment (plus applicable taxes). Should
Lessor and Lessee fail to agree upon the Fair Market Value of the Equipment,
said price shall be determined by an independent appraiser, and the cost of the
appraisal shall be borne equally by both Lessor and Lessee. Notwithstanding
anything contained in this Paragraph 17, upon the expiration of the
Noncancellable Term of each Schedule, Lessee shall be required to purchase all
Equipment consisting of software ("Software") under such Schedule at fifteen
percent(15%) of total cost of such Software to Lessor. Notwithstanding the
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date on which Lessee exercises this purchase option or satisfies its purchase
obligations with respect to Software on a Schedule, Lessee shall acquire no
rights of title to any Equipment, nor shall title to any Unit be transferred to
Lessee after the exercise of this purchase option or satisfaction of Lessees'
purchase obligation until the expiration of the Noncancellable Term for the
Schedule on which such Unit is specified. Lessee shall remain liable for all
Rental Payments and other obligations due under each Schedule until the
expiration of the Noncancellable Term of such Schedule. Any Equipment sold by
Lessor shall be sold "AS IS", "WHERE IS", and with no warranties, express or
implied, including without limitation implied warranties of merchantability and
fitness for any particular purpose. "Fair Market Value" is defined as the
estimated amount at which the property might be expected to exchange in an arm's
length transaction between a willing buyer (other than a used equipment dealer)
and a willing seller, neither being under compulsion, each having reasonable
knowledge of all relevant facts, and with equity to both, with the assumptions
that the Units (i) are being sold "in place and in use," (ii) are free and clear
of all liens and encumbrances, and (iii) are in the condition required by
Paragraph 16 of this Lease.
18. RETURN OF EQUIPMENT. Upon ninety (90) days' written notice to
Lessor, in the event Lessee has not exercised its purchase option as specified
in Paragraph 17, after such notification and upon the expiration, cancellation
or other termination of the Noncancellable Term of each Schedule, Lessee shall,
at Lessee's sole expense, properly pack and return the Equipment, insured,
unencumbered and in the same condition as when received by Lessee, reasonable
wear and tear alone excepted, by such carriers as Lessor shall approve and to
such place as designated by Lessor within the state of California. Should Lessee
fail to give notice of its intent to return or fail to return the Equipment as
directed above, all obligations of Lessee under this Lease, including Rental
Payments, shall remain in full force and effect for the period from the end of
the Initial Lease Term until ninety (90) days after notice is given to Lessor of
Lessee's intent to return or purchase the Equipment (the "Holdover Period").
19. FINANCIAL STATEMENTS; OTHER INFORMATION.
(a) Lessee shall provide to Lessor the financial statements specified in
this Paragraph 19 (a), prepared in accordance with generally accepted accounting
principles, consistently applied (the "Financial Statements"); provided,
however, that after the effective date of the initial registration statement
covering a public offering of Lessee's securities, the term "Financial
Statements" shall be deemed to refer only to those statements required to be
filed by the Securities and Exchange Commission, to be provided no less
frequently than quarterly.
(i) As soon as practicable (and in any event within thirty (30)
days after the end of each month), a reasonably detailed balance sheet as of the
end of such month and the related statements of income or loss, cash flow and
capital structure of the Lessee during such month (including notification of the
commencement of any material litigation by or against Lessee), certified by
Lessee's Chief Executive Officer or Chief Financial Officer fairly to present
the data reflected therein.
(ii) As soon as practicable (and in any event within ninety (90)
days after the end of each fiscal year), unaudited balance sheets as of the end
of such year (consolidated if applicable), and related statements of income or
loss, retained earnings or deficit, cash flows and capital structure of Lessee
for such year, setting forth in comparative form the corresponding figures for
the preceding fiscal year. As soon as practicable (and in any event within two
hundred and seventy (270) days after the end of each fiscal year), audited
balance sheets as of the end of such year (consolidated if applicable), and
related statements of income or loss, retained earnings or deficit, cash flows
and capital structure of Lessee for such year, setting forth in comparative form
the corresponding figures for the preceding fiscal year and accompanied by an
audit report and opinion of the independent certified public accountants of
recognized national standing selected by Lessee.
(b) Lessee shall promptly provide to Lessor copies of all notices,
minutes, consents and other material that it provides to its directors at the
same time they are delivered to the directors. Lessee shall promptly furnish to
Lessor any additional information (including but not limited to tax returns,
income statements, balance sheets, and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing financial
obligations (the "Additional Information").
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(c) Lessor agrees to preserve the confidentiality of all information
provided to it hereunder by Lessee regarding the Lessee and its business which
Lessee designates in writing as confidential and which is otherwise not
generally known (except to the extent any disclosure of such information is
required by a court of competent jurisdiction or governmental authority).
20. TAX INDEMNIFICATION. Lessee acknowledges that this Lease has been
entered into on the basis that Lessor or Lessor's Assignee intends to claim such
depreciation, interest deductions and other tax benefits (the "Tax Benefits") as
are provided to an owner of Equipment under the Internal Revenue Code of 1986,
as amended (the "Code") and corresponding provisions of state law. If Lessor or
Lessor's Assignee shall not have the right to claim or there shall be
disallowed, deferred, recaptured or otherwise made unavailable with respect to
Lessor or Lessor's Assignee all or any portion of the Tax Benefits as a result
of an act or failure to act by Lessee in contravention of any of the terms and
conditions of the Lease, Lessee shall promptly pay to Lessor or Lessor's
Assignee, an amount which, on an after-tax basis, will compensate Lessor or
Lessor's Assignee for the value of the lost Tax Benefits. The Tax Benefits shall
be deemed to have been disallowed or recaptured upon the earliest of (i) the
adjustment by a taxing authority of the tax return of Lessor to reflect such
loss; or (ii) the payment by Lessor to the Internal Revenue Service or state
taxing authority of the tax increase resulting from such lost Tax Benefits.
Lessor or Lessor's Assignee shall be deemed not to have the right to claim the
Tax Benefits if, in the opinion of Lessor's independent tax counsel, reasonably
acceptable to Lessee, there is no reasonable basis for claiming the Tax
Benefits.
21. ADDITIONAL LESSOR RIGHTS. A representative of Lessor shall have the
right to meet with Lessee's Chief Executive Officer and Chief Financial Officer
once each quarter throughout the lease term to review and discuss the operating
performance and financial condition of the Company.
