You should read this table together with the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in thisthe prospectus.
other arrangements during this period. Adequate funds may not be available when needed or may not be available on terms favorable to us, or at all. If additional funds are raised by issuing equity securities, dilution to existing stockholders will result. If we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility, and would also require us to fund additional interest expense. If funding is insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.
Summary Disclosures about Contractual Obligations and Commercial Commitments
Our material capital commitments consist of obligations under facilities and operating leases. We anticipate that we will experience an increase in our capital expenditures and lease commitments consistent with our anticipated growth in operations, infrastructure and personnel and additional resources devoted to building our brand name and marketing and sales force.
We generally do not enter into binding purchase commitments. The following table summarizes our existing long-term contractual obligations as of DecemberMarch 31, 2005 with regards to payments due under operating leases and an equipment term loan2007 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payments Due By March 31, | |
| | | |
Contractual Obligations(1) | | Total | | | 2006 | | | 2007 | | | 2008 | | | 2009 | | | 2010 | | | Thereafter | |
| | | | | | | | | | | | | | | | | | | | | |
Operating leases | | $ | 5,906 | | | $ | 683 | | | $ | 2,424 | | | $ | 2,136 | | | $ | 649 | | | $ | 14 | | | $ | 0 | |
Equipment term loan | | | 17 | | | | 17 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 5,923 | | | $ | 700 | | | $ | 2,424 | | | $ | 2,136 | | | $ | 649 | | | $ | 14 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | |
| | Payments Due by Period | |
| | | | | Less Than
| | | | | | | | | More Than
| |
| | Total | | | 1 Year | | | 1-3 Years | | | 4-5 Years | | | 5 Years | |
|
Operating lease obligations | | $ | 12,453 | | | $ | 2,766 | | | $ | 4,230 | | | $ | 3,323 | | | $ | 2,134 | |
Term Loan(1) | | | 7,500 | | | | 5,000 | | | | 2,500 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 19,953 | | | $ | 7,766 | | | $ | 6,730 | | | $ | 3,323 | | | $ | 2,134 | |
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(1) | In connection withBorrowings under our term loan require principal and interest to be repaid in quarterly installments over a24-month period through September 1, 2008, subject to acceleration, at the discretion of the lender. We intend to use the estimated net proceeds from the sale of shares by us in this offering we intendof $4.2 million, together with approximately $2.1 million of our existing cash and cash equivalents, to enter into a new $20 millionpay the outstanding principal and accrued interest under our term loan pursuant(an amount equal to which we intend$6.3 million as of June 15, 2007, assuming interest accrued at a rate equal to borrow $ million on or immediately prior to7.0% per annum for the closing dateapplicable period) as soon as practicable after the receipt of this offering. We estimate the payments under this term loan will be $ million in fiscal 2007, $ million in fiscal 2008 and $ million in fiscal 2009. The term loan will mature in fiscal 2009.such proceeds. |
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would (decrease) increase
We offer a90-day limited product warranty for our borrowings under our new term loan on the closingsoftware. To date, and would (decrease) increase the payments undercosts relating to this term loan in fiscal 2007 by $ , in fiscal 2008 by $ , and in fiscal 2009 by $ , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.product warranty have not been material.
Off-Balance Sheet Arrangements
As of DecemberMarch 31, 2005,2007, we had no off-balance sheet arrangements.
Indemnifications
Our
Certain of our software licensing agreements contain certain provisions that indemnify our customers from any claim, suit or proceeding arising from alleged or actual intellectual property infringement. TheseSome of these provisions continue in perpetuity along with our software licensing agreements. We have never incurred a liability relating to one of these indemnification provisions in the past and we believe that the likelihood of any future payout relating to these provisions is remote. Therefore, we have not recorded a liability during any period related to these indemnification provisions.
Recent Accounting Pronouncements
In June 2005,2006, the Financial Accounting Standards Board (“FASB”) issued SFASFASB Interpretation No. 154,48,“Accounting Changes and Error Correctionsfor Uncertainty in Income Taxes — a replacementan interpretation of APB Opinion No. 20 and FASB Statement No. 3109” (“SFAS No. 154”(“FIN 48”). SFAS No. 154 applies to all voluntary changes in accounting principles and changesFIN 48 clarifies the requirements for accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109,“Accounting for Income Taxes.”FIN 48 prescribes a recognition
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threshold and reportingmeasurement attribute for the financial statement recognition and measurement of a changetax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting principles. SFAS No. 154 is effective for accounting changesin interim periods, disclosure, and correctionstransition. We were required to adopt the provisions of errors made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes and correctionsFIN 48 on April 1, 2007. We are evaluating the impact of errors made in fiscal years beginning after June 1, 2005. We do not expect the adoption of SFAS No. 154 to have a material impactthis statement on our financial position or resultsstatements and currently expect the cumulative effect of operations.adopting FIN 48 will result in an increase to beginning accumulated deficit of approximately $1.0 million to $2.0 million as of the beginning of fiscal 2008.
In December 2004,September 2006, the FASB issued SFAS No. 123 (revised 2004),157,Share-Based PaymentFair Value Measurements(“ (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating the impact of this Statement on our financial statements.
In February 2007, the FASB issued SFAS No. 123(R)”), which replaces159,The Fair Value Option for Financial Assets and Financial Liabilities — including an Amendment of SFAS No. 123 and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees115, (“ SFAS 159”). SFAS No. 123(R) addresses the accounting159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value option has been elected in earnings at each subsequent reporting date. SFAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options and restricted stock grants, to be recognized as a compensation cost based on their fair values. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to financial statement recognition. We will adopt SFAS No. 123(R) on April 1, 2006 using the modified prospective approach and expect that the adoption of SFAS No. 123(R) will have a material impactthis Statement on our consolidated results of operations, although it will not impact our overall financial position. The future results will be impacted by the number and value of additional stock option grants subsequent to adoption and the rate of cancellation of unvested grants. We estimate that we will record additional stock-based compensation expense of approximately $4.1 million in fiscal 2007 and approximately $3.4 million in fiscal 2008 under SFAS No. 123(R) using the Black-Scholes option-pricing method based on existing unvested options as of April 1, 2006. Our stock-based compensation expenses will increase when additional stock option grants are awarded.statements.
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Quantitative and Qualitative Disclosures Aboutabout Market Risk
Interest Rate Risk
As of DecemberMarch 31, 2005,2007, our cash and cash equivalents balance consisted primarily of money market funds. Due to the short-term nature of these investments, we are not subject to any material interest rate risk on these balances.
As of March 31, 2007, we have $7.5 million outstanding under our term loan used in connection with the payments due to the holders of our Series A, B, C, D and E preferred stock upon our initial public offering. Borrowings under the term loan bear interest at a rate equal to the30-day LIBOR plus 1.50%. Our interest rate exposure is related changes in the LIBOR. A 1% increase in LIBOR would cause our interest expense to increase by approximately $0.1 million over the next twelve months based on our term loan balance outstanding at March 31, 2007.
Foreign Currency Risk
As a global company, we face exposure to adverse movements in foreign currency exchange rates. Our international sales are generally denominated in foreign currencies, and this revenue could be materially affected by currency fluctuations. Approximately 28%Sales outside of our sales were outside the United States were approximately 30% in the nine months ended December 31, 2005.fiscal 2007 and approximately 29% in fiscal 2006. Our primary exposures are to fluctuations in exchange rates for the U.S. dollar versus the Euro and, to a lesser extent, the Australian dollar, British pound sterling, Canadian dollar and Chinese yuan.yuan, Indian rupee and Singapore dollar. Changes in currency exchange rates could adversely affect our reported revenues and require us to reduce our prices to remain competitive in foreign markets, which could also have a material adverse effect on our results of operations. Historically, we have periodically reviewed and revised the pricing of our products available to our customers in foreign countries and we have not maintained excess cash balances in foreign accounts. To date, we have not hedged our exposure to changes in foreign currency exchange rates and, as a result, could incur unanticipated gains or losses.
We estimate that a 10% change in foreign exchange rates would impact our reported operating profit by less than $1.0 million annually. In addition, we have U.S. dollar denominated intercompany receivables due from our foreign subsidiaries that are subject to movements in foreign exchange rates and, as a result, could incur unanticipated transaction gains or losses. We anticipate that a 10% change in foreign exchange rates applied to such intercompany receivables would impact our reported operating profit by $2.0approximately $1.7 million annually. This sensitivity analysis disregards the possibilities that rates can move in opposite directions and that losses from one geographic area may be offset by gains from another geographic area.
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BUSINESS
Company Overview
Company Overview
CommVault is a leading provider of data management software applications and related services.services in terms of product breadth and functionality and market penetration. We develop, market and sell a unified suite of data management software applications under the QiNetix (pronounced “kinetics”) brand. QiNetix is specifically designed to protect and manage data throughout its lifecycle in less time, at lower cost and with fewer resources than alternative solutions while minimizing the cost and complexity of managing that data. QiNetix provides our customers with:
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| • | high-performance data protection, including backup and recovery; |
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| • | disaster recovery of data; |
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| • | data migration and archiving; |
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| • | global availability of data; |
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| • | replication of data; |
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| • | creation and management of copies of stored data; |
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| • | storage resource discovery and usage tracking; |
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| • | data classification; and |
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| • | management and operational reports and troubleshooting tools. |
Our products and capabilities enable our customers to deploy solutions for data protection, business continuance, corporate compliance and centralized management and reporting. We also provide our customers with a broad range of highly effectivehighly-effective professional services that are delivered by our worldwide support and field operations.
QiNetix enables our customers to simply and cost-effectively protect and manage their enterprise data throughout its lifecycle, from data center to remote office, covering the leading operating systems, relational databases and applications. In addition to addressing today’s data management challenges, our customers can realize lower capital costs through more efficient use of their enterprise-wide storage infrastructure assets, including the automated movement of data from higher cost to lower cost storage devices throughout its lifecycle and through sharing and better utilization of storage resources across the enterprise. QiNetix also can also provide our customers with reduced operating costs through a variety of features, including fast application deployment, reduced training time, lower cost of storage media consumables, proactive monitoring and analysis, simplified troubleshooting and lower administrative costs.
QiNetix is built upon a newan innovative architecture and a single underlying code base that consists of:
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| • | an indexing engine that systematically identifies and organizes all data, users and devices accessible to our software products; |
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| • | a cataloging engine that contains a global database describing the nature of all data, such as the users, applications and storage with which it is associated; |
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| • | a policy engine that enables customers to set rules to automate the management of data; |
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| • | a data movement engine that transports data using network communication protocols; and |
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| • | a media management engine that controls and catalogs disk, tape and optical storage devices, as well as the data written to them. |
We refer to this single, unified code base underlying each of our QiNetix applications as our Common Technology Engine. Each data management software application within our QiNetix suite is designed to bebest-inbest-in-class-class and is fully integrated into our Common Technology Engine. Our unified architectural design is unique and differentiates our products from those of our competitors, some of whom offer similar applications built upon disparate underlying software architectures, which we refer to as point products. We believe the disparate underlying software architectures of their products inhibit our competitors’ ability to match the seamless management, interoperability and scalability of our internally developedinternally-developed, unified suite and common user interface.
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We have established a worldwide, multi-channel distribution network to sell our software and services to large global enterprises, small and medium sized businesses and government agencies, both directly through our sales force and indirectly through our global network of value-added reseller partners, systems integrators, corporate resellers and original equipment manufacturers. Our original equipment manufacturer partners include Dell, Hitachi Data Systems and, more recently, Bull and Incentra Solutions, Inc. As of DecemberMarch 31, 2005,2007, we had licensed our data management software to more than 3,400approximately 5,900 registered customers.
CommVault’s executive management team has led the growth of our business, including the development and release of all our QiNetix software, since its introduction in February 2000. Under the guidance of our management team, we have sustained technical leadership with the introduction of eight new data management applications and have garnered numerous industry awards and recognition for our innovative solutions.
Certain financial information with respect to geographic segments is contained in Note 11 to our consolidated financial statements set forth in Item 8.
Industry Background
The driving forces for the growth of the data management software industry are the rapid growth of data and the need to protect and manage that data.
Data is widely considered to be one of an organization’s most valued assets. The increasing reliance on critical enterprise software applications such ase-mail, relational databases, enterprise resource planning, customer relationship management and workgroup collaboration tools is resulting in the rapid growth of data across all enterprises. New government regulations, such as those issued under the Sarbanes-Oxley Act, the Health Insurance Portability and Accountability Act (HIPAA) and the Basel Committee on Banking Supervision (Basel II), as well as company policies requiring data preservation, are expanding the proportion of data that must be archived and easily accessible for future use. In addition, ensuring the security and integrity of the data has become a critical task as regulatory compliance and corporate governance objectives affecting many organizations mandate the creation of multiple copies of data with longer and more complex retention requirements. According to a 2005 report by International Data Corporation, an independent technology research organization, worldwide disk storage systems exceeded 1.2 million terabytes in 2004 and are forecasted to grow to nearly 10.6 million terabytes in 2009, representing an estimated annual growth rate of approximately 52%.
In addition to rapid data growth, data storage has transitioned from being server-attached to becoming widely distributed across local and global networked storage systems. Data previously stored on primary disk and backed up on tape is increasingly being backed up, managed and stored on a broader array of storage tiers ranging from high-cost, high-performance disk systems to lower-cost mid-range and low-end disk systems to tape libraries. This transition has been driven by the growth of data, the pervasive use of distributed critical enterprise software applications, the decrease in disk cost and the demand for24/7 business continuity.
The recent innovations in storage and networking technologies, coupled with the rapid growth of data, have caused information technology managers to redesign their data and storage infrastructures to deliver greater efficiency, broaden access to data and reduce costs. The result has been the wide adoption of larger and more complex networked data and storage solutions, such as storage area networks (SANs) andnetwork-attached storage (NAS). In addition to those trends, regulatory compliance and corporate governance objectives are creating larger data archives having much longer retention periods that require information technology managers of organizations affected by these objectives to ensure the integrity, security and availability of data.
We believe that these trends are increasing the demand for software applications that can simplify data management, provide secure and reliable access to all data across a broad spectrum of tiered storage and computing systems and seamlessly scale to accommodate growth, while reducing the total cost of ownership to the customer. Gartner, Inc., an independent technology research organization, estimated in 2005 that the storage management software market will grow from $5.6 billion in 2004 to $9.4 billion in 2009.
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Limitations of Competing Data Management Software Products and Solutions
Many of our competitors’ products were initially designed to manage smaller quantities of data inserver-attached storage environments. As a result, we believe they are not as effective managing data in today’s larger and more complex networked (SAN and NAS) environments. Given these limitations, we
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believe our competitors’ products cannot be scaled as easily as ours and are more costly to implement and manage than our solutions.
Most data management software solutions are comprised of many individual point products built upon separate underlying architectures. This often requires the user to administer each individual point product using a separate, different user interface, and unique set of dedicated storage resources, such as disk and tape drives. The result can be a costly, difficult to manage environment that requires extensive administrativecross-training, offers little insight into storage resource use across the global enterprise, provides modest operational reporting and commands greater storage use. As a result, we believe competing data management software products do not fully address the following key requirements in today’s data management environment:
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| • | Effective Management of Widely Distributed and Networked Data. Most existing information and data management software products were designed to manage local server-attached storage environments, and do not as easily or effectively manage data in today’s heterogeneous, widely distributed and tiered storage architectures. |
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| • | Ease of Data Management Application Integration. A number of vendors offering point products have attempted to address distributed and networked storage management requirements, but these disparate products are not easily integrated with other data management applications and can result in additional costs to the user, including storage infrastructure costs and higher implementation, training, administration, maintenance and support costs. |
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| • | Global Scalability. Data management solutions consisting of combinations of point products initially designed to address server-attached storage environments have underlying software architectures that are both cumbersome to deploy and more difficult to scale across networked storage and geographic boundaries. |
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| • | Centralized Data Management. Most data management solutions consisting of combinations of point products lack the ability to comprehensively manage all data management applications across the global enterprise from a single, unified point of control. |
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| • | Ability to Effectively Prioritize Stored Data Across Applications. Several existing solutions include combinations of point products that attempt to manage data based on its assigned priority in a tiered storage environment. However, these offerings lack a specifically designed tiered storage management architecture that can seamlessly integrate the classification, indexing and cataloging of data with features that enable user-defined policies and automated migration of data across a tiered storage environment. |
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| • | Lower Total Cost of Ownership. The inherent limitations of many data management software products can result in increased capital and operating costs. These costs are related to the increased use of storage hardware and media, additional infrastructure requirements (such as servers and storage network devices) and higher personnel costs, including implementation, training, administration, maintenance and support. |
We believe that there is and will continue to be significant demand for a unified, comprehensive and scalable suite of data management software applications specifically designed to centrally and cost-effectively manage increasingly complex enterprise data environments.
Our SolutionSoftware
We provide our customers with a unified, comprehensive and scalable suite of data management software applications that are fully integrated into our Common Technology Engine. Our software enables
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centralized protection and management of globally distributed data while reducing the total cost of managing, moving, storing and assuring secure access to that data from a single browser-based interface. QiNetix providesWe provide our customers with high-performance data protection, including backup and recovery, disaster recovery of data, data migration and archiving, global data availability, replication of data, creation and management of copies
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of stored data, storage resource discovery and usage tracking, data classification, management and operational reports and troubleshooting tools.
QiNetix
Our software fully interoperates with a wide variety of operating systems, applications, network devices, protocols, storage arrays, storage formats and tiered storage infrastructures, providing our customers with the flexibility to purchase and deploy a combination of hardware and software from different vendors. As a result, our customers can purchase and use the optimal hardware and software for their needs, rather than being restricted to the offerings of a single vendor. Key benefits of our software and related services include:
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| • | Dynamic Management of Widely Distributed and Networked Data. QiNetixOur software is specifically designed to optimize management of data on tiered storage and widely distributed data environments, including SAN and NAS. Our architecture enables the creation of policies that automate the movement of data based on business goals for availability, recoverability and disaster tolerance. User-defined policies determine the storage media on which data should reside based on its assigned value. |
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| • | Unified Suite of Applications Built upon a Common Technology Engine. All QiNetixof our software applications share common components of our underlying software code, which drives significant cost savings versus the point products or loosely integrated solutions offered by our competitors. In addition, we believe that each of the individual data management applications in our QiNetix suite of software applications delivers superior performance, functionality and total cost of ownership benefits. These solutions can be delivered to our customers either as part of our unified suite or as stand-alone applications. We also believe that our architecture will allow us to more rapidly introduce new applications that will enable us to expand beyond our current addressable market. |
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| • | Global Scalability and Seamless Centralized Data Management. Our software is highly scalable, enabling our customers to keep pace with the growth of data and technologies deployed in their enterprises. We use the same underlying software architecture for large global enterprise, small and medium sized business and government agency deployments. We offer a centralized, browser-based management console from which policies automatically move data according to users’ needs for data access, availability and cost objectives. With QiNetix, our customers can automate the discovery, management and monitoring of enterprise-wide storage resources and applications. |
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| • | State-ofState-of-the-Art-the-Art Customer Support Services. We offer24/7 global technical support. Our support operations center at our Oceanport, New Jersey headquarters is complemented by local support resources, including centers in Europe, Australia, India and China. Our worldwide customer support organization provides comprehensive local and remote customer care to effectively address issues in today’s complex storage networking infrastructures. Our customer support process includes the expertise of product development, field and customer support engineers. In addition, we incorporate into our software manyself-diagnostic and troubleshooting capabilities and provide automatedweb-based support capabilities to our customers. Furthermore, we have implemented avoice-over-IP telephony system to tie our worldwide support centers together with an integrated call center messaging and trouble ticket management system. |
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| • | Superior Professional Services. We are committed to providing high-value, superior professional services to our customers. Our Global Professional Services group provides complete business solutions that complement our software sales and improve the overall user experience. Ourend-toend-to-end-end services include assessment and design, implementation, post-deployment and training services. These services help our customers improve the protection, disaster recovery, availability, security and regulatory compliance of their global data assets while minimizing the overall cost and complexity of their data infrastructures. |
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| • | Lower Total Cost of Ownership. Our software solutions built on our QiNetixcommon architecture enable our customers to realize compelling total cost of ownership benefits, including reduced capital costs, operating expenses and support costs. |
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Our Strategy
Our objective is to enhance our position as a leading supplier of data management software and services. Our key strategic initiatives are to continue:
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| • | Extending our Technology Leadership, Product Breadth and Addressable Markets. We intend to use our technology base, internal development capabilities and strategic industry relationships to extend our technology leadership in providing software to manage globally distributed data. Specifically, we plan to continuously enhance existing software applications and introduce new data management software applications that address emerging data and storage management trends. In addition, we intend to build upon our existing technology foundation to introduce newtrends, incorporate advances in hardware and software applications beyond the traditional datatechnologies as they become available and storage management category, which may expand our addressable market.take advantage of market opportunities. |
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| • | Enhancing and Expanding our Customer Support and Other Professional Services Offerings. We plan to continue investing in the people, partners, technologies, software and services enhancements necessary to provide our customers with the industry’s most comprehensive product support and professional services. We intend to continue creating and delivering innovative services offerings and product enhancements that result in faster deployment of our software, simpler system administration and rapid resolution of problems. We also intend to enhance our web-based support initiatives and broaden our global support infrastructure. |
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| • | Expanding Distribution Channels and Geographic Markets Served. We plan to continue investing in the expansion of our distribution channels, both geographically and across all enterprises. We intend to maintain and grow our direct sales force as well as our distribution relationships, including those with value-added resellers, corporate resellers, systems integrators and original equipment manufacturers. We have made significant investments to extend our global reach, such as establishing sales and support offices in China and a development and support office in India. We intend to continue making investments to extend our global reach and increase our distribution throughout the Americas, Europe, Australia and Asia. |
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| • | Broadening and Developing Strategic Relationships. We plan to broaden our distribution and technology partnerships to increase existing product sales and introduce new applications. Our unified platform simplifies integration with our partners’ solutions and the implementation of unique functionality to meet their needs. We also intend to broaden our existing relationships and develop new relationships with leading technology partners, including software application and infrastructure hardware vendors. We believe that these types of strategic relationships will allow us to package and distribute our data management software to our partners’ customers, increase sales of our software through joint-selling and marketing arrangements and increase our insight into future industry trends. |
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Products
Our QiNetix suite of software applications is comprised of eight distinct data management software applications, all of which share our Common Technology Engine. Each application (other than Data Classification and
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QNet) can be used individually or in combination with other applications of our unified suite. The following table summarizes the components of our unified QiNetix suite:
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QiNetix Suite of Data Management Applications | | Functionality |
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• Galaxy Backup and Recovery | | High-performance backup and restoration of enterprise data |
• QuickRecovery | | Recovery of files and applications by taking advantage of snapshot technologies |
• ContinuousDataReplicator*ContinuousDataReplicator | | Continuous capture of changes to data and copying of those changes to a secondary location for disaster recovery and fast recovery of individual files |
• DataMigrator | | Active migration and archiving of data to less expensive secondary storage indexed for search and retrieval |
• DataArchiver | | Archiving and indexing ofe-mail messages and attachments for compliance and legal discovery purposes |
• Data Classification | | Creation of a catalog of key attributes about primary data to enable intelligent, automated policy-based data movement and management |
• StorageManager | | Storage resource discovery and usage tracking of applications, files, organizations and individual users |
• QNet | | Consolidated management and reporting on data management service levels and data movement operations |
Galaxy Backup and Recovery
* Beta only.
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| QiNetix Galaxy Backup and Recovery |
QiNetix Galaxy provides high-performance backup of enterprise applications and data for restoration when information is accidentally deleted, when disks fail, when servers need to be rebuilt or for disaster recovery of servers. Policies define when and how data is protected and stored, providing efficient use of storage devices and media, including drive and device sharing.
QuickRecovery
QiNetix
QuickRecovery recovers application data and files from disks to minimize disruption of a customer’s operations. Using snapshot technologies to create one or morepoint-inpoint-in-time-time recovery images, QuickRecovery offers users the ability to rapidly recover data from alternative points in time. The software incorporatesblock-level data movement and features a simple interface that creates, tracks, administers and managespoint-inpoint-in-time-time snapshots of data for testing, recoveryand/or business continuance.
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| QiNetix ContinuousDataReplicator (beta only) |
ContinuousDataReplicator
QiNetix
ContinuousDataReplicator (beta only) continuously captures file-level changes to data and copies those changes to a secondary system to protect from disk, server or site loss. The software retains multiplepoint-inpoint-in-time-time copies of the data at the secondary location, offering flexible recovery options back to the primary location. ContinuousDataReplicator (beta only) reduces risk of lost data and can simplify a customer’s operations by centralizing data from many remote office locations into a single location, leveraging systems and personnel expertise rather than having to duplicate resources at every location.
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QiNetix
DataMigrator
DataMigrator actively moves less-used or older data from higher-cost primary storage to less expensive secondary storage and indexes it for search and retrieval purposes without disrupting how applications or end users access information. By shrinking the amount of data stored on primary storage, DataMigrator can also
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reduce the amount of time needed for backup and information technology administration, while improving computing system performance. A single, comprehensive capacity management solution for Windows, UNIX, Linux, Microsoft Exchange, Novell Netware and other environments, DataMigrator can help reduce capital expenditures on new primary storage.
DataArchiver
QiNetix
DataArchiver archives and indexese-mail messages and attachments to help organizations meet compliance, regulatory and legal discovery requirements. The software offers extensive search capabilities to rapidly locate and retrievee-mail messages. Full-text indexing and keyword searching allows administrators and compliance officers to find and retrievee-mail messages by searchinge-mail header data along with message and attachment content.
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| QiNetix Data Classification |
Data Classification
QiNetix
Data Classification creates a catalog of key attributes of unstructured data stored on primary computing systems, complementing the indexing of applications and data on secondary storage resources provided by other QiNetix applications. The software enhances how administrators can manage data by offering a broad set of attributes, instead of just its physical location. Data Classification helps enterprises more precisely organize and manage tiered classes of data throughout its lifecycle. Currently, Data Classification can only be used in combination with our other products.
StorageManager
QiNetix
StorageManager discovers, tracks and reports on primary disk storage by users, enterprises, files and applications. Its comprehensive view of hosts, applications and storage resources provides detailed reports on disk storage assets, usage, trends and costs. The software also offers the ability to view links between logical entities (such as applications and files) and physical storage resources. StorageManager enables enterprises to better use storage resources that they already have, as well as plan ahead for future needs.
QNet
QiNetix
QNet consolidates management and reporting of data management service levels and data movement operations within a single browser interface. QNet collects information from our data management applications and can correlate it to primary and secondary storage use, including data characteristics, giving anend-toend-to-end-end lifecycle view of data. In addition, QNet can project secondary storage resource consumption, enabling users to determine if they have sufficient storage capacity and help plan for future needs. The software also provides operational reports detailing performance versus operation service level objectives. QNet can only be used in combination with our other products.
Our QiNetix suite includes intelligent operations management capabilities (iQ Ops) to simplify the management of complex data and network and storage information technology operations. iQ Ops provides proactive and reactive monitoring and reporting functions, alert notification and analysis enabling customers to quickly detect, troubleshoot and resolve potential problems. Combined with the reliability and resiliency features of our Common Technology Engine, iQ Ops enables our customers to improve overall operations with higher system availability.
CommVault and our QiNetixsoftware applications have received numerous industry awards and recognition. InSince July 2005, CommVault washas been placed in the “Leaders Quadrant” of the Gartner Enterprise Backup/Recovery softwareSoftware market Magic Quadrant. In September 2006, CommVault received the highest possible rating, “Strong Positive,” in Gartner’s Market Scope for Enterprise Backup/Recovery Software 2006 report. Also in 2005, our Galaxy software earned top rating over its
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direct competitors and was awarded the Diogenes Labs-Storage magazine Quality Award in the enterprise backup and recovery software category. In 2004, our QiNetixsoftware suite was voted “most innovative software”an “Innovation Award Winner” and in 2005, the “best solution” by senior IT executives at the Midsize Enterprise Summit. Storage magazine and SearchStorage.com namedgave our QiNetix suite as the 2003 “Product of the Year”“Gold Medal” for Backup and Disaster Recovery Software. Storage magazine and SearchStorage.com similarly namedgave our Galaxy software the 2002 “Product of the Year”“Gold Medal” for Backup and Disaster
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Recovery Software. In 2003, our software applications were named by Network Magazine as “Best Backup/“Backup/Recovery Software Product of the Year” and by eWEEK and PC Magazine as “Best of Show Enterprise Storage” at the CeBit America trade show. In 2002, our Galaxy software was named by Microsoft Certified Professional Magazine as “Editor’s Choice: Products We Love” for backup. We believe that these awards increase our market recognition and enhance selling efforts.
Services
A comprehensive global offering of customer support and other professional services is critical to the successful marketing, sale and deployment of our software. From planning to deployment to operations, we offer a complete set of technical services, training and support options that maximize the operational benefits of our QiNetix suite.suite of software applications. Our commitment to superior customer support is reflected in the breadth and depth of our services offerings as well as in our ongoing initiatives to engineer resiliency, automation and serviceability features directly into our products.
We have established a global customer support organization built specifically to handle our expanding customer base. We offer multiple levels of customer support that can be tailored to the customer’s response needs and business sensitivities. Our customer support services consist of:
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| • | Real-Time Support. Our support staff are available24/7 by telephone to provide first response and manage the resolution of customer issues. In addition to phone support, our customers have access to an online product support database for help with troubleshooting and operational questions. Innovative use of web-based diagnostic tools provides problem analysis and resolution often without the need for onsite support personnel. Our software design is also an important element in our comprehensive customer support, including “root cause” problem analysis, intelligent alerting and troubleshooting assistance. Our software is directly linked to our online support database allowing customers to analyze problems without engaging our technical support personnel. |
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| • | Significant Network and Hardware Expertise. Our support engineers have extensive knowledge of complex applications, servers and networks. We proactively take ownership of the customer’s problem, regardless of whether the issue is directly related to our products or to those of another vendor. We have also developed and maintain a knowledge library of storage systems and software products to further enable our support organization to quickly and effectively resolve customer problems. |
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| • | Global Operations. We are enhancingenhanced our Oceanport, New Jersey support operations with a newstate-ofstate-of-the-art-the-art technical support center which will bebecame operational in April 2006. We also have established key support operations in Hyderabad, India, Oberhausen, Germany and Shanghai, China, which are complemented by regional support centers in other worldwide locations. Furthermore, we have implemented avoice-over-IP telephony system to tie our worldwide support centers together with an integrated call center messaging and trouble ticket management system. We have designed our support infrastructure to be able to scale with the increasing globalization of our customers. |
We also provide a wide range of other professional services that consist of:
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| • | Assessment and Design Services. Our assessment and design services assist customers in determining data and storage management requirements, designing solutions to meet those requirements and planning for successful implementation and deployment. |
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| • | Implementation and Post-deployment Services. Our professional services team helps customers efficiently configure, install and deploy our QiNetix suite based on specified business objectives. |
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| | |
| | Our SystemCare Review Services group assist our customers with assessing the post-deployment operational performance of our QiNetix suite. |
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| • | Training Services. We provide global onsite and offsite training for our products. Packaged or customized customer training courses are available in instructor-led or computer-based formats. We offer in-depth training and certification for our resellers in pre- and post-sales support methodologies, including web access to customizable documentation and training materials. |
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Strategic Relationships
An important element of our strategy is to establish relationships with third parties to assist us in developing, marketing, selling and implementing our software and services. We believe that strategic and technology-based relationships with industry leaders are fundamental to our success. We have forged numerous relationships with software application and hardware vendors to enhance our combined capabilities and to create the optimal combination of data management applications. This approach enhances our ability to expand our product offerings and customer base and to enter new markets. We have established the following types of strategic relationships:
Product and Technology Relationships. We maintain strategic product and technology relationships with major industry leaders to ensure that our software applications are integrated with, supported by and add value to our partners’ hardware and software products. Collaboration with these market leaders allows us to provide applications that enable our customers to improve data management efficiency.
Our significant strategic relationships include Dell, Hitachi Data Systems and Microsoft. In addition to these relationships, we maintain relationships with a broad range of industry vendors to verify and demonstrate the interoperability of our software applications with their equipment and technologies. These vendors include Brocade Communications Systems, Inc., Cisco Systems, Inc., EMC, Hewlett-Packard, IBM, Network Appliance, Inc., Novell, Inc., Oracle Corporation and SAP AG.
Distributors, Value-Added Reseller, Systems Integrator, Corporate Reseller and Original Equipment Manufacturer Relationships. Our corporate resellers bundle or sell our software applications together with their own products, and our value-added resellers resell our software applications independently. As of DecemberMarch 31, 2005,2007, we had overapproximately 300 reseller partners and systems integrators distributing our software worldwide.
In order to broaden our market coverage, we have original equipment manufacturer distribution agreements with Dell and Hitachi Data Systems.Systems and, more recently, Bull and Incentra Solutions, Inc. Under these agreements, the original equipment manufacturers sell, market and support our software applications and services independentlyand/or incorporate our software applications into their own hardware products. Our original equipment manufacturer agreements do not contain any minimum purchase or sale commitments. In addition to our original equipment manufacturer agreement with Dell, we also have a corporate reseller agreement with the Dell Software and Peripherals division. We have also signed a distribution agreement with Arrow covering North American commercial markets. We believe that this relationship will enable us to reach more resellers and end-users and will increase the amount of resources focused on our reseller channel.
Customers
We sell our suite of data management software applications and related services directly to large global enterprises, small and medium sized businesses and government agencies, and indirectly through value-added resellers, systems integrators, corporate resellers and original equipment manufacturer partners. As of DecemberMarch 31, 2005,2007, we had licensed our software applications to more than 3,400approximately 5,900 registered customers in a broad range of industries, including banking, insurance and financial services, government, healthcare, pharmaceuticals and medical services, technology, legal, manufacturing, utilities and energy. OurA representative sample of well-known customers includewith a significant deployment of CommVault software includes Ace Hardware Corporation, Centex Homes, Clifford Chance LLP, Cozen O’Connor, Halcrow Group Ltd., Newell Rubbermaid Inc., North Fork Bank, Ricoh Company, Ltd., the United Kingdom’s Department of International Development and Welch Foods Inc.
Sales through our original equipment manufacturer agreement with Dell accounted for approximately 7% of our total revenues for both fiscal 2007 and 2006. Sales through our reseller agreement with Dell accounted for approximately 7%12% of our total revenues for fiscal 2007 and 11%, respectively, of our total revenues for the nine months ended December 31, 2005, and sales to the U.S. federal government accounted for approximately 10% of our
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revenues for the nine months ended December 31, 2005.fiscal 2006. Dell is an original equipment manufacturer and a reseller that purchases software from us for resale to its customers, but is not the end user of our software. Sales to the U.S. federal government accounted for
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approximately 7% of our total revenues for fiscal 2007 and approximately 8% of our total revenues for fiscal 2006.
Technology
Our Common Technology Engine serves as a major differentiator versus our competitors’ data management software products. Our Common Technology Engine’s unique indexing, cataloging, data movement, media management and policy technologies are the source of the performance, scale, management, cost of ownership benefits and seamless interoperability inherent in all of our data management software applications. Additional options enable content search, data encryption and auditing features to support data discovery and compliance requirements. Each of these applications shares a common architecture consisting of three core components: intelligent agent software, data movement software and command and control software. These components may be installed on a single host server, or each may be distributed over many servers in a global network. Additionally, the modularity of our software provides deployment flexibility. The ability to share storage resources across multiple data management applications provides easier data management and lower total cost of ownership. We participate in industry standards groups and activities that we believe will have a direct bearing on the data management software market.
Our software architecture consists of integrated software components that are grouped together to form a CommCell. Components of a CommCell are as follows:
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| • | one CommServe; |
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| • | one or more MediaAgents; and |
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| • | one or more iDataAgents. |
Each highly scalable CommCell may be configured to reflect a customer’s geographic, organizational or application environment. Multiple CommCells can be aggregated into a single, centralized view forpolicy-based management across a customer’s local or global information technology environment.
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| • | CommServe. The CommServe acts as the command and control center of the CommCell and handles all requests for activity between MediaAgent and iDataAgent components. The CommServe contains the centralized event and job managers and the index catalog. This database includes information about where data resides, such as the library, media and content of data. The centralized event manager logs all events, providing unified notification of important events. The job manager automates and monitors all jobs across the CommCell. |
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| • | MediaAgent. The MediaAgent is a media independent module that is responsible for managing the movement of data between the iDataAgents and the physical storage devices. Our MediaAgents communicate with a broad range of storage devices, generating an index for use by each of our QiNetixsoftware applications. The MediaAgent software supports most storage devices, including automated magnetic tape libraries, tape stackers and loaders, standalone tape drives and magnetic storage devices, magneto-optical libraries, virtual tape libraries, DVD-RAM and CD-RW devices. |
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| • | iDataAgent. The iDataAgent is a software module that resides on the server or other computing device and controls the data being protected, replicated, migrated or archived, often referred to simply as the “client” software. iDataAgents communicate with most open and network file systems and enterprise relational databases and applications, such as Microsoft Exchange, Microsoft SharePoint, Notes Domino Server, GroupWise, Oracle, Informix, Sybase, DB2 and SAP, to generate application aware indexes pertinent to granular recovery of application objects. The agent software contains the logic necessary to extract (or recover) data and send it to (or receive it from) the MediaAgent software. |
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Sales and Marketing
We sell our data and storage management software applications and related services to large global enterprises, small and medium sized businesses and government agencies. We sell through our worldwide direct sales force and our global network of value-added resellers, systems integrators, corporate resellers and
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original equipment manufacturer partners. As of DecemberMarch 31, 2005,2007, we had 136176 employees in sales and marketing. These employees are located in the Americas, Europe, Australia, Africa and Asia.
We have a variety of marketing programs designed to create brand recognition and market awareness for our product offerings and for sales lead generation. Our marketing efforts include active participation at trade shows, technical conferences and technology seminars; advertising; publication of technical and educational articles in industry journals; sales training; and preparation of competitive analyses. In addition, our strategic partners augment our marketing and sales campaigns through seminars, trade shows and joint advertising campaigns. Our customers and strategic partners provide references and recommendations that we often feature in our advertising and promotional activities.
Research and Development
Our research and development organization is responsible for the design, development, testing and certification of our data management software applications. As of DecemberMarch 31, 2005,2007, we had 167215 employees in our research and development group, of which 2248 are located at our Hyderabad, India development center. Our engineering efforts support product development across all major operating systems, databases, applications and network storage devices. A substantial amount of our development effort goes into certification, integration and support of our applications to ensure interoperability with our strategic partners’ hardware and software products. We have also made substantial investments in the automation of our product test and quality assurance laboratories. We spent $13.9$23.4 million on research and development activities for the nine months ended December 31, 2005,in fiscal 2007, $19.3 million in fiscal 2006 and $17.2 million in fiscal 2005, $16.2 million in fiscal 2004 and $16.2 million in fiscal 2003.2005.
Competition
The data storage management market is intensely competitive, highly fragmented and characterized by rapidly changing technology and evolving standards. We currently compete with other providers of data management software as well as large storage hardware manufacturers that have developed or acquired their own data management software products. These manufacturers have the resources and capabilities to develop their own data management software applications, and many have been making acquisitions and broadening their efforts to include broader data management and storage products. These manufacturersand/or our other current and potential competitors may establish cooperative relationships among themselves or with third parties, creating new competitors or alliances. Large operating system and application vendors, including Microsoft, have introduced products or functionality that include some of the same functions offered by our software applications. In the future, further development by these vendors could cause our software applications and services to become redundant.
The following are our primary competitors in the data management software applications market, each of which has one or more products that compete with a part of or all of our entire software suite:
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| • | CA (formerly known as Computer Associates International, Inc.); |
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| • | EMC; |
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| • | Hewlett-Packard; |
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| • | IBM; and |
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| • | Symantec. |
The principal competitive factors in our industry include product functionality, product integration, platform coverage, ability to scale, price, worldwide sales infrastructure, global technical support, name
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recognition and reputation. The ability of major system vendors to bundle hardware and software solutions is also a significant competitive factor in our industry. Although many of our competitors have greater resources, a larger installed customer base and greater name recognition, we believe we compete favorably on the basis of these competitive factors.
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Intellectual Property and Proprietary Rights
Our success and ability to compete depend on our continued development and protection of our proprietary software and other technologies. We rely primarily on a combination of trade secret, patent, copyright and trademark laws, as well as contractual provisions, to establish and protect our intellectual property rights. We provide our software to customers pursuant to license agreements that impose restrictions on use. These license agreements are primarily in the form of shrink-wrap or click-wrap licenses, which are not negotiated with or signed by our end user customers. These measures may afford only limited protection of our intellectual property and proprietary rights associated with our software. We also enter into confidentiality agreements with employees and consultants involved in product development. We routinely require our employees, customers and potential business partners to enter into confidentiality agreements before we disclose any sensitive aspects of our software, technology or business plans.
As of February 22, 2006,May 15, 2007, we had eight15 issued patents and 64113 pending patent applications in the United States, and 13 issued patents and 65 pending patent applications in foreign countries. As of February 22, 2006, we also had 13 pending European Patent applications with the European Patent Office which, if allowed, may be converted intoas well as 21 issued patents in various European Contracting States. Additionally, as of February 22, 2006, we had 14foreign countries and 76 pending patent applications under the Patent Cooperation Treaty, which we may convert into foreign patent applications in various Patent Cooperation Treaty Contracting States within the time periods specified in the treaty.applications. Pending patent applications may receive unfavorable examination and are not guaranteed allowance as issued patents. We may elect to abandon or otherwise not pursue prosecution of certain pending patent applications due to patent examination results, economic considerations, strategic concerns or other factors. We will continue to assess appropriate occasions to seek patent and other intellectual property protection for innovative aspects of our technology that we believe provide us a significant competitive advantage.
Despite our efforts to protect our trade secrets and proprietary rights through patents and license and confidentiality agreements, unauthorized parties may still attempt to copy or otherwise obtain and use our software and technology. In addition, we intend to expand our international operations and effective patent, copyright, trademark and trade secret protection may not be available or may be limited in foreign countries. If we fail to protect our intellectual property and other proprietary rights, our business could be harmed.
We have entered into an original equipment manufacturer agreement with Critical Technologies, Inc. whereby we embed Critical Technologies’ indexing software in our software applications for sale, as an option, to our customers. Our agreement with Critical Technologies expires on MayMarch 31, 20072008 unless prior thereto either party gives at least 90 days notice of termination. In addition to our agreement with Critical Technologies, we currently resell certain software from Microsoft, including Microsoft SQL Server, used in conjunction with our software applications pursuant to an independent software vendor royalty license and distribution agreement that we have and plan to continue renewing annually. We also currently resell certain other software from Microsoft, including Windows Preinstallation Environment software, used in conjunction with our software applications, pursuant to an agreement with Microsoft that expires AugustJanuary 31, 2006.2008. We have entered into and expect to enter into agreements with additional third parties to license their technology for use with our software applications.
Some of the products or technologies acquired, licensed or developed by us may incorporateso-called “open source” software and we may incorporate open source software into other products in the future. The use of such open source software may ultimately subject some products to unintended conditions which may negatively affect our business, financial condition, operating results, cash flow and ability to commercialize our products or technologies.
