Following the closing of this offering, our authorized capital stock will consist of
shares of common stock, par value $0.0001 per share, and 5,000,000 shares of preferred stock, par value $0.0001 per share, all of which preferred stock will be undesignated.
The following description of our capital stock and provisions of our certificate of
incorporation and bylaws are summaries only and are qualified by reference to the certificate of incorporation and bylaws that will be effective as of the closing date of this offering. Copies of these documents have been filed with the SEC as exhibits to the registration statement of which this prospectus forms a part. The descriptions of our common stock and preferred stock reflect changes to our capital structure that will occur upon the closing of this offering.
Common Stock
As of June 30, 2011, there were 23,895,652 shares of our common stock outstanding, held of record by 221 stockholders, assuming the conversion of all outstanding shares of preferred stock into common stock and including 39,401 shares of common stock issued on the exercise of stock options following the March 31, 2011 date of our most recent balance sheet.
The holders of our common stock are generally entitled to one vote for each share held on all matters submitted to a vote of the stockholders and do not have any cumulative voting rights. Holders of our common stock are entitled to receive proportionally any dividends declared by our board of directors out of funds legally available therefor, subject to any preferential dividend or other rights of any then-outstanding preferred stock.
In the event of our liquidation or dissolution, holders of our common stock are entitled to share ratably in all assets remaining after payment of all debts and other liabilities, subject to the prior rights of any then-outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. All outstanding shares of our common stock are validly issued, fully paid and nonassessable. The shares to be issued by us in this offering will be, when issued and paid for, validly issued, fully paid and nonassessable.
The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of preferred stock that we may designate and issue in the future.
Preferred Stock
Under the terms of our certificate of incorporation, our board of directors is authorized to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors has the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences, of each series of preferred stock, any or all of which may be greater than or senior to the rights of the common stock. The issuance of preferred stock could adversely affect the voting power of holders of common stock and reduce the likelihood that such holders will receive dividend payments or payments on liquidation. In certain
circumstances, an issuance of preferred stock could have the effect of decreasing the market price of our common stock.
Authorizing our board of directors to issue preferred stock and determine its rights and preferences has the effect of eliminating delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with
possible acquisitions, future financings and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or could discourage a third party from seeking to acquire, a majority of our outstanding stock. Upon the closing of this offering, there will be no shares of preferred stock outstanding, and we have no present plans to issue any shares of preferred stock.
Stock Options
As of June 30, 2011, 7,245,645 shares of common stock at a weighted-average exercise price of $3.16 per share were issuable upon the exercise of stock options, 3,872,851 of which shares at a weighted-average exercise price of $1.57 per share were exercisable.
Warrants
As of June 30, 2011 and including the 1,515,032 shares of common stock that are
currently exercisable under the warrant that we issued to IBM in October 2009, as amended in June 2011, 2,156,873 shares of common stock at a weighted-average exercise price of $3.97 per share were issuable upon the exercise of warrants. Albert R. Subbloie, Jr., our President and Chief Executive Officer, holds a warrant to purchase 28,393 shares of common stock at an exercise price of $2.245 and Gary R. Martino, our Chief Financial Officer, holds a warrant to purchase 1,420 shares of common stock at an exercise price of $2.245.
Pursuant to the warrant that we issued to IBM in October 2009, as amended in June 2011, 1,515,032 shares of common stock are currently exercisable at an exercise price of $4.1475 per share. Up to an additional 651,626 shares of common stock may become exercisable under the warrant at the same exercise price per share based on the achievement of specified thresholds. Such thresholds are based on the total amount of annual recurring revenue that we contract with IBM on or before June 30, 2012 pursuant to specified agreements relating to IBM’s use or resale of our solution. The additional 651,626 shares of common stock that may become exercisable under this warrant are not deemed to be currently issuable and,
therefore, are not included in the numbers of shares issuable upon the exercise of warrants as of March 31 and June 30, 2011, respectively, referenced in this prospectus.
Pursuant to the warrant that we issued to Dell Products L.P., or Dell, in March 2011 up to 1,282,789 shares of common stock may become exercisable at an exercise price of $5.99 per share based on the amount of annual recurring revenue that we earn from Dell’s sale of our solution during the thirteen-month period ending December 31, 2011 and during the years ending December 31, 2012, 2013 and 2014. As of June 30, 2011, none of the shares of
common stock that may become exercisable under this warrant were then issuable. Therefore, these shares are not included in the numbers of shares issuable upon the exercise of warrants as of March 31 and June 30, 2011, respectively, referenced in this prospectus.