22. RISK OF LOSS. Lessee assumes the entire risk of loss, theft and
damage of the Equipment from any cause whatsoever, and no such event shall
relieve Lessee of any obligation under this Lease. Lessee shall notify Lessor in
writing within ten (10) days after any such event. Lessee agrees that Lessor
shall have the following remedies upon each occurrence of the following events:
(a) In the case of damage of any kind whatsoever to any Unit (unless
such Unit is damaged beyond repair), Lessee shall, at Lessee's sole expense and
with Lessor's reasonable consent, (i) restore such Equipment to its original
condition, reasonable wear and tear alone excepted, or (ii) replace it with like
equipment of the same or later model in good condition. Upon Lessee's
replacement of any Equipment as specified in clause (ii) of this Paragraph
22(a), Lessee shall transfer title to such replaced Equipment to Lessor.
(b) If any Unit is determined by Lessor to be damaged beyond repair, or
if Lessor has reasonable cause to believe that any Unit is stolen or lost and
such Unit is not returned to its proper location within thirty (30) days after
notice thereof to Lessee, Lessee shall, with Lessor's reasonable consent,
immediately pay to Lessor: (i) the amount required to replace such Unit with
like equipment of the same or later model in good condition, in which case such
Unit shall be substituted for the damaged Unit on the relevant Schedule, and
Rental Payments shall continue throughout the Lease Term of the Schedule to
which the Unit becomes subject without any interruption, or (ii) the sum of (A)
the aggregate unpaid rent due for the balance of the Noncancellable Term for the
Unit involved, discounted to present value at the Discount Rate; plus (B) the
then estimated Fair Market Value of the Unit involved, calculated as of the
expiration of the Noncancellable Term (the "Residual Value"), discounted to
present value at the Discount Rate; plus (C) any tax payments or indemnification
for which Lessee is liable under Paragraphs 10 and 20; plus any other amounts
with respect to such Unit for which Lessee is liable under this Lease; provided,
however, the option specified in clause (i) of this Paragraph 22(b) shall not be
available if an Event of Default has occurred and is continuing. Upon payment
under clause (ii) of Paragraph 22(b), this Lease shall terminate with respect to
the Unit(s) paid for, and Lessee shall become entitled to such Unit(s) "AS IS"
AND "WHERE IS" WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(c) Any proceeds paid to Lessor from the personal property insurance
specified in Paragraph 23(a)(i) shall be applied to Lessee's obligations under
this Paragraph 22.
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<PAGE> 11
23. INSURANCE.
(a) Lessee shall, at its own expense, maintain the following types of
insurance, with companies with an A-5 Best rating or better, acceptable to
Lessor, until such time as Lessee has returned the Equipment as specified in
Paragraph 18 or taken title to the Equipment pursuant to Paragraph 17:
(i) Personal property insurance on all property owned by Lessee
(including without limitation all of the Equipment) in an agreed amount based
upon the following:
(1) Standard "all risk" property insurance, including boiler
and machinery insurance, and flood insurance if any Equipment is located
in an identified "flood hazard area," in which flood insurance has been
made available pursuant to the National Flood Insurance Act of 1968;
(2) The amount of such insurance shall be not less than the
greater of the fair market value or the full undepreciated replacement
value of the Equipment. The amount of such insurance allocable to loss
or damage or personal property shall not have a deductible in excess of
one thousand dollars ($ 1,000.00) per occurrence.
(3) Such insurance shall name Lessor as loss payee with
respect to the Equipment, and shall set aside the amount stated in
Paragraph 23(a)(i)(2) for the sole benefit of, and payable directly to,
Lessor.
(ii) Employee dishonesty insurance payable to Lessor with respect
to the theft of the Equipment.
(iii)Business interruption insurance in an amount at all times
equal to the total Rental Payments to become due during the six months following
the date of calculation. In the event of any interruption of Lessee's business,
the amount payable to Lessor shall be equal to the actual loss of Rental
Payments suffered by Lessor as the result of such interruption, and shall be
payable to Lessor within thirty (30) days from the date of loss, and on a
month-to-month basis thereafter, until Lessee's business is returned to a fully
operational state, plus ninety (90) days.
(iv) Commercial general liability insurance covering bodily
injury (including death) and property damage, naming Lessor, its directors,
officers, agents and employees as an Additional Insureds on all policies
(evidenced by an endorsement issued by the insurer (as opposed to a certificate
issued by an agent of the insurer)), and providing total limits in amounts as
are at the time carried by entities engaged in the same or similar business and
which are similarly situated, but in no event less than two million dollars
($2,000,000.00) for combined single limit occurrence. All such policies shall
cover any injury or damage occasioned by, or occurring upon, Lessee's premises,
products, operations and, at Lessor's option, explosion, collapse and
underground hazards. All such policies shall contain contractual liability
coverage including all liability assumed under this agreement, and a cross
liability clause providing that such insurance shall, except with respect to the
limits of liability, apply separately to each insured.
(v) Workers compensation insurance.
(b) All insurance specified in this Paragraph 23 shall be primary over,
and in no event shall, any insurance carried by Lessor be called upon to
contribute to any loss relating to or arising out of this Lease. All insurance
shall be in effect, and shall be evidenced by a certificate of insurance with
all required endorsements as required pursuant to this Paragraph 23 delivered to
Lessor on or prior to the date upon which Lessee executes this Lease.
Notwithstanding anything to the contrary contained in this Lease, Lessor shall
have no obligation to purchase any Equipment until all policies are in place.
All such policies shall provide for at least thirty (30) days' prior written
notice to Lessor in the event of any cancellation, non-renewal or material
change `in coverage, and upon request by Lessor shall provide a copy of any and
all endorsements or other documentation relating to such policies.
(c) Should Lessee, at any time during the Lease Term, be without
sufficient insurance, as determined by Lessor in accordance with the provisions
of this Paragraph 23, Lessee appoints Lessor as its agent to obtain such
coverage, and promises to pay to Lessor the entire cost of such coverage.