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From time to time, we are participants or members of various industry standard-setting organizations or other industry technical organizations. Our participation or membership in such organizations may, in some circumstances, require us to enter into royalty or licensing agreements with third parties regarding our intellectual property under terms established by those organizations, which we may find unfavorable.
In the United States, we own or have common law trademark rights in the following marks: CommVault, the “CV” logo, CommVault Systems, Solving Forward, SIM, Singular Information Management, CommVault Galaxy, QiNetix and Unified Data Management.Management, QiNetix, Quick Recovery, QR, QNet, GridStor, Vault Tracker, Quick Snap, QSnap, Recovery Director, CommServe, CommCell, and InnerVault. We also have several other trademarks and are actively pursuing trademark registrations in several foreign jurisdictions.
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Employees
As of DecemberMarch 31, 2005,2007, we had 575727 employees worldwide, including 136176 in sales and marketing, 167215 in research and development, 7690 in general and administration and 196246 in services.customer services and support. None of our employees are represented by a labor union. We have never experienced a work stoppage and believe our relationship with our employees is satisfactory.good.
Facilities
Our principal administrative, sales, marketing, customer support and research and development facility is located at our headquarters in Oceanport, New Jersey. We currently occupy approximately 115,000116,000 square feet of office space in the Oceanport facility under the terms of an operating lease expiring in July 2008.2013. We believe that our current facility is adequate to meet our needs for at least the next 12 months. We believe that suitable additional facilities will be available as needed on commercially reasonable terms. In addition, we have offices in the United States in Arizona, California, Florida, Georgia, Illinois, Massachusetts, New York, Oregon, Texas, Virginia and Washington; and outside the United States in Ottawa, Ontario; Mississauga, Ontario; Calgary, Alberta; Reading, United Kingdom; Oberhausen, Germany; Utrecht, Netherlands; Beijing, China; Shanghai, China; Sydney, Australia; Col. Marte, Mexico; and Hyderabad, India.
Legal Proceedings
From time to time, we are involvedsubject to claims in litigationlegal proceedings arising in the ordinarynormal course of our business. We aredo not presently abelieve that we are party to any litigation the outcome of which, if determined adverselypending legal action that could reasonably be expected to us, would individually or in the aggregate have a material adverse effect on our business results of operations or financial condition.operating results.
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MANAGEMENT
Directors and Executive Officers
The following table presents information with respect to our directors and executive officers as of March 1, 2006:May 25, 2007:
| | | | | | |
Name | | Age | | | Position |
| | | | | |
N. Robert Hammer | | | 6365 | | | Chairman, President and Chief Executive Officer |
Alan G. Bunte | | | 5253 | | | Executive Vice President and Chief Operating Officer |
Louis F. Miceli | | | 5657 | | | Vice President and Chief Financial Officer |
Ron Miiller | | | 3840 | | | Vice President of Sales, Americas |
Anand Prahlad | | | 3839 | | | Vice President, Product Development |
Suresh P. Reddy | | | 4344 | | | Vice President, Worldwide Technical Services & Support |
Steven Rose | | | 49 | | | Vice President, Europe, Middle East and Asia |
David West | | | 4041 | | | Vice President, Marketing and Business Development |
Thomas Barry(1)(2) | | | 48 | | | Director |
Frank J. Fanzilli, Jr.(3)(1) | | | 4950 | | | Director |
Armando GedayGeday(1) | | | 4445 | | | Director |
Keith Geeslin(3)Geeslin(1) | | | 5254 | | | Director |
Edward A. JohnsonF. Robert Kurimsky(2)(3) | | | 4368 | | | Director* |
F. Robert Kurimsky(1)(2) | | | 67 | | | Director |
Daniel Pulver(3)Pulver(2)(3) | | | 3738 | | | Director |
Gary B. Smith(2)Smith(3) | | | 4546 | | | Director |
David F. Walker(1)Walker(2)(3) | | | 5253 | | | Director |
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(1) | * | Mr. Johnson will resign as a director immediately prior to the closingMember of the offering. |
| Compensation Committee. |
(1) |
(2) | | Member of the Audit Committee. |
|
(2) (3) | | Member of the Nominations and Governance Committee. |
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(3) | Member of the Compensation Committee. |
N. Robert Hammerhas served as our Chairman, President and Chief Executive Officer since March 1998. Mr. Hammer was also a venture partner from 1997 until December 2003 of the Sprout Group, an internal divisionthe venture capital arm of Credit Suisse First Boston Private Equity, Inc., from 1997 until December 2003. Credit Suisse First Boston Private Equity, Inc. is an affiliate of Credit Suisse Securities (USA) LLC, an underwriter in this offering.Suisse’s asset management business. Prior to joining the Sprout Group, Mr. Hammer served as the chairman, president and chief executive officer of Norand Corporation, a portable computer systems manufacturer, from 1988 until its acquisition by Western Atlas, Inc. in 1997. Mr. Hammer led Norand following its leveragedbuy-out from PioneerHi-Bred International, Inc. and through its initial public offering in 1993. Prior to joining Norand, Mr. Hammer also served as chairman, president and chief executive officer of publicly-held Telequest Corporation from 1987 until 1988 and of privately-held Material Progress Corporation from 1982 until 1987. Prior to joining Material Progress Corporation, Mr. Hammer spent 15 years in various sales, marketing and management positions with Celanese Corporation, rising to the level of vice president and general manager of the structural composites materials business. Mr. Hammer obtained his bachelor’s degree and master’s degree in business administration from Columbia University.
Alan G. Buntehas served as our Executive Vice President and Chief Operating Officer since October 2003 and served as our senior vice president from December 1999 until October 2003. Prior to joining our company, Mr. Bunte servedwas with Norand Corporation from 1986 to January 1998, serving as its senior vice president of planning and business development from 1991 to January 1998. Mr. Bunte obtained his bachelor’s and master’s degrees in business administration from the University of Iowa.
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Louis F. Micelihas served as our Vice President and Chief Financial Officer since April 1997 and has over 30 years of experience in various finance capacities for several high-technology companies. Prior to joining our company, Mr. Miceli served as chief financial officer of University Hospital, part of the University
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of Medicine and Dentistry of New Jersey (UMDNJ), from 1994 until 1997 and as the corporate controller of UMDNJ from 1992 until 1994. Prior to joining UMDNJ, Mr. Miceli served as the chief financial officer of Syntrex, Inc., a word processing software and hardware manufacturer, from 1985 until 1992, and as its controller from 1980 until 1985. Mr. Miceli began his career as a staff auditor at Ernst & Young LLP, where he served five years. Mr. Miceli obtained his bachelor’s degree,cum laude, in accounting from Seton Hall University and is a certified public accountant in the State of New Jersey.
Ron Miillerhas served as our Vice President of Sales, Americas since January 2005. Prior to his current role, Mr. Miiller served as our Central Region Sales Manager from March 2000 to December 2004. Prior to joining our company, Mr. Miiller served as Director, Central Region Sales for Softworks, Inc., an EMC company, from March 1997 through March 2000, and prior to that Mr. Miiller was with Moore Corporation, a diversified print and electronic communications company from 1989 through March 1997 in various leadership roles. Mr. Miiller received his bachelor of science degree in marketing from Ball State University in 1989.
Anand Prahladhas served as our Vice President, Product Development since May 2001 and has been with our company since 1994 as a software development and software developer manager and, from February 1999 to May 2001, as our senior director of product development. As a software developer, Mr. Prahlad oversaw the development of our QiNetix Galaxy software applications. Prior to joining our company, Mr. Prahlad was a software engineer with Mortgage Guaranty Insurance Corporation, a provider of private mortgage insurance coverage. Mr. Prahlad obtained his bachelor’s degree from Jawaharlal Nehru Technological University in India and his master’s degree in electrical and computer engineering from Marquette University.
Suresh P. Reddyhas served as our Vice President, Worldwide Technical Services & Technical Support since April 2005. Mr. Reddy also served our company from 1990 through March 2005, serving as our Vice President, Worldwide Technical Services from September 2001 through March 2005, as our Western Regional Manager, Technical Services from March 1994 through July 1995 and again from March 1998 until August 2001, as our Director of Technical Services, Europe, Middle East and Asia from August 1995 to February 1998 and as a Systems Engineer from February 1990 to February 1994. Mr. Reddy obtained his bachelor’s degree in mechanical engineering from Jawaharlal Nehru Technological University in India and his master’s degree in computer sciences from the New Jersey Institute of Technology.
Steven Rosehas served as our Vice President, Europe, Middle East and Asia since June 2006. Prior to joining our company, Mr. Rose served as Vice President, United Kingdom and Ireland of Veritas Software Corp. from 2003 to July 2005 and, after Veritas’ merger with Symantec in July of 2005, as the United Kingdom Managing Director for the combined entity. Prior to joining Veritas, Mr. Rose served as Chief Executive Officer of CopperEye, a United Kingdom based software company, from 2002 to 2003, and prior to that served as Managing Director, Europe for FatWire Corporation, a New York based software company, from 2001 to 2002. Prior to joining FatWire, Mr. Rose served as the Managing Director, Europe of NEON Systems (UK) Ltd., a United Kingdom based company selling software products for systems integration, from 1997 to 2001. Prior to joining NEON Systems, Mr. Rose held several sales, marketing and general management positions with several software and systems companies, including TCAM Systems (UK) Ltd., Royal Blue Technologies, Ltd., and Network Systems Corporation. Mr. Rose attended the Royal Military Academy, Sandhurst and served as an officer in the British Army for six years.
David Westhas served as our Vice President, Marketing and Business Development since September 2005 and our Vice President, Business Development from August 2000 to September 2005. Prior to joining our company, Mr. West served as a director of strategic alliances from April 1999 to July 2000 and vice president of storage solutions in July 2000 at Legato Systems, Inc., which was subsequently acquired by EMC Corporation. Prior to joining Legato Systems, Mr. West served as vice president of sales at Intelliguard Software, Inc., which was also subsequently acquired by EMC Corporation, from 1990 to April 1999. Mr. West obtained his bachelor’s degree in electrical engineering from Villanova University.
Thomas Barryhas served as a director of our company since our acquisition from Lucent in April 1996 and is chairman of our Nominations and Governance Committee. Mr. Barry periodically provides consulting services through T & M Barry Consulting LLC, which he formed in February 2002. Mr. Barry served as executive vice president of Glencoe Capital LLC from 1997 until 1998 and in several investment banking and corporate finance positions at Donaldson, Lufkin & Jenrette (now part of Credit Suisse Securities (USA) LLC) from 1980 through 1997. Mr. Barry obtained his bachelor’s degree in accounting from Pace University and received a master of science in computer science from Columbia University in February 2002.
Frank J. Fanzilli, Jr. has served as a director of our company since July 2002. Mr. Fanzilli retired from active employment in March 2002. Prior to his retirement, in March 2002, Mr. Fanzilli spent 17 years at Credit Suisse First Boston LLC (now Credit Suisse Securities (USA) LLC), holding a variety of positions in information
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technology and rising to the level of
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managing director and chief information officer. Prior to joining Credit Suisse First Boston, Mr. Fanzilli spent seven years at IBM, where he managed systems engineering and software development for Fortune 50 accounts. Mr. Fanzilli obtained his bachelor’s degree in management,cum laude, from Fairfield University and his master’s in business administration, with distinction, from New York University. Mr. Fanzilli also serves on the board of directors of Interwoven, Inc., MLayersAvaya Inc. and Sona Mobile,Interwoven, Inc.
Armando Gedayhas served as a director of our company since July 2000. From April 1997 until February 2004, Mr. Geday served as president, chief executive officer and a director of GlobespanVirata, Inc., a digital subscriber line chipset design company. After GlobespanVirata was acquired by Conexant Systems, Inc. in 2004, Mr. Geday served as chief executive officer of Conexant from February 2004 until November 2004. Prior to joining GlobespanVirata, Mr. Geday served as vice president and general manager of the multimedia communications division of Rockwell Semiconductor Systems from 1986 to 1997. Prior to joining Rockwell, Mr. Geday held several other marketing and general management positions at Rockwell and Harris Semiconductor. Mr. Geday obtained his bachelor’s degree in electrical engineering from the Florida Institute of Technology. Mr. Geday also serves on the board of directors of MagnaChip Semiconductor.
Keith Geeslinhas served as a director of our company since May 1996 and is chairman of our Compensation Committee. Mr. Geeslin became a partner at Francisco Partners in January 2004, prior to which Mr. Geeslin spent 19 years with the Sprout Group, an internal divisionthe venture capital arm of Credit Suisse First Boston Private Equity, Inc., the last four as managing partner. Credit Suisse First Boston Private Equity, Inc. is an affiliateSuisse’s asset management business, which conducts its activities through affiliates of Credit Suisse Securities (USA) LLC, an underwriter in this offering. Prior to joining the Sprout Group, Mr. Geeslin was the general manager of a division of Tymshare, Inc. and held various positions at its Tymnet subsidiary from 1980 to 1984. Mr. Geeslin obtained his bachelor’s degree in electrical engineering from Stanford University and master’s degrees from Stanford University and Oxford University. Mr. Geeslin also serves on the board of directors of Synaptics, Inc. and Yipes Enterprise Services, Inc.
Edward A. Johnsonhas served as a director of our company since May 2005. Mr. Johnson has served as a managing director and partner at DLJ Merchant Banking since the merger of Credit Suisse First Boston LLC (now Credit Suisse Securities (USA) LLC) with Donaldson, Lufkin & Jenrette in November 2000. Mr. Johnson initially joined Credit Suisse First Boston Equity Partners, L.P. in September 1998. Credit Suisse First Boston Equity Partners, L.P. is an affiliate of Credit Suisse Securities USA (LLC), an underwriter in this offering. Prior to joining Credit Suisse First Boston, Mr. Johnson spent four years at Warburg Pincus, LLC in its private equity area, and spent two years as a consultant with the Boston Consulting Group. Prior to earning his master’s in business administration, Mr. Johnson served as a refinery planner for Chevron Corporation. Mr. Johnson obtained his bachelor of science degree in chemical engineering from Stevens Institute of Technology and master’s in business administration from the Wharton School of the University of Pennsylvania. Mr. Johnson also serves on the board of directors of Focus Diagnostics, Inc., Aircast Inc., Thompson Publishing Group and Wastequip, Inc. Mr. Johnson will resign his directorship immediately prior to the closing of this offering.
F. Robert Kurimskyhas served as a director of our company since February 2001. Mr. Kurimsky served as senior vice president of Technology Solutions Company, a systems integrator, from 1994 through 1998 and again from January 2002 through June 2003. Mr. Kurimsky served as senior vice president of The Concours Group, a consulting and executive education provider, from 1998 through December 2001. Prior to his service with Technology Solutions Company, Mr. Kurimsky spent 20 years in information systems and administration functions at the Philip Morris Companies, Inc. (now Altria Group, Inc.), rising to the level of vice president. Mr. Kurimsky obtained a bachelor of science at Fairfield University and a master of engineering degree from Yale University. Mr. Kurimsky also serves on the board of directors of The Advisory Council, a privately-held research and advisory services company.
Daniel Pulverhas served as a director of our company since October 1999.1999 and is chairman of our Nominations and Governance Committee. Mr. Pulver served as a director at Credit Suisse First Boston Private Equity, Inc.LLC from November 2000, when Credit Suisse First Boston LLC (now Credit Suisse Securities (USA) LLC) merged with Donaldson, Lufkin & Jenrette, until April 2005. Credit Suisse First Boston Private Equity, Inc. is an affiliate of Credit Suisse Securities
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USA (LLC), an underwriter in this offering. Mr. Pulver obtained his bachelor’s degree from Stanford University and his master’s in business administration from Harvard Business School. Mr. Pulver also serves on the board of directors and the compensation committee of Nextpharma S.A. Prior to May 24, 2007, Mr Pulver served on the compensation committee of our Company.
Gary B. Smithhas served as a director of our company since May 2004.2004 and as our lead director since May 2006. Mr. Smith is currently the president, chief executive officer and a director of Ciena Corporation. Mr. Smith began serving as chief executive officer of Ciena in May 2001, in addition to his existing responsibilities as president and director, positions he has held since October 2000. Prior to his current role, his positions with Ciena included chief operating officer and senior vice president, worldwide sales. Mr. Smith joined Ciena in November 1997 as vice president, international sales. From 1995 through 1997, Mr. Smith served as vice president of sales and marketing for INTELSAT. He also previously served as vice president of sales and marketing for Cray Communications, Inc. Mr. Smith received his master’s in business administration from Ashridge Management College, United Kingdom. Mr. Smith currently serves on the board of directors for the American Electronics Association, and also serves as a commissioner for the Global Information Infrastructure Commission.
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David F. Walkerhas served as a director of our company since February 2006 and is chairman of our Audit Committee. Mr. Walker is the Director of the Accountancy Program and the Program for Social Responsibility and Corporate Reporting at the University of South Florida St. Petersburg, where he has been employed since 2002. Prior to joining the University of South Florida, Mr. Walker was with Arthur Andersen LLP, having served as a partner in that firm from 1986 through 2002. Mr. Walker earned a master’s of business administration from the University of Chicago Graduate School of Business with concentration in accounting, finance and marketing, and a bachelor of arts degree from DePauw University with majors in economics and mathematics and a minor in business administration. Mr. Walker is a certified public accountant and a certified fraud examiner. Mr. Walker also serves on the board of directors of Chico’s FAS, Inc., First Advantage Corporation and Technology Research Corporation, participating on the executive, audit and corporate governance committees of Chico’s and chairing its audit committee; chairing the audit committee of First Advantage; and participating on the audit, compensation and nominating committees of Technology Research and chairing its audit committee.Research.
Upon the closing of the offering, the
The board of directors will beis divided into three classes, with one class of directors elected at each annual meeting. The members of Class I, whose terms expire at the nextour fiscal 2007 annual meeting, will be Messrs. Kurimsky, Walker and Geday. The members of Class II, whose terms expire at the secondour fiscal 2008 annual meeting following this offering, will be Messrs. Pulver Barry and Fanzilli. The members of Class III, whose terms expire at the thirdour fiscal 2009 annual meeting following this offering, will be Messrs. Hammer, Geeslin and Smith.
Director Compensation
Our compensation committee of theThe board of directors determines the amountindependence of any fees, whether payable in cash, sharesits directors annually. The board of common stock or options to purchase common stock, and expense reimbursementdirectors has determined that directors receive for attending meetingseach of Thomas Barry (who resigned from the board of directors or committees of the board. To date, other thanon May 11), Frank J. Fanzilli, Armando Geday, F. Robert Kurimsky, Daniel Pulver, Gary B. Smith and David F. Walker is an “independent director” as such term is defined by Nasdaq’s Marketplace Rules. We do not have any requirements relating to members of our Audit Committee, we have not paid any feesdirector independence in addition to our directors, but we have reimbursed them for their expenses incurred in connection with attending meetings.
Following the completion of this offering, we intend to compensate non-employee directors for their service on our board. Each non-employee director will be eligible to receive an annual retainer of $ , with an additional stipend of $ for each board meeting, and $ for each committee meeting, attended in person. The chairperson of our audit committee will be eligible to receive an additional annual retainer of $ .
Non-employee directors elected toNasdaq’s Marketplace Rules. In making these independence determinations, the board of directors inwas not aware of any disqualifying relationship under the future will be eligible to receive an initial option grantabove criteria and, additionally, was not aware of shares upon their election. In addition, non-employee directors will be eligible to receive annual option grantsany other relationship between such director and CommVault.
Compensation Discussion and Analysis
Compensation Committee Membership and Organization
The Compensation Committee of shares beginning on , except that somethe Board of Directors, or the Compensation Committee, has responsibility for establishing, implementing and monitoring adherence with the Company’s compensation philosophy. Its duties include:
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| • | setting the total compensation of our Chief Executive Officer and evaluating his performance based on corporate goals and objectives; |
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| • | reviewing and approving the Chief Executive Officer’s decisions relevant to the total compensation of the Company’s other executive officers; |
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| • | making recommendations to the Board of Directors with respect to equity-based plans in order to allow us to attract and retain qualified personnel; and |
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| • | reviewing director compensation levels and practices, and recommending, from time to time, changes in such compensation levels and practices to the Board of Directors. |
The members of our current non-employee directors will not be eligible to receiveCompensation Committee are Messrs. Fanzilli, Geeslin and Pulver. Mr. Geeslin currently serves as Chairman of the Compensation Committee. Each member of the Compensation Committee is an annual grant until“independent director” as such term is defined by Nasdaq’s Marketplace Rules. The Compensation Committee meets at scheduled times during the options they currently hold have fully vested. Option grants to our non-employee directors will vest monthly over ayear and meets on an as necessary interim basis. Additionally, the Compensation Committee considers and takes action by written consent. The Compensation Committee met two times during fiscal year 2007.
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four-year period, exceptCompensation Philosophy and Objectives
As a quickly growing high-technology company, we operate in an extremely competitive and rapidly changing industry. We believe that the sharesskill, talent, judgment and dedication of our executive officers are critical factors affecting the long-term value of our company. The Compensation Committee’s philosophy and objectives in setting compensation policies for executive officers are to align pay with performance, while at the same time providing fair, reasonable and competitive compensation that would otherwise vest overwill allow us to retain and attract superior executive talent. The Compensation Committee strongly believes that executive compensation should align executives’ interests with those of shareholders by rewarding achievement of specific annual, long-term, and strategic goals by the Company, with the ultimate objective of improving long-term stockholder value. The specific goals that our current executive compensation program rewards are focused primarily on revenue growth and profitability. To that end, the Compensation Committee believes executive compensation packages provided by the Company to its executive officers should include a mix of both cash and equity-based compensation that reward performance as measured against established goals. As a result, the principal elements of our executive compensation are base salary, non-equity incentive plan compensation, long-term equity incentives generally in the form of stock optionsand/or restricted stock and post-termination severance and acceleration of stock option vesting for certain named executive officers upon terminationand/or a change in control.
Our goal is to maintain an executive compensation program that will fairly compensate our executives, attract and retain qualified executives who are able to contribute to our long-term success, induce performance consistent with clearly defined corporate goals and align our executives’ long-term interests with those of our shareholders. The decision on the total compensation for our executive officers is based primarily upon an assessment of each individual’s performance and the potential to enhance long-term stockholder value. Often, judgment is relied upon and not upon rigid guidelines or formulas in determining the amount and mix of compensation for each executive officer. Factors affecting such judgment include performance compared to strategic goals established for the individual and the Company at the beginning of the year, the nature and scope of the executive’s responsibilities, and effectiveness in leading initiatives to achieve corporate goals.
Role of Executive Officers in Compensation Decisions
The Compensation Committee is responsible for setting the compensation of our Chief Executive Officer and also reviewing and approving our Chief Executive Officer’s decisions relevant to the compensation of our other executive officers. Our Chief Executive Officer, Chief Financial Officer and Vice President of Human Resources support the Compensation Committee in its work by providing information relating to our financial plans, performance assessments of our executive officers and other personnel-related data. In addition, the Compensation Committee has authority under its charter to engage the advice of outside advisors and experts as appropriate.
Benchmarking of Executive Compensation
In the fourth quarter of fiscal 2006, we engaged recognized external compensation consultants to conduct a review and evaluate the Company’s current compensation practices and its competitive position in the industry. The external compensation consultants provided recommendations for structuring our compensation programs to retain our highly experienced executive management team, to keep management focused during the expected period of growth following our initial public offering, to motivate management to maximize stockholder value and to align our compensation practices with other technology industry companies of similar size. Their recommendations were based on a benchmarking analysis of our executive compensation relative to the compensation of comparable executive positions at comparable technology industry companies. Their analysis was based on compensation survey data from 86 technology industry companies. A partial list of the companies included in the survey include Actuate Corporation, Advent Software, Inc., Ariba, Inc., Cognos, Inc., Entrust, Inc., Filenet, Inc., Intervoice, Inc., Interwoven, Inc., Lightbridge, Inc., Mercury Interactive Corporation, Micromuse, Inc., MSC Software Corporation, Netmanage, Inc., Open Text Corporation, Radiant Systems, Inc., Red Hat, Inc., SeeBeyond Technology Corporation, Software AG, Tibco Software, Inc.,
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Vignette Corporation, Websense, Inc. and Zantaz Inc. The results of the compensation review and evaluation and the subsequent recommendations were presented to the Compensation Committee.
Components of Executive Compensation
The principal components of compensation for our executive officers are:
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| • | Base salary; |
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| • | Non-equity incentive plan compensation; |
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| • | Long-term equity incentives; and |
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| • | Other benefits. |
Base salary
The Company provides our executive officers and other employees with base salary to compensate them for services rendered during the fiscal year. The Compensation Committee compensates our executive officers competitively within the industry. In addition to considering the analysis provided by the external compensation consultants, the Compensation Committee considered the scope of and accountability associated with each executive officer’s position and such factors as the performance and experience of each executive officer when approving base salary levels for fiscal 2007. With respect to executive officers, base salaries are targeted to be competitive and are generally benchmarked against the50th-75th percentile of the technology industry survey data discussed above. The50th-75th percentile benchmark is being used because we have consistently achieved revenue and earnings growth that is in the top tier of companies in our industry. In some circumstances it may be necessary to provide compensation above these levels; these circumstances include the need to retain key individuals, to recognize roles that were larger in scope or accountability than standard market positionsand/or to reward individual performance.
Salary levels are typically reviewed annually each April as part of our performance review process as well as upon a promotion or other change in job responsibility. For fiscal 2007, base salaries accounted for approximately 22% of total compensation for our Chief Executive Officer and ranged from 32% to 52% for our other four most highly compensated executive officers. Salaries earned by our five mostly highly compensated executive officers during fiscal 2007 are reported below in the Summary Compensation Table.
Non-Equity Incentive Plan Compensation
Non-equity incentive plan compensation for our executive officers is designed to reward performance against key corporate goals. In early fiscal 2007, the non-equity incentive plan compensation targets for that year were approved after considering targets for comparable positions provided by our external compensation consultants; the scope of and accountability associated with each executive officer’s position; and the performance and experience of each executive officer. The performance metrics against which our executive officers are measured are clearly communicated, measurable and consistently applied, and focus on corporate objectives. Our executive officer incentive targets are designed to motivate management to achieve specific goals related to certain revenue and profitability objectives. These metrics were selected because we believe that, at this stage of our development, they are most closely correlated to stockholder value. We believe that our revenue and profitability goals are aggressive and not easy to achieve because they are based on growth objectives higher than the industry average. During fiscal 2007, our actual revenue and profitability growth rates resulted in bonus awards ranging from 90% to 101% of the targets set for our five highest compensated executive officers. Fiscal 2007 was the first 12 months shall not vest untilyear that our Chief Executive Officer achieved a non-equity incentive plan award greater than 100% of his target. During the past three years, none of our other named executive officers with a maximum pay-out have achieved a non-equity incentive plan award greater than 100% of their target. Historically, our target performance requirements have been set so that achievement has been generally consistent from year to year. For fiscal 2008, if our revenue growth rate is consistent with fiscal 2007 and our profitability increases greater than industry average, we anticipate that the target bonus achievement of our five highest compensated executives will generally be consistent with fiscal 2007.
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Our Chief Executive Officer, Mr. Hammer, is eligible for non-equity incentive plan compensation with a target bonus potential equal to a percentage of his base salary depending on the Company’s achievement against the annual financial plan approved by our Board of Directors. For fiscal 2007, Mr. Hammer’s target annual non-equity incentive plan compensation was determined by a combination of revenue and income from operations achievement. In total, Mr. Hammer’s target bonus was 100% of his $400,000 base salary for fiscal 2007. Mr. Hammer’s annual bonus may range from a minimum of zero to a maximum of 160% of his base salary, depending on the Company’s performance. In fiscal 2007, Mr. Hammer was awarded annual non-equity incentive plan compensation of $402,220 or 101% of his base salary.
Our Chief Operating Officer, Alan Bunte, and our Chief Financial Officer, Louis Miceli, are also eligible for annual non-equity incentive plan compensation with a target bonus potential equal to a percentage of their base salaries. For fiscal 2007, Mr. Bunte’s target bonus was 65% of his $300,000 base salary and Mr. Miceli’s target bonus was 50% of his $270,000 base salary. The performance goals for Messrs. Bunte and Miceli are both quantitative and qualitative. With respect to quantitative goals, Messrs. Bunte and Miceli are generally measured against the same performance objectives as Mr. Hammer. With respect to qualitative goals, discretion may be exercised because the goals are subjective. Non-equity incentive plan compensation awarded to Messrs. Bunte and Miceli is determined and approved by Mr. Hammer and reviewed by the Compensation Committee. In fiscal 2007, Mr. Bunte was awarded non-equity incentive plan compensation of $195,000 or 65% of his base salary and Mr. Miceli was awarded non-equity incentive plan compensation of $135,000 or 50% of his base salary.
Our Vice President of Sales, Americas, Ron Miiller, is eligible for a quarterly non-equity incentive plan compensation award based on a percentage of revenue recognized during each quarter of the fiscal year. Mr. Miiller’s non-equity incentive plan compensation is a tiered commission based plan where he is rewarded for the revenue in the United States, South America, Canada and Mexico. Based on the revenue targets provided to Mr. Miiller for the United States, South America, Canada and Mexico, Mr. Miiller’s target bonus potential for fiscal 2007 was 100% of his base salary. Mr. Miiller’s fiscal 2007 commission plan contains a maximum commission pay-out of approximately 147% of his base salary. In fiscal 2007, Mr. Miiller was awarded $215,164 or approximately 90% of his base salary in commissions under the non-equity incentive plan compensation.
Our Vice President of Sales, Europe, Middle East and Asia, Steven Rose, commenced employment with us in the first anniversaryquarter of fiscal 2007. Starting on July 1, 2006, Mr. Rose was eligible for a quarterly non-equity incentive plan compensation award based on a percentage of revenue and contribution margin achieved during the remaining quarters of the grant. All option grantsfiscal year. Mr. Rose’s non-equity incentive plan compensation is a tiered commission based plan where he is rewarded for the revenue and contribution margin each quarter in Europe, Australia, New Zealand, Africa, the Middle East and portions of Asia. Based on the revenue and contribution margin targets provided to Mr. Rose for Europe, Australia, New Zealand, Africa, the Middle East and portions of Asia, Mr. Rose’s target bonus potential for fiscal 2007 was 100% of his base salary. Mr. Rose’s fiscal 2007 commission plan contains a maximum commission pay-out of 113% of his base salary. In fiscal 2007, Mr. Rose was awarded $186,698 or 84% of his base salary in commissions under the non-equity incentive plan compensation.
To date, the Compensation Committee has not exercised discretion to increase or reduce the award amounts that resulted from the application of our non-employee directors will benon-equity incentive plan compensation. However, the committee has the authority to do so if it determines that an adjustment would serve our interests and the goals of our executive officer non-equity incentive plan compensation.
Long-Term Equity Incentive Awards
We currently provide long-term incentive compensation pursuant to our 2006 Long-Term Stock Incentive Plan. See “— Employee Benefit Plans — 2006 Long-Term Stock Incentive Plan”Plan (the “LTIP”). The LTIP permits the grant of incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance stock awards and stock unit awards based on, or related to, shares of the Company’s common stock.
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Generally, a significant stock option grant is made within one month of when an executive officer commences employment. This grant is made within our guidelines for more information about this plan.new-hire grants, consistent with the executive’s position. The guidelines were developed based on our historical practices and survey data. The size of each grant is set at a level that we believe is appropriate to create a meaningful opportunity for stock ownership based upon the Company’s grant guidelines, the individual’s position with us and the individual’s potential for future responsibility and promotion. The relative weight given to each of these factors varies from individual to individual and all grants to executive officers are approved by the Compensation Committee.
Subsequent grants pursuant to the LTIP are made at varying times and in varying amounts in the discretion of the Compensation Committee. Each executive officer’s performance during the prior year is measured during the performance review process, but corporate performance is also considered whenfollow-on awards are granted. The vesting schedule and the number of shares granted are established to ensure a meaningful incentive to remain an employee of the Company. As of March 31, 2007, we have only granted non-qualified stock options under the LTIP to our executive officers. We anticipate that future grants under the LTIP will include both non-qualified stock options and restricted stock units. Our stock options typically vest over a four-year period and have a term of ten years, in order to encourage a long-term perspective and encourage key employees to remain with the Company. We anticipate that restricted stock units granted under our LTIP will also continuevest over a four-year period.
We account for equity compensation paid to reimburse all of our employees under the rules of SFAS No. 123(R), which requires us to estimate and record compensation expense over the service period of the award. All equity awards to our employees, including executive officers, and to our directors have been granted and reflected in our consolidated financial statements, based upon the applicable accounting guidance, at fair market value on the grant date. Generally, the granting of a non-qualified stock option to our executive officers is not a taxable event to those employees, provided, however, that the exercise of such stock option would result in taxable income to the optionee equal to the difference between the fair market value of the stock on the exercise date and the exercise price paid for their reasonable expenses incurred in attending meetingssuch stock. Similarly, a restricted stock award subject to a vesting requirement is also not taxable to our executive officers unless such individual makes an election under section 83(b) of the Internal Revenue Code of 1986, as amended. In the absence of a section 83(b) election, the value of the restricted stock award becomes taxable to the recipient as the restrictions lapse.
The most recent long-term equity incentive award granted to each of our board or committees.
Executive Compensation
The following table sets forth information concerningexecutive officers was in September 2005. We did not grant any long-term equity incentive awards to our executive officers during fiscal 2007 because the compensation receivedSeptember 2005 grant was intended to satisfy two fiscal years for services rendered to us by our Chief Executive Officer and one fiscal year for our other executive officers. The Compensation Committee anticipates that our Chief Executive Officer’s next long-term equity incentive award grant will occur in the first quarter of fiscal 2009. In addition, we anticipate that we will grant long-term equity incentive awards to each of our five most highly-compensatedother executive officers on an annual basis starting in the first quarter of fiscal 2008. We made the first grant of such awards in May 2007.
In anticipation of our fiscal 2008 equity award grant, we conducted a review in the fourth quarter of fiscal 2007 of our equity compensation practices. We obtained technology industry survey data regarding the equity compensation of comparable executive positions at comparable technology industry companies. This survey data consisted of 99 technology industry companies many of which were the same companies identified in the fiscal 2006 survey noted above. We anticipate that we will grant equity compensation with a value that is generally targeted at the 75th percentile of the technology industry survey data obtained. The 75th percentile benchmark is being used because we have consistently achieved revenue and earnings growth that is in the top tier of companies in our industry.
In determining the amount of the long-term equity awards for fiscal 2008, an estimated value (in dollars) was developed based on the year ended March 31, 2005:equity compensation component that the other similarly situated executives received within the technology industry survey data obtained. While Mr. Hammer will not receive a long-term equity incentive award until the first quarter of fiscal 2009, our Compensation Committee benchmarked this position to assist in determining the appropriate equity compensation for our other executive officers. Our
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| | | | | | Long-Term | |
| | | | Annual Compensation | | | Compensation Awards | |
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| | | | | | Other Annual | | | Securities Underlying | |
Name and Principal Position | | Year | | | Salary | | | Bonus | | | Compensation(1) | | | Options | |
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N. Robert Hammer | | | 2005 | | | $ | 348,076 | | | $ | 116,500 | | | $ | 83,427 (2 | ) | | | | |
Chairman, President and Chief Executive Officer | | | | | | | | | | | | | | | | | | | | |
Alan G. Bunte | | | 2005 | | | | 242,538 | | | | 115,500 | | | | | | | | | |
Executive Vice President and Chief Operating Officer | | | | | | | | | | | | | | | | | | | | |
Louis F. Miceli | | | 2005 | | | | 239,654 | | | | 100,500 | | | | | | | | | |
Vice President and Chief Financial Officer | | | | | | | | | | | | | | | | | | | | |
David West | | | 2005 | | | | 201,630 | | | | 71,000 | | | | | | | | | |
Vice President, Marketing and Business Development | | | | | | | | | | | | | | | | | | | | |
Ron Miiller | | | 2005 | | | | 148,366 | | | | 185,563 | | | | | | | | | |
Vice President of Sales, Americas | | | | | | | | | | | | | | | | | | | | |
Scott Mercer(3) | | | 2005 | | | | 221,676 | | | | 71,625 | | | | | | | | | |
Vice President, Europe, Middle East and Asia | | | | | | | | | | | | | | | | | | | | |
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Compensation Committee concluded that, with respect to the position of chief executive officer, the annual dollar value of the equity component of chief executive officer compensation was approximately $1,500,000 at the 75th percentile. Using similar methodology we anticipate that we will provide Messrs. Bunte, Miceli, Miiller and Rose with fiscal 2008 long-term equity compensation of approximately $800,000, $500,000, $500,000 and $400,000, respectively. Furthermore, our Compensation Committee has determined that the aggregate economic value of equity compensation payable to the executive officers should contain a mix of non-qualified stock options and restricted stock units.
Other benefits
Our executive officers participate in benefit programs that are substantially the same as all other eligible employees of the Company.
Stock Ownership Guidelines
We currently do not require our directors or executive officers to own a particular amount of our common stock. The Compensation Committee is satisfied that stock and option holdings among our directors and executive officers are sufficient to provide motivation and to align this group’s interests with those of our shareholders.
Financial Restatements
The Compensation Committee has not adopted a policy with respect to whether we will make retroactive adjustments to any cash- or equity-based incentive compensation paid to executive officers (or others) where the payment was predicated upon the achievement of financial results that were subsequently the subject of a restatement. Our Compensation Committee believes that this issue is best addressed if the need actually arises and all of the facts regarding the restatement are known.
Deductibility of Executive Compensation
As part of its role, the Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Code which precludes the Company from taking a tax deduction for individual compensation in excess of $1 million for our Chief Executive Officer and our four other highest-compensated officers. This section also provides for certain exemptions to this limitation, specifically compensation that is performance-based within the meaning of Section 162(m) of the Code.
Summary
Our compensation philosophy and programs are designed to foster a performance-oriented culture that aligns our executive officers’ interests with those of our shareholders. The Compensation Committee also believes that the compensation of our executives is both appropriate and responsive to the goal of increasing revenue and profitability.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this report.
Submitted by the Compensation Committee of the Board.
Frank J. Fanzilli, Jr.