Registration Rights
Eighth Amended and Restated Investor Rights Agreement, as Amended
We have entered into an eighth amended and restated investor rights agreement, as amended, with certain of our stockholders. After the closing of this offering and the sale by the selling stockholders of the shares of common stock offered by them hereby, assuming that the underwriters do not exercise their over-allotment option, holders of an aggregate of 21,466,361 shares of outstanding common stock and an aggregate of 1,636,952 shares of common stock issuable upon exercise of outstanding warrants will have the right to require us to register these shares under the Securities Act under specified circumstances pursuant to the eighth amended and restated investor rights agreement, as amended. After registration
pursuant to these rights, these shares will become freely tradable without restriction under the Securities Act. The following description of these registration rights is intended as a summary only and is qualified by reference to the eighth amended and restated investor rights agreement, as amended, which is filed as an exhibit to the registration statement of which this prospectus forms a part.
Demand Registration Rights. At any time after six months after the closing of this offering, entities affiliated with Edison Venture Fund, Sevin Rosen Funds, Investor Growth Capital and North Atlantic Capital may request that we register at least 20% of their respective affiliated groups’ registrable shares or any lesser percentage so long as the aggregate value of the shares to be registered by the affiliated group is at least $5 million as of the time of the request. Each affiliated group may only require us to effect one of these registrations. In addition, when we are eligible to use Form S-3, holders of registrable shares may make unlimited requests that we register all or a portion of their registrable shares on Form S-3 so long as the aggregate value of the shares to be registered is at least $1 million as of the time of the request. Upon receipt of any such request for registration, we are required to provide all other holders of registrable shares the opportunity to register their registrable shares at the same time. In the event that such a registration is an underwritten public offering, the number of registrable shares to be included may, in specified circumstances, be limited due to market conditions. We are required to effect any such registration as requested unless, in the good faith judgment of our board of directors, such registration should be delayed.
Incidental Registration Rights. If we propose to register shares of our common stock under the Securities Act, other than with respect to a registration statement on Form S-4 or Form S-8, holders of registrable shares will be entitled to notice of the registration and will have the right to require us to register all or a portion of the registrable shares held by them at the same time. In the event that such a registration is an underwritten public offering, the number of registrable shares to be included may, in specified circumstances, be limited due to market conditions. One holder of an aggregate of 86,428 shares of common stock (calculated on a post-split, as-converted basis) issuable upon exercise of outstanding warrants will only have the incidental registration rights described in this paragraph and not the demand registration rights described in the preceding paragraph. All other parties to the eighth amended and restated investor rights agreement, as amended, have both the demand and incidental registration rights.
We will pay all registration expenses related to any demand or incidental registration, including the fees and expenses of one counsel selected to represent the selling stockholders, but not including underwriting discounts, selling commissions and the fees and expenses of any selling stockholder’s own counsel. The eighth amended and restated investor rights agreement, as amended, contains customary cross-indemnification provisions, pursuant to which we are obligated to indemnify the selling stockholders in the event of material misstatements or omissions in the registration statement attributable to us, and they are obligated to indemnify us for material misstatements or omissions in the registration
statement attributable to them. The registration rights granted under the eighth amended and restated investor rights agreement, as amended, will terminate two years after the closing of this offering.
Warrants to Purchase an Aggregate of 466,757 Shares of Common Stock
We have agreed to provide the incidental registration rights described above to holders of warrants to purchase an aggregate of 466,757 shares of common stock (calculated on a post-split, as-converted basis). In addition, when we are eligible to use Form S-3, we have agreed that such warrant holders may make unlimited requests that we register all or a portion of the
shares issuable upon exercise of their warrants on Form S-3 so long as the aggregate value of the shares to be registered is at least $1 million as of the time of the request. Such warrant holders are not parties to the eighth amended and restated investor rights agreement, as amended. The registration rights granted under these warrants will terminate two years after the closing of this offering.
15,733 Shares of Common Stock and Warrants to Purchase an Aggregate of 26,048 Shares of Common Stock
We have agreed to provide the incidental registration rights described above to a holder of 15,733 shares of outstanding common stock and holders of warrants to purchase an aggregate of 26,048 shares of common stock. Such holders are not parties to the eighth amended and restated investor rights agreement, as amended. The incidental registration rights granted to these holders will terminate two years after the closing of this offering.