-11-
<PAGE> 12
24. DEFAULT. Each of the following events shall constitute an "Event of
Default" under this Lease:
(a) Nonpayment, by the due date specified herein, of any Rental Payment
or other payment required of Lessee under the terms of this Lease, and such
nonpayment shall continue for a period of five (5) business days;
(b) Noncompliance with any or all of the provisions of Paragraph 23, and
such noncompliance shall continue for a period of five (5) days after notice
thereof is given to Lessee;
(c) If Lessor shall determine that Lessee has made a misstatement or
false statement of, or omitted to state, a material fact in connection with the
execution, performance or nonperformance of this Lease or any Schedule, or if
any representation or warranty of Lessee in this Lease, any Schedule or any
Acceptance Certificate is inaccurate or false;
(d) If Lessee, without Lessor's prior written consent, shall have
removed, parted possession with, sold transferred, encumbered, assigned or
sublet the Equipment or Lessee's interest under this Lease or attempted to do
any of the foregoing; or if Lessee shall have converted any interest of Lessor
arising under this Lease or any purchase order, or resulting from the purchase
of Equipment or attempted to convert any of the foregoing;
(e) If any of Lessee's credit or financial information submitted to
Lessor at any time (including but not limited to due diligence materials,
Financial Statements and Additional Information) contains any misstatement or
false statement of a material fact, or fails to state therein any material fact
necessary to make the statements made, in light of the circumstances under which
they were made, not misleading;
(f) If any single judgment for payment of money damages in excess of
fifty thousand dollars ($50,000.00), or aggregate judgments for payment of money
damages in excess of fifty thousand dollars ($100,000.00), shall be rendered
against Lessee and shall remain undischarged for a period of thirty (30) days
during which execution shall not be effectively stayed;
(g) If any substantial part of Lessee's property shall be subjected to
any levy, seizure, involuntary assignment, attachment, application or sale for
or by any creditor or governmental agency;
(h) If any single indebtedness of Lessee exceeding the sum of
twenty-five thousand dollars ($50,000.00), or aggregate indebtedness exceeding
the sum of fifty thousand dollars ($100,000.00), under any other lease or
contract for the borrowing of money or on account of the deferred purchase price
of property shall be accelerated, or subject to acceleration upon the giving of
notice, passage of time or both as a result of a default by Lessee, or the
obligee with respect to such indebtedness shall exercise any other remedy it may
have as a result of such default;
(i) If an order, judgment or decree shall be entered by any court having
jurisdiction for (i) relief in respect of Lessee in an involuntary case under
any applicable bankruptcy, insolvency or other similar law (as now or hereafter
in effect), (ii) appointing of receiver, liquidator, assignee, trustee,
custodian, sequestrator (or similar official) for Lessee or for any substantial
part of its property, or sequestering any substantial part of the property of
Lessee, or (iii) liquidating of Lessee's affairs, and any such order, judgement
or decree shall remain in force undismissed, unstayed or unvacated for a period
of sixty (60) days after the date of entry thereof, or if Lessee shall become
insolvent or generally not pay, or shall be unable to pay, or shall admit in
writing its inability to pay its debts as such debts become due; or if Lessee
shall seek relief of any kind under any such law or consent to any of the
foregoing; or
(j) Nonperformance of any of Lessee's obligations under this Lease other
than those described elsewhere in this Paragraph 24, and such nonperformance
shall continue for a period of twenty (20) days after notice thereof is given to
Lessee.
25. REMEDIES. Upon the occurrence and during the continuance of any
Event of Default, with or without cancelling or terminating this Lease, Lessor
or its agent shall have the right, without demand or prior notice, in Lessor's
sole discretion, to exercise any one or more of the following remedies:
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<PAGE> 13
(a) To cancel this Lease and all Schedules;
(b) To declare the damages specified in Paragraph 26 to be immediately
due and payable;
(c) To take possession of any or all Units of Equipment with or without
any court order or other process of law, and for this purpose Lessor and/or its
agents may enter upon any premises of or under the control or jurisdiction of
Lessee or any agent of Lessee, without liability for suit, action or other
proceeding by Lessee and remove the Equipment therefrom; Lessee further agrees,
on demand, to assemble the Equipment and make it available to Lessor at a place
to be designated by Lessor which is reasonably convenient to Lessor and Lessee;
notwithstanding the foregoing, such taking of possession shall not relieve
Lessee of its obligations to pay damages as set forth in Paragraph 26. Lessee
further waives any and all damages occasioned by such taking of possession.
(d) To exercise any other right or remedy which may be available to
Lessor under the UCC or any other applicable law.
26. DAMAGES. Lessor's damages, in the event of default by Lessee, shall
include (in addition to all other damages available to Lessor under applicable
law): (i) the due and unpaid balance of Rental Payments and all other amounts
payable hereunder plus late charges and interest due under Paragraph 5(c) (but
not more than the maximum rate permitted by law) for the period after the date
such payments were due, (ii) the aggregate of all remaining Rental Payments
through the end of the Noncancellable Term of each Schedule, discounted to
present value at the Discount Rate, (iii) the Residual Value, discounted to
present value at the Discount Rate, (iv) any indemnification payments due
hereunder plus interest at a rate equal to the lesser of 1.5% per month or the
maximum rate permitted by law for the period after the date such payments were
due, (v) costs of repossession, recovery, storage and repairs and of lease or
sale to a third party, plus (vi) all other expenses including court costs and
reasonable attorneys' fees and expenses. Lessor's obligation to mitigate said
damages and any reduction of the amounts due to Lessor shall be limited as
follows:
(a) Lessor shall make best efforts to mitigate its damages by either
selling or re-leasing the Equipment to a third party for the highest net cash
proceeds available on the date of sale or re-lease. In the case of a sale of the
Equipment to a third party, any amounts received from the sale (or any loan
proceeds received by Lessor from financing a re-lease with a third party lender)
shall be applied to Lessor's damages as specified in this Paragraph 26. In the
case of a re-lease of the Equipment to a third party, any rentals received in
consideration for such third party's use of said Equipment during any of the
remaining Noncancellable Term of the original Schedule shall be applied only to
that portion of Lessor's damages resulting from loss of rentals that Lessor
would have received from Lessee during the same period had Lessee not become in
default. Amounts received from such third party shall be applied in mitigation
of Lessor's damages only to the extent such amounts are payable in connection
with such third party's periodic rental obligations as specified in the
preceding sentence; in no event shall any other amount received from such third
party, including without limitation as a security deposit or as an advance on
periodic rental obligations, be applied in mitigation of Lessor's damages
hereunder.
27. MISCELLANEOUS.
(a) If more than one Lessee is named in or added to this Lease, the
liability of each shall be joint and several.
(b) All notices related hereto shall be mailed to Lessor or Lessee at
its respective address as specified on the cover page of this Lease, or at such
other address as either party may designate upon ten days written notice to the
other party.
(c) Paragraph titles are solely for convenience and are not an aid in
the interpretation of this Lease.
(d) Time is of the essence of this Lease and each of its provisions.
-13-
<PAGE> 14
(e) If notwithstanding the intent of the parties this Lease and any
Schedules hereto are determined to be a lease for security or a security
agreement, Lessee shall have been deemed to have granted to Lessor a security
interest in all of Lessee's right, title and interest in and to the Equipment
and the proceeds thereof to secure all of Lessee's obligations to Lessor arising
hereunder or otherwise.