Keith Geeslin
Daniel Pulver
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Fiscal 2007 Summary Compensation Table
The following table summarizes the compensation earned in fiscal 2007 by our Principal Executive Officer, Principal Financial Officer and the other three most highly paid executive officers whose total compensation exceeded $100,000 in fiscal 2007. We refer to these individuals as our “named executive officers”:
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| | | | | | | | Option
| | | Incentive Plan
| | | All Other Annual
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Name and Principal Position | | Year | | | Salary | | | Awards(1) | | | Compensation(2) | | | Compensation(3) | | | Total | |
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N. Robert Hammer | | | 2007 | | | $ | 400,000 | | | $ | 980,618 | | | $ | 402,220 | (5) | | $ | 70,244 | (10) | | $ | 1,853,082 | |
Chairman, President and Chief Executive Officer | | | | | | | | | | | | | | | | | | | | | | | | |
Alan G. Bunte | | | 2007 | | | | 300,000 | | | | 348,558 | | | | 195,000 | (6) | | | — | | | | 843,558 | |
Executive Vice President and Chief Operating Officer | | | | | | | | | | | | | | | | | | | | | | | | |
Louis F. Miceli | | | 2007 | | | | 270,000 | | | | 96,255 | | | | 135,000 | (7) | | | 13,537 | | | | 514,792 | |
Vice President and Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | | | |
Ron Miiller | | | 2007 | | | | 240,000 | | | | 167,652 | | | | 215,164 | (8) | | | — | | | | 622,816 | |
Vice President of Sales, Americas | | | | | | | | | | | | | | | | | | | | | | | | |
Steven Rose(4) | | | 2007 | | | | 222,346 | | | | 270,649 | | | | 186,698 | (9) | | | 19,058 | (11) | | | 698,751 | |
Vice President, Europe, Middle East and Asia | | | | | | | | | | | | | | | | | | | | | | | | |
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(1) | | The amounts in this column represent the dollar amount recognized in accordance with FAS 123(R) for the year, disregarding any estimates of future forfeitures. These amounts may reflect options granted in years prior to fiscal 2007. See Note 2 of the notes to our consolidated financial statements contained elsewhere in this Annual Report for a discussion of all assumptions made by us in determining the FAS 123(R) values of our equity awards. |
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(2) | | The amounts reported in this column consist of awards earned in fiscal 2007 under each executive officer’s non-equity incentive plan compensation. Such amounts are more fully described above under the heading “Non-Equity Incentive Plan Compensation.” |
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(3) | | Other than Mr.Messrs. Hammer, Miceli and Rose, none of our six most highly-compensatednamed executive officers received other annual compensation exceeding $50,000$10,000 for the year ended March 31, 2005.fiscal 2007. |
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(2) (4) | | Mr. Rose commenced employment with us in the first quarter of fiscal 2007 at an estimated annual salary of $240,000. Mr. Rose’s compensation is paid in British pound sterling. All amounts have been converted to U.S. dollars using the average currency exchange rate for the period. |
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(5) | | This number represents $402,220 that was earned in fiscal 2007, but will be paid in fiscal 2008. |
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(6) | | This number represents $195,000 that was earned in fiscal 2007, but will be paid in fiscal 2008. |
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(7) | | This number represents $135,000 that was earned in fiscal 2007, but will be paid in fiscal 2008. |
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(8) | | This number represents $165,964 that was earned and paid in fiscal 2007, and $49,200 that was earned in fiscal 2007, but will be paid in fiscal 2008. |
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(9) | | This number represents $133,279 that was earned and paid in fiscal 2007, and $53,419 that was earned in fiscal 2007, but will be paid in fiscal 2008. |
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(10) | | Mr. Hammer’s other annual compensation for the year ended March 31, 2005in fiscal 2007 included our payment of $37,667$23,858 for airfare for Mr. Hammer between his residence in Florida and our headquarters in Oceanport, New Jersey, and $22,200 related to housing$27,059 for housing-related costs for the rental of an apartment for Mr. Hammer in New Jersey. No other item of Jersey and $19,327 primarily for transportation-related benefits. |
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(11) | | Mr. Hammer’sRose’s other annual compensation individually exceeded 25%in fiscal 2007 was for transportation-related benefits. |
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Fiscal 2007 Salary and non-equity incentive compensation in proportion to total compensation
The amount of salary and non-equity incentive compensation earned in fiscal 2007 in proportion to the total compensation reported for each of our named executive officers was:
| | |
| • | N. Robert Hammer: 43% |
|
| • | Alan G. Bunte: 59% |
|
| • | Louis F. Miceli: 79% |
|
| • | Ron Miiller: 73% |
|
| • | Steven Rose: 59% |
Fiscal 2007 Grants of Plan Based Awards
The following table sets forth information as to the range of non-equity incentive plan awards to the named executive officers in fiscal 2007. No equity incentive plan awards were granted to the named executive officers in fiscal 2007:
| | | | | | | | | | | | |
| | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | |
Name | | Threshold(1) | | | Target(2) | | | Maximum(3) | |
|
N. Robert Hammer | | $ | — | | | $ | 400,000 | | | $ | 640,000 | |
Alan G. Bunte | | | — | | | | 195,000 | | | | — | |
Louis F. Miceli | | | — | | | | 135,000 | | | | — | |
Ron Miiller | | | — | | | | 240,000 | | | | 352,000 | |
Steven Rose(4) | | | — | | | | 203,529 | | | | 256,553 | |
| | |
(1) | | None of Mr. Hammer’s total other annualthe named executive officers’ non-equity incentive compensation plans contain a minimum payout. |
|
(2) | | We believe that our non-equity incentive plan targets are aggressive and not easy to achieve. See “Non-Equity Incentive Plan Compensation” above for the year ended March 31, 2005.more information. |
|
(3) | | Mr. Mercer passed awayHammer’s annual non-equity incentive plan compensation is limited to 160% of his base salary. Annual non-equity incentive plan compensation awarded to Messrs. Bunte and Miceli do not contain maximum pay-outs. Such awards are based on the discretion of Mr. Hammer and approved by the Compensation Committee. Messrs. Miiller and Rose are entitled to non-equity incentive plan compensation based on tiered commission plans that contain maximum annual pay-outs. |
|
(4) | | Mr. Rose commenced employment with us in January 2006.the first quarter of fiscal 2007. Mr. Rose’s estimated future payouts under non-equity incentive plans reflect his eligible awards for the period July 1, 2006 through March 31, 2007. Mr. Rose’s compensation is paid in British pound sterling. All amounts have been converted to U.S. dollars using the average currency exchange rate for the period. |
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Outstanding Equity Awards at Fiscal 2007 Year End
The following table reflects all outstanding equity awards held by the named executive officers as of March 31, 2007:
| | | | | | | | | | | | | | | | |
| | Option Awards | |
| | Number of Securities
| | | Number of Securities
| | | | | | | |
| | Underlying
| | | Underlying
| | | | | | | |
| | Unexercised Options
| | | Unexercised Options
| | | Option Exercise
| | | Option Expiration
| |
Name | | (Exercisable) | | | (Unexercisable) | | | Price | | | Date | |
|
N. Robert Hammer | | | 600,000 | | | | — | | | $ | 6.00 | | | | 5/3/2011 | |
| | | 164,062 | | | | 10,938 | (1) | | | 4.00 | | | | 5/01/2013 | |
| | | 275,000 | | | | 125,000 | (2) | | | 6.00 | | | | 5/6/2014 | |
| | | — | | | | 350,000 | (3) | | | 4.70 | | | | 9/19/2015 | |
Alan G. Bunte | | | 60,000 | | | | — | | | | 5.00 | | | | 3/23/2010 | |
| | | 85,000 | | | | — | | | | 6.00 | | | | 5/02/2012 | |
| | | 87,500 | | | | 12,500 | (4) | | | 4.00 | | | | 7/31/2013 | |
| | | 37,500 | | | | 62,500 | (5) | | | 4.70 | | | | 9/19/2015 | |
| | | — | | | | 75,000 | (6) | | | 4.70 | | | | 9/19/2015 | |
Louis F. Miceli | | | 50,000 | | | | — | | | | 5.00 | | | | 3/23/2010 | |
| | | 75,000 | | | | — | | | | 6.00 | | | | 5/02/2012 | |
| | | 11,250 | | | | 3,750 | (7) | | | 7.20 | | | | 1/29/2014 | |
| | | — | | | | 50,000 | (8) | | | 4.70 | | | | 9/19/2015 | |
Ron Miiller | | | 50,000 | | | | — | | | | 5.00 | | | | 3/23/2010 | |
| | | 7,500 | | | | 2,500 | (9) | | | 7.20 | | | | 1/29/2014 | |
| | | 5,625 | | | | 4,375 | (10) | | | 5.30 | | | | 11/3/2014 | |
| | | 37,500 | | | | 37,500 | (11) | | | 5.30 | | | | 1/27/2015 | |
| | | 25,000 | | | | — | | | | 5.30 | | | | 1/27/2015 | |
| | | 9,375 | | | | 15,625 | (12) | | | 4.70 | | | | 7/29/2015 | |
| | | — | | | | 32,500 | (13) | | | 4.70 | | | | 9/19/2015 | |
Steven Rose | | | — | | | | 150,000 | (14) | | | 11.70 | | | | 4/20/2016 | |
| |
(1) | These options vested on5/1/07. |
|
(2) | 25,000 of these options vested on5/6/07 and 25,000 will vest on each quarterly anniversary thereafter through5/6/08. |
|
(3) | 87,500 of these options vested on4/1/07 and 21,875 of these options will vest on each quarterly anniversary thereafter through4/1/10. |
|
(4) | 6,250 of these options vested on each4/30/07 and 6,250 of these options will vest on7/31/07. |
|
(5) | 6,250 of these options will vest on6/19/07 and on each quarterly anniversary thereafter through9/19/09. |
|
(6) | 18,750 of these options vested on4/1/07 and 4,688 of these options will vest on each quarterly-anniversary thereafter through4/1/10. |
|
(7) | 938 of these options vested on4/29/07 and 938 of these options will vest on each quarterly anniversary thereafter through1/29/08. |
|
(8) | 12,500 of these options vested on4/1/07 and 3,125 of these options will vest on each quarterly anniversary thereafter through4/1/10. |
|
(9) | 625 of these options vested on4/29/07 and 625 of these options will vest on each quarterly anniversary thereafter through1/29/08. |
| |
(10) | 625 of these options vested on5/3/07 and 625 of these options will vest each quarterly anniversary thereafter through11/3/08. |
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| |
(11) | 4,688 of these options vested on4/27/07 and 4,688 of these options will vest on each quarterly anniversary thereafter through1/27/09. |
|
(12) | 1,563 of these options vested on4/29/07 and 1,563 of these options will vest on each quarterly anniversary thereafter through7/29/09. |
|
(13) | 8,125 of these options vested on4/1/07 and 2,031 of these options will vest on each quarterly anniversary thereafter through4/1/10. |
|
(14) | 37,500 of these options will vest on6/1/07 and 9,375 of these options will vest on each quarterly anniversary thereafter through6/1/10. |
Employment AgreementsOption Exercises
None of our named executive officers exercised their respective options during fiscal 2007.
Pension Benefits
None of our named executive officers participate in or have account balances in qualified or non-qualified defined benefit plans sponsored by us.
Nonqualified Deferred Compensation
None of our named executive officers participate in or have account balances in non qualified defined contribution plans maintained by us.
Employee Agreements
In February 2004, we entered into an employment agreement with N. Robert Hammer. The agreement has an initial term ending on March 31, 2005 and automatically extends for additional one-year terms unless either party elects, at least 30 days prior to the expiration of a term, to terminate the agreement. The agreement provides that Mr. Hammer’s annual salary shall be subject to annual review by our boardBoard of directors.Directors. The agreement also provides that Mr. Hammer shall be eligible for an annual cash bonusnon-equity incentive plan compensation with a target bonus potential equal to a percentage of his base salary and that he shall be entitled to participate in the employee benefits plans in which our other executives may participate. If we terminate Mr. Hammer’s employment for any reason other than cause, death or upon a change in control of our
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company, the agreement provides that, for a one-year period, Mr. Hammer will be entitled to receive his then-current base salary (either in equal bi-weekly payments or a lump sum payment, at our discretion) and we will be required to continue paying the premiums for Mr. Hammer’s and his dependents’ health insurance coverage. In addition, Mr. Hammer will be entitled to any other amounts or benefits previously accrued under our then applicable employee benefit plans, incentive plans or programs. If we terminate Mr. Hammer’s employment by reason of death or disability, Mr. Hammer will be entitled to any compensation earned but not yet paid. The agreement provides that, during his term of employment with us and for a period of one year following any termination of employment with us, Mr. Hammer may not participate, directly or indirectly, in any capacity whatsoever, within the United States, in a business in competition with us, other than beneficial ownership of up to one percent of the outstanding stock of a publicly held company. In addition, Mr. Hammer may not solicit our employees or customers for a period of one year following any termination of his employment with us. Mr. Hammer’s employment agreement also contains a change in control provision which is discussed below in the section titled “Change in Control Agreements.”
Mr. Hammer has maintained his primary residence in the state of Florida since he began serving as our Chairman, President and Chief Executive Officer in 1998. Mr. Hammer’s position with us is his only full time employment. Mr. Hammer generally spends his time working for us in our office in Oceanport, New Jersey or traveling on business for us. He is generally in Oceanport when not traveling on business. As part of his annual compensation, we pay costs associated with Mr. Hammer’s travel between his residence in Florida and our headquarters in Oceanport, New Jersey and we also lease an apartment for Mr. Hammer’s use in New Jersey. See “Summary Compensation Table” for more information. The members of the Compensation Committee consider these costs in reviewing the annual compensation of Mr. Hammer. We do not believe that
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Mr. Hammer’s Florida residency has had a negative impact on the quality of his service to us or on his ability to meet his obligations as Chairman, President and Chief Executive Officer in the past and we do not anticipate that his Florida residency will have any negative impact on us in the future.
In February 2004, we entered into employment agreements with Alan G. Bunte and Louis F. Miceli. Each of these agreements has an initial term ending on March 31, 2005 and automatically extends for additional one-year terms unless either party to the agreement elects, at least 30 days prior to the expiration of a term, to terminate the agreement. The agreements with Messrs. Bunte and Miceli provide that the annual salary of each shall be subject to annual review by our chief executive officer or his designee, and also provides that each shall be eligible for annual non-equity incentive plan compensation with a target bonus potential equal to a percentage of the officer’s base salary. The agreements with Messrs. Bunte and Miceli each provide that these officers shall be entitled to participate in the employee benefits plans in which our other executives may participate. If we terminate the employment of either of these officers for any reason other than for cause or death, each of the agreements provide that, for a one-year period, the terminated officer will be entitled to receive his then-current base salary (either in equal bi-weekly payments or a lump sum payment, at our discretion) and we will be required to continue paying the premiums for the officer’s and his dependents’ health insurance coverage. In addition, the terminated officer will be entitled to any other amounts or benefits previously accrued under our then applicable employee benefit plans, incentive plans or programs. If we terminate Messrs. Bunte’s or Miceli’s employment by reason of death or disability, each executive officer will be entitled to any compensation earned but not yet paid. Each agreement provides that, during his term of employment with us and for a period of one year following any termination of employment with us, the officer may not participate, directly or indirectly, in any capacity whatsoever, within the United States, in a business in competition with us, other than beneficial ownership of up to one percent of the outstanding stock of a publicly held company. In addition, neither of these officers may solicit our employees or customers for a period of one year following any termination of employment with us.
Change in Control Agreements
Mr. Hammer’s employment agreement provides that if a change in control of our company occurs, all options held by Mr. Hammer shall immediately become exercisable. If a change in control of our company occurs and Mr. Hammer’s employment is terminated for reasons other than for cause (other than a termination resulting from a disability) within two years of the change in control, or if Mr. Hammer terminates his employment within 60 days of a material diminution in his salary or duties or the relocation of his employment within two years following a change in control of our company, then he shall be entitled to (1) a lump sum severance payment equal to one and a half times his base salary at the time of the change in control plus an amount equal to Mr. Hammer’s target bonus at the time of the change in control, and (2) health insurance coverage for Mr. Hammer and his dependents for an 18 month period. The agreement provides that, during his term of employment with us and for a period of one year following any termination of employment with us, Mr. Hammer may not participate, directly or indirectly, in any capacity whatsoever, within the United States, in a business in competition with us, other than beneficial ownership of up to one percent of the outstanding stock of a publicly held company. In addition, Mr. Hammer may not solicit our employees or customers for a period of one year following any termination of his employment with us.
In February 2004, we entered into employment agreements with Alan G. Bunte and Louis F. Miceli. Each of these agreements has an initial term ending on March 31, 2005 and automatically extends for additional one-year terms unless either party to the agreement elects, at least 30 days prior to the expiration of a term, to terminate the agreement. The agreements with Messrs. Bunte and Miceli provide that the annual salary of each shall be subject to annual review by our chief executive officer or his designee, and also provides that each shall be eligible for an annual cash bonus with a target bonus potential equal to a percentage of the officer’s base salary. The agreements with Messrs. Bunte and Miceli each provide that these officers shall be entitled to participate in the employee benefits plans in which our other executives may participate. If we terminate the employment of either of these officers for any reason other than for cause or death, each of the agreements provide that, for a one-year period, the terminated officer will be entitled to receive his then-current base salary (either in equal bi-weekly payments or a lump sum payment, at our discretion), and we will be required to continue paying the premiums for the officer’s and his dependents’ health insurance coverage. Each agreement provides that, during his term of employment with us and for a period of one year following any termination of employment with us, the officer may not participate, directly or indirectly, in any capacity whatsoever, within the United States, in a business in competition with us, other than beneficial ownership of up to one percent of the outstanding stock of a publicly held company. In addition, neither of these officers may solicit our employees or customers for a period of one year following any termination of employment with us.
Change of Control Agreements
We have entered into change of control agreements with all of our executive officers, other than Mr. Hammer, whose employment agreement sets forth the protections upon a change of control described above. Each of these agreements provides that if a change in control of our company occurs and the employment of any of the officers is terminated for reasons other than for cause, or if the officer terminates his employment within 60 days of a material diminution in his salary or duties or the relocation of his employment following a change in control of our company, then all stock options held by the officer shall immediately become exercisable. In addition, the change of control agreements with Messrs. Bunte and Miceli provide that if a change in control of our company occurs and the employment of either of these officers is terminated for reasons other than for cause within two years of the change in control, or if the officer terminates his employment within 60 days of a material diminution in his salary or duties or the relocation of his employment within two years following a change in control of our company, then the officer shall be entitled to (1) a lump sum severance payment equal to one and a half times the sum of the officer’s annual base salary at the time of the change in control and all bonus payments made to the officer during the one-year period preceding the date of the change in control, and (2) health insurance
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coverage for the officer and his dependents for an 18 month period. The change of control agreements with Messrs. West, Miiller Prahlad and ReddyRose have substantially identical provisions that provide for a lump sum severance payment equal to the officer’s annual
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base salary at the time of the change in control and health insurance coverage for the officer and his dependents for a 12 month period.
The change of control agreements with Messrs. Bunte and Miceli provide that, for an 18 month period following the termination of employment, the officers may not engage in, or have any interest in, or manage or operate any company or other business (whether as a director, officer, employee, partner, equity holder, consultant or otherwise) that engages in any business which then competes with any of our businesses, other than beneficial ownership of up to five percent of the outstanding voting stock of a publicly traded company. The agreements also prohibit Messrs. Bunte and Miceli from inducing any of our employees to terminate their employment with us or to become employed by any of our competitors during the 18 month period. Messrs. West, Miiller Prahlad and ReddyRose are subject to substantially identical non-competition and non-solicitation provisions for a one-year period following the termination of employment.
Stock Option Grants in Last Fiscal YearEstimated Payments and Benefits upon Termination
The amount of compensation and benefits payable to each named executive officer has been estimated in the table below. The value of the option vesting acceleration was calculated based on the assumption that the change in control and the executive’s employment termination occurred on March 31, 2007. The closing price of our stock as of March 31, 2007 was $16.20, which was used as the value of our stock in the change in control. The value of the vesting acceleration was calculated by multiplying the number of accelerated option shares as of March 31, 2007 by the spread between the closing price of our stock as of March 31, 2007 and the exercise price for such unvested option shares and common stock. The amounts assume that such
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termination was effective as of March 31, 2007, the last day of our fiscal year. The actual amounts to be paid out can only be determined at the time of such executive’s separation from us.
| | | | | | | | | | | | | | | | | | | | |
| | Compensation | | | Continuation
| | | | |
| | | | | Non-equity
| | | Unvested
| | | of Medical
| | | Total
| |
| | | | | Incentive
| | | Option Shares
| | | Benefits
| | | Compensation
| |
| | Base Salary | | | Plan | | | Accelerated | | | (present value) | | | and Benefits | |
|
N. Robert Hammer | | | | | | | | | | | | | | | | | | | | |
Death | | $ | — | | | $ | 402,220 | | | $ | — | | | $ | — | | | $ | 402,220 | |
Disability | | | — | | | | 402,220 | | | | — | | | | — | | | | 402,220 | |
Involuntary termination without cause or by non-extension of employment term | | | 400,000 | | | | 402,220 | | | | — | | | | 13,100 | | | | 815,320 | |
Change in Control | | | 600,000 | | | | 400,000 | | | | 5,433,444 | | | | 19,000 | | | | 6,452,444 | |
Alan G. Bunte | | | | | | | | | | | | | | | | | | | | |
Death | | | — | | | | 195,000 | | | | — | | | | — | | | | 195,000 | |
Disability | | | — | | | | 195,000 | | | | — | | | | — | | | | 195,000 | |
Involuntary termination without cause or by non-extension of employment term | | | 300,000 | | | | 195,000 | | | | — | | | | 16,100 | | | | 511,100 | |
Change in Control | | | 450,000 | | | | 145,000 | | | | 1,733,750 | | | | 23,400 | | | | 2,352,150 | |
Louis F. Miceli | | | | | | | | | | | | | | | | | | | | |
Death | | | — | | | | 135,000 | | | | — | | | | — | | | | 135,000 | |
Disability | | | — | | | | 135,000 | | | | — | | | | — | | | | 135,000 | |
Involuntary termination without cause or by non-extension of employment term | | | 270,000 | | | | 135,000 | | | | — | | | | 16,100 | | | | 421,100 | |
Change in Control | | | 405,000 | | | | 135,000 | | | | 608,750 | | | | 23,400 | | | | 1,172,150 | |
Ron Miiller | | | | | | | | | | | | | | | | | | | | |
Death | | | — | | | | — | | | | — | | | | — | | | | — | |
Disability | | | — | | | | — | | | | — | | | | — | | | | — | |
Involuntary termination without cause or by non-extension of employment term | | | — | | | | — | | | | — | | | | — | | | | — | |
Change in Control | | | 240,000 | | | | — | | | | 1,032,375 | | | | 16,100 | | | | 1,288,475 | |
Steven Rose | | | | | | | | | | | | | | | | | | | | |
Death | | | — | | | | — | | | | — | | | | — | | | | — | |
Disability | | | — | | | | — | | | | — | | | | — | | | | — | |
Involuntary termination without cause or by non-extension of employment term | | | — | | | | — | | | | — | | | | — | | | | — | |
Change in Control | | | 240,000 | | | | — | | | | 675,000 | | | | 2,900 | | | | 917,900 | |
None of the named executive officers are eligible for compensation and benefits payable upon involuntary termination for cause or voluntary resignation or retirement and therefore such descriptions have been excluded from the table above. In addition, the amounts shown in the table above do not include payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon termination, such as any unreimbursed business expenses payable and distributions of plan balances under the CommVault Systems, Inc. 401(k) plan.
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Director Compensation
Our Compensation Committee of the Board of Directors determines the amount of any fees, whether payable in cash, shares of common stock or options to purchase common stock, and expense reimbursement that directors receive for attending meetings of the Board of Directors or committees of the board. Prior to April 1, 2006, other than to members of our Audit Committee, we have not paid any fees to our directors, but we have reimbursed them for their expenses incurred in connection with attending meetings.
In fiscal 2007, we began to provide cash compensation to non-employee directors for their service on our board. Each non-employee director receives an annual retainer of $20,000, with an additional stipend of $1,000 for each board meeting attended in person. The chairperson of each of our Audit Committee, Compensation Committee and Governance Committee receive an additional annual retainer of $24,000, $7,500 and $7,500, respectively. Our lead director will receive an additional annual retainer of $7,500. Each committee member receives an additional annual retainer of $5,000.
In fiscal 2007, non-employee directors elected to the Board of Directors were eligible to receive an initial equity grant of 12,500 non-qualified stock options. In addition, each non-employee director was eligible to receive an annual equity grant of 7,500 non-qualified stock options. We granted a total of 50,000non-qualified stock options to non-employee directors during fiscal 2007. We anticipate that future equity awards granted to non-employee directors will contain a mix of both non-qualified stock options and restricted stock units. Equity awards granted to our non-employee directors vest quarterly over a four-year period, except that the shares that would otherwise vest over the first 12 months do not vest until the first anniversary of the grant.
Equity grants in the foreseeable future to our non-employee directors will be pursuant to our 2006Long-Term Stock Incentive Plan. See “Long-Term Equity Incentive Awards” above for more information about this plan. We also reimburse all of our directors for their reasonable expenses incurred in attending meetings of our board or committees.
The following table sets forth information asconcerning the compensation received for services rendered to optionsus by our directors in fiscal 2007. No stock awards were granted to the named executive officers during the year ended March 31, 2006. We have not granted any stock appreciation rights.our directors in fiscal 2007.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Individual Grants | | | Potential Realizable | |
| | | | | Value at Assumed Annual | |
| | Number of | | | Percent of | | | | | Rates of Stock Price | |
| | Securities | | | Total Options | | | | | Appreciation for | |
| | Underlying | | | Granted to | | | Exercise | | | | | Option Term(2) | |
| | Options | | | Employees in | | | Price per | | | Expiration | | | | |
Name | | Granted | | | Fiscal Year(1) | | | Share | | | Date | | | 5% | | | 10% | |
| | | | | | | | | | | | | | | | | | |
N. Robert Hammer | | | | | | | % | | | $ | | | | | | | | $ | | | | $ | | |
Alan G. Bunte | | | | | | | | | | | | | | | | | | | | | | | | |
Louis F. Miceli | | | | | | | | | | | | | | | | | | | | | | | | |
David West | | | | | | | | | | | | | | | | | | | | | | | | |
Ron Miiller | | | | | | | | | | | | | | | | | | | | | | | | |
Scott Mercer(3) | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | Fees Earned or Paid
| | | | | | All Other Annual
| | | | |
Name | | in Cash | | | Option Awards(1) | | | Compensation | | | Total | |
|
Thomas Barry(2) | | $ | 41,500 | | | $ | 24,340 | | | $ | — | | | $ | 65,840 | |
Frank J. Fanzilli, Jr.(3) | | | 29,000 | | | | 36,796 | | | | — | | | | 65,796 | |
Armando Geday(4) | | | 24,000 | | | | 18,858 | | | | — | | | | 42,858 | |
Keith Geeslin(5) | | | 35,500 | | | | 24,340 | | | | — | | | | 59,840 | |
F. Robert Kurimsky(6) | | | 34,000 | | | | 18,858 | | | | — | | | | 52,858 | |
Daniel Pulver(7) | | | 29,000 | | | | 41,145 | | | | — | | | | 70,145 | |
Gary B. Smith(8) | | | 36,500 | | | | 34,574 | | | | — | | | | 71,074 | |
David F. Walker(9) | | | 58,000 | | | | 41,465 | | | | — | | | | 99,465 | |
| | |
(1) | Based on | The amounts in this column represent the dollar amount recognized in accordance with FAS 123(R) for the year, disregarding any estimates of future forfeitures. These amounts may reflect options granted in years prior to purchase an aggregatefiscal 2007. See Note 2 of sharesthe notes to our consolidated financial statements contained elsewhere in this Annual Report for a discussion of common stock grantedall assumptions made by us duringin determining the year ended March 31, 2005.FAS 123(R) values of our equity awards. |
|
(2) | Potential realizable values are net | Mr. Barry resigned from our Board of exercise price, but before the paymentDirectors on May 11, 2007 and forfeited 9,063 of taxes associated with exercise. Amounts represent hypothetical gains that could be achieved for the respectivestock 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 and do not represent our estimate or projection of our future common stock prices. These amounts represent certain assumed rates of appreciation in the value of the 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 reflected in the table may not necessarily be achieved.which were unvested. |
|
(3) | | Mr. Mercer passed away in January 2006.Fanzilli has a total of 83,500 stock options outstanding as of March 31, 2007. |
|
(4) | | Mr. Geday has a total of 83,500 stock options outstanding as of March 31, 2007. |
|
(5) | | Mr. Geeslin has a total of 17,500 stock options outstanding as of March 31, 2007. |
|
(6) | | Mr. Kurimsky has a total of 83,500 stock options outstanding as of March 31, 2007. |
|
(7) | | Mr. Pulver has a total of 25,000 stock options outstanding as of March 31, 2007. |
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| | |
(8) | | Mr. Smith has a total of 30,000 stock options outstanding as of March 31, 2007. |
|
(9) | | Mr. Walker has a total of 20,000 stock options outstanding as of March 31, 2007. |
Aggregated Option Exercises in Last Fiscal YearCompensation Committee Interlocks and Fiscal Year End Option ValuesInsider Participation
The following table sets forth information with respect to unexercised options heldmembers of our Compensation Committee are Messrs. Fanzilli, Geeslin and Pulver, each of whom was formerly employed by the named executive officers asan affiliate of March 31, 2006. No options were exercised by the named executive officers during the fiscal year ended March 31, 2006.ours, Credit Suisse or its affiliates.
| | |
| • | Mr. Geeslin was formerly a managing partner at an affiliate of Credit Suisse. Credit Suisse, together with its affiliates, holds 14,959,206 shares of our common stock. | | | | | | | | | | | | | | | | | | | | | |
|
| • | | | | | NumberMr. Pulver was formerly a director and a principal at affiliates of Securities | | | Value of Unexercised | |
| | Shares | | | | | Underlying Unexercised | | | In-the-Money Options | |
| | Acquired | | | | | Options at March 31, 2005 | | | at March 31, 2005(2) | |
| | on | | | Value | | | | | | | |
Name | | Exercise | | | Realized(1) | | | Exercisable | | | Unexercisable | | | Exercisable | | | Unexercisable | |
| | | | | | | | | | | | | | | | | | |
N. Robert Hammer | | | | | | $ | | | | | | | | | | | | $ | | | | $ | | |
Alan G. Bunte | | | | | | | | | | | | | | | | | | | | | | | | |
Louis F. Miceli | | | | | | | | | | | | | | | | | | | | | | | | |
David West | | | | | | | | | | | | | | | | | | | | | | | | |
Ron Miiller | | | | | | | | | | | | | | | | | | | | | | | | |
Scott Mercer(3) | | | | | | | | | | | | | | | | | | | | | | | | |
| |
(1) | Based on the fair market valueCredit Suisse. Credit Suisse, together with its affiliates, holds 14,959,206 shares of our common stock on the date of exercise of the options, as determined by the board of directors, less the applicable exercise price per share, multiplied by the number of shares issued upon exercise of the option. |
|
(2) | There was no public trading market for our common stock as of March 31, 2005. Accordingly, these values have been calculated on the basis of an assumed initial offering price of $ per share (the midpoint of the estimated price range shown on the cover page of this prospectus), less the applicable exercise price per share, multiplied by the number of shares underlying such options. |
|
(3) | Mr. Mercer passed away in January 2006.stock. |
Employee Benefit Plans
1996 Stock Option Plan
We have reserved a total of11,705,000 shares of common stock for issuance under the 1996 Stock Option Plan. As of DecemberMarch 31, 2005,2007, options to purchase 7,434,121 shares of common stock were outstanding at a weighted average exercise price of $$6.02 per share, 3,968,684 shares had been issued upon the exercise of outstanding options and 302,196 shares remain available for future grants. The 1996 Stock Option Plan provides for the grant of nonqualified stock options and other types of awards to our directors, officers, employees and consultants, and is administered by our compensation committee.Compensation Committee.
The compensation committeeCompensation Committee determines the terms of options granted under the 1996 Stock Option Plan, including the number of shares subject to the grant, exercise price, term and exercisability, and has the authority to interpret the plan and the terms of the awards thereunder. The exercise price of stock options granted under the plan must be no less than the par value of our common stock, and payment of the exercise price may be made by cash or other consideration as determined by the compensation committee.Compensation Committee. Options granted under the plan may not have a term exceeding ten years, and generally vest over a four-year period. At any time after the grant of an option, the compensation committeeCompensation Committee may, in its sole discretion, accelerate the period during which the option vests.
Generally, no option may be transferred by its holder other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code or Title I of the Employment Retirement Income Security Act of 1974, as amended, or the rules thereunder. If an employee leaves our company or is terminated, then any options held by such employee generally may be terminated, and any unexercised portion of the employee’s options, whether or not vested, may be forfeited.
The number of shares of common stock authorized for issuance under the 1996 Stock Option Plan maywill be adjusted in the event of any dividend or other distribution, recapitalization, reclassification, stock
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split, reverse stock split, reorganization, merger, consolidation,split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition or all or substantially all of the assets of our company, or exchange of common stock or other securities of our company, issuance of warrants or other rights to purchase common stock of our company, or other similar corporate transaction or event. In the event of the occurrence of any of these transactions or events, our compensation committeeCompensation Committee may adjust the number and kind of authorized shares of common stock under the plan, the number and kind of shares of common stock subject to outstanding options and the exercise price with respect to any option. Additionally, if any of these transactions or events occurs or any change in applicable laws, regulations or accounting principles is enacted, the compensation committeeCompensation Committee may purchase options from holders thereof or prohibit holders from exercising options. The compensation committeeCompensation Committee may also provide that, upon the occurrence of any of these events, options will be assumed by the successor or survivor corporation or be substituted by similar options, rights or awards covering the stock of the successor or survivor corporation.
The 1996 Stock Option Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by our boardBoard of directorsDirectors or our compensation committee. Compensation Committee.
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However, no action of our compensation committeeCompensation Committee or our boardBoard of directorsDirectors that would require stockholder approval will be effective unless stockholder approval is obtained. No amendment, suspension or termination of the plan will, without the consent of the holder of options, alter or impair any rights or obligations under any options previously granted, unless the underlying option agreement expressly so provides. No options may be granted under the plan during any period of suspension or after its termination.
| |
| 2006 Long-Term Stock Incentive Plan |
2006 Long-Term Stock Incentive Plan
Under our Long-Term Stock Incentive Plan (the “LTIP Plan”), we may grant stock options, stock appreciation rights, shares of common stock and performance units to our employees, consultants, directors and others persons providing services to our company. The maximum number of shares of our common stock that we may award annually under the Long-Term Stock IncentiveLTIP Plan is shares, subject to annual adjustments. In addition,4,000,000. On each April 1, the number of shares andavailable for issuance under the price at whichLTIP Plan is increased, if applicable, such that the total number of shares available for awards under the LTIP Plan as of any April 1 is equal to 5% of the number of outstanding shares of our common stock on that April 1. As of March 31, 2007, options to purchase 236,875 shares of common stock were outstanding at a weighted average exercise price of $17.96 per share and 3,763,125 shares remain available for future grants. The maximum number of shares that may be purchased undersubject to incentive stock options shall be 25,000,000 over the Long-Term Stock Incentive Planlife of the LTIP Plan. The maximum number of shares that may be adjusted under specified circumstances, such as asubject to options and stock dividend,appreciation rights granted to any one individual shall be 25,000,000 over the life of the LTIP Plan. The maximum number of shares that may be subject to stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combinationunit awards, performance share awards, restricted stock awards or exchangerestricted unit awards to any one individual that are intended to be performance based within the meaning of shares.Section 162(m) of the Internal Revenue Code shall be 25,000,000 over the life of the LTIP Plan (or $1,000,000 during any calendar year, if settled in cash.) The maximum number of shares of common stock relating to stock options and stock appreciation rights that any individual participant may receiveauthorized for issuance under the Long-Term Stock IncentiveLTIP Plan is duringwill be adjusted in the durationevent of any dividend or other distribution, recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation,split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition or all or substantially all of the plan, which is ten years. In the caseassets of any grant of any other type of award under the plan that is intended to be performance-based under Internal Revenue Code rules, the maximum number of sharesour company, or exchange of common stock relatingor other securities of our company, issuance of warrants or other rights to such awards that any individual participant may receive during the durationpurchase common stock of the Plan is , and if such awards are settable in cash no more than $1,000,000 may be subject to such awards granted to any person in a calendar year.our company, or other similar corporate transaction or event.
Our compensation committeeCompensation Committee administers our Long-Term Stock IncentiveLTIP Plan. The Long-Term Stock IncentiveLTIP Plan essentially gives the compensation committeeCompensation Committee sole discretion and authority to select those persons to whom awards will be made, to designate the number of shares covered by each award, to establish vesting schedules and terms of each award, to specify all other terms of awards and to interpret the Long-Term Stock IncentiveLTIP Plan.
Options awarded under the Long-Term Stock IncentiveLTIP Plan may be either incentive stock options or nonqualified stock options, but incentive stock options may only be awarded to our employees. Incentive stock options are intended to satisfy the requirements of Section 422 of the Internal Revenue Code. Nonqualified stock options are not intended to satisfy Section 422 of the Internal Revenue Code. Stock appreciation rights may be granted in connection with options or as free-standing awards. Exercise of an option will result in the corresponding surrender of the attached stock appreciation right. The exercise price of an option or stock appreciation right must be at least equal to the par value of a share of common stock on the date of grant, and the exercise price of an incentive stock option must be at least equal to the
69
fair market value of a share of common stock on the date of grant. Options and stock appreciation rights will be exercisable in accordance with the terms set by the compensation committeeCompensation Committee when granted and will expire on the date determined by the compensation committee,Compensation Committee, but in no event later than the tenth anniversary of the grant date. If a stock appreciation right is issued in connection with an option, the stock appreciation right will expire when the related option expires. Special rules and limitations apply to stock options which are intended to be incentive stock options.
Under our Long-Term Stock Incentivethe LTIP Plan, our compensation committeeCompensation Committee may grant common stock to participants. In the discretion of the committee, stock issued pursuant to the planLTIP Plan may be subject to vesting or other restrictions. Participants may receive dividends relating to their shares issued pursuant to the plan,LTIP Plan, both before and after the common stock subject to an award is earned or vested.
The compensation committeeCompensation Committee may award participants stock units which entitle the participant to receive value, either in stock or in cash, as specified by the compensation committee,Compensation Committee, for the units at the end of a
77
specified period, based on the satisfaction of certain other terms and conditions or at a future date, all to the extent provided under the award. A participant may be granted the right to receive dividend equivalents with respect to an award of stock units by the compensation committee.Compensation Committee. Our compensation committeeCompensation Committee establishes the number of units, the form and timing of settlement, the performance criteria or other vesting terms and other terms and conditions of the award at the time the award is made.
Unless our compensation committeeCompensation Committee determines otherwise, in the event of a change in control of our company that is a merger or consolidation where our company is the surviving corporation (other than a merger or consolidation where a majority of the outstanding shares of our stock are converted into securities of another entity or are exchanged for other consideration), all option awards under the Long-Term Stock IncentiveLTIP Plan will continue in effect and pertain and apply to the securities which a holder of the number of shares of our stock then subject to the option would have been entitled to receive. In the event of a change of control of our company where we dissolve or liquidate, or a merger or consolidation where we are not the surviving corporation or where a majority of the outstanding shares of our stock is converted into securities of another entity or are exchanged for other consideration, all option awards under the Long-Term Stock IncentiveLTIP Plan will terminate, and we will either (1) arrange for any corporation succeeding to our business or assets to issue participants replacement awards on such corporation’s stock, or (2) make any outstanding options granted under the plan fully exercisable at least 20 days before the change of control becomes effective.
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70
THE CONCURRENT PRIVATE PLACEMENT
The sale of shares of our common stock at the closing of this offering to Aman Ventures, Mark Francis, K. Flynn McDonald, Greg Reyes, Reyes Family Trust, Van Wagoner Capital Partners, L.P., Van Wagoner Crossover Fund, L.P. and Marc Weiss, each an existing stockholder, will each be done in a private placement in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 pursuant to preemptive rights that arise as a result of the offering and terminate upon the closing of the offering. This prospectus shall not be deemed to be an offer to sell or a solicitation of an offer to buy any securities offered in the concurrent private placement.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table shows the beneficial ownership of our common stock on , 2006April 30, 2007 by:
| | |
| • | each person who we know beneficially owns more than 5% of our common stock; |
|
| • | our directors and named executive officers; |
|
| • | all of our directors and executive officers as a group; and |
|
| • | the selling stockholders. |
Beneficial ownership, which is determined in accordance with the rules and regulations of the Securities and Exchange Commission, means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of our common stock. The number of shares of our common stock beneficially owned by a person includes shares of common stock issuable with respect to options and convertible securities held by the person which are exercisable or convertible within 60 days. The percentage of our common stock beneficially owned by a person assumes that the person has exercised all options, and converted all convertible securities, the person holds which are exercisable or convertible within 60 days, and that no other persons exercised any of their options or converted any of their convertible securities. Except as otherwise indicated, the business address for each of the following persons is 2 Crescent Place, Oceanport, New Jersey 07757. Except as otherwise indicated in the footnotes to the table or in cases where community property laws apply, we believe that each person identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the person. The column entitled “Number of Shares Beneficially Owned After the Offering” assumes the conversion of all outstanding shares of our preferred stock into a total of shares of common stock upon the closing of this offering. Percentage of beneficial ownership before the offering is based on 42,193,268 shares of common stock outstanding as of 2006 (on an as-converted basis).April 30, 2007. Percentage of beneficial ownership after the offering is based on 42,493,268 shares of common stock outstanding after the completion of this offering and the concurrent private placement.offering.
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percentage | |
| | | | Number of | | | | | Beneficially Owned | |
| | Number of Shares | | | Shares Being | | | Number of Shares | | | | |
| | Beneficially Owned | | | Sold in the | | | Beneficially Owned | | | Before the | | | After the | |
Name and Address of Beneficial Owner | | Before the Offering | | | Offering | | | After the Offering | | | Offering | | | Offering | |
| | | | | | | | | | | | | | | |
N. Robert Hammer(1) | | | | | | | | | | | | | | | | | | | | |
Alan G. Bunte(2) | | | | | | | | | | | | | | | | | | | | |
Louis F. Miceli(3) | | | | | | | | | | | | | | | | | | | | |
David West(4) | | | | | | | | | | | | | | | | | | | | |
Ron Miiller(5) | | | | | | | | | | | | | | | | | | | | |
Anand Prahlad(6) | | | | | | | | | | | | | | | | | | | | |
Suresh P. Reddy(7) | | | | | | | | | | | | | | | | | | | | |
Thomas Barry(8) | | | | | | | | | | | | | | | | | | | | |
Frank J. Fanzilli, Jr.(9) | | | | | | | | | | | | | | | | | | | | |
Armando Geday(10) | | | | | | | | | | | | | | | | | | | | |
Keith Geeslin(11) | | | | | | | | | | | | | | | | | | | | |
Edward A. Johnson | | | | | | | | | | | | | | | | | | | | |
F. Robert Kurimsky(12) | | | | | | | | | | | | | | | | | | | | |
Daniel Pulver | | | | | | | | | | | | | | | | | | | | |
Gary B. Smith(13) | | | | | | | | | | | | | | | | | | | | |
David F. Walker | | | | | | | | | | | | | | | | | | | | |
Putnam OTC and Emerging Growth Fund(14) | | | | | | | | | | | | | | | | | | | | |
TH Lee, Putnam Investment Trust(14) | | | | | | | | | | | | | | | | | | | | |
79
72
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Percentage | |
| | | | Number of | | | | | Beneficially Owned | |
| | Number of Shares | | | Shares Being | | | Number of Shares | | | | |
| | Beneficially Owned | | | Sold in the | | | Beneficially Owned | | | Before the | | | After the | |
Name and Address of Beneficial Owner | | Before the Offering | | | Offering | | | After the Offering | | | Offering | | | Offering | |
| | | | | | | | | | | | | | | |
Putnam Discovery Growth Fund(14) | | | | | | | | | | | | | | | | | | | | |
Putnam World Trust II — Putnam Emerging Information Sciences Fund(14) | | | | | | | | | | | | | | | | | | | | |
DLJ Capital Corporation(15) | | | | | | | | | | | | | | | | | | | | |
DLJ ESC II, L.P.(15) | | | | | | | | | | | | | | | | | | | | |
DLJ First ESC, L.P.(15) | | | | | | | | | | | | | | | | | | | | |
DLJ International Partners, C.V.(15) | | | | | | | | | | | | | | | | | | | | |
DLJMB Funding, Inc.(15) | | | | | | | | | | | | | | | | | | | | |
DLJ Merchant Banking Partners, L.P.(15) | | | | | | | | | | | | | | | | | | | | |
DLJ Offshore Partners, C.V.(15) | | | | | | | | | | | | | | | | | | | | |
Sprout IX Plan Investors, L.P.(15) | | | | | | | | | | | | | | | | | | | | |
Sprout Capital VII, L.P.(15) | | | | | | | | | | | | | | | | | | | | |
Sprout Capital IX, L.P.(15) | | | | | | | | | | | | | | | | | | | | |
Sprout CEO Fund, L.P.(15) | | | | | | | | | | | | | | | | | | | | |
Sprout Entrepreneurs’ Fund, L.P.(15) | | | | | | | | | | | | | | | | | | | | |
Sprout Growth II, L.P.(15) | | | | | | | | | | | | | | | | | | | | |
All directors and named executive officers as a group(16) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Number of
| | | Number of
| | | Percentage
| |
| | Number of Shares
| | | Shares Being
| | | Shares Beneficially
| | | Beneficially Owned | |
| | Beneficially Owned
| | | Sold in the
| | | Owned After the
| | | Before the
| | | After the
| |
Name and Address of Beneficial Owner | | Before the Offering | | | Offering | | | Offering | | | Offering | | | Offering | |
|
N. Robert Hammer(1) | | | 3,763,152 | | | | — | | | | 3,763,152 | | | | 8.7 | % | | | 8.6 | % |
Alan G. Bunte(2) | | | 581,251 | | | | — | | | | 581,251 | | | | 1.4 | % | | | 1.4 | % |
Louis F. Miceli(3) | | | 307,190 | | | | — | | | | 307,190 | | | | * | | | | * | |
David West(4) | | | 187,500 | | | | — | | | | 187,500 | | | | * | | | | * | |
Ron Miiller(5) | | | 150,625 | | | | — | | | | 150,625 | | | | * | | | | * | |
Anand Prahlad(6) | | | 191,238 | | | | — | | | | 191,238 | | | | * | | | | * | |
Suresh P. Reddy(7) | | | 148,950 | | | | — | | | | 148,950 | | | | * | | | | * | |
Thomas Barry | | | 69,434 | | | | — | | | | 69,434 | | | | * | | | | * | |
Frank J. Fanzilli, Jr.(8) | | | 75,376 | | | | — | | | | 75,376 | | | | * | | | | * | |
Armando Geday(9) | | | 75,376 | | | | — | | | | 75,376 | | | | * | | | | * | |
Keith Geeslin(10) | | | 8,438 | | | | — | | | | 8,438 | | | | * | | | | * | |
Edward A. Johnson | | | — | | | | — | | | | — | | | | * | | | | * | |
F. Robert Kurimsky(11) | | | 75,376 | | | | — | | | | 75,376 | | | | * | | | | * | |
Daniel Pulver(12) | | | 10,469 | | | | — | | | | 10,469 | | | | * | | | | * | |
Gary B. Smith(13) | | | 17,501 | | | | — | | | | 17,501 | | | | * | | | | * | |
David F. Walker(14) | | | 6,094 | | | | — | | | | 6,094 | | | | * | | | | * | |
DLJ Capital Corporation(15) | | | 384,484 | | | | — | | | | 384,484 | | | | * | | | | * | |
DLJ ESC II, L.P.(15) | | | 11,326 | | | | 9,328 | | | | 1,998 | | | | * | | | | * | |
DLJ First ESC, L.P.(15) | | | 1,060,494 | | | | 873,401 | | | | 187,093 | | | | 2.5 | % | | | * | |
DLJ International Partners, C.V.(15) | | | 1,967,585 | | | | 1,620,462 | | | | 347,123 | | | | 4.7 | % | | | * | |
DLJMB Funding, Inc.(15) | | | 1,579,414 | | | | 1,300,772 | | | | 278,642 | | | | 3.7 | % | | | * | |
DLJ Merchant Banking Partners, L.P.(15) | | | 4,018,439 | | | | 3,309,503 | | | | 708,936 | | | | 9.5 | % | | | 1.7 | % |
DLJ Offshore Partners, C.V.(15) | | | 105,071 | | | | 86,534 | | | | 18,537 | | | | * | | | | * | |
Sprout IX Plan Investors, L.P.(15) | | | 72,353 | | | | — | | | | 72,353 | | | | * | | | | * | |
Sprout Capital VII, L.P.(15) | | | 2,289,099 | | | | — | | | | 2,289,099 | | | | 5.4 | % | | | 5.4 | % |
Sprout Capital IX, L.P.(15) | | | 1,566,741 | | | | — | | | | 1,566,741 | | | | 3.7 | % | | | 3.7 | % |
Sprout CEO Fund, L.P.(15) | | | 26,551 | | | | — | | | | 26,551 | | | | * | | | | * | |
Sprout Entrepreneurs’ Fund, L.P.(15) | | | 6,175 | | | | — | | | | 6,175 | | | | * | | | | * | |
Sprout Growth II, L.P.(15) | | | 1,871,474 | | | | — | | | | 1,871,474 | | | | 4.4 | % | | | 4.4 | % |
FMR Corp.(16) | | | 5,341,199 | | | | — | | | | 5,341,199 | | | | 12.7 | % | | | 12.6 | % |
All directors and named executive officers as a group(17) | | | 5,598,536 | | | | — | | | | 5,598,536 | | | | 12.5 | % | | | 12.4 | % |
| | |
(1) | (1) | Includes options to acquire 1,162,500 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. Mr. Hammer has pledged 300,000 shares as collateral for a loan made to him by Credit Suisse. |
|
(2) | (2) | Includes options to acquire 301,250 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. |
|
(3) | (3) | Includes options to acquire 149,687 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. |
|
(4) | (4) | Includes options to acquire 187,499 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. |
|
(5) | (5) | Includes options to acquire 150,624 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. |
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| | |
|
(6) | (6) | Includes options to acquire 134,937 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. |
|
(7) | (7) | Includes options to acquire 122,749 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. |
|
(8) | (8) | Includes options to acquire 75,375 shares of common stock which are exercisable within 60 days of , 2006. |
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| | April 30, 2007. |
|
(9) | | Includes options to acquire 75,375 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. |
| |
(10) | | Includes options to acquire 8,437 shares of common stock which are exercisable within 60 days of , 2006. |
April 30, 2007. |
|
(11) | | Includes options to acquire 75,375 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. |
|
(12) | | Includes options to acquire 10,468 shares of common stock which are exercisable within 60 days of �� , 2006.April 30, 2007. |
|
(13) | | Includes options to acquire 17,500 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. |
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(14) | These entities | Includes options to acquire 6,093 shares of common stock which are affiliatesexercisable within 60 days of Putnam Investment Management, LLC, Two Liberty Square, Boston, Massachusetts 02109.April 30, 2007. |
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(15) | | These entities are affiliates of Credit Suisse Securities (USA) LLC, Eleven Madison Avenue, New York, New York10010-3629. 14,577,860 of these shares are subject to a voting trust agreement. The trustee of the voting trust is Wells Fargo Bank, N.A. and its address is .Sixth and Marquette, MACN9303-110, Minneapolis, MN 55479. See “Description of Capital Stock — Voting Trust Agreement” for more information regarding this agreement. |
|
(16) | | Various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, shares of common stock. The interest of one person, Fidelity Contrafund, an investment company registered under the Investment Company Act of 1940, in our common stock, amounted to 3,932,387 shares or 9.37% of the total outstanding shares of common stock as of March 30, 2007. FMR Corp. is located at 82 Devonshire Street, Boston, Massachusetts 02109. |
|
(17) | | Includes options to acquire 2,477,869 shares of common stock which are exercisable within 60 days of , 2006.April 30, 2007. |
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74
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In September 2003, we issued 4,790,802 sharesaddition to the compensation arrangements with directors and executive officers described above, the following is a description of Series CCeach transaction since April 1, 2004 in which:
| | |
| • | we have been or are to be a participant; |
|
| • | the amount involved exceeds $120,000; and |
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| • | any of our directors, executive officers or holders of more than 5% of our capital stock, or any immediate family member of or person sharing the household with any of these individuals, had or will have a direct or indirect material interest. |
At the completion of our initial public offering, holders of our preferred stock to various purchasers as part of a private placement of our stock. DLJ Capital Corporation, Sprout Capital IX, L.P., Sprout Entrepreneurs’ Fund L.P. and Sprout IX Plan Investors, L.P., each of which is an affiliate of Credit Suisse Securities (USA) LLC, participated in the private placement, purchasing approximately 1.9 million shares of Series CC preferred stock for an aggregate purchase price of approximately $5.9 million. These stockholders, together with other affiliates of Credit Suisse Securities (USA) LLC, beneficially own approximately % of our common stock on an as-converted basis.