Anti-Takeover Effects of Delaware Law and Our Charter and Bylaws
Delaware law, our certificate of incorporation and our bylaws contain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us. These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors.
Staggered Board; Removal of Directors
Our certificate of incorporation and bylaws divide our board of directors into three classes with staggered three-year terms. In addition, a director may be removed only for cause and only by the affirmative vote of the holders of at least 75% of the votes that all of our
stockholders would be entitled to cast in an annual election of directors. Any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office. The classification of our board of directors and the limitations on the removal of directors and filling of vacancies could make it more difficult for a third party to acquire, or discourage a third party from seeking to acquire, control of our company.
Stockholder Action by Written Consent; Special Meetings
Our certificate of incorporation provides that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Our certificate of incorporation and bylaws also provide that, except as otherwise required by law, special meetings of our stockholders can only be called by our chairman of the board, our chief executive officer or our board of directors.
Advance Notice Requirements for Stockholder Proposals
Our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders, including proposed nominations of persons for election to our board of directors. Stockholders at an annual meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our board of directors or by a stockholder of record on the record date for the meeting who is entitled to vote at the meeting and who has delivered
timely written notice in proper form to our secretary of the stockholder’s intention to bring such business before the meeting. These provisions could have the effect of delaying until the next stockholder meeting stockholder actions that are favored by the holders of a majority of our outstanding voting securities.
Delaware Business Combination Statute
We are subject to Section 203 of the Delaware General Corporation Law. Subject to certain exceptions, Section 203 prevents a publicly-held Delaware corporation from engaging in a ‘‘business combination’’ with any ‘‘interested stockholder’’ for three years following the date that the person became an interested stockholder, unless the interested stockholder attained such status with the approval of our board of directors or unless the business combination is approved in a prescribed manner. A ‘‘business combination’’ includes, among other things, a merger or consolidation involving us and the ‘‘interested stockholder’’ and the sale of more than 10% of our assets. In general, an ‘‘interested stockholder’’ is any entity or person beneficially owning 15% or more of our outstanding voting stock and any entity or person affiliated with or controlling or controlled by such entity or person.
Amendment of Certificate of Incorporation and Bylaws
The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or bylaws, unless a corporation’s certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Our bylaws may be amended or repealed by a majority vote of our board of directors or by the affirmative vote of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast in any annual election of directors. In addition, the affirmative vote of the holders of at least 75% of the votes that all of our stockholders would be entitled to cast in any annual election of directors is required to amend or repeal or to adopt any provisions inconsistent with any of the provisions of our certificate of incorporation described above under ‘‘—Staggered Board;
Removal of Directors’’ and ‘‘—Stockholder Action by Written Consent; Special Meetings.’’
IBM Right of Notification and Review
In connection with the warrant that we issued to IBM in October 2009, as amended, we granted IBM a right of notification and review with respect to future acquisition activity. If we initiate a process to sell our company, including engaging a financial advisor, or if we receive a proposal or engage in discussions to be acquired and our board of directors decides to pursue such proposal or discussions, then we must notify IBM of such activity. If IBM indicates within two business days of its receipt of our notice that it desires to participate in the sale process, then we may not enter into a definitive agreement regarding a potential acquisition for 45 days following IBM’s receipt of our notice. During such 45-day period, IBM may conduct due diligence regarding our business and may submit its own acquisition proposal that we are required to negotiate in good faith. We are not, however, required to enter into a definitive agreement with IBM and may enter into a definitive agreement with another party following the expiration of the 45-day period. We are also not required to comply with these obligations to the extent that our board of directors determines in good faith, after consultation with outside counsel, that compliance would be inconsistent with its fiduciary duties under applicable law.
Limitation of Liability and Indemnification of Officers and Directors
Our certificate of incorporation limits the personal liability of directors for breach of fiduciary duty to the maximum extent permitted by the Delaware General Corporation Law.
Our certificate of incorporation also provides that no director will have personal liability to us or to our stockholders for monetary damages for breach of fiduciary duty or other duty as a director. However, these provisions do not eliminate or limit the liability of any of our directors:
• for any breach of their duty of loyalty to us or our stockholders;
• for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
• for any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or
• for any transaction from which the director derived an improper personal benefit.
• for any transaction from which the director derived an improper personal benefit.