(f) This Lease may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered together shall
constitute one and the same instrument. Any Schedule to this Lease may be
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered together shall constitute one and the same instrument. To
the extent that this Lease and any Schedule constitute chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction), only the copy of each Schedule that is executed and marked
"Original Counterpart No. 1", when held by an Assignee as secured party,
together with a machine copy of this executed Lease, shall enable such holder to
perfect by possession a security interest in such Schedule and this Lease as it
relates to such Schedule, and any other copies of the Schedule shall not enable
the holder thereof to perfect by possession a security interest therein.
28. RIGHT OF FIRST OFFER. During the lease term, Lessee shall provide
Lessor with all requests for additional debt or lease financing prior to the
time that such requests are provided to other financing sources. Should Lessor
and Lessee fail to agree on the terms and conditions of such financing within
twenty (20) days of such notice, then Lessee may accept a funding source other
than Lessor.
29. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee shall fail
duly and promptly to perform any of its obligations under this Lease, Lessor
may, at its option and at any time, perform the same without waiving any default
on the part of Lessee, or any of Lessor's rights. Lessee shall reimburse Lessor,
within five (5) business days after notice thereof is given to Lessee, for all
expenses and liabilities incurred by Lessor in the performance of Lessee's
obligations.
30. NONWAIVER, RIGHTS AND REMEDIES CUMULATIVE. Lessor's failure at any
time to require strict performance by Lessee shall not constitute waiver of, or
diminish, Lessor's right to demand strict compliance with any provision of this
Lease. Waiver by Lessor of any default shall not constitute waiver of any other
default. No rights or remedies referred to herein shall be exclusive, but shall
be cumulative and in addition to any other right or remedy set forth herein or
otherwise available to Lessee at law or in equity.
31. SURVIVAL OF OBLIGATIONS; LIMITATIONS ON ACTIONS. All agreements,
covenants, representations and warranties of Lessee contained in this Lease or
in the Schedules or other documents delivered pursuant hereto or in connection
herewith shall survive the execution and delivery, and the expiration,
cancellation or other termination of this Lease. Any action by Lessee against
Lessor for any default by Lessor under this Lease shall be commenced within two
(2) year after any such cause of action accrues.
32. SEVERABILITY. If any provision or remedy herein provided is
determined invalid under applicable law, such provision shall be inapplicable
and deemed omitted; but the remaining provisions, including remaining default
remedies, shall be given effect in accordance with their terms.
33. UPGRADES, ADDITIONS AND ATTACHMENTS. Any added memory, upgrades,
additions and attachments to Equipment previously placed under this Lease shall,
upon approval by Lessor, be included on a Schedule, with a Noncancellable Term
that is coterminous with the Equipment to which such added memory, upgrade,
addition or attachment is being attached.
34. CHOICE OF LAW. THIS LEASE SHALL BE DEEMED TO HAVE BEEN MADE AND
ACCEPTED AND PERFORMED IN THE COUNTY OF SAN FRANCISCO, IN THE STATE OF
CALIFORNIA, WHERE THE LESSOR'S PRINCIPAL PLACE OF BUSINESS IS LOCATED. THIS
LEASE AND ALL TRANSACTIONS HEREUNDER, AND ALL RIGHTS AND LIABILITIES OF THE
PARTIES HERETO, SHALL BE DETERMINED AND GOVERNED AS TO THE VALIDITY,
INTERPRETATION, ENFORCEMENT AND EFFECT BY THE LAWS OF THE STATE OF CALIFORNIA.
THE LESSEE HEREBY
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<PAGE> 15
CONSENTS, IN ALL ACTIONS AND PROCEEDINGS ARISING DIRECTLY OR INDIRECTLY FROM
THIS LEASE, TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE
NORTHERN DISTRICT OF CALIFORNIA OR ANY STATE COURT LOCATED WITHIN SAN FRANCISCO
COUNTY IN THE STATE OF CALIFORNIA. LESSEE HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
LEASE.
Lessee Initials: GS Lessor Initials: EW
35. ENTIRE AGREEMENT. This instrument constitutes the entire agreement
between the parties and may not be modified except in writing executed by Lessor
and Lessee. No supplier or agent of Lessor is authorized to bind Lessor or to
waive or modify any term of this Lease.
Lessee Initials: GS Lessor Initials: EW
The undersigned representative of Lessee affirms that he or she has read
and understood this Lease and is duly authorized to execute this Lease on behalf
of Lessee and that, if Lessee is a corporation, this Lease is entered into with
consent of Lessee's Board of Directors and stockholders if so required.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto execute this noncancellable Lease
as of the date on the cover page hereof.
LESSEE: LESSOR:
FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, DOMINION VENTURES, INC.
INC.
By: /s/ Gary Sutton By: /s/ Emily Walther
------------------------------- ---------------------------------
Name: Gary Sutton Name: Emily Walther
----------------------------- -------------------------------
Title: CEO Title: VP Finance
---------------------------- ------------------------------
This Lease incorporates the following Addenda as if fully set forth herein:
Addendum I.
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<PAGE> 17
ADDENDUM I
TO MASTER EQUIPMENT
LEASE AGREEMENT NO. 10910
DATED January 28, 1999
Conditions to Lessor's Obligations
By their initials below and on the signature page of the Master Lease
Agreement referenced in the upper right comer of this page, Lessor and Lessee
agree that the Lease incorporates the following terms:
Part 1: On or prior to the date of execution of the Lease by Lessor,
Lessor shall have received in form and substance satisfactory to
Lessor:
(a) Copies, certified, in substantially the manner set forth in
Exhibit E to the Lease, by the Secretary or Assistant
Secretary of: (A) the Articles of Incorporation and By-Laws of
Lessee (as amended to the date of the Lease) and (B) the
resolutions adopted by Lessee's board of directors authorizing
the transaction and the documents being executed in connection
therewith.
(b) A Good Standing Certificate (including tax status if
available) with respect to Lessee from Lessee's state of
incorporation, dated a date reasonably close to the date of
acceptance of the Lease by Lessor.
(c) A Certificate of Insurance evidencing the insurance coverage
required by Paragraph 23 of the Lease.
(d) All necessary consents of shareholders and other third parties
with respect to the subject matter of the Lease and the other
documents being executed in connection therewith.
(e) Landlord waiver(s) in the form of Exhibit A.
(f) The Advance Rental plus applicable taxes.
(g) All other documents as Lessor shall have reasonably requested.
Part 2: Prior to any funding of a Schedule, each of the conditions set
forth in Part 1 of this Addendum I shall have been satisfied and
Lessor shall have received in form and substance satisfactory to
Lessor:
(a) Such documentation as Lessor may request with respect to
invoices, purchase orders, canceled checks and the like
relating to the Equipment to be subject to the Schedule.