Putnam OTC and Emerging Growth Fund, Putnam World Trust II - Putnam Emerging Information Sciences Fund, TH Lee, Putnam Investment Trust and Putnam Discovery Growth Fund, each an affiliate of Putnam Investment Management, LLC, also participated in the September 2003 private placement of our Series CC preferred stock. These Putnam affiliates purchased approximately 800,000 shares for an aggregate purchase price of approximately $2.5 million. These stockholders beneficially own approximately % of our common stock on an as-converted basis.
Holders of our Series A, B, C, D and E preferred stock will receive $received $101.8 million of the net proceeds to us from theour initial public offering, the concurrent private placement, and borrowings under our new term loan and approximately $10.1 million of our then-existing cash and cash equivalents in satisfaction of amounts due upon the conversion of the preferred stock (including accrued dividends, and assuming the offering is completed on , 2006).into shares of our common stock.
| | |
| • | Affiliates of Credit Suisse Securities (USA) LLC will receivereceived approximately $$98.1 million in cash upon the completion of theour initial public offering. |
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| • | An affiliate of RBC Capital Markets Corporation owns approximately 2.2% of our Series BB preferred Stock and 0.095% of our Series CC preferred stock, and upon completion of the offering and related transactions will own approximately % of our common stock. |
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| • | Affiliates and related parties of C.E. Unterberg, Towbin, LLC own approximately 5.0% of our Series CC preferred stock, and upon completion of the offering and related transactions will own approximately % of our common stock. |
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| • | Thomas Barry, formerly one of our directors, holds directly 10,166 shares of our Series B preferred stock, which will be converted into63,497 shares of our common stock and the right to receivereceived approximately $$0.3 million in cash upon the completion of theour initial public offering. Mr. Barry resigned his position as a director of our company on May 11, 2007. |
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| • | Edward A. Johnson, formerly one of our directors, is currently a managing director of Credit Suisse Securities (USA) LLC and a partner at DLJ Merchant Banking, an internal divisionthe corporate leveraged buyout arm of Credit Suisse’s asset management business, which conducts its activities through affiliates of Credit Suisse First Boston Private Equity, Inc.Securities (USA) LLC. DLJ Merchant Banking together with its affiliates, holds 3,044,000 shares of our Series A, B, C, D and E preferred stock, which will be converted intofunds hold 5,597,853 shares of our common stock and the right to receive $received $41.9 million in cash upon the completion of theour initial public offering. Mr. Johnson will resignresigned his position as a director of our company immediately prior to the completion of the initial public offering. |
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| • | Frank J. Fanzilli, Jr., one of our directors, formerly served in several capacities at Credit Suisse Securities (USA) LLC. Affiliates of Credit Suisse Securities (USA) LLC hold 3,044,000 shares of our Series A, B, C, D and E preferred stock, which will be converted into14,959,206 shares of our common stock and the right to receive $received $98.1 million in cash upon the completion of theour initial public offering. |
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| • | Keith Geeslin, one of our directors, was formerly a managing partner of the Sprout Group, an internal divisionthe venture capital arm of Credit Suisse’s asset management business, which conducts its activities through affiliates of Credit Suisse First Boston Private Equity, Inc.Securities (USA) LLC. The Sprout Group, together with its affiliates, holds 3,044,000 shares of our Series A, B, C, D and E preferred stock, which will be converted into14,959,206 shares of our common stock and the right to receive $received $98.1 million in cash upon the completion of theour initial public offering. |
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| • | Daniel Pulver, one of our directors, was formerly a director atof Credit Suisse First Boston Private Equity, Inc.Securities (USA) LLC and a principal at DLJ Merchant Banking, together withthe corporate leveraged buyout arm of Credit Suisse’s asset management business, which conducts its activities through affiliates holds 3,044,000 shares of our Series A, B, C, D and E preferred stock, which will be converted intoCredit Suisse Securities (USA) LLC. DLJ Merchant Banking funds hold 5,597,853 shares of our common stock and the right to receive $received $41.9 million in cash upon the completion of theour initial public offering. |
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| • | N. Robert Hammer, our chairman, president and chief executive officer, was a partner of the Sprout Group until November 2003. The Sprout Group, together with its affiliates, holds 3,044,000 shares of our Series A, B, C, D and E preferred stock, which will be converted into14,959,206 shares of our common stock and the right to receive $received $98.1 million in cash upon the completion of the offering. Mr. Hammer also holds directly 3,333 shares of our Series B preferred stock and beneficially owns 47,204 shares of our Series D preferred stock, which will collectively be converted into2,600,652 shares of our common stock and the right to receive $received $1.4 million in cash upon the completion of theour initial public offering. |
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| • | Louis F. Miceli, our vice president and chief financial officer, purchased and holds 1,667 shares of our Series B preferred stock as a direct investment, which will be converted into157,503 shares of our common stock and the right to receivereceived approximately $$0.1 million in cash upon the completion of theour initial public offering. |
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| • | Messrs. Barry, Fanzilli, Geeslin, Pulver, Hammer and Bunte also own limited partnership interests in certain investment funds associated with the Sprout Group and DLJ Merchant Banking, which investment funds collectively own 417,210 shares of our common stock and preferred stock which will be converted into the right to receive shares of our common stock and $received $2.9 million in cash upon completion of theour initial public offering. The ownership interests of Messrs. Barry, Fanzilli, Greeslin,Geeslin, Pulver, Hammer and Bunte in these funds in the aggregate is less than 10% of the total membership interests in these funds. |
In addition, we have entered into agreements to indemnify our directors and some of our officers in addition to the indemnification provided for in our certificate of incorporation and bylaws. These agreements, will, among other things, indemnify our directors and some of our officers for specified expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in our right, on account of services by that person as a director or officer of our company, as a director or officer of any of our subsidiaries or as a director or officer of any other company or enterprise that the person provides services to at our request.
Review of Related Party Transactions
Our corporate governance guidelines require the approval of the Audit Committee or another appropriate committee of the board of directors without an interest in the matter or transaction prior to entering into transactions with related persons. Related persons include directors, executive officers, significant shareholders, their immediately family members and associated entities of these persons.
Directors are required to disclose to the board of directors any actual or potential conflicts of interest they have and, if appropriate, refrain from voting on a matter in which they may have a conflict or a material financial interest. Employees are required notify our Vice President, General Counsel or Vice President, Human Resources if they become aware of any potential conflict of interest. If, at any time, we or any of our executive officers or directors become aware of any relationship or potential relationship with a related person, we notify the board of directors and review the facts of that relationship.
None of the transactions described under the heading “Certain Relationships and Related Party Transactions” were subject to the approval policy described above, as the agreements pursuant to which the above transactions occurred were entered into prior to the time that we had a policy requiring the approval of our board of directors or a committee of the board.
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DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, we will be
We are authorized to issue 250,000,000 shares of common stock, par value $0.01 per share, and 50,000,000 shares of undesignated preferred stock. The following is a summary description of the material terms of our capital stock. Our bylaws and our amended and restated certificate of incorporation to be effective after the closing of this offering, provide further information about our capital stock.
Common Stock
As of , 2006,April 30, 2007, there were 42,193,268 shares of common stock outstanding on an as-converted basis held by approximately 288 stockholders of record. After giving effect to the sale to the public of the shares of common stock offered in this prospectus and the concurrent private placement, there will be 42,493,268 shares of common stock outstanding.
The holders of common stock are entitled to one vote per share on all matters to be voted upon by stockholders, including elections of directors. No holder of common stock may cumulate votes in voting for our directors. Subject to the rights of any holders of any outstanding preferred stock, the holders of common stock are entitled to receive dividends, if any, that the board of directors may from time to time declare out of funds legally available. See the discussion under the heading “Dividend Policy” for more information regarding our dividend policy. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock then outstanding.
The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock to be issued in connection with this offering will be 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.
Preferred Stock
The board of directors has the authority, without action by our stockholders, to designate and issue preferred stock in one or more series and to fix the rights, preferences, privileges and related restrictions, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of the series. The issuance of preferred stock may delay, impede or prevent the completion of a merger, tender offer or other takeover attempt of our company without further action of our stockholders, including a tender offer or other transaction that some, or a majority, of our stockholders might believe to be in their best interests or in which stockholders may receive a premium for their stock over its then current market price. At present, we have no plans to issue any preferred stock following this offering.stock.
Warrant
In December 2003, we issued a warrant to purchase shares of common stock at $ per share to Dell Ventures, L.P. in connection with our entering into a software license agreement with Dell. The software license agreement is cancelable by Dell without cause at any time. The number of warrant shares and exercise price are subject to customary antidilution adjustments upon the occurrence of certain events. The warrant is exercisable at any time and expires on June 19, 2006.
Voting Trust Agreement
Upon completion of the offering, certain affiliates of
Credit Suisse Securities (USA) LLC will enterand certain of its affiliates have entered into a voting trust agreement with Wells Fargo Bank, N.A., an independent trustee, pursuant to which million14,577,860 shares of our common stock, representing approximately %35% of our common stock then outstanding, will bewas deposited into a voting trust and will thereafter be voted by the voting trustee in accordance with the
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voting trust agreement. Subject to specified exceptions, the voting trust agreement also requires Credit Suisse Securities (USA) LLC and its affiliates to deliver to the trustee, and make subject to the voting trust agreement, any shares of our common stock owned by it or its affiliates that would cause the aggregate shares of our common stock held by them to exceed 5% of our common stock then outstanding. Credit Suisse Securities (USA) LLC and certain of its affiliates entered into the voting trust agreement so that Credit Suisse Securities (USA) LLC and its affiliates will not have voting control of CommVault for purposes of the federal securities laws.
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The voting trust agreement requires that the voting trustee cause the shares subject to the voting trust to be represented at all stockholder meetings for purposes of determining a quorum, but the trustee is not required to vote the shares on any matter.matter and any determination whether to vote the shares is required by the voting trust agreement to be made by the trustee without consultation with Credit Suisse Securities (USA) LLC and its affiliates. If, however, the trustee votes the trust shares on any matter subject to a stockholder vote, including proposals involving the election of directors, change of control and other significant corporate transactions, the shares will be voted in the same proportion as votes cast “for” or “against” those proposals by our other stockholders.
The affiliates of Credit Suisse Securities (USA) LLC that will becomeare party to the voting trust agreement are also party to agreements with our company that entitle them to specified rights relating to the registration of their shares for public resale. See “— Registration Rights” for more information regarding these registration rights. Holders of the shares of our common stock subject to the voting trust agreement will retain their registration rights and their rights to sell the shares of our common stock that are subject to the voting trust agreement. The holders will also retain the right to receive any dividends or distributions that we may pay on our common stock. In order for a holder to remove trust shares from the voting trust, the transfer must be deemed an “eligible transfer” under the agreement, or the removal must be in connection with a tender offer to purchase all of the outstanding shares of our common stock. Generally, an eligible transfer under the voting trust agreement is a transfer of trust shares that would not (i) cause the aggregate number of shares of our common stock held by Credit Suisse Securities (USA) LLC and its affiliates to exceed 5% of our common stock then outstanding or (ii) cause the entity receiving the shares to be an affiliate of the company within the meaning of Rule 144 of the Securities Act. The voting trust agreement will also permit the parties to the agreement to makedistributions-in-kind of shares of our common stock subject to the voting trust agreement upon the satisfaction of specified requirements. The voting trust agreement will terminate upon:
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| • | the tenth anniversary of the agreement;September 21, 2016; |
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| • | the written election of a certainCredit Suisse First Boston Private Equity, Inc., an affiliate of Credit Suisse Securities (USA) LLC, Credit Suisse Securities (USA) LLC or the holders of the majority of the shares of common stock subject to the voting trust agreement and the satisfaction of specified requirements; or |
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| • | the transfer of all of the shares of common stock subject to the voting trust agreement in a matter permitted thereunder. |
The voting trust agreement provides Credit Suisse First Boston Private Equity, Inc., Credit Suisse Securities (USA) LLC and the holders of a majority of the shares of common stock subject to the voting trust agreement with the right to terminate the voting trust agreement subject to the satisfaction of specified requirements, including that, immediately after giving effect to such termination, Credit Suisse First Boston Private Equity, Inc. and its affiliates will not be affiliates of CommVault within the meaning of Rule 144 of the Securities Act. The right to terminate the voting trust agreement facilitates its termination at a time prior to the tenth anniversary of the agreement if appropriate under the circumstances.
Registration Rights
We have entered into registration rights agreements that provide some of our stockholders both demand registration rights and piggyback registration rights. We refer to shares of our common stock that are subject to registration rights agreements as “registrable securities.”
Demand Registration Rights. The holders of registrable securitiesour common stock who received their shares of common stock in the conversion of our Series A through E cumulative redeemable convertible preferred stock and Series AA, BB and CC convertible preferred stock have rights, at their request, to have their shares registered for resale under the Securities Act. ThreeFour groups of holders of registrable securities may demand the registration of their shares on up to two occasions for each group. No demand registration rights may be exercised for 180 days after the date of this prospectus.
Registration onForm S-3. In addition to the demand registrations discussed above, holders of registrable securities may require that we register their shares for public resale onForm S-3 or similar short-form
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registration provided the value of the securities to be registered is at least $1,000,000 and our company isForm S-3 eligible. These rights cannot be exercised in the12-month period after the date of this prospectus,our initial public offering, or more than once in any12-month period with respect to shares held by certain holders of registrable securities.
Piggyback Registration Rights. The holders of registrable securitiesour common stock who received their shares of common stock in the conversion of our Series A through E cumulative redeemable convertible preferred stock and Series AA, BB and CC convertible preferred stock have rights to have their shares registered for resale under the Securities Act if we register any of our securities, either for our own account or for the account of other stockholders, subject to the right of underwriters to limit the number of shares included in an underwritten offering.
All holders with registrable securities
Holders of shares of have agreed not to exercise their demand registration rights until 18090 days followingafter the date of this prospectus without the consent of Credit Suisse Securities (USA) LLC, and Goldman, Sachs & Co. However, if the reported last sale price of our common stock on The
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NASDAQ National Market is at least 50% greater than the offering price per share for 20 of the 30 trading days ending on the last trading day before the 100th day after the date of this prospectus, then on the 101st day after the date of this prospectus holders with registerable securities could exercise their demand registration rights with respect to 20% of the registrable securities that they own that are subject to the180-day restriction. We will bear one-half of all reasonable expenses of any demand registration, piggyback registration or registration onForm S-3 by our holders of our common stock who received their shares in the conversion of our Series AA holders,convertible preferred stock, including all registration fees and the fees and expenses of the holder’s counsel, but not including underwriting discounts, selling commissions and stock transfer taxes relating to the registrable securities. We will bear all reasonable expenses of any piggyback registration by holders of our common stock who received their shares in the conversion of our Series BB holders,convertible preferred stock, including all registration fees, but not including the fees and expenses of the holder’s counsel or underwriting discounts, selling commissions and stock transfer taxes relating to the registrable securities. We will bear all reasonable expenses of any demand registration, piggyback registration or registration onForm S-3 by the holders of our common stock who received their shares in the conversion of our Series CC holders,convertible preferred stock, but not including the fees and expenses of the holder’s counsel or underwriting discounts, selling commission and stock transfer taxes relating to the registrable securities.
Form S-8 Registration Statement
We filed a registration statement onForm S-8 under the Securities Act to register 11,921,426 shares of our common stock that we have issued or may issue pursuant to our 1996 Stock Option Plan and 2006Long-Term Incentive Plan. Subject to the market stand-off andlock-up agreements described above and any applicable vesting restrictions, shares registered under this registration statement are available for resale in the public market, except with respect to Rule 144 volume limitations that apply to our affiliates.
Anti-Takeover Effects of Provisions of our Certificate of Incorporation and Bylaws
Board of Directors
Our certificate of incorporation and bylaws to be effective on the closing of this offering provide:
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| • | that the board of directors be divided into three classes, as nearly equal in size as possible, with staggered three-year terms; |
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| • | that directors may be removed only for cause by the affirmative vote of the holders of at least 662/3% of the shares of our capital stock entitled to vote; and |
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| • | that any vacancy on the board of directors, however occurring, including a vacancy resulting from an enlargement of the board, may only be filled by vote of a majority of the directors then in office. |
These provisions could make it more difficult for a third party to acquire us or discourage a third party from acquiring us.
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| Stockholder Actions and Special Meetings |
Stockholder Actions and Special Meetings
Our certificate of incorporation and bylaws also provide that:
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| • | any action required or permitted to be taken by the stockholders at an annual meeting or special meeting of stockholders may only be taken if it is properly brought before such meeting and may not be taken by written action in lieu of a meeting; and |
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| • | special meetings of the stockholders may only be called by the chairman of the board of directors, our chief executive officer, or by the board of directors. |
Our bylaws provide that in order for any matter to be considered “properly brought” before a meeting, a stockholder must comply with requirements regarding advance notice to us. These provisions could delay stockholder actions which are favored by the holders of a majority of our outstanding voting securities until the next stockholders meeting. These provisions may also discourage another person or entity from making a tender offer for our common stock because such person or entity, even if it acquired a majority of our outstanding voting securities, would be able to take action as a stockholder (such as electing new directors or approving a merger) only at a duly called stockholders meeting and not by written consent.
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| Board Consideration of Change of Control Transactions |
Board Consideration of Change of Control Transactions
Our certificate of incorporation empowers our board of directors, when considering a tender offer or merger or acquisition proposal, to take into account, in addition to potential economic benefits to stockholders, factors such as:
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| • | a comparison of the proposed consideration to be received by stockholders in relation to the then current market price of our capital stock; and |
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| • | the impact of the transaction on our employees, suppliers and customers and its effect on the communities in which we operate. |
Amendment
Delaware law provides 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. Our certificate of incorporation requires the affirmative vote of the holders of at least 662/3% of the shares of our capital stock entitled to vote to amend or repeal any of the foregoing provisions of our certificate of incorporation. Our bylaws may be amended or repealed by a majority vote of the board of directors or the holders of at least 662/3% of the shares of our capital stock issued and outstanding and entitled to vote. The stockholder vote would be in addition to any separate class vote that might in the future be required pursuant to the terms of any series preferred stock that might be outstanding at the time any such amendments are submitted to stockholders.
Preferred Stock
The authorization of undesignated preferred stock makes it possible for the board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change the control of our company.
These and other provisions may deter hostile takeovers or delay changes in control or management of our company.
Delaware Business Combination Statute
Section 203 of the Delaware General Corporation Law provides that, subject to exceptions set forth therein, an interested stockholder of a Delaware corporation shall not engage in any business combination, including mergers or consolidations or acquisitions of additional shares of the corporation, with the
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corporation for athree-year period following the date that the stockholder becomes an interested stockholder unless:
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| • | prior to that date, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
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| • | upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, other than statutorily excluded shares; or |
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| • | on or subsequent to such date, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders by the affirmative |
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| | vote of at least 662/3% of the outstanding voting stock which is not owned by the interested stockholder. |
Except as otherwise set forth in Section 203, an interested stockholder is defined to include:
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| • | any person that is the owner of 15% or more of the outstanding voting stock of the corporation, or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the date of determination; and |
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| • | the affiliates and associates of any such person. |
Section 203 may make it more difficult for a person who would be an interested stockholder to effect various business combinations with a corporation for a three-year period. We have not elected to be exempt from the restrictions imposed under Section 203. The provisions of Section 203 may encourage persons interested in acquiring us to negotiate in advance with our board because the stockholder approval requirement would be avoided if a majority of the directors then in office approves either the business combination or the transaction which results in any such person becoming an interested stockholder. These provisions also may have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions which our stockholders may otherwise deem to be in their best interests.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Registrar and Transfer Company in Cranford, New Jersey.
NASDAQ NationalGlobal Market Listing
We will apply to have our
Our common stock approved for listingis currently listed on The NASDAQ NationalGlobal Market under the symbol “CVLT.”
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has not been any public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of common stock for sale will have on the market price of our common stock. Nevertheless, sales
Sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of equity securities.
Upon completion of this offering, and the concurrent private placement, we will have a total of 42,493,268 shares of common stock outstanding, assuming no outstanding options or warrants are exercised after , 2006. SharesApril 30, 2007. Of these shares, the 12,777,778 shares sold in our initial public offering and the 8,625,000 shares (assuming the underwriters exercise their over-allotment option in full) to be sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares which may be held orunless acquired by our “affiliates,”“affiliates” as thatsuch term is defined in Rule 144 promulgatedunder the Securities Act. The remaining 21,090,490 shares of common stock that will be outstanding after this offering are “restricted securities” as such term is defined in Rule 144 under the Securities Act, whichunless such shares will be subject to the volume limitations and other restrictions of(1) have previously been sold in accordance with Rule 144, 144(k) or 701 or (2) were acquired after November 9, 2006 upon the exercise of options granted under our stock option plan described below. The remaining shares of common stock outstanding will be deemed “restricted securities” as defined under Rule 144. Restricted securities may be sold in the public market only if registered under the Securities Act or pursuant to an exemption from such registration, including, among others, the exemptions provided by Rules 144, 144(k) and 701 promulgated under the Securities Act, which are summarized below.
Under Subject to thelock-up agreements described below, shares held by our affiliates that are not restricted securities or that have been owned for more than one year may be sold subject to compliance with Rule 144 of the Securities Act without regard to the prescribed one-year holding period under Rule 144.
Stock Option and Long-Term Incentive Plans
On November 9, 2006, we filed a registration statement under the provisions of Rules 144, 144(k) and 701, additional shares will be available for sale inSecurities Act to register the public market as follows:
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Maximum Number | | |
of Shares | | Date |
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| | After the date of this prospectus |
| | After 90 days from the date of this prospectus (subject, in some cases, to volume limitations and contractual vesting schedules) |
| | After 100 days from the date of this prospectus (subject, in some cases, to volume limitations and contractual vesting schedules and subject to the conditions for early release from the lock-up agreements described below) |
| | After 180 days from the date of this prospectus (subject, in some cases, to volume limitations and contractual vesting schedules) |
In addition, as of , 2006, options to purchase a total of shares of common stock are outstanding, of which are vestedto be issued under our stock option and will be exercisable concurrent with this offering (without regard to thelock-up period described below),long-term incentive plans and, as a result, all shares of common stock acquired upon exercise of stock options and other equity-based awards granted under the stock option plan will be issuablefreely tradable under the Securities Act and all shares of common stock issued under the 2006 Long-Term Incentive Plan, upon vesting in accordance with the exerciseterms thereof, will be freely tradeable under the Securities Act, in each case unless purchased by our affiliates. A total of the outstanding Dell warrant. See “Description3,954,081 shares of Capital Stock — Warrant”common stock were reserved for more information regarding the Dell warrant.issuance under our benefit plans as of April 30, 2007.
Lock-up Agreements
We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any additional shares of our common stock or securities convertible into or exchangeable or exercisable for any of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. for a period of 18090 days after the date of this prospectus, except for:
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| • | the sale of shares pursuant to certain 10b5-1 plans for certain executive officers in existence prior to execution of the lock-up agreement; |
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| • | grants of employee stock options pursuant to our stock option plan or long term incentive plan; and |
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| • | issuances of common stock pursuant to the exercise of such options; |
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| • | the delivery of common stock to holders of our Series A, B, C, D, E, AA, BB or CC preferred stock upon the conversion of the preferred stock into common stock; and |
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| • | the delivery of common stock in effectuation of the reverse stock split.options. |
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Further,
Our directors and certain of our officers and stockholders have agreed that (except, in some cases, for the event that (1) during the last 17 dayssale of the180-day “lock-up” period we release earnings results or (2)shares pursuant to 10b5-1 plans in existence prior to the expirationexecution of the180-day “lock-up” period we announce that we lock-up agreement) they will release earnings results during the16-day period beginning on the last day of such “lock-up” period, then in either case such “lock-up” period will be extended until the expiration of the18-day period beginning on the datenot take any of the releasefollowing actions without the prior written consent of the earnings results, unless Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. waive, in writing, such extension.for a period of 90 days after the date of this prospectus:
Our officers and directors and substantially all of our stockholders have agreed that they will not:
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| • | offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or enter into a transaction which would have the same effect; |
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| • | enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any such transaction is to be settled by delivery of our common stock or other securities, in cash or otherwise; or |
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| • | publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement;arrangement. |
without, in each case, the prior written consent of Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. for a period of 180 days after the date of this prospectus.
However, if the reported last sale price of our common stock on The NASDAQ National Market is at least 50% greater than the offering price per share for 20 of the 30 trading days ending on the last trading day before the 100th day after the date of this prospectus, then 20% of the shares of our common stock owned by the officers, directors and stockholders described above that are subject to the180-day restrictions described above, or shares, will be released from these restrictions. Further, in the event thatIf we (1) release earnings results during the last 17 days of either the initial100-daylock-up “lock-up” period or the full180-day “lock-up” period we release earnings results or (2) announce, prior to the expiration of either the initial100-daylock-up “lock-up” period, or the full180-day “lock-up” period we announce that we will release earnings results during the16-day period beginning on the last day of each “lock-up”thelock-up period, then in either casethelock-up period applicable to us and to the “lock-up” periodofficers, directors and stockholders that have executed alock-up agreement will be extended until the expiration of the18-day period beginning on the date of the release of the earnings results, unless Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. waive, in writing, such extension.
Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. have advised us that they have no present intent or arrangement to release any shares subject to alock-up, and will consider the extension. The foregoing “lock-up” provisions applicablerelease of anylock-up on acase-by-case basis. Upon a request to release any shares subject to alock-up, Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. would consider the particular circumstances surrounding the request, including, but not limited to, the length of time before thelock-up expires, the number of shares requested to be released, reasons for the request, the possible impact on the market for our officers, directorscommon stock and substantially allwhether the holder of our stockholders doshares requesting the release is an officer, director or other affiliate of ours.
A total of shares of common stock are subject tolock-up agreements. Beginning July 1, 2007, up to 60,000 of these shares may be released under the terms of thelock-up agreement pursuant to existing 10b5-1 plans (subject, in certain cases, to price and time restrictions contained in the applicable plans). This number does not prohibitinclude 360,000 shares of common stock that may be released under the terms of thelock-up agreement pursuant to existing 10b5-1 plans upon the exercise of stock options held by them orgranted under the conversion of any shares of our Series A, B, C, D, E, AA, BB or CC preferred stock held by them into our common stock.option plan (subject, in certain cases, to price and time restrictions contained in the applicable10b5-1 plans).
Rule 144
In general, under Rule 144 as currently in effect, a person, including an affiliate, who has beneficially owned shares for at least one year is entitled to sell, within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
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| • | one percent of the number of shares of common stock then outstanding (approximately 424,933 shares immediately after this offering); or |
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| • | the average weekly trading volume of our common stock on The NASDAQ NationalGlobal Market during the four calendar weeks before a notice of the sale on Form 144 is filed. |
Sales under Rule 144 are also subject to specified manner of sale provisions and notice requirements and to the availability of specified public information about our company.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two
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years, including the holding period of any prior owner except an affiliate of us, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Rule 701
Shares of our common stock issued in reliance on Rule 701, such as those shares acquired upon exercise of options granted under our stock plans or other compensatory arrangement, are also restricted and, beginning 90 days after the effective date of this prospectus, may be sold by stockholders other than our affiliates subject
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only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its one-year holding requirement.
OptionsRegistration Rights
Shortly after the closing of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register for resale all shares of common stock issued or issuable under our 1996 Stock Option Plan and our 2006 Long-Term Stock Incentive Plan and not otherwise freely transferable. Accordingly, shares covered by that registration statement will be eligible for sale in the public markets, unless those options are subject to vesting restrictions.
Registration Rights
Following this offering and, inIn some cases, following the expiration of thelock-up period described above, thecertain holders of shares of our outstanding common stock will have demand registration rights with respect to their shares of common stock that will enable them to require us to register their shares of common stock under the Securities Act, and they will also have rights to participate in any of our future registrations of securities by us. See “Description of Capital Stock — Registration Rights” for more information regarding these registration rights.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS TONON-U.S. HOLDERSHOLDERS
This discussion describes the material United States federal income and estate tax consequences of the ownership and disposition of shares of our common stock by anon-U.S. holder.holder. When we refer to anon-U.S. holder,holder, we mean a beneficial owner of our common stock that, for U.S. federal income tax purposes, is other than:
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| • | a citizen or resident of the United States; |
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| • | a corporation (including for this purpose any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof; |
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| • | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
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| • | a trust that is subject to the primary supervision of a U.S. court and to the control of one or more U.S. persons, or that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
If a partnership (including for this purpose any other entity, either organized within or without the United States, treated as a partnership for U.S. federal income tax purposes) holds the shares, the tax treatment of a partner as a beneficial owner of the shares generally will depend upon the status of the partner and the activities of the partnership. Foreign partnerships also generally are subject to special U.S. tax documentation requirements.
This discussion does not consider the specific facts and circumstances that may be relevant to a particularnon-U.S. holderholder and does not address the treatment of anon-U.S. holderholder under the laws of any state, local or foreign taxing jurisdiction, nor does it discuss special tax provisions which may apply to you if you relinquished United States citizenship or residence. This section is based on the tax laws of the United States, including the Internal Revenue Code, existing and proposed regulations and administrative and judicial interpretations, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. This discussion is limited tonon-U.S. holdersholders who hold shares of common stock as capital assets. If you are an individual, you may, in many cases, be deemed to be a resident alien, as opposed to a nonresident alien, by virtue of being present in the United States for at least 31 days in the calendar year and for an aggregate of at least 183 days during a three-year period ending in the current calendar year. For these purposes, all the days present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the second preceding year are counted. Resident aliens are subject to United States federal income tax as if they were United States citizens.
You should consult a tax advisor regarding the U.S. federal tax consequences of acquiring, holding and disposing of our common stock in your particular circumstances, as well as any tax consequences that may arise under the laws of any state, local or foreign taxing jurisdiction.
Dividends
We currently do not intend to pay dividends with respect to our common stock. However, if we were to pay dividends with respect to our common stock, dividends paid to anon-U.S. holder,holder, except as described below, would be subject to withholding of U.S. federal income tax at a 30% rate or at a lower rate if the holder is eligible for the benefits of an income tax treaty that provides for a lower rate (and the holder has furnished to us a valid Internal Revenue ServiceForm W-8BEN or an acceptable substitute form upon which you certify, under penalties of perjury, your status as anon-United States person and your entitlement to the lower treaty rate with respect to such payments).
If dividends paid to anon-U.S. holderholder are “effectively connected” with such holder’s conduct of a trade or business within the United States, and, if required by a tax treaty, the dividends are attributable to a permanent establishment that thenon-U.S. holderholder maintains in the United States, we generally are not required to withhold tax from the dividends, provided that thenon-U.S. holderholder has furnished to us a valid Internal Revenue ServiceForm W-8ECI or an acceptable substitute form upon which you certify, under penalties of
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under penalties of perjury, your status as anon-United States person and your entitlement to this exemption from withholding. Instead, “effectively connected” dividends are taxed at rates applicable to United States persons. If anon-U.S. holderholder is a corporation, “effectively connected” dividends that it receives may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if the holder is eligible for the benefits of an income tax treaty that provides for a lower rate.
You must comply with the certification procedures described above, or, in the case of payments made outside the United States with respect to an offshore account, certain documentary evidence procedures, directly or under certain circumstances through an intermediary, to obtain the benefits of a reduced rate under an income tax treaty with respect to dividends paid with respect to your common stock. In addition, if you are required to provide an Internal Revenue ServiceForm W-8ECI or successor form, as discussed above, you must also provide your tax identification number.
If you are eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the Internal Revenue Service.
Gain on Disposition of Common Stock
Non-U.S. holdersholders generally will not be subject to United States federal income tax on gain that they recognize on a disposition of our common stock unless:
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| • | the holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are met; |
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| • | such gain is effectively connected with the holder’s conduct of a trade or business within the United States and, if certain tax treaties apply, is attributable to a U.S. permanent establishment maintained by the holder (and, in which case, if you are a foreign corporation, you may be subject to an additional branch profits tax equal to 30% or a lower rate as may be specified by an applicable income tax treaty); |
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| • | the holder is subject to the Internal Revenue Code provisions applicable to certain U.S. expatriates; or |
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| • | we are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes and, assuming that our common stock is deemed to be “regularly traded on an established securities market,” the holder held, directly or indirectly at any time during the five-year period ending on the date of disposition or such shorter period that such shares were held, more than five percent of our common stock. We have not been, are not and do not anticipate becoming, a United States real property holding corporation for United States federal income tax purposes. |
Special rules may apply to certainnon-U.S. holders,holders, such as “controlled foreign corporations,” “passive foreign investment companies” and corporations that accumulate earnings to avoid U.S. federal income tax. Such entities should consult their own tax advisors to determine the U.S. federal, state, local and other tax consequences that may be relevant to them.
Federal Estate Taxes
If our common stock is held by anon-U.S. holderholder at the time of death, such stock will be included in the holder’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
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Backup Withholding and Information Reporting
Anon-U.S. holderholder generally will be exempt from backup withholding and information reporting with respect to dividend payments and the payment of the proceeds from the sale of our common stock effected at a United States office of a broker, as long as:
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| • | the income associated with such payments is otherwise exempt from U.S. federal income tax; |
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| • | the payor or broker does not have actual knowledge or reason to know that you are a U.S. person; and |
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| • | you have furnished to the payor or broker a valid Internal Revenue ServiceForm W-8BEN or an acceptable substitute form upon which you certify, under penalties of perjury, that you are anon-U.S. person,person, or other documentation upon which it may rely to treat the payments as made to anon-U.S. personperson in accordance with U.S. Treasury regulations (or you otherwise establish an exemption). |
Payment of the proceeds from the sale of our common stock effected at a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, a sale of our common stock that is effected at a foreign office of a broker will be subject to information reporting and backup withholding if:
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| • | the proceeds are transferred to an account maintained by you in the United States; |
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| • | the payment of proceeds or the confirmation of the sale is mailed to you at a United States address; or |
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| • | the sale has some other specified connection with the United States as provided in U.S. Treasury regulations, |
unless the documentation requirements described above are met or you otherwise establish an exemption and the broker does not have actual knowledge or reason to know that you are a U.S. person.
In addition, a sale of our common stock will be subject to information reporting if it is effected at a foreign office of a broker that is:
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| • | a U.S. person; |
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| • | a controlled foreign corporation for U.S. tax purposes; |
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| • | a foreign person 50% or more of whose gross income is effectively connected with the conduct of a U.S. trade or business for a specified period; or |
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| • | a foreign partnership, if at any time during its tax year one or more of its partners are “U.S. persons,” as defined in U.S. Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership, or such foreign partnership is engaged in the conduct of a U.S. trade or business, |
unless the documentation requirements described above are met or anon-U.S. holderholder otherwise establishes an exemption and the broker does not have actual knowledge or reason to know that the holder is a United States person. Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that the holder is a U.S. person.
Anon-U.S. holderholder generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed its income tax liability by filing an appropriate refund claim with the Internal Revenue Service.
In addition to the foregoing, we must report annually to the IRS and to eachnon-U.S. holderholder on Internal Revenue ServiceForm 1042-S the entire amount of any distribution and the tax withheld, regardless of whether withholding was required. This information may also be made available to the tax authorities in the country in which thenon-U.S. holderholder resides under the provisions of an applicable income tax treaty.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting agreement dated June , 2006,2007, we and the selling stockholders have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. are acting as representatives, the following respective numbers of shares of common stock:
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Underwriter | | Number of Shares | |
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Credit Suisse Securities (USA) LLC | | | | |
Goldman, Sachs & Co. | | | | |
C.E. Unterberg, Towbin, LLCMerrill Lynch, Pierce, Fenner & Smith Incorporated | | | | |
Merrill Lynch, Pierce, Fenner & Smith
IncorporatedThomas Weisel Partners LLC | | | | |
RBC Capital Markets Corporation | | | | |
Thomas Weisel PartnersC.E. Unterberg, Towbin, LLC | | | | |
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Total | | | 7,500,000 | |
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The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.
The selling stockholders have granted to the underwriters a30-day option to purchase on a pro rata basis up to 1,125,000 additional shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to otherbroker/dealers. After the initial public offering, the representatives may change the public offering price and concession and discount tobroker/dealers.
The following table summarizes the compensation and estimated expenses we and the selling stockholders will pay:
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| | Per Share | | | Total | |
| | | Without
| | | With
|
| | Without |
| | With | With
| | Without | | | With | |
| | Over-allotment | | | Over-allotment | | | Over-allotment | | | Over-allotment | |
| | | | | | | | | | | | |
Underwriting Discounts and Commissions paid by us | | $ | | | | $ | | | | $ | | | | $ | | |
Expenses payable by us | | $ | | | | $ | | | | $ | | | | $ | | |
Underwriting Discounts and Commissions paid by the selling stockholders | | $ | | | | $ | | | | $ | | | | $ | | |
Expenses payable by the selling stockholders | | $ | | | | $ | | | | $ | | | | $ | | |
The underwriters will not confirm sales to any accounts over which they exercise discretionary authority without first receiving a written consent from those accounts.
Affiliates of Credit Suisse Securities (USA) LLC own 10% or more of our common stock and 10% or more of the aggregate of all classes of our preferred stock and, upon consummation of the offering and related transactions, will own 10% or more of our common stock. Affiliates of Credit Suisse Securities (USA) LLC will also receive $ million of the proceeds of this offering, the concurrent private placement and borrowings under our new term loan (or % of the total proceeds) in satisfaction of the amounts due upon the conversion of their holdings of our Series A, B, C, D and E preferred stock
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(including accrued dividends, and assuming the offering is completed on 2006). Thus, the underwriters may be deemed to have a “conflict of interest” under the applicable provisions of Rule 2710(c)(8) and Rule 2720(b)(7)2720 of the Conduct Rules of the National Association of Securities Dealers, Inc. Accordingly, this offering will be made in compliance with the applicable provisions of Rule 2720 of the Conduct Rules. Rule 2720 requires that the initial public offering price of the shares of common stock not be higher than that recommended by a “qualified independent underwriter,” as defined by the National Association of Securities Dealers, Inc. Goldman,
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Sachs & Co. has served in that capacity and performed due diligence investigations and reviewed and participated in the preparation of the registration statement of which this prospectus forms a part. Goldman, Sachs & Co. has received $10,000 from us as compensation for such role.