(b) A Purchase Order Assignment or Bill of Sale if applicable.
(c) A UCC-1 financing statement duly executed by Lessee.
(d) An Acceptance Certificate with respect to the Equipment to be
subject to the Schedule.
Initials GS (Lessor)
----
Initials EW (Lessee)
----
ADDENDUM I
<PAGE> 18
INDEX OF EXHIBITS
TO
MASTER LEASE AGREEMENT
Exhibit A -- Landlord Waiver
Exhibit B -- Purchase Order Assignment
Exhibit C -- Bill of Sale
Exhibit D -- Certificate of Inspection and Acceptance
Exhibit E -- Secretary's or Assistant Secretary's Certificate
Exhibit F -- Form of Schedule
<PAGE> 19
EXHIBIT A
LANDLORD WAIVER
<PAGE> 20
LANDLORD WAIVER
("Landlord") is the owner of real property commonly known
as_______________________________ (the "Premises") and has leased the Premises
to FAIRBANKS SYSTEMS GROUP d/b/a (&.BACKUP, INC. ("Tenant").
1. Landlord acknowledges that it has received notice that Tenant has or
will enter into a Master Lease Agreement (the "Equipment Lease") with DOMINION
VENTURES, INC., a California corporation (together with any assignee of the
Equipment Lease, "Dominion"), whereby Tenant will lease from Dominion certain
equipment (the "Equipment"), all or part of which is currently or may be located
upon or affixed to the Premises.
2. Landlord agrees that Dominion's rights in the Equipment are superior
to any right or claim which Landlord may have and waives and releases any and
all rights it may have against the Equipment for any rent or other sums due or
to become due, under any lease for the Premises or otherwise, and all claims and
demands of every kind against the Equipment.
3. Landlord agrees that the Equipment will remain personal property and
will not become part of the Premises, regardless of the manner in which it may
be affixed to real property, and will allow Dominion or its agents to enter the
Premises any time to remove the Equipment in the exercise of its rights and
remedies arising under the Equipment Lease.
4. This Waiver shall be binding upon the heirs, administrators,
executors, successors and assigns of the Landlord, and shall inure to the
benefit of the successors and assigns of Dominion.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Waiver this ____ day of ______________, 1998.
LANDLORD:
--------------------------------------------
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 21
EXHIBIT B
PURCHASE ORDER ASSIGNMENT
<PAGE> 22
PURCHASE ORDER ASSIGNMENT
THIS PURCHASE ORDER ASSIGNMENT, dated as of ____________, 1998 (this
"Assignment") between FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, INC., a California
corporation ("Assignor") and DOMINION VENTURES, INC. ("Assignee");
WHEREAS, Assignor has submitted its Purchase Orders and/or Invoices
listed in Schedule I hereto (collectively, the "Purchase Orders"), to
_______________________ (the "Vendor") concerning certain Units of equipment
(the "Units") listed in Schedule I hereto to be subject to a Master Lease
Agreement, dated as of January 28, 1999 (the "Lease"), between Assignor and
Assignee (all terms used but not otherwise defined herein shall have the meaning
given to them in the Lease):
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Assignor does hereby sell, assign, transfer and set over unto
Assignee, all of the Assignor's rights to and interests in the Purchase Orders
as and to the extent that the same relates to the Units. The assignment herein
shall include, without limitation, the right of Assignee to purchase the Units
pursuant to the Purchase Orders and to take title to the Units, all claims for
damages in respect of the Units arising as a result of any default by Vendor
under the Purchase Orders, together with any and all rights of Assignor to
compel performance of the terms of the Purchase Orders in respect of the Units.
2. The exercise by Assignee of any of the rights assigned hereunder
shall not release Assignor from any of its duties or obligations to Vendor under
the Purchase Orders except to the extent that such exercise by Assignee shall
constitute performance of such duties and obligations.
3. Upon satisfaction of the conditions set forth in the applicable
Schedule to the Lease with respect to the Units, Assignee shall purchase such
Unit by paying or causing to be paid, by check mailed or delivered to Vendor, on
such date or thereafter as permitted by Vendor, an amount equal to the purchase
price of the Unit, as such amount may be adjusted in accordance with the terms
of the Purchase Orders and reflected on invoices prepared by Vendor to Assignee
on or before the date of delivery and acceptance of the Unit.
4. Assignor agrees that it will, at any time and from time to time, upon
the written request of Assignee, promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as
Assignee may reasonably request in order that Assignee may obtain the full
benefits of this Agreement and of the rights and powers herein granted.
5. Assignor does hereby represent and warrant that the Purchase Orders
are in full force and effect and that Assignor is not in default under any of
them. Assignor does hereby further represent and warrant that Assignor has not
assigned or pledged, and so long as this Assignment shall remain in effect, will
not assign or pledge, the whole or any part of the rights hereby assigned or any
of its rights with respect to the Units under the Purchase Orders to anyone
other than Assignee.
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Purchase Order
Assignment to be duly executed as of the day and year first above written.
ASSIGNOR: ASSIGNEE:
FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, DOMINION VENTURES, INC.
INC.
By: By:
-------------------------------- -----------------------------------
Name: Name:
------------------------------ ---------------------------------
Title: Title:
----------------------------- --------------------------------
Acknowledged and Consented to this _____ day of __________, 199__.
VENDOR:
[VENDOR]
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 24
EXHIBIT C
BILL OF SALE
<PAGE> 25
BILL OF SALE
For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, INC.
(herein "Seller"), does hereby sell, grant, transfer and deliver all right,
title and interest in and to the equipment further described on Annex A hereto
(herein the "Equipment"), together with all warranties, guarantees or other
similar rights with respect to the Equipment ("Equipment Warranties") unto
DOMINION VENTURES, INC. (herein "Purchaser") and to its successors and assigns
to have and to hold said Equipment and the Equipment Warranties forever.
Seller hereby represents and warrants that it holds all right, title and
interest in and to the Equipment being transferred hereby free and clear of all
liens and encumbrances of any kind and Seller does for itself, its successors
and assigns covenant and agree with Purchaser, its successors and assigns, to
warrant and defend the sale of the Equipment and the transfer of the Equipment
Warranties unto Purchaser, its successors and assigns against all and every
person and persons whomsoever claiming or laying claim to the same, except for
any defects in title or liens or encumbrances in or to the Equipment arising
solely by reason of Purchaser's own acts.
THE WARRANTY SET FORTH IN THE FOREGOING PARAGRAPH AND THE EQUIPMENT
WARRANTEES ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES OF SELLER, WHETHER
WRITTEN, ORAL OR IMPLIED, AND SELLER SHALL NOT, BY VIRTUE OF HAVING SOLD THE
EQUIPMENT HEREWITH, BE DEEMED TO HAVE MADE ANY REPRESENTATION OF WARRANTY AS TO
THE MERCHANTABILITY, FITNESS, DESIGN OR CONDITION OF, OR AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP IN, THE EQUIPMENT.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this ___ day
of ____________, 199__.
SELLER:
FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP,
INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 26
ANNEX A
TO
BILL OF SALE
Equipment Description
<PAGE> 27
EXHIBIT D
CERTIFICATE OF INSPECTION AND ACCEPTANCE
<PAGE> 28
CERTIFICATE OF INSPECTION AND ACCEPTANCE
This document is an "Acceptance Certificate" referred to in Paragraph 1
of the Master Lease Agreement Number 10910 (the "Lease") dated as of January 28,
1999, between DOMINION VENTURES, INC. ("Lessor") and FAIRBANKS SYSTEMS GROUP
d/b/a @BACKUP, INC. ("Lessee"). This Acceptance Certificate relates to the
Equipment described in SCHEDULE __ to the Lease (the "Schedule"). All
capitalized terms used without definition herein shall have the respective
meanings given to such terms in the Lease.
LESSEE HAS NOT RELIED UPON LESSOR IN SELECTING THE TYPE AND QUANTITY OF
THE EQUIPMENT AND ACKNOWLEDGES THAT LESSOR HAS MADE NO REPRESENTATION OR
WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT,
INCLUDING WITHOUT LIMITATION ITS CONDITION, MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE. Lessee further acknowledges that Lessor has accepted no
responsibility for the transportation, installation or required licensing
necessary for the transfer, installation or use of the equipment.
Lessee certifies that the Equipment (i) has been delivered to Lessee at
the location specified in the Schedule, (ii) has been inspected by Lessee and
has been found to be in good working order, repair and condition, (iii) has been
installed to Lessee's satisfaction, and (iv) is of a size, design, capacity and
manufacture to satisfy Lessee's requirements. Lessee understands that it may
have rights under the contract pursuant to which the Equipment was acquired and
should contact the supplier of the Equipment for a description of such rights.
Lessee hereby represents and warrants to Lessor that (i) no event of
default under Paragraph 24 of the Lease or event which, with the giving of
notice or the lapse of time, or both, would become such an event of default has
occurred and is continuing, except as disclosed in writing to Lessor, which
disclosed event has either been cured by Lessee or concerning which Lessee has
provided evidence to Lessor that Lessee is in the process of curing such default
and is diligently prosecuting such cure to completion (nothing herein shall
constitute a waiver by Lessor of any rights or remedies which it may have under
the Lease with respect to any event of default); (ii) each of the
representations and warranties set forth in Paragraph 12(b) of the Lease is true
and correct and (iii) Lessee has obtained, and there are in full force and
effect, all insurance policies with respect to the Equipment required to be
obtained under the terms of the Lease.
Date: LESSEE:
-------------
FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP,
INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
<PAGE> 29
EXHIBIT E
FORM OF CERTIFICATE
OF
SECRETARY OR ASSISTANT SECRETARY
<PAGE> 30
FORM OF CERTIFICATE OF SECRETARY OR ASSISTANT SECRETARY
I, the undersigned, ____________________, certify that I am the
Secretary of FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, INC. (the "Company"), and
that I have been duly elected and am presently serving in such capacity in
accordance with the Bylaws of the Company. I hereby further certify on behalf of
the Company as follows:
1. Attached as Exhibit A to this Certificate are true and correct copies
certified by an official of the jurisdiction of incorporation of the Company of
the Company's Articles of Incorporation. No amendment or other document relating
to or affecting the Articles of Incorporation of the Company has been filed
since the filing of the Articles of Incorporation attached hereto, and no action
has been taken by the Company or its stockholders, directors or officers in
contemplation of the liquidation or dissolution of the Company.
2. Attached as Exhibit B to this Certificate is a true and correct copy
of the Bylaws of the Company in full force and effect of the date hereof.
3. The following is a true and correct copy of the resolutions adopted
by the Board of Directors of the Company with respect to the transaction
contemplated by the Master Lease Agreement between the Company and DOMINION
VENTURES, INC. (the "Resolutions"). Such Resolutions, which constitute all the
resolutions adopted by such Board of Directors, have not been modified, amended,
rescinded or revoked, and are in full force and effect on the date hereof:
"RESOLVED, that this corporation, lease from DOMINION VENTURES,
INC. or an affiliate, hereinafter referred to as Lessor, such items of
personal property, and upon such terms and conditions, as the officer or
officers hereinafter authorized in their discretion may deem necessary
or advisable.
"RESOLVED FURTHER, that Gary Sutton and Dan Dearen of this
corporation (the officer or officers, authorized to act pursuant hereto
being hereinafter designated as "authorized officers") be and they
hereby are, authorized, directed and empowered, in the name of this
corporation, to execute and deliver to Lessor, and Lessor is requested
to accept, any lease that may be required by Lessor in connection with
such leasing of personal property.
"RESOLVED FURTHER, that the authorized officers be, and they
hereby are, authorized, directed and empowered, in the name of this
corporation, to make, execute and deliver any and all master lease
agreements, schedules, warrants, notes, mortgages, agreements,
assignments, acceptances, contracts and documents of whatever kind or
character and any supplements thereto, that in their judgment may be
necessary or which may reasonably be required by Lessor under or in
connection with any such lease. The corporation shall reserve such
shares of stock as officers deem necessary pursuant to the terms of
warrants issued. Such stock when issued in accordance with the terms of
the warrants, will be duly and validly issued, fully paid, and
nonassessable.
"RESOLVED FURTHER, that Lessor is authorized to act upon this
resolution until written notice of its revocation is delivered to
Lessor, and that the authority hereby granted shall apply with equal
force and effect to the successors in office of authorized officers
herein named."
4. The following persons have been duly elected and now hold the
respective offices of the Company indicated below and the
signature appearing opposite each such officer's name is the
genuine signature of such person:
<PAGE> 31
<TABLE>
<CAPTION>
NAME OFFICE SIGNATURE
<S> <C> <C>
Gary Sutton Chief Executive Officer
- ------------------------------ ---------------------------- ----------------------------
Dan Dearen Chief Financial Officer
- ------------------------------ ---------------------------- ----------------------------
- ------------------------------ ---------------------------- ----------------------------
</TABLE>
IN WITNESS WHEREOF, I have hereunto signed my name as of
_________________, 199__.
By:
-----------------------------------
Name: Thomas Bolt
Title: Secretary
-2-
<PAGE> 32
EXHIBIT F
FORM OF SCHEDULE
<PAGE> 33
SEE ANNEX A ATTACHED HERETO FOR EQUIPMENT DESCRIPTION.