We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any additional shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of the representativesCredit Suisse Securities (USA) LLC and Goldman, Sachs & Co. for a period of 18090 days after the date of this prospectus, except for:
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| • | issuancesthe sale of common stockshares pursuant to certain 10b5-1 plans for certain executive officers in existence prior to execution of the exercise of warrants or options outstanding on the date of this prospectus;lock-up agreements; |
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| • | grants of employee stock options pursuant to our stock option plan or long term incentive plan; and |
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| • | issuances of common stock pursuant to the exercise of such options; |
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| • | the delivery of common stock to holders of our Series A, B, C, D, E, AA, BB or CC preferred stock upon the conversion of such preferred stock into common stock; and |
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| • | the delivery of common stock in effectuation of the reverse stock split.options. |
Further, in the event that (1) during the last 17 days of the180-day “lock-up” period we release earnings results or (2) prior to the expiration of the180-day “lock-up” period we announce that we will release earnings results during the16-day period beginning on the last day of such “lock-up” period, then in either case such “lock-up” period will be extended until the expiration of the18-day period beginning on the date of the release of the earnings results, unless the representatives waive, in writing, such extension.
Our officers, directors and substantially allcertain of our officers and stockholders have agreed that (except, in some cases, for the sale of shares pursuant to 10b5-1 plans in existence prior to execution of the lock-up agreements) they will not:not take any of the following actions without the prior written consent of Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. for a period of 90 days after the date of this prospectus:
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| • | offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or enter into a transaction thatwhich would have the same effect; |
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| • | enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions aresuch transaction is to be settled by delivery of our common stock or other securities, in cash or otherwise; or |
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| • | publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement;arrangement. |
without, in each case, the prior written consent of the representatives for a period of 180 days after the date of this prospectus.
However, if the reported last sale price of our common stock on The NASDAQ National Market is at least 50% greater than the offering price per share for 20 of the 30 trading days ending on the last trading day before the 100th day after the date of this prospectus, then 20% of the shares of our common stock owned by the officers, directors and stockholders described above that are subject to the180-day restrictions described above, or shares, will be released from these restrictions. Further, in the event thatIf we (1) release earnings results during the last 17 days of either the initial100-daylock-up “lock-up” period or the full180-day
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“lock-up” period we release earnings results or (2) announce, prior to the expiration of either the initial100-daylock-up “lock-up” period, or the full180-day “lock-up” period we announce that we will release earnings results during the16-day period beginning on the last day of each “lock-up”thelock-up period, then in either casethelock-up period applicable to us and to the “lock-up” periodofficers, directors and stockholders that have executed alock-up agreement will be extended until the expiration of the18-day period beginning on the date of the release of the earnings results, unless the representativesCredit Suisse Securities (USA) LLC and Goldman, Sachs & Co. waive, in writing, such extension.
Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. have advised us that they have no present intent or arrangement to release any shares subject to alock-up, and will consider the extension. The foregoing “lock-up” provisions applicablerelease of anylock-up on acase-by-case basis. Upon a request to release any shares subject to alock-up, Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co. would consider the particular circumstances surrounding the request, including, but not limited to, the length of time before thelock-up expires, the number of shares requested to be released, reasons for the request, the possible impact on the market for our officers, directorscommon stock and substantially allwhether the holder of our stockholders do not prohibitshares requesting the exerciserelease is an officer, director or other affiliate of options held by them or the conversion of any shares of our Series A, B, C, D, E, AA, BB or CC preferred stock held by them into our common stock.ours.
We and the selling stockholders have agreed to indemnify the underwriters and Goldman, Sachs & Co. in its capacity as qualified independent underwriter against liabilities under the Securities Act, or contribute to payments that the underwriters or Goldman, Sachs & Co. in its capacity as qualified independent underwriter may be required to make in that respect.
We will apply to list the shares of
Our common stock is listed on The NASDAQ NationalGlobal Market.
Certain of the underwriters and their respective affiliates have from time to time performed, and may in the future perform, various financial advisory, commercial banking and investment banking services for us and
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our affiliates in the ordinary course of business, for which they received, or will receive, customary fees and expenses. In addition, we have the following relationships with certain of the underwriters and their affiliates:
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| • | Affiliates of Credit Suisse Securities (USA) LLC own approximately %35.5% of our common stock as of , 2006 (calculated without giving effect to this offering or the conversion of any shares of preferred stock into common stock), 98.1% of our Series A preferred stock, 89.8% of our Series B preferred stock, 100% of our Series C preferred stock, 80.9% of our Series D Preferred Stock, 100% of our Series E preferred stock, 13.4% of our Series AA preferred stock, 30.0% of our Series BB preferred stock and 15.4% of our Series CC preferred stock, and, upon completion of the offering and related transactions, will own approximately % of our common stock.April 30, 2007. See “Principal��Principal and Selling Stockholders.” Concurrently with the completion of the offering, affiliatesAffiliates of Credit Suisse Securities (USA) LLC will deposithave deposited all shares of our common stock held by them that exceed 5.0%exceeded 4.9% of our then outstanding common stock upon the completion of our initial public offering into a voting trust under which the shares will be voted by an independent trustee. See “Principal and Selling Stockholders” and “Description of Capital Stock — Voting Trust Agreement” for more information regarding the voting trust agreement. |
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| • | Mr. Thomas Barry, formerly one of our directors, is a limited partner in an investment fund associated with DLJ Merchant Banking, an affiliatethe corporate leveraged buyout arm of Credit Suisse’s asset management business, which conducts its activities through affiliates of Credit Suisse Securities (USA) LLC. See “Management” and “Certain Relationships and Related Party Transactions” for more information regarding Mr. Barry. |
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| • | Mr. Edward A. Johnson, one of our directors, also serves as a managing director and partner at DLJ Merchant Banking, an affiliate of Credit Suisse Securities (USA) LLC. Mr. Johnson will resignBarry resigned his position as a director of our company immediately prior to the completion of the offering. See “Management” and “Certain Relationships and Related Party Transactions” for more information regarding Mr. Johnson.on May 11, 2007. |
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| • | Mr. Frank J. Fanzilli, Jr., one of our directors, formerly served in several capacities at Credit Suisse Securities (USA) LLC. Currently, Mr. Fanzilli is a limited partner in an investment fund associated with the Sprout Group, an affiliatethe venture capital arm of Credit Suisse’s asset management business, which conducts its activities through affiliates of Credit Suisse Securities (USA) LLC. See “Management” and “Certain Relationships and Related Party Transactions” for more information regarding Mr. Fanzilli. |
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| • | Mr. Keith Geeslin, one of our directors, formerly served in several capacities at various affiliates of Credit Suisse Securities (USA) LLC, including as a managing partner of the Sprout Group, a divisionthe venture capital arm of Credit Suisse’s asset management business, which conducts its activities through affiliates of Credit Suisse First Boston Private Equity, Inc.Securities (USA) LLC. Currently, Mr. Geeslin is a limited partner in certain investment funds associated with DLJ Merchant Banking, and the Sprout Group, |
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| | |
| | corporate leveraged buyout arm of Credit Suisse’s asset management business, which conducts its activities through affiliates of Credit Suisse Securities (USA) LLC.LLC, and the Sprout Group. See “Management” and “Certain Relationships and Related Party Transactions” for more information regarding Mr. Geeslin. |
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| • | Mr. Daniel Pulver, one of our directors, formerly served as a director atof Credit Suisse First Boston Private Equity, Inc., an affiliateSecurities (USA) LLC and a principal at DLJ Merchant Banking, the corporate leveraged buyout arm of Credit Suisse’s asset management business, which conducts its activities through affiliates of Credit Suisse Securities (USA) LLC. Currently, Mr. Pulver is a limited partner in an investment fund associated with DLJ Merchant Banking, an affiliate of Credit Suisse Securities (USA) LLC.Banking. See “Management” and “Certain Relationships and Related Party Transactions” for more information regarding Mr. Pulver. |
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| • | Mr. N. Robert Hammer, our chairman, chief executive officer and president, formerly served in several capacities at various affiliates of Credit Suisse Securities (USA) LLC, including as a venture partner of the Sprout Group, a divisionthe venture capital arm of Credit Suisse’s asset management business, which conducts its activities through affiliates of Credit Suisse First Boston Private Equity, Inc.Securities (USA) LLC. Currently, Mr. Hammer is a limited partner in certain investment funds associated with the Sprout Group, an affiliate of Credit Suisse Securities (USA) LLC.Group. See “Management” and “Certain Relationships and Related Party Transactions” for more information regarding Mr. Hammer. |
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| • | Mr. Alan G. Bunte, our executive vice president and chief operating officer, is a limited partner in an investment fund associated with the Sprout Group.Group, the venture capital arm of Credit Suisse’s asset management business, which conducts its activities through affiliates of Credit Suisse Securities (USA) LLC. See “Management” and “Certain Relationships and Related Party Transactions” for more information regarding Mr. Bunte. |
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| • | An affiliate of RBC Capital Markets Corporation owns approximately 2.2% of our Series BB preferred Stock and 0.095% of our Series CC preferred stock, and upon completion of the offering and related transactions will own approximately % of our common stock. |
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| • | Affiliates and related parties of C.E. Unterberg, Towbin, LLC own approximately 5.0% of our Series CC preferred stock, and upon completion of the offering and related transactions will own approximately %0.2% of our common stock. |
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| • | Affiliates of Credit Suisse Securities (USA) LLC will receive $ million of the net proceeds to us from the offering, the concurrent private placement and borrowings under our new term loan in satisfaction of amounts due upon the conversion of their holdings of our Series A, B, C, D and E preferred stock (including accrued dividends, and assuming the offering is completed on 2006). See “Certain Relationships and Related Party Transactions” for more information regarding these payments. |
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The decision of Credit Suisse Securities (USA) LLC, C.E. Unterberg, Towbin, LLC and RBC Capital Markets Corporation to distribute our common stock was not influenced by their affiliates who own shares of our common stock and preferred stock, and those affiliates had no involvement in determining whether or when to distribute the common stock under this offering or the terms of this offering. Credit Suisse Securities (USA) LLC, C.E. Unterberg, Towbin, LLC and RBC Capital Markets Corporation will not receive any benefit from this offering other than as described in this prospectus.
Prior See “Risk Factors — Risks Related to the Offering — Credit Suisse Securities (USA) LLC, an underwriter in this offering, there has been no public market for our common stock. The initial public offering price will be determined by a negotiation between us, the underwriters and Goldman, Sachs & Co. in its capacity as qualified independent underwriter and will not necessarily reflect the market price of the common stock following the offering. The principal factors that will be considered in determining the public offering price will include:
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| • | the information in this prospectus and otherwise available to the underwriters; |
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| • | market conditions for initial public offerings; |
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| • | the history and the prospects for the industry in which we compete; |
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| • | the ability of our management; |
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| • | the prospects for our future earnings; |
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| • | the present state of our development and our current financial condition; |
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| • | the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and |
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| • | the general condition of the securities markets at the time of this offering. |
We cannot assure you that the initial public offering price will correspond to the price at which the common stock will tradean interest in the public market subsequent tosuccessful completion of this offering beyond the offering or that an active trading market for the common stockdiscounts and commissions it will develop and continue after the offering.receive.”
In connection with the offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions, penalty bids and passive market making in accordance with Regulation M under the Securities Exchange Act of 1934, as amended:
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| • | Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
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| • | Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment optionand/or purchasing shares in the open market. |
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| • | Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over- allotmentover-allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
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| • | Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
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| • | In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The NASDAQ NationalGlobal Market or otherwise and, if commenced, may be discontinued at any time.
Each of the underwriters has represented and agreed that:
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| (a) it has not made or will not make an offer of shares to the public in the United Kingdom within the meaning of section 102B of the Financial Services and Markets Act 2000 (“FSMA”), as amended, except to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances which do not require the publication by our Company of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority (“FSA”); |
(a) it has not made or will not make an offer of shares to the public in the United Kingdom within the meaning of section 102B of the Financial Services and Markets Act 2000 (“FSMA”), as amended, except to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or otherwise in circumstances which do not require the publication by our Company of a prospectus pursuant to the Prospectus Rules of the Financial Services Authority (“FSA”);
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(b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which section 21 of the FSMA does not apply to our Company; and
| |
| (b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) to persons who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 or in circumstances in which section 21 of the FSMA does not apply to our Company; and |
|
| (c) it has complied with, and will comply with, all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom. |
(c) it has complied with, and will comply with, all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:
| |
| (a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
|
| (b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than€43,000,000 and (3) an annual net turnover of more than€50,000,000, as shown in its last annual or consolidated accounts; |
|
| (c) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the manager for any such offer; or |
|
| (d) in any other circumstances which do not require the publication by our Company of a prospectus pursuant to Article 3 of the Prospectus Directive. |
(a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;
(c) to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the manager for any such offer; or
(d) in any other circumstances which do not require the publication by our Company of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
The shares may not be offered or sold by means of any document other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong, and no advertisement, invitation or document relating to the shares may be issued, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder.
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274
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of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
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Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
The shares have not been and will not be registered under the Securities and Exchange Law of Japan (the “Securities and Exchange Law”) and each underwriter has agreed that it will not offer or sell any shares, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others forre-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Each person who is in possession of this prospectus is aware of the fact that no German sales prospectus (Verkaufsprospekt) within the meaning of the Securities Sales Prospectus Act (Wertpapier-Verkaufsprospektgesetz, the “Act”) of the Federal Republic of Germany has been or will be published with respect to our shares. In particular, each underwriter has represented that it has not engaged and has agreed that it will not engage in a public offering (offentliches Angebot) within the meaning of the Act with respect to any of our shares otherwise than in accordance with the Act and all other applicable legal and regulatory requirements.
Each underwriter has agreed that the shares are being issued and sold outside the Republic of France and that, in connection with their initial distribution, it has not offered or sold and will not offer or sell, directly or indirectly, any shares to the public in the Republic of France, and that it has not distributed and will not distribute or cause to be distributed to the public in the Republic of France this prospectus or any other offering material relating to the shares, and that such offers, sales and distributions have been and will be made in the Republic of France only to qualified investors (investisseurs qualifiés) in accordance withArticle L.411-2 of the Monetary and Financial Code and decrétno. 98-880 dated 1st October, 1998.
Our shares may not be offered, sold, transferred or delivered in or from The Netherlands as part of their initial distribution or at any time thereafter, directly or indirectly, other than to individuals or legal entities situated in The Netherlands who or which trade or invest in securities in the conduct of a business or profession (which includes banks, securities intermediaries (including dealers and brokers), insurance companies, pension funds, collective investment institutions, central governments, large international and supranational organizations, other institutional investors and other parties, including treasury departments of commercial enterprises, which as an ancillary activity regularly invest in securities; hereinafter, “Professional Investors”), provided that in the offer, the prospectus and in any other documents or advertisements in which a forthcoming offering of our shares is publicly announced (whether electronically or otherwise) in The Netherlands it is stated that such offer is and will be exclusively made to such Professional Investors. Individual or legal entities who are not Professional Investors may not participate in the offering of our shares, and this prospectus or any other offering material relating to our shares may not be considered an offer or the prospect of an offer to sell or exchange our shares.
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A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations.
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LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of common stock offered hereby will be passed upon for us by Mayer, Brown, Rowe & Maw LLP, Chicago, Illinois. The underwriters have been represented by Cravath, Swaine & Moore LLP, New York, New York.
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EXPERTS
Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements and schedule at March 31, 20052007 and March 31, 2004,2006, and for each of the three years in the period ended March 31, 2005,2007, as set forth in their report. We have included our financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP’s report, given on their authority as experts in accounting and auditing.
The SEC auditor independence rules require an auditor to be independent of its audit client and the audit client’s affiliates. Based on the definition of affiliate inRule 2-01(f)(4) ofRegulation S-X, Credit Suisse Group was previously deemed to be an affiliate of CommVault because Credit Suisse Group was in a position to ultimately control CommVault through Credit Suisse Group’s ownership, through its subsidiaries, of a majority of CommVault’s common shares. Concurrently with the completion of our initial public offering, Credit Suisse Group deposited all shares of our common stock held by them that exceeded 5.0% of our outstanding common stock into a voting trust under which the shares are to be voted by an independent trustee. See “Description of Capital Stock — Voting Trust Agreement” for more information regarding the voting trust agreement.
Our independent auditors, Ernst & Young LLP, do not audit Credit Suisse Group. Ernst & Young has informed us that, among other things, Ernst & Young, its affiliates, its partners and employees have certain financial and other relationships with Credit Suisse Group and its related entities and Ernst & Young has performed certain non-audit services for Credit Suisse Group and its related entities that are not in accordance with the auditor independence standards inRegulation S-X and of the Public Company Accounting Oversight Board. None of these interests, relationships or services involves CommVault directly, nor CommVault’s consolidated financial statements.
Our audit committee reviewed these matters with representatives of Ernst & Young. The audit committee considered all relevant facts and circumstances, including Ernst & Young’s representations with respect to its relationships with Credit Suisse Group and its related entities and Ernst & Young’s conclusion that it is independent with respect to CommVault, and concluded that none of the relationships between Ernst & Young and Credit Suisse Group and its related entities involved CommVault, nor did they have any impact on our consolidated financial statements and, thus, the arrangements did not compromise Ernst & Young’s independence with respect to CommVault.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange CommissionSEC a registration statement onForm S-1 under the Securities Act that registers the shares of our common stock to be sold in this offering. This prospectus does not contain all of the information set forth in the registration statement, certain parts of which are omitted in accordance with the rules and regulations of the Securities and Exchange Commission.SEC. For further information about us and the shares to be sold in this offering, please refer to the registration statement. Statements contained in this prospectus as to the contents of any agreement or any other document referred to are not necessarily complete and, in each instance, we refer you to the copy of the agreement or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
We are currently subject to the periodic reporting and other requirements of the Securities Exchange Act of 1934 and file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file or have filed with the SEC, including the registration statement, and the exhibits and schedules to the registration statement, at the public reference room maintained by the Securities and Exchange CommissionSEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the CommissionSEC at1-800-SEC-0330 for further information regarding the public reference room. You may also obtain copies of all or part of the registration statement by mail from the Public Reference Section of the Commission,SEC, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates.
The Securities and Exchange CommissionSEC also maintains a website that contains reports, proxy and information statements and other information about issuers, including CommVault, that file electronically with the Commission.SEC, none of which are incorporated herein by reference. The address of that site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the reporting and information requirements of the Securities Exchange Act of 1934, as amended, and we will file reports, proxy statements and other information with the Securities and Exchange Commission.
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CommVault Systems,System, Inc.
Consolidated Financial Statements
Fiscal Years endedEnded March 31, 2007, 2006 and 2005 2004, 2003 and
Nine months ended December 31, 2004 (unaudited) and 2005 (unaudited)
Index to Consolidated Financial Statements and Schedule
| | | | |
| | Page |
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| | | F-2 | |
| | | F-3 | |
| | | F-4 | |
| | | F-5 | |
| | | F-6 | |
| | | F-7 | |
| | F-26 | F-30 | |
F-1
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and StockholdersShareholders
CommVault Systems, Inc.
We have audited the accompanying consolidated balance sheets of CommVault Systems, Inc. and subsidiaries as of March 31, 20052007 and 20042006, and the related consolidated statements of operations, stockholders’ deficit,equity (deficit), and cash flows for each of the three years in the period ended March 31, 2005.2007. Our audits also include the financial statement schedule listed in the Index atpage F-1. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CommVault Systems, Inc. and subsidiaries at March 31, 20052007 and 2004,2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2005,2007, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presentpresents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, effective April 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment”.
MetroPark, New Jersey
MarchMay 14, 20062007
F-2
F-2
CommVault Systems, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | |
| | March 31, | | | | | Pro Forma | |
| | | | | December 31, | | | December 31, | |
| | 2004 | | | 2005 | | | 2005 | | | 2005 | |
| | | | | | | | | | | | |
| | | | | | (Unaudited) | | | (Unaudited) | |
Assets |
Current assets: | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 22,958 | | | $ | 24,795 | | | $ | 43,256 | | | $ | | |
| Trade accounts receivable, less allowance for doubtful accounts of $686 and $602 at March 31, 2004 and 2005, respectively, and $603 at December 31, 2005 | | | 15,546 | | | | 18,305 | | | | 17,185 | | | | | |
| Prepaid expenses and other current assets | | | 1,397 | | | | 1,986 | | | | 1,279 | | | | | |
| | | | | | | | | | | | |
Total current assets | | | 39,901 | | | | 45,086 | | | | 61,720 | | | | | |
Property and equipment, net | | | 1,656 | | | | 2,085 | | | | 2,662 | | | | | |
Other assets | | | 222 | | | | 342 | | | | 372 | | | | | |
| | | | | | | | | | | | |
Total assets | | $ | 41,779 | | | $ | 47,513 | | | $ | 64,754 | | | $ | | |
| | | | | | | | | | | | |
|
Liabilities, cumulative redeemable convertible preferred stock and stockholders’ deficit | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 2,815 | | | $ | 1,755 | | | $ | 1,556 | | | $ | | |
| Accrued liabilities | | | 7,833 | | | | 10,451 | | | | 12,373 | | | | | |
| Term loan | | | 199 | | | | 166 | | | | 17 | | | | | |
| Deferred revenue | | | 15,890 | | | | 19,273 | | | | 26,126 | | | | | |
| | | | | | | | | | | | |
Total current liabilities | | | 26,737 | | | | 31,645 | | | | 40,072 | | | | | |
Deferred revenue, less current portion | | | 2,939 | | | | 3,281 | | | | 2,868 | | | | | |
Term loan, less current portion | | | 167 | | | | — | | | | — | | | | | |
Other liabilities | | | — | | | | 90 | | | | 14 | | | | | |
Commitments and contingencies | | | | | | | | | | | | | | | | |
Cumulative redeemable convertible preferred stock: | | | | | | | | | | | | | | | | |
Series A through E, at liquidation value | | | 87,846 | | | | 93,507 | | | | 97,773 | | | | | |
Stockholders’ deficit: | | | | | | | | | | | | | | | | |
Convertible preferred stock, $.01 par value: 5,000 shares Series AA authorized, 4,362 issued and outstanding; 5,000 shares Series BB authorized, 2,758 issued and outstanding; 12,150 shares Series CC authorized, 12,132 issued and outstanding; liquidation value $96,339 at December 31, 2005 | | | 94,352 | | | | 94,352 | | | | 94,352 | | | | | |
Common stock, $.01 par value, 120,850 shares authorized, 37,559, 37,617 and 37,650 shares issued and outstanding at March 31, 2004, March 31, 2005, and at December 31, 2005, respectively; shares issued and outstanding pro forma at December 31, 2005 (unaudited) | | | 376 | | | | 377 | | | | 377 | | | | | |
Deferred compensation | | | (82 | ) | | | (61 | ) | | | (859 | ) | | | | |
Accumulated deficit | | | (170,877 | ) | | | (175,904 | ) | | | (170,140 | ) | | | | |
Accumulated other comprehensive income | | | 321 | | | | 226 | | | | 297 | | | | | |
| | | | | | | | | | | | |
Total stockholders’ deficit | | | (75,910 | ) | | | (81,010 | ) | | | (75,973 | ) | | | | |
| | | | | | | | | | | | |
| | $ | 41,779 | | | $ | 47,513 | | | $ | 64,754 | | | $ | | |
| | | | | | | | | | | | |
See accompanying notes.
| | | | | | | | |
| | March 31, | |
| | 2007 | | | 2006 | |
|
Assets |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 65,001 | | | $ | 48,039 | |
Trade accounts receivable, less allowance for doubtful accounts of $311 and $475 at March 31, 2007 and 2006, respectively | | | 22,044 | | | | 18,238 | |
Prepaid expenses and other current assets | | | 3,657 | | | | 1,877 | |
Deferred tax assets | | | 9,616 | | | | — | |
| | | | | | | | |
Total current assets | | | 100,318 | | | | 68,154 | |
Property and equipment, net | | | 4,624 | | | | 3,322 | |
Deferred tax assets, net | | | 42,543 | | | | — | |
Other assets | | | 554 | | | | 1,092 | |
| | | | | | | | |
Total assets | | $ | 148,039 | | | $ | 72,568 | |
| | | | | | | | |
Liabilities, cumulative redeemable convertible preferred stock and stockholders’ equity (deficit) | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 1,500 | | | $ | 1,565 | |
Accrued liabilities | | | 20,215 | | | | 12,685 | |
Term loan | | | 7,500 | | | | — | |
Deferred revenue | | | 36,214 | | | | 29,765 | |
| | | | | | | | |
Total current liabilities | | | 65,429 | | | | 44,015 | |
Deferred revenue, less current portion | | | 4,284 | | | | 3,036 | |
Other liabilities | | | 4 | | | | 13 | |
Commitments and contingencies | | | | | | | | |
Cumulative redeemable convertible preferred stock: | | | | | | | | |
Series A through E, at liquidation value | | | — | | | | 99,168 | |
Stockholders’ equity (deficit): | | | | | | | | |
Convertible preferred stock, $.01 par value: no shares of Series AA, BB and CC authorized, issued and outstanding at March 31, 2007. 5,000 shares Series AA authorized, 4,362 issued and outstanding; 5,000 shares Series BB authorized, 2,758 issued and outstanding; 12,150 shares Series CC authorized, 12,132 issued and outstanding at March 31, 2006 | | | — | | | | 94,352 | |
Preferred stock, $.01 par value: 50,000 shares authorized, no shares issued and outstanding at March 31, 2007. No shares authorized, issued and outstanding at March 31, 2006 | | | — | | | | — | |
Common stock, $.01 par value, 250,000 and 60,425 shares authorized, 41,968 shares and 18,960 shares issued and outstanding at March 31, 2007 and 2006, respectively | | | 420 | | | | 190 | |
Additional paid-in capital | | | 182,297 | | | | 4,506 | |
Deferred compensation | | | — | | | | (8,134 | ) |
Accumulated deficit | | | (104,333 | ) | | | (164,959 | ) |
Accumulated other comprehensive income (loss) | | | (62 | ) | | | 381 | |
| | | | | | | | |
Total stockholders’ equity (deficit) | | | 78,322 | | | | (73,664 | ) |
| | | | | | | | |
| | $ | 148,039 | | | $ | 72,568 | |
| | | | | | | | |
F-3
F-3
CommVault Systems, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | |
| | Year Ended March 31, | | | December 31, | |
| | | | | | |
| | 2003 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | (Unaudited) | |
Revenues: | | | | | | | | | | | | | | | | | | | | |
| Software | | $ | 29,485 | | | $ | 39,474 | | | $ | 49,598 | | | $ | 35,317 | | | $ | 47,335 | |
| Services | | | 14,840 | | | | 21,772 | | | | 33,031 | | | | 23,702 | | | | 33,351 | |
| Hardware, supplies and other | | | 94 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | |
Total revenues | | | 44,419 | | | | 61,246 | | | | 82,629 | | | | 59,019 | | | | 80,686 | |
Cost of revenues: | | | | | | | | | | | | | | | | | | | | |
| Software | | | 932 | | | | 1,168 | | | | 1,497 | | | | 1,172 | | | | 1,316 | |
| Services | | | 6,095 | | | | 8,049 | | | | 9,975 | | | | 7,328 | | | | 9,278 | |
| Hardware, supplies and other | | | 72 | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | |
Total cost of revenues | | | 7,099 | | | | 9,217 | | | | 11,472 | | | | 8,500 | | | | 10,594 | |
| | | | | | | | | | | | | | | |
Gross margin | | | 37,320 | | | | 52,029 | | | | 71,157 | | | | 50,519 | | | | 70,092 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | |
| Sales and marketing | | | 29,842 | | | | 37,592 | | | | 43,248 | | | | 31,475 | | | | 37,185 | |
| Research and development | | | 16,153 | | | | 16,214 | | | | 17,239 | | | | 12,596 | | | | 13,945 | |
| General and administrative | | | 6,332 | | | | 8,599 | | | | 8,955 | | | | 6,739 | | | | 8,895 | |
| Depreciation and amortization | | | 1,752 | | | | 1,396 | | | | 1,390 | | | | 999 | | | | 1,153 | |
| | | | | | | | | | | | | | | |
Income (loss) from operations | | | (16,759 | ) | | | (11,772 | ) | | | 325 | | | | (1,290 | ) | | | 8,914 | |
Interest expense | | | — | | | | (60 | ) | | | (14 | ) | | | (12 | ) | | | (7 | ) |
Interest income | | | 297 | | | | 134 | | | | 346 | | | | 218 | | | | 812 | |
| | | | | | | | | | | | | | | |
Income (loss) before income taxes | | | (16,462 | ) | | | (11,698 | ) | | | 657 | | | | (1,084 | ) | | | 9,719 | |
Income tax (expense) benefit | | | 52 | | | | — | | | | (174 | ) | | | (64 | ) | | | (636 | ) |
| | | | | | | | | | | | | | | |
Net income (loss) | | | (16,410 | ) | | | (11,698 | ) | | | 483 | | | | (1,148 | ) | | | 9,083 | |
Less: accretion of preferred stock dividends | | | (5,661 | ) | | | (5,676 | ) | | | (5,661 | ) | | | (4,265 | ) | | | (4,265 | ) |
| | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | (22,071 | ) | | $ | (17,374 | ) | | $ | (5,178 | ) | | $ | (5,413 | ) | | $ | 4,818 | |
| | | | | | | | | | | | | | | |
Net income (loss) attributable to common stockholders per share: | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.60 | ) | | $ | (0.47 | ) | | $ | (0.14 | ) | | $ | (0.14 | ) | | $ | 0.13 | |
| | | | | | | | | | | | | | | |
| Diluted | | $ | (0.60 | ) | | $ | (0.47 | ) | | $ | (0.14 | ) | | $ | (0.14 | ) | | $ | 0.13 | |
| | | | | | | | | | | | | | | |
Weighted average shares used in computing per share amounts: | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 36,741 | | | | 37,201 | | | | 37,424 | | | | 37,363 | | | | 37,628 | |
| | | | | | | | | | | | | | | |
| Diluted | | | 36,741 | | | | 37,201 | | | | 37,424 | | | | 37,363 | | | | 70,412 | |
| | | | | | | | | | | | | | | |
Unaudited pro forma net income (loss) attributable to common stockholders per share: | | | | | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | $ | | | | | | | | $ | | |
| | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | $ | | | | | | | | $ | | |
| | | | | | | | | | | | | | | |
Unaudited pro forma weighted average shares used in computing per share amounts: | | | | | | | | | | | | | | | | | | | | |
| Basic | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Diluted | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See accompanying notes.
| | | | | | | | | | | | |
| | Year Ended March 31, | |
| | 2007 | | | 2006 | | | 2005 | |
|
Revenues: | | | | | | | | | | | | |
Software | | $ | 83,870 | | | $ | 62,422 | | | $ | 49,598 | |
Services | | | 67,237 | | | | 47,050 | | | | 33,031 | |
| | | | | | | | | | | | |
Total revenues | | | 151,107 | | | | 109,472 | | | | 82,629 | |
Cost of revenues: | | | | | | | | | | | | |
Software | | | 1,640 | | | | 1,764 | | | | 1,497 | |
Services | | | 20,044 | | | | 13,231 | | | | 9,975 | |
| | | | | | | | | | | | |
Total cost of revenues | | | 21,684 | | | | 14,995 | | | | 11,472 | |
| | | | | | | | | | | | |
Gross margin | | | 129,423 | | | | 94,477 | | | | 71,157 | |
Operating expenses: | | | | | | | | | | | | |
Sales and marketing | | | 68,240 | | | | 51,326 | | | | 43,248 | |
Research and development | | | 23,398 | | | | 19,301 | | | | 17,239 | |
General and administrative | | | 18,610 | | | | 12,275 | | | | 8,955 | |
Depreciation and amortization | | | 2,603 | | | | 1,623 | | | | 1,390 | |
| | | | | | | | | | | | |
Income from operations | | | 16,572 | | | | 9,952 | | | | 325 | |
Interest expense | | | (326 | ) | | | (7 | ) | | | (14 | ) |
Interest income | | | 2,600 | | | | 1,262 | | | | 346 | |
| | | | | | | | | | | | |
Income before income taxes | | | 18,846 | | | | 11,207 | | | | 657 | |
Income tax benefit (expense) | | | 45,408 | | | | (451 | ) | | | (174 | ) |
| | | | | | | | | | | | |
Net income | | | 64,254 | | | | 10,756 | | | | 483 | |
Less: accretion of preferred stock dividends | | | (2,818 | ) | | | (5,661 | ) | | | (5,661 | ) |
Less: accretion of fair value of preferred stock upon conversion | | | (102,745 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | (41,309 | ) | | $ | 5,095 | | | $ | (5,178 | ) |
| | | | | | | | | | | | |
Net income (loss) attributable to common stockholders per share: | | | | | | | | | | | | |
Basic | | $ | (1.35 | ) | | $ | 0.18 | | | $ | (0.28 | ) |
| | | | | | | | | | | | |
Diluted | | $ | (1.35 | ) | | $ | 0.17 | | | $ | (0.28 | ) |
| | | | | | | | | | | | |
Weighted average shares used in computing per share amounts: | | | | | | | | | | | | |
Basic | | | 30,670 | | | | 18,839 | | | | 18,712 | |
| | | | | | | | | | | | |
Diluted | | | 30,670 | | | | 30,932 | | | | 18,712 | |
| | | | | | | | | | | | |
F-4
F-4
CommVault Systems, Inc.
Consolidated Statements of Stockholders’ DeficitEquity (Deficit)
Years ended March 31, 2003, 2004 and 2005 and the nine months ended December 31, 2005 (Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Accumulated | | | |
| | Convertible | | | | | | | | | | | Other | | | |
| | Preferred Stock | | | Common Stock | | | Additional | | | | | | | Comprehensive | | | |
| | | | | | | | Paid-In | | | Deferred | | | Accumulated | | | Income | | | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Compensation | | | Deficit | | | (Loss) | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2002 | | | 14,461 | | | $ | 79,650 | | | | 37,417 | | | $ | 374 | | | $ | — | | | $ | — | | | $ | (133,594 | ) | | $ | 16 | | | $ | (53,554 | ) |
| Stock options exercised | | | | | | | | | | | 10 | | | | — | | | | 9 | | | | | | | | | | | | | | | | 9 | |
| Repurchase and retirement of common stock | | | | | | | | | | | (28 | ) | | | — | | | | | | | | | | | | | | | | | | | | — | |
| Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net loss | | | | | | | | | | | | | | | | | | | | | | | | | | | (16,410 | ) | | | | | | | (16,410 | ) |
| | Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 55 | | | | 55 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (16,355 | ) |
| Accretion of dividends on preferred stock | | | | | | | | | | | | | | | | | | | (9 | ) | | | | | | | (5,652 | ) | | | | | | | (5,661 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2003 | | | 14,461 | | | | 79,650 | | | | 37,399 | | | | 374 | | | | — | | | | — | | | | (155,656 | ) | | | 71 | | | | (75,561 | ) |
| Stock options exercised | | | | | | | | | | | 168 | | | | 2 | | | | 371 | | | | | | | | | | | | | | | | 373 | |
| Repurchase and retirement of common stock | | | | | | | | | | | (8 | ) | | | — | | | | | | | | | | | | | | | | | | | | — | |
| Issuance of shares in private placement | | | 4,791 | | | | 14,702 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 14,702 | |
| Issuance of common stock warrant to a customer | | | | | | | | | | | | | | | | | | | 1,696 | | | | | | | | | | | | | | | | 1,696 | |
| Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net loss | | | | | | | | | | | | | | | | | | | | | | | | | | | (11,698 | ) | | | | | | | (11,698 | ) |
| | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 250 | | | | 250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (11,448 | ) |
| Deferred compensation related to stock options | | | | | | | | | | | | | | | | | | | 86 | | | | (86 | ) | | | | | | | | | | | — | |
| Amortization of deferred compensation | | | | | | | | | | | | | | | | | | | | | | | 4 | | | | | | | | | | | | 4 | |
| Accretion of dividends on preferred stock | | | | | | | | | | | | | | | | | | | (2,153 | ) | | | | | | | (3,523 | ) | | | | | | | (5,676 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2004 | | | 19,252 | | | | 94,352 | | | | 37,559 | | | | 376 | | | | — | | | | (82 | ) | | | (170,877 | ) | | | 321 | | | | (75,910 | ) |
| Stock options exercised | | | | | | | | | | | 61 | | | | 1 | | | | 151 | | | | | | | | | | | | | | | | 152 | |
| Repurchase and retirement of common stock | | | | | | | | | | | (3 | ) | | | — | | | | | | | | | | | | | | | | | | | | — | |
| Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | 483 | | | | | | | | 483 | |
| | Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Foreign currency translation adjustment | | | | | | | | | | | | �� | | | | | | | | | | | | | | | | | | | (95 | ) | | | (95 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 388 | |
| Amortization of deferred compensation | | | | | | | | | | | | | | | | | | | | | | | 21 | | | | | | | | | | | | 21 | |
| Accretion of dividends on preferred stock | | | | | | | | | | | | | | | | | | | (151 | ) | | | | | | | (5,510 | ) | | | | | | | (5,661 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2005 | | | 19,252 | | | | 94,352 | | | | 37,617 | | | | 377 | | | | — | | | | (61 | ) | | | (175,904 | ) | | | 226 | | | | (81,010 | ) |
| Stock options exercised | | | | | | | | | | | 33 | | | | — | | | | 82 | | | | | | | | | | | | | | | | 82 | |
| Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,083 | | | | | | | | 9,083 | |
| | Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 71 | | | | 71 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 9,154 | |
| Deferred compensation related to stock options | | | | | | | | | | | | | | | | | | | 864 | | | | (864 | ) | | | | | | | | | | | — | |
| Amortization of deferred compensation | | | | | | | | | | | | | | | | | | | | | | | 66 | | | | | | | | | | | | 66 | |
| Accretion of dividends on preferred stock | | | | | | | | | | | | | | | | | | | (946 | ) | | | | | | | (3,319 | ) | | | | | | | (4,265 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2005 (Unaudited) | | | 19,252 | | | $ | 94,352 | | | | 37,650 | | | $ | 377 | | | $ | — | | | $ | (859 | ) | | $ | (170,140 | ) | | $ | 297 | | | $ | (75,973 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | Accumulated
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | Other
| | | | |
| | Convertible
| | | | | | | | | Additional
| | | | | | | | | Comprehensive
| | | | |
| | Preferred Stock | | | Common Stock | | | Paid-In
| | | Deferred
| | | Accumulated
| | | Income
| | | | |
| | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Compensation | | | Deficit | | | (Loss) | | | Total | |
|
Balance at March 31, 2004 | | | 19,252 | | | $ | 94,352 | | | | 18,780 | | | $ | 188 | | | $ | — | | | $ | (82 | ) | | $ | (170,689 | ) | | $ | 321 | | | $ | (75,910 | ) |
Stock options exercised | | | | | | | | | | | 31 | | | | — | | | | 152 | | | | | | | | | | | | | | | | 152 | |
Repurchase and retirement of common stock | | | | | | | | | | | (2 | ) | | | — | | | | | | | | | | | | | | | | | | | | — | |
Amortization of deferred compensation | | | | | | | | | | | | | | | | | | | | | | | 21 | | | | | | | | | | | | 21 | |
Accretion of dividends on preferred stock | | | | | | | | | | | | | | | | | | | (152 | ) | | | | | | | (5,509 | ) | | | | | | | (5,661 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | 483 | | | | | | | | 483 | |
Other comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (95 | ) | | | (95 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 388 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2005 | | | 19,252 | | | | 94,352 | | | | 18,809 | | | | 188 | | | | — | | | | (61 | ) | | | (175,715 | ) | | | 226 | | | | (81,010 | ) |
Stock options exercised | | | | | | | | | | | 151 | | | | 2 | | | | 703 | | | | | | | | | | | | | | | | 705 | |
Acceleration of stock options | | | | | | | | | | | | | | | | | | | 263 | | | | | | | | | | | | | | | | 263 | |
Deferred compensation related to stock options | | | | | | | | | | | | | | | | | | | 9,201 | | | | (9,201 | ) | | | | | | | | | | | — | |
Amortization of deferred compensation | | | | | | | | | | | | | | | | | | | | | | | 1,128 | | | | | | | | | | | | 1,128 | |
Accretion of dividends on preferred stock | | | | | | | | | | | | | | | | | | | (5,661 | ) | | | | | | | | | | | | | | | (5,661 | ) |
Comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | 10,756 | | | | | | | | 10,756 | |
Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 155 | | | | 155 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 10,911 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2006 | | | 19,252 | | | | 94,352 | | | | 18,960 | | | | 190 | | | | 4,506 | | | | (8,134 | ) | | | (164,959 | ) | | | 381 | | | | (73,664 | ) |
Reversal of deferred compensation upon adoption of SFAS 123(R) | | | | | | | | | | | | | | | | | | | (4,506 | ) | | | 8,134 | | | | (3,628 | ) | | | | | | | — | |
Stock options exercised | | | | | | | | | | | 350 | | | | 3 | | | | 1,861 | | | | | | | | | | | | | | | | 1,864 | |
Issuance of common stock from initial public offering and concurrent private placement, net | | | | | | | | | | | 6,251 | | | | 63 | | | | 81,673 | | | | | | | | | | | | | | | | 81,736 | |
Issuance of common stock upon conversion of Series A through E preferred stock | | | | | | | | | | | 6,333 | | | | 63 | | | | 91 | | | | | | | | | | | | | | | | 154 | |
Issuance of common stock upon conversion of Series AA, BB and CC preferred stock | | | (19,252 | ) | | | (94,352 | ) | | | 9,686 | | | | 97 | | | | 94,255 | | | | | | | | | | | | | | | | — | |
Cashless exercise of stock warrants and related shares issued pursuant to preemptive rights | | | | | | | | | | | 388 | | | | 4 | | | | (4 | ) | | | | | | | | | | | | | | | — | |
Accretion of dividends on preferred stock | | | | | | | | | | | | | | | | | | | (2,818 | ) | | | | | | | | | | | | | | | (2,818 | ) |
Stock-based compensation | | | | | | | | | | | | | | | | | | | 5,969 | | | | | | | | | | | | | | | | 5,969 | |
Tax benefits from exercise of stock options | | | | | | | | | | | | | | | | | | | 1,270 | | | | | | | | | | | | | | | | 1,270 | |
Comprehensive Income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | | | | | | | | | | | | 64,254 | | | | | | | | 64,254 | |
Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (443 | ) | | | (443 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 63,811 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at March 31, 2007 | | | — | | | $ | — | | | | 41,968 | | | $ | 420 | | | $ | 182,297 | | | $ | — | | | $ | (104,333 | ) | | $ | (62 | ) | | $ | 78,322 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-5
F-5
CommVault Systems, Inc.