-2-
<PAGE> 34
IN WITNESS WHEREOF, the undersigned have executed this Schedule as of
the date set forth below.
LESSEE: LESSOR:
FAIRBANKS SYSTEMS GROUP d/b/a @BACKUP, DOMINION VENTURES, INC.
INC.
By: By:
--------------------------------- ---------------------------------
Name: Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
-3-
<PAGE> 35
ANNEX A
TO
EQUIPMENT SCHEDULE ___
Equipment Description
<PAGE> 36
EQUIPMENT SCHEDULE
NO.____
TO MASTER LEASE AGREEMENT NUMBER 10910 DATED JANUARY 28, 1999
LESSOR: DOMINION VENTURES, INC. LESSEE: FAIRBANKS SYSTEMS GROUP d/b/a
44 Montgomery Street @BACKUP, INC.
Suite 4200 3550 General Atomics Court
San Francisco, CA 94104 San Diego, CA 92121-1194
This is one of the "Schedules" to the above-referenced Master Lease
Agreement (the "Lease"). This Schedule together with the Lease constitutes a
lease of the Equipment described on Annex A hereto and all terms and conditions
of the Lease are hereby expressly incorporated into this Schedule and made a
part hereof by this reference. By their execution of this Schedule, the parties
reaffirm all terms and conditions of the Master Lease Agreement except as they
may be modified hereby. This Schedule shall become effective on the later of the
date executed by Lessor or the date on which each of the conditions set forth in
Part 2 of Addendum I to the Lease are satisfied or waived. Capitalized terms
used in this Schedule and not otherwise defined herein shall have the respective
meanings set forth in the Lease.
TOTAL EQUIPMENT COST.......................$_______________
FUNDING EXPIRATION DATE....................________________
RENTAL PAYMENT.............................$_______________
RENT FACTOR................................ ______________%
FREQUENCY..................................Monthly, in advance
INITIAL LEASE TERM.........................________________
COMMENCEMENT DATE..........................________________
ADVANCE RENTAL.............................$_______________
SECURITY DEPOSIT...........................$0.00
EQUIPMENT LOCATION.........................________________
________________
________________
________________
LESSEE CONTACT.............................________________
________________
________________
________________
<PAGE> 1
EXHIBIT 10.11
FAIRBANKS SYSTEMS GROUP D/B/A @BACKUP, INC.
1998 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Option/Stock Issuance Plan is intended to promote
the interests of Fairbanks Systems Group d/b/a @Backup, Inc., a California
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 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
<PAGE> 2
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 or stock issuance thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Plan are as
follows:
(i) Employees,
(ii) non-employee members of the Board or the non-employee
members of the board of directors of any Parent or Subsidiary, 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 the option 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 stock 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. 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
1,261,321 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 cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at 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.
2
<PAGE> 3
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.
3
<PAGE> 4
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) The exercise price per share shall not be less
than eighty-five percent (85%) of the Fair Market Value per share of
Common Stock on the option grant date.
(ii) If the person to whom the option is granted is
a 10% Shareholder, then the exercise price per share shall not be less
than one hundred ten percent (110%) 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 Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate exercise price payable for the purchased
shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason of
such 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.
4
<PAGE> 5
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 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. 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. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding with respect to any and all option
shares for which the option is not otherwise at the time exercisable or
in which the Optionee is not otherwise at that time vested.
(vi) Should Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee 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
5
<PAGE> 6
otherwise 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. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder 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, at the exercise price paid per
share, any or all of those unvested shares. 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. The Plan Administrator may not impose a vesting schedule upon
any option grant or the shares of Common Stock subject to that option which is
more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur not later than one (1) year after the option grant date.
However, such limitation shall not be applicable to any option grants made to
individuals who are officers of the Corporation, non-employee Board members or
independent consultants.
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. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options may, to
the extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. 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.
H. WITHHOLDING. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of any options granted under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
6
<PAGE> 7
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% SHAREHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION
A. The Plan does not provide for automatic acceleration of
unvested shares in the event of a Corporate Transaction. In the event of a
Corporate Transaction, all Incentive Options shall be assumed or equivalent
options shall be substituted by the successor corporation (or other entity) or a
parent or subsidiary of such successor corporation (or other entity). If such
successor does not agree to assume the Incentive Options or to substitute
equivalent options therefor, unless the Plan Administration shall determine
otherwise, such options will expire upon such event.
B. In the event of the proposed dissolution or liquidation of the
Company, the Plan Administrator shall notify each Optionee at least thirty (30)
days prior to such proposed action. To the extent not previously exercised, all
Incentive Options will terminate immediately prior to consummation of such
proposed action.
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class
7
<PAGE> 8
of securities available for issuance under the Plan following the consummation
of such Corporate Transaction and (ii) the exercise price payable per share
under each outstanding option, provided the aggregate exercise price payable for
such securities shall remain the same.
D. The grant of options under the Plan 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.
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.
8
<PAGE> 9
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 but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issue date. However, the purchase
price per share of Common Stock issued to a 10% Shareholder shall not be less
than one hundred and ten percent (110%) of such Fair Market Value.
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. However, the Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, with initial vesting to
occur not later than one (1) year after the issuance date. Such limitation shall
not apply to any Common Stock issuances made to the officers of the Corporation,
non-employee Board members or independent consultants.
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.
9
<PAGE> 10
3. The Participant shall have full shareholder 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 shareholder 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 cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
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. CORPORATE TRANSACTION
The Plan does not provide for automatic acceleration of unvested
shares in the event of a Corporate Transaction.
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.
10
<PAGE> 11
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, interest bearing promissory note payable in one or more
installments and secured by the purchased shares. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. In no event 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 Federal,
state and local 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 shareholders. If
such shareholder 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 Corporate Transaction. 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 shareholder 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
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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 shareholder approval of an amendment sufficiently
increasing the number of shares of Common Stock available for issuance under the
Plan. If such shareholder 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 or upon the issuance or vesting of any shares
issued under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local 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.
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
<PAGE> 13
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board members
appointed by the Board to exercise one or more administrative functions under
the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all
or substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Fairbanks Systems Group d/b/a @Backup, Inc., a
California corporation, and any successor corporation to all or substantially
all of the assets or voting stock of Fairbanks Systems Group d/b/a @Backup, 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.
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
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Association of Securities Dealers on the Nasdaq National Market. 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. 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. 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 be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
M. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
N. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
O. OPTION GRANT PROGRAM shall mean the option grant program in effect
under the Plan.
P. OPTIONEE shall mean any person to whom an option is granted under the
Plan.
Q. 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.
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<PAGE> 15
R. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
S. PLAN shall mean the Corporation's 1998 Stock Option/Stock Issuance
Plan, as set forth in this document.
T. PLAN ADMINISTRATOR shall mean either the Board or the Committee
acting in its capacity as administrator of the Plan.
U. 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.
V. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
W. 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.
X. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
Y. 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.
Z. 10% SHAREHOLDER 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).
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<PAGE> 1
EXHIBIT 10.12
FAIRBANKS SYSTEMS GROUP
D/B/A @BACKUP, INC.
2000 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 2000 Stock Option/Stock Issuance Plan is intended to promote
the interests of Fairbanks Systems Group d/b/a @Backup, Inc. ("@Backup"), a
California 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 the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
<PAGE> 2
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) Employees,
(ii) non-employee members of the Board or the
non-employee members of the board of directors of any Parent or
Subsidiary, 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
2,900,000 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 cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option exercise or direct issue price paid
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<PAGE> 3
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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<PAGE> 4
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) The exercise price per share shall not be less
than eighty-five percent (85%) of the Fair Market Value per share of
Common Stock on the option grant date.
(ii) If the person to whom the option is granted is
a 10% Shareholder, then the exercise price per share shall not be less
than one hundred ten percent (110%) 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 Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Corporation,
out of the sale proceeds available on the settlement date, sufficient
funds to cover the aggregate exercise price payable for the purchased
shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by reason of
such 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.
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<PAGE> 5
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.
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. 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. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding with respect to any and all option
shares for which the option is not otherwise at the time exercisable or
in which the Optionee is not otherwise at that time vested.
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<PAGE> 6
(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 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. SHAREHOLDER RIGHTS. The holder of an option shall have no
shareholder 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, at the exercise price paid per
share, any or all of those unvested shares. 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. The Plan Administrator may not impose a vesting schedule upon
any option grant or the shares of Common Stock subject to that option which is
more restrictive than twenty percent (20%) per year vesting, with the initial
vesting to occur not later than one (1) year after the option grant date.
However, such limitation shall not be applicable to any option grants made to
individuals who are officers of the Corporation, non-employee Board members or
independent consultants.
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.
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<PAGE> 7
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
inheritance following the Optionee's death. 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 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% SHAREHOLDER. If any Employee to whom an Incentive Option
is granted is a 10% Shareholder, then the option term shall not exceed five (5)
years measured from the option grant date.
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<PAGE> 8
III. CORPORATE TRANSACTION
A. The shares subject to each option outstanding under the Plan
at the time of a Corporate Transaction shall automatically vest in full so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all of the shares of Common Stock at the
time subject to that option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall NOT vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and any repurchase rights of the
Corporation with respect to the unvested option shares are concurrently assigned
to such successor corporation (or parent thereof) or (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested option shares at the time of the
Corporate Transaction and provides for subsequent payout in accordance with the
same vesting schedule applicable to those unvested option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) 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 Corporate Transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under this 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 Corporate Transaction.
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<PAGE> 9
E. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to structure one or more options so that those options shall
automatically accelerate and vest in full (and any repurchase rights of the
Corporation with respect to the unvested shares subject to those options shall
immediately terminate) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed in the Corporate Transaction.
F. The Plan Administrator shall also have full power and
authority, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to structure such option so that the
shares subject to that option will automatically vest on an accelerated basis
should the Optionee's Service terminate by reason of an Involuntary Termination
within a designated period (not to exceed eighteen (18) months) following the
effective date of any Corporate Transaction in which the option is assumed and
the repurchase rights applicable to those shares do not otherwise terminate. Any
option so accelerated shall remain exercisable for the fully-vested option
shares until the expiration or sooner termination of the option term. In
addition, the Plan Administrator may provide that one or more of the
Corporation's outstanding repurchase rights with respect to shares held by the
Optionee at the time of such Involuntary Termination shall immediately terminate
on an accelerated basis, and the shares subject to those terminated rights shall
accordingly vest at that time.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction shall remain exercisable as an Incentive Option
only to the extent the applicable One Hundred Thousand Dollar limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of such option shall be exercisable as a Non-Statutory Option under the
Federal tax laws.
H. The grant of options under the Plan 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.
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.
9
<PAGE> 10
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 but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the issue date. However, the purchase
price per share of Common Stock issued to a 10% Shareholder shall not be less
than one hundred and ten percent (110%) of such Fair Market Value.
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. However, the Plan Administrator may not impose a vesting schedule
upon any stock issuance effected under the Stock Issuance Program which is more
restrictive than twenty percent (20%) per year vesting, with initial vesting to
occur not later than one (1) year after the issuance date. Such limitation shall
not apply to any Common Stock issuances made to the officers of the Corporation,
non-employee Board members or independent consultants.
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
10
<PAGE> 11
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.
3. The Participant shall have full shareholder 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 shareholder 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 cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to such surrendered shares.
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.
6. 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. CORPORATE TRANSACTION
A. Upon the occurrence of a Corporate Transaction, all
outstanding repurchase rights under the Stock Issuance Program shall terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, except to the extent: (i) those repurchase
rights are assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator at the time the
repurchase right is issued.
11
<PAGE> 12
B. 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 rights shall automatically terminate 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 (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).
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.
12
<PAGE> 13
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, interest bearing promissory note payable in one or more
installments and secured by the purchased shares. However, any promissory note
delivered by a consultant must be secured by collateral in addition to the
purchased shares of Common Stock. In no event 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 plus (ii) any
Federal, state and local 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 shareholders. If
such shareholder 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 Corporate Transaction. 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 shareholder approval
pursuant to applicable laws and regulations.
13
<PAGE> 14
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 shareholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such shareholder 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 Federal, state and local 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
<PAGE> 15
VIII. FINANCIAL REPORTS
The Corporation shall deliver a balance sheet and an income
statement at least annually to each individual holding an outstanding option
under the Plan, unless such individual is a key Employee whose duties in
connection with the Corporation (or any Parent or Subsidiary) assure such
individual access to equivalent information.
15
<PAGE> 16
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CODE shall mean the Internal Revenue Code of 1986, as amended.
C. COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to exercise one or more administrative functions
under the Plan.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all
or substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean @Backup, a California corporation, and
any successor corporation to all or substantially all of the assets or voting
stock of @Backup 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.
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.
A-1
<PAGE> 17
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
<PAGE> 18
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 be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
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 2000 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
<PAGE> 19
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% SHAREHOLDER 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
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
San Diego, California
March 10, 2000
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