Consolidated Statements of Cash Flows
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | |
| | Year Ended March 31, | | | December 31, | |
| | | | | | |
| | 2003 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | (Unaudited) | |
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (16,410 | ) | | $ | (11,698 | ) | | $ | 483 | | | $ | (1,148 | ) | | $ | 9,083 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 1,791 | | | | 1,425 | | | | 1,431 | | | | 1,028 | | | | 1,188 | |
| Noncash stock compensation | | | — | | | | 4 | | | | 21 | | | | 16 | | | | 66 | |
| Issuance of common stock warrants | | | — | | | | 1,696 | | | | — | | | | — | | | | — | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | |
| | Accounts receivable | | | (9,414 | ) | | | (352 | ) | | | (2,759 | ) | | | (574 | ) | | | 1,120 | |
| | Prepaid expenses and other current assets | | | 70 | | | | 225 | | | | (588 | ) | | | (242 | ) | | | 707 | |
| | Other assets | | | (62 | ) | | | 3 | | | | (120 | ) | | | (259 | ) | | | (30 | ) |
| | Accounts payable | | | (736 | ) | | | 1,018 | | | | (1,060 | ) | | | (1,299 | ) | | | (199 | ) |
| | Accrued expenses | | | 1,680 | | | | 214 | | | | 2,617 | | | | 1,636 | | | | 1,922 | |
| | Deferred revenue and other liabilities | | | 4,124 | | | | 8,366 | | | | 3,815 | | | | 2,759 | | | | 6,365 | |
| | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | | (18,957 | ) | | | 901 | | | | 3,840 | | | | 1,917 | | | | 20,222 | |
Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | |
Purchase of property and equipment | | | (1,166 | ) | | | (1,244 | ) | | | (1,860 | ) | | | (1,323 | ) | | | (1,765 | ) |
| | | | | | | | | | | | | | | |
Net cash used in investing activities | | | (1,166 | ) | | | (1,244 | ) | | | (1,860 | ) | | | (1,323 | ) | | | (1,765 | ) |
Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | |
Proceeds from issuance of preferred stock | | | — | | | | 14,702 | | | | — | | | | — | | | | — | |
Repayments on line of credit | | | (34 | ) | | | — | | | | — | | | | — | | | | — | |
Proceeds from term loan | | | — | | | | 497 | | | | — | | | | — | | | | — | |
Repayments on term loan | | | — | | | | (131 | ) | | | (200 | ) | | | (149 | ) | | | (149 | ) |
Proceeds from issuance of common stock | | | 9 | | | | 372 | | | | 152 | | | | 108 | | | | 82 | |
| | | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (25 | ) | | | 15,440 | | | | (48 | ) | | | (41 | ) | | | (67 | ) |
Effects of exchange rate — changes in cash | | | 55 | | | | 250 | | | | (95 | ) | | | (174 | ) | | | 71 | |
| | | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (20,093 | ) | | | 15,347 | | | | 1,837 | | | | 379 | | | | 18,461 | |
Cash and cash equivalents at beginning of year | | | 27,704 | | | | 7,611 | | | | 22,958 | | | | 22,958 | | | | 24,795 | |
| | | | | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | 7,611 | | | $ | 22,958 | | | $ | 24,795 | | | $ | 23,337 | | | $ | 43,256 | |
| | | | | | | | | | | | | | | |
Supplemental disclosures of cash flow information | | | | | | | | | | | | | | | | | | | | |
Interest paid | | $ | — | | | $ | 60 | | | $ | 14 | | | $ | 12 | | | $ | 7 | |
Income taxes paid (received) | | $ | (39 | ) | | $ | 15 | | | $ | 48 | | | $ | 10 | | | $ | 328 | |
See accompanying notes.
| | | | | | | | | | | | |
| | Year Ended March 31, | |
| | 2007 | | | 2006 | | | 2005 | |
|
Cash flows from operating activities | | | | | | | | | | | | |
Net income | | $ | 64,254 | | | $ | 10,756 | | | $ | 483 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Deferred income taxes | | | (52,159 | ) | | | — | | | | — | |
Depreciation and amortization | | | 2,893 | | | | 1,682 | | | | 1,431 | |
Noncash stock-based compensation | | | 5,969 | | | | 1,391 | | | | 21 | |
Excess tax benefits from stock-based compensation | | | (1,233 | ) | | | — | | | | — | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Accounts receivable | | | (3,806 | ) | | | 67 | | | | (2,759 | ) |
Prepaid expenses and other current assets | | | (1,780 | ) | | | 109 | | | | (588 | ) |
Other assets | | | (317 | ) | | | 105 | | | | (120 | ) |
Accounts payable | | | 77 | | | | (664 | ) | | | (1,060 | ) |
Accrued liabilities | | | 9,008 | | | | 2,234 | | | | 2,617 | |
Deferred revenue and other liabilities | | | 7,688 | | | | 10,170 | | | | 3,815 | |
| | | | | | | | | | | | |
Net cash provided by operating activities | | | 30,594 | | | | 25,850 | | | | 3,840 | |
Cash flows from investing activities | | | | | | | | | | | | |
Purchase of property and equipment | | | (4,195 | ) | | | (2,814 | ) | | | (1,860 | ) |
| | | | | | | | | | | | |
Net cash used in investing activities | | | (4,195 | ) | | | (2,814 | ) | | | (1,860 | ) |
Cash flows from financing activities | | | | | | | | | | | | |
Payments to Series A through E preferred stockholders upon conversion to common stock | | | (101,833 | ) | | | — | | | | — | |
Net proceeds from initial public offering and concurrent private placement | | | 82,242 | | | | (486 | ) | | | — | |
Proceeds from the exercise of stock options | | | 1,864 | | | | 705 | | | | 152 | |
Excess tax benefits from stock-based compensation | | | 1,233 | | | | — | | | | — | |
Proceeds from term loan | | | 15,000 | | | | — | | | | — | |
Repayments on term loan | | | (7,500 | ) | | | (166 | ) | | | (200 | ) |
| | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | (8,994 | ) | | | 53 | | | | (48 | ) |
Effects of exchange rate — changes in cash | | | (443 | ) | | | 155 | | | | (95 | ) |
| | | | | | | | | | | | |
Net increase in cash and cash equivalents | | | 16,962 | | | | 23,244 | | | | 1,837 | |
Cash and cash equivalents at beginning of year | | | 48,039 | | | | 24,795 | | | | 22,958 | |
| | | | | | | | | | | | |
Cash and cash equivalents at end of year | | $ | 65,001 | | | $ | 48,039 | | | $ | 24,795 | |
| | | | | | | | | | | | |
Supplemental disclosures of cash flow information | | | | | | | | | | | | |
Interest paid | | $ | 283 | | | $ | 7 | | | $ | 14 | |
| | | | | | | | | | | | |
Income taxes paid | | $ | 232 | | | $ | 483 | | | $ | 48 | |
| | | | | | | | | | | | |
F-6
F-6
CommVault Systems, Inc.
(In thousands, except per share data)
CommVault Systems, IncInc. and its subsidiaries (“CommVault” or the “Company”) is a leading provider of data management software applications and related services.services in terms of product breadth and functionality and market penetration. The Company develops, markets and sells a suite of software applications and services, primarily in the United States, Europe, Canada, Mexico and Australia, that provides its customers with high-performance data protection, global data availability, disaster recovery of data for business continuance and archiving for regulatory compliance and other data management purposes. The Company’s unified suite of data management software applications, which is sold under the QiNetix brand, shares an underlying architecture that has been developed to minimize the cost and complexity of managing data on globally distributed and networked storage infrastructures. The Company also provides its customers with a broad range of professional and globalcustomer support services.
| |
2. | Summary of Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements include the accounts of the Company. All intercompany transactions and balances have been eliminated.
The accompanying consolidated financial statements as
Use of December 31, 2005 and for the nine months ended December 31, 2004 and December 31, 2005 are unaudited. In the opinion of management, such information includes all adjustments consisting of normal recurring adjustments necessary for a fair presentation of this interim information when read in conjunction with the audited consolidated financial statements and notes hereto. Results for the nine months ended December 31, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2006.
| |
| Unaudited Pro Forma InformationEstimates |
The unaudited pro forma balance sheet, unaudited pro forma net income (loss) attributable to common stockholders per share and unaudited pro forma weighted average shares used in computing per share amounts have been presented to give effect to the following events that will occur immediately before or upon the completion of the Company’s initial public offering:
| | |
| • | the conversion of all outstanding shares of preferred stock into a total of shares of common stock; |
|
| • | the payment of $ in satisfaction of the cash amount due to holders of Series A, B, C, D and E preferred stock upon its conversion into common stock (including accrued dividends, and assuming the initial public offering is completed in 2006); |
|
| • | the borrowing of $ under a new term loan at an interest rate equal to 30-day LIBOR plus %, and assumed to be % per year in connection with the payments to the holders of Series A, B, C, D and E preferred stock (assuming that the initial public offering and the concurrent private placement are priced at $ per share, the midpoint of the estimated price range shown on the cover of the prospectus); and |
|
| • | the completion of the concurrent private placement of shares of the Company’s common stock at the public offering price and the application of the proceeds therefrom. Assuming an offering price of $ per share (the midpoint of the estimated price range shown on the cover page of the prospectus) the Company will raise $ in proceeds from the concurrent private placement. |
F-7
CommVault Systems Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The unaudited pro forma balance sheet has been presented as if each event occurred at December 31, 2005, and the unaudited pro forma net income (loss) attributable to common stockholders per share and unaudited pro forma weighted average shares used in computing per share amounts have been presented as if each event occurred at April 1, 2004.
The following table shows the adjustments to net income (loss) attributable to common stockholders for the periods shown to arrive at the corresponding pro forma net income (loss) attributable to common stockholders:
| | | | | | | | | |
| | Year Ended | | | Nine Months Ended | |
| | March 31, 2005 | | | December 31, 2005 | |
| | | | | | |
Net income (loss) attributable to common stockholders | | $ | (5,178 | ) | | $ | 4,818 | |
Plus: | | | | | | | | |
| Elimination of accretion of preferred stock dividends | | | 5,661 | | | | 4,265 | |
Less: | | | | | | | | |
| Interest expense associated with term loan borrowings, net of taxes of $ | | | | | | | | |
| | | | | | |
Pro forma net income (loss) attributable to common stockholders | | $ | | | | $ | | |
| | | | | | |
The following tables show the adjustments to the basic and diluted weighted average number of shares used in computing pro forma per share amounts:
| | | | | | | | | |
| | Year Ended | | | Nine Months Ended | |
| | March 31, 2005 | | | December 31, 2005 | |
| | | | | | |
Basic weighted average number of shares used in computing per share amounts | | | | | | | | |
Plus: | | | | | | | | |
| Shares issued upon conversion of outstanding preferred stock | | | | | | | | |
| Shares issued in the concurrent private placement | | | | | | | | |
| | | | | | |
Basic pro forma weighted average number of shares used in computing per share amounts | | | | | | | | |
| | | | | | |
| | | | | | | | | |
| | Year Ended | | | Nine Months Ended | |
| | March 31, 2005 | | | December 31, 2005 | |
| | | | | | |
Diluted weighted average number of shares used in computing per share amounts | | | | | | | | |
Plus: | | | | | | | | |
| Shares issued upon conversion of outstanding preferred stock | | | | | | | | |
| Shares issued in the concurrent private placement | | | | | | | | |
| | | | | | |
Diluted pro forma weighted average number of shares used in computing per share amounts | | | | | | | | |
| | | | | | |
F-8
CommVault Systems Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires management to make judgments assumptions and estimates that affect the amounts reported in the Company’s combined and consolidated financial statements and the accompanying notes. The Company bases its estimates and judgments on historical experience and on various other assumptions that it believes are reasonable under the circumstances. The amounts of assets and liabilities reported in the Company’s balance sheets and the amounts of revenues and expenses reported for each of its periods presented are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, allowance for doubtful accounts, allowance for sales returns, income taxes, stock-based compensation and accounting for research and development costs. Actual results could differ from those estimates.
Revenue Recognition
The Company derives revenues from two primary sources, or elements: software licenses and services. Services include customer support, consulting, assessment and design services, installation services and training. A typical sales arrangement includes both of these elements. The Company applies the provisions of Statement of Position (“SOP”)97-2,Software Revenue Recognition, as amended bySOP 98-4 andSOP 98-9, and related interpretations to all transactions to determine the recognition of revenue.
For softwaresales arrangements involving multiple elements, the Company recognizes revenue using the residual method as described inSOP 98-9. Under the residual method, the Company allocates and defers revenue for the undelivered elements based on relative fair value and recognizes the difference between the total arrangement fee and the amount deferred for the undelivered elements as revenue. The determination of fair value of each elementthe undelivered elements in multiple elementmultiple-element arrangements is based on the price charged when the same element is sold separately. To determine the price for the customer support element whensuch elements are sold separately, the Company uses historical renewal rates, and for sales through original equipment manufacturers, the Company uses stated renewal rates.which is commonly referred to as vendor-specific objective-evidence, or VSOE.
The Company’s software licenses typically provide for a perpetual right to use the Company’s software and are sold on a per-copy basis or as site licenses. Site licenses give the customer the additional right to deploy the software on a limited basis during a specified term. The Company recognizes software license revenue through direct sales channels upon receipt of a purchase order or other persuasive evidence and when all other basic revenue recognition criteria are met as described below. The Company recognizes software license revenue
F-7
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
through all indirect sales channels on a sell-through model. A sell-through model requires that the Company recognize revenue when the basic revenue recognition criteria are met as described below and these channels complete the sale of the Company’s software products to the end user. Revenue from software licenses sold through an original equipment manufacturer partner is recognized upon the receipt of a royalty report or purchase order from that original equipment manufacturer partner.
Services revenue includes revenue from customer support and other professional services. Customer support includes software updates (including unspecified product upgrades and enhancements) on awhen-and-if-available basis, telephone support and bug fixes or patches. Customer support revenue is recognized ratably over the term of the customer support agreement, which is typically one year. OtherTo determine the price for the customer support element when sold separately, the Company primarily uses historical renewal rates and, in certain cases, it uses stated renewal rates. Historical renewal rates are supported by performing an analysis in which the Company segregates its customer support renewal contracts into different classes based on specific criteria including, but not limited to, the dollar amount of the software purchased, the level of customer support being provided and the distribution channel. As a result of this analysis, the Company has concluded that it has established VSOE for the different classes of customer support when the support is sold as part of a multiple-element sales arrangement.
The Company’s other professional services such asinclude consulting, assessment and design services, installation services and training. Other professional services provided by the Company are not mandatory and can also be performed by the customer or a third party. In addition to a signed purchase order, the Company’s consulting, assessment and design services and installation services are often evidenced by a signed Statement of Work (“SOW”), which defines the specific scope of such services to be performed when sold and performed on a stand-alone basis or included in multiple-element sales arrangements. Revenues from consulting, assessment and design services and installation services are based upon a daily or weekly rate and are recognized when the services are completed. Training includes courses taught by the Company’s instructors or third party contractors either at one of the Company’s facilities or at the customer’s site. Training fees are recognized after the training course has been provided.
F-9
CommVault Systems Inc.
Notes Based on the Company’s analysis of such other professional services transactions sold on a stand-alone basis, the Company has concluded that it has established VSOE for such other professional services when sold in connection with a multiple-element sales arrangement. The Company generally performs its other professional services within 60 to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)90 days of entering into an agreement. The price for other professional services has not materially changed for the periods presented.
The Company has analyzed all of the undelivered elements included in its multiple-element sales arrangements and determined that vendor-specific objective evidenceVSOE of fair value exists to allocate revenues to services. Accordingly, assuming all basic revenue recognition criteria are met, licensesoftware revenue is recognized upon delivery of the software license using the residual method in accordance withSOP 98-9.
The Company considers the four basic revenue recognition criteria for each of the elements as follows:
| | |
| • | Persuasive evidence of an arrangement with the customer exists. The Company’s customary practice is to require a purchase order and, in some cases, a written contract signed by both the customer and the Company, a signed SOW evidencing the scope of certain other professional services, or other persuasive evidence that an arrangement exists prior to recognizing revenue on an arrangement. |
|
| • | Delivery or performance has occurred. The Company’s software applications are usually physically delivered to customers with standard transfer terms such as FOB shipping point. Softwareand/or software license keys foradd-on orders or software updates are typically delivered via email. If products that are essential to the functionality of the delivered software in an arrangement have not been delivered, the Company does not consider delivery to have occurred. Services revenue is |
F-8
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
| | |
| | recognized when the services are completed, except for customer support, which is recognized ratably over the term of the customer support agreement, which is typically one year. |
| | |
| • | Vendor’s fee is fixed or determinable. The fee customers pay for software applications, customer support and other professional services is negotiated at the outset of an arrangement. The fees are therefore considered to be fixed or determinable at the inception of the arrangement. |
|
| • | Collection is probable. Probability of collection is assessed on acustomer-by-customer basis. Each new customer undergoes a credit review process to evaluate its financial position and ability to pay. If the Company determines from the outset of an arrangement that collection is not probable based upon the review process, revenue is recognized on a cash-collected basis.at the earlier of when cash is collected or when sufficient credit becomes available, assuming all of the other basic revenue recognition criteria are met. |
The Company’s sales arrangements generally do not generally include acceptance clauses. However, if an arrangement does include an acceptance clause, revenue for such an arrangement is deferred and recognized upon acceptance. Acceptance occurs upon the earliest of receipt of a written customer acceptance, waiver of customer acceptance or expiration of the acceptance period.
The Company has offered limited price protection under certain original equipment manufacturer agreements. Any right to a future refund from such price protection is entirely within the Company’s control. It is estimated that the likelihood of a future payout due to price protection is remote.
Net Income (Loss) Attributable to Common Stockholders per Share
Cost of software revenue consists primarily of third party royalties and other costs such as media, manuals, translation and distribution costs. Cost of services revenue consists primarily of salary and employee benefit costs in providing customer support and other professional services.
| |
| Accounting for Income Taxes |
The Company accounts forcalculates net income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109,Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates that are expected(loss) attributable to be in effect when the differences reverse. In addition,common stockholders per share in accordance with SFAS No. 109,128,Earnings per Share (“SFAS 128”) and EITF IssueNo. 03-6,Participating Securities and the Two — Class Method under FASB Statement 128(“EITFNo. 03-6”). Prior to their conversion to common stock upon the closing of the Company’s initial public offering on September 27, 2006, the Company’s Series AA, BB and CC convertible preferred stock and Series A through E cumulative redeemable convertible preferred stock were participating securities due to their participation rights related to cash dividends declared by the Company. The holders of the Company’s Series AA, BB and CC convertible preferred stock were entitled to receive a valuation allowance is requiredproportionate share of cash dividends declared on the Company’s common stock, calculated on an asif-converted basis. In addition, the holders of the Company’s Series A through E cumulative redeemable convertible preferred stock were entitled to receive dividends out of any assets legally available, prior and in preference to any declaration or payment of any dividend (payable other than in common stock or othernon-redeemable equity securities and rights entitling the holder to receive additional shares of common stock of the Company) on the common stock of the Company, at a per share rate of $1.788 per annum, or, if greater, an amount equal to that paid on any other outstanding shares of the Company. Such dividends accrued and were cumulative.
EITFNo. 03-6 requires net income (loss) attributable to common stockholders for the period to be recognizedallocated to common stock and participating securities to the extent that each security may share in earnings as if it is not believedall of the earnings for the period had been distributed. As a result, basic net income (loss) attributable to be “more likely than not” that a deferred tax asset will be realized.
F-10
CommVault Systems Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, exceptcommon stockholders per share data)
| |
| Net Income (Loss) Attributable to Common Stockholders per Share |
Basicis calculated by dividing undistributed net income (loss) allocable to common stockholders by the weighted average number of shares outstanding during the period. Diluted net income (loss) attributable to common stockholders per share is computed by dividing the net income (loss) attributable to common stockholdersfor the period by the weighted average number of common and potential common shares outstanding during the period if the effect is dilutive. Potential common shares are comprised of incremental shares of common stock issuable upon the exercise of stock options and warrants and upon the conversion of preferred stock prior to the Company’s initial public offering on September 27, 2006. In compliance with EITFNo. 03-6, the Company’s
F-9
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
preferred stock does not participate in accordance with SFAS No. 128,Earnings per Share. Dilutedlosses, and therefore they are not included in the computation of net income (loss)loss attributable to common stockholders per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, only in the periods in which such effect is dilutive.share.
The information required to compute basic and diluted net income (loss) per share attributable to common stockholders per share is as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | |
| | Year Ended March 31, | | | December 31, | |
| | | | | | |
| | 2003 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | (Unaudited) | |
Basic weighted average number of shares outstanding | | | 36,741 | | | | 37,201 | | | | 37,424 | | | | 37,363 | | | | 37,628 | |
Effect of dilutive securities: | | | | | | | | | | | | | | | | | | | | |
| Stock options | | | — | | | | — | | | | — | | | | — | | | | 745 | |
| Convertible preferred stock: | | | | | | | | | | | | | | | | | | | | |
| | Series A | | | — | | | | — | | | | — | | | | — | | | | 8,159 | |
| | Series B | | | — | | | | — | | | | — | | | | — | | | | 1,384 | |
| | Series C | | | — | | | | — | | | | — | | | | — | | | | 1,333 | |
| | Series D | | | — | | | | — | | | | — | | | | — | | | | 989 | |
| | Series E | | | — | | | | — | | | | — | | | | — | | | | 800 | |
| | Series AA | | | — | | | | — | | | | — | | | | — | | | | 4,484 | |
| | Series BB | | | — | | | | — | | | | — | | | | — | | | | 2,758 | |
| | Series CC | | | — | | | | — | | | | — | | | | — | | | | 12,132 | |
| | | | | | | | | | | | | | | |
Diluted weighted average number of shares outstanding | | | 36,741 | | | | 37,201 | | | | 37,424 | | | | 37,363 | | | | 70,412 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Year Ended March 31, | |
| | 2007 | | | 2006 | | | 2005 | |
|
Reconciliation of net income to undistributed net income (loss) allocable to common stockholders for the basic computation: | | | | | | | | | | | | |
Net income | | $ | 64,254 | | | $ | 10,756 | | | $ | 483 | |
Accretion of preferred stock dividends(1) | | | (2,818 | ) | | | (5,661 | ) | | | (5,661 | ) |
Accretion of fair value of preferred stock upon conversion(2) | | | (102,745 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | | (41,309 | ) | | | 5,095 | | | | (5,178 | ) |
Undistributed net income allocable to Series AA, BB and CC convertible preferred stock, if converted(3) | | | — | | | | (1,730 | ) | | | — | |
| | | | | | | | | | | | |
Undistributed net income (loss) allocable to common stockholders | | $ | (41,309 | ) | | $ | 3,365 | | | $ | (5,178 | ) |
| | | | | | | | | | | | |
Basic net income (loss) attributable to common stockholders per share: | | | | | | | | | | | | |
Basic weighted average shares outstanding | | | 30,670 | | | | 18,839 | | | | 18,712 | |
| | | | | | | | | | | | |
Basic net income (loss) attributable to common stockholders per share | | $ | (1.35 | ) | | $ | 0.18 | | | $ | (0.28 | ) |
| | | | | | | | | | | | |
Reconciliation of net income to net income (loss) attributable to common stockholders for the diluted computation: | | | | | | | | | | | | |
Net income | | $ | 64,254 | | | $ | 10,756 | | | $ | 483 | |
Accretion of preferred stock dividends(1) | | | (2,818 | ) | | | (5,661 | ) | | | (5,661 | ) |
Accretion of fair value of preferred stock upon conversion(2) | | | (102,745 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
Net income (loss) attributable to common stockholders | | $ | (41,309 | ) | | $ | 5,095 | | | $ | (5,178 | ) |
| | | | | | | | | | | | |
Diluted net income (loss) attributable to common stockholders per share: | | | | | | | | | | | | |
Basic weighted average shares outstanding | | | 30,670 | | | | 18,839 | | | | 18,712 | |
Series AA, BB and CC convertible preferred stock | | | — | | | | 9,686 | | | | — | |
Dilutive effect of stock options | | | — | | | | 2,192 | | | | — | |
Dilutive effect of common stock warrants | | | — | | | | 215 | | | | — | |
| | | | | | | | | | | | |
Diluted weighted average shares outstanding | | | 30,670 | | | | 30,932 | | | | 18,712 | |
| | | | | | | | | | | | |
Diluted net income (loss) attributable to common stockholders per share | | $ | (1.35 | ) | | $ | 0.17 | | | $ | (0.28 | ) |
| | | | | | | | | | | | |
| | |
(1) | | Net income is reduced by the contractual amount of dividends ($1.788 per share) due on the Company’s Series A through E cumulative redeemable convertible preferred stock prior to its conversion into common stock on September 27, 2006. |
F-10
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
| | |
(2) | | In the year ended March 31, 2007, net income attributable to common stockholders is reduced by $102,745 related to the accretion of fair value of the Series A through E cumulative redeemable convertible preferred stock upon conversion to common stock on September 27, 2006 as required underEITF D-42, “The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock.” |
|
(3) | | In the year ended March 31, 2006, net income attributable to common stockholders is reduced by the participation rights of the Series AA, BB and CC convertible preferred stock related to assumed cash dividends declared by the Company. Net income attributable to common stockholders is not allocated to the Series A through E cumulative redeemable convertible preferred stock because such stockholders only participate in cash dividends in excess of their contractual dividend amount of $1.788 per share, and the Company did not have the ability to distribute amounts in excess of $1.788 per share during this period. In the year ended March 31, 2005, net loss attributable to common stockholders is not allocated to the preferred stockholders because the Company’s preferred stock did not participate in losses. |
The following table summarizes the potential outstanding common stock of the Company at the end of each period, which has been excluded from the computation of diluted net income (loss) attributable to common stockholders per share, as theirits effect is anti-dilutive or their exercise price exceeded the average market price of the Company’s common stock.anti-dilutive.
| | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | |
| | Year Ended March 31, | | | December 31, | |
| | | | | | |
| | 2003 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | (Unaudited) | |
Stock options | | | 7,348 | | | | 9,529 | | | | 11,357 | | | | 11,007 | | | | 2,030 | |
Convertible preferred stock | | | 32,039 | | | | 32,039 | | | | 32,039 | | | | 32,039 | | | | — | |
Common stock warrants | | | 4,615 | | | | 4,615 | | | | 4,615 | | | | 4,615 | | | | 4,615 | |
| | | | | | | | | | | | | | | |
Total options, preferred stock and warrants exercisable or convertible into common stock | | | 44,002 | | | | 46,183 | | | | 48,011 | | | | 47,661 | | | | 6,645 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Year Ended March 31, | |
| | 2007 | | | 2006 | | | 2005 | |
|
Stock options | | | 7,671 | | | | — | | | | 5,679 | |
Convertible preferred stock | | | — | | | | 6,333 | | | | 16,019 | |
Common stock warrants | | | — | | | | — | | | | 2,307 | |
| | | | | | | | | | | | |
Total options, preferred stock and warrants exercisable or convertible into common stock | | | 7,671 | | | | 6,333 | | | | 24,005 | |
| | | | | | | | | | | | |
| |
| Software Development Costs |
Software Development Costs
Research and development expenditures are charged to operations as incurred. SFAS No. 86,Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed, requires
F-11
CommVault Systems Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s software development process, technological feasibility is established upon completion of a working model, which also requires certification and extensive testing. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general release historically have been immaterial.
| |
| Cash and Cash Equivalents |
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with maturity of three months or less at the date of acquisition to be cash equivalents.
| |
| Accounts Receivable and Allowance for Doubtful Accounts |
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consist of amounts due to the Company from normal business activities. The Company maintains an allowance for estimated losses resulting from the inability of its customers to make required payments. The Company estimates uncollectible amounts based upon historical bad debts, evaluation of current customer receivable balances, age of customer receivable balances, the customer’s financial condition and current economic trends.
F-11
| |
| Concentration of Credit Risk |
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Concentration of Credit Risk
The Company grants credit to customers in a wide variety of industries worldwide and generally does not require collateral. Credit losses relating to these customers have been minimal.
The Company had revenues from the U.S. Federal government which represented 14%, 13%, 9%, 9% and 10% of total revenues for the years ended March 31, 2003, 2004, 2005 and the nine months ended December 31, 2004 (unaudited) and 2005 (unaudited), respectively. With the exception of certain annual customer support contracts, the Company generally does not sell directly to the U.S. Federal government but rather uses several federal resellers who, individually, do not represent more than 10% of total revenues for the respective periods.
One customer accounted for approximately 12%19%, 13%18% and 18%12% of total revenues for the year ended March 31, 2005 and the nine months ended December 31, 2004 (unaudited)2007, 2006 and 2005, (unaudited), respectively. No oneThat customer accounted for more than 10% of total revenues for the years ended March 31, 200314% and 2004. One customer accounted for 17% of accounts receivable as of December 31, 2005. No one customer accounted for more than 10%21% of accounts receivable as of March 31, 2003, 20042007 and 2005.2006.
| |
| Fair Value of Financial Instruments |
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and the term loan approximate their fair values due to the short-term maturity of these instruments.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and amortization. The Company provides for depreciation on property and equipment on a straight-line basis over the estimated useful lives of the assets, generally eighteen months to three years. Leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the related lease.
F-12
CommVault Systems Inc.Long-Lived Assets
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The Company reviews its long-lived assets for impairment in accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine the recoverability of its long-lived assets, the Company evaluates the estimated future undiscounted cash flows that are directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the long-lived asset. If the estimated future undiscounted cash flows demonstrate that recoverability is not probable, an impairment loss would be recognized. An impairment loss would be calculated based on the excess carrying amount of the long-lived asset over the long-lived asset’s fair value. The fair value is determined based on valuation techniques such as a comparison to fair values of similar assets. There were no impairment charges recognized during the years ended March 31, 2003, 20042007, 2006 and 20052005.
Deferred Offering Costs
The company had deferred offering costs of $0 and $855 at March 31, 2007 and March 31, 2006, respectively, included in Other Assets. The company offset its deferred offering costs against the nine months ended December 31, 2005.gross proceeds raised from the initial public offering, which closed on September 27, 2006.
Deferred Revenue
Deferred revenues represent amounts collected from, or invoiced to, customers in excess of revenues recognized. This results primarily from the billing of annual customer support agreements, as well as billings for other professional services fees that have not yet been performed by the Company and billings for license fees that are deferred due to one or more of the basic revenue recognition criteria not being met.insufficient persuasive evidence that an arrangement exists. The value of deferred revenues will increase or decrease based on the timing of invoices and recognition of licensesoftware revenue. The Company expenses internal direct and incremental costs related to contract acquisition and origination as incurred.
F-12
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Deferred revenue consists of the following:
| | | | | | | | |
| | March 31, | |
| | 2007 | | | 2006 | |
|
Current: | | | | | | | | |
Deferred software revenue | | $ | 252 | | | $ | 2,957 | |
Deferred services revenue | | | 35,962 | | | | 26,808 | |
| | | | | | | | |
| | $ | 36,214 | | | $ | 29,765 | |
| | | | | | | | |
Non-current: | | | | | | | | |
Deferred services revenue | | $ | 4,284 | | | $ | 3,036 | |
| | | | | | | | |
| |
| Accounting for Stock-Based Compensation |
The
Accounting for Stock-Based Compensation
Prior to April 1, 2006, the Company accountsaccounted for its stock-based employee compensation plans using the intrinsic value methodit stock option plan under the recognition and measurement principlesprovisions of APB Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations. TheInterpretations, as permitted by FASB Statement No. 123, (“SFAS 123”),Accounting for Stock-Based Compensation. Effective April 1, 2006, the Company recognized $4, $21, $16 and $66 of compensation expense during the fiscal year ended March 31, 2004, fiscal year ended March 31, 2005 and the nine months ended December 31, 2004 (unaudited) 2005 (unaudited), respectively, related to the issuance of options with an exercise price belowadopted the fair value recognition provisions of SFAS Statement No. 123 (revised 2004),Share-Based Payment, (“SFAS 123(R)”) using the common stock atmodified prospective method and therefore has not restated the date of issuance. ForCompany’s financial results for prior periods. Under this transition method, stock-based compensation costs in the year ended March 31, 2003, no2007 includes the portion related to stock options vesting in the period for (1) all options granted prior to, but not vested as of April 1, 2006, based on the grant date fair value in accordance with the original provisions of SFAS 123 and (2) all options granted subsequent to April 1, 2006, based on the grant date fair value estimated in accordance with SFAS 123(R). As a result of adopting SFAS 123(R) on April 1, 2006, the Company’s income before income taxes for the year ended March 31, 2007 is $3,899 lower than if the Company had continued to account for stock-based employeecompensation under APB Opinion No. 25. The Company’s net income for the year ended March 31, 2007 was $2,477, or $0.08 per basic and diluted share, lower than if it had continued to account for stock-based compensation under APB Opinion No. 25. As of March 31, 2007, there was approximately $15,124 of unrecognized stock-based compensation expense related to non-vested stock option awards that is expected to be recognized over a weighted average period of 2.58 years.
Prior to the adoption of SFAS 123(R), the Company presented its unamortized portion of deferred compensation cost for nonvested stock options in the statement of stockholders’ equity (deficit) with a corresponding credit to additional paid-in capital. Upon the adoption of SFAS 123(R), these amounts were offset against each other as SFAS 123(R) prohibits the“gross-up” of stockholders’ equity. Under SFAS 123(R), an equity instrument is not considered to be issued until the instrument vests. As a result, compensation cost is reflected in net income (loss) attributable to common stockholders, as options were grantedrecognized over the requisite service period with an exercise price equaloffsetting credit to or above the market value of the underlying common stock on the date of grant.additional paid-in capital.
F-13
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
In accordance with SFAS No. 148,Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123, the
The following table illustrates the effect on net income (loss) attributable to common stockholdersand earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation:options granted under the Company’s stock option plan for all periods presented prior to the adoption of SFAS 123(R).
| | | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | |
| | Year Ended March 31, | | | December 31, | |
| | | | | | |
| | 2003 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | (Unaudited) | |
Net income (loss) attributable to common stockholders, as reported | | $ | (22,071 | ) | | $ | (17,374 | ) | | $ | (5,178 | ) | | $ | (5,413 | ) | | $ | 4,818 | |
Add: Stock based compensation recorded under APB 25 | | | — | | | | 4 | | | | 21 | | | | 16 | | | | 66 | |
Less: Stock-based compensation expense determined under fair value method for all awards | | | (3,978 | ) | | | (4,321 | ) | | | (4,438 | ) | | | (3,313 | ) | | | (3,102 | ) |
| | | | | | | | | | | | | | | |
Pro forma net income (loss) attributable to common stockholders | | $ | (26,049 | ) | | $ | (21,691 | ) | | $ | (9,595 | ) | | $ | (8,710 | ) | | $ | 1,782 | |
Net income (loss) attributable to common stockholders per share, as reported: | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.60 | ) | | $ | (0.47 | ) | | $ | (0.14 | ) | | $ | (0.14 | ) | | $ | 0.13 | |
| | | | | | | | | | | | | | | |
| Diluted | | $ | (0.60 | ) | | $ | (0.47 | ) | | $ | (0.14 | ) | | $ | (0.14 | ) | | $ | 0.13 | |
| | | | | | | | | | | | | | | |
Pro forma net income (loss) attributable to common stockholders per share: | | | | | | | | | | | | | | | | | | | | |
| Basic | | $ | (0.71 | ) | | $ | (0.58 | ) | | $ | (0.26 | ) | | $ | (0.23 | ) | | $ | 0.05 | |
| | | | | | | | | | | | | | | |
| Diluted | | $ | (0.71 | ) | | $ | (0.58 | ) | | $ | (0.26 | ) | | $ | (0.23 | ) | | $ | 0.05 | |
| | | | | | | | | | | | | | | |
| | | | | | | | |
| | Year Ended March 31, | |
| | 2006 | | | 2005 | |
|
Net income | | $ | 10,756 | | | $ | 483 | |
Less: Accretion of preferred stock dividends | | | (5,661 | ) | | | (5,661 | ) |
| | | | | | | | |
Net income (loss) attributable to common stockholders, as reported | | | 5,095 | | | | (5,178 | ) |
Add: Stock-based compensation recorded under APB 25 | | | 1,391 | | | | 21 | |
Less: Stock-based compensation expense determined under fair value method for all awards | | | (5,321 | ) | | | (4,438 | ) |
| | | | | | | | |
Pro forma net income (loss) attributable to common stockholders | | | 1,165 | | | | (9,595 | ) |
Less: Undistributed net income allocable to series AA, BB and CC convertible preferred stock, if converted | | | (395 | ) | | | — | |
| | | | | | | | |
Pro forma undistributed net income (loss) allocable to common stockholders | | $ | 770 | | | $ | (9,595 | ) |
Net income (loss) attributable to common stockholders per share, as reported: | | | | | | | | |
Basic | | $ | 0.18 | | | $ | (0.28 | ) |
| | | | | | | | |
Diluted | | $ | 0.17 | | | $ | (0.28 | ) |
| | | | | | | | |
Pro forma net income (loss) attributable to common stockholders per share: | | | | | | | | |
Basic | | $ | 0.04 | | | $ | (0.51 | ) |
| | | | | | | | |
Diluted | | $ | 0.04 | | | $ | (0.51 | ) |
| | | | | | | | |
The pro forma information presented above has been determined as if employee stock options were accounted for under the fair value method of SFAS No. 123. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model.
The weighted average assumptions that were used for option grants in the respective periods are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | |
| | Year Ended March 31, | | | December 31, | |
| | | | | | |
| | 2003 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | (Unaudited) | |
Dividend yield | | | None | | | | None | | | | None | | | | None | | | | None | |
Expected volatility | | | 87 | % | | | 65 | % | | | 54 | % | | | 55 | % | | | 49 | % |
Risk-free interest rate | | | 4.21 | % | | | 3.69 | % | | | 4.08 | % | | | 4.10 | % | | | 4.16 | % |
Expected life (in years) | | | 7.00 | | | | 7.00 | | | | 7.00 | | | | 7.00 | | | | 7.00 | |
| | | | | | | | |
| | Year Ended March 31, | |
| | 2006 | | | 2005 | |
|
Dividend yield | | | None | | | | None | |
Expected volatility | | | 48 | % | | | 54 | % |
Risk-free interest rate | | | 4.26 | % | | | 4.08 | % |
Expected life (in years) | | | 7.00 | | | | 7.00 | |
Option valuation models require the input of highly subjective assumptions, including the expected life of the option. Because the Company’s employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable, single measure of the fair value of its employee stock options.
Upon adoption of SFAS 123(R), the Company selected the Black-Scholes option pricing for determining the estimated fair value for stock-based awards. The fair value of stock option awards subsequent to April 1, 2006 is amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Expected volatility was calculated based on reported data for a peer group of publicly
F-14
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
traded companies for which historical information was available. The Company will continue to use peer group volatility information until historical volatility of the Company is relevant to measure expected volatility for future option grants. The average expected life was determined according to the “SEC shortcut approach” as described in SAB 107,Disclosure about Fair Value of Financial Instruments, which is the mid-point between the vesting date and the end of the contractual term. The risk-free interest rate is determined by reference to U.S. Treasury yield curve rates with a remaining term equal to the expected life assumed at the date of grant. Forfeitures are estimated based on the Company’s historical analysis of actual stock option forfeitures. The assumptions used in the Black-Scholes option-pricing model are as follows:
| | | | |
| | Year Ended
| |
| | March 31, 2007 | |
|
Dividend yield | | | None | |
Expected volatility | | | 48%-55 | % |
Weighted average expected volatility | | | 51 | % |
Risk-free interest rates | | | 4.45%-5.04 | % |
Expected life (in years) | | | 6.25 | |
The following table presents the stock-based compensation expense included in cost of services revenue, sales and marketing, research and development and general and administrative expenses for the years ended March 31, 2007, 2006 and 2005.
| | | | | | | | | | | | |
| | Year Ended March 31, | |
| | 2007 | | | 2006 | | | 2005 | |
|
Cost of services revenue | | $ | 100 | | | $ | 25 | | | $ | — | |
Sales and marketing | | | 2,736 | | | | 468 | | | | — | |
Research and development | | | 739 | | | | 137 | | | | — | |
General and administrative(1) | | | 2,394 | | | | 761 | | | | 21 | |
| | | | | | | | | | | | |
Stock-based compensation expense | | $ | 5,969 | | | $ | 1,391 | | | $ | 21 | |
| | | | | | | | | | | | |
| | |
(1) | Advertising Costs | The year ended March 31, 2006 includes $263 of stock-based compensation expense related to the acceleration of the vesting period related to 41 stock options. |
The Company recognized a tax benefit of $2,193 related to stock-based compensation recorded in the year ended March 31, 2007. The Company recognized no tax benefits related to the stock-based compensation expense in the years ended March 31, 2006 and 2005.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses were $801, $868,$1,375, $1,551 and $1,268 $921 and $1,116 for the years ended March 31, 2003, 2004, 2005 and the nine months ended December 31, 2004 (unaudited)2007, 2006 and 2005, (unaudited), respectively.
| |
| Foreign Currency Translation |
Foreign Currency Translation
The functional currency of the Company’s foreign operations are deemed to be the local country’s currency. In accordance with SFAS No. 52,Foreign Currency Translation, the assets and liabilities of the Company’s international subsidiaries are translated at their respective year-end exchange rates, and revenues and expenses are translated at average currency exchange rates for the period. The resulting balance sheet translation adjustments are included in “Other comprehensive income (loss)” and are reflected as a separate component of stockholders’ deficit.equity (deficit). Foreign currency transaction gains and losses are immaterial in each year. To date, the Company has not hedged its exposure to changes in foreign currency exchange rates.
F-15
| |
| Comprehensive Income (Loss) |
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Comprehensive Income (Loss)
The Company applies the provisions of SFAS No. 130,Reporting Comprehensive Income. Comprehensive income (loss) is defined to include all changes in equity, except those resulting from investments by stockholders and distribution to stockholders, and is reported in the statement of stockholders’ deficit.equity (deficit). Included in the Company’s comprehensive income (loss) are the net income (loss) and foreign currency translation adjustments.
| |
| Recent Accounting Pronouncements |
Recent Accounting Pronouncements
In June 2005,2006, the Financial Accounting Standards Board (“FASB”) issued SFASFASB Interpretation No. 154,48,“Accounting Changes and Error Correctionsfor Uncertainty in Income Taxes — a replacementan interpretation of APB Opinion No. 20 and FASB Statement No. 3109”(“SFAS No. 154”FIN 48”). SFAS No. 154 applies to all voluntary changes in accounting principle and changesFIN 48 clarifies the requirements for accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109,“Accounting for Income Taxes.”FIN 48 prescribes a recognition threshold and reportingmeasurement attribute for the financial statement recognition and measurement of a changetax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting principle. SFAS No. 154 is effective for accounting changesin interim periods, disclosure, and corrections of errors made in fiscal years beginning after December 15, 2005. Earlier application is permitted for accounting changes and corrections of errors made in fiscal years beginning after June 1, 2005.transition. The Company does not expectis required to adopt the adoptionprovisions of FIN 48 on April 1, 2007. The Company is evaluating the impact of this new standardstatement on it financial statements and currently expects the cumulative effect of adopting FIN 48 will result in an increase to have a material impact on its financial position or resultsbeginning accumulated deficit of operations.approximately $1,000 to $2,000 as of the beginning of fiscal 2008.
In December 2004,September 2006, the FASB issued SFAS No. 123 (revised 2004),157,Share-Based PaymentFair Value Measurements(“ (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact of this Statement on its financial statements.
In February 2007, the FASB issued SFAS No. 123(R)”), which replaces159,The Fair Value Option for Financial Assets and Financial Liabilities — including an Amendment of SFAS No. 123115, (“ SFAS 159”). SFAS 159 permits entities to choose to measure eligible items at fair value at specified election dates and supersedes APB Opinion No. 25,Accountingreport unrealized gains and losses on items for Stock Issued to Employees. SFAS No. 123(R) addresses the accounting for transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments.option has been elected in earnings at each subsequent reporting date. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options and restricted stock grants, to be recognized as a compensation cost based on their fair values. The pro forma disclosures previously permitted under SFAS No. 123 no longer will be an alternative to159 is effective for financial statement recognition.statements issued for fiscal years beginning after November 15, 2007. The Company will adopt SFAS No. 123(R) on April 1, 2006 usingis currently evaluating the modified prospective approach and expects that the adoptionimpact of SFAS No. 123(R) will have a material impactthis Statement on its consolidated results of operations, although it will not impact the Company’s overall financial position. The future results will be impacted by the number and value of additional stock option grants subsequent to adoption and the rate of cancellation of unvested grants. The Company estimates that it will record additional stock-based compensation expense of approximately $4.1 million in fiscal 2007 under SFAS No. 123(R) using the Black-Scholes
F-15
CommVault Systems Inc.statements.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
option-pricing method based on existing unvested options as of April 1, 2006. The stock-based compensation expense will increase when additional stock option grants are awarded.
Property and equipment consist of the following:
| | | | | | | | | | | | |
| | March 31, | | | March 31, | | | December 31, | |
| | 2004 | | | 2005 | | | 2005 | |
| | | | | | | | | |
| | | | | | (Unaudited) | |
Computer equipment | | $ | 12,155 | | | $ | 11,316 | | | $ | 12,350 | |
Furniture and fixtures | | | 1,229 | | | | 1,276 | | | | 1,324 | |
Purchased software | | | 452 | | | | 760 | | | | 712 | |
Other machinery and equipment | | | 1,223 | | | | 1,787 | | | | 2,142 | |
Leasehold improvements | | | 391 | | | | 599 | | | | 709 | |
| | | | | | | | | |
| | | 15,450 | | | | 15,738 | | | | 17,237 | |
Less accumulated depreciation and amortization | | | (13,794 | ) | | | (13,653 | ) | | | (14,575 | ) |
| | | | | | | | | |
| | $ | 1,656 | | | $ | 2,085 | | | $ | 2,662 | |
| | | | | | | | | |
| | | | | | | | |
| | March 31, | |
| | 2007 | | | 2006 | |
|
Computer equipment | | $ | 12,834 | | | $ | 11,983 | |
Other machinery and equipment | | | 3,460 | | | | 2,278 | |
Leasehold improvements | | | 1,844 | | | | 912 | |
Furniture and fixtures | | | 1,566 | | | | 1,344 | |
Purchased software | | | 1,171 | | | | 924 | |
| | | | | | | | |
| | | 20,875 | | | | 17,441 | |
Less: Accumulated depreciation and amortization | | | (16,251 | ) | | | (14,119 | ) |
| | | | | | | | |
| | $ | 4,624 | | | $ | 3,322 | |
| | | | | | | | |
F-16
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The Company recorded depreciation expensesand amortization expense of $1,791, $1,425,$2,893, $1,682 and $1,431 $1,028 and $1,188 for the years ended March 31, 2003, 2004, 2005 and the nine months ended December 31, 2004 (unaudited)2007, 2006 and 2005, (unaudited), respectively.
Accrued liabilities consist of the following:
| | | | | | | | | | | | |
| | March 31, | | | March 31, | | | December 31, | |
| | 2004 | | | 2005 | | | 2005 | |
| | | | | | | | | |
| | | | | | (Unaudited) | |
Compensation and related payroll taxes | | $ | 4,343 | | | $ | 5,493 | | | $ | 5,892 | |
State and foreign sales taxes | | | 276 | | | | 897 | | | | 885 | |
Accrued professional services | | | 711 | | | | 919 | | | | 749 | |
Due to customers | | | 329 | | | | 712 | | | | 608 | |
Other | | | 2,174 | | | | 2,430 | | | | 4,239 | |
| | | | | | | | | |
| | $ | 7,833 | | | $ | 10,451 | | | $ | 12,373 | |
| | | | | | | | | |
| | | | | | | | |
| | March 31, | |
| | 2007 | | | 2006 | |
|
Compensation and related payroll taxes | | $ | 8,626 | | | $ | 5,943 | |
Income tax reserves | | | 5,020 | | | | — | |
Other | | | 6,569 | | | | 6,742 | |
| | | | | | | | |
| | $ | 20,215 | | | $ | 12,685 | |
| | | | | | | | |
| |
5. | Line of Credit and Term Loan |
In January 2003, the Company entered into an agreement for a revolving credit facility (the “credit facility”) of up to $5,000 including an optional term loan of up to $500 for existing and new equipment purchases. In March 2005, the Company renewed the credit facility, which now expiresexpired in March 2006, under essentially the same terms and conditions as the existing facility.
F-16
CommVault Systems Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The amounts outstanding under the credit facility and term loan are as follows:
| | | | | | | | | | | | |
| | March 31, | | | March 31, | | | December 31, | |
| | 2004 | | | 2005 | | | 2005 | |
| | | | | | | | | |
| | | | | | (Unaudited) | |
Credit Facility | | $ | — | | | $ | — | | | $ | — | |
Term Loan — Long Term | | | 167 | | | | — | | | | — | |
Term Loan — Short Term | | | 199 | | | | 166 | | | | 17 | |
| | | | | | | | | |
| | $ | 366 | | | $ | 166 | | | $ | 17 | |
| | | | | | | | | |
Borrowings under the credit facility bear interest at a rate equal to the lender’s prime interest rate plus 0.5%. The credit facility is secured by substantially all of the Company’s assets and requires the Company to maintain certain financial and non-financial covenants and restrictions. As of March 31, 2005 and December 31, 2005 the Company is compliant with such covenants and restrictions. The term loan accruesaccrued interest at the lender’s prime rate plus 1% and iswas repayable in declining monthly amounts over a 30 month period from July 2003 through January 2006.
In May 2006, the Company entered into a $20,000 term loan facility (the “term loan”) in connection with the payments due to the holders of its Series A through E Stock upon an initial public offering. As of March 31, 2007, there was $7,500 outstanding under the term loan. The term loan is secured by substantially all of the Company’s assets. Borrowings under the term loan bear interest at a rate equal to the30-day LIBOR plus 1.50% with principal and interest to be repaid in quarterly installments over a24-month period, subject to acceleration, at the discretion of the lender. The remaining quarterly installments will total $5,000 of principal payments in fiscal 2008 and $2,500 of principal repayments in fiscal 2009. The term loan requires the Company to maintain a “quick ratio,” as defined in the term loan agreement, of at least 1.50 to 1. The Company is in compliance with the quick ratio covenant as of March 31, 2007.
| |
6. | Commitments and Contingencies |
The Company leases various office and warehouse facilities under noncancelablenon-cancelable leases which expire on various dates through May 1, 2009.July 2013. Future minimum lease payments under all operating leases at DecemberMarch 31, 20052007 are as follows (unaudited):follows:
| | | | | |
Year ending March 31: | | | | |
| 2006 | | $ | 683 | |
| 2007 | | | 2,424 | |
| 2008 | | | 2,136 | |
| 2009 | | | 649 | |
| 2010 | | | 14 | |
| | | |
| | $ | 5,906 | |
| | | |
| | | | |
Year Ending March 31: | | | | |
2008 | | $ | 2,766 | |
2009 | | | 2,337 | |
2010 | | | 1,893 | |
2011 | | | 1,731 | |
2012 | | | 1,592 | |
Thereafter | | | 2,134 | |
| | | | |
| | $ | 12,453 | |
| | | | |
F-17
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Rental expenses were $2,088, $2,427,$3,231, $2,844 and $2,618 $1,927 and $2,071 for the years ended March 31, 2003, 2004, 2005 and nine months ended December 31, 2004 (unaudited)2007, 2006 and 2005, (unaudited), respectively.
The Company offers a90-day limited product warranty for its software. To date, costs related to this product warranty have not been material.
In the normal course of its business, the Company may be involved in various claims, negotiations and legal actions; however, at March 31, 2003, 2004, 2005 and December 31, 2005,2007, the Company is not party to any litigation which willthat is expected to have a material effect on the Company’s financial position, results of operations or cash flows.
The Company provides certain provisions within its software licensing agreements to indemnify its customers from any claim, suit or proceeding arising from alleged or actual intellectual property infringement. These provisions continue in perpetuity, along with the Company’s software licensing agreements. The Company has never incurred a liability relating to one of these indemnification provisions, in the past, and management believes that the likelihood of any future payout relating to these provisions is remote. Therefore, the Company has not recorded a liability during any period for these indemnification provisions.
On September 14, 2006, the Company effected a one for two reverse stock split of its common shares. All share and per share amounts related to common shares, options and warrants included in the Company’s consolidated financial statements and notes to consolidated financial statements have been restated to reflect the reverse stock split. The conversion ratios of the Company’s Series A through E Cumulative Redeemable Convertible Preferred Stock (“Series A through E” Stock), Series AA Preferred Stock (“Series AA Stock”), Series BB Preferred Stock (“Series BB Stock”) and Series CC Preferred Stock (“Series CC Stock”) were also adjusted to reflect the reverse stock split.
On September 27, 2006, the Company completed its initial public offering of 11,111 shares of common stock at a price of $14.50 per share. The Company sold 6,148 shares and certain stockholders of the Company sold 4,963 shares in this offering. In connection with the initial public offering, the Company paid $6,240 in underwriting discounts and commissions. In addition, the Company incurred an estimated $2,660 of other offering expenses of which $486 was paid in fiscal 2006, $2,154 was paid in the year ended March 31, 2007 and $20 was accrued at March 31, 2007. After deducting the underwriting discounts and commissions and the other offering expenses, the Company’s net proceeds from the initial public offering were approximately $80,248. In conjunction with the initial public offering, the Company also sold 103 shares of common stock in a concurrent private placement at the initial public offering price pursuant to preemptive rights as a result of the initial public offering. The Company’s net proceeds from the concurrent private placement were approximately $1,488.
On September 27, 2006, the Company amended its Certificate of Incorporation and authorized 250,000 shares of common stock and 50,000 shares of preferred stock. As of March 31, 2007, there are no shares of preferred stock outstanding.
On October 3, 2006, the Company’s underwriters exercised their over-allotment option and purchased an additional 1,667 shares of Company’s common stock owned by affiliates of Credit Suisse Securities (USA) LLC at the initial public offering price of $14.50 per share. The Company did not receive any proceeds as a result of the underwriter’s exercise of their over-allotment option.
Common Stock
The Company had 41,968 and 18,960 shares of common stock, par value $0.01, outstanding at March 31, 2007 and March 31, 2006, respectively. As of March 31, 2007, approximately 14,578 shares of the Company’s
F-17
F-18
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
common stock owned by affiliates of Credit Suisse Securities (USA) LLC, representing approximately 34.7% of the common stock outstanding, is subject to a voting trust agreement pursuant to which the shares are voted by an independent voting trustee. Subject to specified exceptions, the voting trust agreement also requires Credit Suisse Securities (USA) LLC and its affiliates to deliver to the trustee, and make subject to the voting trust agreement, any shares of the Company’s common stock owned by it or its affiliates that would cause the aggregate shares of the Company’s common stock held by them to exceed 5% of the Company’s common stock then outstanding.
The voting trust agreement requires that the trustee cause the shares subject to the voting trust to be represented at all stockholder meetings for purposes of determining a quorum, but the trustee is not required to vote the shares on any matter and any determination whether to vote the shares is required by the voting trust agreement to be made by the trustee without consultation with Credit Suisse Securities (USA) LLC and its affiliates. If, however, the trustee votes the shares on any matter subject to a stockholder vote, including proposals involving the election of directors, changes of control and other significant corporate transactions, the shares will be voted in the same proportion as votes cast “for” or “against” those proposals by the Company’s other stockholders.
Cumulative Redeemable Convertible Preferred Stock: Series A through E Stock
| |
7. | Cumulative Redeemable Convertible Preferred Stock: Series A through E |
TheAt March 31, 2006, the Company has 7,000 authorized shares and has issued 3,166 shares of Series A through E Cumulative Redeemable Convertible Preferred Stock, par value of $.01 per share (“Series A through E” Stock). The Series A through E Stock is entitled to annual cumulative dividends of $1.788 per share. The consideration paid for each share of Series A through E stockStock was $14.90 and resulted in aggregate proceeds of approximately $47,177. The numbers
Upon completion of Series A through Ethe initial public offering, all 3,166 outstanding shares authorized, issued and outstanding at December 31, 2005 (unaudited) are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | Shares | | | Undeclared | | | Total | |
| | | | Shares | | | Issued and | | | Dividends | | | Unpaid | |
| | Date of Issuance | | | Authorized | | | Outstanding | | | Per Share | | | Dividends | |
| | | | | | | | | | | | | | | |
Series A | | | May 1996 | | | | 3,000 | | | | 2,040 | | | $ | 17.18 | | | $ | 35,040 | |
Series B | | | July 1997 | | | | 1,000 | | | | 346 | | | | 15.11 | | | | 5,229 | |
Series C | | | December 1997 | | | | 1,000 | | | | 333 | | | | 14.39 | | | | 4,797 | |
Series D | | | October 1998 | | | | 1,000 | | | | 247 | | | | 12.54 | | | | 3,101 | |
Series E | | | March 1999 | | | | 1,000 | | | | 200 | | | | 12.17 | | | | 2,433 | |
Subject to approval byof the holders of a majority of theCompany’s Series A through E Stock (voting as a single class) and any anti-dilution adjustments, the Series A through E Preferred Stock shall be convertible, in whole or in part, into: (i) fourautomatically converted on into 6,333 shares of Common Stock and (ii)common stock on a cash payment of $14.85 per share plus all accrued but unpaid dividends of $1.788 per share per year. Any election by2:1 basis. In addition, the Company was obligated to pay the holders of the Series A through E Stock made before a qualified initial public offering, to convert any share of Series A through E Preferred Stock, as described above, shall require the approvalapproximately $101,833 consisting of a majority of Series AA and Series CC Preferred Stock, each voting as a separate class. The Company also has a right of first refusal to purchase the Series A through E Stock from any holder who intends to sell their shares.
Upon a liquidation event (including a sale of substantially all assets, merger, reorganization or other transaction in which more than 50% of the outstanding securities of the Company are transferred) or a qualified initial public offering, the Company is obligated to pay the aggregate cash amountpayment of $14.85 per share, plusor $47,019 in the aggregate; and all accrued and unpaid dividends of $1.788 per share per year since the date such shares were issued, or $54,814 in the aggregate, amount of unpaid dividends. A qualified initial public offering is an initial public offering of the Company’s stock at a price of at least $6.26 per share, subjectdue to adjustment, and resulting in net proceeds of at least $40,000.such holders upon its conversion into common stock. The Company hashad the option to pay the cash amount and accrued dividends to predominantly all of the holders of Series A through E Stock in cash, by means of a note payable or any combination thereof. The Company paid all amounts in cash upon the closing of the initial public offering in September 2006.
Prior to their conversion to common stock upon completion of the Company’s initial public offering, the Series A through E Stock were entitled to receive dividends out of any assets legally available, prior and in preference to any declaration or payment of any dividend (payable other than in common stock or other non-redeemable equity securities and rights entitling the holder to receive additional shares of common stock of the Company) on the common stock of the Company, at a per share rate of $1.788 per annum, or, if greater, an amount equal to that paid on any other outstanding shares of the Company. Such dividends accrued and were cumulative. The aggregate amount of accrued dividends, the cash liquidation amount of $14.85 per share plus the par value of common shares is $93,350 and $97,619was $99,015 at March 31, 2005 and December 31, 2005 (unaudited), respectively.2006.
The Common Stock,In September 2006, the Company recorded a charge to net income (loss) attributable to common stockholders of $102,745 related to the accretion of fair value of the Series A through E Stock upon conversion to common stock at the closing of the Company’s initial public offering as required underEITF D-42, “The Effect on the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock.”
F-19
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Convertible Preferred Stock
Upon completion of the initial public offering all 19,252 outstanding shares of the Company’s Series AA Preferred Stock (“Series AA Stock”), the Series BB Preferred Stock (“Series(Series BB Stock”) and the Series CC Preferred Stock (“Series CC Stock”) will vote togetherautomatically converted into 9,686 shares of common stock. The conversion ratio of the Series AA, BB and CC Stock was 0.514:1, 0.5:1, and 0.5:1, respectively. Prior to their conversion to common stock, the Company’s Series AA, BB and CC Stock were entitled to receive a proportionate share of cash dividends declared on the Company’s common stock, calculated on an as a single class on all matters submitted for stockholder consentif-converted basis. In the event the Company declared any other dividend or approval, withdistribution payable in securities of other persons, evidences of indebtedness issued by the Company or other persons, assets (excluding cash dividends) or options or rights to purchase any such securities or evidence of indebtedness, holders of the Company’s Series A through E PreferredAA Stock, having 40 votes for each share of Series A through E PreferredBB Stock, held. TheSeries CC Stock and Series A through E Stock were entitled to receive a proportionate share of any such dividend or distribution on an as if-converted basis. Prior to conversion, the Series AA Stock, the Seriesand BB Stock and the Series CC Stock will also each vote separately as a class on certain matters.
| |
| Series AA Convertible Preferred Stock |
In April 2000, the Company issued 4,362 shares of Series AA Convertible Preferred Stock at $5.73 per share. The Series AA Stock will automatically convert into Common Stock at the then
F-18
CommVault Systems Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
applicable conversion ratio at the closing of an initial public offering of the Company’s stock at a price of at least $6.26 per share, subject to adjustment, and resulting in net proceeds of at least $40,000. The Series AA stockholders also have anti-dilution protection on a weighted-average basis, subject to customary exclusions. The conversion ratio for Series AA holders is 1.028:1.
In the event of any liquidation or winding up of the Company (including a sale of substantially all assets, merger, reorganization or other transaction in which more than 50% of the outstanding securities of the Company are transferred), the holders of the Series AA Stock shall be entitled to receive, in preference to the holders of the Series A through E Stock, the Series BB Stock and the Common Stock, and on parity with the holders of the Series CC Stock, an amount equal to $5.73, which is the amount of the original purchase price, plus all declared but unpaid dividends on such shares. The balance of the proceeds shall be paid to the holders of the Common Stock and other series of preferred stock in accordance with the Company’s certificate of incorporation.
| |
| Series BB Convertible Preferred Stock |
In November 2000, the Company issued 2,758 shares of Series BB Convertible Preferred Stock at $12.10 per share. The Series BB stockholders have the option to convert all or a portion of their shares into Common Stock on a 1:1 basis, subject to anti-dilution adjustments as described in the purchase agreement. The Series BB Stock will automatically convert into common shares at the then applicable conversion ratio at the closing of an initial public offering of the Company’s stock at a price of at least $6.26 per share, subject to adjustment, and resulting in net proceeds of at least $40,000. The Series BB stockholders have no anti-dilution protections.
In the event of any liquidation or winding up of the Company (including a sale of substantially all assets, merger, reorganization or other transaction in which more than 50% of the outstanding securities of the Company are transferred), the holders of the Series BB Stock shall be entitled to receive, in preference to the holders of the Series A through E Stock and the Common Stock, an amount equal to $12.10, which is the amount of the original purchase price, plus all declared but unpaid dividends on such shares. The balance of the proceeds shall be paid to the holders of the Common Stock and other series of preferred stock in accordance with the Company’s certificate of incorporation.
| |
| Series CC Convertible Preferred Stock |
In February 2002 and September 2003, the Company issued 7,341 and 4,791 shares, respectively, totaling 12,132 shares of Series CC Convertible Preferred Stock at $3.13 (“Series CC Stock”) per share. The Series CC stockholders have the option to convert all or a portion of their shares into Common Stock on a 1:1 basis, subject to anti-dilution adjustments as described in the purchase agreement. The Series CC Preferred Stock will automatically convert into common shares at the then applicable conversion ratio at the closing of an initial public offering of the Company’s stock at a price of at least $6.26 per share, subject to adjustment, and resulting in net proceeds of at least $40,000. The Series CC stockholders havehad anti-dilution protection on a weighted-average basis, subject to customary exclusions.
In the event
Registration Rights
Holders of any liquidation or winding upshares of common stock which were issued upon conversion of the Company (including a sale of substantially all assets, merger, reorganization or other transaction in which more than 50% of the outstanding securities of the Company are transferred), the stockholders of the Series CC Preferred Stock shall be entitled to receive, in preference to the stockholders of theCompany’s Series A through E Preferred Stock, the Series BB Preferred Stock and Series AA, BB and CC Stock are entitled to have their shares registered under the Common Stock,Securities Act of 1933 (the “Securities Act”), as amended. Under the terms of an agreement between the Company and on parity with the holders of these registrable securities, if the Series AA Preferred Stock, an amount equalCompany proposes to $3.13, which isregister any of its securities under the amountSecurities Act, either for its own account or for the account of the original purchase price, plus all declared but unpaid dividends onothers, these stockholders are entitled to include their shares in such shares. The balance of the proceeds shall be paid to the holders of the registration.
Common Stock and other series of preferred stock in accordance with the Company’s certificate of incorporation. In
F-19
CommVault Systems Inc.Warrants
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
addition, so long as any shares of Series CC Preferred Stock are outstanding, the Company may not, without the approval of at least a majority of the Series CC Preferred Stock, (i) sell all or substantially all of its assets, (ii) approve any merger or consolidation of the Company whereby (1) the Company is not the surviving entity and (2) more than 50% of voting power of the surviving entity is not held by the Company’s stockholders, unless the consideration to be paid is at least $6.26 per share, or (iii) conduct an initial public offering that has an offering price of at least $6.26 per share, on an as adjusted basis.
In connection with the issuance of Series BB Stock in November 2000, one investor who is also a customer received a fully vested warrant to purchase 4,4652,233 shares of common stock at an exercise price of $13.57.$27.14. In July 2003, the warrant was cancelled and replaced with a fully vested warrant to purchase up to 3,0001,500 shares of common stock at an exercise price of $6.27$12.54 per share. The new warrant had an aggregate fair value of approximately $30 and expires no later thanexpired 15 days after the Company givesgave notice to the holder of the warrant of its intention to file a registration statement relating to an initial public offering. If the Company does not file a registration statement within 90 days of notice, the Company shall provide another notice at least 30 days prior to the filing and the holder will have another 15 days from receipt of subsequent notice to exercise the warrant. As of December 31, 2005, no warrants have been exercised.The warrant expired without being exercised in February 2006.
In December 2003, the Company issued a warrant to purchase up to 1,615807 shares of common stock at an exercise price of $5.25$10.50 per share to a customer at about the same time the Company signed a Software License Agreement with this customer. The Software License Agreement is cancelable by the customer without cause at any time. The warrant becomeswas exercisable in equal quarterly installments, commencing on the last day of the quarter ending March 31, 2004 and ending on the last day of the quarter ending December 31, 2005. The warrant hasalso contained provisions to be net exercised on a cashless basis. The number of common shares issuable on a cashless basis is equal to the vested warrants less the number of shares of common stock having an aggregate fair valuemarket price equal to the aggregate exercise price of $1,696the vested warrants. Market price is determined as the greater of (i) a product obtained by multiplying the Company’s trailing12-month revenues by six and expires on June 19, 2006.(ii) the price of common stock sold in a qualified financing transaction within six months of the cashless exercise. The Company recorded $1,696 as a non-cash reduction of revenue during the year ended March 31, 2004 in connection with this transaction. AsOn June 15, 2006, the holder of December 31, 2005, no warrants have been exercised.
| |
| Shares Reserved for Issuance |
The Company has reservedthe warrant to purchase up to 807 shares of common stock elected to make a sufficient number of shares to allow for the conversion of convertible preferred stock and cumulative redeemable convertible preferred stock and for thecashless exercise of all available optionsthe warrant and received 315 shares of common stock warrants at December 31, 2005 (unaudited) as follows:stock. Pursuant to the preemptive rights of the Series AA, BB and CC preferred stockholders that
| | | | |
Exercise of common stock options | | | 14,830 | |
Conversion of Series A Stock | | | 8,159 | |
Conversion of Series B Stock | | | 1,384 | |
Conversion of Series C Stock | | | 1,333 | |
Conversion of Series D Stock | | | 989 | |
Conversion of Series E Stock | | | 800 | |
Conversion of Series AA Stock | | | 4,484 | |
Conversion of Series BB Stock | | | 2,758 | |
Conversion of Series CC Stock | | | 12,132 | |
Exercise of warrants | | | 4,615 | |
| | | |
| | | 51,484 | |
| | | |
F-20
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
were triggered by the exercise of the warrant, such Series AA, BB and CC preferred stockholders (other than individuals that also own Series A through E Stock) purchased 73 shares of common stock on a cashless basis.
Shares Reserved for Issuance
The Company has reserved 7,671 shares to allow for the exercise of all outstanding options at March 31, 2007.
The
As of March 31, 2007, the Company maintains atwo stock option planincentive plans, the 1996 Stock Option Plan (the “Plan”) pursuant to whichand the 2006 Long-Term Stock Incentive Plan (the “LTIP”).
Under the Plan, the Company may grant non-qualified stock options to purchase 22,41011,705 shares of common stock to certain officers and employees.
The following summarizes the Plan’s activity from At March 31, 2002 to December2007 and March 31, 2005:2006, there were 302 and 499 options available for future grant under the Plan, respectively.
| | | | | | | | | |
| | | | Weighted- | |
| | Number | | | Average | |
| | of | | | Exercise | |
| | Options | | | Price | |
| | | | | | |
Options outstanding at March 31, 2002 | | | 5,792 | | | $ | 3.11 | |
| Options granted | | | 2,055 | | | | 3.00 | |
| Options exercised | | | (10 | ) | | | 2.40 | |
| Options canceled | | | (489 | ) | | | 3.54 | |
| | | | | | |
Options outstanding at March 31, 2003 | | | 7,348 | | | | 2.33 | |
| Options granted | | | 3,022 | | | | 2.40 | |
| Options exercised | | | (168 | ) | | | .97 | |
| Options canceled | | | (673 | ) | | | 2.93 | |
| | | | | | |
Options outstanding at March 31, 2004 | | | 9,529 | | | | 2.31 | |
| Options granted | | | 2,349 | | | | 2.83 | |
| Options exercised | | | (62 | ) | | | 2.46 | |
| Options canceled | | | (459 | ) | | | 2.90 | |
| | | | | | |
Options outstanding at March 31, 2005 | | | 11,357 | | | | 2.77 | |
| Options granted | | | 3,991 | | | | 2.52 | |
| Options exercised | | | (32 | ) | | | 2.52 | |
| Options canceled | | | (486 | ) | | | 2.78 | |
| | | | | | |
Options outstanding at December 31, 2005 (unaudited) | | | 14,830 | | | | 2.70 | |
| | | | | | |
The weighted average fair value
On January 26, 2006, the Board of Directors authorized the creation of the options granted at fair value was $1.88, $1.51 and $1.67 per share for grants in fiscal 2003, 2004 and 2005, respectively, and $1.72 and $1.47 for grants inLTIP. Upon the nine months ended December 31, 2004 (unaudited) and 2005 (unaudited), respectively. The weighted average fair valueclosing of the Company’s initial public offering on September 27, 2006, the Company became eligible to grant awards under the LTIP. The LTIP permits the grant of incentive stock options, granted below fair value was $2.19 per share in fiscal 2004non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance stock awards and $1.75 per share instock unit awards based on, or related to, shares of the nine months ended DecemberCompany’s common stock.
The maximum number of shares of the Company’s common stock that may be initially awarded under the LTIP is 4,000. On each April 1, the number of shares available for issuance under the LTIP is increased, if applicable, such that the total number of shares available for awards under the LTIP as of any April 1 is equal to 5% of the number of outstanding shares of the Company’s common stock on that April 1. At March 31, 2005 (unaudited).2007, approximately 3,763 shares were available for future issuance under the LTIP.
F-21
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The following table summarizes information onthe activity for the Company’s two stock options outstanding under the Plan at Decemberincentive plans from March 31, 2005 (unaudited):2004 to March 31, 2007:
| | | | | | | | | | | | | | | | | | | | |
| | | | Weighted-Average | | | Number of | | | |
| | Outstanding | | | | | | Options | | | Weighted- | |
| | Options at | | | Remaining | | | | | Exercisable at | | | Average | |
| | December 31, | | | Contractual | | | Exercise | | | December 31, | | | Exercise | |
Range of Exercise Prices | | 2005 | | | Life | | | Price | | | 2005 | | | Price | |
| | | | | | | | | | | | | | | |
$0.0125 | | | 19 | | | | 3.42 | | | $ | 0.0125 | | | | 19 | | | $ | 0.0125 | |
2.00 | | | 2,049 | | | | 7.14 | | | | 2.00 | | | | 1,391 | | | | 2.00 | |
2.25 | | | 698 | | | | 9.34 | | | | 2.25 | | | | 0 | | | | 0.00 | |
2.35 | | | 2,488 | | | | 9.67 | | | | 2.35 | | | | 0 | | | | 0.00 | |
2.40 | | | 116 | | | | 8.58 | | | | 2.40 | | | | 39 | | | | 2.40 | |
2.50 | | | 2,327 | | | | 5.65 | | | | 2.50 | | | | 1,932 | | | | 2.50 | |
2.65 | | | 774 | | | | 8.97 | | | | 2.65 | | | | 163 | | | | 2.65 | |
3.00 | | | 4,329 | | | | 6.52 | | | | 3.00 | | | | 3,429 | | | | 3.00 | |
3.35 | | | 728 | | | | 9.84 | | | | 3.35 | | | | 0 | | | | 0.00 | |
3.60 | | | 655 | | | | 8.08 | | | | 3.60 | | | | 290 | | | | 3.60 | |
4.00 | | | 647 | | | | 5.02 | | | | 4.00 | | | | 647 | | | | 4.00 | |
| | | | | | | | | | | | | | | |
$0.0125-4.00 | | | 14,830 | | | | 7.44 | | | $ | 2.70 | | | | 7,910 | | | $ | 2.79 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | Weighted-
| | | | |
| | | | | | | | Average
| | | | |
| | | | | Weighted-
| | | Remaining
| | | | |
| | Number
| | | Average
| | | Contractual
| | | Aggregate
| |
| | of
| | | Exercise
| | | Term
| | | Intrinsic
| |
Options | | Options | | | Price | | | (Years) | | | Value | |
|
Outstanding at March 31, 2004 | | | 4,764 | | | $ | 4.62 | | | | | | | | | |
Options granted | | | 1,175 | | | | 5.66 | | | | | | | | | |
Options exercised | | | (31 | ) | | | 4.92 | | | | | | | | | |
Options canceled | | | (229 | ) | | | 5.80 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at March 31, 2005 | | | 5,679 | | | | 5.53 | | | | | | | | | |
Options granted | | | 2,492 | | | | 5.57 | | | | | | | | | |
Options exercised | | | (151 | ) | | | 4.62 | | | | | | | | | |
Options canceled | | | (433 | ) | | | 5.53 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at March 31, 2006 | | | 7,587 | | | | 5.56 | | | | | | | | | |
Options granted | | | 761 | | | | 14.30 | | | | | | | | | |
Options exercised | | | (350 | ) | | | 5.33 | | | | | | | | | |
Options canceled | | | (327 | ) | | | 6.87 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at March 31, 2007 | | | 7,671 | | | $ | 6.39 | | | | 6.56 | | | $ | 75,709 | |
| | | | | | | | | | | | | | | | |
Vested or expected to vest at March 31, 2007 | | | 7,453 | | | $ | 6.31 | | | | 6.48 | | | $ | 74,107 | |
| | | | | | | | | | | | | | | | |
Exercisable at March 31, 2007 | | | 4,804 | | | $ | 5.56 | | | | 5.43 | | | $ | 51,108 | |
| | | | | | | | | | | | | | | | |
Stock options are granted at the discretion of the Board and expire 10 years from the date of the grant. Options generally vest over a four-year period. AtThe weighted average fair value of stock options granted was $8.11, $6.36 and $3.45 during the year ended March 31, 2004,2007, 2006 and 2005, respectively. The total intrinsic value of options exercised was $3,916, $959 and December$21 in the years ended March 31, 2007, 2006 and 2005, (unaudited), there were 1,005, 1,121 and 616respectively.
F-22
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The following table summarizes information on stock options available for future grantoutstanding under the Plan respectively.and LTIP at March 31, 2007:
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Weighted-
| |
| | Outstanding
| | | Weighted-Average | | | Options
| | | Average
| |
| | Options at
| | | Remaining
| | | Exercise
| | | Exercisable at
| | | Exercise
| |
Range of Exercise Prices | | March 31, 2007 | | | Contractual Life | | | Price | | | March 31, 2007 | | | Price | |
|
$0.01 – 1.00 | | | 8 | | | | 2.10 | | | $ | 0.025 | | | | 8 | | | $ | 0.025 | |
3.00 – 4.00 | | | 819 | | | | 5.82 | | | | 4.00 | | | | 775 | | | | 4.00 | |
4.00 – 5.00 | | | 2,504 | | | | 6.67 | | | | 4.80 | | | | 1,301 | | | | 4.90 | |
5.00 – 6.00 | | | 2,379 | | | | 5.59 | | | | 5.89 | | | | 2,038 | | | | 5.93 | |
6.00 – 7.00 | | | 259 | | | | 8.58 | | | | 6.70 | | | | 82 | | | | 6.70 | |
7.00 – 8.00 | | | 830 | | | | 6.29 | | | | 7.58 | | | | 573 | | | | 7.66 | |
8.00 – 9.00 | | | 137 | | | | 8.92 | | | | 8.10 | | | | 27 | | | | 8.10 | |
11.00 – 12.00 | | | 150 | | | | 9.05 | | | | 11.70 | | | | 0 | | | | 0.00 | |
12.00 – 13.00 | | | 223 | | | | 9.23 | | | | 12.69 | | | | 0 | | | | 0.00 | |
13.00 – 14.00 | | | 125 | | | | 9.45 | | | | 13.50 | | | | 0 | | | | 0.00 | |
16.00 – 17.00 | | | 88 | | | | 9.90 | | | | 16.26 | | | | 0 | | | | 0.00 | |
17.00 – 18.00 | | | 48 | | | | 9.62 | | | | 17.60 | | | | 0 | | | | 0.00 | |
18.00 – 19.00 | | | 29 | | | | 9.54 | | | | 18.85 | | | | 0 | | | | 0.00 | |
19.00 – 19.99 | | | 72 | | | | 9.75 | | | | 19.92 | | | | 0 | | | | 0.00 | |
| | | | | | | | | | | | | | | | | | | | |
$0.01 – 19.99 | | | 7,671 | | | | 6.56 | | | $ | 6.39 | | | | 4,804 | | | $ | 5.56 | |
| | | | | | | | | | | | | | | | | | | | |
During the twelve month periodyears ended DecemberMarch 31, 2005,2007 and 2006, the Company granted stock options with exercise prices as follows:
| | | | | | | | | | | | | | | | |
| | Number of | | | Exercise | | | Fair Value per | | | Intrinsic | |
Grants Made During the Month Ended | | Options Granted | | | Price | | | Common Share | | | Value | |
| | | | | | | | | | | | |
January 31, 2005 | | | 470 | | | $ | 2.65 | | | $ | 2.65 | | | $ | — | |
May 31, 2005 (unaudited) | | | 719 | | | | 2.25 | | | | 2.25 | | | | — | |
July 31, 2005 (unaudited) | | | 923 | | | | 2.35 | | | | 2.35 | | | | — | |
September 30, 2005 (unaudited) | | | 1,600 | | | | 2.35 | | | | 2.89 | | | | 0.54 | |
November 30, 2005 (unaudited) | | | 749 | | | | 3.35 | | | | 3.35 | | | | — | |
The intrinsic
| | | | | | | | | | | | | | | | |
| | | | | | | | Fair
| | | | |
| | Options
| | | Exercise
| | | Value per
| | | Intrinsic
| |
Grant Date | | Granted | | | Price | | | Common Share | | | Value | |
|
Fiscal Year 2006: | | | | | | | | | | | | | | | | |
May 5, 2005 | | | 360 | | | $ | 4.50 | | | $ | 6.92 | | | $ | 2.42 | |
July 29, 2005 | | | 461 | | | | 4.70 | | | | 8.36 | | | | 3.66 | |
September 19, 2005 | | | 800 | | | | 4.70 | | | | 9.18 | | | | 4.48 | |
November 3, 2005 | | | 375 | | | | 6.70 | | | | 10.34 | | | | 3.64 | |
January 26, 2006 | | | 334 | | | | 7.50 | | | | 11.08 | | | | 3.58 | |
March 2, 2006 | | | 164 | | | | 8.10 | | | | 12.84 | | | | 4.74 | |
Fiscal Year 2007: | | | | | | | | | | | | | | | | |
April 20, 2006 | | | 150 | | | $ | 11.70 | | | $ | 12.98 | | | $ | 1.28 | |
May 3, 2006 | | | 90 | | | | 12.60 | | | | 13.08 | | | | 0.48 | |
July 27, 2006 | | | 146 | | | | 12.74 | | | | 12.74 | | | | — | |
September 12, 2006 | | | 135 | | | | 13.50 | | | | 13.50 | | | | — | |
October 13, 2006 | | | 31 | | | | 18.85 | | | | 18.85 | | | | — | |
November 14, 2006 | | | 48 | | | | 17.60 | | | | 17.60 | | | | — | |
December 14, 2006 | | | 39 | | | | 19.99 | | | | 19.99 | | | | — | |
January 15, 2007 | | | 34 | | | | 19.84 | | | | 19.84 | | | | — | |
February 14, 2007 | | | 64 | | | | 16.26 | | | | 16.26 | | | | — | |
March 14, 2007 | | | 25 | | | | 16.27 | | | | 16.27 | | | | — | |
In establishing the Company’s estimates of fair value of its common stock during the year ended March 31, 2006 and on April 20, 2006 and May 3, 2006, the Company performed a retrospective
F-23
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share is being recognized as compensation expense overdata)
determination of the four-year vesting period.fair value of its common stock. The estimatedretrospective determination of fair value of the Company’s common stock was determined byutilized the Boardprobability weighted expected returns (“PWER”) method described in the AICPA Technical Practice Aid,Valuation of DirectorsPrivately-Held-Company Equity Securities Issued as Compensation. The Company estimated the fair value of its common stock on July 27, 2006 based on a contemporaneous basis.valuation using the PWER method. The Company used a consistent formula basedestimated the fair value of its common stock on its 12-month projected revenues in periods where it was not profitable and 12-month projected earnings when it started to achieve consistent profitability in recent fiscal quarters. The Company based its valuation on revenues or earnings multiples of a comparable group of public data storage/management software companies. The Company then applied a discount to these multiplesSeptember 12, 2006 based on the following reasons:midpoint of the estimated offering range contained in the Company’s registration statement onForm S-1 related to its initial public offering. The fair market value of the Company’s common stock subsequent to the closing of its initial public offering on September 27, 2006 was based on the publicly trade price as reported by The NASDAQ Stock Market.
The reassessed fair value of the Company’s common stock underlying 360 options granted to employees on May 5, 2005 was determined to be $6.92 per share. The increase in fair value as compared to the January 27, 2005 value was primarily due to the following:
| | |
| • | For the significant risks related to, and market acceptance associated with,three months ended March 31, 2005, the Company had its products;most profitable quarter in its history at that time, generating earnings of approximately $1,600; |
|
| • | The Company achieved its first fiscal year of profitability for the difficultyyear ended March 31, 2005; |
|
| • | The Company entered into an original equipment manufacturer arrangement with Hitachi Data Systems in March 2005; and |
|
| • | The possibility of competingan initial public offering remained relatively low and a probability estimate of 30% was assigned under the PWER method as a smaller private company in a market that has been historically dominated by larger public companies; andresult of the significant milestones to be achieved. |
F-22
CommVault Systems Inc.
NotesThe reassessed fair value of the Company’s common stock underlying 461 options granted to Consolidated Financial Statements — (Continued)employees on July 29, 2005 was determined to be $8.36 per share. The increase in fair value as compared to the May 5, 2005 value was primarily due to the following:
(In thousands, except per share data)
| | |
| • | For the preferential rightsthree months ended June 30, 2005, revenues and earnings exceeded budget; |
|
| • | The Company increased its earnings forecast for the remainder of fiscal 2006; and |
|
| • | The Company increased the outstanding convertible preferred stock with respectprobability estimate for the initial public offering scenario under the PWER method to liquidation preferences, voting control40% as a result of revenues and anti-dilution rights.earnings exceeding budget. |
The reassessed fair value of the Company’s common stock underlying 800 options granted to employees on September 19, 2005 was determined to be $9.18 per share. On September 19, 2005, the Company’s compensation committee awarded options to several key executives. The underlying assumptions that were in place as of the July 29, 2005 grant date were still in place on September 19, 2005, except the Company reducedincreased the discountprobability estimate for the initial public offering scenario under the PWER method to the revenues and earnings multiples50% as it gota result of moving closer to a possiblepotential initial public offering and anticipating a profitable quarter ending September 30, 2005.
The reassessed fair value of itsthe Company’s common stock underlying 375 options granted to employees on November 3, 2005 was determined to be $10.34 per share. The increase in fair value as it achieved more consistent profitability and mitigated somecompared to the September 19, 2005 value was primarily due to the following:
| | |
| • | For the three and six months ended September 30, 2005, earnings exceeded the Company’s original budget and revised forecasts; |
|
| • | In the six months ended September 30, 2005, the Company started to achieve substantial revenue growth from its original equipment manufacturer arrangements with Dell and Hitachi Data Systems; and |
F-24
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
| | |
| • | The Company increased the probability estimate for the initial public offering scenario under the PWER method to 60% as a result of earnings exceeding forecast and the substantial revenue growth the Company achieved from its original equipment manufacturer agreements. |
The reassessed fair value of the factors noted above. In addition,Company’s common stock underlying 334 options granted to employees on January 26, 2006 was determined to be $11.08 per share. The increase in fair value as compared to the November 3, 2005 value was primarily due to the following:
| | |
| • | On January 10, 2006, the Company initiated the process of an initial public offering when it held an organizational meeting; as a result, the Company increased the initial public offering scenario to 65% under the PWER method; |
|
| • | The Company achieved consecutive quarters of profitability for the first time; |
|
| • | For the three and nine months ended December 31, 2005, earnings exceeded original budget and revised forecasts; and |
|
| • | The Company continued to generate cash flows from operations significantly exceeding budgeted, revised forecast and prior year amounts. |
The reassessed fair value of the Company’s common stock underlying 164 options granted to employees on March 2, 2006 was determined to be $12.84 per share. On March 2, 2006, the Company’s compensation committee awarded options to certain strategic new hires. The underlying assumptions that were in place as of the January 26, 2006 grant date were still in place on March 2, 2006, except that the Company reduced its valuation byincreased the cash payout required to certain of its preferred stockholders upon anprobability estimate for the initial public offering.offering scenario under the PWER method to 90% as a result of the imminence of the Company’s potential initial public offering and anticipating fiscal 2006 earnings would exceed forecast and budget amounts.
The reassessed fair value of the Company’s common stock underlying 150 options and 90 options granted to employees on April 20, 2006 and May 3, 2006 was determined to be $12.98 per share and $13.08 per share, respectively. The increase in fair value as of April 20, 2006 and May 3, 2006 as compared to the March 2, 2006 value was primarily due to the following:
| | |
| • | The Company achieved its third quarter of consecutive profitability and completed its most profitable fiscal year for the year ended March 31, 2006; |
|
| • | The Company continued to generate cash flows from operations significantly exceeding budgeted and prior year amounts. |
The Company maintained a 90% probability estimate for the initial public offering scenario under the PWER method for the April 20, 2006 and May 3, 2006 common stock valuations.
The components of income (loss) before income taxes were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | |
| | Year Ended March 31, | | | December 31, | |
| | | | | | |
| | 2003 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | (Unaudited) | |
Domestic | | $ | (13,857 | ) | | $ | (6,585 | ) | | $ | 3,778 | | | $ | 1,170 | | | $ | 10,997 | |
Foreign | | | (2,605 | ) | | | (5,113 | ) | | | (3,121 | ) | | | (2,254 | ) | | | (1,278 | ) |
| | | | | | | | | | | | | | | |
| | $ | (16,462 | ) | | $ | (11,698 | ) | | $ | 657 | | | $ | (1,084 | ) | | $ | 9,719 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Year Ended March 31, | |
| | 2007 | | | 2006 | | | 2005 | |
|
Domestic | | $ | 6,950 | | | $ | 12,901 | | | $ | 3,778 | |
Foreign | | | 11,896 | | | | (1,694 | ) | | | (3,121 | ) |
| | | | | | | | | | | | |
| | $ | 18,846 | | | $ | 11,207 | | | $ | 657 | |
| | | | | | | | | | | | |
F-25
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
The components of current income tax expense (benefit)benefit (expense) were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | |
| | Year Ended March 31, | | | December 31, | |
| | | | | | |
| | 2003 | | | 2004 | | 2005 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | (Unaudited) | |
Federal | | $ | — | | | $ | — | | | $ | 83 | | | $ | 28 | | | $ | 223 | |
State | | | (52 | ) | | | — | | | | 89 | | | | 36 | | | | 389 | |
Foreign | | | — | | | | — | | | | 2 | | | | — | | | | 24 | |
| | | | | | | | | | | | | | | |
| | $ | (52 | ) | | $ | — | | | $ | 174 | | | $ | 64 | | | $ | 636 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Year Ended March 31, | |
| | 2007 | | | 2006 | | | 2005 | |
|
Current: | | | | | | | | | | | | |
Federal | | $ | (6,236 | ) | | $ | (239 | ) | | $ | (83 | ) |
State | | | (219 | ) | | | (172 | ) | | | (89 | ) |
Foreign | | | (296 | ) | | | (40 | ) | | | (2 | ) |
Deferred: | | | | | | | | | | | | |
Federal | | | 41,423 | | | | — | | | | — | |
State | | | 8,385 | | | | — | | | | — | |
Foreign | | | 2,351 | | | | — | | | | — | |
| | | | | | | | | | | | |
| | $ | 45,408 | | | $ | (451 | ) | | $ | (174 | ) |
| | | | | | | | | | | | |
The state income tax benefit of $52 for the year ended March 31, 2003 relates to2007 primarily represents the saleCompany’s reversal of state net operating losses.substantially all its deferred tax valuation allowance of $52,159, partially offset by the recognition of $5,020 for certain tax reserves. The income tax expense for the yearyears ended March 31, 20052006 and the nine months ended December 31, 2005 primarily represents alternative minimum taxes due to the U.S. federal government as well as various state income taxes.
| | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | |
| | Year Ended March 31, | | | December 31, | |
| | | | | | |
| | 2003 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | (Unaudited) | |
Statutory federal income tax expense (benefit) rate | | | (34.0 | )% | | | (34.0 | )% | | | 34.0 | % | | | (34.0 | )% | | | 34.0 | % |
State and local income tax expense (benefit), net of federal income tax effect | | | (4.1 | )% | | | (2.4 | )% | | | 13.5 | % | | | 15.7 | % | | | (6.2 | )% |
Foreign earnings taxed at different rates | | | 0.6 | % | | | 1.5 | % | | | 12.6 | % | | | 4.2 | % | | | 0.3 | % |
Certain non-deductible expenses | | | 2.9 | % | | | 4.2 | % | | | 21.5 | % | | | 9.5 | % | | | 1.4 | % |
Research credits | | | (10.3 | )% | | | (14.3 | )% | | | (111.3 | )% | | | (47.7 | )% | | | (4.9 | )% |
Other differences, net | | | (0.1 | )% | | | 0.1 | % | | | 11.2 | % | | | 0.3 | % | | | — | |
Change in valuation allowance | | | 44.7 | % | | | 44.9 | % | | | 45.0 | % | | | 57.9 | % | | | (18.1 | )% |
| | | | | | | | | | | | | | | |
Effective income tax expense (benefit) rate | | | (0.3 | )% | | | 0.0 | % | | | 26.5 | % | | | 5.9 | % | | | 6.5 | % |
| | | | | | | | | | | | | | | |
A reconciliation of the statutory tax rates and the effective tax rates for the years ended March 31, 2007, 2006 and 2005 are as follows:
| | | | | | | | | | | | |
| | Year Ended March 31, | |
| | 2007 | | | 2006 | | | 2005 | |
|
Statutory federal income tax benefit (expense) rate | | | (35.0 | )% | | | (34.0 | )% | | | (34.0 | )% |
State and local income tax benefit (expense), net of federal income tax effect | | | (5.0 | )% | | | (0.9 | )% | | | (13.5 | )% |
Foreign earnings taxed at different rates | | | 5.5 | % | | | (0.5 | )% | | | (12.6 | )% |
Permanent differences | | | 26.4 | % | | | 3.6 | % | | | (21.5 | )% |
Research credits | | | 3.8 | % | | | 6.9 | % | | | 111.3 | % |
Tax reserves | | | (26.6 | )% | | | — | % | | | — | % |
Other differences, net | | | (5.0 | )% | | | (1.9 | )% | | | (11.2 | )% |
Change in valuation allowance | | | 276.8 | % | | | 22.8 | % | | | (45.0 | )% |
| | | | | | | | | | | | |
Effective income tax benefit (expense) | | | 240.9 | % | | | (4.0 | )% | | | (26.5 | )% |
| | | | | | | | | | | | |
F-23
F-26
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Deferred tax assets arise due to the recognition of income and expense items for tax purposes, which differ from those used for financial statement purposes. The significant components of the Company’s deferred tax assets are as follows:
| | | | | | | | | | | | | |
| | March 31, | | | |
| | | | | December 31, | |
| | 2004 | | | 2005 | | | 2005 | |
| | | | | | | | | |
| | | | | | (Unaudited) | |
Deferred tax assets: | | | | | | | | | | | | |
| Net operating losses | | $ | 42,921 | | | $ | 42,566 | | | $ | 39,009 | |
| Depreciation and amortization | | | 4,227 | | | | 3,579 | | | | 3,522 | |
| Accrued expenses | | | 246 | | | | 170 | | | | 499 | |
| Deferred revenue | | | 831 | | | | 436 | | | | 979 | |
| Allowance for doubtful accounts and other reserves | | | 147 | | | | 134 | | | | 253 | |
| Tax credits | | | 8,015 | | | | 9,799 | | | | 10,673 | |
| | | | | | | | | |
Total deferred tax assets | | | 56,387 | | | | 56,684 | | | | 54,935 | |
Less valuation allowance | | | (56,387 | ) | | | (56,684 | ) | | | (54,935 | ) |
| | | | | | | | | |
Net deferred tax assets | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | |
In
| | | | | | | | |
| | March 31, | |
| | 2007 | | | 2006 | |
|
Deferred tax assets: | | | | | | | | |
Net operating losses | | $ | 32,164 | | | $ | 38,120 | |
Depreciation and amortization | | | 2,321 | | | | 2,974 | |
Deferred and stock-based compensation | | | 2,454 | | | | 425 | |
Deferred revenue | | | 1,586 | | | | 1,045 | |
Accrued expenses | | | 449 | | | | 512 | |
Allowance for doubtful accounts and other reserves | | | 191 | | | | 197 | |
Tax credits | | | 14,274 | | | | 10,897 | |
| | | | | | | | |
Total deferred tax assets | | | 53,439 | | | | 54,170 | |
Less: valuation allowance | | | (1,280 | ) | | | (54,170 | ) |
| | | | | | | | |
Net deferred tax assets | | $ | 52,159 | | | $ | — | |
| | | | | | | | |
Until the nine months ended December 31, 2005,fourth quarter of fiscal 2007, the Company reduced its valuation allowance by $1,749 (unaudited). Due to the uncertainty of future profitability, the Company hashad recorded a valuation allowance equal to fully reserve its net deferred tax assets based on the Company’s assessment that the realization of the net deferred tax assets did not meet the “more likely than not” criterion under SFAS No. 109,“Accounting for Income Taxes.”As of March 31, 2007 the Company determined that based upon a number of factors, including the Company’s cumulative taxable income over the past three fiscal years and expected profitability in future years, that certain of it’s deferred tax assets were “more likely than not” realizable through future earnings. Accordingly, as of March 31, 2007 the Company reversed substantially all of its deferred income tax valuation allowance and recorded a corresponding tax benefit of $52,159. As of March 31, 2007, the Company maintains a valuation allowance for deferred tax assets of $1,280 primarily related to net operating loss carryforwards in certain international jurisdictions.
The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in each of its tax jurisdictions. The number of years with open tax audits varies depending on the tax jurisdiction. A number of years may lapse before a particular matter is audited and finally resolved. In evaluating the exposure associated with various filing positions, the Company records estimated reserves for probable exposures. Based on the Company’s evaluation of current tax positions, the Company believes it has appropriately accrued for probable exposures. The Company includes its estimated reserves for probable exposures in accrued liabilities. The total amount of income tax reserves recorded in accrued liabilities at March 31, 2007 was $5,020.
Deferred U.S. income taxes have not been provided on undistributed earnings of foreign subsidiaries of the Company. The Company considers the undistributed earnings of its foreign subsidiaries permanently reinvested in the businesses. These undistributed foreign earnings could become subject to U.S. income tax if remitted, or deemed remitted, as a dividend. Determination of the deferred U.S. income tax asset.liability on these unremitted earnings is not practicable, since such liability, if any, is dependent on circumstances existing at the time of the remittance.
The cumulative amount of unremitted earnings from the foreign subsidiaries that is expected to be permanently reinvested was approximately $187 on March 31, 2007.
F-27
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
At March 31, 2005 and December 31, 2005,2007, the Company has federal and state net operating loss (“NOL”) carryforwards of approximately $96,464$76,052 and $83,273 (unaudited), respectively, and state NOL carryforwards of approximately $73,228 and $66,878 (unaudited),$60,037, respectively. The federal NOL carryforwards expire from 20182019 through 2024, and the state NOL carryforwards expire from 2016 through 2020.2008 to 2011. At March 31, 2005 and December 31, 2005,2007, the Company also has NOL carryforwards for foreign tax purposes of approximately $19,598 and $20,646 (unaudited), respectively,$8,479 which begin to expire in 2007.2008.
At March 31, 2005 and December 31, 2005,2007, the Company has federal research tax credit carryforwards of approximately $6,498 and $7,011 (unaudited), respectively, and state research tax credit carryforwards of approximately $3,218$9,150 and $3,337 (unaudited),$4,678, respectively. The federal research tax credit carryforwards expire from 20182012 through 2024,2027, and the state research tax credit carryforwards expire from 2016 through 2020.2014. At March 31, 2005 and December 31, 2005,2007, the Company has federal Alternative Minimum Tax credit carryforwards of $83 and $324 (unaudited), respectively.$446.
| |
11.10. | Employee Benefit Plan |
The Company has a defined contribution plan, as allowed under Section 401(k) of the Internal Revenue Code, covering substantially all employees. The Company may make contributions equal to a discretionary percentage of the employee’s contributions determined by the Company. The Company has not made any contributions to the defined contribution plan.
| |
12.11. | Segment Information |
The Company operates in one reportable segment, storage software solutions. The Company’s products and services are sold throughout the world, through direct and indirect sales channels. The Company’s chief operating decision maker, the chief executive officer, evaluates the performance of the
F-24
CommVault Systems Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
Company based upon stand-alone revenue of product channels and the two geographic regions of the segment discussed below and doesdo not receive discrete financial information about asset allocation, expense allocation or profitability from the Company’s storage products or services.
The Company is organized into two geographic regions: the United States and all other countries. All transfers between geographic regions have been eliminated from consolidated revenues. This data is presented in accordance with SFAS No. 131,Disclosure about Segments of an Enterprise and Related Information.Information.
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Nine Months Ended | |
| | Year Ended March 31, | | | December 31, | |
| | | | | | |
| | 2003 | | | 2004 | | | 2005 | | | 2004 | | | 2005 | |
| | | | | | | | | | | | | | | |
| | | | | | | | (Unaudited) | | | (Unaudited) | |
Revenue: | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 30,968 | | | $ | 43,227 | | | $ | 60,562 | | | $ | 43,281 | | | $ | 58,455 | |
| Other | | | 13,451 | | | | 18,019 | | | | 22,067 | | | | 15,738 | | | | 22,231 | |
| | | | | | | | | | | | | | | |
| | Total | | $ | 44,419 | | | $ | 61,246 | | | $ | 82,629 | | | $ | 59,019 | | | $ | 80,686 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Year Ended March 31, | |
| | 2007 | | | 2006 | | | 2005 | |
|
Revenue: | | | | | | | | | | | | |
United States | | $ | 105,140 | | | $ | 77,762 | | | $ | 60,562 | |
Other | | | 45,967 | | | | 31,710 | | | | 22,067 | |
| | | | | | | | | | | | |
| | $ | 151,107 | | | $ | 109,472 | | | $ | 82,629 | |
| | | | | | | | | | | | |
No individual country other than the United States accounts for 10% or more of revenues in fiscal 2003, 2004, 2005 or the nine monthsyears ended DecemberMarch 31, 20042007, 2006 and 2005. Revenue included in the “Other” caption above primarily relates to the Company’s operations in Europe, Australia, and Canada.
| | | | | | | | | | | | | | |
| | March 31, | | | March 31, | | | December 31, | |
| | 2004 | | | 2005 | | | 2005 | |
| | | | | | | | | |
| | | | | | (Unaudited) | |
Long-lived assets: | | | | | | | | | | | | |
| United States | | $ | 1,449 | | | $ | 1,789 | | | $ | 1,998 | |
| Other | | | 429 | | | | 638 | | | | 1,036 | |
| | | | | | | | | |
| | Total | | $ | 1,878 | | | $ | 2,427 | | | $ | 3,034 | |
| | | | | | | | | |
| | | | | | | | |
| | March 31, | |
| | 2007 | | | 2006 | |
|
Long-lived assets: | | | | | | | | |
United States | | $ | 3,450 | | | $ | 3,298 | |
Other | | | 1,728 | | | | 1,116 | |
| | | | | | | | |
| | $ | 5,178 | | | $ | 4,414 | |
| | | | | | | | |
F-28
CommVault Systems, Inc.
Notes to Consolidated Financial Statements — (Continued)
(In thousands, except per share data)
At DecemberMarch 31, 2005,2007, the United Kingdom had long-lived assets of $573 and at March 31, 2006, Germany had long-lived assets of $526 (unaudited). At March 31, 2004 and 2005, the Netherlands had long-lived assets of $341 and $310, respectively.$624. No other individual country other than the United States accounts for 10% or more of long-lived assets as of March 31, 2004, March 31, 2005 or December 31, 2005.2007 and 2006.
| |
13.12. | Subsequent EventsSelected Quarterly Financial Data (unaudited) |
At the January 26, 2006 Board of Directors’ meeting, the number of shares available for grant under the Plan increased by 1,000 shares. During this same meeting, the Board of Directors authorized the creation of the Long-Term Stock Incentive Plan (“LTIP”). The LTIP will become effective upon an initial public offering at which time the authorized shares will be determined.
| | | | | | | | | | | | | | | | |
| | Quarter Ended | |
| | June 30 | | | September 30 | | | December 31 | | | March 31 | |
|
Fiscal 2007 | | | | | | | | | | | | | | | | |
Total revenue | | $ | 33,522 | | | $ | 36,638 | | | $ | 38,330 | | | $ | 42,617 | |
Gross margin | | | 28,737 | | | | 31,403 | | | | 32,700 | | | | 36,583 | |
Net income | | | 3,341 | | | | 4,431 | | | | 4,634 | | | | 51,848 | |
Net income (loss) attributable to common stockholders(1)(2) | | | 1,930 | | | | (99,721 | ) | | | 4,634 | | | | 51,848 | |
Net income (loss) attributable to common stockholders per share: | | | | | | | | | | | | | | | | |
Basic(3) | | $ | 0.07 | | | $ | (4.90 | ) | | $ | 0.11 | | | $ | 1.24 | |
Diluted(3) | | $ | 0.06 | | | $ | (4.90 | ) | | $ | 0.10 | | | $ | 1.16 | |
| | | | | | | | | | | | | | | | |
| | Quarter Ended | |
| | June 30 | | | September 30 | | | December 31 | | | March 31 | |
|
Fiscal 2006 | | | | | | | | | | | | | | | | |
Total revenue | | $ | 22,123 | | | $ | 25,922 | | | $ | 29,050 | | | $ | 32,377 | |
Gross margin | | | 19,103 | | | | 22,575 | | | | 24,809 | | | | 27,990 | |
Net income (loss) | | | (365 | ) | | | 2,014 | | | | 3,571 | | | | 5,536 | |
Net income (loss) attributable to common stockholders | | | (1,776 | ) | | | 587 | | | | 2,144 | | | | 4,140 | |
Net income (loss) attributable to common stockholders per share: | | | | | | | | | | | | | | | | |
Basic(3) | | $ | (0.09 | ) | | $ | 0.02 | | | $ | 0.08 | | | $ | 0.14 | |
Diluted(3) | | $ | (0.09 | ) | | $ | 0.02 | | | $ | 0.07 | | | $ | 0.13 | |
| | |
(1) | | In the quarter ended September 30, 2006, net income (loss) attributable to common stockholders was reduced by $102,745 related to the accretion of fair value of the Series A through E cumulative redeemable convertible preferred stock upon conversion to common stock on September 27, 2006. |
|
(2) | | In the quarter ended March 31, 2007, net income (loss) attributable to common stockholders includes the impact of a reduction of the Company’s deferred tax valuation allowance of $52,159 and the recognition of certain tax reserves of $5,020. |
|
(3) | | Per common share amounts for the quarters and full year have been calculated separately. Accordingly, quarterly amounts do not add to the annual amount because of differences in the weighted average common shares outstanding during each period used in the basic and diluted calculations. |
F-25
F-29
CommVault Systems, Inc.
Schedule II — Valuation and Qualifying Accounts
(In thousands)
| | | | | | | | | | | | | | | | |
| | | | Additions — | | | | | |
| | Balance at | | | Charged to | | | Deductions — | | | Balance at | |
| | Beginning of | | | Costs and | | | See Notes | | | End of | |
| | Period | | | Expenses | | | Below | | | Period | |
| | | | | | | | | | | | |
Year Ended March 31, 2003: | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts(1) | | $ | 159 | | | $ | 151 | | | $ | 7 | | | $ | 303 | |
Valuation allowance for deferred taxes(2) | | $ | 43,603 | | | $ | 7,527 | | | $ | — | | | $ | 51,130 | |
Year Ended March 31, 2004: | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts(1) | | $ | 303 | | | $ | 482 | | | $ | 99 | | | $ | 686 | |
Valuation allowance for deferred taxes(2) | | $ | 51,130 | | | $ | 5,257 | | | $ | — | | | $ | 56,387 | |
Year Ended March 31, 2005: | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts(1) | | $ | 686 | | | $ | 107 | | | $ | 191 | | | $ | 602 | |
Valuation allowance for deferred taxes(2) | | $ | 56,387 | | | $ | 297 | | | $ | — | | | $ | 56,684 | |
Nine Months Ended December 31, 2005: | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts(1) | | $ | 602 | | | $ | 39 | | | $ | 38 | | | $ | 603 | |
Valuation allowance for deferred taxes(2) | | $ | 56,684 | | | $ | — | | | $ | 1,749 | | | $ | 54,935 | |
| | | | | | | | | | | | | | | | |
| | | | | Charged
| | | | | | | |
| | Balance at
| | | (Credited) to
| | | | | | Balance at
| |
| | Beginning of
| | | Costs and
| | | | | | End of
| |
| | Period | | | Expenses | | | Deductions | | | Period | |
|
Year Ended March 31, 2005: | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 686 | | | $ | 107 | | | $ | 191 | | | $ | 602 | |
Valuation allowance for deferred taxes(1) | | $ | 56,387 | | | $ | 297 | | | $ | — | | | $ | 56,684 | |
Year Ended March 31, 2006: | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 602 | | | $ | 40 | | | $ | 167 | | | $ | 475 | |
Valuation allowance for deferred taxes(1) | | $ | 56,684 | | | $ | — | | | $ | 2,514 | | | $ | 54,170 | |
Year Ended March 31, 2007: | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 475 | | | $ | (77 | ) | | $ | 87 | | | $ | 311 | |
Valuation allowance for deferred taxes(1) | | $ | 54,170 | | | $ | — | | | $ | 52,890 | | | $ | 1,280 | |
| | |
(1) | Deductions from provisions represent losses or expenses for which the respective provisions were created. In the case of the provision for doubtful accounts, such deductions are reduced by recoveries of amount previously written-off. |
|
(2) | Adjustments associated with the Company’s assessment of its deferred tax assets (principally relatedassets. The reduction in the valuation allowance for deferred taxes in the year ended March 31, 2006 is primarily due to utilization of federal and state net operating loss carryforwards).carryforwards. The reduction in the valuation allowance in the year ended March 31, 2007 is primarily due to the reversal of substantially all of the Company’s deferred income tax valuation allowance. As of March 31, 2007, the Company maintains a valuation allowance for deferred tax assets of $1.3 million primarily related to net operating loss carryforwards in certain international jurisdictions. |
F-30
F-26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
| |
Item 13. | Other Expenses of Issuance and Distribution. |
The following table shows the expenses to be incurred in connection with the offering described in this registration statement, all of which will be paid by the registrant. All amounts are estimates, other than the SEC registration fee, the NASD filing fee and the NASDAQ listing fee.
| | | | | |
SEC registration fee | | $ | 16,050 | |
NASD filing fee | | | 15,500 | |
NASDAQ listing fee | | | * | |
Accounting fees and expenses | | | * | |
Legal fees and expenses | | | * | |
Printing and engraving expenses | | | * | |
Transfer agent’s fees | | | * | |
Blue sky fees and expenses | | | * | |
Miscellaneous | | | * | |
| | | |
| Total | | $ | * | |
| | | |
| | | | |
SEC registration fee | | $ | 4,467 | |
NASD filing fee | | | 15,050 | |
Accounting fees and expenses | | | 150,000 | |
Legal fees and expenses | | | 100,000 | |
Printing and engraving expenses | | | 90,000 | |
Transfer agent’s fees | | | 2,500 | |
Miscellaneous | | | 62,983 | |
| | | | |
Total | | $ | 425,000 | |
| | | | |
| |
* | To be completed by amendment. |
| |
Item 14. | Indemnification of Directors and Officers. |
Section 102 of the Delaware General Corporation Law (“DGCL”), as amended, allows a corporation to eliminate the personal liability of directors of a corporation to the corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase in violation of Delaware law or obtained an improper personal benefit.
Section 145 of the DGCL provides, among other things, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, agents or employee of the corporation or is or was serving at the corporation’s request as a director, officer, agent or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding. The power to indemnify applies (a) if such person is successful on the merits or otherwise in defense of any action, suit or proceeding or (b) if such person acted in good faith and in a manner he reasonably believed to be in the best interests, or not opposed to the best interests, of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the corporation as well, but only to the extent of expenses (including attorneys’ fees but excluding amounts paid in settlement) actually and reasonably incurred in the defense or settlement of such action and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event of any adjudication of negligence or misconduct in the performance of duties to the corporation, unless the court believes that in light of all the circumstances indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who willfully or negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption, shall be held liable for such actions. A director who was either absent when the unlawful actions were approved or
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dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered on the books containing the minutes of the meetings of the board of directors at the time such actions occurred or immediately after such absent director receives notice of the unlawful acts.
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Our certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors’ fiduciary duty of care to us and our stockholders. This provision in the certificate of incorporation does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director’s duty of loyalty to us or our stockholders, for acts or omissions not in good faith or involving intentional misconduct or knowing violations of law, for actions leading to improper personal benefit to the director and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director’s responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.
Our bylaws provide that we must indemnify our directors and officers to the fullest extent permitted by Delaware law and require us to advance litigation expenses upon our receipt of an undertaking by or on behalf of a director or officer to repay such advances if it is ultimately determined that such director or officer is not entitled to indemnification. The indemnification provisions contained in our bylaws are not exclusive of any other rights to which a person may be entitled by law, agreement, vote of stockholders or disinterested directors or otherwise. We intend to obtain directors’ and officers’ liability insurance in connection with this offering.
In addition, we have entered or, concurrently with this offering, will enter, into agreements to indemnify our directors and certain of our officers in addition to the indemnification provided for in the certificate of incorporation and bylaws. These agreements, will, among other things, indemnify our directors and some of our officers for certain expenses (including attorneys’ fees), judgments, fines and settlement amounts incurred by such person in any action or proceeding, including any action by or in our right, on account of services by that person as a director or officer of CommVault or as a director or officer of any of our subsidiaries, or as a director or officer of any other company or enterprise that the person provides services to at our request.
The underwriting agreement provides for indemnification by the underwriters of us and our officers and directors, and by us of the underwriters, for certain liabilities arising under the Securities Act or otherwise in connection with this offering.
| |
Item 15. | Recent Sales of Unregistered Securities. |
Since JanuaryApril 1, 2003,2004, the registrant has sold the following securities without registration under the Securities Act of 1933:
| | |
| •(1) | In July 2003,On June 15, 2006, the registrant issued an amended and restated warrant to purchase315,222 shares of its common stock atupon the cashless exercise of the warrant held by Dell Ventures, L.P. that was issued to it in December 2003. The issuance of the shares was exempt from registration pursuant to Section 4(2) of the Securities Act. The number of common shares issued on a cashless basis was equal to the vested warrants less the number of shares of common stock having an aggregate market price equal to the aggregate exercise price of $ per share to EMC Investment Corporation, an accredited investor. The warrant expired without being exercised on February 2, 2006. The amendedthe vested warrants. Market price was determined as the greater of (i) a product obtained by multiplying the Company’s trailing12-month revenues by six and restated warrant was issued to replace(ii) the price of common stock sold in a warrant to purchase sharesqualified financing transaction within six months of the registrant’scashless exercise. During the year ended March 31, 2004, CommVault recorded $1,696,000 as a non-cash reduction of revenue in connection with this transaction at the time the warrants were issued. In the fiscal year ending March 31, 2007, CommVault recorded $3,877 as an increase to common stock at an exercise price of $ per share, subjectwith a corresponding decrease to certain adjustments, that had been issued by the registrantadditional paid-in capital related to the holder in November 2000. The original warrant wascommon stock issued to the holder in connection with the holder’s purchasecashless exercise and the preemptive rights held by the holders of CommVault’s Series AA, BB and CC preferred stock. |
|
| (5) | On June 15, 2006, concurrently with the issuance of shares to Dell Ventures, L.P., the registrant issued 72,423 shares of common stock to holders of its Series AA, BB and CC preferred stock in accordance with the preemptive rights of such holders. The registrant issued shares to each holder as if each holder held a warrant for the shares to which it was entitled pursuant to its preemptive rights and exercised such warrant on a cashless basis. The registrant issued such shares on the same terms |
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| | |
| | that it issued shares to Dell Ventures, L.P. on the same date. The registrant was required to issue such shares to comply with the preemptive rights of holders of Series AA, BB and CC preferred stock, which such holders acquired when they acquired shares of Series AA, BB and CC preferred stock between April 2000 and September 2003. Under the terms of the registrant’s Series AA, BB and CC preferred stock, the issuance of such shares was automatic and occurred without any action or election by the holders of Series AA, BB and CC preferred stock. The issuance of shares was exempt from registration pursuant to Section 4(2) of the warrant wasSecurities Act. |
| | |
| (6) | On September 27, 2006, the registrant issued 102,640 shares of its common stock to Greg Reyes, Reyes Family Trust, Van Wagoner Capital Partners, L.P. and Van Wagoner Crossover Fund, L.P. in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act. |
|
| •(7) | InOn September 2003,21, 2006, our registration statement onForm S-1 (RegistrationNo. 333-132550) was declared effective (the “Registration Statement”). Pursuant to the registrant sold 4,790,802Registration Statement, we registered 12,777,778 shares of registrant’s Series CC preferredcommon stock (6,148,148 shares offered by us and 6,629,630 shares offered by selling stockholders, including 1,666,667 shares offered by selling stockholders pursuant to the exercise of the underwriters’ over-allotment option), par value $0.01 per share, with an aggregate offering price of $185.3 million. On September 27, 2006, we and the selling stockholders completed the sale of 11,111,111 shares of common stock to four individualsthe public at a price of $14.50 per share and 21 investment fundsthe offering terminated. We did not receive any proceeds from the sale of shares by the selling stockholders. Credit Suisse, Goldman, Sachs & Co., Merrill Lynch & Co., Thomas Weisel Partners LLC, RBC Capital Markets and C.E. Unterberg, Towbin acted as underwriters for the offering. Our initial public offering resulted in gross proceeds to us of $89.1 million. Estimated expenses related to the offering are as follows: $6.2 million for underwriting discounts and commissions and $2.7 million for other investment entitiesexpenses, for total estimated expenses of $8.9 million. Approximately $2.1 million of the underwriting discounts and commissions paid by us resulted in a direct payment to Credit Suisse Securities (USA) LLC whose affiliates owned approximately $15 million. Each63% of our common stock immediately prior to the completion of our initial public offering. No other expenses resulted in direct or indirect payments to any of our directors, officers or their associates, to persons owning 10% or more of our common stock or to any of our affiliates. We received net proceeds of approximately $80.2 million in our initial public offering. |
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As of March 31, 2007, the net proceeds of our initial public offering, together with the net proceeds from the concurrent private placement, net borrowings under our term loan and available cash and cash equivalents were used to pay approximately $101.8 million in satisfaction of amounts due on our Series A, B, C, D and E preferred stock upon its conversion into common stock consisting of: $14.85 per share, or $47.0 million in the aggregate; and accumulated and unpaid dividends of $1.788 per share since the date the shares of preferred stock were issued, or $54.8 million in the aggregate.
Certain uses of the net proceeds of our initial public offering resulted in direct payments to certain of our directors, officers and persons who owned 10% or more of our common stock immediately prior to the completion of our initial public offering as follows: a portion of the proceeds were used for $98.1 million in satisfaction of amounts due to affiliates of Credit Suisse Securities (USA) LLC upon conversion of the Series A, B, C, D and E preferred stock into common stock; and $1.8 million in satisfaction of amounts due to three of our officers and directors upon conversion of the Series A, B, C, D and E preferred stock into common stock.
| | |
| (8) | From April 1, 2004 to the date of the investors was an accredited investor. The offer and sale was exempt from registration pursuantfiling of the registrant’s Registration onForm S-8 on November 9, 2006, the registrant granted options to Section 4(2)purchase approximately 4,219,575 shares of common stock under the registrant’s 1996 Stock Option Plan. Approximately 7,755 shares of common stock have been issued upon exercise of these options. All options were granted under Rule 701 promulgated under the Securities Act and Regulation D promulgated thereunder. |
|
| • | In December 2003,or, in the registrant issued a warrant to purchase shares of our common stock at an exercise price of $ per share to Dell Ventures, L.P., an accredited investor, in connection with the registrant’s entering into a software licensing agreement with Dell Products, L.P. as an original equipment manufacturer. The number of warrant shares and exercise price are subject to customary antidilution adjustments upon the occurrencecase of certain events. The issuance of the warrant was exempt from registration pursuantoptions granted to N. Robert Hammer, Section 4(2) of the Securities Act. |
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From January 1, 2003 to the date of this filing, the registrant granted options to purchase approximately shares of common stock under the registrant’s 1996 Stock Option Plan. Approximately shares of common stock have been issued upon exercise of these options. All options were granted under Rule 701 promulgated under the Securities Act or, in the case of employees who are officers or directors of the registrant or are accredited investors, Section 4(2) of the Securities Act.
There were no underwriters employed in connection with any of the transactions set forth in this Item 15. TheWith respect to each of the transactions described in paragraphs (2), (3), (4), (6) and (7) (with respect to the certain options granted to N. Robert Hammer), the recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to any distribution thereof. Appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients were given the opportunity to ask questions and receive answers from representatives of the registrant concerning the business and financial affairs of the registrant. Each investor represented and acknowledged to CommVault in writing that it had this opportunity. Each of the recipients that were employees of the registrant had access to such information through their employment with the registrant. CommVault did not engage in any form of general solicitation or general advertisement with respect to any of the transactions set forth in this Item 15.
| |
Item 16. | Exhibits and Financial Statement Schedules. |
(a)
Exhibits
See the exhibit index, which is incorporated herein by reference.
(b)
Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts for the years ended March 31, 2003, 20042006 and 2005 and the nine months ended December 31, 20052007 (included onpage F-26)F-30).
(a) 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.
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, 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 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.
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(c)
The undersigned registrant hereby undertakes that:
| |
| (1) For purposes of determining any liability under the Securities Act of 1933, 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 of 1933, 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 initialbona fideoffering thereof. |
(1) For purposes of determining any liability under the Securities Act of 1933, 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 of 1933, 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 initialbona fideoffering thereof.
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II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Oceanport, State of New Jersey, on March 17, 2006.May 25, 2007.
COMMVAULT SYSTEMS, INC.
| | |
| By:By | /s/ N. ROBERT HAMMER |
| |
| |
| N. Robert Hammer |
| Chairman, President and Chief Executive Officer |
N. Robert Hammer
Chairman, President and Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned does hereby constitute and appoint N. Robert Hammer, Louis F. Miceli and Warren H. Mondschein, and each of them severally, his or her true and lawfulattorney-inattorney-in-fact-fact with power of substitution and resubstitution to sign in his or her name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that the attorney may deem necessary or advisable under the Securities Act of 1933, and any rules, regulations and requirements of the Securities and Exchange Commission in connection with this registration statement and the registration under the Securities Act of 1933 of the common stock of the registrant, including specifically, but without limiting the generality of the foregoing, the power and authority to sign his or her name in his or her respective capacity as a member of the board of directors or officer of the registrant, the registration statementand/or any other form or forms as may be appropriate to be filed with the Securities and Exchange Commission as any of them may deem appropriate in connection therewith, to any and all amendments thereto, including post-effective amendments, to such registration statement, to any related Rule 462(b) registration statement and to any other documents filed with the Securities and Exchange Commission, as fully for all intents and purposes as he or she might or could do in person, and hereby ratifies and confirms all saidattorneys-inattorneys-in-fact-fact and agents, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue of this prospectus.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on March 17, 2006.May 25, 2007.
| | | | |
Signature | | Title |
| | |
|
/s/ N. ROBERT HAMMER
N. Robert Hammer | | Chairman, President and Chief Executive Officer |
|
/s/ LOUIS F. MICELI
Louis F. Miceli | | Vice President, Chief Financial Officer |
|
/s/ BRIAN CAROLAN
Brian Carolan | | ControllerChief Accounting Officer |
/s/ FRANK J. FANZILLI, JR. Frank J. Fanzilli, Jr. | | Director |
/s/ THOMAS BARRYARMANDO GEDAY
Thomas BarryArmando Geday | | Director |
/s/ KEITH GEESLIN Keith Geeslin | | Director |
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| | | | |
Signature | | Title |
| | |
|
/s/ FRANK J. FANZILLI, JR.
Frank J. Fanzilli, Jr. | | Director |
|
/s/ EDWARD A. JOHNSON
Edward A. Johnson | | Director |
|
/s/ ARMANDO GEDAY
Armando Geday | | Director |
|
/s/ KEITH GEESLIN
Keith Geeslin | | Director |
|
/s/ F. ROBERT KURIMSKY
F. Robert Kurimsky | | Director |
|
/s/ DANIEL PULVER
Daniel Pulver | | Director |
|
/s/ GARY SMITH
Gary Smith | | Director |
|
/s/ DAVID F. WALKER
David F. Walker | | Director |
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INDEX TO EXHIBITS
| | | | |
Exhibit | | |
No. | | Description |
| | |
| 1 | .1* | | Form of Underwriting Agreement |
| 3 | .1* | | Amended and Restated Certificate of Incorporation of CommVault Systems, Inc. |
| 3 | .2* | | Amended and Restated Bylaws of CommVault Systems, Inc. |
| 4 | .1* | | Form of Common Stock Certificate |
| 4 | .2* | | Amended and Restated Stockholders Agreement by and among CommVault Systems, Inc. and certain stockholders |
| 5 | .1* | | Opinion of Mayer, Brown, Rowe & Maw LLP |
| 9 | .1* | | Voting Trust Agreement |
| 10 | .1* | | Loan and Security Agreement, dated , 2006, between Silicon Valley Bank and CommVault Systems, Inc. |
| 10 | .2* | | CommVault Systems, Inc. 1996 Stock Option Plan, as amended |
| 10 | .3* | | CommVault Systems, Inc. 2006 Long-Term Stock Incentive Plan |
| 10 | .4* | | Form of Non-Qualified Stock Option Agreement |
| 10 | .5 | | Employment Agreement, dated as of February 1, 2004, between CommVault Systems, Inc. and N. Robert Hammer |
| 10 | .6 | | Form of Employment Agreement between CommVault Systems, Inc. and Alan G. Bunte and Louis F. Miceli |
| 10 | .7 | | Form of Corporate Change of Control Agreement between CommVault Systems, Inc. and Alan G. Bunte and Louis F. Miceli |
| 10 | .8 | | Form of Corporate Change of Control Agreement between CommVault Systems, Inc. and David West, Ron Miiller and Scott Mercer |
| 10 | .9 | | Form of Indemnity Agreement between CommVault Systems, Inc. and each of its current officers and directors |
| 10 | .10* | | Warrant held by Dell Ventures, L.P. to purchase common stock of CommVault Systems, Inc. |
| 21 | .1 | | List of Subsidiaries of CommVault Systems, Inc. |
| 23 | .1 | | Consent of Ernst & Young LLP |
| 23 | .2* | | Consent of Mayer, Brown, Rowe & Maw LLP (included in Exhibit 5.1) |
| 24 | .1 | | Powers of Attorney (included on the signature page to this registration statement) |
| | | | |
Exhibit
| | |
No. | | Description |
|
| 1 | .1* | | Form of Underwriting Agreement |
| 3 | .1 | | Amended and Restated Certificate of Incorporation of CommVault Systems, Inc. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 3 | .2 | | Amended and Restated Bylaws of CommVault Systems, Inc. (Incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 4 | .1 | | Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1, Commission File No. 333-132550). |
| 5 | .1* | | Opinion of Mayer, Brown, Rowe & Maw LLP |
| 9 | .1 | | Form of Voting Trust Agreement (Incorporated by reference to Exhibit 9.1 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .1 | | Loan and Security Agreement, dated May 2, 2006, between Silicon Valley Bank and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .2 | | CommVault Systems, Inc. 1996 Stock Option Plan, as amended (Incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .3 | | Form of CommVault Systems, Inc. 2006 Long-Term Stock Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .4 | | Form of Non-Qualified Stock Option Agreement (Incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .5 | | Form of Restricted Stock Unit Agreement |
| 10 | .6 | | Employment Agreement, dated as of February 1, 2004, between CommVault Systems, Inc. and N. Robert Hammer (Incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .7 | | Form of Employment Agreement between CommVault Systems, Inc. and Alan G. Bunte and Louis F. Miceli (Incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .8 | | Form of Corporate Change of Control Agreement between CommVault Systems, Inc. and Alan G. Bunte and Louis F. Miceli (Incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .9 | | Form of Corporate Change of Control Agreement between CommVault Systems, Inc. and David West, Ron Miiller, Scott Mercer and Steven Rose (Incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .10 | | Form of Indemnity Agreement between CommVault Systems, Inc. and each of its current officers and directors (Incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .11 | | Amended and Restated Registration Rights Agreement, dated as of September 2, 2003, by and among CommVault Systems, Inc. and the Series AA investors (Incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .12 | | Amended and Restated Registration Rights Agreement, dated as of September 2, 2003, by and among CommVault Systems, Inc. and the Series BB investors (Incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .13 | | Amended and Restated Registration Rights Agreement, dated as of September 2, 2003, by and among CommVault Systems, Inc. and the Series CC investors (Incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
II-7
| | | | |
Exhibit
| | |
No. | | Description |
|
| 10 | .14 | | Form of Registration Rights Agreement by and between CommVault Systems, Inc. and certain holders of Series A, B, C, D and E preferred stock (Incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .15 | | Software License Agreement, dated December 17, 2003, by and between Dell Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .16 | | Addendum One to the License and Distribution Agreement, dated May 5, 2004, by and between Dell Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .17† | | Addendum Two to the License and Distribution Agreement, dated November 22, 2004, by and between Dell Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .18† | | Addendum Three to the License and Distribution Agreement, dated April 28, 2005, by and between Dell Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.21 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .19 | | Addendum Five to the License and Distribution Agreement, dated June 6, 2006, by and between Dell Products L.P. and CommVault Systems, Inc. (Incorporated by reference to Exhibit 10.22 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 10 | .20† | | CommVault Systems Amended and Restated Reseller Agreement, effective as of April 6, 2005, between CommVault Systems and Dell Inc. (Incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement onForm S-1, Commission FileNo. 333-132550). |
| 21 | .1 | | List of Subsidiaries of CommVault Systems, Inc. |
| 23 | .1 | | Consent of Ernst & Young LLP |
| 23 | .2* | | Consent of Mayer, Brown, Rowe & More LLP (included in Exhibit 5.1) |
| 24 | .1 | | Powers of Attorney (included on the signature page to this registration statement) |
| |
† | Confidential treatment has been requested for portions of this document. Omitted portions have been filed separately with the SEC. |
|
* | To be filed by amendment. |
II-8